acct 202 exam 1

EPS equation

(net income - preferred dividends) / average common shares outstanding

where are restrictions of retained earnings reported

-Companies usually report their retained earnings restrictions in notes to the financial statements

finding trend analysis

(Any period amount/Base period amount)×100

Acid test ratio formula

(Cash & cash equivalents + Short-term investments + Net current receivables) / Total current liabilities

finding vertical analysis

(Specific item/Base amount)×100 -usually the base amount is the net sales revenue (income statement), total assets (balance sheet), total liabilities and SE (balance sheet)

prior-period adjustments

-Corrections to Retained Earnings for errors of an earlier period -increases or decreases the beginning balance of the Retained Earnings account and appears on the statement of retained earnings.

Different ways that ratios explain parts of a company?

-Evaluating the ability to pay current liabilities -Evaluating the ability to sell merchandise inventory and collect receivables -Evaluating the ability to pay long-term debt -Evaluating profitability -Evaluating stock as an investment

Notes to financial statements

-Immediately following the financial statements -summary of significant accounting policies and explanations of specific items on the financial statements

Non-cash financing and investing activitiy

-Investing and financing activities that do not involve cash. -ex: purchase of equipment financed by a long-term note payable -ex: contribution of equipment by a stockholder in exchange for common stock.

What is usually used to pay liabilities?

-Retained earnings (appropriations) -Cash dividends and treasury stock purchases require a cash payment. These cash outlays leave fewer resources to pay liabilities. -company maintains a minimum level of stockholders' equity by limiting both its declaration of dividends and its purchases of treasury stock

Ratios used to evaluate a company's ability to pay current liabilities

-Working capital ratio -Cash ratio -acid-test ratio -Current ratio

What accounts are included in current liabilities?

-accounts payable -unearned revenue -utilities payable -salaries payable, etc

What accounts are included in current assets?

-cash -accounts receivable -office supplies -prepaid rent (or anything prepaid) -merchendise inventory

investing activities includes

-cash inflow from selling -the cash outflow for the purchase of these long-term assets -lending (outflow) and collection (inflow) of long-term notes receivable.

What accounts are included in stockholders equity?

-common stock -retained earnings

operating activities section includes

-day-to-day operations of the business such as cash receipts from customers (inflows) *or -cash payments (outflows) for purchases of merchandise inventory or payment of operating expenses -cash receipts (inflows) for interest revenue and dividend income -cash payments (cash outflows) for interest expense and income tax expense

items listed after continuing operations

-discontinued operations -net income -earnings per share of CS: -income from continuing op -income from discontinued op -net income

Purpose of statement of cash flows

-explains why net income as reported on the income statement does not equal the change in the cash balance. It helps: -predict future cash flows -evaluate management -predict ability to pay debts and dividends

Trend analysis

-is a form of horizontal analysis. Trend percentages indicate the direction a business is taking

financing activities include

-issuing stock -paying dividends -buying and selling treasury stock -borrowing money -paying off long-term liabilities such as notes payable, bonds payable, and mortgages payable.

What accounts are included in property, plant, and equipment?

-land -building -accumulated depreciation of land/building -furniture

What accounts are included in long-term assets?

-long-term investments -bonds/stock over 1 year

Accounts included in continuing operations (in order)

-net sales -cost of goods sold -gross profit -operating expenses -operating income -other income/expenses - gain on sale of equip -income before income taxes -income tax expense -income from continuing operations

What accounts are included in long-term liabilities?

-notes payable -mortgage payable

Finding horizontal analysis

-percentage -Compute the dollar amount of the change in a line item from the earlier period to the later period -Divide the dollar amount of change by the earlier period amount, and multiply by 100

What ratio analysis provides

-provide information about a company's performance -used most effectively to measure a company against other companies in the same industry and to denote trends within the company

What vertical analysis provides

-provides a way to compare different companies.

What horizontal analysis provides

-provides a year-to-year comparison of a company's performance in different periods.

appropriations of retained earnings

-retained earnings restrictions recorded by journal entries -appropriate = separate -a company may separate a portion of retained earnings for a specific use in a separate account

Investing activities

-section reports cash receipts and cash payments that increase or decrease long-term assets such as property, plant, equipment, notes receivable, and investments

operating activities

-section reports on activities that create revenue or expense in the entity's business

continuing operations

-these continue from period to period -income from continuing operations helps investors make predictions about future earnings

discontinued opearations

-these gains and losses occur when a company sells or disposes of an identifiable division -they are reported separately form continuing operations because this type of disposal does not occur frequently

What the current ratio measures

The current ratio measures a company's ability to pay its current liabilities with its current assets

discontinued operations

These gains and losses occur when a company sells or disposes of an identifiable division

14 Which of the following statements is true? a) appropriations of retained earnings require journal entries, but restrictions on retained earnings are usually reported in notes to the financial statements b) no journal entries are needed to appropriate or restrict retained earnings c) both appropriations and restrictions of retained earnings require journal entries d) restrictions on retained earnings must be journalized, but appropriations are usually reported in notes to the financial statments

a) appropriations of retained earnings require journal entries, but restrictions on retained earnings are usually reported in notes to the financial statements

4 Under which of the following categories would Accounts Receivable appear? a) current asset b) current liabilities c) long-term assets d) long-term liabilities

a) current asset

7 Which of the following items are NOT reported as part income from continuing operations? a) discontinued operations b) gross profit c) other income and (expenses) d) gain on sale of equipment

a) discontinued operations

liquidity is a measure of how: a) quickly an asset may be converted into cash b) long an asset can be used c) easily an asset can be exchanged for another asset d) quickly an asset appreciates in value

a) how quickly an asset may be converted into cash

13 Which of the following best describes the appropriation of retained earnings? a) restricting part of retained earnings for expansion or contingencies b) setting cash aside for expansion c) designating certain amounts of retained earnings for expansion or contengencies d) limiting company transactions in order to boost earnings

a) restricting part of retained earnings for expansion or contingencies

Order of balance sheet

assets -current assets -long-term assets -pp&e -intangible assets liabilities -current liabilities -long-term liabilities stockholders equity

19) Oregon Company is preparing its statement of cash flows using the indirect method. During the year, the company purchased equipment for $15000 cash. Which of the following statements is true? a) $15000 would be shown as a negative cash flow in the operating activities section b) $15000 would be shown as a negative cash flow in the investing activities section c) $15000 would be shown as a positive cash flow in the investing activities section d) $15000 would be shown as a positive cash flow in the financing activities section

b) $15000 would be shown as a negative cash flow in the investing activities section

10 Which of the following is NOT included in income from continuing operations? a) gain on sale of machinery b) a segment of a business that has been discontinued c) cost of goods sold d) losses due to lawsuits

b) a segment of a business that has been discontinued

5 Property, plant, and equipment are: a) presented in order of the category name, with land being presented last b) also called fixed or plant assets c) either tangible or intangible assets d) easily converted to cash

b) also called fixed or plant assets

15 Prior period adjustments ___________. a) always increase the beginning balance of retained earnings b) are shown on the statement of retained earnings as corrections to the beginning balance c) can be ignored because the financial statements have already been issued d) must be recorded in the period in which the error occured

b) are shown on the statement of retained earnings as corrections to the beginning balance

6) Which of the following items are NOT reported after income from continuing operations? a) earnings per share b) gross profit c) discontinued operations d) net income

b) gross profit

17 Which of the following describes the financing activities section of the statement of cash flows? a) It includes cash inflows and decreases long-term assets b) it includes cash inflows and outflows related to long-erm liabilities and equity c) It includes interest and dividend income and cash payments for interest expense d) It reports on activities that create revenue or expenses for the entity's business

b) it includes cash inflows and outflows related to long-erm liabilities and equity

Which of the following would be considered a long-term asset? a) Accounts payable b) land c) office supplies d) retained earnings

b) land

12 Cash dividends and treasury stock purchases _____________. a) represent cash payments that are made to ensure higher reported profits b) may be limited by creditors to ensure that the company maintains a minimum level of stockholders' equity c) may be restricted as a way to lower federal income tax expense d) make more resources available to pay liabilities

b) may be limited by creditors to ensure that the company maintains a minimum level of stockholders' equity

18 Allen Services purchased 20 delivery vehicles by issuing a 20-year installment note payable for $720000. On the statement of cash flows, this transaction would be shown in the ___________. a) Investing activities section b) non-cash investing and financing activities section c) operating activities section d) financing activities section

b) non-cash investing and financing activities section

11 Restrictions on retained earnings are ________. a) reported on the statement of cash flows b) usually reported in the notes to the financial statements c) reported on the income statement d) designed to maximize dividends paid to shareholders

b) usually reported in the notes to the financial statements

16 Which of the following describes the operating activities section of the statement of cash flows? a) It reports cash receipts and cash payments that increase or decrease long-term assets b) It includes cash inflows and outflows related to long-term liabilities and equity c) It reports on activities hat create revenue or expenses for the entity's business d) it reports on how cash flows affect the total assets and total liabilities

c) It reports on activities hat create revenue or expenses for the entity's business

21) A summary of significant account policies and explanations of specific items on the financial statements are included in ________. a) The balance sheet b) the income statment c) the notes to financial statements d) the report of the independent registered public accounting firm

c) the notes to financial statements

Cash ratio formula

cash + cash equivalents / total current Liabilities

working capital equation

current assets - current liabilities

8 Which of the following statements regarding income from continuing operations is incorrect? a) Income from continuing operations represents the part of the business that should come from period to period b) Income from continuing operations help investors make predictions about future earnings c) Income tax expense is subtracted to arrive at income from continuing operations d) A gain on sale of equipment is outside the business's core business and is not part of the other income

d) A gain on sale of equipment is outside the business's core business and is not part of the other income

20) Trinity Coatings Compnay uses the indirect method to prepare its statement of cash flows. Here's the following info for 2018: The beginning balance in the Cash account was $2700 Net cash provided by operating activities was $41000 Net cash used for investing activities ($28000) Net cash provided by financing activities $1800 The statement of cash flows will show ___________. a) ending cash of $14800 b) net cash provided by operating activities $42900 c) net cash provided by investing and financing activities ($23800) d) ending cash of $17500

d) ending cash of $17500

24) Which of the following is NOT a purpose of using ratios to explain different aspect of a company? a) evaluating profitability b) evaluating stock as an investment c) evaluating the ability to pay current liabilites d) evaluating income tax return information

d) evaluating income tax return information

9 Regarding discontinued operations, which of the following statements is correct? a) Gains and losses on the sale of plant assets are reported as discontinued operations b) a loss on discontinued operations is reported with an addition for the applicable income tax c) a loss on discontinued operations is included with an addition for the income tax savings on the loss d) the disposal of the financing segment of a large corporation would be reported as a discontinued operation

d) the disposal of the financing segment of a large corporation would be reported as a discontinued operation

financing activities

include cash inflows and outflows involved in long-term liabilities and equity

Earnings Per Share (EPS)

reports the amount of net income/loss for each share of the company's outstanding stock

finding retained earnings

retained earnings of previous year add the net income subtract dividends current retained earnings $$

Current Ratio Formula

total current assets / total current liabilities