ACC 250 Exam 1
At the beginning of January, 2014, Wise Company had a balance in its Retained Earnings account totaling $42,000. At the end of the year, the balance totaled $47,000. If $11,000 of dividends were declared and paid during the year, how much was net income during 2014?
$16,000 Net Income = 47,000-42,000+11,000=$16,000
The Mac Company has four plants nationwide that cost $350 million. The current fair value of the plants is $300 million. The plants will be reported as assets at
$350 million
Chippewa Pride Company had the following transactions during 2013: • Sales of $10,800 on account • Collected $4,800 for services to be performed in 2014 • Paid $3,100 cash in salaries for 2013 • Purchased airline tickets for $600 in December for a trip to take place in 2014 What is Chippewa Pride's 2013 net income using accrual accounting?
$7,700 10,800 - 3,100 = 7,700
Suppose that Morgan Corporation produced and sold 4,800 laptop computers during 2014. It reported $150,000 cash provided by operating activities. In order to maintain production at 4,800 laptops, Morgan invested in $8,600 in equipment. Morgan paid $1,400 in dividends. What is Morgan's free cash flow?
. $140,000 FCF= 150,000-8,600-1,400=$140,000
Which one of the following contains the selected steps of the accounting cycle in the correct order? 1. Journalize the transactions. 2. Post transactions to ledger accounts. 3. Analyze transactions. 4. Prepare financial statements. 5. Prepare a trial balance.
3, 1, 2, 5, 4
An adjusting entry will NOT take the format of which one of the following entries?
A debit to an expense account and a credit to a revenue account
The general ledger can be described as
A grouping of the accounts used by an organization to prepare its basic financial statements
A trial balance can be described as
A list of general ledger account titles and balances at a certain date
Which one of the following is NOT the correct date format for the respective financial statement?
A statement of retained earnings as of May 31, 2014
A company provides services to clients during the period that are neither paid for, nor billed to the clients. What must the company do?
Accrue revenue by making an adjusting entry at the end of the period
Which of the following items will be reported on the statement of retained earnings?
Amounts earned by a company but not distributed as dividends
Fiscal Year
An accounting time period that is one year in length
Which of the following is meaningful comparison to assess a company's profitability?
An intracompany comparison of net income for a two-year period
What are the basic steps in the recording process?
Analyze each transaction in terms of its effect on the accounts. Enter the transaction information in a journal. Transfer the journal information to the appropriate accounts in the ledger.
In which of the following would an opinion regarding the fair presentation of financial statements appear?
Auditor's report
On which statement are assets, liabilities and stockholders' equity reported?
Balance sheet
On a classified balance sheet, what is listed as the first item in current assets?
Cash and cash equivalents
The primary components of the stockholders' equity section of a balance sheet for a corporation are:
Common stock and retained earnings
What is the definition of expenses?
Decreases in a company's resources that a firm incurs in the process of earning revenues
Which one of the following items is a disadvantage of the corporation form?
Double taxation
Which of the following is a correct statement of the accounting equation in economic terms?
Economic resources = creditors claim on resources + owners claim on resources
Lansing Cycles failed to record an adjusting entry for accrued expenses at the end of June. What effect does this have on the financial statements?
Expenses and liabilities are understated.
Which one of the following errors causes an overstatement of net income?
Failure to record depreciation expense
Which one of the following represents the correct order of the three business activities for a new company?
Financing, investing, operating
On which statement are revenues and expenses reported?
Income statement
Which of the four statements is created first and why?
Income statement, because net income (loss) is needed to determine the ending balance in retained earnings on the statement of stockholders' equity
Stockholders' equity
Is equal to assets minus liabilities, represents the interest of the owners in the assets of an entity, is equal to the net assets of an entity
Which one of the following is incorrect concerning the journal?
It contains a record of each account maintained by the company.
The advantages of using the journal are
It discloses in one place the complete effect of a transaction. It provides a chronological record of all transactions. It helps to prevent or locate errors because the debit and credit amounts for each entry can be readily compared.
Which of the following is a distinguishing characteristic of a deferral?
It includes the adjustment of an amount previously recorded in a balance sheet account
Which one of the following is true as it relates to the Accumulated Depreciation account?
It is a contra account
Which of the following is NOT true of the general journal?
It receives postings of dollar amounts from the general ledger
Which one of the following is NOT true as it relates to the Accumulated Depreciation account?
It represents the portion of the cost of a long-lived asset that has been allocated as a cost during the current accounting period.
"The historical cost principle of accounting requires adjusting entries"
No, adjusting entries are required by the revenue and expense recognition principles
The obligations that an entity must pay in money or services at some time in the future because of past transactions or events are called?
Liabilities
Current assets are usually listed in the order of their
Liquidity: most liquid to least liquid
Which of the following is NOT part of the standard heading of a financial statement?
The company's industry
A flower shop makes a large sale for $1,000 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. The flower shop follows GAAP and applies the revenue recognition principle. When is the $1,000 considered to be recognized?
November 30
What categories of cash flows are presented in a statement of cash flows?
Operating, investing, and financing
Which one of the following is NOT true regarding retained earnings?
Retained earnings are increased when there is net income and when the company pays dividends to its shareholders
The increases to a company's resources that result when goods or services are provided to customers are called?
Revenues
The financial information in a trial balance may not be up-to-date because
Some events are not journalized daily because it is not useful or efficient to do so. The expiration of some costs occurs with the passage of time rather than as a result of recurring daily transactions. Some items may be unrecorded because the transaction data are not known.
Which of the following is correct?
The key characteristic of an asset is that it represents a probable future economic benefit owned or controlled by the entity.
Which one of the following statements is true concerning the interrelationships of financial statements?
The amount of net income on the income statement is added to the beginning retained earnings balance on the statement of retained earnings.
Financial Accounting Standards Board (FASB)
The body that provides authoritative support for GAAP
Ledger
The entire group of accounts maintained by a company, including all the asset, liability, and stockholders' equity accounts, is referred to collectively as the ledger.
What is the role of the FASB?
To establish accounting standards in the U.S.
For what purpose is the current ratio used?
To measure the short-term ability of a company to pay its obligations
Which statement is NOT true concerning the accrual basis of accounting?
Transactions are recorded when payment is made for the costs incurred
Which one of the following is NOT a current liability?
Wage expense
Can a business enter into a transaction that affects only the left side of the basic accounting equation. Give an example.
Yes, a business can enter into a transaction in which only the left side of the accounting equation is affected. An example would be a transaction where an increase in one asset is offset by a decrease in another asset. An increase in the equipment account which is offset by a decrease in the cash account is a specific example.
Trial Balance
a list of accounts and their balances at a given time. The primary purpose of a trial balance is to prove the mathematical equality of debits and credits after all journalized transactions have been posted. A trial balance also facilitates the discovery of errors in journalizing and posting. In addition, it is useful in preparing financial statements
Generally accepted accounting principles (GAAP)
a set of rules and practices, having substantial support, that are recognized as a general guide for financial reporting purposes
How does the periodicity assumption affect an accountant's analysis of accounting transactions?
an accountant is required to determine the effect of each accounting transaction on a specific accounting period.
Long-Term Investments
are investments in stocks and bonds of other companies where the conversion into cash is not expected within one year or the operating cycle, whichever is longer and plant assets not currently in operational use
Long-Term Liabilities
are obligations that will be paid after one year
Propery, Plant & Equipment
are tangible resources of a relatively permanent nature that are being used in the business and not intended for sale
Define current assets. What basis is used for ordering individual items within the current assets section?
assets that a company expects to convert to cash or use up within one year of the balance sheet date or the company's operating cycle, whichever is longer. Current assets are listed in the order in which they are expected to be converted into cash
The post-closing trial balance contains
balance sheet accounts. Its purpose is to prove the equality of the permanent account balances that the company carries forward into the next accounting period.
What types of information are presented in the notes to financial statements
clarifies information presented in the financial statements and includes descriptions of accounting policies, explanations of uncertainties and contingencies, and statistics and details too voluminous to be reported in the financial statements
Deferrals
consist of revenues collected before services are provided and expenses paid before they are incurred
Accurals
consist of revenues for services performed prior to collection and expenses incurred prior to payment
What is the purpose of the management discussion and analysis section (MD&A)?
is to provide management's views on its ability to pay short-term obligations, its ability to fund operations and expansion, and its results of operations. The MD&A section is a required part of the annual report.
Accounts often need to be adjusted because
many transactions affect more than one time period
Solvency Ratios
measure the company's ability to survive over a long period of time
Profitability Ratios
measure the income or operating success of a company for a given period of time
Liquidity Ratios
measure the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash
Current Liabilities
obligations that will be paid within the coming year or operating cycle, whichever is longer
Why is a chart of accounts important?
particularly for a company that has a large number of accounts, because it helps organize the accounts and identify their location in the ledger
expense recognition principle
states that expenses be matched with revenues in the period when the company makes efforts to generate those revenues
The revenue recognition principle
states that revenue should be recognized in the time period in which the performance obligation is satisfied
Why is it important for financial statements to receive an unqualified auditor's opinion?
the financial statements have been presented fairly, in conformity with generally accepted accounting principles. This gives investors more confidence that they can rely on the figures reported in the financial statements
Primary Objective for Financial Accounting
to provide information useful for decision making
