ACCT 3003 Chapters 3 and 4 Smartbook Review

Correct order of current assets

1. Cash & Cash equivalents 2. Accounts Receivable 3. Inventory 4. Prepaid Expenses

Current Liability

A _____________ is satisfied within 1 year or the current operating cycle, whichever is longer.

From one acceptable accounting method to another.

A change in accounting principle is a change

Estimate

A change in the residual value of a depreciable asset is treated as a change in accounting _______________.

Component

A discontinued operation is reported when a _______________ of an entity either (a) has been disposed of or (b) is classified as held for sale.

The beginning balance of retained earnings

A prior period adjustment requires an adjustment to this.

Qualified

A(n) _____________ audit opinion occurs when there is an exception to the standard opinion but not of sufficient seriousness to invalidate the whole of the financial statements.

Management and Discussion Analysis

An analysis provided by the company's management is included in this.

Separate a company's temporary and permanent earnings.

Analyzing earnings quality requires an analyst to do this.

Solvency and liquidity

Classifying items on the balance sheet as current and noncurrent assists financial statement users in assessing what aspects about a company?

Liquidity

Common practice requires that current assets are presented on the balance sheet in the order of ___________.

Continued, Discontinued

Companies have considerable flexibility in reporting income from _______________ operations, but the reporting of income from _______________ operations is strictly mandated

Equity

Comprehensive income is defined as the total change in ________________ for a reporting period other than transactions with owners.

Cash and Short-term investments

Current assets include

Income Statement

Earnings per share is disclosed at the bottom of this.

The use of current assets and the creation of other current liabilities.

How are current liabilities satisfied?

Below income from continuing operations, as a separate line item on the income statement, and with separate reporting of the tax effect on the item of discontinued operations.

How are discontinued operations reported?

All related revenues, expenses, gains, and losses must be removed from continuing operations and the tax expense effect is removed from continuing operations.

If a component of the business qualifies for discontinued operations treatment, whhat statements are true?

Material

If discontinued operations have a ___________ effect on the income statement, they must be reported separately.

Temporary, Permanent

In looking at earnings quality, analysts try to separate a company's _______________ earnings effects from its _______________ earnings.

Interest Expense

Janex Company manufactures refrigerators. What item would likely be included in the determination of nonoperating income on Janex's income statement?

Management

Responsibility for the financial statements and other information found in the annual report lies with this group.

Discontinued operation

Revenues, expenses, gains, losses, and income tax related to a(n) ___________________ must be removed from continuing operations and reported separately on the income statement.

Discontinued

Separate reporting as a(n) ________________ operation is required when the disposal of a component represents a strategic shift that has, or will have, a major effect on a company's operations and financial results.

Comprehensive

Some types of gains and losses are excluded from the determination of net income on the income statement, but are included in the broader concept of ________________ income

Comprehensive

The FASB's expanded view of income is included in _____________ income.

Liquidity, operations, and capital resources

The Management Discussion and Analysis section of the financial statements includes a perspective on ____________________

Quality

The ability of reported earnings to predict a company's future earnings is referred to as earnings _______________

Liquidity and Long-term solvency

The balance sheet provides useful information about a company's _____________ and ______________

Operating activities, Investing activities, and Financing activities.

The classifications on the statement of cash flows are cash flows from these.

Change in accounting estimate

The correction of a material error in the prior year's financial statements is considered this.

Prior Period Adjustment

The correction of a material error in the prior year's financial statements is considered this.

Assets and liabilities

The current versus noncurrent classification applies to what in the financial statements?

Balance Sheet

The financial statement that provides information about liquidity and long-term solvency

-Is classified as held for sale -Has been sold

The guidance on discontinued operations defines a discontinued operation as a component that either/or

Cash receipts and cash disbursements during a period

The purpose of a statement of cash flows is to provide information about this.

-Provide information about cash disbursements that occurred during the period. -Provide information about cash receipts that occurred during the period. -Provide information about the financing activities that occurred during the period. -Provide information about the investing activities that occurred during the period.

The purpose of the statement of cash flows include what?

Operating, Investing, and Financing

The statement of cash flows classifies items as these.

-It provides information about liquidity -It reveals the company's ability to generate positive cash flow from its normal operations

The statement of cash flows is useful because

Change in Accounting Principle Change in Accounting Estimate Change in Reporting Entity

The three types of accounting changes are these three.

A strategic shift is represented that will have a major effect on financial results and a component of the entity has been sold, disposed of, or is held for sale.

To qualify as an operation for purposes of determining discontinued operations, what must occur?

False

True or false: The balance sheet displays all items at their fair value or market value.

future, subsequent, or later

Unearned revenue represents cash received from a customer for goods or services to be provided in a(n) ______________ period.

Deferred Revenues or Unearned Revenues

What account is affected when a customer pays in advance for services to be performed in the future?

Single Step Format and Multiple Step Format

What are acceptable methods of presenting the income statement?

Changing the bad debt estimate, Changing the estimate for future warranty expenses, and Changing the useful life of an asset.

What are examples of changes in accounting estimates?

Machines, Property, and Investments

What are examples of noncurrent assets?

Change in estimate for uncollectible accounts and Change in depreciable lives.

What are some routine changes in estimate that do not require a disclosure note if the amount is not material?

Accounting Principle

What is an example category of accounting change?

To provide users with a professional opinion regarding the fairness of the financial statements.

What is the purpose of an audit report?

Revenues related to primary revenue-generating activities, and expenses related to primary revenue-generating activities

What items are included in calculating operating income?

The fairness of the financial statements and the effectiveness of internal control.

What items are included in the professional opinions given in the auditor's report?

Gain from sale on land and interest income

What items may be included in nonoperating income for a company that manufactures televisions?

Revenues, expenses, gains, and losses

What items must be removed from continuing operations and reported separately for a discontinued operation?

Revenue, expense, gain, loss, and income tax

What items on an income statement are included in calculating income from continuing operations?

Retained Earnings

What represents the net income earned by a corporation and not yet paid to shareholders?

Change from percent-of-completion to completed contract method and Change from LIFO to FIFO

What situations qualify for treatment as a change in accounting principle?

Change in revenue recognition methods, Change in inventory methods, and Change to a new standard issued by the FASB.

What situations qualify for treatment as a change in accounting principle?

Income Statement

Which financial statement summarizes the profit-generating activities that occurred during the reporting period?

-The balance sheet is heavily reliant on estimates rather than determinable amounts -Assets minus liabilities is not representative of the company's true market value

Which of the following are limitations of the balance sheet?

Earnings per share (EPS)

Which of the following is required to be disclosed on the face of a public company's income statement?

Administrative expenses, selling expenses, and revenues.

Which of the following items are reported as components of operating income for most manufacturing and merchandising companies?

Current Assets

___________ include cash and other items that will be converted to cash or consumed within the coming year.