ACC 210

The starting point for preparing the operating activities section using the indirect method is:

Net income

A business that incorporates must file a document with the state, which includes a description of the business activities, the shares to be issued, and the composition of the board of directors. Which of the following terms are used to describe this document?

Articles of incorporation Corporate charter

The total number of shares that a company may sell is referred to as shares

Authorized

Additional taxes and more paperwork are the two primary disadvantages of this business form:

Corporation

Limited liability and ease of raising outside capital are advantages of this business form:

Corporation

A distribution of assets to shareholders is referred to as a(n) .

Dividend

Positive represent the key to a company's long-run survival. (Enter only one word.)

Earnings

True or false: A corporation is owned by debt and equity holders.

False

Disadvantages of the corporate form of business are

More paperwork and additional taxation

Earned capital increases ____.

Retained earrings

Which of the following is included in the rights of common stockholders?

Right to vote on certain matters.

When a business incorporates, it must file its ______ with the state in which it incorporates.

articles of incorporation

Noncash items, nonoperating items, and changes in current assets and liabilities are necessary adjustments to to prepare the operating section for the indirect format of the statement of cash flows.

income earnings

-----capital is the amount of money paid into a company by its owners.

invested

The purchase and sale of long-term assets and current investments are classified as

investing activities.

The most important advantage to the corporate form of business is

limited liability

When prepaid accounts increase, it indicates the company has paid ______ cash than it recorded as operating expenses.

more

Noncash items, nonoperating items, and changes in current assets and liabilities are necessary adjustments to to prepare the operating section for the indirect format of the statement of cash flows.

net income

The return on assets is calculated by dividing ____ by _______.

net income; average total assets

When accounts receivable decrease

net sales are less than cash receipts from customers.

Retained earnings of $100,000 represent a corporation's cumulative earnings ______ and is shown on the ______.

not paid out by dividends; balance sheet and statement of retained earnings

When using the direct method to prepare the Statement of Cash Flows, depreciation expense is

not reported on the statement of cash flows.

A company's past profits that are not paid out in dividends are ______.

retained earnings

A review of Munchen Corporation's financial statements reveals the following information: cost of goods sold: $100,000; decrease in inventory: $5,000; increase in accounts payable: $10,000. Cash paid to suppliers was:

$85,000

Cash flows from activities include both inflows and outflows of cash from the external funding of a business.

Financing

Which of the following are nonoperating items that require adjustments under the indirect method?

Gains on the sale of long-term assets Losses on the sale of long-term assets

Which of the following are cash outflows from investing activities?

Purchase of investment Purchase of land

The rights of common stockholders typically include which of the following?

Right to dividends when declared. Right to distribution of assets in liquidation. Right to vote for corporate directors.

Stock splits

Cause the par value per share to change

Shares of stock that are repurchased are referred to as stock.

Treasury

Which of the following represents the first step in preparing a statement of cash flows in the correct order?

calculate the net cash flows from operating activities

List the four steps in preparing a statement of cash flows in the correct order.

calculate the net cash flows from operating activities determine the net cash flows from investing activities determine the net cash flows from financing activitiescombine operating, investing, financing activities

A frequent reason for a stock split is to

cause the market price per share to decline.

An increase in accounts receivable will result in a(n) ______ in cash from sales revenue when using the direct method to determine cash flows from operations.

decrease

Retained earnings are:

decreased by dividends. sometimes called earned capital. increased by net income. all of the company's earnings not distributed to stockholders.

Preferred stock is "preferred" over common stock by providing preferred stock holders with these rights:

first right to specified amount of dividends preference in distribution of assets during dissolution of corporation

Preferred stock:

generally does not have voting rights. is useful for raising capital without reducing common stockholders' control. has preference as to dividends.

Preferred stock is advantageous in that it:

has priority over common stock when dividends are declared. has priority over common stock at liquidation.

Investors who acquire preferred stock:

have preference as to dividends. do not have voting rights.

Preferred stockholders:

have the right to receive dividends only in the years the board of directors declares dividends.

In a corporation, the stockholders' potential loss is

limited to the amount of the investment.

Which of the following nonoperating items require adjustments to net income under the indirect method?

losses from sale of long-term assets gains from sale of long-term assets

Stock splits have the following effects on stockholders' equity

no change to total stockholders' equity

Shareholders' equity is another common term for equity. (Do not use shareholders)

owners

Which of the following items are classified as cash outflows from operating activities on the statement of cash flows?

payment on account Payment of salaries

Which of the following items are classified as cash outflows from operating activities on the statement of cash flows?

payment on account payable Interest paid on bonds purchase of supplies

A corporation is owned by its . (Enter one word per blank)

stockholders

Net cash flows provided by operating activities will be ______ when using the direct method compared to the indirect method.

the same

The amount of money paid into a company by its owners is referred to as:

Invested capital

Morgan Company issued cumulative preferred stock. What additional special feature(s) could also have been granted to preferred stock holders?

The right to convert the shares to common shares.The right to redeem the preferred shares for cash.

The journal entry to record the declaration of a dividend includes ______.

a debit to Dividendsa credit to Dividends Payable

The advantages to the corporate form of business include

ease of raising capital. transferability of ownership.

The number of shares outstanding equals the number of shares ______.

issued minus the number of shares in treasury

In a statement of cash flows, the sum of cash inflows and outflows is equal to

the change in the cash balance.

Bagel, Inc. issued 50,000 shares of the 100,000 authorized. It has since repurchased 5,000 of its shares. The number of shares outstanding equals ______ shares.

45,000

Which of the following are common noncash items requiring adjustment to net income under the indirect method?

amortization expense depreciation expense

The direct method presents a summary of all operating transactions that result in either a debit or credit to the account.

cash

Which of the following represents the final step in preparing a statement of cash flows in the correct order?

combine operating, investing, and financing activities

Special contractually granted features can make preferred stock:

cumulative, redeemable and convertible

A decrease in accounts receivable will result in a(n) in cash from sales revenue when using the direct method to determine cash flows from operations.

Increase

A review of Elisa Company's financial statements reveals the following information: cost of goods sold: $200,000; increase in inventory: $10,000; increase in accounts payable: $20,000. Cash paid to suppliers was:

$190,000

Sales on account are $200,000. Cash sales during the period are $50,000. Beginning accounts receivable is $20,000, and ending accounts receivable is $30,000. What is the total cash collected from customers during the period?

$240,000

Which of the following ratios measures the ability of company management to generate earnings from the resources owners provide?

return to equity

Which of the following items are classified as cash inflows from operating activities on the statement of cash flows?`

Collection of interest Collection from customers

Which of the following statements best describes the reason depreciation expense is added to net income when preparing the statement of cash flows?

Depreciation expense originally reduced net income, but it is a noncash expense.

Which of the following items are classified as cash inflows from operating activities on the statement of cash flows?

Interest received on notes receivable Collection from customers

Adjustments to net income in calculating operating cash flows include:

Nonoperating items Noncash items Changes in current assets and current liabilities

Cash inflows and outflows involving stockholders and creditors are classified on the statement of cash flows as

financing activities

The three classifications on the statement of cash flows are cash flows from (Select all that apply.)

investing activities. operating activities. financing activities.

Which of the following accounts results in adjustments to net income under the indirect method of preparing the statement of cash flows if their balances change during the year?

Accounts receivable Accounts payable Inventory

Stock splits and stock dividends

Cause total stockholders' equity to remain the same

List the four steps in preparing a statement of cash flows in the correct order.

1. calclulate the net cash flows from operating activies 2.determine the net cash flows from investing activies 3. determine the cash flow from financing activities 4. combine operating, investing, and financing activities