Rest of accounting

Lucia Ltd. reported net income of $135,000 for the year ended December 31, 2013. January 1 balances in accounts receivable and accounts payable were $29,000 and $26,000, respectively. Year-end balances in these accounts were $30,000 and $24,000, respectively. Assuming that all relevant information has been presented, Lucia's cash flows from operating activities would be:

$132,000 $135,000 - 1,000 - 2,000 = $132,000

prospective

(adj) potential, in the future

Emma's Clothes, Inc. has accounts receivable of $21,000. She has noticed an increase in uncollectible accounts. In 2018, her sales were $32,600 and in 2019, sales were $38,000. She has estimated in the past that 2% of sales would eventually be uncollectible. Emma believes that her losses were closer to 3% last year. What should be the bad debt expense for 2018 and 2019 in the comparative income statements for 2018 and 2019?

2018, $652; 2019, $1,140 2018: $32,600 x 2% = $652 2019: $38,000 x 3% = $1,140

In its​ year-end income​ statement, Black Knights Company reported cost of goods sold of​ $450,000. Changes occurred in several balance sheet accounts during the year as​ follows: Inventory ​$160,000 decrease Accounts payable​ - suppliers ​$ ​ 40,000 decrease What amount should the Black Knights Company report as cash paid to suppliers in its cash flow​ statement, prepared under the direct​ method?

330,000

How many different ways may pertinent information be disclosed in the financial statements?

4

Auditor's Report

A report prepared by an independent outside auditor stating the auditor's opinion as to the fairness of the presentation of the financial position and results of operations and their conformance with generally accepted accounting principles.

Management discussion and analysis (MD&A)

A section of the annual report that presents management's views on the company's ability to pay near-term obligations, its ability to fund operations and expansion, and its results of operations.

The proper accounting treatment to account for a change in inventory valuation from FIFO to LIFO under US gaap is

Prospective application

Permanent items

Sales, COGS, expenses, income

Bales company is preparing a statement of cash flows. Which of the following would not be shown on the statement

Stock dividend, stock split, appropriation of retained earnings

Lyon Company has the following transactions in the current year. Assuming that all of the transactions are​ material, which of them will most likely have no effect on current year net​ income?

The collection of a receivable from a customer whose account was written off in the prior year by a charge to the allowance for bad debts account.

Beach and​ Poole, CPA is reviewing income statement presentation with some interns that are working with the firm during the summer break. The interns were asked to list three things that were true about the​ multiple-step income statement. Choose the item below that is a true statement.

The multiple step income statement shows income or loss from operations after the gross margin and operating expenses lines but before the revenues and gains

net of tax

The number shown represents income or loss after a reduction for income taxes

Stockholders' Equity

The owners' claim to assets.

Change in accounting principle

Use of an accounting principle in the current year different from the one used in the preceding year.

When a firm decides to change an accounting principle, but does not have sufficient information to use the retrospective approach, it may _______

Use the prospective approach

Nonoperating activities

Various revenues, expenses, gains, and losses that are unrelated to a company's main line of operations.

board of directors

a group of persons elected by the stockholders to manage a corporation

Discontinued Operations

the disposal of a significant component of a business

Which of the following investments should always be reported as current assets?

trading securities

Intraperiod tax allocation is used for all of the following except

unusual gains and losses

Earnings per share is not reported for

unusual gains/losses.

Kong Co. purchased a​ three-month U.S. Treasury bill.​ Kong's policy is to treat as cash equivalents all highly liquid investments with an original maturity of three months or less when purchased. How should this purchase be reported in​ Kong's statement of cash​ flows?

not reported

If additional explanations cannot be conveniently shown as parenthetical explanations, the information should be disclosed by

notes

Noncurrent Liabilities

obligations that a company does not expect to pay within one year

Gains and losses that bypass net income but affect stockholders' equity are referred to as

other comprehensive income

Contributed Capital

owner contributions to a corporation

A balance sheet is useful for analyzing all of the following except:

profitability

The balance sheet format listing liabilities and stockholders' equity directly below assets is called the

report form

Expenses in an income statement prepared under International Financial Reporting Standards:

Can be classified either by function or by natural description.

Which one of the following would not be affected by a change in revenue recognition requiring a retrospective change?

Cash

Financing Activities

Cash flow activities that include (a) obtaining cash from issuing debt and repaying the amounts borrowed and (b) obtaining cash from stockholders, repurchasing shares, and paying dividends.

Operating Activities

Cash flow activities that include the cash effects of transactions that create revenues and expenses and thus enter into the determination of net income.

Which one of the following is a change in estimate effected by a change in an accounting principle?

Change from declining-balance to straight-line depreciation

John Pickens writes mystery novels. His publisher pays him royalties for books sold each year. He is paid royalties for the first half of the year on September 30 and the second half of the year on March 31 of the following year. He received $42,000 in September, 2018. The publisher estimated that his royalties for the second half of the year would be $53,000. On March 31, 2019, he received $57,500. Assuming that he recorded $53,000 at December 31, 2019, what kind of change does this represent?

Change in Estimate An estimate was made in the first year that had to be revised in the second.

Change in Accounting Estimate

Change in an accounting estimate that results from new information, subsequent developments, or improved judgment that impacts current and future periods.

For which one of the following changes is it appropriate to use the prospective method?

Change in estimate

operating expenses

Costs involved in operating a business, such as rent, utilities, and salaries.

Income Statement depends on accounting methods selected

Disadvantage

Income Statement excludes certain items

Disadvantage

Income Statement requires extensive judgment

Disadvantage

Income statement can be manipulated and managed

Disadvantage

Which of the following is not a type of information that is supplemental to amounts presented in the balance sheet?

Discussion and analysis.

Which of the following items would not be included in the operating activity section of an entity statement of cash flows under US GAAP

Dividends paid

Moore Furniture​ Inc., a public​ company, has experienced a consistent​ 5% increase in net income over the past three years.​ Moore's management team is under a lot of pressure from investors to maintain its earnings ratios. In order to do​ so, the CEO could manipulate net income in order to manager the earnings of the company. Which one of the following is NOT a method typically used to manage​ earnings?

Engage in research and development projects to entice investors.

Long-term investments

Generally, (1) investments in stocks and bonds of other corporations that companies hold for more than one year; (2) long-term assets, such as land and buildings, not currently being used in the company's operations; and (3) long-term notes receivable.

Companies are not required to disclose information about

Identity of major stockholders

Investing Activities

Includes cash transactions involving the purchase and sale of long-term assets and current investments

Shively Mfg. Co. sold for $18,000 equipment that cost $40,000 and had a book value of $30,000. Shively would report:

Investing cash inflows of $18,000.

On August 31 of the current year Harvey Coe decided to change from the FIFO periodic inventory system to the weighted average periodic inventory system Harvey uses IFRS and is on a calendar year basis the cumulative effect of the change is shown as an adjustment to beginning retained earnings on the balance sheet for

January 1 of the prior year

Income Statement assesses risk or uncertainties of achieving future cash flows

Advantage

Income Statement evaluates past performance

Advantage

Income Statement predicts future performance

Advantage

Anzelmo Corporation invested in Jones Manufacturing by purchasing a 10% interest in the company. Anzelmo had no significant influence in Jones. Over time, Anzelmo acquired more shares in Jones, and in 2018, Anzelmo's president became a member of the board of directors when its ownership interest reached 30% of Jones. This change is ________.

An accounting principle change requiring retrospective adjustment This is a change in reporting entity which requires a retrospective adjustment.

On august 31 of The current year Harvey Co. decided to change from the FIFO periodic inventory system to the weighted average periodic inventory system. Harvey uses US gaap is on a calendar year basis and does not present comparative financial statements. A cumulative effect of the change is determined:

As of January 1 of the current year

What is an estimate that might be revised as a natural part of the accounting process?

Bad Debt Expense Depreciation Expense Warranty Expense

Judgments are important in determining which type of estimates used by accountants?

Bad debt expense

retrospective

Looking backward over a period of time

Which of the following is added to net income as an adjustment under the indirect method of preparing the statement of cash flows?

Loss on sale of equipment

transitory

temporary; lasting a brief time Unrealized loss on available for sale bonds, loss on asset impairment, gain

Current liabilities include all of the following

accrued warranty costs. advances received from customers. current portion of long-term debt.

The effect of a change in accounting principle is disclosed on the income statement:

after extraordinary items.

Prior period adjustments are reported as

an addition to (or a deduction from) the beginning balance of retained earnings.

intangible assets

assets that do not have physical substance

Property, Plant, and Equipment

assets with relatively long useful lives that are currently used in operating the business

Irregular transactions such as discontinued operations should be reported:

both a single-step and multiple-step income statement

Which of the following is not an intangible asset?

capitalized leases

current assets

cash and other assets expected to be exchanged for cash or consumed within a year

A change in depreciation from the double-declining to the straight-line method would be accounted for as a (an)

change in accounting principle

The FASB's stated preference for reporting operating cash flows is the:

direct method

Investors and creditors can use the information in the income statement to

evaluate the past performance of the enterprise. provide a basis for predicting future performance. help assess the risk or uncertainty of achieving future cash flows.

Subsequent Events

events occurring between the date of the financial statements and the date of the auditor's report

nonoperating income

includes gains and losses and revenues and expenses related to peripheral or incidental activities of the company.

The single-step income statement emphasizes

just two groupings exist -revenues and expenses.

Current Liabilities

liabilities due within a short time, usually within a year

Current assets are presented in the balance in order of

liquidity

noncurrent assets

long-term investments, plant assets, intangible assets