Arch Associates Reports the Following Comparative Balance Sheets and Income

question 116

Multiple Choice

Arch Associates reports the following comparative balance sheets and income statement information. $\begin{array}{c}\text { Arch Associates}\\ \text { Comparative Balance Sheets}\\\\\begin{array}{lr}&12 / 31 / \text { Year } 1 &12 / 31 / \text { Year } 2\\\text { Cash } & \$ 12,000&\$22,000\\\text { Accounts receivable } & 4,000&8,000 \\\text { Prepaid insurance } & 10,000&8,000 \\\text { Inventory } & 6,000 &2,000\\\text { Property, plant and equipment } & \underline{12,000}&\underline{10,000} \\\text { Total assets } & \underline{ \$ 44,000}& \underline{50,000} \\\text { Accounts payable } & \$8, 000&\$12,000 \\\text { Salaries payable } & 10,000&4,000 \\\text { Long term notes payable } & 8,000 &6,000\\\text { Stockholders' equity } & \underline{18,000}& \underline{28,000} \\\text { Total liabilities and equity } & \underline{ \$ 44,000}& \underline{\$50,000}\end{array}\end{array}$ $\begin{array}{lcr} & \begin{array}{l}\text { Income Statement } \\\text { Year Ended 12/31/Year 2 }\end{array} \\\text { Revenue } & & 70,000\\\text { Cost of goods sold } & & \underline{40,000} \\\text { Gross margin } & &30,000 \\\text { Operating expense } & & \underline{20,000 }\\\text { Net income } & & \underline{\$10,000} \\\end{array}$ All inventory purchases are made on account.The amount of cash paid for inventory purchases during Year 2 was:

• A) $40,000.
• B) $32,000.
• C) $22,000.
• D) $36,000.

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Definitions:

General-to-Specific

A method of organization or argumentation that begins with broad observations and narrows down to more detailed points or specifics.

Criteria

Standards or benchmarks against which decisions are made or outcomes are evaluated.

Unethical

Actions or behavior that do not conform to accepted standards of moral or professional conduct.

Cause-and-Effect

An analysis that explores the reasons for a particular event or situation and the consequences that result from it.