BA211 Ch1

15. _______ ______ is the amount that the business could sell the asset for, or the amount that the business could pay to settle the liability.

Fair value

29. Put the following assets in order of liquidity: equipment, cash, inventory, and short-term investments.

. Cash, Short-term investments, Inventory, Equipment

28. List and describe the three items (sections) on a balance sheet. a. b. c.

. a. Assets: Assets are economic resources that are expected to provide a future benefit. They are divided into current and long-term assets. b. Liabilities: Liabilities are debts that the company owes. They are also divided into current and long-term depending on when they become due. c. Stockholders' Equity: The claim of the owners or stockholders' to the assets of the business.

14. List and describe the four enhancing qualitative characteristics for accounting information a. _____________________: b. _____________________: c. _____________________: d. _____________________:

. a. Comparability: capable of being compared with information from other companies in the same period b. Verifiability: capable of being checked for accuracy, completeness, and reliability c. Timeliness: made available to users early enough to help them make decisions d. Understandability: would make sense to the reasonably informed user of information

Assuming an entity will continue to operate long enough to sell its inventories and convert any receivables to cash is: A. Continuity (going-concern) assumption. B. Entity assumption. C. Stable-monetary-unit assumption. D. Historical cost principle.

A

Listed below are the account balances of the Furr Corporation: Accounts Payable $ 63,000 Building 190,000 Cash 88,000 Common Stock 150,000 Dividends 5,000 Land 160,000 Miscellaneous Expense 3,000 Service Revenue 250,000 Equipment 35,000 Note Payable due in 60 days 125,000 Long-Term Debt 13,000 Salary Expense 120,000 Total Liabilities are: A. $201,000. B. $324,000. C. $311,000. D. $188,000.

A

39. Describe ethics in your own words.

Answers will vary. Ethics are shaped by our own background and experiences. They are similar to our morals. What is legal may not always be the most ethical thing to do.

18. What is the accounting equation?

Assets = Liabilities + Owners' (Stockholders') Equity

Listed below are the account balances of the Sycamore Corporation: Accounts Payable $ 75,000 Cash 100,000 Common Stock 200,000 Dividends 10,000 Land 170,000 Miscellaneous Expense 3,000 Service Revenue 147,000 Equipment 130,000 Note Payable due in 90 days 60,000 Long-Term Debt 18,000 Salary Expense 87,000 Net Income (Net Loss) is: A. $47,000. B. ($28,000). C. ($18,000). D. $57,000

D

32. Operating activities show how the company operates by selling _______ and __________ to customers. Investing activities show a company's investment in ______-_____ ___________. Financing activities include _______________________________________________.

Goods; services; long-term assets; issuing stock, paying dividends, borrowing, and repayments of borrowed funds.

23. You can determine how well the company performed during the year by looking at its _____________ ________________. You can determine a company's financial position by looking at its _____________ ________________.

Income statement; Balance sheet

24. The three sources (uses) of cash flows include _______. ___________, and _________ activities.

Operating, Investing, and Financing

19. What are the two main subparts of stockholders' equity and what is the difference between them?

Paid-in capital: the amount the stockholders have invested in the corporation Retained earnings: the amount earned by income-producing activities and kept for use in the business The main difference is that paid-in capital comes from the stockholders while retained earnings is from the operations of the business.

7. Income from the ______________________ form of business organization "flows through" to the owners; each owner can legally bind all partners into unlimited debt.

Partnership

6. A ___________________ form of business organization consists of a single owner and the owner is personally liable for all of the business's debts.

Proprietorship

13. In your own words, describe the difference between relevance and faithful representation.

Relevance means that the information could change the outcome or make a decision maker chose a different path. If information would have no impact on the decision, then it is not relevant. If the information could change the decision makers mind, it is relevant. Faithful representation means that the information is accurate. Faithful representation makes the information reliable for decision makers to use it.

22. How is retained earnings calculated?

Retained earnings = Revenues - Expenses - Dividends Or Retained earnings = Net income (net loss) - Dividends

33. The income statement is the only financial statement to report ____________ and __________.

Revenues and expenses

20. The three major types of transactions that affect retained earnings are __________, ___________, and ______________. Paying employee salaries would ________ retained earnings.

Revenues, expenses, and dividends Decrease

10. Who (or what) ultimately controls a corporation?

Stockholders or shareholders who own stock in the corporation

36. List five examples of accounts that would be listed on the balance sheet.

Students' answers will vary. Some examples include, Cash, Accounts Receivable, Inventory, Prepaid Expenses, Equipment, Machinery, Land, Accounts Payable, Notes Payable, Unearned Service Revenue, Common Stock, Additional Paid-In Capital, Retained Earnings

26. Operating expenses are the costs of every day operations that are not directly related to merchandise purchases and occupancy. TRUE or FALSE

T

27. What does the statement of the retained earnings show about a company?

The statement of retained earnings shows the portion of net income that a company has retained over the years. If the company has been profitable, it will have a positive balance in retained earnings. If it has had losses, then its retained earnings will be in a deficit. The statement of retained earnings also shows if the company has distributed dividends.

16. Describe the Stable-Monetary-Unit Assumption in your own words.

This assumption ignores inflation. It assumes that the dollar today is worth the same as a dollar tomorrow. In other words, the purchasing power of the dollar remains steady over time. Accountants use this assumption so they do not have to adjust prior amounts to current year dollars.

37. You can determine if a company is able to pay its current and long-term liabilities by comparing ______ _______ to _______ __________.

Total assets to total liabilities

31. ____________ stock represents amounts paid by the company to repurchase its own stock.

Treasury

The equation for the Statement of Cash Flows is: A. Net cash flow from (Operating Activities + or - Investing Activities + or - Financing Activities) + Beginning Cash balance = Ending Cash balance B. Net cash flow from (Operating Activities - Investing Activities - Financing Activities) + Beginning Cash balance = Ending Cash balance C. Net cash flow from (Operating Activities + Investing Activities + Financing Activities) - Beginning Cash balance = Ending Cash balance D. Net cash flow from (Operating Activities - Investing Activities + Financing Activities) + Ending Cash balance = Beginning Cash balance

A

42. What is the best decision framework for making ethical judgments?

A good decision framework for making ethical judgements would be the following: Ask yourself, what is the issue? Identify who the stakeholders are and what the consequence of the decision would be to each of them. Weight the alternatives. Make the decision and prepare yourself to deal with the consequences. This can be simplified into three questions. (1) Is the action legal? (2) Who will be affected and how? (3) How will this decision make me feel after? How would it make me feel if my family reads about it in the newspaper?

35. Describe how to construct a statement of retained earnings.

A statement of retained earnings starts with the beginning retained earnings balance. Then, net income is added or net loss is subtracted. Next, dividends are subtracted. The final line is then calculated, to give us ending retained earnings.

4. Who uses accounting information? a. _______________________________ b. _______________________________ c. _______________________________ d. _______________________________

A. Individuals b. Investors and creditors c. Regulatory bodies d. Nonprofit organizations

21. Dividends (ARE or ARE NOT) expenses. They (NEVER or ALWAYS) affect net income

ARE NOT; NEVER

30. When the term "net" is used on a financial statement regarding property and equipment, it means that the historical acquisition cost of the assets has been reduced by ___________ ____________.

Accumulated depreciation

Which financial statement reports net income and dividends? A. Income Statement B. Statement of Retained Earnings C. Balance Sheet D. Statement of Cash Flows

B

Which financial statement reports revenues and expenses? A. Statement of Retained Earnings B. Income Statement C. Balance Sheet D. Statement of Cash Flows

B

Which of these is an asset? A. Long-Term Debt B. Accounts Receivable C. Accounts Payable D. Notes Payable

B

17. Assets are economic resources that are expected to produce a __________ in the future. Liabilities are debts that are payable to _________. Owners' equity represents the _______ claims of a business.

Benefit; Outsiders/Creditors; Insider

3. _________________ is a mechanical part of accounting; accounting as a field is much more than this mechanical part.

Bookkeeping

Jennie Browne the owner of a small business. She has decided to save money during her initial years of operation by not hiring a professional accountant. She makes inflation adjustments to accounting information to make it comparable over time. Which accounting principle, concept, or assumption does this violate? A. Entity assumption B. Continuity (going-concern) assumption C. Stable-monetary-unit assumption D. Historical cost principle

C

The __________________ states that assets should be recorded at their actual cost. A. Stable-monetary-unit assumption B. Continuity (going-concern) assumption C. Historical cost principle D. Entity assumption

C

What is the reason for having financial statements

Companies have financial statements in order to report the results of their activities to various groups of users, such as managers, investors, creditors, and regulatory agencies.

9. Although its advantages include the ability to raise large sums of capital and the no personal liability for its owners, one potential disadvantage of the _______________________ form of business organization is that its income is subject to double taxation.

Corporation

4. If total liabilities decreased by $150,000 and total assets decreased by $180,000 during the same accounting time period, what happened to total owners' equity during this period? A. $180,000 increase B. $180,000 decrease C. $30,000 increase D. $30,000 decrease

D

41. The four core values of the Business Ethics Leadership Alliance include _________ __________, transparency, __________ __________, and accountability.

Legal compliance, transparency, conflict identification, and accountability

8. When organized as a _______________________________, the owners are not personally liable for the business's debts and the business's income "flows through" to the owners to be taxed at the owners' own tax rates.

Limited-Liability Company

25. What is the single most important item in the financial statements?

Net income

34. If expenses exceed revenues, the company will report a ______ _______.

Net loss

40. List and describe the three types of factors that influence business and accounting decisions. a. _________________________________________ b. _________________________________________ c. _________________________________________

a. Economic factor: the decision should be made in order to maximize economic benefits to the decision maker b. Legal factor: based on the proposition that free societies are governed by laws c. Ethical factor: recognizes that while certain actions might be both economically profitable and legal, they still may not be right

5. What two branches of accounting are based on whether the user is external or internal? a. _______________________________ b. _______________________________

a. Financial accounting (external) b. Management accounting (internal)

11. Two professional frameworks for the measurement and disclosure of financial information are: a. _____________________________________________ b. _____________________________________________

a. Generally Accepted Accounting Principles (GAAP) b. International Financial Reporting Standards (IFRS)

38. If you were considering investing in The Walt Disney Company, what should you look for?

tudents' answers will vary. Possibilities include: Can the company sell its services and products? Look at revenue on the income statement What are the main income measures and trends? Calculate and analyze gross profit, operating income, and net income What percentage of revenue ends up as profit? Divide net income by sales revenue Can the company pay its current and long-term liabilities? Compare assets to liabilities on the balance sheet (both current and long-term) Where is the company's cash coming from and how is it being used? Examine the statement of cash flows