ACCT GENERALLYCompleted Exam | Wall Street Prep - Wall Street Prep-REVIEWED BY EXPERTS 2021

Review: Accounting Crash Course Retake Exam v4 Score: 92%, 24 correct out of 26 | Taken On: 06-19-20 Question 1 Assume US GAAP to answer this question. In 2017, $2 million in wages were earned and no cash wages were paid. In 2018, $8 million in wages were earned and $9 million in cash wages were paid. Cash wages were used to first pay wages earned in 2017 with the remainder used to pay wages earned in 2018. Any earned but unpaid wages will be paid during the first quarter of 2019. Using only the information provided, which of the following statements is most accurate? Liabilities decreased by $1.0 million in 2018. Liabilities increased by $6.0 million in 2018. Assets decreased by $7.0 million in 2018. Retained earnings decreased by $10.0 million in 2018. Retained earnings decreased by $9.0 million in 2018. Your answer is correct. Since wages were earned in 2017 but not yet paid, the opening balance sheet in 2018 would have an accrued wages liability of $2.0. These were paid in 2018, reversing the liability. However, since there is only $7.0 million in cash ($9.0 less the $2.0 million used to pay 2017 wages) available to pay wages earned in 2018, that leaves $1.0 million in earned wages unpaid, lowering the accrued wages liability to $1.0 million. The net impact to the liability is -$1.0 million (-$2.0 + $1 million). The only asset impacted is cash, which decreases by $9.0 million, while retained earnings decreases by $8.0 million, since wages are expensed when they are earned, not when they are paid. See Lesson: Payable, Accrued Expenses, Deferred Revenue & Debt Question 2 A company reported gross profit of $22 million in 2018. In addition, it recorded the following activities: Sales and marketing expenses were $6 million. Interest expense was $1 million. Sold equipment for $13 million that had a net book value of $9 million. $3 million in preferred stock issuance. Company’s tax rate is 40%. Calculate the company’s net income. $9.0 million $9.6 million $11.4 million $12.6 million $15.0 million Your answer is correct