ACCT 305 Chapter 1-5

The objective of general-purpose financial reporting is?

to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in making decisions in their capacity as capital providers

The two fundamental qualities that make accounting information useful for decision making are

relevance and faithful representation.

Revenue is recognized in the accounting period in which the performance obligation is satisfied. This statement describes the

revenue recognition principle.

For Mortenson Company, the following information is available: Cost of goods sold $390,000 Dividend revenue 15,000 Income tax expense 36,000 Operating expenses 138,000 Sales revenue 600,000 In Mortenson's multiple-step income statement, gross profit

should be reported at $210,000 $600,000 - $390,000 = $210,000.

Madsen Company reported the following information for 2017: Sales revenue $2,040,000 Cost of goods sold 1,400,000 Operating expenses 220,000 Unrealized holding gain on available-for-sale securities 120,000 Cash dividends received on the securities 8,000 For 2017, Madsen would report other comprehensive income of

$120,000.

Stine Corp.'s trial balance reflected the following account balances at December 31, 2017: Accounts receivable (net) $38,000 Trading securities 12,000 Accumulated depreciation on equipment and furniture 30,000 Cash 32,000 Inventory 6,000 Equipment 50,000 Patent 8,000 Prepaid expenses 4,000 Land held for future business site 36,000 In Stine's December 31, 2017 balance sheet, the current assets total is

$180,000. $38,000 + $12,000 + $32,000 + $6,000 + $4,000 = $92,000.

Houghton Company has the following items: common stock, $1,600,000; treasury stock, $210,000; deferred income taxes, $250,000 and retained earnings, $780,000. What total amount should Houghton Company report as stockholders' equity?

$2,170,000 $1,600,000 - $210,000 + $780,000 = $2,170,000.

In 2017, Esther Corporation reported net income of $600,000. It declared and paid preferred stock dividends of $150,000 and common stock dividends of $60,000. During 2017, Esther had a weighted average of 300,000 common shares outstanding. Compute Esther's 2017 earnings per share.

$2.00 ($600,000 - $150,000) ÷ 300,000 sh. = $1.50.

Keisler Corporation reports: Cash provided by operating activities $280,000 Cash used by investing activities 110,000 Cash provided by financing activities 140,000 Beginning cash balance 90,000 What is Keisler's ending cash balance?

$400,000. $90,000 + $280,000 - $110,000 + $140,000 = $400,000.

Which of the following statements about materiality is correct?

An item must make a difference or it need not be disclosed. Materiality is a matter of relative size or importance. An item is material if its inclusion or omission would influence or change the judgment of a reasonable person.

The stockholders' equity section is usually divided into what three parts?

Capital stock, additional paid-in capital, retained earnings

Which of the following is true of accounting for changes in estimates?

Changes in estimates are considered as errors.

Starr Corporation loaned $600,000 to another corporation on December 1, 2017 and received a 3-month, 8% interest-bearing note with a face value of $600,000. What adjusting entry should Starr make on December 31, 2017?

Debit Interest Receivable and credit Interest Revenue, $4,000. (1/12 x 8% x $600,000 = $4,000.)

Which of the following is a required disclosure in the income statement when reporting the disposal of a component of the business?

Earnings per share from continuing operations, discontinued operations, and net income should be disclosed on the face of the income statement

Which of the following is not a required supplemental disclosure for the balance sheet?

Financial forecasts

Which assumption or principle requires that all information significant enough to affect decisions of reasonably informed users should be reported in the financial statements?

Full disclosure.

Where must earnings per share be disclosed in the financial statements to satisfy generally accepted accounting principles?

On the face of the income statement.

Which basic assumption is illustrated when a firm reports financial results on an annual basis?

Periodicity assumption

Which of the following is not a required component of financial statements prepared in accordance with generally accepted accounting principles?

President's letter to shareholders

Which of the following statements is true about the accrual basis of accounting?

Revenues are recognized in the period the performance obligation is satisfied, regardless of the time period the cash is received.

Present, in journal form, the adjustments that would be made on July 31, 2018, the end of the fiscal year, for each of the following. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) 1. The supplies inventory on August 1, 2017 was $9,470. Supplies costing $22,370 were acquired during the year and charged to the supplies inventory. A count on July 31, 2018 indicated supplies on hand of $9,040. 2. On April 30, a ten-month, 6% note for $34,400 was received from a customer. 3. On May 1, $12,360 was collected as rent for one year and a nominal account was credited.

Supplies Expense 22,800 Supplies 22,800 Interest Receivable 516 Interest Revenue 516 Rent Revenue 9,270 Unearned Rent Revenue 9,270

The double-entry accounting system means

The dual effect of each transaction is recorded with a debit and a credit.

Which of the following statements best describes the purpose of closing entries?

To reduce the balances of revenue and expense accounts to zero so that they may be used to accumulate the revenues and expenses of the next period

A trial balance may prove that debits and credits are equal, but

an amount could be entered in the wrong account. a transaction could have been entered twice. a transaction could have been omitted.

Current assets are presented in the balance sheet in

order of their liquidity.

In preparing a statement of cash flows, cash flows from operating activities

can be calculated by appropriately adding to or deducting from net income those items in the income statement that do not affect cash.

Panda Corporation paid cash of $120,000 on June 1, 2017 for one year's rent in advance and recorded the transaction with a debit to Prepaid Rent. The December 31, 2017 adjusting entry is

debit Rent Expense and credit Prepaid Rent, $70,000. ($120,000 x 7/12 = $70,000.)

The balance sheet contributes to financial reporting by providing a basis for all of the following except

determining the increase in cash due to operations.

The measurement principle includes the

historical cost principle and the fair value principle.

A soundly developed conceptual framework of concepts and objectives should

increase financial statement users' understanding of and confidence in financial reporting. enhance comparability among companies' financial statements. allow new and emerging practical problems to be more quickly solved.

The accounting principle of expense recognition is best demonstrated by

matching effort (expense) with accomplishment (revenue).

The income statement reveals

net earnings (net income) of a firm for a period of time.