Module 2 reading

dividend

A dividend is a reward distributed by a company (through the decision of its board of directors) to the owners of its capital stock. this is why they are not part of the income statement because they have nothing to do with revenue

Retained earnings

All the net income earned by the organization over its life less amounts distributed as dividends to owners

periodic inventory system

An inventory system in which a company does not maintain detailed records of goods on hand throughout the period and determines the cost of goods sold only at the end of an accounting period.

What is net assets

Assets - Liabilities

Accounting Equation

Assets = Liabilities + Owner's Equity or assets = liabilities + capital stock + retained earnings.

in a periodic inventory system how is cost of goods sold computed

Beginning inventory + purchases for the period = which gives you goods available for sale then - ending inventory and you get = cost of goods sold

Operating Activities

Cash flows listed as operating activities relate to receipts and disbursements that arose in connection with the central activity of the organization. For Davidson Groceries, these cash changes resulted from the daily operations carried out by the convenience store and include selling goods to customers, buying merchandise, paying salaries to employees, and the like.

is income tax an expense True or False

False its a government assessment

The purchases

Is a price maintained throughout the year. It accounts for all cost needed to get inventory in the condition and position to be sold

What is the content of a income statement

It holds the gains and losses over a period of time. A gain isa increase in net assets. A loss is a decrease in net asset

What is the working capital and how do you calculate it?

It is a measurement of the current capital of a company. You get it by subtracting the current liabilities from the current assets

What is the primary purpose of a balance sheet

It reports an organizations assets and liabilities at a specific point in time. It lists all assets and all liabilities usually in order of liquidity.

What does a statement of cash flows show

It reports changes in a companies assets

What does net income not include

Money from shares

Capital stock (or contributed capital)

The amount invested in the business by individuals and groups in order to become owners.

What financial statement is best to use when you want to see financial state on one specific date

The balance sheet

physical inventory

When a periodic inventory is conducted by counting, weighing, or measuring items of merchandise on hand

How to calc late gross profit percentage

gross profit margin/ sales revenue

What does cost of goods sold mean

is an expense reflecting the cost of the merchandise that a company's customers purchased during the period.

Ending inventory

is found by making a new physical count at the end of the current period. The number of units on hand is determined (one, in this case) and then the cost of those items ($260) is used to arrive at the proper inventory total.

Financing Activities

is unrelated to daily business operations but, here, the transactions relate to either a liability or a stockholders' equity balance. Borrowing money from a bank meets these criteria as does distributing a dividend to shareholders. Issuing stock to new owners for cash is another financing activity as is payment of a noncurrent liability.

FOB shipping point

ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller

FOB destination

ownership of the goods remains with the seller until the goods reach the buyer

Investing Activities

separate from the central or daily operations of the business and (2) involve an asset. Thus, the amount of cash collected when either equipment or land is sold is reported within this section. A convenience store does not participate in such transactions as a regular part of operations and both deal with an asset. Cash paid to buy a building or machinery will also be disclosed in this same category. Such purchases do not happen on a daily operating basis and an asset is involved.

What does the statement if retained earnings show?

this balance is merely the total amount of net income reported by a company since it first began operations, less all dividends paid to stockholders during that same period. Thus, the figure provides a measure of the profits left in a business throughout its history to create growth. It tells How much of the company's net assets have been derived from operations during its life?

Lincoln Corporation buys and sells widgets and uses a periodic system for accounting purposes. According to counts that were taken, the company started the year with 4,000 units and ended the year with 5,000. However, during the period, an additional 17,000 widgets were acquired. All inventory items are bought by the company for $7 each, a figure that includes all normal and necessary costs. What was cost of goods sold for this period? (A) $112,000 (B) $118,000 (C) $119,000 (D) $125,000

(A) $112,000

On January 1, Year One, the Green River Company was started when owners contributed $100,000 cash to start operations. During the first year, the company earned a reported net income of $23,000 and paid a $2,000 dividend. During the second year, the company earned another $31,000 and paid a $5,000 dividend. What is reported on the company's balance sheet as the total retained earnings at the end of Year Two? (A) $47,000 (B) $54,000 (C) $147,000 (D) $154,000

(A) $47,000

The Winston Corporation has prepared an annual report for the past year that includes a complete set of financial statements. Which of the following is not likely to be included? (A) Statement of changes in liabilities (B) Balance sheet (C) Income statement (D) Statement of cash flows

(A) Statement of changes in liabilities

In a set of financial statements, a company reports an account balance of $19,000 labeled as "prepaid insurance." Which of the following is not true in connection with this account? (A) The account appears on the company's income statement. (B) The money was paid in the past but will provide benefit in the future. (C) The account is an asset. (D) The account appears on the company's balance sheet.

(A) The account appears on the company's income statement. The account title implies a benefit to the company in the future. A payment has been made for insurance coverage on assets such as buildings and equipment over the next few months or years. Because the benefits are yet to be derived, this cost cannot be reported on the income statement; rather, it must be reported as an asset on the balance sheet.

Which of the following is not an example of the effect of the principle of conservatism? (A) A company has revenue, but the revenue is not reported because of some uncertainty. (B) A company has a liability, but the liability is not reported because of some uncertainty (C) .A company has an asset, but the asset is not reported because of some uncertainty. (D) A company has a cost that is reported as expense because of an uncertainty about the future benefit.

(B) A company has a liability, but the liability is not reported because of some uncertainty

Which of the following statements is true? (A) Rent payable appears on a company's income statement. (B) Capital stock appears on a company's balance sheet. (C) Gain on the sale of equipment appears on a company's balance sheet. (D) Accounts receivable appears on a company's income statement.

(B) Capital stock appears on a company's balance sheet. Assets and liabilities such as accounts receivable and rent payable are shown on a company's balance sheet at a particular point in time. Revenues, expenses, gains, and losses are shown on an income statement for a specified period of time. Capital stock, a measure of the amount of net assets put into the business by its owners, is reported within stockholders' equity on the balance sheet.

In reviewing a statement of cash flows, which one of the following statements is not true? (A) Cash paid for rent is reported as an operating activity. (B) Cash contributed to the business by an owner is an investing activity. (C) Cash paid on a long-term note payable is a financing activity. (D) Cash received from the sale of inventory is an operating activity.

(B) Cash contributed to the business by an owner is an investing activity.

The Bartolini Company has recently issued a set of financial statements. The company owns several restaurants that serve coffee and donuts. Each of the following balances appears in the company's financial statements. Which was not included in the company's reported income statement? (A) Loss from fire in warehouse—$4,000 (B) Rent expense—$13,000 (C) Cash—$9,000 (D) Gain on sale of refrigerator—$1,000

(C) Cash—$9,000

The Hayes Corporation is a car dealer. A new car is received from the manufacturer during September at a cost of $33,000. This vehicle is sold in October to a customer for $42,000. In connection with this transaction, which of the following statements is correct? (A) The company will report cost of goods sold of $42,000. (B) The company will report gross profit of $42,000. (C) The company will report cost of goods sold of $33,000. (D) The company will report gross profit of $33,000.

(C) The company will report cost of goods sold of $33,000.

A company has the following reported balances at the end of the current year: revenues—$100,000, rent expense—$40,000, dividends paid—$12,000, loss on sale of truck—$2,000, salary expense—$19,000, gain on sale of land—$9,000, and prepaid insurance—$8,000. What should be reported by this company as its net income for the year? (A) $28,000 (B) $36,000 (C) $40,000 (D) $48,000

(D) $48,000 A company has the following reported balances at the end of the current year: revenues—$100,000, rent expense—$40,000, dividends paid—$12,000, loss on sale of truck—$2,000, salary expense—$19,000, gain on sale of land—$9,000, and prepaid insurance—$8,000. What should be reported by this company as its net income for the year? (1 point)$28,000$36,000$40,000$48,000

A company buys 144 inventory items at a total cost of $4,000. The shipment was made in Year One but did not arrive at the buyer's location until early in Year Two. Both the buyer and the seller believed the goods had been sold FOB destination so they each recorded the sale in that manner. However, a review of the documents indicates that the sale was actually made FOB shipping point. Which of the following is correct about the Year One financial statements? (A) The seller's sales account for Year One is overstated. (B) The seller's cost of goods sold account for Year One is overstated. (C) The buyer's inventory account at the end of Year One is overstated. (D) The buyer's accounts payable account at the end of Year One is understated.

(D) The buyer's accounts payable account at the end of Year One is understated. Both companies believe the sale was FOB destination. The goods arrived at the buyer's business in Year Two. Thus, nothing was reported in Year One for accounts receivable, sales, and cost of goods sold (by the seller) or for inventory and accounts payable (by the buyer). It was actually FOB selling point. All five accounts are understated. Use of a periodic or perpetual system is not important because the question only asks about financial statements and not the method of recording.

The London Corporation has just produced a set of financial statements at the end of its fifth year of operations. On its balance sheet, it shows assets of $700,000 and liabilities of $200,000. The retained earnings balance within stockholders' equity is $100,000. Net income for the current year was reported as $90,000 with dividends of $50,000 distributed to the company's owners. Which of the following statements is true? (A) The company's net income for the previous four years can be determined from this information. (B) The company's dividend payments for the previous four years can be determined from this information. (C) The company's retained earnings balance at the beginning of its fifth year was $10,000. (D) income less dividends paid during the previous four years of $60,000.

(D) income less dividends paid during the previous four years of $60,000.

What does a complete set of financial statements usually include

Comprehensive notes along with the following 4 financial statements: Income statement, statement of retained earnings, balance sheet, statement of cash flows

What two sections are stockholders equity divided into

Contributing capital: Show how much owners put in and retained earnings: Show amount from operations

Asset

Cost expected to help generate revenues in the future.

Expense

Cost that helped generate revenues in the past.

What is the difference between current and non-current assets and liabilities?

Current means they are expected to be consumed or paid of within a year, non current are expected to last beyond that.

How is beginning inventory calculated

Physical inventory is taken at the end of last year the the price is calculated. It is calculated once and does not change

what is gross profit, gross margin, or markup

The difference in revenue and cost of goods sold

What is a companies current ratio and how do you measure it

This is a calculation that is good to show a companies short term operating strength. You get it by dividing the current assets by the current liabilities