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Hi, Shuobo
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Review: Accounting & Financial Statement Analysis Exam 2018
Score: 95%, 38 correct out of 40 | Taken On: 09-10-18
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 $7 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 increased by $1.0 million in 2018
Liabilities increased by $3.0 million in 2018
Assets decreased by $5.0 million in 2018
Retained earnings decreased by $10.0 million in 2018
Retained earnings decreased by $7.0 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 $5.0 million in cash
($7.0 less the $2.0 million used to pay 2017 wages) available to pay wages
earned in 2018, that leaves $3.0 million in earned wages unpaid, raising the
accrued wages liability to $3.0 million. The net impact to the liability is $1.0
million (-$2.0 + $3 million). The only asset impacted is cash, which decreases
by $7.0 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 issued its CEO 100,000 shares of restricted stock in the beginning
of 2018 that are restricted for two years. The current share price is $10.
Based on the information provided, which of t
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