Acct 261 Final Review

Business consulting, Tax preparation/planning, Auditing

A career in a public accounting firm traditionally involves working in the area of?

An amount due within one year of the balance sheet date.

A current liability is defined as:

Activity-based method

Allocates an asset's cost based on its use.

Declining-balance method

An accelerated depreciation method that records more depreciation in earlier years and less depreciation in later years.

Liabilities

An obligation of a company to transfer some economic benefit in the future.

Assets increase and liabilities increase.

Borrowing cash from the bank would have what effect on the accounting equation?

Declaration date and payment date.

Cash dividends are recorded on the:

Paying electricity bill for the month

Cash paid for which of the following activities would affect the amount reported for operating cash flows in the statement of cash flows?

Operating cash flows include cash receipts and cash payments for transactions involving revenue and expense activities during the period. Cash paid for operating activities = $400 + $550 = $950.

Draco Company engages in the following cash payments: Purchase equipment. $ 3,800 Pay rent 400 Repay loan to the bank 5,700 Pay workers' salaries. 550 What is the total amount of cash paid for operating activities?

Liabilities = Assets ($36,800) - Stockholders' Equity ($14,000) Liabilities = $22,800.

Emmitt had the following final balances after the first year of operations: assets, $36,800; stockholders' equity, $14,000; dividends, $2,900; and net income, $10,900. What is the amount of Emmitt's liabilities?

Debit assets, credit liabilities

Jerome purchased a building for his business by signing a note to be repaid over the next ten years. Which of the following describes how to record this transaction?

Amounts owed to creditors.

Liabilities are best defined as:

profit margin

Net income divided by net sales; indicates the earnings per dollar of sales.

Asset turnover

Net sales divided by average total assets; measures the sales per dollar of assets invested.

Impairment

Occurs when the future cash flows (future benefits) generated for a long-term asset fall below its book value (cost minus accumulated depreciation).

June 1

On June 1, the board of directors declares a cash dividend to be paid on June 30 to stockholders of record on June 15. On which date would the company record the Dividends Payable account?

Stockholders' Equity

Owners' claims to the company's resources are referred to as:

Operating

Paying electricity bills for the month falls under which activity?

Transferring debit and credit information from the journal to the accounts in the general ledger.

Posting transactions to T-accounts involves:

Cumulative

Preferred stock shares receive priority for future dividends, if dividends are not declared in a given year.

Increase assets and increase stockholders' equity.

Providing services and receiving cash will:

Accrued expense.

Receiving a utility bill for costs in the current period but delaying payment until the following period is an example of a(n):

statement of stockholders' equity

Retained Earnings is reported on which financial statement?

Times asset turnover.

Return on assets is equal to profit margin:

equity decreases liabilities increase

Sabrina Company recorded an adjusting entry for salaries owed to employees at the end of the year. As a result of this entry, Sabrina Company's: (Select all that apply.)

Debit Equipment, credit Notes Payable

Schooner Incorporated purchased equipment by signing a note payable. How would this transaction be recorded?

Convertible

Shares can be exchanged for common stock.

Redeemable

Shares can be sold at a predetermined price.

Debit Cash; credit Deferred Revenue

Summer Leasing received $12,000 from a customer to cover 24 months of rent in advance. How should Summer record this transaction?

Decreases stockholders' equity.

The Treasury Stock account will?

Dividends

The account type that represents payments to stockholders is called?

The nature of the firm's business activities. The shares of stock to be issued. The initial board of directors

The articles of incorporation describe:

Does not change total assets, liabilities, or total stockholders' equity.

The declaration and issuance of a stock dividend:

Securities and Exchange Commission. SEC

The legal authority to set accounting standards lies with the:

Depletion

The process of recording expense for natural resources.

Net Income = Revenues ($11,400) − Expenses ($3,600) Net Income = $7,800.

Use the following appropriate amounts to calculate net income: Revenues, $11,400; Liabilities, $3,800; Expenses, $3,600; Assets, $17,100; Dividends, $1,800.

Journal

When viewing a company's accounting records, the terms "debit" and "credit" would typically be seen in which location?

Trademarks

Which intangible assets may or may not be amortized depending on whether it has a finite or an indefinite life?

Retained Earnings

Which of the following accounts is reported on the statement of stockholders' equity?

Cash, Delivery Expense, Dividends.

Which of the following accounts would normally have a debit balance?

The difference between total revenues and total expenses equals net income.

Which of the following best describes the information reported in the income statement?

operating cycle

is the length of time from spending cash to provide to provide goods and services to a customer until collection of cash from that customer.

Debit Advertising Expense $400, credit Accounts Payable $400

A company received a bill for newspaper advertising services, $400. The bill will be paid in 10 days. How would the transaction be recorded today?

Chart of accounts.

A list of all account names used to record transactions of a company is referred to as the:

Journal; Ledger

A transaction is initially recorded in the ______, and then subsequently posted to the general ______.

Account

A(n) _______________ summarizes all transactions related to a particular item over a period of time.

Consensus

According to the conceptual framework, verifiability implies:

Involves a two-step process to first test for impairment and then record the loss.

Accounting for impairment losses:

Beginning Retained Earnings ($0) + Net Income − Dividends ($2,430 + $0 + $1,470 + $1,010) = Ending Retained Earnings ($10,400). Divide net income amount by 4 to get average. Net Income = $15,310 / 4 = $3,828

Aikman Company paid dividends of $2,430, $0, $1,470 and $1,010 over the first four years of the company's existence, respectively. If Retained Earnings has an ending balance of $10,400 at the end of year four, what was the average annual amount of net income (loss) over the first four years for Aikman? (Round your answer to the nearest dollar amount.)

Straight-line method

Allocates an equal amount of depreciation to each year of the asset's service life.

Amortization

Allocating the cost of an intangible asset over its service life.

Liability

Amounts owed to suppliers for supplies purchased on account are an example of a(n):

credit to a liability debit to an expense

An adjusting entry for accrued expenses involves:

Debit; Credit

An increase to an asset account is shown with a ______________. A decrease to an asset account is shown with a ______________.

Debit Prepaid Rent, credit Cash.

Assume that cash is paid for rent to cover the next year. The appropriate debit and credit would be:

Debit Accounts Payable $1,000, credit Cash $1,000

Clement Company paid an account payable related to a previous utility bill of $1,000. How would this transaction be recorded on the payment date?

Beginning Retained Earnings ($48,000) + Net Income ($87,000) − Dividends ($22,000) = Ending Retained Earnings ($113,000)

Consider the information provided below: Beginning retained earnings. $ 48,000 Ending retained earnings. $ 113,000 Decrease in cash. $ 10,600 Net income. $ 87,000 Change in stockholders' equity$ 27,000 What was the total amount of dividends the company paid to stockholders in the current period?

Recording the expiration of prepaid insurance. Recording interest earned in the current period, but not yet received. Recording unpaid taxes.

Examples of adjusting entries could include?

Debit; Income statement

Expenses normally carry a _______ balance and are shown in the ______________.

Financial Accounting Standards Board. FASB

Financial accounting and reporting standards in the United States are established primarily by?

Issuing common stock to stockholders.

Financing activities include?

The excess of the cash received over the book value.

Gains on the sale of long-term assets for cash are:

The value of a company as a whole, over and above the value of its net identifiable assets.

Goodwill is:

Debit Cash $5,000, credit Common Stock $5,000

How would you record the issuance of common stock in exchange for $5,000 cash?

Going concern assumption.

If a company has gone bankrupt, its financial statements likely violate the:

A long-term asset's book value exceeds the expected future cash flows generated for that asset. Impairment occurs when the expected future cash flows (expected future benefits) generated for a long-term asset fall below its book value (original cost minus accumulated depreciation).

Impairment occurs when:

$30,000 (Prepaid liability insurance: $68,400 × 6/18 = $22,800. Prepaid crop insurance: $14,400 × 12/24 = $7,200. $22,800 + $7,200 = $30,000.)

Jeannie's Apples opened for business on January 1, 2024, and paid for two insurance policies effective on that date. The liability policy was $68,400 for 18 months, and the crop damage policy was $14,400 for a two-year term. What was the balance in Jeannie's Prepaid Insurance account as of December 31, 2024?

The excess of the book value over the cash received.

Losses on the sale of long-term assets for cash are:

Expensed in the period incurred.

Nearly all research and development costs should be:

Return on assets

Net income divided by average total assets; measures the amount of net income generated for each dollar invested in assets.

Current Liabilities

Obligations that, in most cases, are due within one year from the balance sheet date. However, when a company has an operating cycle of longer than a year, its current liabilities are defined by the length of the operating cycle, rather than by the length of one year. p. 398 aka short term liabilities or short term debt

$35,910 Reason: (($53,520/24 months) x 7 months remaining)+(($34,800/240 months) x 14 months remaining). Note that the question is asking for the Prepaid rent on the balance sheet on December 31, 2023 and not the expense on the income statement.

On August 1, 2022, a firm prepaid $53,520 for 2 years' rent of an office building. On March 1, 2023, the firm prepaid $34,800 for 2 years' rent of a warehouse. The rent agreements on both buildings went into effect on the dates the rents were prepaid. What amount will be shown for prepaid rent on the December 31, 2023 balance sheet?

Total Stockholders' Equity = Common Stock ($595,000 + $29,500) + Retained Earnings ($696,000 + $95,000 − $14,800) Total Stockholders' Equity = $1,400,700.

On January 1, Barton Brothers, Incorporated started the year with a $696,000 balance in Retained Earnings and a $595,000 balance in Common Stock. During the year, the company reported net income of $95,000, paid a dividend of $14,800, and issued more common stock for $29,500. What is total stockholders' equity at the end of the year?

Big bath

Recording all losses in one year to make a bad year even worse.

Taggert will credit Prepaid Insurance for $300 on Dec. 31. Taggert will debit Prepaid Insurance for $1,800 on Dec. 1. Taggert will debit Insurance Expense for $300 on Dec. 31.

Taggert Company paid $1,800 for a 6-month insurance premium on December 1. Which of the following statements are correct regarding the accounting for this insurance over the six-month period? (Select all that apply.)

Liabilities

The accounts that typically include claims that must be paid by a specific date are called:

Expenses

The costs associated with producing revenues are referred to as:

The asset's cost minus its estimated residual value.

The depreciable cost used in calculating depreciation expense is:

Franchise

The exclusive right to use another company's name and to sell its products within a specified geographical area is a:

Balance sheet.

The financial statement that represents the accounting equation is the:

Income statement and statement of cash flows.

The financial statement(s) that record activity over an interval of time include the:

Accounting cycle.

The full set of procedures used to accomplish the measurement/communication process of financial accounting is referred to as:

FASB (inancial Accounting Standards Board)

The independent, private-sector group that is primarily responsible for setting financial reporting standards in the United States is known as the?

Under accrual-basis accounting, an attempt is made to record economic events as they occur, regardless of when cash is received or paid.

The primary difference between accrual-basis and cash-basis accounting is:

FASB (Financial Accounting Standards Board)

The private sector organization that is currently responsible for setting accounting standards in the United States is the:

Financial Accounting Standards Board (FASB)

The private sector organization that is currently responsible for setting accounting standards in the United States is the:

Confirmatory value.

The qualitative characteristic that says accounting information can influence users' decisions by allowing them to assess past performance is:

Auditor

To ensure that management has in fact appropriately applied GAAP, the SEC requires independent outside verification of the financial statements of public traded companies by?

False: Reason: The reduction to the asset account is taken through the Accumulated Depreciation account rather than directly through the long-lived asset account. The long-lived asset account is not affected and, therefore, keeps its original balance until it is sold or discarded.

True or false: The adjusting entry to record depreciation does not directly reduce the long-lived asset accounts, such as Equipment, so that the original cost of the asset remains unchanged.

Total liabilities will increase and total stockholders' equity will decrease. Reason: The amount of salaries incurred but not paid during the current period should be recorded as Salaries Payable and should also increase the Salaries Expense account. An increase in an expense account results in a decrease to stockholders' equity.

What are the effects on the accounting equation from the adjustment for salaries incurred but not yet paid during the accounting period?

An amount recognized when the company sells products or provides services to a customer

What best describes revenue?

Cash decreases and Dividends increase.

When a company pays dividends to stockholders, what is the effect on the company's accounts?

Accumulated Depreciation

Which of the following is a contra asset account?

I, II, and III.

Which of the following is true about a "debit"? I. It is part of the double-entry procedure that keeps the accounting equation in balance. II. It represents an increase to assets. III. It represents a decrease to liabilities. IV. It is on the right side of a T-account.

Net income

Which of the following items is reported on the statement of stockholders' equity?

The original cost in the building account will not change when an adjusting entry is recorded for depreciation. Reason: The adjustment for use of the asset is entered in the Accumulated Depreciation account rather than directly into the building account. So, the building account will not change. Depreciation, however, does cause the carrying value to decrease during the adjustment process.

Which of the following statements is correct regarding a long-lived asset such as a building?

Adding a parking lot

Which of the following would be reported as land improvements?

Debit Accounts Receivable $1,000, credit Service Revenue $1,000

Which of the following would be used to record providing services to customers for $1,000 on account?

Investors, creditors, regulators

Which of the groups are is among the external users for whom financial statements are prepared

Goodwill

Which of the intangible assets has an indefinite useful life?

Trademarks

Which of the intangible assets may or may not be amortized depending on whether it has a finite or an indefinite life?

A. Unsuccessful legal defense of intangible assets

Which of the subsequent expenditures would not be capitalized?

It reflects the original cost of the asset less accumulated depreciation.

Which statement regarding the book value of an asset is correct?

Improvements that increase future benefits

Which subsequent expenditures would be capitalized?

Yes, the error overstated assets and net income.

Woods Company made an ordinary repair to a delivery truck at a cost of $500. Woods' accountant debited the asset account, Equipment. Was this treatment an error, and if so, what will be the effect on Woods' financial statements?