Chapter's 1 and 2 CV

Suppose a company paid $15,000 for supplies during the year and you determine that there were $2,000 and $3,000 in supplies at the beginning and end of the year, respectively. What was supplies expense for the year?

$14,000

Kochanski Company has total assets of $100,000 and total stockholders' equity of $75,000. What is the amount of the company's total liabilities?

$25,000

During its first month of business Kochanski Company reported net cash flows from operating activities of $5,000, net cash flows from investing activities of ($10,000), net cash flows from financing activities of $50,000. What was the net increase in cash?

45,000

A creditor provides a company with $100,000 cash by purchasing bonds at the end of Year 1. The creditor receives $6,000 in interest from the company during Year 2. The creditor sells the bonds at the end of Year 2 or $102,000. What was the rate of return generated by this investment?

8%; Divide $6,000/$102,000

Journal

A chronological record of all economic events affecting financial position

Journal entry

Captures the effect of a transaction on financial position in debt/credit form

Ledger

Collection of accounts that organizes the accounts and allows for keeping track of increases and decreases and resulting balances

True or False: Adjusting entries to not need to be posted to the general ledger

False

Revenues

Inflows or other enhancements of assets of an entity or settlements of its liabilities during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing central operations

Expenses

Outflows or other using up of assets or incurrences of liabilities during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing central operations.

Assets

Probably future economic benefits obtained or controlled by a particular entity as a result of past transactions or events

Liabilities

Probably future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events

Transaction analysis

Process of reviewing source documents to determine dual effect on the accounting equation

Equity

Residual interest in the assets of an entity that remains after deducting its liabilities

What are the steps that are performed at the end of the accounting period in order?

Step 5: Prepare an unadjusted trial balance Step 6: Record and post adjusting entries Step 7: Prepare an adjusted trial balance Step 8: Prepare the financial statements

Relevance

The information about it is capable of making a difference in user decisions

Reliability

The information is representationally faithful, verifiable, and neutral

Measruability

The item has a relevant attribute that is measurable with sufficient reliability

Definition

The item meets the definition of an element of financial statements

Posting

Transferring debits and credits recorded in individual journal entries to the specific accounts affected

Which of the following transactions would result in a decrease to the company's liabilities? a. A payment was made on account to a vendor b. An amount was borrowed from a bank and a note payable was signed c. Salaries were paid to employees d. Services were performed for cash e. Services were performed on account

a. A payment was made on account to a vendor

Which of the following would ordinarily be classified as current assets on the balance sheet? Check all that apply a. Accounts receivable b. Accounts payable c. Cash d. Equipment

a. Accounts receivable c. Cash

Which of the following organizations is the primary national organization for CPAs? a. American Institute of Certified Public Accountants b. Institute of Internal Auditors c. Governmental Accounting Standards Board d. Institute of Management Accountants

a. American Institute of Certified Public Accountants (AICPA)

The purchase of supplies on account would be recorded in a journal entry with a: a. Debit to Supplies b. Credit to Cash c. Debit to Accounts Payable d. Credit to Supplies

a. Debit to Supplies

Which of the following describes the purpose of the statement of shareholder's equity? a. Disclose investments by owners, distributions to owners, net income, and other comprehensive income b. Disclose the impact of investments by owners, distributions to owners, net income, and other comprehensive income on the company's cash c. Disclose the events that caused cash to change during the period d. Disclose the changes in the company's assets, liabilities, and equity during the period

a. Disclose investments by owners, distributions to owners, net income, and other comprehensive income

Which of the following describes the role of the auditor with regards to the audit of any company's financial statements? Check all that apply a. Express a professional, independent opinion b. Express an opinion about whether the statements fairly present the company's financial position, its results of operations, and its cash flows in compliance with GAAP c. Issue an unmodified (clean) audit report on the company's financial statements d. Prepare the company's financial statements in compliance with GAAP

a. Express a professional, independent opinion b. Express an opinion about whether the statements fairly present the company's financial position, its results of operations, and its cash flows in compliance with GAAP

Which of the following describe the purpose of the Conceptual Framework? Check all that apply a. It prescribes the nature, function, and limits of financial accounting and reporting. b. It provides structure and direction to financial accounting and reporting. c. It sets forth the underlying concepts of accounting that guide the selection of events to be accounted for, the measurement of those events, and the means of summarizing and communicating them to interested parties. d. It summaries U.S. accounting standards

a. It prescribes the nature, function, and limits of financial accounting and reporting. b. It provides structure and direction to financial accounting and reporting. c. It sets forth the underlying concepts of accounting that guide the selection of events to be accounted for, the measurement of those events, and the means of summarizing and communicating them to interested parties.

Which of the following statements about the conceptual frameworks in the U.S. GAAP and IFRS is correct? a. The conceptual framework in U.S. GAAP is considerably different than the conceptual framework in IFRS b. The IFRS conceptual framework provides explicit definitions of concepts like materiality, reporting entity, and executory contracts while the framework relies on other guidance in the Accounting Standards Codification or elsewhere with respect to these concepts. c. The definitions of assets and liabilities in the IFRS conceptual framework currently include a consideration of the probability of the related cash inflows and outflows; probability does not appear in the definitions in the U.S. GAAP conceptual framework

b. The IFRS conceptual framework provides explicit definitions of concepts like materiality, reporting entity, and executory contracts while the framework relies on other guidance in the Accounting Standards Codification or elsewhere with respect to these concepts.

Which of the following qualities is NOT a requirement of representational faithfulness? a. Neutrality b. Timeliness c. Free from error d. Complete

b. Timeliness

Which of the following are the accounting standards issued by the FASB? a. Accounting Principle Board Opinions b. Accounting Research Board Bulletins c. Accounting Standards Updates d. Conceptual Framework

c. Accounting Standards Updates

Notes to the company's financial statements are: a. Unimportant information that do not belong in the four basic financial statements b. Not required by U.S. GAAP c. An integral part of the company's financial statements d. Removed before the financial statements are released to the public

c. An integral part of the company's financial statements

Which statement does not report financial data over a period of time? a. Income Statement b. Statement of Stockholder's Equity c. Balance Sheet d. Statement of Cash Flows

c. Balance Sheet

The purpose of closing entries is to transfer: a. Cash to the owners of the company b. Assets and liabilities when operations are discontinued c. Balances in temporary accounts to a permanent account d. Inventory to customers

c. Balances in temporary accounts to a permanent account

Which of the following is not a source document? a. Sales invoices b. Customer checks c. Newspaper advertisements d. Bills from suppliers

c. Newspaper advertisements

Which of the following statements about general ledger accounts is true? a. Asset accounts are permanent accounts that are increased with credits b. Liability accounts are temporary accounts that are increased with credits c. Revenue accounts are temporary accounts that are increased with credits d. Expense accounts are permanent accounts that are increased with debits.

c. Revenue accounts are temporary accounts that are increased with credits

Which of the following accounts are closed at the end of the year? a. Accounts receivable b. Retained earnings c. Salaries expense d. Service revenue

c. Salaries expense d. Service revenue

Which of the following statements regarding the asset/liability approach are true? a. The asset/liability approach emphasizes the important distinction between total assets and net assets. b. The asset/liability approach recognize assets and liabilities as necessary to make balance sheet reconcile with income statement c. Under the asset/liability approach, we first recognize and measure the assets and liabilities that exist at a balance sheet date d. Under the asset/liability approach, we recognize some assets and liabilities as necessary to make balance sheet reconcile with income statement

c. Under the asset/liability approach, we first recognize and measure the assets and liabilities that exist at a balance sheet date

Choose the word pair that fill in the blanks correctly: A parent company and its subsidiaries are separate ________ entities but one ________ entity. a. accounting; legal b. business; ownership c. legal; accounting d. ownership; business

c. legal; accounting

Which of the following statements regarding adjusting entries is correct? a. Adjusting entries are recorded for all external transactions b. Adjusting entries are recorded to make sure all cash inflows and outflows are recorded in the current period c. After adjusting entries, all temporary accounts should have a balance of zero d. Adjusting entries are needed because we use accrual-basis accounting

d. Adjusting entries are needed because we use accrual-basis accounting

Which of the following methods of measurement is allowed under U.S. GAAP? a. Current cost b. Fair value c. Historical cost d. All of these methods are allowed

d. All of these methods are allowed

Which of the following are the accounting standards issued by the IASB? a. Accounting Standards Updates b. International Accounting Board Opinions c. International Accounting Standards d. International Financial Reporting Standards

d. International Financial Reporting Standards

An adjusted trial balance is a: a. Trial balance adjusted for cash-basis accounting b. List of all accounts and their balances after closing entries c. List of all accounts and their balances before adjusting entries d. List of all accounts and their balances after adjusting entries

d. List of all accounts and their balances after adjusting entries

The FASB's conceptual framework's qualitative characteristics of accounting include: a. Full disclosure b. Historical Cost c. Ease of access d. Relevance

d. Relevance

The primary focus of financial accounting information is to provide useful information for users to make: investing decisions and credit decisions a. No No b. No Yes c. Yes No d. Yes Yes

d. Yes Yes

A characteristic of an accrued expense is: a. Cash is paid, but an expense is never recorded b. An expense is recognized, but the cash payment is never paid c. Cash payment occurs before expense recognition d. The expense is recognized before the payment of cash

d. the expense is recognized before the payment of cash

Which of the following best describes the purpose of financial accounting? a. Providing financial information to employees and labor unions b. Providing financial information to financial intermediaries c. Providing financial information to internal users d. Providing financial information to government regulatory agencies e. Providing financial information to various external users

e. Providing financial information to various external users

Which of the following assumes the economic life of a company can be divided into time periods for financial reporting? a. Periodicity assumption b. Timeliness assumption c. Monthly basis assumption d. Artificial time period assumption

a. Periodicity assumption

How does the FASB consider the input of various interest groups before issuing an Accounting Standards Update? Check all that apply a. The Board deliberates the various issues identified and analyzed by its staff at public meetings b. The FASB staff analyzes comment letters, public roundtable discussion, and any other information c. Politicians are encouraged to lobby for the standards they prefer d. The Board redeliberates proposed provisions to exposure drafts at public meetings

a. The Board deliberates the various issues identified and analyzed by its staff at public meetings b. The FASB staff analyzes comment letters, public roundtable discussion, and any other information d. The Board redeliberates proposed provisions to exposure drafts at public meetings

Which of the following is a presumption of the monetary unit assumption? a. The value of the currency used in measuring transactions is stable over time. b. Unstable prices have no effect on financial statements. c. All financial statements must be measured in U.S. dollars d. U.S. GAAP requires an inflation rate of less than 5%.

a. The value of the currency used in measuring transactions is stable over time.

A trial balance can best be explained as a list of: a. The balance sheet accounts used to show the equality of the accounting equation b. All accounts and their balances at a particular date c. Revenue, expense, and dividend accounts used to show the balances of the components of retained earnings d. The income statement accounts used to calculate net income

b. All accounts and their balances at a particular date

The payment of utilities for the period would have what effect on the accounting equation? a. Assets increase; liabilities increase b. Assets decrease; owners' equity decreases c. Liabilities increase; owners' equity decreases d. Liabilities decrease; ownership equity increases

b. Assets decrease; owners' equity decreases

On July 1, Year 1, a company paid $48,000 for 24 months of advance rent on its warehouse. Assuming the company has a December year end, what would be the amount of rent expense in Year 1 under cash basis versus accrual accounting? a. Cash basis = $24,000; Accrual = $24,000 b. Cash basis = $48,000; Accrual = $12,000 c. Cash basis = $12,000; Accrual = $36,000 d. Cash basis = $48,000; Accrual = $24,000

b. Cash basis = $48,000; Accrual = $12,000

Which of the following assumes that in the absence of contrary information a business entity will continue indefinitely? a. Business failure assumption b. Going concern assumption c. Historical cost assumption d. Liquidation assumption

b. Going concern assumption

Which of the following statements about the Sarbanes-Oxley Act (SOX) is (are) true? Check all that apply a. It requires the rotation of the lead partner on an audit engagements every seven years b. It created the PCAOB to regulate auditors of public companies and the types of services they furnish to clients c. It provides for stiff criminal penalties for violators of SOX d. It requires auditors to document the company's internal controls

b. It created the PCAOB to regulate auditors of public companies and the types of services they furnish to clients c. It provides for stiff criminal penalties for violators of SOX

Which of the following equations is correctly stated? a. Comprehensive income +/- Other comprehensive income or loss items = Net income b. Net income +/- Other comprehensive income or loss items = Comprehensive income c. Sales - Operating expenses = Gross profit d. Sales + Gross profit - Operating expenses = Net income

b. Net income +/- Other comprehensive income or loss items = Net income