C213
FASB's rules/standards are called:
"generally accepted accounting principles" (GAAP).
During the month, Meridian Company had the following cash transactions: Cash collected from customers $ 12,500 Cash received from a loan 8,000 Cash paid for wages payable (5,750) Cash paid for the purchase of a building (15,000) Cash received for the issuance of new shares of stock 2,600 Cash received from sale of land 6,400 Cash paid for rent (2,500) Cash paid for dividends (1,500) Given the above information, compute cash flow from operating activities. d
$9,250 $15,750 $20,750 $4,250 Operating activities: $12,500 - $5,750 - $2,500 = $4,250
Describe current trends that are causing changes in the field of accounting.
- global economy is forcing an integration of worldwide accounting standards -To meet the needs of users, the diverse national accounting practices that have developed in isolation must now be brought together and harmonized ( International Accounting Standards Board (IASB) represents one effort to develop uniform worldwide accounting practices. ) -Another force significantly impacting the practice of accounting right now is information technology -need for increase oversight over auditing processes and preparation of the financial statements
Which of the following is NOT a reason for the integration of worldwide accounting standards? a
-the theoretical necessity of a common set of accounting standards -the integration of the global economy -the need to evaluate investments across the world -the increased efficiency of financial markets
Selected information for Alastair Company is as follows: 2012 Current assets $450,000 Total assets 725,000 Cost of goods sold 700,000 Sales revenue 915,000 Net income 145,000 What is the percentage that would be given to sales revenue on a common-size income statement (round to the nearest percent)? c
20 percent. 49 percent 100 percent 77 percent Sales revenue: $915,000 / $915,000 = 100%
The balance sheet at the end of the first year of operations indicates the following: 2012 Total current assets $600,000 Total investments 85,000 Total property, plant, and equipment 900,000 Total current liabilities 250,000 Total long-term liabilities 350,000 Common stock, $10 par 600,000 Paid-in capital in excess of par-common stock 60,000 Retained earnings 325,000 What is the debt ratio for 2012 (rounded to one decimal places)? b
22.1% 37.9% 40.0% 41.7% Debt Ratio: ($250,000 + $350,000) / ($600,000 + $85,000 + $900,000) = 37.9%
An independent audit report is usually issued by a
A certified public accountant A government accountant Management A private detective
Expenses generally cause a
A decrease in net assets An increase in net assets An increase in liabilities No change in net assets
Public Company Accounting Oversight Board (PCAOB)
A private, non-profit organization that effectively serves as an arm of the SEC in registering, inspecting, and disciplining the auditors of all publicly traded companies..
AICPA
AICPA provides continuing educational service to its members and also acts as a political voice to lobby on behalf of its membership. The AICPA is responsible for preparing and grading the CPA examination in addition to maintaining the integrity of the accounting profession through its Code of Professional Conduct.
Identify the purposes of accounting.
An accounting system is used by a business (1) to handle routine bookkeeping tasks and (2) to structure the information so it can be used to evaluate the performance and status of the business.
Which of the following is the most correct definition of accounting? c
An entity without a profit objective, oriented toward providing services efficiently and effectively. The procedures and processes used by a company to analyze transactions and handle routine bookkeeping tasks. A system for providing quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions. The preservation of a systematic, quantitative record of an activity.
International Accounting Standards Board
An independent, international body formed to develop worldwide accounting standards.
Businesses use accounting systems to d
Analyze transactions Handle routine bookkeeping tasks Evaluate the performance and health of the business All of these are correct
Who establishes accounting standards
As part of its regulatory role, the SEC has been granted by Congress specific legal authority to establish accounting standards for companies soliciting investment funds from the American public. For now, the SEC refrains from exercising this authority and allows the FASB to set U.S. accounting standards.
What ratio is used to measure a firm's liquidity? d
Asset turnover Debt ratio Return on equity Current ratio
Which of the following is an overall measure of the performance of a business entity's activities? c
Assets Revenues Net income (or net loss) Owners' equity
In completing an audit of a company's financial statements, auditors c
Assume responsibility for the accuracy of the financial statements Examine every transaction underlying the financial statements Provide some assurance that the financial statements are not misleading Guarantee that the financial statements are accurate
The financial statement that presents a summary of the revenues and expenses of a business for a specific period of time, such as a month or a year, is called a(n) d
Balance Sheet Statement of Cash Flows Statement of Retained Earnings Income Statement
Expense and revenue accounts appear on the b
Balance sheet Income statement Retained earnings statement Funds statement
Which of the following is NOT one of the three primary financial statements? c
Balance sheet Income statement Statement of retained earnings Statement of cash flows
Vital information that CANNOT be captured solely by dollar amounts is reported in a firm's d
Balance sheet Statement of retained earnings Income statement Notes to financial statements
Identify the 3 financial statements
Balance sheet, income statement and the statement of cash flow.
Which of the following accounts is considered to be the most liquid? a
Cash Accounts Receivable Land Inventory
The initials CPA stand for d
Certified Public Auditor Certified Professional Appraiser Certified Professional Accountant Certified Public Accountant
The notion that when doubt exists concerning two or more reporting alternatives, users should select the alternative with the least favorable impact on reported income, assets, and liabilities is referred to as c
Comparability Materiality Conservatism Relevance
The notion that information will be more useful if it will impact a decision is referred to as c
Comparability Materiality Relevance Conservatism
The idea that information becomes more useful when it can be related to a benchmark or a standard is referred to as b
Conservatism Comparability Relevance Materiality
Whether an item is big enough that proper accounting will make a difference to users of accounting information is referred to as c
Conservatism Relevance Materiality Comparability
Current ratio
Current Ratio: Current Assets/Current Liabilities = $21,191/$13,549 = 1.56
Which of the following ratios is calculated using numbers from both the income statement and the balance sheet? b
Current ratio Return on equity Price-earnings ratio Return on sales
When using common-size statements a
Data may be selected for the same business as of different dates, or for two or more businesses as of the same date Relationships should be stated in terms of ratios Dollar changes are reported over a period of at least three years All of these are correct
Which of the following is NOT one of the four general types of financial statement notes? d
Disclosure of important information that is not recognized in the financial statements Additional information about the summary totals found in the financial statements Summary of significant accounting policies Supplementary information required by the Internal Revenue Service
The balance sheet
Document which reports the resources of a company (the assets), the company's obligations (the liabilities), and the owners' equity, which represents how much money has been invested in the company by its owners.
The idea that certain figures on an operating statement help to explain changes in figures on comparative balance sheets is referred to as d
Double entry Liquidity Classification Articulation
Which of the following ratios represents an indication of investors' expectations concerning a firm's growth potential? d
Earnings per share Asset turnover Return on equity Price-earnings ratio
Internal reports are generally used by d
Employees Lenders Suppliers Management
Differentiate the rules of important accreditation organizations.
FASB, SEC, AICPA, PCAOB, IRS, IASB, SOX
With the current state of information technology, investors outside a company are now allowed access to a company's internal database of financial information and do their own customized analysis of a firm's performance. true or false
False
Which of the following statements best describes financial statement analysis? a
Financial statement analysis involves relationships and trends. Financial statement analysis evaluates future performance. Measurements for a specific company should be compared only with the past. All of these are correct.
Identify US Accounting rules and their origins.
GAAP and FASB 1973
The initials GAAP stand for c
Generally Accepted Accounting Practices General Accounting Administration Practices Generally Accepted Accounting Principles Generally Applied Accounting Procedures
Financial Accounting Standards Board (FASB).
Governmental body that sets accounting standards in the United States.
Securities and Exchange Commission
In response to the stock market crash of 1929, Congress created the Securities and Exchange Commission (SEC). Part of the SEC's job is to make sure that investors are provided with full and fair information about publicly traded companies.
The financial statement that reports resources owned, the obligations to transfer resources to other organizations, and the claims by the entity's owners is known as the b
Income statement Balance sheet Statement of cash flows Statement of retained earnings
Which of the following are the two economic factors that enable us to trust an independent auditor despite the fact that the auditor was hired by the company being audited? c
Integrity of auditor and government policy Risk of lawsuits and integrity of auditor Reputation of auditor and risk of lawsuits Reputation of auditor and government policy
Which of the following is the government agency that stipulates the rules and regulations that govern the collection of taxes in the United States? a
Internal Revenue Service American Institute of Certified Public Accountants Federal Accounting Standards Board Securities and Exchange Commission
Which of the following organizations has specific legal authority to establish accounting standards for publicly held companies? b
Internal Revenue Service (IRS) Securities and Exchange Commission (SEC) American Institute of Certified Public Accountants (AICPA) Financial Accounting Standards Board (FASB)
The organization that develops worldwide accounting standards is the d
International Board of Accounting Standards (IBAS) International Accounting Standards Committee (IASC) International Committee on Accounting Standards (ICAS) International Accounting Standards Board (IASB)
Which of the following is a primary use of cash? b
Investment by owners Operating expenses Sale of equipment Borrowing
Which of the following is NOT true of the Financial Accounting Standards Board (FASB)? b
It has no legal power to enforce the standards it sets It is a government agency It consists of seven full-time members It seeks consistency for its proposed standards
Which of the following is true about the double-entry system of bookkeeping? c
It was developed in the 1800s in Italy. It was developed in the 1800s in the United States. It was developed in the 1300s−1400s in Italy. It was developed in the 1300s−1400s in France.
Identify users of financial statements
Lenders, Investors, Management, Supplies and Customers, employees, competitors, government agencies, politicians, and the press
Which of the following is the reason that the accounting equation is true by definition? c
Liabilities are the source that funds the purchase of assets Assets are the source that funds the purchase of liabilities and owner's equity Liabilities and owner's equity are the sources that fund the purchase of assets None of these are true, the accounting equation is merely a coincidence
Relationships between financial statement amounts are called c
Liquidity ratios Financial statement analyses Financial ratios DuPont ratios
The primary internal group that uses accounting information is a
Management Investors Competitors Government agencies
The emphasis in financial accounting is on which of the following external user groups? b
Management Investors and creditors Educators Certified public accountants
Which of the following is NOT a function of accounting? b
Measuring economic information about organizations Executing sales transactions for organizations Communicating economic information about organizations Accumulating economic information about organizations
Generally accepted accounting principles are d
Natural laws Based on scientific proofs Developed by accounting rule makers None of these are correct
In a common-size balance sheet, using the percent of sales method, each item on the balance sheet is typically expressed as a percentage of b
Net income Sales revenue Assets Equity
Which of the following classifications does NOT appear on the Statement of Cash Flows? d
Operating Investing Financing Borrowing
External users of financial statements use financial statement analysis for c
Operating and financing decisions Operating, investing, and financing decisions Investing decisions Financing decisions
Price-earnings ratio
PE Ratio: Market Value of Shares/Net Income = $41,399/ $2,813 = 14.7
American Institute of Certified Public Accountants (AICPA)
Professional organization for certified publish accountants in the United States
Return on Equity
Return on Equity: Net Income/Stockholders' Equity =$2,813/$10,179 = 27.6%
Return on Sales
Return on Sales: Net Income/Sales= $2,813/$35,310 = 8.0%
Which of the following ratios is calculated using only income statement numbers? a
Return on sales Return on equity Current ratio Debt ratio
Economic resources that are owned or controlled by an enterprise are called d
Revenues Gains Liabilities Assets
Resource increases from the sale of goods or services are called a
Revenues Net income Gains Assets
Which of the following activities would NOT be classified as an investing activity? c
Sale of Land Purchase of land Purchase of inventory Sale of equipment
Increased federal oversight of the audit process resulted from the passage of the following act of Congress - a
Sarbanes-Oxley Act Financial Reports Act Access to High Standards Act AGOA Acceleration Act
The current standard-setting board for accounting in the private sector is the b
Securities and Exchange Commission (SEC) Financial Accounting Standards Board (FASB) International Accounting Standards Board (IASB) American Accounting Association (AAA)
Which of the following financial statements provides a picture of the enterprise at a particular point in time? c
Statement of cash flows Income statement Balance sheet Statement of retained earnings
Which of the following financial statements reports the excess of a company's revenues over its expenses? b
Statement of cash flows Income statement Balance sheet Statement of retained earnings
Which of the following financial statements reports the amount of cash collected and paid out by a company? a
Statement of cash flows Statement of retained earnings Income statement Balance sheet
Which of the following financial statements reports a company's resources, obligations, and owner's equity? b
Statement of retained earnings Balance sheet Statement of cash flows Income statement
The accuracy of the information contained in the financial statements is the responsibility of the d
Stockholders Securities and Exchange Commission Certified Public Accountant Management
Which of the following is NOT an external user of financial information? c
Suppliers Competitors Management Customers
Which of the following is NOT one of the three primary financial statements? a
The Statement of Retained Earnings The Balance Sheet The Statement of Cash Flows The Income Statement
International Financial Reporting Standards (IFRS)
The accounting standards produced by the IASB.
Which of the following is an example of a significant accounting policy that would be explained in the notes to the financial statements? d
The disclosure of quarterly financial information The description of all the individual items that comprise notes payable The disclosure of the uncertain, potential outcome of a lawsuit The method used to estimate depreciation on a piece of equipment
Which of the following is an example of a disclosure of information NOT recognized that would be explained in the notes to the financial statements? d
The disclosure of quarterly financial information The method used to estimate depreciation on a piece of equipment The description of all the individual items that comprise notes payable The disclosure of the uncertain, potential outcome of a lawsuit
Which of the following is NOT typically true of accounting information? B
The information is quantitative in nature. The information relates to future time periods. The information is primarily financial in nature. The information relates to specific accounting entities.
Which of the following is an example of additional information about summary totals that would be explained in the notes to the financial statements? c
The method used to estimate depreciation on a piece of equipment The disclosure of the uncertain, potential outcome of a lawsuit The description of all the individual items that comprise notes payable The disclosure of quarterly financial information
When analyzing financial statements, diagnosis is c
The prediction of how a business will perform in the future The identification of the trends in future numbers The identification of where a business has problems The prediction of how many employees will lose their jobs in the coming year
Which of the following financial statements shows an entity's cash receipts and payments? a
The statement of cash flows The statement of changes in owners' equity The statement of financial position The statement of earnings
A borrower benefits from providing financial information regarding income and expenses in the form of a lower interest rate on the loan because of reduced uncertainty for the lender with regard to repayment. true or false
True
One reason for a company's preparing and providing financial statements is to reduce uncertainty for an investor regarding the firm's future financial performance. true or false
True
The International Accounting Standards Board (IASB) is charged with developing worldwide accounting practices? true or false
True
Which of the following is NOT a key component of the definition of accounting? c
Useful Financial Qualitative Decision-oriented
Financial statement analysis is greatly enhanced when financial ratios are compared with d
Values for other firms in the same industry Future values Past values Both past values and values for other firms in the same industry
Which of the following is the most correct definition of accounting? a
a. A system for providing quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions. b. An entity without a profit objective, oriented toward providing services efficiently and effectively. c. The preservation of a systematic, quantitative record of an activity. d. The procedures and processes used by a company to analyze transactions and handle routine bookkeeping tasks.
Standards established by the International Accounting Standards Board are referred to as b
a. International Auditing Standards b. International Financial Reporting Standards c.Generally Accepted Accounting Standards d. International Financial Accounting Standards
Sarbanes-Oxley Act
increased the U.S. federal government oversight of the audit process and the preparation of the financial statements.
Accounting
is formally defined as a system of providing "quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions
Managerial accounting
is the name given to accounting systems designed for internal users.
Bookkeeping
is the preservation of a systematic, quantitative record of an activity.
The statement of cash flows
reports the amount of cash collected and paid out by a company in the following three types of activities: operating, investing, and financing.
The income statement
reports the amount of net income earned by a company during a period, with annual and quarterly income statements being the most common.
financial accounting
which is the name given to accounting information provided for and used by external users