ACG 2021 Chapter 1, Financial Accounting

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Accounts Receivable

Asset

Accumulated Depreciation--Buildings

Asset

Accumulated Depreciation--Equipment

Asset

Allowance for Doubtful Accounts

Asset

Buildings

Asset

Cash

Asset

Copyrights

Asset

Equipment

Asset

Goodwill

Asset

Interest Receivable

Asset

Inventory

Asset

Land

Asset

Patents

Asset

Prepaid Insurance

Asset

Prepaid Rent

Asset

Supplies

Asset

In which of the following order are these financial statements usually prepared? A. All of these B. None of these C. The financial statements are independent and the order they are prepared is not important. D. The retained earnings statement is prepared before the balance sheet. E. The balance sheet is prepared before the income statement.

D. The retained earnings statement is prepared before the balance sheet. The financial statements are prepared in the following order: income statement, retained earnings statement, balance sheet. This is because the net income (from the income statement) is a required input for the retained earnings statement, ending retained earnings (from the retained earnings statement) is a required input for the balance sheet.

If Rock INC. has a current ratio of 1.8, and Pebble INC. has a current ratio of 1.6, compared to Rock INC, Pebble Inc. has: A. Lower profitability B. Lower solvency. C. Higher solvency. D. Higher liquidity E. Lower liquidity

E. Lower liquidity The current ratio is current assets divided by current liabilities and measures liquidity. Higher ratios indicate higher liquidity, and lower current ratios mean that the company is less liquid.

Faithful representation means that information accurately depicts what really happened. Characteristics associated with faithfully representative accounting information include being: A. Complete, neutral, and free from error. B. Relevant, verifiable, and predictable. C. Material and predictive D. Verifiable and neutral E. Confirmatory explanatory, and valuable

A. Complete, neutral, and free from error.

Which of these measures is an evaluation of a company's ability to pay current liabilities? A. Both the current ratio and working capital B. Both earning per share and current ratio C. Earnings per share D. Working capital E. Current ratio

A. Both the current ratio and the working capital The current ratio measures liquidity (assets/liability). Working capital measures liquidity (assets-liabilities). Since both measure liquidity, both measure a company's ability to pay liabilities.

Accounting Equation

Assets= Liabilities + Stockholder Equity

Which of the following is an indicator of profitability? A. All of these B. Earnings per share C. Current Ratio D. Debt to total assets ratio E. Working Capital

B. Earnings per share. The earnings per share ratio is a measure of profitability. The others are measures of solvency or liquidity.

The Retained Earnings Statement A. Summarizes the cash inflows and outflows for a period of time partitioned into operating, investing, and financing activities. B. Summarizes the changes in total equity for a specific period of time such as a year. C. Reports the assets, liabilities, and stockholder's equity at a specific date. D. Presents the revenues and expenses for a specific period of time.

B. Summarizes the changes in total equity for a specific period of time such as a year. The balance sheet reports the assets, liabilities, and stockholder's equity at a specific date. The income statement reports revenues minus expenses (i.e net income). The retained earnings statement summarizes the changes in retained earnings for a specific period of time.

Jeremiah Company recorded the following cash transactions for the year: Collected $460,000 from customers Collected $50,000 from lenders Paid $10,000 to purchase office equipment Paid $140,000 for salaries Paid $20,000 in dividends Paid $260,000 of goods and services What was the company's net cash provided by operating activities for the year? A. $50,000 B. $300,000 C. $60,000 D. $40,000

C. $60,000 A company's activities are divided into three categories: 1) operating activities, 2) investing activities, and 3) financing activities. Operating activities include selling goods or services, paying suppliers or buying inventory, employing workers, etc. Cash flows from operating activities are increased by collecting cash from operating activities. The company's net cash provided by operating activities includes cash collected from customers, salaries paid for salaries, and cash paid for goods and services. =$460000-$140000-$260000=$60000

How does a company compute its free cash flow? A. Net cash flow from all activities minus its expenditures on property, plant, and equipment, and its dividends paid. B. Net cash provided by its operating activities plus its expenditures on property, plant, and equipment, and its dividends paid. C. Net cash provided by its operating activities minus expenditures on property, plant, and equipment, and its dividends paid. D. Net cash flow from all activities plus its expenditures on property, plant, and equipment, and its dividends paid.

C. Net cash provided by its operating activities minus expenditures on property, plant, and equipment, and its dividends paid. Free cash flow is computed by subtracting capital expenditures and cash dividends from its cash provided by operations.

How is stockholder's equity calculated?

Common Stock + Retained Earnings. Assets = Liabilities+Stockholder Equity

What is the formula for current ratio?

Current Ratio = Current Assets / Current Liabilities

The Income Statement A. Summarizes the changes in total equity for a specific period of time B. Reports the assets, liabilities, and stockholder's equity as a specific date C. Summarizes the cash inflows and outflows for a specific period of time partitioned into operating, investing, and financing activities D. Reports the changes in assets, liabilities, and stockholder's equity over a period of time E. Presents the revenues and expenses for a specific period of time.

E. Presents the revenues and expenses for a specific period of time. The balance sheet reports the assets, liabilities, and SE at a specific date. The income statement reports net income, and the retained earnings statement summarizes the changes in retained earnings for a specific period of time.

How is earnings per share calculated?

Earnings (net income) divided by the number of common shares outstanding. If there are preferred dividends, they are subtracted from the net income before dividing by common shares outstanding.

What is the formula for the ending balance?

Ending Balance = Beginning Cash - Cash Disbursements + Cash Receipts

Ending Balance of Stockholder's Equity

Ending SE= Beginning SE + Net Income - Dividends

How is ending retained earnings calculated?

Ending retained earnings equals beginning retained earnings plus net income minus dividends. ERE = BRE + NI -DIV

Administration Expenses

Expenses

Amortization Expenses

Expenses

Bad Debt Expense

Expenses

Cost of Goods Sold

Expenses

Depreciation Expense

Expenses

Freight-Out

Expenses

Income Tax Expense

Expenses

Insurance Expense

Expenses

Interest Expense

Expenses

Loss on Disposal of Plant Assets

Expenses

Maintenance and Repairs Expense

Expenses

Rent Expense

Expenses

Salaries and Wages Expense

Expenses

Selling Expenses

Expenses

Supplies Expense

Expenses

Utilities Expense

Expenses

Accounts Payable

Liability

Bonds Payable

Liability

Discount on Bonds Payable

Liability

Dividends Payable

Liability

Income Taxes Payable

Liability

Interest Payable

Liability

Mortgage Payable

Liability

Notes Payable

Liability

Premium on Bonds Payable

Liability

Salaries and Wages Payable

Liability

Unearned Service Revenue

Liability

Gain on Disposal of Plant Assets

Revenue

Interest Revenue

Revenue

Sales Discounts

Revenue

Sales Returns and Allowance

Revenue

Sales Revenue

Revenue

Service Revenue

Revenue

Common Stock

Stockholder's Equity

Dividends

Stockholder's Equity

Income Summary

Stockholder's Equity

Paid-in Capital in Excess of Par Value-- Common Stock

Stockholder's Equity

Paid-in Capital in Excess of Par Value--Preferred Stock

Stockholder's Equity

Preferred Stock

Stockholder's Equity

Retained Earnings

Stockholder's Equity

Treasury Stock

Stockholder's Equity

What is the primary criterion by which accounting information can be judged? A. Comparability B. Usefulness for decision making C. Consistency D. Predictive Value

Usefulness for decision making

What are the three fundamental qualities of useful accounting information?

Verifiability, Relevance, Faithful Representation

What is the formula for working capital?

Working Capital = Assets - Current Liabilities

The economic entity assumption states that economic events

of each entity can be separately identified and accounted for


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