Acct 310 Chapter 3

Journal:

record the dual effect of a transaction in debit/credit form.

The ability to pay long term debts as they become due is referred to as:

solvency of the company.

During the course of an audit, the auditor is required to evaluate:

the company's ability to continue for a reasonable time as a going concern.

Unqualified opinion:

the statements are presented fairly in conformity with GAAP.

Which of the following ratios are used to evaluate a company's ability to pay long-term debts?

times interest earned ratio and debt to equity ratio.

Posting:

transferring balances from the journal to the ledger.

Adjusted Trial Balance:

List of the accounts and their balances after recording adjusted entries.

Post-closing trial balance:

List of the accounts and their balances after recording closing entries.

Unadjusted trial balance:

List of the accounts and their balances before recording adjusted entries.

How are management's responsibility and the auditor's responsibility represented in the standard auditor's report?

Management and auditor responsibility is explicitly.

Times interested earned ratio formula:

Net income+interest+tax expense/interest expense.

Qualified opinion:

Scope limitation or a departure from GAAP.

The residual interest in the assets of an entity that remains after deducting the liabilities is:

Stockholders equity.

Financial Statements:

providing information to external decision makers.

Liquidity ratios:

quick ratio and current ratio.

Liquidity:

relates to the amount of time before an asset is converted to cash or a liability is paid.

Worksheet:

A means of organizing information: not part of formal accounting system.

How should liquid investments expected to be converted to cash within the current operating cycle be reported in the balance sheet?

As a short-term investment in the current asset section.

Which of the following items could be classified as short-term investments?

Investment in stocks/debt securities of other company's.

Which of the following describe long-term liabilities?

They do not require the use of current assets. They do not require the creation of current liabilities for payment.

Closing entries:

To zero out the owners equity temporary accounts.

Source documents:

Used to identify and process external transactions.

Quick Assets/current liabilities:

acid test ratio

Auditors provide what opinions:

adverse, qualified, and unqualified.

Which of the following are required disclosures for related-party transaction?

amounts due to or from related parties and nature of the relationship.

An accrued liability represents:

an expense that has been incurred but will be paid in a future period.

Subsequent events:

occurs after the fiscal year-end but before the financial statements are issued.

Operating cycle:

cash to cash.

What is included in a company's paid in capital:

common stock and additional paid in capital

Which of the following are common disclosures on the face of a financial statement?

common stock information and allowance for uncollected accounts.

The Management's Discussion and Analysis (MD&A) section of an annual report

covers three financial aspects of a firms business: liquidity, capital resources, and results of operations.

Current liabilities will be satisfied through:

current assets.

Which of the following is a ratio used to evaluate a company's solvency?

debt to equity.

Transaction analysis:

determine the dual effect of the accounting equation.

Which of the following are characteristics of an operating segment?

discrete financial information is available, its operating results are regularly reviewed by the chief operating decision maker, and it engages in businesses to earn revenues and incur expenses.

Summary of significant accounting policies:

important to a user in comparing financial information across companies.

Cash equivalents:

one month U.S. treasury bill.

Economy wide risk factors include which of the following?

interest rates, inflation, and business climate.

Adjusting entries:

internal events recorded at the end of a reporting period.

Accrued liability:

is recorded when an expense is incurred but not yet paid.

Industry wide risk factors include which of the following?

labor conditions, competition, and technological forces.

Intangible asset:

lacks physical substance.