ACC 200
Given the following information: and assuming capital contributions of $10,000 were made during the year 20X3 and there were no dividends, determine the net income or (loss) from operations for the year ended 20X3. 12/31/X2 12/31/X3 Assets $120,000 $134,000 Liabilities $75,000 $80,000
($ 1,000)
From the article "E-ssembly lines: How GM, Ford Think Web Can Make Splash On the Factory Floor" which of the following is a way that these two auto manufacturers plan to use the Internet to improve their profits?
-Sell Excess Inventory -Allow Suppliers to make their own purchases -Allow suppliers to sell excess inventory
Based on a contract Joe's Consulting has provided $2,000 of services to a client in December, 20X1 but has not received payment or even billed the client as of 12/31/X1. Assuming the client will pay the bill upon receipt, under the revenue recognition principle, an adjusting entry should be made prior to the preparation of Joe's 12/31/X1financial statements which would include a debit to
Consulting Fees Receivable for $2,000Under the revenue recognition principle, revenues are recognized and recorded in the period in which revenues are earned, or in other words, in the period in which the services were performed for the client. Even though Joe has not billed the client as of 12/31/X, Joe has still provided the services that give rise to a right to receive cash from the client in the future. Therefore an adjusting entry is required at 12/31/X1 to debit the asset Consulting Fees Receivable for the full $2,000 and credit Consulting Fee Revenues for the same amount.
The primary purpose of financial accounting is to communicate information to the managers of a business.
False The primary purpose of financial accounting is to provide information to those who are external to a business. The most common external users are current or prospective investors and creditors of a business. It is true that management is interested in the general purpose financial statements produced through financial accounting, however, these reports are prepared primarily for the benefit of external users.
Stock selling at a low P/E ratio is more characteristic of a growing company than one that has stabilized earnings.
False A P/E ratio shows the relationship of a company's stock price relative to its earnings. Stock selling at a price that is low relative to its earning is typical of companies for which there is not a significant expectation of future earnings growth. High growth company stock sells at higher P/E ratios because people are willing to pay higher prices to own the stock of companies for which higher earnings are anticipated or hoped for.
In a computerized accounting system it is not necessary that the basic accounting equation (A = L + OE) be maintained in balance
False A computerized accounting system can improve the speed and accuracy of an accounting system, but with each transaction processed the balance of assets must always equal the balance of liabilities plus owners' equity.
Accounts receivable from reliable and credit worthy customers are not included as assets in a company's financial statements until actually collected in cash.
False Assets are property or rights that have probable future benefits. The right to receive cash in the future from a customer as a result of a previous sale on account is an asset by definition as long as its collectiblity can be reasonably anticipated. If the customer is reliable and credit worthy, the receivable should be reflected as an asset on the balance sheet.
The IASB is a London based organization that has been established to require and enforce the use of international accounting standards in countries receiving funds through the IMF (International Monetary Fund).
False The IASB has no regulatory authority. It is simply an organization that develops, recommends and promotes accounting standards which may or may not be required by countries throughout the world for their own capital markets. The IMF may consider the quality of a country's capital market regulation and the use of international accounting standards in the making of loans but the IASB is not s t up as an agency of or enforcement arm of the IMF.
The Novo Mercado is a Brazilian stock market that has been proposed primarily for the listing of foreign stocks (non-Brazilian) in order to make investment in such companies more accessible to Brazilian investors.
False The Novo Mercado is a proposed Brazilian stock market for the listing of Brazilian companies to try and attract foreign investors and capital to Brazil.
The three general purpose financial statements required under GAAP are the income statement, statement of operations and statement of cash flows.
False The required financial statements are the balance sheet, income statement and statement of cash flows. The statement of operations is simply another name for the income statement.
XYZ Company's sale of inventory to a customer on account requires debits to which two accounts on the books of XYZ?
None of the above The journal entry to record this transaction on XYZ Company's books would require a debit to Accounts Receivable and credit to Sales Revenues at the sales price and a debit to Cost of Goods Sold and credit to Inventory at the cost of the inventory sold. Therefore this transaction would require debits to Accounts Receivable and to Cost of Goods Sold.
Which of the following accounts must be credited in a closing entry at the end of an accounting period?
None of these The only accounts that are closed at the end of an accounting period are nominal accounts which are accounts which appear on the income statement and the dividend account. Sales Revenues is a nominal account but has a credit balance at the end of an accounting period and is therefore debited in a year end closing entry.
Prepaid insurance expense is
Prepaid insurance expense is an asset account. It is an asset because insurance premiums that are prepaid purchase the right to insurance coverage in the future. Assets are property or rights that have probable future benefit. As time passes and prepaid insurance rights are used up, then prepaid insurance expense is accounted for as an expense.
f a company's balance of Prepaid Insurance Expense at the beginning and end of a year amounted to $5,000 and $4,000, respectively, determine the amount of Insurance Expense for the year if all insurance premiums are prepaid during the year and totaled $10,000. Assume all prepayments of insurance are accounted for as Prepaid Insurance Expense at the time of payment.
Solving for the unknown Insurance Expense amounts to $11,000. Prepaid Insurance Expense is increased when insurance premiums are prepaid and decreased when insurance coverage is used up. The cost of insurance coverage used up is referred to as Insurance Expense.
The professional organization for Certified Public Accountants in the United States is the
The American Institute of Certified Public Accountants (AICPA) is the national professional organization for CPAs. This organization assists CPAs by establishing professional standards of conduct, providing continuing professional education opportunities, development and administration of the CPA exam used for licensing, disciplining members who do not abide certain professional standards, etc.
Company stock values are influenced most significantly by investors' changing expectations of a company's future earnings.
True
The SEC is considering the allowance of international accounting standards for companies wishing to access U.S. capital markets but such a policy is opposed by the FASB and many U.S. corporations.
True
A sporting goods store in the local mall is an example of a merchandising business.
True Any business that is involved in buying and selling finished products is in the business of merchandising and is sometimes referred to as a distributor Merchandising businesses may be either retail or wholesale depending upon whether they sell their products to the ultimate end consumer ("retail merchandisers") or are simply some middleman in the distribution process ("wholesale merchandiser").
The income statement reflects net income, which is equal to revenues minus expenses and dividends.
True Net income is equal to revenues minus expenses only. Dividends are not an expense of operating a business. Dividends are a distribution of net income to the owners and therefore deducted from net income in determining the amount of retained earnings. Retained earnings appear in the balance sheet.
An income statement reflects a company's results from operations for a period of time.
True The income statement provides information on the results of operations (net income or earnings) for a period of time. Financial position refers to the resources or assets of a business and how those assets have been financed. The balance sheet provides this information as of a point in time, typically at the end of an accounting period.
The matching principle deals solely with the timing of expenses.
True The matching principle requires that expenses incurred in the operation of a business and generation of revenues should be recorded in the same period or matched against the revenues they helped produce. The matching principle is all about the timing of expense.
The transactions of a business are first recorded in
a journal and then posted to the general ledger
An adjusting entry at year end to reduce Unearned Rent Revenue and record Rent Revenue for rent earned during a period is required under
accrual basis accounting
The recording of a cash payment of a utility bill that had not been previously recorded as an expense or a liability would require a debit entry to
an expense account
If potential investors wished to clarify how a company had been financed to date, they would review the company's
balance sheet
A disadvantage of the corporate form of business ownership is
both unlimited legal liability for the company owners and possible double income taxation on profits distributed to the company owners Unlimited legal liability for the company owners is not a characteristic of a corporation. A major advantage of the corporate form of doing business and its separate legal status is limited legal liability for the shareholder/owners of the business. This means that the owners' are not personally obligated for claims against or debts of the company. As a result, the most a shareholder can lose in their investment in the stock of a corporation is the amount they paid for that stock. This characteristic is a major reason for the corporate form's popularity among investors.
At the end of an accounting period, the "Accounts Payable" account will typically have a
credit balance Because Accounts Payable is increased with credit entries and decreased with debit entries, it is appropriate for a credit balance to exist at any point in time, meaning in effect that a liability exists. A business will either have liabilities or it will have no liabilities. A debit balance would imply that payments had been made on liabilities in excess of the actual obligations. If a debit balance existed for Accounts Payable it would imply that the business had overp id on an obligation and therefore had a right to reimbursement of that overpayment, in other words, it would in fact be a receivable (asset) as opposed to a liability.
The cash payment of an account payable has the following net effect on the balance sheet:
increases assets and decreases liabilities with no net effect on owners' equity decreases assets and owners' equity with no net effect on liabilities no net effect on assets, liabilities or owners equity decreases assets, liabilities and owners' equity **None of the above**
A credit to the sales revenue account
increases revenues and increases net income A credit to a revenue account increases revenues and therefore increases net income.
The classification of assets and liabilities as either current or long-term is useful to financial statement users because it helps evaluate a company's
liquidity This refers to a company's ability to pay its debts in the short term. The distinguishing of the amount of assets and liabilities that are current, meaning assets which are either cash or will be converted to cash within one year and liabilities which are due within that same year, allows for an evaluation of a company's liquidity.
The preparation and accuracy of a company's financial statements and compliance with GAAP is primarily the responsibility of the company's
management Responsibility for the preparation and accuracy of a company's financial statements and their compliance with GAAP rests with the company's management. The CPA firm auditing the financial statements will provide a written opinion as to the fairness of the financial statements and their compliance with GAAP, but what information is actually presented and its accuracy and compliance with GAAP, is ultimately determined by management.
At 11/1/X3, XYZ Corp. collects $1,500 of rent (3 months worth) in advance from a tenant and records it as Unearned Rent Revenue. Assuming XYZ fails to make the proper adjusting entry to comply with the revenue recognition principle at 12/31/X3 then XYZ's
net income will be understated
A restaurant's failure to record an unpaid and unrecorded utility bill for utility usage in the month of December, 20X2 for which payment will be made in January, 20X3 would have the following effect on the restaurant's financial statements prepared as of 12/31/X2:
net income would be overstated
The retained earnings of a business would always decrease if
revenues exceed expenses during the year Retained earnings will always decrease if expenses exceed revenues or if expenses and dividends exceed revenues for the year.
The general ledger in an accounting system is used to
summarize the effect of all of a business' transactions on each account of the business
Accrual basis accounting requires that revenues from the sale of inventory on account to a reliable and credit worthy customer be recognized in the period in which
the sale is made and inventory delivered to the customer even though cash is not collected until the following period
A balancing trial balance means that
the total of all debit account balances equals the total of all credit account balances for the company A balancing trial balance simply means that the total of the accounts with debit balances equals the total of the accounts with credit balances. There is no assurance that all of the transactions of the business have been properly recorded or posted to the general ledger. If some transactions were simply not recorded or were recorded to the wrong accounts or the postings to the general ledger were to wrong accounts, it is possible that the total debit and credit balances will equal but not be accurate in terms of their amounts.