Lehigh accounting 151 notes

Sparty Corporation has provided the following information for its most recent year of operation: Revenues earned were $94,000, of which $5,000 were uncollected at the end of the year. Operating expenses incurred were $42,000, of which $4,000 were unpaid at the end of the year. Dividends declared were $15,000, of which $3,000 were unpaid at the end of the year. Income tax expense is $17,680. What is the amount of net income reported on Sparty's income statement? A. $25,740 B. $33,760 C. $24,420 D. $34,320

D $34,320 = $94,000 − $42,000 − $17,680

operating expenses

costs involved in operating a business, such as rent, utilities, and salaries - increases in liabilities

accounts receivable --> (amounts due from customers and others)

current assets

inventory

current assets

prepaid expenses (rent, insurance and advertising paid in advance of use)

current assets

accounts payable (amounts owed to suppliers for prior purchases)

current liabilities

accrued expenses (amounts due to employees and for electric, gas, etc)

current liabilities

closing entries

def. --> made at the end f the accounting period to... 1. Transfer the balances in the temporary accounts (income statement accounts) to retained earnings 2. To establish a 0 balance in each of the temporary accounts to start the accumulation in the next accounting period

balance sheet items

https://quizlet.com/300017202/accounting-financial-sheet-items-flash-cards/?new

Temporary (nominal) accounts

income statement accounts that are closed to Retained Earnings at the end of the accounting period

income tax expense

income taxes that a corporation must pay on its earnings - Tax rate --> Income tax expenses / Income before taxes = Tax Rate

cash flow statements

is a categorized list of all transactions of the period that affected the cash account

Net profit margin

is the percentage of revenue left after all expenses have been deducted from sales

total asset turnover

measures how efficiently assets are being used to generate sales

cash expenditures

money paid out by a business to purchase items, assets, or pay interest due

long term debt

non current liabilities

properties (buildings and equipment)

non current liabilities

post closing trial balance

prepared as an additional step in the accounting cycle to check that debits = credits and that all temporary accounts have been closed

Deferred (unearned) revenues

previously recorded liabilities (from collecting cash from customers in the past) that need to be adjusted at the end of the period to reflect the amount of revenue earned by providing goods or services over time to customers

accrued expenses

previously unrecorded expenses that need to be adjusted at the end of the accounting period to reflect the amount incurred and its related payable amount or expenses incurred but not yet paid or recorded at the statement date

accrued revenues

previously unrecorded revenues that need to be adjusted at the end of the accounting period to reflect the amount earned and its related receivable accounts. or revenues for services performed but not yet received in cash or recorded

income statement

profit or loss account is one of the financial statements of a company and shows the company's revenues and expenses during a particular period Revenues - Expenses = NET INCOME

deferred expenses

recording the expenses for USING the assets (ex. supplies, buildings, equipment, etc) is deferred to the future

statements of Stockholders Equity

reports additional contributions or payments to investors & the amount of income the company reinvested for future growth

operating revenues

result from the sale of goods or services

Temporary accounts

revenue, expense, gain, and loss accounts (current period only)

current liabilities

short term obligations that will be paid in cash (or other current assets) within the current operating cycle or one year whichever is longer

Retained earnings and common stock

stockholders equity

additional paid in capital --> (excess in amount received from investors over par)

stockholders equity

Earnings per share

the amount of net income after federal income tax belonging to a single share of stock

permanent (real) accounts

the balance sheet accounts that carry their ending balances into the next accounting period

time period assumption

the long life of a company is divided into shorter periods, such as months, quarters, and years

closing the books

the process of preparing the accounts to begin recording the next period's transactions

transactions anaylsis

the process of studying a transaction to determine its economic effect on the business in terms of the accounting equation

accrual basis accounting

transactions recorded in the periods in which the events occur or accounting method that records revenues when earned and expenses when incurred

earnings per share

used to evaluate operating performance and profitability

revenues

- increase net income and stockholders equity - ^ credits (right) - accounts have credit balances

CHAP. 3

...

Chapter 4

... Adjustments, financial statements, & the quality of earnings

Practice Problems ch. 1

....connect McGraw LIBBY, LIBBY, HODGE

Practice Problems ch.2

....connect McGraw LIBBY, LIBBY, HODGE

Practice Problems ch.3

....connect McGraw LIBBY, LIBBY, HODGE

Expenses ( t account signs)

(+ E, - SE)

Revenues ( t account signs)

(+R, + SE)

expenses

- decreases net income and stockholder's equity - ^ debits (left) - accounts have debit balances

Define the objective of financial reporting, the elements of balance sheet, and the related key accounting assumptions and principles

...is to provide financial information about the reporting entity that is useful to existing or potential lenders, investors and other creditors in making decisions about providing resources to the entity

current assets

...that will be used or turned into cash within one year. - inventory is always considered a current asset regardless of the time needed to produce and sell it

the two principle underlying the transaction analysis process

1. every transaction affects at least 2 accounts - correctly identifying the accounts - direction of the effect (increase or decrease) 2. the accounting equation stays in balance after each transaction

two types of transactions

1. external events --> (exchanges of assets, goods, or services from one or more parties) 2. internal events --> (certain events that aren't exchanges between the business and other parties such as using up on insurance paid in advance and using buildings and equipment over several years)

Issues that arise from time period assumption

1. recognition 2. measurement

A landlord collected $5,700 cash from a tenant for December 2016's rent but the tenant's rent for December is $9,400. Which of the following is true with respect to the landlord's financial statements using generally accepted accounting principles? A. $9,400 would appear on the income statement as rent revenue earned. B. $9,400 would appear on the balance sheet as rent receivable. C. $5,700 would appear on the balance sheet as prepaid rent. D. $9,400 would be reported on the statement of cash flows.

A

Tiger Company's total stockholders' equity at the beginning of the year was $178,000. During the year Tiger reported the following: Net income of $82,000. Dividend declarations totaling $17,300. Issued stock to stockholders in exchange for $43,500 cash. Borrowed $11,300 from a stockholder. What is Tiger's total stockholders' equity at the end of the year? A. $286,200 B. $303,500 C. $280,200 D. $297,500

A Stockholders' equity = $286,200 = $178,000 + $82,000 - $17,300 + $43,500. Borrowing money affects cash and liabilities regardless of who is the lender.

On January 1, 2016, Miller Corporation had retained earnings of $8,800,000. During 2016, Miller reported net income of $1,470,000, declared dividends of $470,000, and issued common stock for $1,180,000. What were Miller's retained earnings on December 31, 2016? A. $9,800,000 B. $8,330,000 C. $10,270,000 D. $7,620,000

A Ending retained earnings ($9,800,000) = Beginning retained earnings ($8,800,000) + Net income ($1,470,000) − Dividends ($470,000).

Superior has provided the following information for its recent year of operation: The common stock account balance at the beginning of the year was $18,000 and the year-end balance was $19,000. The additional paid-in capital account balance increased $4,300 during the year. The retained earnings balance at the beginning of the year was $100,000 and the year-end balance was $97,000. Net income was $44,000. How much were Superior's dividend declarations during its recent year of operation? A. $47,000. B. $41,000. C. The dividend declarations can not be determined given the above information. D. $44,000.

A Ending retained earnings ($97,000) = Beginning retained earnings ($100,000) + Net income ($44,000) - Dividends declared ($47,000).

During 2016, Rock Company's cash balance increased from $81,000 to $92,500. Rock's net cash flow from operating activities was $38,500 and its net cash flow from financing activities was $13,500. How much was Rock's net cash flow from investing activities? A. A net cash flow of ($40,500). B. A net cash flow of ($63,500). C. A net cash flow of $63,500. D. A net cash flow of $40,500.

A The change in cash is ending balance $92,500 − beginning balance $81,000 = $11,500. $11,500 = Net cash flow from operating activities $38,500 +/− Net cash flow from investing activities + Net cash flow from financing activities $13,500; $11,500 = 38,500 +/− X + $13,500. Solve for X = Investing activities = −$40,500.

Unearned revenue was $3,800. What is the amount of Lantz's income from operations (operating income)? A. Supplies expense was increased by $46,000. B. The cash account was credited for $46,000. C. Operating income was not changed by the payment to the suppliers. D. Accounts payable was debited for $46,000.

A. Paying suppliers cash owed on account does not result in an incurred expense but a reduction in assets (cash) and liabilities (accounts payable).

Mama June Pizza Company sold land costing $46,000 for $72,000 cash. Which of the following statements concerning the land sale is correct? A. Income before income taxes increased $26,000. B. The revenue account was debited for $72,000. C. Operating income increased $26,000. D. The land account was credited for $72,000.

A. 72,000-46,000 = 26,000

A company's January 1, 2016 balance sheet reported total assets of $170,000 and total liabilities of $70,000. During January 2016, the company completed the following transactions: (A) paid a note payable using $20,000 cash (no interest was paid); (B) collected a $19,000 accounts receivable; (C) paid a $7,000 accounts payable; and (D) purchased a truck for $7,000 cash and by signing a $30,000 note payable from a bank. The company's January 31, 2016 balance sheet would report which of the following? Assets Liabilities Stockholders' Equity A. $200,000 $134,000 $66,000 B. $173,000 $73,000 $100,000 C. $170,000 $70,000 $100,000 D. $180,000 $93,000 $87,000

B Assets = $173,000 = $170,000 - $20,000 - $7,000 - $7,000 + $37,000 Liabilities = $73,000 = $70,000 - $20,000 - $7,000 + $30,000 Stockholders' equity = $100,000 = Assets ($173,000) - Liabilities ($73,000)

A company's retained earnings increased $376,000 last year and its assets increased $974,000. The company declared a $60,000 cash dividend during the year. What was last year's net income? A. $376,000 B. $436,000 C. $538,000 D. $316,000

B The $376,000 increase in retained earnings = Net income of ($436,000) − Dividends ($60,000).

Willie Company's retained earnings increased $32,000 during 2016. What was Willie's 2016 net income or loss given that Willie declared $62,000 of dividends during 2016? A. Net loss was $30,000. B. Net income was $94,000. C. Net income was $30,000. D. Net loss was $94,000.

B The increase in retained earnings $32,000 = net income of $94,000 - dividends $62,000.

Which of the following journal entries is correct when a business entity purchases land costing $44,000 by signing a one-year note payable? A. Land 44,000 Accounts payable (44,000) B. Land 44,000 Notes payable (44,000) C. Notes payable 44,000 Land (44,000) Cash 44,000 Notes payable (44,000)

B The transaction results in the company receiving an asset, land, and incurring a liability, notes payable. This results in a debit to land to increase the land account, and a credit to notes payable to recognize and record the liability.

At the beginning of April, Warren Corporation's assets totaled $257,000 and liabilities totaled $77,000. During April the following summarized transactions occurred: Additional shares of stock were sold for $28,500 cash. A building costing $112,000 was purchased using $18,500 cash and by signing an $93,500 long-term note payable. Short-term investments costing $10,700 were purchased using cash. $11,700 was paid to an employee as a loan; the employee signed a six-month note in exchange for the loan. How much are Warren's total liabilities at the end of April? A. $189,000 B. $170,500 C. $158,800 D. $200,700

B Total liabilities = $170,500 = $77,000 + $93,500.

Centex, Inc. issued 47,000 shares of its $1 par value common stock for $30 per share. The journal entry to record the stock issue would include which of the following? A. A credit to additional paid-in capital for $1,410,000. B. A credit to common stock for $47,000. C. A credit to additional paid-in capital for $47,000. D. A credit to cash for $1,410,000.

B The credit to common stock is for the par value of the shares issued.

During 2016, Sigma Company earned service revenues amounting to $700,000, of which $630,000 was collected in cash; the balance will be collected in January 2017.Also in 2016 there were collections of cash prior to the delivery of goods/services totaling $11,600. What amount should the 2016 income statement report for service revenues? A. $175,000 B. $700,000 C. $840,000 D. $665,000

B.

Which of the following properly describes the impact on the financial statements when a company borrows $24,000 from a local bank? A. Stockholders' equity increased $24,000. B. Liabilities increased $24,000. C. Assets decreased $24,000. D. Net income decreased $24,000.

B.

During 2016, Sensa Corporation incurred operating expenses amounting to $130,000 of which $80,000 was paid in cash; the balance will be paid during 2017. Which of the following is correct for the 2016 year-end balance sheet? A. Assets decrease $130,000, liabilities increase $50,000, and stockholders' equity decreases $130,000. B. Stockholders' equity decreases $130,000, assets decrease $80,000, and liabilities increase $50,000. C. Assets decrease $130,000 and stockholders' equity decreases $130,000. D. Stockholders' equity decreases $80,000 and assets decrease $80,000.

B. The full operating expense amount reduces net income, which reduces stockholders' equity through the retained earnings account. The portion paid in cash reduces assets and the unpaid portion of the expense must be recognized as an increase to liabilities.

Mama June Pizza Company determined that dough, sauce, cheese and other ingredients costing $9,500 were used to make pizzas during July. Which of the following statements is false with respect to the use of the ingredients? A. Operating expenses increased $9,500. B. Operating income decreased $9,500. C. Supplies was debited for $9,500. D. Cost of goods sold was debited for $9,500.

C

When a company buys equipment for $164,000 and pays for one half in cash and the other one half is financed by a note payable, QUES: Which of the following are the effects on the accounting equation? A. Total assets increase $164,000. B. Total liabilities decrease $82,000. C. Total assets increase $82,000. D. Total liabilities increase $164,000.

C Equipment increases $164,000 and cash decreases $82,000 for a net asset increase of $82,000.

Superior has provided the following information for its recent year of operation: The common stock account balance at the beginning of the year was $15,000 and the year-end balance was $17,500. The additional paid-in capital account balance increased $4,000 during the year. The retained earnings balance at the beginning of the year was $85,000 and the year-end balance was $94,000. Net income was $41,000. How much did Superior sell its common stock for during the year? A. $2,500. B. $17,500. C. $6,500. D. $4,000.

C The increase in the common stock account ($2,500) plus the increase in additional paid-in capital ($4,000) equals the selling price of the common stock ($6,500).

Cadet Company paid an accounts payable of $2,800. This transaction should be recorded on the payment date as follows: A. Cash 2,800 Accounts payable (2,800) B. Notes payable 2,800 Cash (2,800) C. Accounts payable 2,800 Cash (2,800) D. Cash 2,800 Cost of goods sold (2,800)

C Accounts Payable is reduced with a debit, and cash is reduced with a credit.

At the beginning of April, Warren Corporation's assets totaled $240,000 and liabilities totaled $60,000. During April the following summarized transactions occurred: Additional shares of stock were sold for $20,000 cash. A building costing $95,000 was purchased using $10,000 cash and by signing an $85,000 long-term note payable. Short-term investments costing $9,000 were purchased using cash. $10,000 was paid to an employee as a loan; the employee signed a six-month note in exchange for the loan. How much are Warren's total assets at the end of April? A. $249,000 B. $364,000 C. $345,000 D. $250,000

C Total assets = $345,000 = $240,000 + $20,000 + $95,000 - $10,000 (building payment)

At the beginning of 2016, a corporation had assets of $270,000 and liabilities of $170,000. During 2016, assets increased $12,000 and liabilities increased $1,000. What was stockholders' equity at December 31, 2016? A. $159,000 B. $281,000 C. $111,000 D. $87,000

C $111,000 Assets at December 31, 2016 = Beginning assets ($270,000 + Increase in assets during 2016 $12,000) = $282,000. Liabilities at December 31, 2016 ($170,000 + $1,000) = $171,000. Assets $282,000 = Liabilities $171,000 + Stockholders' equity. Solve for Stockholders Equity at December 31, 2016 = $111,000.

A company's January 1, 2016 balance sheet reported total assets of $124,000 and total liabilities of $36,000. During January 2016, the following transactions occurred: (A) the company issued stock and collected cash totaling $34,000; (B) the company paid an account payable of $6,400; (C) the company purchased supplies for $1,400 with cash; (D) the company purchased land for $56,000 paying $14,000 with cash and signing a note payable for the balance. What is total stockholders' equity after the transactions above? A. $201,600. B. $34,000. C. $88,000. D. $122,000.

D Beginning equity = $124,000 - $36,000 = $88,000. Only transaction (A) affects stockholders' equity. Therefore, stockholders' equity = $88,000 + $34,000 = $122,000.

The Pioneer Company has provided the following account balances: Cash $38,400; Short-term investments $4,400; Accounts receivable $6,400; Supplies $50,000; Long-term notes receivable $2,400; Equipment $98,000; Factory Building $184,000; Intangible assets $6,400; Accounts payable $29,600; Accrued liabilities payable $3,800; Short-term notes payable $14,800; Long-term notes payable $94,000; Common stock $184,000; Retained earnings $63,800. What are Pioneer's total current liabilities? A. $44,400 B. $33,400 C. $142,200 D. $48,200

D Current liabilities = (ACCT PAY.) + (ACCRUED LIA PAY.) + (SHORT TERM NOTES PAY.) $29,600 + 3,800 + 14,800 = $48,200

Colby Corporation has provided the following information: Operating revenues were $199,700 Operating expenses were $111,000 Interest expense was $9,200 Gain from sale of plant and equipment was $3,300 Dividend payments to Colby's stockholders were $7,700 Income tax expense was $36,000 Prepaid rent was $5,000 How much was Colby's net income? A. $48,000 B. $41,800 C. $37,700 D. $46,800

D Operating revenue $199,700 -Operating expenses 111,000 = Income from operations 88,000 Non-operating items: Gain on sale 3,300 Interest exp. (9,200) -Non-operating expense (5,900) =Income before taxes 82,800 -Income tax expense 36,000 =Net income $46,800

The Pioneer Company has provided the following account balances: Cash $39,600; Short-term investments $5,600; Accounts receivable $7,600; Supplies $56,000; Long-term notes receivable $3,600; Equipment $104,000; Factory Building $196,000; Intangible assets $7,600; Accounts payable $28,400; Accrued liabilities payable $3,200; Short-term notes payable $17,200; Long-term notes payable $100,000; Common stock $196,000; Retained earnings $75,200. QUES: What is Pioneer's current ratio? A. 2.39 B. 3.44 C. 1.08 D. 2.23

D 2.23 Current assets = $108,800 = $39,600 + $5,600 + $7,600 + $56,000 Current liabilities = $48,800 = $28,400 + $3,200 + $17,200 Current ratio = 2.23 = $108,800 ÷ $48,800

Lantz Company has provided the following information: Cash sales totaled $240,000. Credit sales totaled $484,000. Cash collections from customers for services yet to be provided totaled $84,000. A $20,000 loss from the sale of property and equipment occurred. Interest income was $8,200. Interest expense was $18,400. Supplies expense was $340,000. Rent expense for the store was $34,000. Wages expense was $44,000. Other operating expenses totaled $74,000. Unearned revenue was 3,500. What is the amount of Lantz's income before income taxes? A. $232,000 B. $285,800 C. $384,000 D. $201,800

D. 201,800 Operating revenue --> $240,000 + $484,000 = $724,000 Operating expenses --> $340,000 + $34,000 + $44,000 + $74,000 = $492,000 Operating income --> $724,000 − $492,000 = $232,000 Income before taxes = $232,000 − $20,000 + $8,200 − $18,400 = $201,800

Lantz Company has provided the following information: Cash sales totaled $250,000. Credit sales totaled $485,000. Cash collections from customers for services yet to be provided totaled $85,000. A $21,000 loss from the sale of property and equipment occurred. Interest income was $8,300. Interest expense was $18,500. Supplies expense was $320,000. Rent expense for the store was $35,000. Wages expense was $45,000. Other operating expenses totaled $75,000. Unearned revenue was $3,700. What is the amount of Lantz's income from operations (operating income)? a. $224,000 b. $312,000 c. $213,800 d. $260,000

D. 239,000 Operating revenues = $735,000 = $250,000 + $485,000 Operating expenses = $496,000 = $320,000 + $35,000 + $45,000 + $75,000 Operating income = $260,000 = $735,000 − $475,000

cash basis accounting

System of reporting revenues and expenses at the time they are collected or paid, respectively

non current assets

Property, plant, equipment, investment property, intangible assets are considered:

balance sheet

a financial statement that reports the assets and claims to those assets at a specific point in time Assets = Liabilities + Stockholders Equity

t account

a tool for summarizing transaction effects for each account, determining balances, and drawing inferences about a company's activities

credits

amounts paid into or deposited to your account

debits

amounts paid out of your account, such as fees and checks written charges against an account

journal entry

an accounting method for expressing the effects of a transaction on accounts in a debits equal credits format

accounting equation

assets = liabilities + stockholders equity

Permanent accounts

assets = liabilities + stockholders equity Stockholders equity --> (common stock and retained earnings)

current assets

cash and other assets expected to be exchanged for cash or consumed within a year ex. cash, short term investments, accounts receivable and supplies