Which of the following items would appear on the Statement of Owners Equity?
Notes Payable Treasury Stock Advertising Expense Retained Earnings
Yes Yes Yes Yes
No Yes Yes Yes
No Yes No Yes
No No No No
C is the correct answer here to Which of the following items would appear on the Statement of owners equity.
Why Is This The Right Answer to Which of the Following Items Would Appear on the Statement of Owners Equity?
The primary reason for this is that the Statement of Owner’s equity is only going to show changes from items that affect owners equity. Advertising expense and the use of a notes payable is not really going to qualify much in this regard. Therefore the answer is C. The official answer is:
“All changes in items affecting equity on the Balance Sheet are reported in the Statement of Owner’s Equity. Both treasury stock and retained earnings are equity items.”
So C. is the answer because Treasury Stock and Retained Earnings are the only accounts on this list that are reported in Stockholders equity and are equity items.
This is from the Wiley version of the Financial Accounting and Reporting CPA Exam Study prep.
Here’s Another FAR Practice Problem to Chew On
A company changes from the double-declining balance method of depreciation for previously recorded assets to the straight-line method. According to ASC Topic 250, the effect of the change should be reported separately as a(n):
A. Unusual Item – This is probably not right at first glance.
B. Component of Income After Continuing Operations – I’m marking this one off as well.
C. Component of Income From Continuing operations on a prospective basis. – Marking as not sure.
D. Prior Period Adjustment – This would be my educated guess.
Update. The answer is C, Component of Income From Continuing Operations on a prospective basis. The reasoning behind this is that ASC topic 250 requires a change in the depreciation method used to be treated as a change in estimate and handled prospectively. Well I almost had it, that was going to be my second guess. Subscribe to our blog for more CPA and Series 7 exam prep questions!
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