acc 2303 final

weighted average cost formula

$ goods available/ units goods available

for a 4 for 1 stock split, par value is reduced to

1/4 of what it was before the split

at par

CR=MR

which method is not allowed according to the IFRS

LIFO

cash flows from operating activities - decrease in CA (besides cash)

add

days' sales in receivables ratio

average net a/r / one day's sales

depreciable value

cost - residual value

stock dividends

neither assets, liabilities, nor total stockholder's equity chances as a result of a stock divided

how to calculate for discount

par - issue

credit sales increase

receivables

paid in capital in excess of par

sell stock for more than par value - note income or gain, but part of contributed capital

a company failed to recognize an accrued liability. as a result:

the current ratio is overstated because the denominator is understated

posting

the process of copying from the journal to the ledger

interest expense is tax deductible

true

straight line method formula

(cost-residual value)/useful life, in years

formula for income statement

(net) sales revenue -cost of goods sold =gross profit -operating expenses =income before taxes +other revenues / -other expenses -income taxes =net income

steps in accounting cycle

-analyze transaztions -journalize transactions and post from journal to ledger -prepare adjusting entries -use adjusted trial balance to prepare financial statements -prepare closing entries

closing entries are prepared in this order

-close all income statement accounts with a credit balance -close all income statement accounts with a debit balance -close dividends to retained earnings

effective system of internal control includes

-competent, reliable, ethical personnel and sound personnel procedures -assignment of responsibilities -separation of duties -comparison and compliance monitoring, including audits for periodic verification of records -design and use of adequate documents and records -electronic devices, computers, and other controls

advantages of using the perpetual method

-continuous record of amount of goods on hand and cost of goods that have been sold -more effective ordering of inventory -better control over inventory costs, managers can make better pricing decisions

disadvantages of issuing bonds

-corporations must pay interest periodically (per bond contract) -must provide for repayment of principal at maturity -increases debt/equity ratio

earned capital (retained earnings)

-cumulative total of all net incomes minus dividends, over the life of the business -net earnings not distributed to shareholders but retained in the business -earnings kept in the business to help meet needs of the business -balance in retained earnings = profit - losses -dividends

disadvantages of corporate form of business

-double taxation -governmental regulation

advantages of issuing bonds

-fixed costs to the corp (P+I) -no dilution of ownership

advantages of organizing a business as a corporation

-limited liability -separate legal entity; separate tax paying entity -unlimited, continuous existence/life -free and easy to transfer of ownership -ease of capital formation -no mutual agency separation of ownership and management

benefits of accrual basis

-more reliable financial statements -more accurate information -better measure of net income -less change for manipulation of income

examples of current liabilities

-notes payable -accounts payable -current portion of long term debt -wages, taxes, interest payable -unearned revenue

all cash flows must fit into one of these categories

-operating -investing -financing

stock will have one of these values

-par value -no par value -no par stock with stated value

what are the steps to internal control

-safeguard assets -encourage employees to follow company policy -promote operational efficiency -ensure accurate and reliable accounting records -comply with legal requirements

rights of a preferred shareholder

-usually non voting -receive dividends before common shareholders -share in assets at liquidation

rights of common shareholders

-vote at annual shareholders' meeting -share in dividends if declare -share in assets at liquidation

how to calculate cash flows from operating activites

1. begin with accrual basis net income 2. add back all expenses with no cash effect 3. add losses from the sale of plant assets or investments 4. subtract gains from the sale of plant assets or investments

one way to express credit terms is

2/10, n/30

double declining balance method formula

2/useful life in years

if a bookkeeper mistakenly recorded a disbursement as 48 instead of the correct amount of 84, the error should be shown on the bank reconciliation as a

36 deduction from the books

for a 4 for 1 stock split, the number of shares issued is equal to

4 times the amount it was before the split

disclosure issue

FASB requires detailed disclosure about financial instruments and financial liabilities; footnote data describes both actual and contingent liabilities

All of the following are true except: -FIFO uses more current costs in calculating cogs -FIFO generally results in higher net income and higher income taxes paid -FIFO reports the most up to date inventory values on the balance sheet -FIFO is generally less conservative as to the measure of net income

FIFO uses more current costs in calculating cost of goods sold

journal

a chronological listing of all business transactions; book of original entry

treasury stock

a corporation's own stock that was issued then reacquired, but not retired; it is held "in the treasury" until later sold, distributed, or retired

bond

a long term liability(security) or debt

accumulated depreciation is that portion of

a plant asset's cost that bas been recorded previously as an expense

which of the following statements regarding a trial balance is false? -a trial balance may be taken at any time the postings are up to date -a trial balance is a list of all accounts with their balances -a trial balance is the same as a balance -a trial balance provides a check on the equality of debits and credits

a trial balance is the same as a balance sheet

what does current ratio analyze

a way to evaluate liquidity; should be greater than 1.5

stable monetary unit assumption

accounting assume that the dollar's purchasing power is stable over time, ignore inflation; important because businesses that report their financial information publicly usually report competitive financial information

cash flows from operating activities - increase in CL

add

on the statement of cash flows in operating activity, you ____ amortization expense

add

a 600 deposit made on the last day of the current month did not appear on this month's statement

add to the bank balance

upon reviewing the bank statement, you notice that check #456 for $851, was deducted twice in error by the bank. on the bank reconciliation, you should

add to the bank balance

a check for 375 written by libby during the current month was erroneously recorded by libby as a 753 payment

add to the book balance

bank reconciliation - balance per bank

add: deposits in transit, bank error correction less: outstanding checks, bank error correction

bank reconciliation - balance per books

add: note collection, interest income, book error correction, eft less: service charge, nsf checks, book error correction, eft

the debit entry to unearned revenue represents the amount of

adjusting entry for revenue earned

bond indenture

agreement that lists rights and limitations of bondholders; also maturity date, interest rate, interest payment, special features of the bond issue

contributed (paid in) capital

all amounts paid in by shareholders

why does cash not equal net income

all cash flows are not net revenues and expenses

revenues

all increases in assets are not revenue and sometimes revenue is recorded but cash isn't received until later

expenses

all outflows of cash are not expenses and sometimes expense is recorded but no cash is paid, or cash is paid later

ledger

all the accounts in the ledger

depreciation

allocation of the cost of multi year asset (equipment, building, vehicle, etc) to expense, over the asset's useful life

depreciation is a process of _______ not a process of ________

allocation, valuation

slide on transposition error

always causes an error that is divisible by 9

accounting for treasury stock

always record at cost, not at par value

what is double declining balance method

an accelerated method, assumes most benefit from asset comes in early years of life; therefore record higher depreciation in early years

if the bookkeeper records a deposit of 3,300 as 330, the error should be shown on a bank reconciliation as

an addition to the book balance of 2,970

goodwill

an intangible with an infinite life. record goodwill only as a result of purchasing a business; results from higher than normal or regular future earnings

internal control

an organizational plan and all related measures designed to help management

failure to accrue interest at the end of the period on a short term note payable will result in

an overstatement of net income and an understatement of liabilites

cumulative preferred stock

any year dividends are passed, the preferred dividend accumulates and must be paid in later years before any dividends can be paid to common shareholders

which type of account decreases when a company pays its employees

asset account

accounting equation

assets = liabilities + owners equity

how does the entry to reissue treasury stock in excess of cost affect the statements

assets increase, o/e increase

what is the effect on the financial statements when you record the accrual of interest

assets increase, o/e increase, revenue increase, n/i increase

what is the effect on accounting equation when revenue is earned

assets increase, o/e increase, revenue increase, net income increase

secured (collateralized) bond

assets of company are pledged as collateral for debt

what is the effect on the financial statement of capitalizing an expense

assets overstated, o/e overstated, expense understated, ni overstated

if aje is omitted for accumulated depreciation, what is the result

assets overstated, o/e overstated, expenses understated, net income overstated

what is the effect on the financial statements of recording a 15,000 repair expense as a debit to machine and a credit to cash

assets overstated, o/e overstated, expenses understated, ni overstated

what is the effect on the financial statement of expensing a capital asset

assets understated, o/e understated, expense overstated, ni understated

long term assets

assets used for more than one year in operation of the business and not held for resale to customer; may be tangible or intangible

if the debit amount of an entry to record the purchase of supplies one account was not posted:

assets would be understated

name three accounts that will not be closed

assets, liabilities, common stock, retained earnings

what are permanent accounts

assets, liabilities, common stock, retained earnings

weighted average cost

assign values to ending inventory and cogs based on weighted average cost of BI plus all goods purchased during the period

continuity assumption

assuming that the entity will continue to operate long enough to sell its inventories, convert any receivables to bash, use other existing assets for intended purpose

order of stock terms

authorized, issued, outstanding

examples of long term assets

available for sale securities, property/plant/equipment, intangible assets

unsecured (debenture) bond

backed by good credit of the issuing company with no collateral pledged

the ending balance in retained earnings appears on the

balance sheet and statement of retained earnings

aging of receivables method

balance sheet approach, end and base the amount of uncollectible account expense on aging schedule; therefore, ending balance in the allowance account will be a percentage of total year end a/r

the account

basic summary device; a storage unit for accounting data

why is bond interest expense greater than cash paid for interest

because there is a portion of the discount being amortized

accounts payable t-account

beg balance + credit purchases from vendor - cash paid =end balance (credit side)

accounts receivable t-account

beg balance + credit sales to customer - collections from customer = end balance (debit side)

cost of goods sold model

beginning inventory +net purchases =cost of goods available for sale -ending inventory =cost of goods sold

owner's equity formula

beginning o/e + investments by owner - dividends + net income - net loss = ending o/e

the statement of retained earnings formula

beginning r/e + net income(or - net loss) - dividends = ending r/e

what is a corporation

body of persons who have been granted to operate an entity

registered and coupon bonds

bondholders are registered with issuing company; interest and principal are paid only to registered owner; some bonds have coupons attached for interest payments

aje must be prepared from what side of bank reconciliation

book side

what happens to carrying value over the life of the bonds

carrying value increases as discount decreases

acid test ratio

cash + short term investments + net receivables / current liabilities -acid test of 1 is safe

the credit entry to unearned revenue represents the amount of

cash collected in advance from customers

operating expenses must be the major ongoing source of

cash for a business

net income from income statement foes not equal

cash from operations

for the statement of cash flows, what does cash include

cash includes both cash and cash equivalents that are highly liquid and easily and quickly converted to cash

three accounts that will not be adjusted

cash, common stock, retained earnings

examples of current assets

cash, short term investments, accounts/notes receivable, inventory, prepaid expenses

for cash flow from investing activities, acquisitions

cause a decrease in cash while sales or dispositions cause an increase in cash

perpetual inventory system

common, record all purchases directly in the merchandise inventory account; as goods are sold, reduce the inventory account. cost of goods sold is recorded at the time of each sale

dalco coportation depreciated a building over a period of 30 years. in performing its depreciation calculation, the controller for dalco assumed the company will remain an operating business for at least the entire 30 years

continuity assumption

allowance for uncollectible account is a

contra asset account

accumulated depreciation

contra asset account; credit balance

discount on bonds payable

contra liability, represents additional interest expense (cost) to the company, for the right to use the money for 10 years

stated interest rate

contract or coupon rate, will not change over life of bond

carrying value

cost - accumulated depreciation = book value

remaining undepreciated cost

cost - depreciation taken to date

units of production formula

cost - residual/ useful life, in units

inventory turnover formula

cost of goods sold/average inventory

if the bank statement included an EFT payment of 670 for insurance, the journal entry to record this reconciling item should include a

credit to cash for 670

using perpetual inventory, the entry to record a sale of goods would include a

credit to inventory

expense

credit to the expense account

net working capital

current assets - current liabilities

current ratio

current assets / current liabilities

classification issue

current liabilities require use of current assets to pay off obligation within one year or one accounting cycle, whichever is longer

maturity date

date on which note must be repaid

debit/credit - common stock

debit decrease, credit increase

debit/credit - liabilties

debit decrease, credit increase

debit/credit - retained earnings

debit decrease, credit increase

debit/credit - revenues

debit decrease, credit increase

debit/credit - assets

debit increase, credit decrease

debit/credit - dividends

debit increase, credit decrease

debit/credit - expenses

debit increase, credit decrease

capitalize

debit to the asset account

aje - accrued revenue

debit: account, rent, interest receivable credit: service, rent, interest revenue

journal entry for when you sell merchandise under perpetual method

debit: accounts receivable credit: sales debit: cogs credit: inventory

journal entry: issuing shares of par value common stock, at par

debit: cash credit: common stock

entry to record sale of bonds

debit: cash, discount on bonds payable credit: bonds payable

aje - depreciation

debit: depreciation expense credit: accumulated depreciation

journal entry for date of payment of dividends

debit: dividends payable credit: cash

the entry to record interest and amortization a portion of discount

debit: interest expense credit:discount on bonds payable and cash

the entry to record accrued interest on note receivable would include a

debit: interest receivable credit: interest revenue

journal entry for date of declaration of dividends

debit: retained earnings credit: dividends payable

aje - accrued expense

debit: salary, interest expense credit: salary, interest payable

adjusting entry to record uncollectible account expense

debit: uncollectible account expense credit: allowance for uncollectible

aje - unearned revenue

debit: unearned revenue credit: service revenue

the entry to record a reissue of stock would be

debit:cash credit:treasury stock, paid in capital

aje - supplies and prepaid expense

debit:supplies expense credit:supplies

examples of long term liabilties

debts due in more than one year, including mortgage payable, bonds payable

for a 4 for 1 stock split market price per share will

decrease

how do dividends affect retained earnings

decrease r/e

how do expenses affect retained earnings

decrease r/e

the bank statement erroneously reported a 178 deposit for the lipton corporation

deduct from the bank balance

the bank deducted 100 for a safe deposit box that libby corporation rents to store car titles and other valuables

deduct from the book balance

the revenue principle requires that business record revenue when the business

delivers the goods or services to a customer

time period concept

divide the life of a business into equal reporting periods and measure NI each period; makes F>S comparable from period to period

straight line amortization

divide the original discount by # of interest periods; each interest period, record amortization along with the cash interest payment

bank reconciliation

document prepared to bring adjusted cash balance per books equal to adjusted cash balance per bank

entity assumption

each accounting entity stands separate and apart for all other organizations, as a separate and distinct economic unit for record keeping and reporting. keep separate set of records for each entity

market interest rate

effective rate, changes daily

uncollectible account expense is an ________ expense

estimated

what does debt ratio analyze

evaluate risl, lower is better

double entry accounting

every transaction has at least two parts to is, there must be at least one debit entry and one credit entry in each transaction

accrued expense

expense recorded now (added on) but cash not paid until later, the expense has been incurred

what does the statement of cash flows explain

explains the courses of cash and uses of cash, inflows and outflows

bonds are less risky to the issuing corporation than issuing stock

false

issuing bonds will increase current liabilities and decrease the current ratio

false

selling stock is less risky than

financing with bonds (issuing bonds payable) because dividends are optional for the corporation, not contractual

FIFO

first goods in are considered to be first goods sold, most nearly matches physical flow of goods

management accounting

for internal use only

investing activities are

from investing activities, buying and selling long term assets and marketable securities owned by the business, making loans and collecting payments on loans

account balances are taken from the

general ledger

bank card sales

get cash immediately

bond certificate

given to holder of bond as evidence of the debt

what is the statement of cash flows

gives different kinds of information from what is found on balance sheet or income statement; helps show relationship between NI and changes in cash during the period

under the allowance method for estimating uncollectible accounts, the entry to write off an account

has no effect on total assets or net income

the collection of cash from a customer on account would

have no effect on net income or stockholder's equity (debit cash, credit accounts rec)

zero coupon bonds

have no periodic interest payments, but simply pay a fixed amount at maturity. sold at a large discount, because bondholders receives no periodic payments

during a period of rising prices, FIFO results in the...

highest net income and therefore the business pays higher taxes

LIFO has the _____ cogs and _____ EI, GP, NI

highest, lowest

cost of goods sold

how much has been sold that should be expensed on the current period income statement and matched against revenue earned

ending inventory

how much is left that should carry over on the balance sheet as an asset, until sold in the next period

acid test (quick ratio) measures...

how quickly current liabilities can be paid using very liquid current assets; important that you do not include inventory or prepaid expenses in the numerator

what does rate of return on assets indicate

how well managers use total assets available to earn a profit for the company, higher the better

statement of cash flows

important because cash flows come from many sources besides just profitable operations, shows how cash was used and what were the sources of cash during the period

a potential investor interested in evaluating a company's financial performance for the current period would probably examine which of the following financial statements

income statement

percent of sales method

income statement approach, easiest method; based on net credit sales for the period

order of financial statements

income statement, statement of retained earnings, balance sheet(statement of financial position),statement of cash flows

current liabilities that need to be estimated

income tax payable and accrued warranty payable

how is a corporation formed

incorporators apply for charter, issued by state

accruing interest receivable on a note receivable causes net income and total assets to

increase

the effect on total stockholder's equity as a result of reissuing treasury stock

increase

the discount on bonds payable

increase interest expense on the income statement

how does revenue affect retained earnings

increase r/e

amortizing the discount on bonds payable

increases the carrying amount of the bonds

three major users of accounting information

insiders(management), outsiders(present/potential investors and creditors), government and regulatory groups, not for profit organizations

fraud

intentional misrepresentation of facts

discount on bonds payable will be written off to

interest expense over life of the bond by amortization of the discount

discounted note payable

interest included in the face amount

net accounts receivable communicates to

investors

treasury stock account

is a contra equity account with a debit balance, it is subtracted on the s/e section on the balance sheet to get total s/e

direct write off method

is required for tax purposes but violates the matching principle for financial reporting, can be used when amount of charge offs is small

during a period of rising prices, LIFO results in financial statements that appear to be...

less profitable because the highest prices are in cost of goods sold

why do shareholders buy preferred stock

less risky, steady return, preferences as to dividends

the unearned revenue account was not adjusted for work performed in the current year. the effect of this error is

liabilities are overstated and revenues are understated

what is the effect of the financial statements of making accrual entry of interest for bonds

liabilities increase, o/e decrease, expenses increase, net income decrease

if the liability is omitted, what is the effect on the financial statements

liabilities understated, o/e overstated, expenses understated, net income overstated

FIFO has the ______ cogs and _____ EI, GP, NI

lowest, highest

control over mail receipts

mailroom employee should open the mail and make duplicate list of cash received.

what is units of production most accurate for

matching, assumes depreciation is the result of use

term and serial bonds

maturity date is as one date in the future (term) or, bonds are due over a period of years

par value

maturity value, face value, principal

days' sales in receivables is used for

may be calculated to analyze how efficiently the company collects its accounts receivables; it helps measure success of the credit and collection policies

notes receviable

may be either current or long term, they are in writing and usually include an interest rate and maturity date

gross profit percentage is useful in

measuring profitability because it tells out each sales dollar, how much goes to cover the cost of the products and how much is gross profit or gross margin

receivables

monetary claims against customers; receivables arise from selling goods and services on credit or from loaning money

earnings per share

most quoted piece of information about any business because widely used to compare business performance and helps determine market value of the company's stock and its market capitalization

fraud triangle

motive, opportunity, rationalization

return on common stockholders' equity ratio

net income - preferred dividends / average common stockholder's equity

earnings per share ratio

net income - preferred dividends / weighted average # common shares o/s

return on equity is calculated as

net income/ average common stockholder's equity

roa ratio

net income/average total assets

another way to express income statement (simpler)

net sales -cogs =GP -expenses =NT

do you record gain or income on sale of stock

never

discarding the asset

never record gain on a discarded asset, record loss = to remaining BV

what is the total change in s/e as a result of the stock dividend

no change, r/e decrease and c/s increase

the effect on total stockholder's equity as a result of distributing stock dividend

no effect

journal entry for date of record of dividends

no journal entry

deprecation is a _____ expense

non cash

the purchase of equipment for cash would

not affect the total debits or credits on the trial balance

specific unit cost

not commonly used, under this method ending inventory is identified as coming from a specific purchase and therefore having a specific price

how is a company financed?

notes and bonds payable, common stock

what does a company invest in

notes receivable, all property and equipment, long term investments and marketable securities

authorized stock

number of shares listed in charter; maximum number of shares that can be sold or issued

why do assets depreciate

obsolescence and deterioration

financing activities are

obtaining and repaying funds to operate the business, including issuing and retiring stocks, all bond payable transactions, treasury stock transactions, and payment of dividends

periodic inventory system

old, record all purchases in the purchases account and adjust the merchandise inventory account only at the end of each period when a physical inventory is taken; cogs not determined until the end of the period

dividends in arrears

on cumulative preferred stock only, dividends are never a liability until declared

collecting a loan is a ______ activity

operating

interest expense is a part of what

operating expenses

the direct method of writing off uncollectible

overstates assets because no allowances

treating a capital expenditure as an immediate expense

overstates expenses and understates net income for the current year

use accounting information to make business decisions:

planning, control, evaluation

deferral

postpones recognition of an expense already paid or incurred, or a revenue already received; means cash flow occurs before the expense or revenue is recorded on the books

issue price of bonds is determined by calculating

present value of future interest and principal payments to be received by bondholer

balance in retained earnins

profit - loss - dividends

dividends

proportional distribution, usually of cash, to shareholders

straight line method of amortization provides what

provides a close measure of interest expense

lump sum

purchase of several assets; divide cost using relative sales value method

inventory turnover tells how...

quickly inventory is sold. a higher rate is preferable because the faster inventory is sold, the higher the business's income will be

collections and write offs decrease

receviables

recognition issue

recognize liability at the time obligation occurs or accrue the liability in period in which obligation is incurred

accrual

recognizes an expense or revenue that has not yet been recorded; means cash flow occurs after the expense or revenue is recorded on the books

SP > BV

record a gain

SP < BV

record a loss

valuation issue

record liability equal to amount of cash to be paid or the FMV of goods or services to be delivered

allowance for uncollectible account is a valuation account that

reduces a/r to net realizable value or expected realizable value

investing activites

relate to the purchase and sale of "fixed" or long term assets used in the business

financing activites

relate to ways the business obtains money to finance operations

income statement

reports net income(total revenues-expenses)

credit department

responsible for granting credit to worthy customers; however some bad debts occur when a company sells on credit

all dividends have a debit to

retained earnings

owners equity includes

retained earnings and common stock

accural basis

revenue is recorded (recognized) when earned and not when cash is received; expenses are recorded as incurred and not when cash is paid

cash basis

revenue is recorded when received in cash and expenses recorded when cash is paid; service businesses and businesses with a very small amount of inventory can use this method of accounting

expense recognition principle

revenue must be recorded in period in which goods are sold or service is performed and expenses must be deducted in period in which they were used to help generate revenue; a business will recognize expenses incurred at the time the related revenue is earned

accrued revenue

revenue recorded now (added on) but cash not received until later; the revenue has been earned

net income

revenues - expenses

the depreciation process attempts to match the

revenues earned by the asset and the cost of the asset

how do revenues, expenses, dividends, and issuing stock affect total stockholder's equity

revenues increase, expenses decrease, dividends decrease, issuing stock increase

what are temporary accounts

revenues, expenses, dividends

income statement format

sales - returns & allowances - sales discount = net sales

net sales formula

sales - returns/allowances - sales discount = net sales

cash received over the counter

sales should always be rung up on a cash register and cash should be deposited each day. sales clerks should not have access to the tape that is locked inside the cash register

three ways a note receivable can come onto the books

sell on a note, loan money, convert a/r to n/r

outstanding stock

shares issued and still in circulation. if company has treasury stock, shares outstanding are less than shares issued

issued stock

shares sold or distributed to shareholders

accounts receivable

short term and very liquid (current assets)

on a statement of cash flows, the purchase of machinery in exchange for common stock is

shown on a supporting schedule of non cash investing and financing activities

statement of retained earnings

shows changes in retained earnings during that period; includes information about dividends

maker

signs the note and owes I+P to the payee

four basic choices when organizing a business

sole proprietorship, partnership, limited liability company, corporation

joe beall is concerned about the impact of inflation on the comparability of the financial statements for his business. for financial accounting purposes, the dollar's purchasing power is deemed to remain stable

stable monetary unit assumption

note stated in days

start counting days tomorrow, the day after the note is dated

balance sheet

statement of financial position:shows if A=L+O/E

what financial statement should be prepared before the balance sheet is prepared

statement of retained earnings

historical cost principle

states that assets should be recorded at their actual cost, measured on the date of purchase as the amount of cash paid plus non cash types of compensation given in exchange

the steps to follow when using straight line method of amortization

step 1: par * pv% step 2: p * cr * 1/2 step 3: (par-issue)/# interest periods

cash flows from operating activities - decrease in CL

subtract

cash flows from operating activities - increase in CA (besides cash)

subtract

on the statement of cash flows in operating activity, you ____ decrease in accounts payable

subtract

on the statement of cash flows in operating activity, you ____ increase in prepaid insurance

subtract

the carrying value of a bond issued at a discount is calculated by

subtracting discount on bonds payable from bonds payable

principal

sum that is borrowed and repaid at maturity

dividends are not

tax deductible, so taxable income and thus taxes may be higher for a corporation that is financed by selling stock rather than by issuing bonds

revenue principle

tells the accountant when to record revenue and how much revenue to record; record revenue when the earning process is complete

what does trial balance not prove?

that there have been no errors in posting; that all transactions have not been posted

assume the beginning balance in retained earnings is zero. if a debit balance exists in retained earnings after closing out revenues and expenses at the end of the current period, it indicates that

the company incurred a net loss for the current period

note stated in months

the due date is exactly x months from today

accounting is...

the language of business, an information system, bookkeeping

LIFO

the latest goods purchased are considered to be the first goods sold. therefore the BI cost is left for EI

a contingent liability should be accrued if

the loss if probable and the amount of loss can be reasonable estimated

effective interest method of amortization

the most accurate for matching interest expense with carrying value of bonds payable

operating activites

the most important source of cash flows of a business; results from revenues and expenses of the company

when a company holds treasury stock

the number of shares outstanding will be less than the number of shares issued

the entity concept states that

the personal assets and liabilities of an owner now be shown on the business's financial statements

amortization

the process of expensing intangibles, but there is no accumulated amortization account

when you buy a bond, you are buying two things

the right to receive a principal at maturity and the right to receive interest semi-annually

if EI is overstated, GP and NI are overstated

then BI (next period) is overstated and GP and NI are understated. cogs for this period is understated and next period is overstated

if EI is understated, GP and NI are understated

then BI(next period) is understated and GP and NI are overstated. cogs for this period is overstated and next period is understated

interest income and dividend revenue are not part of investing activities

they are part of operating activites

all of the following are purposes of internal control except: -to safeguard assets -to promote operational efficiency -to ensure company sales targets are met -to ensure accurate and reliable accounting records

to ensure company sales targets are met

what best describes the purpose of internal control

to provide assurance that the entire business operates in accordance with management's plans and policies

effect on total assets, net income, and s/e as a result of declare and pay cash dividends

total assets: decrease net income: none s/e: decrease

effect on total assets, net income, and s/e as a result of reissue treasury stock at a price > cost

total assets: increase net income: none s/e increase

effect on total assets, net income, and s/e as a result of issue stock at a price > par value

total assets: increase net income: none s/e: increase

effect on total assets, net income, and s/e as a result of declare and distribute stock dividends

total assets: none net income: none s/e:none

debt ratio

total liabilities / total assets

how does the purchase of treasury stock cause EPS to increase

treasury stock no longer outstanding so number of shares outstanding decreases when treasury stock is purchased; lower denominator = higher EPS

a 600,000 bond due in three installments over three years is referred to as a serial bond

true

bonds do not dilute control of the corporation

true

the present value of a bond issued at a discount is less than the maturity value of the bond

true

if ending inventory for the current year is overstated, that error will cause net income for the next year to be ______

understated

financial accounting

use both internally and to communicate information about the business to outsiders(externally)

depreciation for tax purposes

use ddb for most assets except real property; straight line for real property

to write off natural resources

use deplection/unit

the primary objective of financial reporting is to provide information

useful for making investment and credit decisions

residual value

what asset will be worth at the end of useful life

bonds at a discount

when CR<MR and bonds sell for less than face value

bonds at a premium

when MR<CR and bonds sell for more than face value

stock split

when a corporation increases the number of shares of stock authorized, issued, and outstanding, and makes a proportional decrease in the par value of the stock

current assets are assets expected to be converted to cash, sold, or used up

within the longer of the next 12 months or the business's normal operating cycle

no longer amortize goodwill, but

write down only under certain circumstances (when the value of goodwill is impaired or decreased)

promissory note

written promise to pay a set amount on some future date or on demand, usually with a stated rate of interest