ACCT 2323 Chapter 1

As of December 31st, Bogglesworth Company has assets of $4,500 and stockholders' equity of $3,000. What are the liabilities for Bogglesworth Company as of December 31st?

$1,500

Harleys Insurance Company has assets of $5 million and liabilities of $3.5 million. What is the amount of stockholders' equity?

$1.5 million

Sheldon has the following year-end account balances: Accounts Receivable, $5,000; Supplies, $12,000; Equipment, $18,000; Accounts Payable, $17,000; Stockholders' Equity, $43,000. The Cash account balance was not available at year-end. Given the account balances listed, the balance in the Cash account should be

$25,000

Highspire Architects, Inc. has assets, other than investment securities, that cost $60 million. The current market value of the assets is $85 million. The assets will be recorded and reported at

$60 million

Patterson Company reported stockholders' equity of $75,000 at the beginning of the year. During the year, the company recognized net income of $15,000. Stockholders made an additional investment of $10,000 at midyear and received a $5,000 dividend at year-end. The stockholders' equity at the end of the year is

$95,000

Corporation

A business organized as a separate legal entity under state corporation law and having ownership divided into transferable shares of stock

Proprietorship

A business owned by one person

Partnership

A business owned by two or more persons asssociated as partners

An accountant has a financial document with sales data for the past year. He wants to create a report for the CEO of the company. Which type of report could he create?

A graph with the total sales for each product category.

As the CEO of a small company, you have been asked for several reports. In which of the following reports will it be MOST important to include accounting information?

A report to investors about the company's income.

How does the purpose of accounting compare to the purpose of bookkeeping?

Accounting seeks to understand the economic "big picture" of an organization, whereas bookkeeping is only concerned with recording transactions.

A branch manager has asked the accountant to provide a report that compares the sales data for each of the sales staff over the past year. What is the MOST important reason that the branch manager would request aggregated data rather than individual data?

Aggregated data is easier to compare than individual data

Safra is preparing a report to show the company's overall monthly sales performance. Safra is most likely performing which activity?

Aggregating data from the previous month's sales.

You are new to the accounting team at your company and are trying to identify the various users of accounting information. You receive a request from the Business Unit Head of North America for information to help forecast the impact of a new marketing campaign. How would this type of request best be described?

An internal user requesting internal reports that would be considered managerial accounting.

Businesses often purchase equipment to generate future cash flows. Although an outflow of cash is generated immediately, the potential benefit of the equipment allows it to be classified as a(n)

Asset

____________________ is/are part of the accounting process, but is distinguished by its concern only for relevant transactions

Bookkeeping

What happens when a business collects on an accounts receivable?

Cash increases and accounts receivable decreases.

Historical Cost Principle

Dictates that companies record assets at their cost at the time the assets were purchased. Also known as cost principle.

Bookkeeping and accounting describe the same process.

False

Investors and creditors are internal users of financial information.

False

Killian Industries is preparing for its annual shareholders meeting. Because the shareholders will want to review the company's overall stability and the health of their investments over the last year, the company will need to share _________________ information.

Financial

Ginni founded Waggstooth Manor Doggie Day Care and, after a year in business, formed a partnership with her husband, Warren. Their friend, Phoebe, is a shareholder with Networth Bank. In terms of personal liability, who is at greater risk? Why?

Ginni and Warren, because both partners have unlimited personal liability, regardless of who owns a larger percentage of the company.

Fair Value Principle

Indicates that assets and liabilities should be reported at fair value. Fair value is the price received to sell an asset or settle a liability.

You are trying to determine increased pay for employees of your company. This is an example of using accounting information as an internal userexternal user

Internal User

As a part of your company's open information policy, you keep an updated spreadsheet listing the types of requests the company has had for accounting information. What types of categories would you include in this report?

Internal user requests would be divided by department (production, human resources, etc), and external user requests would be divided by type of organization (investor, creditor, government, etc).

Investors and creditors both are external users of accounting information, but use the information for different types of decisions. A(n) ___________________ focus might be evaluate the risk of ownership in a company, while a(n) _____________________ focus would be to evaluate the risks of lending money to the company.

Investor's, Creditor's

Bookkeeping

Involves only the recording of economic events.

The International Accounting Standards Board (IASB)

Issues international reporting standards (IFRS) that have been adopted by many countries outside the United States.

If a colleague asks you, as an accountant, why accounting is considered a financial information system, what explanation might you offer?

It identifies economic events, records business activity to maintain a history, and communicates financial information in reports for anal

An information system can organize, store and retrieve data. Accounting is considered a financial information system. How does it organize its data?

Once transactions are identified, they are recorded, classified, and summarized.

You are an analyst for a consulting firm and are working on several projects. Which project would MOST effectively use accounting information?

Project 1: Profitability of the firm's client engagements over the last year.

Ethics

Standards of conduct by which one's actions are judged as right or wrong, honest or dishonest.

ou are an accountant within your organization. How could you BEST explain to a colleague the importance of analyzing and interpreting reported financial information?

To highlight financial trends and identify relationships between decisions made and results

Sarbanes-Oxley Act (SOX) of 2002 requires

Top management to certify accuracy of financial information Severe penalties for fraudulent financial activity Increased independence of auditors Increased responsibility for board of directors

Accounting data is prepared for two broad groups of users, internal users and external users.

True

Economic Entity

activities of one entity be kept separate and distinct from all others.

Networth Bank is preparing its end of year financial statements, which will be distributed to shareholders. The CEO wants to include the results of the latest employee opinion survey to demonstrate the company has a good reputation. According to the monetary unit assumption, this information cannot be included because

activities that cannot be measured in monetary terms are not reported.

Accounting information should be verifiable in order to

be an accurate depiction of what really happened.

Lee Shau is interested in accounting and is trying to define which aspect of accounting would be the best fit. If Lee Shau is most interested in recording and classifying transactions, he should pursue a career as a

bookkeeper

An internal human resources director for a company would be most likely to need financial information about the

company's average salaries ranges compared to competitors.

The process of reducing differences is referred to as

convergence

During the past year, assets decreased by $5,000 and stockholder's equity increased by $2,000. What was the change in liabilities?

decrease of $7,000

According to the ________ a company can purchase an asset for $1,000 and despite an increase in value over time can continue to report the asset for $1,000.

historical cost principle

Accounting is an information system that

identifies, records, and communicates the economic events of an organization to interested users.

The accountant for Flexon Industries is preparing the company's balance sheet. The accountant will list Liabilities before Stockholders' Equity on the balance sheet because

if a business fails, creditors are paid what is owed to them before owners are paid.

Harley's Insurance Company needs to record its revenue for the last month. The company should include service revenues on the

income statement as gross increase in Stockholders' Equity.

If a company provides services on account, then stockholder's equity

increases and an asset increases.

NoKnotsense Hair Salon incorporated this year and is now an LLC. According to the economic entity assumption, the owner of the salon is now required to

keep the salon's economic records separate from her own.

Adoption of IFRS by U.S. companies will

make it easier for investors to compare U.S. and foreign companies, as well as for U.S. companies to raise capital in international markets.

Which of the following would be most likely to need information about forecasts of cash needs for the next year?

management

The question "How much of our annual budget should we spend to advertise our new product line?" would most likely be asked by a

marketing manager.

The FASB and IASB have worked to

minimize the differences in their standards.

The FASB indicates that

most assets must follow the cost principle because market values are not representationally faithful. Only in situations where assets are actively traded is the fair value principle applied.

Monetary Unit

only transaction data that can be expressed in terms of money is included in the accounting record.

Business Enterprises

proprietorship, partnership, corporation

An example of the accounting communication process activity would be ______________ statements.

publishing financial

The chief financial officer is reviewing the end of year financial statements. He would MOST likely review which of the following as part of the communication activity in the accounting process?

ratios and percentage changes in sales by year

Bookkeeping, as opposed to accounting, usually involves only

recording

Accounting activities

require identifying and reporting economic events.

Relevance means

that financial information is capable of making a difference in a decision.

Faithful representation means

that the numbers and descriptions match what really existed or happened - it is factual.

The Securities and Exchange Commission (SEC)

the agency of the U.S. government that oversees U.S. financial markets and accounting standard-setting bodies.

The Financial Accounting Standards Board (FASB)

the primary accounting standard-setting body in the United States.

External users

users who are outside the organization. (Investor, Creditors)

Internal users

users within the organization (marketing, human resources, finance, management)