ACCT5315 Accounting Topics' module 1 and 2

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When a company pays cash to purchase supplies

total assets is not affected

Paying _____ is a way of rewarding the company's investors with an immediate return.

dividends

Which of the following is not one of Porter's five forces?

Threat of Regulation

A deferral

both statements

The accounts receivable account appears on

the balance sheet

deferred revenue received but not earned

unearned revenue

Repurchasing shares near year-end will increase a firm's return on equity (ROE) (T/F?)

True

Revenue from a foreign subsidiary will be smaller in U.S. dollars when the dollar strengthens relative to the foreign currency (T/F?)

True

The after closing balance in a revenue account will always be zero. This statement is True or False?

True

The cost of making or purchasing inventory that is sold to customers is a. cost of goods sold b. inventory expenses c. gross profit d. operating income

The closing process refers to the zeroing out of revenue and expense accounts by transferring their ending balances to retained earnings (T/F?)

True

The proof that the debits and credits in the ledger are equal is called the A) trial balance B) journal C) statement of owner's equity D) income statement E)balance sheet

A) trial balance

Utilities Expense would be shown on the _____________. A) debit side of the trial balance B) credit side of the trial balance C) not on the trial balance D) debit and credit side of the trial balance

A) debit side of the trial balance

Rent Expense is reported on which financial statement? A) income statement B) balance sheet C) statement of owner's equity D) none of the answers listed

A) income statement

The direct method of presenting the net cash flow from operating activities shows the major categories of operating cash receipts and payments (T/F?)

True

... refers to the concept that financial statements are linked to each other and linked across time.

Articulation

The net change in cash during a period must equal the net change in all other balance sheet accounts.

True

The process of transferring information out of the temporary accounts at the end of an accounting period is called closing. This statement is True or False

True

At the beginning of Year 2 Clair Company had a $5,500 balance in its retained earnings account. During January of Year 2 Clair earned $2,000 of revenue and incurred $1,400 of expenses. Based on this information, the balance in Clair's retained earnings account on January 31, Year 2 is_____

$5,500

On August 1 of Year 1 Presco Enterprises paid $1,200 cash for an insurance policy that would provide protection for a one year term. The company's fiscal closing date is December 31. Based on this information, the amount of insurance expense appearing on the Year 1 income statement would be

$500

Kilgore Company experienced the following events during its first accounting period. (1) Issued common stock for $5,000 cash. (2) Earned $3,000 of cash revenue. (3) Paid a $4,000 cash to purchase land. (4) Paid cash dividends amounting to $400. (5) Paid $2,200 of cash expenses. Based on this information the amount of net income is_____

$800 (3000-2200)

Sanka Company's Year 1 balance sheet showed $1,700 cash, $5,200 supplies, $2,300 accounts payable, $4,000 common stock, and $600 retained earnings. The company experienced the following events during Year 2. (1) Purchased $14,000 of supplies on account (2) Earned $19,000 cash revenue (3) Paid $14,200 cash to reduce accounts payable created in Event 1 above (4) Paid a $1,000 cash dividend. (5) Physical count revealed $4,900 of supplies on hand at the end of Year 2 Based on this information, the Year 2 before closing balance in retained earnings is

$600

Knoll Company started Year 2 with a $500 in cash, $500 in supplies, and $1,000 in common stock accounts. During Year 2 the company experienced the following events. (1) Paid $400 cash to purchase supplies. (2) Physical count revealed $100 of supplies on hand at the end of Year 2. Based on this information the amount of supplies expense reported on the Year 2 income statement is

$800

During its first year of operation, Cade Company experienced the following events. (1) Issued common stock for $7,000 cash. (2) Earned $5,000 of cash revenue. (3) Paid $3,000 of cash expenses. (4) Paid cash dividends amounting to $1,000. After closing on December 31, the balance in the retained earnings account would be___

$1,000

The Goodyear Tire & Rubber Company's December 31, 2016, financial statements reported the following (in millions). Cash December 31, 2016 $1,132 Cash from operating activities $1,504 Cash from investing activities $(973) Cash from financing activities $(875) What did Goodyear report for cash on its December 31, 2015 balance sheet?

$1,476million

Beginning and ending Cash account balances were $7,000 and $16,000 respectively. If total cash paid out during the period was $15,000, what amount of cash was received during the period?

$24,000

On October 1 of Year 1 Zeta Company collected $1,200 cash for services to be provided for one year beginning immediately. The company's fiscal closing date is December 31. Based on this information, the amount of revenue appearing on the Year 1 income statement would be

$300

On its fiscal year ended February 3, 2017 statement of cash flows, Dell Technologies Inc. reports the following (in millions): Net cash flow operating activities $2,222 Net cash from investing activities (31,256 ) Cash at the beginning of the year 6,576 Change in cash during the year 2,898 What did Dell report for "Net cash from financing activities" during fiscal year ended 2017?

$31,932 million cash inflow

The changes in account balances of the Samson Corporation during the year are presented below: Assets $356,000 Liabilities 108,000 Capital stock 240,000 Additional paid-in capital 24,000 Assuming there are no charges to retained earnings other than for a dividend payment of $52,000, the net income for the year, should be

$36,000

$4,000

Kilgore Company experienced the following events during its first accounting period. (1) Issued common stock for $5,000 cash. (2) Earned $3,000 of cash revenue. (3) Paid a $4,000 cash to purchase land. (4) Paid cash dividends amounting to $400. (5) Paid $2,200 of cash expenses. The market value of the land at the end of the accounting period was $4,300. Based on this information the amount of total assets appearing on the year-end balance sheet is

$5,400 (5000+3000-400-2200)

The ratio of operating cash flow to average current liabilities is a liquidity ratio (T/F?)

True

On October 1 of Year 1 Lesikar Company paid $1,200 cash for an insurance policy that would provide protection for a one year term. The company's fiscal closing date is December 31. Based on this information, the amount of prepaid insurance appearing on the Year 1 balance sheet would be

$900

The purpose of the 2nd kind of separate balancing entries of the inventory account is to

(1) to show on the Income Statement the revenue that was earned as a result of the sale, and (2) to show that assets have increased by the sales price

The purpose of the first kind of separate balancing entries of the inventory account is to (2)

(1) to show that the company no longer has as much of the asset inventory on hand and (2) to deduct on the Income Statement the expense of the cost the company had in the inventory that was sold

On November 1 of Year 1 Falloch, Inc. paid $2,400 cash for a contract allowing the company to use office space for one year. The company's fiscal closing date is December 31. Based on this information, the amount of cash flow from operating activities appearing on the Year 1 statement of cash flows would be

(2400)

(2400) The cash outflow is not affected by how much of the office space has or has not been used. Since $2,400 cash was paid in Year 1, there would be a $2,400 cash outflow from operating activities shown on the Year 1 statement of cash flows. There would be zero cash flow shown on the Year 2 statement of cash flows.

Under accrual accounting principles, the cost of inventory should be reported as an expense in the income statement when it is sold, regardless of when it was purchased (T/F?)

True

Benefits of disclosure

- Cost of capital (as reflected in lower interest rates or higher stock prices), - Recruiting efforts in labor markets, and - the ability to establish superior Supplier-customer relations in the input and output markets

Costs of Disclosure

- Preparation and dissemination of financial information, - Competitive disadvantages, - Litigation potential, and - Political costs.

When a company reports a deferred tax asset it means that the company will receive a tax benefit in the future (T/F?)

True

In fiscal 2013, Snap-On Inc. reported a statutory tax rate of 35.00%, an effective tax rate of 31.68% and a tax rate on net earnings attributable to Snap-On Inc. of 32.30%. Income before income tax for 2013 was $526.2 million. What did Snap-On report as tax expense (on its income statement) in 2013?

-$166.7 million

Tickets Today contracts with the producer of Riverdance to sell tickets online. Tickets Today charges each customer a fee of $6 per ticket and receives $15 per ticket from the producer. Tickets Today does not take control of the ticket inventory. Average ticket price for the event is $150. How much revenue should Tickets Today recognize for each Riverdance ticket sold?

-$21 because both the fee from the customer and the producer are earned

Mattel Inc.'s 2013 financial statements show operating profit before tax of $1,168,103 thousand, net income of $903,944 thousand, provision for income taxes of $195,184 thousand and net nonoperating expense before tax of $68,975 thousand. Assume Mattel's statutory tax rate for 2013 is 37%. Mattel's 2013 tax shield is:

-$25,521

The 2013 balance sheet of E.I. du Pont de Nemours and Company shows average DuPont shareholders' equity attributable to controlling interest of $13,219 million, net operating profit after tax of $3,145 million, net income attributable to DuPont of $4,848 million, and common shares issued of 1,014 million. Assuming there is no preferred stock issued, find the Return on Equity (ROE) for 2013.

-36.7%

Kroger's 2013 financial statements show net operating profit after tax of $1,799 million, net income of $1,497 million, sales of $96,751 million, and average net operating assets of $11,529 million. Kroger's net operating asset turnover for the year is:

-8.39

A firm's cash flow from investing activities includes: -Cash received from the sale of a plant asset -Cash paid to purchase marketable securities -Cash paid for a merger transaction -Cash paid to purchase land -All of the above

-All of the above

A typical example of a cash equivalent is an investment in: -Treasury bills -Commercial paper -A money market fund -All of the above -None of the above

-All of the above

Which of the following is added to net income to reconcile to cash from operations (aka, a source of cash)? -Loss from sale of property, plant and equipment -Decrease in accounts receivable -Depreciation expense -All of the above -None of the above

-All of the above

Which of the following is not a cash flow from financing activities? -Cash received from issuance of preferred stock -Cash paid to settle accounts payable -Cash paid as dividends on common stock -Cash received from issuance of bonds payable -None of the above

-Cash paid to settle accounts payable

A firm's net cash flow from operating activities includes which of the following: -Cash received from sale of equipment -Cash received from issuance of common stock -Cash received from sale of merchandise -Cash received as payment of loan from a borrower -None of the above

-Cash received from sale of merchandise

Net operating profit after tax (NOPAT) includes operating revenues less expenses such as:

-Cost of goods sold (COGS) -Taxes on operating income -Selling, general and administrative expenses (SG&A)

How would a sale of $400 of inventory on credit affect the balance sheet if the cost of the inventory sold was $160?

-It would increase noncash assets by $400 and increase equity by $400 -It would decrease noncash assets by $160 and decrease equity by 160

ROE is computed as:

-Net income attributable to controlling interest / Average equity attributable to controlling interest -RNOA + (FLEV x Spread) x NCI ratio

A firm's net cash flow from operating activities is not affected by: -Cash paid for interest -Cash paid to suppliers -Cash received for income tax refunds -Cash received from customers -None of the above

-None of the above

The overarching purpose of credit risk analysis is to:

-Quantify potential credit losses

When using Altman's Z-Score a Type I error occurs when:

-The company's Z-score indicates the company is healthy, and the company goes bankrupt

A mortgage bond differs from a debenture in that mortgage bonds:

-are secured by property

The variable EBIT divided by Total Assets in the Altman Z-Score measures which of the following concepts?

-current level of profitability

Sam's Club (part of the WalMart consolidated operations) collects annual non-refundable membership fees from customers. When should Sam's Club recognize revenue for these membership fees?

-evenly over the membership year

Dow Chemical Corporation plans to build a laboratory dedicated to a special project. The company will not use the laboratory after the project is finished. Under GAAP, this laboratory should be:

-expensed in the current year

Texas Company currently has a current ratio of 0.9. The company decides to borrow $1,000,000 from First Stone Bank for a period of nine months. After the borrowing Texas's current ratio will be:

-greater than 0.9

Which of the following is a source of cash from operations? -Increases in accounts receivable -Increased in inventory -Increase in taxes payable -Decrease in accounts payable -None of the above

-increase in tax payable

In a statement of cash flows, interest received from loans made as investments is classified as a cash flow from:

-operating activites

. In a double-entry accounting system:

. A debit entry is recorded on the left side of an account

The normal balance of an account is:

. The side on which increases are recorded

The following items were drawn from a company's accounting records: (1) Accounts receivable (2) Accounts payable (3) Cash paid to purchase land (4) Supplies (5) Supplies expense (6) Cash collected for service to be provided in the future (7) Unearned revenue (8) Prepaid rent (9) Earned revenue (10) Accrued salaries expense (11) Common stock (12) Dividends (13) Cash paid for prepaid rent (14) Retained earnings Which of the items listed above appear on the balance sheet?

1 2 4 7 8 11 14

All-Star Automotive Company experienced the following accounting events during 2016: 1. Performed services for $25,000 cash. 2. Purchased land for $6,000 cash. 3. Hired an accountant to keep the books. 4. Received $50,000 cash from the issue of common stock. 5. Borrowed $5,000 cash from State Bank. 6. Paid $14,000 cash for salary expense. 7. Sold land for $9,000 cash. 8. Paid $10,000 cash on the loan from State Bank. 9. Paid $2,800 cash for utilities expense. 10. Paid a cash dividend of $5,000 to the stockholders. Indicate how each of the events would be classified on the statement of cash flows as operating activities (OA), investing activities (IA), financing activities (FA), or not applicable (NA).

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Sims Company received cash from the issue of a note payable to a bank. This event is A.) an asset source transaction. B.) an asset use transaction. C.) an asset exchange transaction. D.) None of the answers describes this event.

Sims Company received cash from the issue of common stock. This event is A.) an asset source transaction. B.) an asset use transaction. C.) an asset exchange transaction. D.) None of the answers describes this event.

The advantage of the dividend discount model is that: a. it is simple b. dividends are easily observable c. capital gains can be earned instead of dividends d. firms publish their dividend policies

The following items were drawn from the financial statements of Rogers Company: (1) Assets (2) Stockholders' Equity (3) Salary expense (4) Land (5) Rent revenue (6) Notes payable (7) Cash collected from the issue of stock (8) Common stock (9) Cash paid for dividends (10) Cash (11) Liabilities (12) Dividends (13) Cash paid to purchase land (14) Retained earnings Which of the items listed above were drawn from the balance sheet?

1/2/4/6/8/10/11/14

quarterly report includes an interim view of a company's financial statements

10Q

audited annual report that includes 4 financial statements and explanatory notes management analysis and explanatory disclosures

10k

what are the two main compulsory SEC filings

10k and 10Q

11 12 14

3 6 13

In its fiscal 2016 annual report, Nike, Inc. reported cash of $3,138 million at year end. The statement of cash flows reports the following (in millions): Net cash from operating activities $3,096 Net cash from investing activities (1,034) Net cash from financing activities (2,776 ) What was the balance in Nike's cash account at the start of fiscal 2016?

3138-3096 = 42 42+1034 = 1076 1076+2776 = $3,852 million

Lowell Inc.'s 2016 financial statements show operating profit before interest and tax of $519,233 thousand, net income of $318,022 thousand, provision for income taxes of $91,720 thousand and net nonoperating expense before tax of $109,491 thousand. Assume Lowell's statutory tax rate for 2016 is 37%. Lowell's 2016 tax shield is:

40,512 thousand

4300

5 9 10

5, 9, 10, 12

The accounting records of Coastal Company contained the following account balances. Cash - $500 Land - $800 Notes Payable - $200 Common Stock - $400 The records also contained an account titled Retained Earnings. Based on this information the balance of the retained earnings account must be_________

700

In its fiscal year ended January 28, 2017 balance sheet, Big Lots, Inc., reported cash and cash equivalents at the start of the year of $54,144 thousand. By the end of the year, the cash and cash equivalents had decreased to $51,164 thousand. The company's statement of cash flows reported cash from operating activities of $311,925 thousand, cash from financing activities of $(230,204) thousand. What amount did the company report for cash from investing activities?

84,701

Prestige Company has determined the following information for its recent fiscal year. Days inventory outstanding 42.7 days Days payable outstanding 56.8 days Days sales outstanding 91.3 days Compute Prestige Company's cash conversion cycle.

91.3 + 42.7 - 56.8 = 77.2

Accounts payable will appear on which of the following financial statements? A.) Balance sheet B.) Statement of cash flows C.) Statement of changes in stockholders' equity D.) Income statement

An accrual of wages expense would produce what effect on the balance sheet? a. increase liabilities and decrease earned capital b. decrease liabilities and increase earned capital c. increase expenses and increase liabilities d. decrease assets and decrease liabilities

Crowe Company collected $18,000 in advance for services to be performed in the future. This event is A.) an asset source transaction. B.) an asset use transaction. C.) an asset exchange transaction. D.) a claims exchange transaction.

If a company issues 2,500 shares of common stock at a market price of $32 per share, which of the following is the correct balance sheet effect? a. increase cash by $80,000 and increase contributed capital by $80,000 b. increase cash by $80,000 and increase earned capital by $80,000 c. increase stock revenues by $80,000 d. stock issuances are not reported on the balance sheet

If a company recognizes accrued salary expense... A.) the employees have completed work but have not been paid. B.) the employees have been paid but have not completed their work. C.) the employees will work in the future and will be paid in the future. D.) the employees have worked and have been paid for the work they completed.

Knopp Company experienced an event that had the following effects on its financial statements. Assets=+ Liabilities=NA Equity=+ Revenue=+ Expense=NA Net Income=+ Statement of Cash Flows=+ Cash Flow Activity=Operations Which of the following events would have caused these effects? A.) Earned cash revenue B.) Borrowed money C.) Purchased land with cash D.) Issued stock for cash

Paying cash to settle a salaries payable obligation will affect which section of the statement of cash flows? A.) Operating activities B.) Investing activities C.) Financing activities D.) Noncash activities

Sims Company earned cash revenue by providing services to its customers. This event is A.) an asset source transaction. B.) an asset use transaction. C.) an asset exchange transaction. D.) None of the answers describes this event.

The following items were drawn from a company's accounting records: (1) Accounts receivable (2) Accounts payable (3) Cash paid to purchase land (4) Supplies (5) Supplies expense (6) Cash collected for service to be provided in the future (7) Unearned revenue (8) Prepaid rent (9) Earned Revenue (10) Accrued salaries expense (11) Common stock (12) Dividends (13) Cash paid for prepaid rent (14) Retained earnings Which of the items listed above appear on the balance sheet? A.) 1, 2, 4, 7, 8, 11, and 14 B.) 1, 2, 4, 7, 8, 10, and 11 C.) 1, 2, 3, 7, 8, 9, and 11 D.) 1, 2, 4, 7, 9, 11, and 12

The statement of changes in stockholders' equity presents A.) an explanation of the changes in the beginning and ending balances of stockholders' equity. B.) a comparison of the benefits and the sacrifices a company experiences from its operations. C.) information in three categories including operating, investing, and financial activities. D.) a list of a company's assets and the sources of those assets.

When a company purchases supplies on account... A.) liabilities increase. B.) cash flow from investing activities decreases. C.) total assets decrease. D.) expenses increase.

Which best describes par value for a stock? a. an arbitrary amount set by the company for each share of stock b. the value of the stock if it is not sold for a premium or discount c. the current market value of the stock d. the value at which stock shares were originally issued

Which of the following are included in current assets? a. prepaid rent b. taxes payable c. automobiles d. common stock e. none of the above

Which of the following statements is false? A.) Prepaid insurance is shown on the income statement. B.) Prepaid insurance represents a future economic benefit. C.) Prepaid insurance indicates that a company has already paid cash for insurance coverage that protects the company for some future time period. D.) Prepaid insurance is a deferred expense.

Buckley Company started in Year 1 by issuing stock for $17,000 cash. During Year 1, Buckley earned $12,500 of revenue on account. The company collected $6,000 cash from accounts receivable and paid $4,000 cash for operating expenses. Based on this information alone, the balance in accounts receivable as of December 31, Year 1 is: A. $6,500 B. $8,500 C. $2,500 D. $16,500

A $12,500 account receivable − $6,000 cash collected from receivable = $6,500 Ending balance of accounts receivable

Guadalupe, Inc. provided $5,000 of services in Year 1 but did not collect cash from its customers until Year 2. Select the correct answer from the following options assuming Guadalupe used accrual accounting. A. The Company will recognize $5,000 of revenue in Year 1 and $5,000 of cash flow from operations in Year 2. B. The Company will recognize zero of revenue in Year 1 and $5,000 of cash flow from operations in Year 2. C. The Company will recognize $5,000 of cash flow from operations in Year 1 and $5,000 of revenue in Year 2. D. The Company will recognize $5,000 of revenue and $5,000 of cash flow from operations in Year 1.

A Accrual accounting requires that revenue be recognized in the year in which the service is provided. The cash flow is recognized in the year in which it is collected. In this case $5,000 of revenue is recognized in Year 1 when the work was done (service was provided) and $5,000 of cash flow from customers would be recognized in Year 2 when Guadalupe collected the cash.

If a company recognizes accrued salary expense A. the company's employees have completed work but have not been paid. B. the employees have been paid but have not completed their work. C. the employees have worked and have been paid for D. the work they completed. will work in the future and will be paid in the future.

A By definition an accrued expense occurs when the expense is recognized before the cash is paid. In the case of an accrued salary expense, the employees would have completed their work and the company would recognize it obligation to pay them in the future. Specifically, the company would recognize an expense (accrued salary expense) and a liability (accrued salaries payable). The accrued salaries payable recognizes the obligation to pay the employees in the future. As a result, recognizing accrued salary expense meets the definition of recognizing an expense before cash is paid.

During Year 1, Pang Enterprises experienced the following events. Earned $4,000 of revenue on account. Collected $3,500 cash from accounts receivable. The remainder of the receivable was collected in Year 2. Based on this information, the amount of accounts receivable, net income, and cash flow from operating activities appearing on the Year 2 financial statements is A. Accounts Receivable Net Income Cash flow from Operating Activities Zero Zero $500 B. Accounts Receivable Net Income Cash flow from Operating Activities $500 $4,000 $500 C. Accounts Receivable Net Income Cash flow from Operating Activities Zero $500 $500 D. Accounts Receivable Net Income Cash flow from Operating Activities $500 $500 $500

A By the end of Year 2 all of the accounts receivables have been collected leaving a remaining balance of zero. The Year 2 net income is zero because all of the revenue was recognized in Year 1. The cash flow from operations for Year 2 is $500. More specifically, the accounts receivable balance at the end of Year 1 is equal to the total amount of accounts receivable generated in Year 1 minus the amount of the receivable collected in Year 1 ($4,000 - $3,500 = $500). The $500 amount of the accounts receivable at the end of Year 1 is collected in Year 2.

Which of the following shows how recognizing revenue on account will affect a company's financial statements? A. Balance Sheet Income Statement Statement of Cash Flow Assets = Liab. + Equity Rev. − Exp. = Net Inc. + NA + + NA + NA B. Balance Sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. + NA + + NA + −IA C. Balance Sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. + NA + + NA + +OA D. Balance Sheet Income Statement Statement of Cash Flow Assets = Liab. + Equity Rev. − Exp. = Net Inc. + NA + NA NA NA NA

A Recognizing revenue on account causes the accounts receivable (an asset) and revenue accounts to increase. Recognizing the revenue causes net income to increase which causes retained earnings (equity) to increase. When a company earns revenue on account, cash is not collected at the time of recognition therefore the statement of cash flows is not affected. See LO 13 video

On November 1, Year 1 Cove Company borrowed $7,000 cash to from Shelter Company. The one-year note carried a 7% rate of interest. Which of the following shows how the loan will affect Cove's financial statements on November 1, Year 1? A. Balance Sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. 7,000 7,000 NA NA NA NA 7,000 FA B. Balance Sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. NA NA NA NA NA NA (7,000) FA C. Balance Sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. NA NA NA NA NA NA (7,000) IA D. Balance Sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. (7,000) (7,000) NA NA NA NA (7,000) IA

A The event is an asset source event. The asset account (cash) increase and the liability (notes payable) increases. In other words, liabilities would be identified as the source of the cash. Since no interest has been incurred, there is no impact on the income statement. The cash inflow is a financing activity.

The purchase of supplies for cash will A) increase Supplies and decrease Cash B) increase Supplies Expense and decrease Cash C) decrease Cash and increase Accounts Payable D) increase Supplies Expense and increase Accounts Payable E) decrease Cash and increase Capital

A) increase Supplies and decrease Cash

Accounts Receivable would be shown on the __________. A) debit side of the trial balance B) credit side of the trial balance C) not on the trial balance D) on both the debit and credit side of the trial balance

A) debit side of the trial balance

Healy Corporation recorded service revenues of $200,000 in 2014, of which $80,000 were on credit and $120,000 were for cash. Moreover, of the $80,000 credit sales for 2014, Healy collected $20,000 cash on those receivables before year-end 2014. The company also paid $40,000 cash for 2014 wages. Its employees also earned another $20,000 in wages for 2014, which were not yet paid at year-end 2014. Compute the company's net income for 2014. A) $140,000 B) $ 80,000 C) $ 60,000 D) $160,000

A) $140,000

S. Storm has $20,000 invested in his business and the business owes creditors $8,000. Determine the amount of assets in the business A) $28,000 B) $12,000 C) $14,000 D) None of the above

A) $28,000 28,000 = 8,000 + 20,000

Which of the following is included as a component of stockholders' equity?

A) Buildings B) Retained earnings (x) C) Prepaid property taxes D) Accounts payable E) Dividends

Cari's Bakery, Inc., began operations in October 2017. The owner contributed cash of $18,000 and a delivery truck with fair value of $24,000 to the company. Which of the following describes how these transactions would affect the company's equity accounts?

A) Increase contributed capital by $42,000 (x) B) Increase earned capital by $42,000 C) Increase contributed capital by $18,000 and earned capital by $24,000 D) Increase earned capital by $18,000 and contributed capital by $24,000 E) None of the above

During fiscal 2016,Stanley Black & Decker Corporation reported Net income of $965.3 million and paid dividends of $330.9 million. Which of the following describes how these transactions would affect Stanley Black and Decker's equity accounts? (in millions)

A) Increase contributed capital by $965.3 and decrease earned capital by $330.9 B) Decrease contributed capital by $330.9 and increase earned capital by $965.3 C) Increase contributed capital by $634.4 D) Increase earned capital by $634.4 (x) E) None of the above

Borrow $200 from Dad to be repaid in two years: A) Long-term liability B) Accounts payable C) Accounts receivable D) Long-term asset E) Inventory F) Cash

A) Long-term liability

An example of a situation in which company needs credit for investing activities is:

A) Mergers and acquisitions (x) B) Seasonal sales patterns C) Start-up operating losses D) Refinancing of debt

Which of the following are included in current assets?

A) Prepaid rent (x) B) Taxes payable C) Automobiles D) Common stock E) None of the above

Which one of the following is not a current liability?

A) Taxes payable B) Accounts payable C) Wages payable D) Wage expense (x) E) None of the above

Accounts Payable is recorded on which financial statement? A) balance sheet B) income statement C) statement of owner's equity D) none of the above listed

A) balance sheet

The term _______ refers to the original cost of the fixed asset.

directly to the right

During fiscal 2016, Shoe Productions recorded inventory purchases on credit of $337.8 million. The financial statement effect of these purchase transactions would be to:

A. Increase liabilities (Accounts payable) by $337.8 million (x) B. Decrease cash by $337.8 million C. Increase expenses (Cost of goods sold) by $337.8 million D. Decrease noncash assets (Inventory) by $337.8 million E. Both A and D

How would a purchase $400 of inventory on credit affect the income statement?

A. It would increase liabilities by $400. B. It would decrease liabilities by $400. C. It would increase noncash assets by $400. D. Both A and C E. None of the above (x)

Beg. balance + inventory purchased - payments on account = ending balance

Accounts payable

_______ requires you to show interest expense in the period it is incurred. (NOTES PAYABLE) EX: Since the interest expense is $2,000 for two years, it is $1,000 per year, or $500 per six month period. When your company prepares its financial statements as of December 31, 2015, it will need to accrue $500 as the interest that is an expense associated with 2015. (purchased July 1, 2015) - The entry to accrue interest is to increase interest expense account on the Income Statement by $500. This reflects the amount of interest incurred during 20015 and correctly charges this amount against the revenue earned in that period. - The other side of this entry is to increase the liability interest payable by $500 to show the balance due as of December 31, 2015. This entry correctly states the Balance Sheet because as of December 31, 2015, the company now owes not only the $10,000 borrowed but also $500 of interest expense.

Accrual accounting

As inventory and property plant and equipment on the balance sheet are consumed, they are reflected: Select one: A. As a revenue on the income statement B. As an expense on the income statement Correct C. As a use of cash on the statement of cash flows D. On the balance sheet because assets are never consumed E. Both B and C because the financial statements articulate

As assets are consumed (used up), their cost is transferred to the income statement as expenses. Cash is not involved so C and E are incorrect. The correct answer is: As an expense on the income statement

An individual record of increases and decreases in specific assets, liabilities, and stockholders' equity is called

An account

In its 2016 annual report, Mattel Inc. reported the following (in millions): Total liabilities $4,086.0 Total shareholders' equity $2,407.8 What proportion of Mattel is financed by nonowners?

Assets = Liabilities + Equity. Assets = $4,086.0+ $2,407.8= $6,493.8 $4,086.0/ $6,493.8 =62.92%

Fundamental Accounting Equation

Assets = Liabilities + Owner's Equity

In its 2016 annual report, Snap-On Incorporated reported the following (in millions): Current assets $1,884.0 Total shareholders' equity $2,635.2 Total liabilities $2,088.0 What did Snap-On report as total assets at year-end 2016?

Assets = Liabilities + Stockholders Equity. Assets = $2,088.0 + $2,635.2 $4,723.2 million

United Airlines' 2016 balance sheet reported the following (in millions) Total Assets $40,091 Total Liabilities 31,485 Contributed Capital 3,573 What was United Airlines' total liabilities and stockholders' equity at December 31, 2016?

Assets = Liabilities + Stockholders Equity. Assets = $40,091

Debits to which accounts result in an increased balance?

Assets and expenses

When classifying assets as current and noncurrent for reporting purposes,

Assets are classified as current if they are reasonably expected to be realized in cash or consumed during the normal operating cycle.

in order for an asset to be reported on the balance sheet, it must be owned by the company and be expected to provide future benefits.

Assets reported on the balance sheet must be owned OR CONTROLLED by the company and must be expected to provide future benefits. These benefits can relate to the expected receipt of cash or another asset, or the expected decrease in a liability. The correct answer is 'False'.

Which of the following shows how borrowing cash from creditors will affect a company's financial statements? Assets= Liabilities= Equity= Revenue= Expense= Net Income= Statement of Cash Flows= Cash Flow Activity=

Assets=+ Liabilities=+ Equity=NA Revenue=NA Expense=NA Net Income=NA Statement of Cash Flows=+ Cash Flow Activity= Financing

Which of the following shows how recognizing cash revenue will affect a company's financial statements? Assets= Liabilities= Equity= Revenue= Expense= Net Income= Statement of Cash Flows= Cash Flow Activity=

Assets=+ Liabilities=NA Equity=+ Revenue=+ Expense=NA Net Income=+ Statement of Cash Flows=+ Cash Flow Activity= Operating

Which of the following shows how acquiring cash from the issue of common stock will affect a company's financial statements? Assets= Liabilities= Equity= Revenue= Expense= Net Income= Statement of Cash Flows= Cash Flow Activity=

Assets=+ Liabilities=NA Equity=+ Revenue=NA Expense=NA Net Income=NA Statement of Cash Flows=+ Cash Flow Activity=Financing

Which of the following shows how paying cash to reduce long-term liabilities will affect a company's financial statements? Assets= Liabilities= Equity= Revenue= Expense= Net Income= Statement of Cash Flows= Cash Flow Activity=

Assets=- Liabilities=- Equity=NA Revenue=NA Expense=NA Net Income=NA Statement of Cash Flows=- Cash Flow Activity=Financing

Which of the following shows how incurring cash expenses will affect a company's financial statements? Assets= Liabilities= Equity= Revenue= Expense= Net Income= Statement of Cash Flows= Cash Flow Activity=

Assets=- Liabilities=NA Equity=- Revenue=NA Expense=+ Net Income=- Statement of Cash Flows=- Cash Flow Activity=Operating

Which of the following shows how paying a cash dividend will affect a company's financial statements? Assets= Liabilities= Equity= Revenue= Expense= Net Income= Statement of Cash Flows= Cash Flow Activity=

Assets=- Liabilities=NA Equity=- Revenue=NA Expense=NA Net Income=NA Statement of Cash Flows=- Cash Flow Activity=Financing

Which of the following shows how paying cash to purchase land will affect a company's financial statements? Assets= Liabilities= Equity= Revenue= Expense= Net Income= Statement of Cash Flows= Cash Flow Activity=

Assets=NA Liabilities=NA Equity=NA Revenue=NA Expense=NA Net Income=NA Statement of Cash Flows=- Cash Flow Activity=Investments

A company can increase free cash flows to the firm (FCFF) by doing which of the following? a. increasing investments in receivable, inventories, and plant assets b. decreasing investments in receivable, inventories, and plan assets c. maintaining a steady level of net operating profit after tax d. decreasing the level of net operating profit after tax

A company's intrinsic value is its: a. market value b. economic value assuming actual payoffs are known c. carrying value of debt d. stock price

A contra asset account has what type of balance? A. debit b. credit

A deferral A.) exists when a company pays cash at the time the associated expense is recognized. B.) exists when a company pays cash before recognizing the associated expense. C.) exists when a company pays cash after recognizing the associated expense.

A deferral A.) exists when a company receives cash after recognizing the associated revenue. B.) exists when a company receives cash before recognizing the associated revenue. C.) exists when a company receives cash at the time the associated revenue is recognized.

Alpha Company's December 31, Year 1 balance sheet showed $1,700 cash, $1,000 common stock, and $700 retained earnings. The company experienced the following event during Year 2. (1) On March 1, paid $1,200 to purchase insurance coverage for one year beginning immediately. Based on this information alone, A.) the Year 2 balance sheet would show $1,000 of insurance expense. B.) the Year 2 balance sheet would show $200 of prepaid insurance. C.) the Year 2 income statement would show $200 of insurance expense. D.) the Year 2 income statement would show $1,000 of prepaid insurance.

An accrued expense amounting to $18,000 was overlooked when ascertaining the profit for the year. The effect of this error is that: a. net profit as well as liability are understated b. net profit is overstated and liability understated c. net profit as well as liability are overstated d. net profit is not affected but liability is understated

Barnett Company paid a cash dividend. This event is A.) an asset source transaction. B.) an asset use transaction. C.) an asset exchange transaction. D.) None of the answers describes this event.

Cocoa Beach Surf Shop receives information that requires the company to increase its expectations of uncollectible accounts receivable. Which of the following does not occur on the company's financial statements? a. bad debt expense is increased b. accounts receivables (gross) is reduced c. net income is reduced d. the allowance account is increased

Expenses relevant to the accounting period which remain unpaid by period end should be: a. included with expenses paid and shown as an asset at the period end b. included in with expenses paid and shown as a liability at the period end c. ignored until they are paid for in the next period d. deducted form amount already paid and shown as a liability at the period end

In accounting for sales on consignment, sales revenue and the related cost of goods sold should be recognized by the a. consignor when the goods are shipped to the consignee b. consignor when the consignee has sold the goods c. consignee when the goods are shipped to the third party d. consignee when cash is received from the customer

On December 31, Year 1 Adam Company incurred $3,000 of accrued salary expense. The Year 2 recognition of the cash payment for these expenses A.) increases the amount of salary expense recognized in Year 2. B.) decreases the amount of liabilities shown on the Year 2 balance sheet. C.) increases the amount of liabilities shown on the Year 2 balance sheet. D.) decreases the amount of salary expense recognized in Year 2.

On December 31, Year 3 Snack, Inc. adjusted its records to recognize $5,000 of accrued salaries. Based on this information alone, the A.) balance sheet at the beginning of Year 4 would show $5,000 of accrued salaries expense. B.) balance sheet at the beginning of Year 4 would show $5,000 of accrued salaries payable. C.) income statement for Year 3 would show $5,000 of accrued salaries payable. D.) income statement for Year 4 would show $5,000 of accrued salaries expense.

The capital asset pricing model states that the expected return on a particular asset relates to all of the following components except: a. the risk-free rate b. the alpha risk c. the beta risk d. stock specific risk

The following information was drawn from Gore, Inc.'s statement of cash flows. (1) $2,000 net cash outflow from investing activities (2) $3,000 net cash inflow from financing activities (3) $6,000 net increase in the cash balance. Based on this information, the amount of cash flow from operating activities appearing on the statement of cash flows must be a A.) $7,000 net cash inflow. B.) $5,000 net cash inflow C.) $1,000 net cash outflow. D.) $8,000 net cash outflow.

The following items were drawn from a company's accounting records: (1) Accounts receivable (2) Accounts payable (3) Cash paid to purchase land (4) Supplies (5) Supplies expense (6) Cash collected for service to be provided in the future (7) Unearned revenue (8) Prepaid rent (9) Earned Revenue (10) Accrued salaries expense (11) Common stock (12) Dividends (13) Cash paid for prepaid rent (14) Retained earnings Which of the items listed above appear on the statement of changes in stockholders' equity? A.) 10, 11, and 13 B.) 11, 12, and 14 C.) 3, 11, and 14 D.) 10, 11, and 14

The income statement presents A.) an explanation of the changes in the beginning and ending balances of stockholders' equity. B.) a comparison of the benefits and the sacrifices a company experiences from its operations. C.) information in three categories including operating, investing, and financial activities. D.) a list of a company's assets and the sources of those assets.

Watt Company was established in January, Year 1. During Year 1 the company experienced the following events. • Collected $6,000 cash from the issue of common stock. • Borrowed $3,000 cash from the state bank. • Earned $4,000 of cash revenue. • Paid $2,000 cash expenses. The company was liquidated at the end of Year 1. Based on this information, A.) the stockholders would receive $6,000. B.) the stockholders would receive $8,000. C.) the creditor (the bank) would receive $2,000. D.) the creditor (the bank) would receive $6,000.

Which of the following describes the balance in the accumulated depreciation account: a/ depreciation expense written off in an accounting period b. the cumulative sum of all depreciation expenses from the date of asset's acquisition to the present date c. liabiltiy account d. none of the above

Which of the following is normally shown first on the statement of cash flows? A.) Cash flow from financing activities B.) Cash flow from operating activities C.)Cash flow from investing activities D.) Noncash transactions

Which one of the following items is not a component of contributed capital? a. preferred stock b. retained earnings c. common stock d. additional paid-in capital

Sheldon Company began Year 2 with $1,500 in accounts payable. During the year, the company incurred utility expense of $3,500 on account. The company paid $2,000 on accounts payable by year end. The company also paid a cash dividend of $500. At the end of Year 2, what is the balance in Sheldon's accounts payable? A. $1,500 B. $3,000 C. $2,000 D. $3,500

B $1,500 beginning balance in accounts payable + $3,500 expenses on account − $2,000 paid off a portion of accounts payable = $3,000 ending balance in accounts payable.

Jay Company started Year 2 with a beginning balance of $10,000 in accounts receivable. During the year, revenue on account amounted to $25,000. Cash collections of accounts receivable amounted to $5,000. Expenses for the period were $2,100. The company paid dividends of $450. Based on this information alone, what is the ending balance in accounts receivable for Year 2? A. $20,000 B. $30,000 C. $27,900 D. $40,550

B $10,000 beginning balance + $25,000 revenue on account − $5,000 cash collected from receivable = $30,000 Ending balance of accounts receivable

Knopp Company experienced an event that had the following effects on its financial statements. Balance Sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. NA + − NA + − NA Which of the following events would have caused these effects? A. Earned revenue on account B. Recognized accrued salary expense C. Borrowed money D. Purchased land by issuing a note payable

B Recognizing an accrued expense means that the company recognizes the expense in the current accounting period and will pay for the expense is a subsequent accounting period. As a result, liabilities increase. The expense recognition causes expenses to increase and thereby net income to decrease. The decrease in net income causes stockholders' equity (retained earnings) to decrease. There is no effect on cash flow in the current period because the cash is paid in a subsequent accounting period.

Which of the following shows how recognizing accrued expense will affect a company's financial statements? A. Balance Sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. − NA − NA NA NA NA B. Balance Sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. NA + − NA + − NA C. Balance Sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. NA + − NA + − −OA D. Balance Sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. NA + − NA + − −FA

Forest Beach Company experienced an event that had the following effects on its financial statements. Balance Sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. − − NA NA NA NA −FA Which of the following events could have caused these effects? A. Paid cash to settle accrued interest payable B. Paid cash to settle the principal balance of note payable C. Paid cash for interest expense D. Paid cash to acquire a long-term asset

B The effects shown in the statements model are consistent with paying cash to settle the principal balance of a note payable. Specifically, paying off the principal balance of a note payable will decrease assets (cash) and liabilities (notes payable). The income statement is not affected. The cash outflow from the payoff of the note payable would be classified as a financing activity. Also, the other answers describe events with effects that are not shown in the model. For example, the cash outflow associated with the settlement of accrued interest payable would be classified as an operating activity. Likewise, cash paid directly for interest expense would be an operating activity. Finally, cash paid to acquire a long-term asset would be an investing activity. Since none of these effects are shown in the statements model, these answers cannot be correct.

Contingent liabilities must have the following criteria- select all that apply. a. the obligation is certain to require payment at some point in the future b. the obligation will probably require payment at some point in the future. c. the obligation is estimable d. the obligation will possibly require payment at some point in the future

B and C

During 2013, Skechers U.S.A., Inc. had Sales of $1,846.4 million, Gross profit of $818.8 million and Selling, general, and administrative expenses of $730.7 million. What was Skechers' Cost of sales for 2013? A) $1,115.7million B) $1,027.6 million C) $88.1 million D) $1,549.5million

B) $1,027.6 million

In its fiscal year ended February 1, 2013 balance sheet, Dell Inc. reported cash of $13,852 million at the beginning of the year. The statement of cash flows reports the following (in millions): Net cash from operating activities= $3,283 Net cash from investing activities= (3,316) Change in cash during the year= (1,283) What did Dell report for "Net cash from financing activities" during fiscal year ended 2013? A) $1,250 million cash inflow B) $1,250 million cash outflow C) $2,033 million cash inflow D) $2,033 million cash outflow

B) $1,250 million cash outflow

During fiscal year-end 2013, Lowell Corporation reports the following (in $ millions): net income of $1,000, retained earnings at the end of the year of $10,000 and retained earnings at the beginning of the year of $11,000. Assume that there were no other retained earnings transactions during fiscal 2013. What dividends did the firm pay in fiscal year ended February 2, 2013? A) $1,000 million B) $2,000 million C) $500 million D) $0

B) $2,000 million

In its December 31, 2013 financial statements, Harley-Davidson reported the following (in millions): Long-term Asset: $5,416 Current Liabilities: $ 2,510 Long-term Liabilities: $ 3,886 Total Liabilities: $6,396 Equity: $3,009 At December 31, 2013, current assets amount to: A) $2,510 million B) $3,989 million C) $6,396 million D) $5,519 million

B) $3,989 million

Buy lemons, sugar and (secret ingredient) grapefruit will not be paid for until next month: A) Long-term liability B) Accounts payable C) Accounts receivable D) Long-term assets E) Inventory F) Cash

B) Accounts payable

As inventory and property plant and equipment on the balance sheet are consumed, they are reflected: A) As a revenue on the income statement B) As an expense on the income statement C) As a use of cash on the statement of cash flows D) On the balance sheet because assets are never consumed

B) As an expense on the income statement

Income from Services would be shown on the __________. A) debit side of the trial balance B) credit side of the trial balance C) not on the trial balance D) on both the debit and credit side of the trial balance

B) credit side of the trial balance

The ___________ shows total revenue minus total expenses. A) balance sheet B) income statement C) statement of owner's equity D) cash flow statement

B) income statement

The amounts that the business entity owes its creditors are referred to as A) assets B) liabilities C) owner's equity D) revenues E) expenses

B) liabilities

Magna Company paid $2,400 for a 6-month liability insurance policy. At the time of payment, this transaction should be recorded as A) insurance expense, $2,400 B) prepaid insurance, $2,400 C) insurance expense, $400 D) prepaid insurance, $400

B) prepaid insurance, $2,400

Here is the flow of the inventory account:

Beginning inventory + inventory purchased - cost of goods sold = ending inventory This account is increased when you buy more inventory and decreased when you sell inventory. Your ending inventory is the amount you have left at the end of the period.

Articulation refers to the concept that financial statements are linked to each other and linked across time. Select one: True Correct False

Balance sheets are linked over time because the permanent accounts' closing balance last period becomes the opening balance in the current period. The statements are linked to each other via cash (statements of cash flow and balance sheets), via retained earnings (income statements and balance sheets), and via equity accounts (statements of stockholders' equity and balance sheets). The correct answer is 'True'.

Suppliers with strong bargaining power can demand higher prices.

Bargaining power of suppliers

Other payable accounts follow the same flow as interest payable:

Beginning balance + costs incurred - amounts paid = ending balance

The flow of the land account is as follows:

Beginning balance + land purchased - original cost of land sold = ending balance The beginning balance is the amount you paid for land in prior periods. Add to that the cost of any land purchased during this period. If any land was sold during the period, subtract out your original cost for that land, and the ending balance is your cost in the land you have remaining at the end of the period.

The book value of stockholders' equity (the amount reported on the balance sheet) is most typically equal to the market value of the equity of a company.

Book value and market value differ for many reasons, including reporting assets at historical costs instead of current market value, and differences between the accounting periods in which transactions are recognized in the financial statements and when the value implications of those transactions are recognized by the capital markets. The correct answer is 'False'.

How would a sale of $400 of inventory on credit affect the balance sheet if the cost of the inventory sold was $160? It would increase noncash assets by $400 and increase equity by $400 It would decrease noncash assets by $160 and decrease equity by 160 It would increase cash by $400 and increase equity by $400 Both A and B, above happen simultaneously None of the above

Both A and B, above happen simultaneously

A statement of cash flows usually does not include which of the following? a. net income b. increase in accounts receivable c. contributed capital d. depreciation expense e. none of the above

Accumulated depreciation should be shown on the statement of financial position: a. as a deduction from current assets b. as part of owner's equity c. as a deduction from the cost of corresponding fixed assets d. as a current liability

Adams Company adjusted its records to recognize accrued salary expense at the end of its Year 1 accounting period. The recognition is A.) an asset exchange transaction. B.) an asset use transaction. C.) a claims exchange transaction. D.) an asset source transaction.

Alpha Company's December 31, Year 1 balance sheet showed $1,700 cash, $1,000 common stock, and $700 retained earnings. The company experienced the following event during Year 2. (1) On March 1, paid $1,200 to purchase insurance coverage for one year beginning immediately. Based on this information alone, A.) the Year 2 statement of cash flows would show $1,000 outflow to purchase insurance. B.) the Year 2 income statement would show $200 of insurance expense. C.) the Year 3 statement of cash flows would show zero outflow to purchase insurance. D.) the Year 3 income statement would show $1,000 of insurance expense.

When a company collects cash from accounts receivable, A.) the asset accounts receivable increases. B.) stockholders' equity increases. C.) total assets are not affected. D.) liabilities decrease.

C (exchange in assets)

Emerald Company was established in January, Year 1. During Year 1 the company experienced the following events. • Collected $50,000 cash from the issue of common stock. • Borrowed $45,000 cash from the state bank. • Earned $120,000 of cash revenue. • Paid $180,000 cash expenses. The company was liquidated at the end of Year 1. Based on this information A.) the stockholders would receive $50,000. B.) the stockholders would receive $110,000. C.) the creditor (the bank) would receive $35,000. D.) the creditor (the bank) would receive $45,000.

Garcia Company recognized revenue on account. The recognition will affect which of the following financial statements? A.) Balance sheet B.) Statement of cash flows C.) Income statement and the balance sheet D.) Income statement

How would cash collected on accounts receivable affect the balance sheet? a. increase liabilities and decrease equity b. decrease liabilities and increase equity c. increase assets and decrease assets d. increase assets and increase equity

Mary Company collected cash from an account receivable. The recognition of the cash collection will affect which of the following financial statements? A.) Income statement and the balance sheet B.) Income statement and the statement of cash flows C.) Balance sheet and the statement of cash flows D.) Statement of changes in stockholders' equity

On a classified balance sheet, allowance for uncollectible accounts would be classified among: a. non-current assets b. current liabilities c. current assets. d. non-current liabilities

Simpson Company paid cash to purchase land. This event is A.) an asset source transaction. B.) an asset use transaction. C.) an asset exchange transaction. D.) None of the answers describes this event.

The average borrowing rate for interest bearing debt is calculated as a. Interest Expense divided by Average Liabilities b. interest paid divided by average liabilities c. interest expense divided by average interest-bearing debt d. interest expense divided by average long-term debt

The dividend discount valuation model equates the current stock price to: a. all suture expected dividends b. all future expected dividends discounted by weighted average cost of capital c. all future expected dividends discounted by the cost of equity capital d. the current dividend divided by current earnings per share

The most compelling reason for accounting for depreciation is: a. because that is a requirement of company law b. to write down the non-current assets to that it is worth by the end of the period c. to match a portion of the depreciable cost of the asset against the income generated by it d. to build up resources for the purpose of replacing the non-current assets

The statement of cash flows presents A.) an explanation of the changes in the beginning and ending balances of stockholders' equity. B.) a comparison of the benefits and the sacrifices a company experiences from its operations. C.) information in three categories including operating, investing, and financial activities. D.) a list of a company's assets and the sources of those assets.

The wighted average cost of capital is used when valuing the payoffs. a. to equity holders b. to debt holders c. to both equity and debt holders d. to equity holders less the payoff to debt holders

There are many types of equity valuation models. They differ mainly in: a. the choice of length of horizon periods b. the treatment of the terminal period c. the choice of what is forecast d. the interaction of income statement and balance sheet items

Which of the following is a financing activity? A.) Collecting cash from customers B.) Collecting cash from the sale of a building C.) Paying cash dividends D.) Paying cash to purchase land

Which of the following most accurately depicts the steps in an accounting cycle? A.) Record transaction data → Close temporary accounts → Adjust accounts → Prepare Statements B.) Close temporary accounts → Record transaction data → Adjust accounts → Prepare Statements C.) Record transaction data → Adjust accounts → Prepare Statements →Close temporary accounts D.) Prepare Statements → Close temporary accounts → Adjust accounts → Record transaction data

Which of the following would not require the company to record an accrual on the balance sheet? a. the company owes $67,000 in wages to its employees for the previous two weeks. b. interest will be paid when a note payable matures in the following accounting period. c. management believes a lawsuit against the company is meritless because they have never had a single complaint about dangerous side effects of their drug in two years. d. the company knows that they will be fined for pollution as a result of their manufacturing process and can estimate the amount of the obligation.

Yang Company recognized accrued salary expense. The recognition will affect which of the following financial statements? A.) Balance sheet B.) Statement of cash flows C.) Income statement and the balance sheet D.) Income statement

Nest Company started Year 2 with a beginning balance of $7,000 in accounts receivable. During the year, revenue on account amounted to $13,000. The company incurred $3,000 of expenses on account and paid dividends of $500. If the company had an ending balance in accounts receivable of $2,000, how much cash was collected from customers? A. $21,000 B. $16,000 C. $18,000 D. $25,000

C $7,000 Beginning balance in accounts receivable + $13,000 revenue on account − $2,000 ending balance in accounts receivable = $18,000 cash collections during Year 2

Accounts payable will appear on which of the following financial statements? A. Statement of cash flows B. Statement of changes in stockholders' equity C. Balance sheet D. Income statement

C Accounts payable appears in the liabilities section of the balance sheet

GreyCo and Sons earns $6,900 of revenue on account in Year 1. Cash collections of receivables amount to $6,300 in Year 1 with the remainder being collected in Year 2. Based on this information alone the company's financial statements would show... A.) cash inflow from operating activities of $6,300 during Year 2. B.) cash inflow from operating activities of $600 during Year 1. C.) a balance of $600 in accounts receivable at the beginning Year 2. D.) a balance of $600 in accounts receivable at the end of Year 2.

C (year one receivable account closes and remaining balance is carried over)

GreyCo and Sons earns $6,900 of revenue on account in Year 1. Cash collections of receivables amount to $6,300 in Year 1 with the remainder being collected in Year 2. Based on this information alone the company's financial statements would show A. a balance of $600 in accounts receivable at the end of Year 2. B. cash inflow from operating activities of $600 during Year 1. C. a balance of $600 in accounts receivable at the beginning Year 2. D. cash inflow from operating activities of $6,300 during Year 2.

C As stated in the problem, cash collected in Year 1 is $6,300. The remaining $600 ($6,900 - $6,300) is collected in Year 2. The balance of accounts receivable at the end of Year 1 would be $600 ($6,900 total account receivable generated from revenue minus the $6,300 cash collected). The Year 2 beginning balance is the same as the Year 1 ending balance as determined previously as $600.

Which of the following shows how collecting cash from accounts receivable will affect a company's financial statements? A. Balance Sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. + NA + + NA + +IA B. Balance Sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. + NA + + NA + +OA C. Balance Sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. NA NA NA NA NA NA +OA D. Balance Sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. NA NA NA + NA + NA

C Collecting receivables results in an increase in one asset account (cash) and a decrease in another asset account (accounts receivable) leaving total assets unaffected. The income statement is not affected because the revenue was recognized when the receivable was created. The increase in cash is an operating activity.

Garcia Company recognized revenue on account. The recognition will affect which of the following financial statements? A. Income statement B. Balance sheet C. Income statement and the balance sheet D. Statement of cash flows

C Recognizing revenue on account will cause an increase in an asset account (accounts receivable) that appears on the balance sheet. The recognition will also cause an increase in the revenue account that appears on the income statement. Since cash was not collected or paid, the statement of cash flows is not affected.

Clayton Company borrowed $6,000 from the State Bank on April 1, Year 1. The one-year note carried a 6% rate of interest. The amount of interest expense that Clayton would report in Year 1 and Year 2, respectively would be A. $360, and $0. B. $0, and $360. C. $270, and $90. D. $270, and $0.

C The amount of interest expense incurred is computed as follows: Total annual interest = $6,000 x .06 = $360 Monthly interest = $360 annual interest ÷ 12 months = $30 Interest expense in Year 1 = $30 per month x 9 months = $270 Nine months of interest was accrued in Year 1. The remaining 3 months is expensed in Year 2. Interest expense in Year 2 = $30 per month x 3 months = $90

On August 1, Year 1 Gomez Company borrowed $48,000 cash. The one-year note carried a 5% rate of interest. Which of the following shows how the December 31, Year 1 recognition of accrued interest will effect Gomez's financial statements? A. Balance Sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. NA 1,400 (1,400) NA 1,400 (1,400) (1,400) OA B. Balance Sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. NA 1,000 (1,000) NA 1,000 (1,000) (1,000) OA C. Balance Sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. NA 1,000 (1,000) NA 1,000 (1,000) NA D. Balance Sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. NA 1,400 (1,400) NA 1,400 (1,400) NA

C The amount of interest expense is computed as follows: Total annual interest = $48,000 x .05 = $2,400 Monthly interest = $2,400 annual interest ÷ 12 months = $200 Interest expense in Year 1 = $200 per month x 5 months = $1,000 Recognizing the accrued interest expense increases expenses and liabilities (interest payable). The increase in expense decreases net income and ultimately equity (retained earnings). Accrued interest means that the company has incurred the interest expense but has not paid cash. Since no cash was paid, cash flow is not affected.

When a company collects cash from accounts receivable, A. Total assets decrease. B. stockholders' equity increases. C. total assets are not affected. D. liabilities decrease.

C When a company collects an account receivable one asset (cash) increases and another asset (accounts receivable) decreases. The amount of total assets is not affected.

When a company incurs accrued expenses A. an asset account decreases. B. stockholders' equity increases. C. assets are not affected. D. all of the answers are correct.

C When a company recognizes an accrued expense it also recognizes an obligation (accrued liability) that will be paid in a subsequent accounting period. As a result, the liability (accounts payable) increases. The expense recognition also lowers net income which causes stockholders' equity (retained earnings) to decrease. The event is a claims exchange transaction that does not affect assets.

Which of the following shows how paying off an accrued liability such as salaries payable will affect a company's financial statements? A. Balance Sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. − − NA NA NA NA −FA B. Balance Sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. − − NA NA NA NA −IA C. Balance Sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. − − NA NA NA NA −OA D. Balance Sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. − − NA NA NA NA NA

C When an accrued liability is paid the asset account (cash) decreases and the associated liability account (salaries payable) decreases. Expenses in the current period are not affected because they were recognized in a subsequent accounting period. The since the cash outflow was caused by previous period expense recognition it is classified as an operating activity.

Guadalupe, Inc. provided $5,000 of services in Year 1 but did not collect cash from its customers until Year 2. Select the correct answer from the following options assuming Guadalupe used accrual accounting. A.) The Company will recognize $5,000 of revenue and $5,000 of cash flow from operations in Year 1. B.) The Company will recognize zero of revenue in Year 1 and $5,000 of cash flow from operations in Year 2. C.) The Company will recognize $5,000 of revenue in Year 1 and $5,000 of cash flow from operations in Year 2. D.) The Company will recognize $5,000 of cash flow from operations in Year 1 and $5,000 of revenue in Year 2.

C (cash flow is now recorded until paid, revenue is recorded when the service is provided)

Which of the following are not one of the five forces that determine a company's competitive intensity? (select all that ally) a. bargaining power of suppliers b. threat of substitution c. ability to obtain financing d. threat of entry e. threat of regulatory intervention

C and E

Palmer Hand Clinic has the following accounts and balances: Cash, $2,350 Accounts Receivable, $280 Professional Equipment, $1,200 Office Equipment, $6,700 Accounts Payable, $4,380 P. Palmer, Capital, $2,000 Income from Services, $6,000 Rent Expense, $1,850 What is the amount of assets? A) $10,250 B) $2,350 C) $10,530 D) $16,530

C) $10,250 Cash $2,350 Accounts Receivable $280 Professional Equipment $1,200 Office Equipment $6,700 = $10,530

Mr. Wisner, a potential customer had no cash with him. Miguel agrees to let Mr. Wisner pay $2 next Monday: A) Long-term liability B) Accounts payable C) Accounts receivable D) Long-term assets E) Inventory F) Cash

C) Accounts receivable

Which of the following transactions does NOT include an increase to expenses? A) Received and paid the phone bill B) Paid monthly rent C) Received cash for services performed D) Paid the week's wages E) Bought advertising for cash

C) Received cash for services performed

The receipt of cash on account from a customer should be recorded as A) a debit to Cash and a credit to Accounts Payable B) a debit to Cash and a credit to Income from Services C) a debit to Cash and a credit to Accounts Receivable D) a debit to Cash and a credit to the Capital account E) none of these

C) a debit to Cash and a credit to Accounts Receivable

The liability account _________ us used for short-term liabilities or charge accounts, usually due within 30 days. A) short-term payable B) liability payable C) accounts payable D) accounts receivable

C) accounts payable

The time period on the _________ represents only one date. A) income statement B) statement of owner's equity C) balance sheet D) none of the answers listed

C) balance sheet

The order the financial statements are prepared is as follows: A) statement of owner's equity, income statement, balance sheet B) income statement, balance sheet, statement of owner's equity C) income statement, statement of owner's equity, balance sheet D) balance sheet, income statement, statement of owner's equity

C) income statement, statement of owner's equity, balance sheet

Pidcoke Company sold services on account, $23,000. This transactions should be recorded as a(n) A) increase to cash B) decrease to revenue C) increase to accounts receivable D) increase to accounts payable

C) increase to accounts receivable

A ___________ is a book in which business transactions are recorded. A) ledger B) balance sheet C) journal D) trial balance

C) journal

A(n) ____________ is money paid directly to the owner. A) expense B) capital investment C) withdrawal D) none of the answers listed

C) withdrawal

Prior to closing the accounting records of Brand Company showed $30,000 of assets, $10,000 of liabilities, $19,500 of retained earnings, $3,000 of revenue, $2,000 of expenses and $500 of dividends. After closing the balance in the retained earnings account will be A.) $21,000. B.) $19,500. C.) $20,000. D.) $20,500.

C, 19,500+3,000-2000-500

In 2016, Caterpillar Inc. reported the following (in millions): CA: $31,967 LT Assets: $42,737 CL: $26,132 Total Liab: $61,491 What amount did Caterpillar report as equity in 2016?

CA+LT Assets 31967+42737 = 74704 74704-Total Liab (61491) Equity = 13213

In 2016, Nordstrom, Inc. reported the following (in millions): CA: $3,242 CL: $3,029 LT Liab: $3,959 Equity: $870 What amount did Nordstrom report as total assets?

CL+LT Liab+Equity 3029+3959+870 = 7858 TL = TA so 7858 = TA

Which of the following accounts normally has a debit balance?

Cash

A firm's cash flow from investing activities is not affected by: -Cash received from issuance of bonds payable -Cash received from sale of a piece of land -Cash received from issuance of bonds payable -Cash paid to purchase a plant asset -Cash paid to purchase common stock of another company -None of the above

Cash received from issuance of bonds payable

Howard Company purchased $300 of supplies on account. Which of the following shows how is purchase will affect Howard's ledger accounts? Cash: Supplies: Accounts Payable: Common Stock: Retained Earnings:

Cash: Supplies: 300 Accounts Payable: 300 Common Stock: Retained Earnings:

Expected credit loss is calculated as:

Chance of default X Loss given default.

In its fiscal year ended February 1, 2013 balance sheet, Dell Inc. reported cash of $13,852 million at the beginning of the year. The statement of cash flows reports the following (in millions): Net cash flow operating activities $3,283 Net cash from investing activities (3,316 ) Change in cash during the year (1,283 ) What did Dell report for "Net cash from financing activities" during fiscal year ended 2013? Select one: A. $1,250 million cash inflow B. $1,250 million cash outflow Correct C. $2,033 million cash inflow D. $2,033 million cash outflow E. None of the above

Change in cash during the year = Cash from operations + Cash from investing + Cash from financing. $(1,283) = $3,283 - $(3,316) + Cash from financing Cash from financing = $(1,250) million The correct answer is: $1,250 million cash outflow

The tools for studying industry economics does not include

Classification of cash flows

Which of the following is not an asset source transaction?

Collected cash from accounts receivable.

statement of cash flows usually does not include which of the following? Select one: A. Net income B. Increase in accounts receivable C. Contributed capital Correct D. Depreciation expense E. None of the above

Contributed capital is a balance sheet account and is not included in the statement of cash flows. Changes in the contributed capital account would be included, however, in the financing section of the statement of cash flows. The correct answer is: Contributed capital

Net Working Capital (NWC) =

Current Assets (CA) - Current Liabilities (CL)

Which of the following concepts is not captured by one of the variables in Altman's Z-Score?

Current level of net operating assets

The variable EBIT divided by Total Assets in the Altman Z-Score measures which of the following concepts?

Current level of profitability

Accounts receivable will appear on which of the following financial statements? A.) Statement of changes in stockholders' equity B.) Income statement C.) Statement of cash flows D.) Balance sheet

Estimating a company's cost of capital requires: a. applying a risk estimation model b. applying valuation model c. adjustment for the time value of money and intrinsic value d. adjustment for the time value of money and risk

If a company recognizes $5,000 of accrued salary expense on December 31, Year 1... A.) on January 1, Year 2 there will be a zero balance in the Accrued Salaries Expense account. B.) on January 1, Year 2 there will be a $5,000 balance in the Accrued Salaries Payable account. C.) the December 31, Year 1 expense recognition will not affect the cash account. D.) All of the answer are correct.

Lawyers Inc. accepted a $12,000 retainer for which the company agreed to provide services in the future. Recognizing this event would A.) defer the recognition of revenue. B.) cause the company's assets to increase. C.) cause the company's liabilities to increase. D.) All of the answers are correct.

Revenues and gains are generally recognized when a. cash has been received b. cash has been received and they have been earned through substantial completion c. they are realized or realizable and a contract has been signed d. they are realized or realizable and have been earned through substantial completion

The accounts payable account appears on... A.) the statement of changes in stockholders' equity. B.) the income statement. C.) the statement of cash flows. D.) the balance sheet.

The balance sheet presents A.) an explanation of the changes in the beginning and ending balances of stockholders' equity. B.)a comparison of the benefits and the sacrifices a company experiences from its operations. C.)information in three categories including operating, investing, and financial activities. D.)a list of a company's assets and the sources of those assets.

The closing process normally occurs at A.) at five year intervals. B.) at the beginning of an accounting cycle. C.) during the accounting cycle. D.) the end of an accounting cycle.

The following items were drawn from a company's accounting records: (1) Accounts receivable (2) Accounts payable (3) Cash paid to purchase land (4) Supplies (5) Supplies expense (6) Cash collected for service to be provided in the future (7) Unearned revenue (8) Prepaid rent (9) Earned Revenue (10) Accrued salaries expense (11) Common stock (12) Dividends (13) Cash paid for prepaid rent (14) Retained earnings Which of the items listed above appear on the income statement? A.) 5, 7, 9, and 10 B.) 5, 8, and 10 C.) 5, 9, 10, and 11 D.) 5, 9, and 10

Watt Company experienced an event that had the following effects on its financial statements. Assets=- Liabilities=- Equity=NA Revenue=NA Expense=NA Net Income=NA Statement of Cash Flows=- Cash Flow Activity=Financial Which of the following events would have caused these effects? A.) Earned cash revenue B.) Borrowed money C.) Purchased land with cash D.) Repaid long-term debt

What do you understand when one refers to as "net book value" of a non current asset? a. the cost of the asset less amount expensed as depreciation in the current period b. the cost of the asset c. the current worth of the asset d. the cost less accumulated depreciation up the date of reporting

When a company earns revenue on account A.) the asset account, accounts receivable, increases. B.) a revenue account increases. C.) liabilities are not affected. D.) All of the answers are correct.

When a company incurs accrued expenses... A.) the liability account, accounts payable, increases. B.) stockholders' equity decreases. C.) assets are not affected. D.) all of the answers are correct.

Which of the following accounts is closed at the end of an accounting period? A.) Common Stock B.) Retained Earnings C.) Land D.) Revenue

Which of the following accounts is closed at the end of an accounting period? A.) Expense B.) Dividend C.) Revenue D.) All of the answers represent accounts that are closed at the end of an accounting period.

Which of the following accounts would be closed at the end of an accounting period? A.) Accounts receivable B.) Land C.) Account payable D.) None of the accounts listed would be closed at the end of an accounting period.

Which of the following does not affect the current liabilities section of the balance sheet? a. purchase of inventory on credit b. wages owning to employees but not yet paid c. insurance bill to be paid next month d. sale of goods on credit e. a probable legal obligation, due within 12 months

Which of the following is an asset source event? A.) Received cash from the issue of stock B.) Borrowed cash from creditors C.) Earned cash revenue D.) All of the answers represent asset source transactions.

Rushmore Company started the year with $5,000 in accounts payable. During the year, the company provided services on account for $45,000. Rushmore incurred $36,000 expenses on account during the year, and by year end the balance in accounts payable was $24,000. Assuming that these are the only accounting events that affected Rushmore, how much of the accounts payable did the company pay off during the year? A. $62,000 B. $57,000 C. $26,000 D. $17,000

D $5,000 Beginning balance in accounts payable + $36,000 expenses on account − $24,000 ending balance in accounts payable = $17,000 the amount of accounts payable paid off during the year

The accounts payable account appears on A. the income statement. B. the statement of changes in stockholders' equity. C. the statement of cash flows. D. the balance sheet.

D Accounts payable is an obligation to pay cash in the future and is therefore a liability account. It is a permanent account that is not closed and is carried forward from one accounting period to the next. The ending balance of the account appears on the balance sheet.

Accounts receivable will appear on which of the following financial statements? A. Statement of changes in stockholders' equity B. Statement of cash flows C. Income statement D. Balance sheet

D Accounts receivable appears in the asset section of the balance sheet.

If a company recognizes $5,000 of accrued salary expense on December 31, Year 1, A. on January 1, Year 2 there will be a zero balance in the Accrued Salaries Expense account. B. on January 1, Year 2 there will be a $5,000 balance in the Accrued Salaries Payable account. C. the December 31, Year 1 expense recognition will not affect the cash account. D. All of the answer are correct.

D The recognition of the accrued salary expense on December 31, Year 1 would cause the Accrued Salaries Expense account to increase and the Accrued Salaries Payable account to increase by $5,000. At the end of the Year 1 accounting cycle the expense account would be closed to retained earnings resulting in a zero balance in the account on January 1, Year 2. The Accrued Salaries Payable account is a permanent account that is not closed at the end of accounting cycle. Therefore the balance in the Accrued Salaries Payable account on January 1, Year 2 would be the same as it was on December 31, of Year 1 which is $5,000. Recognizing an accrued expense does not affect the cash account at the time the expense is recognized on December 31, Year 1. Recall that the definition of an accrued expense is that the cash is paid after the expense is recognized.

Stannous Company earns $2,000 of revenue on account in Year 1. Cash collections of receivables amount to $1,800 in Year 1 with the remainder being collected in Year 2. Based on accrual accounting the company's financial statements would show A. net income of $1,800 in Year 2. B. net income of $2,000 in Year 2. C. net income of $1,800 in Year 1. D. net income of $2,000 in Year 1.

D Under accrual accounting revenue is recognized in the year it is earned. All of the $2,000 of revenue was earned in Year 1, regardless of the fact that the company collected only $1,800 of cash during that year. Since there are no expenses, net income in Year 1 is $2,000. ($2,000 revenue - zero expenses).

When a company earns revenue on account A. the asset account, accounts receivable, increases. B. a revenue account increases. C. liabilities are not affected. D. all of the answers are correct.

D When a company earns revenue but does not get paid, the company creates an account receivable. As its name implies, an account receivable indicates that the company expects to collect cash from the customer in the future. Since the company has already done the work, it will recognize the revenue even though no cash has been collected. Liabilities are not affected. The company does not owe the customers anything. Indeed, the customer owes the company for the work the company has performed.

Which of the following items would not be found on a balance sheet? (select all that apply) a. stockholders' equity b. property, plant and equipment c. non-owner financing d. sales e. cost of goods sold

D and E

Indicate which of the following items would be reported in the balance sheet. A. Net income B. Retained earnings C. Depreciation expense D. Inventories E. Wages expense F. Wages payable G. Interest expense H. Interest payable I. Sales A) C, E, G, I B) A, D, F, G C) B, C, E, H D) B, D, F, H

D) B, D, F, H

If an owner invests her computer and printer in the business, there is an increase to A) Cash and Capital B) Computer Equipment and Drawing C) Cash and Drawing D) Computer Equipment and Capital E) Computer Equipment and Cash

D) Computer Equipment and Capital

Buy tent from neighbor, at a garage sale: A) Long-term liability B) Accounts payable C) Accounts receivable D) Long-term asset E) Inventory F) Cash

D) Long-term asset

Examine the financial statements effects template below. Then select the answer that best describes the transaction. A) Repay accounts payable of $300 with cash B) Collect cash for accounts receivable of $300 C) Purchase inventory of $300 on account D) Purchase inventory of $300 for cash

D) Purchase inventory of $300 for cash

An example of a liability is A) cash B) prepaid insurance C) rent expense D) accounts payable

D) accounts payable

Newton Company purchases equipment on account. What are the effects on the fundamental accounting equation? A) assets increase; liabilities, no effect; owner's equity increases B) assets increase; liabilities, decrease; owner's equity increases C) assets increase; liabilities, increase; owner's equity decreases D) assets increase; liabilities, increase; owner's equity no effect E) assets increase; liabilities, decrease; owner's equity no effect

D) assets increase; liabilities, increase; owner's equity no effect

A business received $600 cash from charge customers to apply on account. The effect of the transaction is an increase in an asset and a(n) A) increase in revenue B) decrease in capital C) decrease in a liability D) decrease in an asset E) increase in capital

D) decrease in an asset

A debit may signify a decrease in a(n) A) liability account B) asset account C) revenue account D) liability and a revenue account E) asset and a revenue account

D) liability and a revenue account

A one-owner business is called a A) corporation B) partnership C) sole-ownership D) sole-proprietorship

D) sole-proprietorship

The direct method of presenting the net cash flow from operating activities reconciles net income to the net cash flow from operating activities (T/F?)

False

Posting involves A) transferring information from the income statement to the statement of owner's equity. B) transferring information ledger to the journal C) transferring information from the ledger to the balance sheet D) transferring information from the journal to the ledger

D) transferring information from the journal to the ledger

The cash conversion cycle is computed as:

Days sales outstanding + Days inventory outstanding - Days payable outstanding

When invoices are sent to customers billing them for services that have been performed, the correct transaction analysis is

Debit Accounts receivable and credit Service Fees Earned

The income statement reports net income which is defined as the company's profit after all expenses and dividends have been paid (T/F)?

False

How would a purchase of $300 of inventory on credit affect the income statement? a. it would increase liabilities by $300 b. it would decrease retained earnings by $300 c. it would increase assets by $300 d. both a and c e. none of the above

Buy lemons, sugar and (secret 3) ingredient) grapefruit: A) Long-term liability B) Accounts payable C) Accounts receivable D) Long-term assets E) Inventory F) Cash

E) Inventory

For a journal entry to be complete, it must contain A) the date B) a debit entry C) a credit entry D) an explanation E) all of the answers listed

E) all of the answers listed

A credit may result in A) an increase in a liability account B) an increase in a revenue account C) a decrease in an asset account D) an increase in the Capital account E) all of these

E) all of these

Net operating profit after tax (NOPAT) includes operating revenues less expenses such as: a. cost of goods sold (COGS) b. taxes on operating income c. selling, general and administrative expenses (SG&A) d. after-tax earnings from investments and interest expenses e. all of the above f. a, b, and c

At the end of a hard working day, Miguel has $500 in his pocket: A) Long-term liability B) Accounts payable C) Accounts receivable D) Long-term assets E) Inventory F) Cash

F) Cash

the process of extracting information from the financial statements to better understand the current and future financial condition of the business

FSA

A customer's prepayment for services not yet rendered is initially recorded as unearned revenue (a liability). Then, at the end of the accounting period, the unearned revenue is moved from the balance sheet to the income statement. This is an example of the revenue recognition principle (T/F?)

False

A gain from the sale of a company's property, plant, and equipment does not appear in the statement of cash flows prepared on the indirect method (T/F?)

False

According to the revenue recognition principle, companies are required to record revenue when cash is received as this provides the most objective evidence for the auditors (T/F?)

False

Assets are reported on the balance sheet at their current market value (T/F?)

False

Assets are reported on the balance sheet at their current market value.

False

Cash received from the sale of one of a firm's warehouses is classified as a cash flow from operating activities in a statement of cash flows but only if the warehouse was used for ordinary operations (T/F?)

False

Companies maintain accounting records that show assets at the amount of their market value because that information is more relevant than the historical cost. This statement is________

False

For an item to be classified as extraordinary, it needs to be both unusual and infrequent. However, there is an exception for material items - for one-time items that are extremely large, firms have the option of classify these items as extraordinary to provide better information to investors (T/F?)

False

For tax reporting purposes, companies typically transfer more of the asset's cost from the balance sheet to the income statement in the earlier years of the asset's life. This is called accelerated depreciation and it is a benefit to the company. Thus, companies record deferred tax assets (benefits) for this accelerated depreciation (T/F?)

False

If accounts payable decreases during an accounting period, then the cash paid for merchandise purchased is less than the merchandise purchases for the period (T/F?)

False

Information in temporary accounts is transferred to the common stock account at the end of an accounting period. This statement is True or False

False

NOPAT is equivalent to income from operating activities (T/F?)

False

Publicly traded companies are required to provide quarterly financial reports directly to the public (T/F?)

False

Publicly traded companies must provide to the Securities Exchange Commission annual audited financial statements (10K reports) and quarterly audited financial statements (10Q reports) (T/F)?

False

Publicly traded companies provide financial information primarily to satisfy the SEC and the tax authorities (that is, the Internal Revenue Service) (T/F?)

False

ROE can be disaggregated into operating and nonoperating returns. Nonoperating return will be positive as long as Spread is positive (T/F?)

False

Retained earnings articulate across time which means that last period's retained earnings plus current period net income (or loss) is equal to the current period's retained earnings (T/F?)

False

Revenue from a consignment sale is recognized when the item is placed on consignment with the middleman, if sales are probable, based on past experience (T/F?)

False

The book value of stockholders' equity (the amount reported on the balance sheet) is most typically equal to the market value of the equity of a company

False

The book value of stockholders' equity (the amount reported on the balance sheet) is most typically equal to the market value of the equity of a company (T/F?)

False

The only difference between adjusted return on assets (ROA) and return on net operating assets (RNOA) is that the denominator in RNOA is typically smaller than the denominator in ROA because the former is net of operating liabilities (T/F?)

False

The statement of cash flows encompasses only a firm's cash because cash equivalents are really marketable securities, which are short-term investments (T/F?)

False

The statement of cash flows has two main sections: cash flows from operating activities and cash flows from investing activities (T/F?)

False

Normally a company closes its books and then adjusts its records to update the account balances before preparing the financial statements. This statement is True of False?

False (adjusting happens before closing)

The book value of stockholders' equity (the amount reported on the balance sheet) is most typically equal to the market value of the equity of a company.

False / F

The statement of cash flows has two main sections: cash flows from operating activities and cash flows from investing activities

False / F (3 Sections; Operating, Investing, and Financing cash flows)

Assets are reported on the balance sheet at their current market value.

False / F (Assets are generally reported at historical costs. An exception is marketable securities.)

The income statements of the prior and current year are linked via the balance sheet.

False / F (Balance sheets are linked)

Retained earnings articulate across time which means that last period's retained earnings plus current period net income (or loss) is equal to the current period's retained earnings.

False / F (Last period's retained earnings plus current period net income (or loss) less any dividends paid, is equal to the current period's retained earnings)

False / f (...)

All permanent accounts are adjusted at the end of an accounting period. This statement is True or False?

False, only temporary accounts and liabilities are adjusted

the unaudited quarterly report that includes summary versions of the four financial statements and limited additional disclosures

Form 10-Q

the audited annual report that includes the four financial statements with explanatory notes and the management's discussion and analysis (MD&A) of financial results

Form 10-k

Which of the following statement (s) is (are) most likely to be FALSE? I. Shareholders demand financial information primarily to assess profitability and risk whereas bankers demand information primarily to assess cash flows to repay loan interest and principal. II. Publicly traded companies are required to provide quarterly financial reports directly to the public. III. Publicly traded companies must provide to the Securities Exchange Commission annual audited financial statements (10-K reports) and quarterly audited financial statements (10-Q reports). IV. Financial statements are influenced by five important forces that determine a company's competitive intensity: (A) industry competition, (B) buyer power, (C) supplier power, (D) product substitutes, and (E) threat of entry.

II and III only

Competition and rivalry raise the cost of doing business

Industry competition

Interest expense appears in which financial statement?

Income Statement

Which of the following will properly record the payment of a two-year insurance policy?

Increase and decrease assets

Cash collected on accounts receivable would produce what effect on the balance sheet?

Increase assets and decrease assets

How would cash collected on accounts receivable affect the balance sheet?

Increase assets and decrease assets

How would cash collected on accounts receivable affect the balance sheet? Increase liabilities and decrease equity Decrease liabilities and increase equity Increase assets and increase equity Increase assets and decrease assets

Increase assets and decrease assets (When Cash is collected from Accounts receivable, it increases the Cash Balance and reduces the Accounts Receivable balance. Both the items comes under Current Assets.)

An accrual of wages expense would produce what effect on the balance sheet?

Increase liabilities and decrease earned capital

oversees the development of IFRS

International Accounting Standards Board

Beg. balance + inventory purchased -cost of goods sold = ending balance

Inventory

we can use these two accounts together to take the analysis one step further, what two accounts? Notice both of these accounts are increased by inventory purchases

Inventory & Accounts payable

Commercial paper is issued with maturities of less than 270 days because:

It exempts the borrowing from SEC regulation

How would a purchase of inventory on credit affect the income statement?

It would increase liabilities It would decrease retained earnings It would increase assets Both A and C, above None of the above (x)

Which of the following is one effect of a purchase of $300 of supplies on credit?

It would increase liabilities by $300

Which of the following would not inhibit new entrants into a market?

Lack of rivalry among current participants.

a financing feature where a bank is involved between two parties (importer/exporter)

Letter of Credit

An example of a situation in which company needs credit for investing activities is:

Mergers and acquisitions

The 2016 balance sheet of Lowell Company shows average Lowell shareholders' equity attributable to controlling interest of $9,996 million, net operating profit after tax of $2,308 million, net income attributable to Lowell of $2,513 million, and common shares issued of 950.044 million. Assume the company has no preferred shares issued. Lowell's return on equity (ROE) for the year is:

NI/Avg Eq 2513/9996 = .251 25.1%

The 2016 financial statements of The Times Company reveal average shareholders' equity attributable to controlling interest of $837,283 thousand, net operating profit after tax of $48,032 thousand, net income attributable to The Times Company of $29,068 thousand, and average net operating assets of $354,414 thousand. The company's return on equity (ROE) for the year is:

NI/Avg Eq 29068/837283 = .0347 3.5%

In 2016, Delphi Automotive PLC had current assets of $5,419 million and current liabilities of $4,148 million. The firm's net working capital is:

NWC = CA - CL 5,419-4148 = 1271

At the end of Year 1 Bowers Company had $6,000 of assets, $2,000 of liabilities, $3,000 of common stock, and $1,000 of retained earnings. During Year 2 Bowers experienced the following events. (1) Borrowed $4,000 cash. (2) Earned $5,000 of cash revenue. (3) Paid $3,000 of cash expenses. (4) Paid $7,000 cash to purchase land Based on this information, the amount of net income, cash flow from investing activities, and total liabilities appearing on the Year 2 financial statements is___ Net Income: Cash Flow from Investing Activities: Total Liabilities:

Net Income: 2,000 (5000-3000) Cash Flow from Investing Activities: 7,000 (Land purchase= 7,000) Total Liabilities: 6,000 (2,000+4,000)

ROE is computed as:

Net income attributable to controlling interest / Average equity attributable to controlling interest [RNOA + (FLEV × Spread)] x NCI ratio

Net working capital = Current assets + current liabilities

Net working capital = Current assets less current liabilities. The correct answer is 'False'.

In 2013, Delphi Automotive PLC had current assets of $5,752 million and current liabilities of $3,894 million. The firm's net working capital is:

Net working capital = current assets - current liabilities. Net working capital = $5,752 - $3,894 Net working capital = $1,858 million The correct answer is: $1,858 million

A statement of cash flows usually does not include which of the following?Net income Increase in accounts receivable Contributed capital Depreciation expense None of the above

None of the Above

How would a purchase of $300 of inventory on credit affect the income statement? Answers: It would increase liabilities by $300 It would decrease retained earnings by $300 It would increase assets by $300 Both A and C, above None of the above

None of the above (The purchase on credit increases both accounts payable and inventory, which are balance sheet accounts. It would, therefore, have no effect on the income statement. )

Which of the following accounts would be closed at the end of an accounting period?

None of the accounts listed would be closed at the end of an accounting period.

The 2017 balance sheet of Lowell Inc. shows total assets of $8,271 million, operating assets of $6,566 million, operating liabilities of $3,527 million, and shareholders' equity of $3,688 million. Lowell's 2017 net operating assets are:

OA - OL 6566-3527 = 3039

Maria Company began Year 2 with $85,000 in its Land account. During Year 2 the company made two separate purchases of land. The first purchase of land cost $52,000 and the second purchase of land cost $94,000. Based on this information the company's accounting records will have how many land accounts

One, Two, OR three accounts are all possibilities

Financial statement users with a direct economic interest in a specific business include

Suppliers.

_________ follow this general flow: Beginning balance + Amounts paid - Portion expiring during period = ending balance The beginning balance is the amount that you had prepaid during the last period that had not yet expired at the end of that period. The balance in this account increases when you pay for more. At the end of the period, you make an end-of-the-period adjustment to take out the portion that has expired and show it as an expense of the period. The amount remaining is the amount that is still prepaid at the end of the period.

Prepaid accounts

Which of the following statements is false?

Prepaid insurance is shown on the income statement.

A letter of credit:

Provides a guarantee of payment from the buyer, reducing the credit risk to the seller

The overarching purpose of credit risk analysis is to:

Quantify potential credit losses

During fiscal year-end 2016, Kohl's Corporation reports the following (in $ millions): net income of $556, retained earnings at the end of the year of $12,522 and retained earnings at the beginning of the year of $12,329. Assume that there were no other retained earnings transactions during fiscal 2016. What dividends did the firm pay in fiscal year ended January 28, 2017?

RE Beg + NI - Div = RE End 12329 + 556 - Div = 12522 Div = 363

Caterpillar Inc. reports a net loss for 2016 of $(67) million, retained earnings at the end of the year of $27,377 million, and dividends during the year of $1,802 million. What was the company's retained earnings balance at the start of 2016?

RE Beg + NI - Div = RE End RE Beg - 67 - 1802 = 27377 RE Beg: 29246

RNOA = NOPM * NOAT NOPM = 48032/29068 = 1.65 NOAT = 29,068/354,414 = .082 .082 * 1.65 = .136 13.6%

comprehensive indicator of performance that measures how managers use shareholders funds to generate returns

ROE

what is the starting point of analyzing profitability

ROE

Assets are reported on the balance sheet at their current market value.

Rationale: Assets are generally reported at historical costs. An exception is marketable securities. The correct answer is 'False'.

Kim Company recorded a claims exchange transaction that had the following effects on its financial statements: Which of the following adjustments could have caused these effects?

Recognized a portion of unearned revenue as earned revenue.

Knopp Company experienced an event that had the following effects on its financial statements.

Recognized accrued salary expense

Kim Company recorded an asset use transaction that had the following effects on its financial statements: Which of the following adjustments could have caused these effects?

Recognized expense associated with prepaid insurance.

Which of the following most accurately depicts the steps in an accounting cycle?

Record transaction data → Adjust accounts → Prepare Statements → Close temporary accounts.

Which of the following is included as a component of stockholders' equity? Buildings Retained earnings Prepaid property taxes Accounts payable Dividends

Retained Earnings

__________ is increased when the company earns net income (or decreases when the company incurs a net loss). It is also decreased when the company pays dividends to its stockholders. Remember the name of the account _______ means earning of the company (its net income) that have been retained, meaning not yet been paid out in dividends. When dividends are paid, the amount that have been _____ declines. - is the amount of income minus any losses the company has earned during its lifetime in business and minus any dividends it has paid out also during its lifetime in business.

Retained earnings

Which of the following is included as a component of stockholders' equity? Select one: A. Prepaid property taxes B. Dividends C. Accounts payable D. Retained earnings Correct E. Buildings

Retained earnings is a component of stockholders' equity. Dividends affect retained earnings but they are not reported as a separate component. The correct answer is: Retained earnings

Pfizer Inc., a pharmaceutical company, reported net income for fiscal 2013 of $22,003 million, retained earnings at the start of the year of $54,240 million and dividends of $6,511 million. If there were no other transactions during the year that affected retained earnings, what was the balance of retained earnings at the end of the year? Select one: A. $69,732 million Correct B. $38,748 million C. $124,926 million D. $47,729 million E. There is not enough information to calculate the amount.

Retained earnings, 2013 = Retained earnings, 2012 + Net Income - Dividends. Retained earnings, 2013 = $54,240 + $22,003 - $6,511 Ending retained earnings = $69,732 million The correct answer is: $69,732 million

The ratio of net income to equity is also known as:

Return on Equity

Intel Corporation reported the following on its 2016 income statement (in millions) Sales revenue $59,387 Gross profit $36,191 Total expenses $23,317 What did Intel report for cost of goods sold during 2016?

Sales - Cost of goods sold = Gross profit, $23,196 million

During 2013, Skechers U.S.A., Inc. had Sales of $1,846.4 million, Gross profit of $818.8 million and Selling, general, and administrative expenses of $730.7 million. What was Skechers' Cost of sales for 2013? Select one: A. $1,115.7 million B. $1,027.6 million Correct C. $88.1 million D. $1,549.5 million E. There is not enough information to calculate the amount.

Sales - Cost of sales = Gross profit $1,846.4 - Cost of sales = $818.8 Cost of sales = $1,027.6 million The correct answer is: $1,027.6 million

Which of the following items would not be found on a balance sheet?

Sales and Cost of Goods Sold

The SEC adopted Regulation FD, to curb public companies' practice of:

Selectively disclosing information

A value chain for an industry sets forth

Sequence of activities involved in the creation, manufacture, and distribution of its products.

The basic financial statements include a

Statement of financial position, income statement, statement of cash flows, and statement of retained earnings.

During Year 1 Xing Enterprises experienced the following events. (1) Earned $4,000 of revenue on account. (2) Incurred $3,500 of expenses on account. Based on this information the amount of total assets, net income, and cash flow from operating activities appearing on the year 1 financial statements is

TA= $4000 NI= $500 CF= zero

The Company will recognize $5,000 of revenue in Year 1 and $5,000 of cash flow from operations in Year 2

. When considering the results of an Altman Z-Score analysis a score of 4.20 would suggest?

The company is healthy and there is a low bankruptcy potential in the short-term

When using Altman's Z-Score a Type I error occurs when:

The company's Z-score indicates the company is healthy, and the company goes bankrupt

a credit limit is:

The maximum that a creditor will allow a customer to owe at any point in time

Many companies have cyclical operating cash needs due to:

The seasonality of sales

R&D expense is treated as an operating expense, not a capital expenditure, unless the R&D assets acquired have an alternative future use (T/F?)

True

Ratios provide one way to compare companies in the same industry regardless of their size (T/F?)

True

New market entrants increase competition and companies must expend monies on activities such as new technologies, promotion, and human development to erect barriers to entry and to create economies of scale

Threat of entry

As the number of product substitutes increases, sellers have less power to raise prices and/or pass on costs to buyers.

Threat of substitution

At the end of Year 1, Clayton Company had $6,000 of cash, $7,000 land, $2,000 of liabilities, $3,000 of common stock, and $8,000 of retained earnings. During Year 2, Clayton experienced the following events. 1. Borrowed $1,500 cash. 2. Earned $6,500 of cash revenue. 3. Paid $4,000 of cash expenses. 4. Paid $5,000 cash to purchase land. Based on this information the amount of total assets, total liabilities, and retained earnings appearing on the Year 2 financial statements is Total assets= Total Liabilities= Retained earnings=

Total Assets= 17,000 Total Liabilities=3,500 Retained Earnings=10,500

In its December 31, 2016 financial statements, Harley-Davidson reported the following (in millions): LT Assets: $6,036 CL: $2,863 LT Liab: $5,107 Total Liab: $7,970 Equity: $1,920 At December 31, 2016, current assets amount to:

Total Liab + Equity 7,970 + 1,920 = 9,890 9,890 - LT Assets (6,036) CA= 3,854

In its December 31, 2013 financial statements, Harley-Davidson reported the following (in millions): Long-term Assets Current Liabilities Long-term Liabilities Total Liabilities Equity $5,416 $2,510 $3,886 $6,396 $3,009 At December 31, 2013, current assets amount to:

Total assets = Total liabilities + Equity Total assets - long-term assets = current assets. Current assets = $6,396 + $3,009 - $5,416 Current assets = $3,989 million The correct answer is: $3,989 million

A company using accrual accounting may report revenue on the income statement even if it does not collect cash. This statement is true or false?

True

A company with outstanding in-the money employee stock options will report a diluted EPS that is lower than basic EPS. (T/F?)

True

A cost may be recorded as an expense or as an asset purchase. This statements is True or False?

True

According to GAAP revenue recognition criteria, in order for revenue to be recognized on the income statement, it must be earned and realized (realizable). (T/F?)

True

All else being equal, higher financial leverage will decrease a company's debt rating and increase the interest rate it must pay (T/F?)

True

All else equal, when investors consider a firm's return on equity (ROE) they consider less risky a firm that earns proportionately more of that return from operating activities as opposed to nonoperating activities (T/F?)

True

An increase in wages payable is deducted from wages expense to convert wages expense to cash paid to employees (T/F?)

True

Assets are listed on the balance sheet in order of liquidity and liabilities are listed in order of maturity

True

Assets must always equal liabilities plus equity (T/F)?

True

Bonds issued during the year generate cash that is reported in the financing section of the statement of cash flows (T/F?)

True

Consider two companies (A and B) with equal ROA's of 15%. Company A has an asset turnover of 1.2 and Company B has an asset turnover of 1.5. If all else is equal, Company B with its higher asset turnover, is less profitable because it is expensive to turn assets over (T/F)?

True

Depreciation expense is added back to net income in determining the net cash flow from operating activities under the indirect method (T/F?)

True

Financial statements are influenced by five important forces that determine a company's competitive intensity: (A) industry competition, (B) buyer power, (C) supplier power, (D) product substitutes, and (E) threat of entry (T/F)?

True

In order for an asset to be reported on the balance sheet, it must be owned or controlled by the company and be expected to provide future benefits

True

Income tax expense is not recorded at the amount owing to the tax authorities even if this is the most objectively measured amount (T/F?)

True

Increasing a company's net operating asset turnover (NOAT) increases both RNOA and ROE (T/F?)

True

Liabilities and equities are both claims against the assets of a company.

True

Net working capital = Current assets - current liabilities

True

A company using accrual accounting may report revenue on the income statement even if it does not collect cash. True False

True Accrual accounting requires the recognition of revenue in the period in which the work is done regardless of when cash is collected.

Accrued interest expense will appear on the income statement but not on the statement of cash flows. This statement is True False

True Accrued interest expense means that a company has recognized interest expense but has not yet paid the cash associated with the expense. As a result, the income statement will be affected but the statement of cash flows will not be affected.

The amount of revenue shown on the income statement may differ from the amount of cash inflow from operating activities shown on the statement of cash flows. This statement is True False

True The amount of revenue shown on the income statement depends on when the work is done while the amount of cash flow for operating activities shown on the statement of cash flows depends on when cash is collected. As an example, assume a company earns $400 of revenue on account in Year 1 but collects the associated cash in Year 2. In this case, the Year 1 income statement would show $400 of revenue while the operating activities section of the Year 1 statement of cash flows would show zero.

The amount of revenue shown on the income statement may differ from the amount of cash inflow from operating activities shown on the statement of cash flows. This statement is True or False?

True (revenue shows cash that has not necessarily been collected yet)

Assets are listed on the balance sheet in order of liquidity and liabilities are listed in order of maturity

True / T

Preparing financial statements involves two steps: recording transactions during the period and adjusting records to ensure all events are properly recorded.

True / T

A statement of cash flows usually includes: Net income Increase in accounts receivable Contributed capital Depreciation expense

True / T / All of the above

Under accrual accounting principles, the cost of inventory should be reported as an expense in the income statement when it is sold, regardless of when it was purchased. Select one: True Correct False

Under accrual accounting, the cost of inventory is reported as expense in the period in which it is used up, typically at the point of sale. Purchased inventories that have not yet been sold are reported as assets, notwithstanding whether or not they have been paid for. The correct answer is 'True'.

Unearned revenue is recorded for customer prepayments. But it is only moved to the income statement when the services have been rendered and not automatically at the end of the accounting period. The correct answer is 'False'.

Which of the following is not a discontinued account in the income statement?

Unusual or in frequent account

a balance of $600 in accounts receivable at the beginning of Year 2.

During its first year of operation, Cade Company experienced the following events. (1) Issued common stock for $7,000 cash. (2) Earned $5,000 of cash revenue. (3) Paid $3,000 of cash expenses. (4) Paid cash dividends amounting to $1,000. Before closing on December 31, the balance in the retained earnings account would be_____

ZERO (Before Closing)

On August 1 of Year 1 Accounting Associates collected $1,200 cash for consulting services to be provided for one year beginning immediately. The company's fiscal closing date is December 31. Based on this information, the amount of unearned revenue appearing on the Year 2 balance sheet would be $700. $500. zero. $1,200.

Zero, by the end of year 2, all of the services will be completed because the contract was signed in year 1

Brown Company's December 31, Year 1 balance sheet showed $1,800 cash, $200 accounts payable, $600 common stock, and $1,000 retained earnings. The company experienced the following events during year 2. (1) On April 1, Year 2 the company paid $1,800 cash to rent office space for the coming year starting immediately. (2) Earned $1,700 cash revenue. (3) Paid a $300 cash dividend. Based on this information, the company would report

a $1,050 balance in retained earnings on the Year 2 balance sheet.

Identify which of the following items would be reported in the balance sheet. a. Cash d. Wage expense g. Net income b. Sales e. Wages payable h. Inventory c. Long-term debt f. Retained earnings i. Cost of goods sold Items reported in the balance sheet would include:

a, c, e, f, and h

This way of analyzing the problem will give you the correct answer whether or not all sales of the company were made on __________. If we add in all sales (which could have included some sales which were paid immediately in cash), we will get all the cash collected (which will include both collections from customers paying on account as well as purchases for cash).

account

The liability account _______ increases when inventory is purchased on account, which means that the inventory was received before payment was made. When inventory is purchased on account, both the asset inventory and the liability accounts payable are increased. Notice that this purchase on account increases the totals on the Balance Sheet, and there is no impact on the Income Statement.

accounts payable

This is the flow of the _____1__account: Beginning balance + inventory purchased - amounts paid for inventory = ending balance The beginning balance is the amount you owed your suppliers of inventory at the end of the prior period. (You had received the inventory but had not yet paid for it.) Add in the inventory purchased, which is the inventory you bought during the current period. Subtract out any payments you made for inventory, and the end result is the amount you owe your suppliers of inventory at the end of the period. Notice that for purposes of analysis, you want to include the ENTIRE inventory purchased in this formula, whether or not the purchase was originally made on account. You want to do this because you want the component ______2____ to include everything you paid, whether or not you ran that through the accounts payable system.

accounts payable , amounts paid for inventory

When analyzing ___________, think of the account in this manner: Beginning balance + sales - cash collected from sales = ending balance -At the beginning of each period, the balance is the amount you are owed from your customers. The balance is increased as you make more sales on account and decreased as you collect from your customers. The ending balance is the amount you are still owed.

accounts receivable

When the account _______ increases, it is because a sale has been made for which the cash has not yet been collected. The entry is to increase the Income Statement revenue account (typically called either "fee income" or "sales") and to increase the Balance Sheet account accounts receivable. So at the time of the sale, the Income Statement and the Balance Sheet are both increased.

accounts receivable

recognizes revenue when it is earned instead of when it is collected recognizes expenses when it is incurred instead of when it is paid

accrual basis of accounting

Interest will ____ on the note as time goes by. At the date the money was borrowed, there was no interest due. The longer the loan is "outstanding" (the money is held by the borrower), the more interest will _____. Ex: Assume in the above example that a note payable in the amount of $10,000 was borrowed on July 1, 2015 and a total of $12,000 must be paid back on July 1, 2017. At that time the loan will have been outstanding for a total of two years, and besides the principal, the company will also owe $2,000 in interest. -Any amount repaid over and above the amount borrowed is interest.

accrue

cash is paid or received after expenses or revenues are recognized

accrued expense accrued revenue

service has been done but not paid

accrued liability

revenues earned but not received

accrued revenue

During Year 1, Pang Enterprises experienced the following events. (1) Earned $4,000 of revenue on account. (2) Collected $3,500 cash from accounts receivable. The remainder of the receivable was collected in Year 2. Based on this information, the amount of accounts receivable, net income, and cash flow from operating activities appearing on the Year 2 financial statements is

acct rec= zero net inc= zero CF= $500

As the fixed assets are used and depreciation is recorded (for assets other than land), the depreciation recorded is recorded in the contra-asset account, ___________. The presentation on the Balance Sheet is the original cost minus this.

accumulated depreciation

expenses incurred but not paid

accured expense

When a company incurs accrued expenses

al answers are correct

Hector Company's December 31, Year 1 balance sheet showed $900 cash, $600 supplies, $500 accounts payable, $400 common stock, and $600 retained earnings. The company experienced the following events during year 2. (1) Purchased $1,200 of supplies on account. (2) Earned $1,800 cash revenue. (3) Paid $1,100 cash to reduce accounts payable created in Event 1 above. (4) Physical count revealed $200 of supplies on hand at the end of Year 2. Based on this information, the company would report

all answers are correct

Lawyers Inc. accepted a $12,000 retainer for which the company agreed to provide services in the future. Recognizing this event would

all answers are correct

When a company earns revenue on account

all of the answers are correct

as inventory and property plant and equipment on the balance sheet are consumed, they are reflected

as an expense on the income statement

On December 1, Year 3 Walton Company paid $3,600 cash for office space to be used during the coming year. This event is

asset exchange transaction

Styles Company paid cash to purchase supplies. This event is

asset exchange transaction

Crowe Company collected $18,000 in advance for services to be performed in the future. This event is

asset source transaction

During its Year 2 accounting cycle Styles Company had $4,000 of supplies available for use. A year-end physical count of supplies found $300 of supplies on hand. Based on this information, the year-end adjusting entry necessary to recognize supplies expense is

asset use transaction

On December 1, Year 3 Walton Company paid $3,600 cash for office space to be used during the coming year. This transaction was recorded as an asset exchange transaction. Based on this information, the year-end adjusting entry to recognize rent expense is

asset use transaction

must be owned/possess expected future economic benefits to be reported on balance sheet

assets

AAA Consulting Services collected cash for services to be provided in the future. Recognizing this event would cause the company's

assets and liabilities to increase

Which of the following shows how the event "collected cash for services to be rendered in the future" affects a company's financial statements?

assets= + lib= + eq= NA rev= NA exp= NA net inc= NA CF= +OA

Which of the following shows how recognizing revenue on account will affect a company's financial statements?

assets= + lib= NA eq= + rev= + exp= NA net inc= + CF= NA

Which of the following shows how paying off an accrued liability such as salaries payable will affect a company's financial statements?

assets= - lib= - eq= NA rev= NA exp= NA net inc= NA CF= - OA

Which of the following shows how adjusting the accounts to recognize supplies expense will affect a company's financial statements?

assets= - lib= NA eq= - rev= NA exp= + net inc= - CF= NA

Which of the following shows how the adjustment to recognize the portion of prepaid rent that has been used affects a company's financial statements?

assets= - lib= NA eq= - rev= NA exp= + net inc= - CF= NA

On September 1 Christopher Company collected $1,200 for an agreement to provide insurance coverage that protects its client for a one year term starting immediately. On December 31 the company adjusted the accounts to show the portion of the insurance that had been provided. Which of the following shows how the adjustment will affect the company's financial records?

assets= NA lib= (400) eq= 400 rev= 400 exp= NA net inc= 400 CF= NA

Which of the following shows how recognizing accrued expense will affect a company's financial statements?

assets= NA lib= + eq= - rev= NA exp= + net inc= - CF= NA

Which of the following shows how the adjusting entry to recognize services provided to a client who paid for the services prior to the work being performed?

assets= NA lib= - eq= + rev= + exp= NA net inc= + CF= NA

Which of the following shows how collecting cash from accounts receivable will affect a company's financial statements?

assets= NA lib= NA eq= NA rev= NA exp= NA net inc= NA CF= + OA

Which of the following shows how paying cash to purchase supplies will affect a company's financial statements?

assets= NA lib= NA eq= NA rev= NA exp= NA net inc= NA CF= - OA

Which of the following shows how the event "paying cash for an insurance policy that protects the company for some future time period" affects a company's financial statements?

assets= NA lib= NA eq= NA rev= NA exp= NA net inc= NA CF= - OA

The closing process normally occurs at

at the end of an accounting cycle

The balance at the bottom of the Statement of Retained Earnings is brought forward to the end-of-the-period Balance Sheet to bring it into ____. Once this is done, all revenue minus all expenses and all dividends paid have been brought over to the stockholders' equity section of the Balance Sheet. It is because all of these figures have been netted together and "stored" on the Balance Sheet that it is not necessary to keep beginning balances on the Income Statement.

balance

A list of assets, liabilities and equity can be found on which of the following?

balance sheet

A prepaid rent account appears of which on the following financial statements?

balance sheet

The accounts payable account appears on

balance sheet

The unearned revenue account appears of which of the following financial statements?

balance sheet

most common structured to meet specific client needs a lot of rules/regulations revolving credit line: available on demand/floating interest rate line of credit-available credit to be used as needed

bank loans

Buyers with strong bargaining power can extract price concessions

bargaining power of buyers

payment of debt, issuance of stock

borrowing

The following accounting equation represents the financial position of Qualtro Company. Assets = Liabilities + Stockholders' Equity Cash + Land = Notes Payable + Common Stock + Retained Earnings 400 2,200 800 1,200 600 Based on this equation, Qualtro

can pay a $300 cash dividend.

EX: Assume on October 1, 2015, your company pays $1,200 for insurance covering one year. At the time of purchase, your company has exchanged one asset for another. The entry at this time is to reduce the ____ account by $1,200 and to increase the prepaid insurance account by $1,200.

cash

_________ collected on account is what reduces the balance in accounts receivable.

cash

When the balance in a prepaid account increases, it is because more has been purchased. At the time of purchase, it is an exchange of _1___ for the prepaid item. As time goes by, part of the prepayment expires & is no longer an asset. The portion of the prepayment that expires is an ____2__ of that period and should be taken out of the asset account and shown as an ___2___ on the Income Statement. You would use an end-of-the-period adjustment to make this entry.

cash, expense

Adams Company adjusted its records to recognized accrued salary expense at the end of its Year 1 accounting period. The recognition is

claims exchange transaction

Crowe Company collected $18,000 in advance for services to be performed in the future. The year-end adjusting entry necessary to recognize the portion of the revenue that was earned during the year is

claims exchange transaction

The first transaction of a corporation is to issue stock to the owners in exchange for an asset, typically cash. This transaction increases the cash account and increases the stockholders' equity account called ? - The company could also issue additional stock at a later point in time or it could buy back some of its stock that is outstanding.

common stock

A statement of cash flows usually does not include which of the following?

contributed capital

the stockholders' net contributions to the company

contributed capital

long term assets can be what

converted, consumed, expired, or sold within accounting period

The account called _______ is the expense account associated with the sale of inventory. This account shows the cost the company had in the inventory that was sold during the period.

cost of goods sold

the quality and quantity of financial information is determined by what and what of provided information

costs and benefits

managers and employees

current and future financial health

who are the users of financial statements

customers, competitors, investors, employees, etc

Inventory. Because these are both asset accounts and the increase is one is offset by the _____ in the other, the Balance Sheet totals would not have changed.

decrease

market for credit is governed by what

demand and supply

companies borrow money for operating, investing, and financing

demand for credit

Voters and their representatives

economic, social, taxation, and other initiatives, and to monitor government spending.

consists of contributed capital/retained earnings

equity

When your company prepares annual financial statements at December 31, 2015, three months of this insurance will have expired. To correctly state the financial statements, you need to reduce the asset account so that the Balance Sheet shows nine months of prepaid insurance remaining and to record the portion of insurance that has expired as an ____2___ of this period on the ___2____.

expense, I.S.

All permanent accounts are adjusted at the end of an accounting period. This statement is

false

Normally a company closes its books and then adjusts its records to update the account balances before preparing the financial statements. This statement is

false

funds may be needed to pay dividends or repurchase stock, funds needed to pay maturing long term debt

financing

movement of money in and out of company interest and dividends paid or received

financing

Regulators and tax agencies

for antitrust assessments, public protection, setting prices, import-export analyses, and setting tax policies.

unearned revenue

have received money but service has not been done

interest expense appears in which financial statement

income statement

how would cash collected on accounts receivable affect the balance sheet

increase assets and decrease assets

an accrual of wages expense would produce what effect on the balance sheet

increase liabilities and decrease earned capital

When the liability account interest payable ____1_____, it is because more interest has accrued than has been paid. If it ______2____, it is because more interest has been paid than has accrued during the period. The entry when interest is paid is to decrease the asset account cash and to decrease the liability account interest payable.

increases, decreases

A purchase of inventory on account is recorded by _______ the asset account inventory and ______ the liability account accounts payable. The company has ______ what it owns, but it has also _____ what it owes. This transaction ______ the totals at the bottom of the Balance Sheet because both total assets and total liabilities have increased.

increasing

On May 1 of Year 1 Matthew Company paid $2,400 cash for an insurance policy that would protect the company for one year. The company's fiscal closing date is December 31. Based on this information, the amount of insurance expense and the cash flow from operating activities shown on the Year 1 financial statements would be

insurance exp= 1600 cash flow= (2400)

The flow of the ________ account is: Beginning balance + interest incurred - amount paid = ending balance

interest payable

Because the accounts payable account is only used for purchases of ____ ?

inventory

When the asset account ________ increases, it is because this has been purchased. Recall that the term _______ is only used when referring to the products that the company is in business to sell. Often this will be purchased "on account", which means that it is not paid for at the time of receipt but is paid later when an invoice is submitted by the selling company.

inventory

investing in fixed assets, securities, selling fixed assets, buying fixed assets

investing

for investments in fixed assets, require large amounts of cash

investing activities

The entry for the sale of _______ is to reduce the ___ account by the amount that had originally been paid for that segment of ______, increase the cash account by the amount of cash actually received, and to record the difference as either a "gain" or "loss" on the next to last line of the Income Statement.

land

Recognizing an expense may cause

liabilities to increase

assets are recorded in the balance sheet in order of

liquidity

recognize expenses when incurred

matching principle

on the balance sheet liabilities are listed in order of what

maturity

Depreciation deductions decrease the _____ of fixed assets, and the term "net carrying value" refers to the original cost of the asset minus accumulated depreciation.

net amount

net income of $2,000 in Year 1.

To analyze retained earnings, compare the ending balance of this period with the ending balance of the prior period. If the balance at the end of the current period in the account retained earnings is greater than the balance in this account in the prior period, then you know that the company earned a net income during the period and that, if dividends were paid out, the amount paid out was less than the amount of net income. However, if the balance at the end of this period is lower than the prior period, the company may have incurred a _____ during the period or it may have paid out more in dividends that it earned in net income or both of these might have occurred during the period.

net loss

used when bank financing is limited or unavailable

non bank (private) financing

How would a purchase of $300 of inventory on credit affect the income statement? -It would increase liabilities by $300 -It would decrease retained earnings by $300 -It would increase assets by $300 -Both A and C, above -None of the above

none of the above (none of those are on the income statement)

Baltimore Company paid cash to purchase insurance that would protect the company during the coming year. The recognition of this event would

not affect total assets or equity

The ______ account is a liability that increases as funds are borrowed. If your company takes out a loan in the amount of $10,000, the entry would be to increase the asset cash and increase the liability _____. This entry increases both assets and liabilities on the Balance Sheet, and the fact that the company now has borrowed money has no impact on the Income Statement.

notes payable

The flow of the ______ account is as follows: Beginning balance + funds borrowed - amounts repaid = ending balance

notes payable

Be careful of the phrase ________. It can refer to a sale in which the cash has not yet been collected (accounts receivable), or it can refer to a purchase that has not yet been paid (accounts payable). Pay attention to the context in which this term is used to be sure you are handling the transaction correctly.

on account

When a long-term asset is sold, the account balance is reduced by the ___________ of the asset, not the amount of cash received.

original purchase price

When accounts receivable decreases, it is because all or part of the amount ________ to the company has been collected. When the cash is collected, accounts receivable is reduced and cash is increased. This is just an exchange of one asset, the receivable, for another asset, cash, and only the Balance Sheet is impacted. You have already recorded this as revenue on the Income Statement at the time it was earned.

owed

Bookmyer Company experienced a business event that affected its financial statements as indicated below.

paid cash to purchase supplies

Any account that is labeled a "________" is always a liability. Recall that a liability always means that a debt is owed that has not yet been paid. Because of this, all _____ accounts are increased by additional debt and decreased when they are paid.

payable

If we are given the amount of inventory sold (cost of goods sold), we can use the amount of inventory purchased to determine the _____1___. To make this determination requires two steps. First analyze the inventory account to arrive at the amount of inventory purchased. Plug this figure for _______2_____into the accounts payable analysis and determine the payments made on account during the period.

payments on account, inventory purchased

If, at the end of the period the balance in the accounts payable account has increased over what it was at the end of the prior period, there have been more purchases of inventory on account during the period than there have been _____1_. If the balance has decreased, there have been more payments on accounts payable than there were ___2__ on account.

payments, purchases

Investment analysts and information intermediaries

predicting companies' future performance.

deferred expense paid but not incurred

prepaid expense

cash is paid or received before expenses or revenues are recognized

prepaid expense unearned revenues

On June 1 of Year 1 Doe Company paid $1,800 cash for an insurance policy that would protect the company for one year. The company's fiscal closing date is December 31. Based on this information alone, the amount of prepaid insurance and insurance expense shown on the Year 2 financial statements would be

prepaid in= zero in exp= 750

which of the following are included in current assets

prepaid rent

A company's return on assets (ROA) can be disaggregated to reveal which of the following:

profit margin and asset turnover

debt capital raised through public markets they are easily transferrable price depends on company ratings bonds, commercial papers

publicly traded debt

A company's net cash flow will equal its net income ...

rarely

When the payable is paid, both the asset cash and the liability accounts payable are _____. This transaction of paying a liability decreases the totals on the Balance Sheet, and again there is no impact on the Income Statement.

reduced

NOTES PAYABLE: When the principal portion is repaid, there is again no impact on the Income Statement. Both the asset cash and the liability note payable are ______1__. While the principal portion of the loan only impacts the Balance Sheet, the interest incurred is an ____2___ on the Income Statement.

reduced, expense

It is the selling of inventory that requires two separate, balancing entries. One entry is recorded at the company's original cost in the inventory. This entry _1____ the asset account inventory and __2__ the Income Statement account cost of goods sold. The other entry is to ___3__ and this entry is made at the sales price. A revenue account on the Income Statement is increased and an asset account on the Balance Sheet (either cash or accounts receivable) is increased

reduces, increases - record the sale

All of the following ways can diminish accounting quality, except: -Unintentional errors -Deliberate management intervention -Reliable numbers that are predictive -Pro forma disclosures

reliable numbers that are predictive

Most businesses will have some future expenses that must be prepaid. Examples of typical prepaid items are ___ & ____ Both of these usually require payments to be made in advance, and these are examples of assets that expire as time goes by.

rent & insurance

net income over the life of the company minus all dividends ever paid

retained earnings

what are dividends paid from

retained earnings

The flow of the _______ is the same as is shown on the Statement of Retained Earnings: Beginning balance + net income - dividends paid = ending balance - The beginning balance of retained earnings is the ending balance from the prior year. Remember that retained earnings is all of the net incomes from the company from all the year it has been in business minus the dividends paid. In this formula, we are doing the same thing for this year by adding in this year's net income and subtracting out any dividends paid this year.

retained earnings account

recognize revenues when earned when the service is given is what earned means

revenue recognition principle

There are many other possible payable accounts that a company can have on its Balance Sheet. One common such account is ____1____& ________. This account results from employees having worked and the company owing them their pay checks at the end of the period. This is common because the end of the period might be in the middle of the week and the pay date not until Friday. The entry is at the end of the period is to increase the account ___1___ and to increase the liability account _____1___ payable.

salaries and wages payable

On May 1 of Year 1 Matthew Company collected $2,400 cash for services to be provided for one year beginning immediately. The company's fiscal closing date is December 31. Based on this information, the amount of service revenue and the cash flow from operating activities shown on the Year 1 financial statements would be

serv rev= 1600 cf= 2400

Examples of these assets are in the category called "fixed assets", which typically includes land, buildings, and equipment. When the amount shown on the Balance Sheet for these assets (the amount directly to the right of the account title) increases from one period to the next, more fixed assets were purchased during the period. When the fixed asset balance decreases from one period to the next, some fixed assets were ______ during the period.

sold

When the inventory account decreases, it is usually because inventory has been _1__. When inventory is sold, the inventory account on the Balance Sheet is ___2__ by the cost of the inventory sold, and the Income Statement expense account cost of goods sold is increased by the same amount.

sold, decreased

Assets are listed on the balance sheet in order of liquidity and liabilities are listed in order of maturity.

ssets are reported in the order that they are generally expected to be converted into cash. Receivables are, thus, reported before inventories, and inventories before PPE. Liabilities are reported in order of maturity, with current liabilities expected to be paid within one year and long-term liabilities expected to be paid over a longer period of time. The correct answer is 'True'.

Which of the following accounts would most likely need to be adjusted at the end of an accounting cycle?

supplies

they are set in borrowing amount with periodic payments. they are based on market interest rates

term loans

If a company recognizes $5,000 of accrued salary expense on December 31, Year 1,

the December 31, Year 1 expense recognition will not affect the cash account.

the Year 2 balance sheet would show $200 of prepaid insurance.

Fowler Company's December 31, Year 1 balance sheet showed $1,700 cash, $1,000 common stock, and $700 retained earnings. The company experienced the following event during Year 2. (1) On October 1, collected $1,200 in advance for an agreement to provide office space for one year beginning immediately. Based on this information alone,

the Year 3 income statement would show $900 of rent revenue

the Year 3 statement of cash flows would show zero outflow to purchase insurance.

On December 31, Year 3 Snack, Inc. adjusted its records to recognize $5,000 of accrued salaries. Based on this information alone

the balance sheet at the beginning of Year 4 would show $5,000 of accrued salaries payable.

If a company recognizes accrued salary expense

the employees have completed work but have not been paid.

According to the revenue recognition principle, companies are required to record revenue when cash is received as this provides the most objective evidence for the auditors. Select one: True False Correct

the revenue recognition principle states that revenue may be recognized in the income statement when it is earned and realized or realizable. Cash is objective but not necessary for revenue to be earned. The correct answer is 'False'.

Customers and strategic partners

to assess a company's ability to provide products or services and to assess the company's staying power and reliability.

Stockholders and directors

to assess the profitability and risks of companies and other information useful in their investment decisions

What is the goal of the SEC's Regulation Fair Disclosure?

to curb the practice of selective disclosure by public companies

Creditors and suppliers

to help determine loan terms, loan amounts, interest rates, and required collateral.

When a company collects cash from accounts receivable,

total assets are not affected

When a company pays cash to reduce accounts payable

total assets decrease

Delta Company started Year 2 with a $1,700 in cash, $700 in supplies, and $2,400 in common stock accounts. During Year 2 the company experienced the following events. (1) Paid $1,600 cash to purchase supplies. (2) Physical count revealed $400 of supplies on hand at the end of Year 2. Based on this information the year-end adjusting entry to recognize supplies expense would cause

total stockholders equity decrease by $1900

routine credit from suppliers mostly non-interest bearing credit worthiness matters credit limit assigned

trade credit

what are money sources for credit

trade credit bank loans non bank (private) financing publicly traded debt lease financing

A balance sheet reports on investing and financing activities (T/F)?

true

A company using accrual accounting may report revenue on the income statement even if it does not collect cash. This statement is

true

A cost may be recorded as an expense or as an asset purchase. This statement is

true

Land bought for $2,200. If at the end of Year 1 an appraiser provides a certified opinion that the market value of the land is $2,800 the company would continue to list the land on its books at $2,200. This statement is_________

true

The DuPont analysis disaggregates return on equity into profitability, efficiency and leverage components (T/F?)

true

The statement of cash flows reports on cash flows from operating, investing, and financing activities over a period of time (T/F)?

true

Unearned revenue is a liability account that normally needs to be adjusted at the end of an accounting cycle. This statement is

true

the statement of equity reports on changes in the accounts that make up equity (T/F)?

true

Liabilities and equities are both claims against the assets of a company

true / T

Under accrual accounting principles, the cost of inventory should be reported as an expense in the income statement when it is sold, regardless of when it was purchased.

true / T

In addition to purchased assets like inventories and equipment, companies also may report on their balance sheets intangible assets such as the value of a brand name.

true / t

On June 1 of Year 1 Zoe Company collected $1,800 cash for medical services to be provided for one year beginning immediately. The company's fiscal closing date is December 31. Based on this information the amount of unearned revenue and service revenue shown on the Year 1 financial statements would be

unearned rev= 750 serv rev= 1050

If we had been given the amount of cash collected, then we could have determined the total revenues by solving for the amount that had increased the accounts receivable. Because accounts receivable is closely related to ____________ when analyzing accounts receivable, always look to see if there is also any ____?

unearned revenue

Another common liability account is ________. ____ are usually paid after they have been used, but the expense needs to be recorded in the period in which the they were used. Often the invoice will be received at the end of the month and will be due the next month. Increasing the expense account ______ expense and increasing the liability account ______ payable correctly states the Income Statement and Balance Sheet at the end of the period. It shows the expense that was incurred during the period and also shows that there is an additional liability now because the ______ payment will be paid within a few days into the next period. - the liability account _____ payable and the asset account cash will both be decreased when a payment is made

utilities payable

Which one of the following is not a current liability? -wage expense -accounts payable -taxes payable

ACCT5315 Accounting Topics' module 1 and 2

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