Exam 2 Review Packet

The basis for classifying assets as current or noncurrent is conversion to cash within

the operating cycle or one year, whichever is longer

Working capital is

unappropriated retained earnings

Trade discounts are

used to avoid frequent changes in catalogs

Olmsted Company has the following items: common stock, $950,000; treasury stock, $105,000; deferred income taxes, $125,000 and retained earnings, $454,000. What total amount should Olmsted Company report as stockholders' equity?

$1,299,000

Gross billings for merchandise sold by Lang Company to its customers last year amounted to $12,720,000; sales returns and allowances were $370,000, sales discounts were $175,000, and freight-out was $140,000. Net sales last year for Lang Company were

$12,175,000

Bank overdrafts, if material, should be

reported as a current liability

The following information was extracted from the 2017 financial statements of Max Company: Income from continuing operations before income tax $705,000 Selling and administrative expenses 480,000 Income from continuing operations 495,000 Gross profit 1,350,000 The amount reported for other expenses and losses is:

$165,000 Gross profit - Selling and Admin Xp = Income from Ops Income from Ops - Income from Cont. Op = Other XP and Losses

For Randolph Company, the following information is available: Capitalized leases $560,000 Copyrights $240,000 Long-term receivables 210,000 In Randolph's balance sheet, intangible assets should be reported at

$240,000

At Ruth Company, events and transactions during 2017 included the following. The tax rate for all items is 30%. (1) Depreciation for 2015 was found to be understated by $150,000. (2) A strike by the employees of a supplier resulted in a loss of $125,000. (3) The inventory at December 31, 2015 was overstated by $200,000. The effect of these events and transactions on 2017 income from continuing operations net of tax would be:

$87,500 125,000 * .30 = 37,500 125,000 - 37,500 = 87,500

At Ruth Company, events and transactions during 2017 included the following. The tax rate for all items is 30%. (1) Depreciation for 2015 was found to be understated by $150,000. (2) A strike by the employees of a supplier resulted in a loss of $125,000. (3) The inventory at December 31, 2015 was overstated by $200,000. The effect of these events and transactions on 2017 income from continuing operations net of tax would be

($87,500)

Which of the following is a change in accounting principle?

A change from FIFO to LIFO and a change from straight-line to double-declining-balance

Which of the following is generally accepted method of determining the amount of the adjustment to bad debt expense?

A percentage of accounts receivable adjusted for the balance in allowance

Which of the following is a generally accepted method of determining the amount of the adjustment to bad debt expense?

A percentage of accounts receivable adjusted for the balance in the allowance

The stockholders' equity section is usually dividend into what three parts

Capital stock, additional paid-in capital, retained earnings

Which of the following events will appear in the cash flows from financing activities section of the statement of cash flows?

Cash purchase of treasury stock

The correct order to present current assets is

Cash, accounts receivable, inventories, prepaid items

Which of the following should be reported as a prior period adjustment?

Change in Estimated Live of Depreciable Assets: No Change from Unaccepted Principle to Accepted Principle: Yes

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

Changes in estimates are not carried back to adjust prior years

How can accounting for bad debts be used for earnings management?

Changing the percentage of receivables recorded as bad debt expense

The occurrence that most likely would have no effect on 2017 net income is the

Correction of an error in the financial statements of a prior period discovered subsequent to their issuance

What might a manager do during the last quarter of a fiscal year if she wanted to decrease current annual net income?

Delay shipments and sales to customers until after the end of the fiscal year

Which of the following is an example of managing earnings up?

Delay shipments to customers until after the end of the fiscal year

If common stock was issued to acquire an $8,000 machine, how would the transaction appear on the statement of cash flows?

It would not appear on the statement of cash flows but rather on a schedule of noncash investing and financing

Which of the following is considered cash?

Money market checking accounts

A material item which is unusual in nature or infrequent in occurrence, but not both should be shown in the income statement

Net of Tax: No Disclosed Separately: Yes

Which of the following methods of determining annual bad debt expense best achieves the matching concept?

Percentage of sales

What might a manager do during the last quarter of a fiscal year if she wanted to improve current annual net income?

Relax credit policies for customers

Which of the following is an example of managing earnings down?

Revisiting the estimated life of equipment from 10 years to 8 years

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

Sale of equipment at book value

What elements are in a multi-step income statement?

Sales - COGS = Gross Profit/Margin - Operating Xp's = Income from Operations + Other Revenues/Gains - Other Expenses/Loses = Income before Tax + Income Tax Expense =Net Income

Travel advances should be reported as

receivables

Which of the following should be reported for capital stock?

The shares authorized, the shares issued, the shares outstanding

What is Comprehensive Income?

Unrealized Holding Gains/Losses Net Income + Other Comprehensive Income

Treasury stock should be reported as a

reduction of stockholder's equity

When a customer purchases merchandise inventory from a business organization, she may be given a discount which is designed to induce proper prompt payment. Such a discount is called

a cash discount

If a company employs the gross method of recording accounts receivable from customers, then sales discounts taken should be reported as

a deduction from sale in the income statement

If a company employs the gross method of recording accounts receivable from customers, then sales discounts taken should be reported as

a deduction from sales in the income statement

If plant assets of a manufacturing company are sold at a gain of $1,800,000 with related taxes of $540,000, and the gain is not considered unusual or infrequent, the income statement for the period would disclose these effects as

a gain of $1,800,000 and an increase in income tax expense of $540,000

Shank Corporation made a very large arithmetical error in the preparation of its year-end financial statements by improper placement of a decimal point in the calculation of depreciation. The error caused the net income to be reported at almost double the improper amount. Correction of the error when discovered in the next year should be treated as

a prior period adjustment

Watts Corporation made a very large arithmetical error in the preparation of its year-end financial statements by improper placement of a decimal point in the calculation of depreciation. The error caused the net income to be reported at almost double the proper amount. Correction of the error when discovered in the next year should be treated as

a prior period adjustment

When a company discontinues an operation and disposes of the discontinued operation (component), the transaction should be included in the income statement as a gain or loss on disposal as

an amount after continuing operations

A change in accounting principle requires that the cumulative effect of the change for prior periods be shown as an adjustment to

beginning retained earnings of the earliest period presented

The occurrence that most likely would have no effect on 2014 net income is the

correction of an error in the financial statements of a prior period discovered subsequent to their issuance

A cash equivalent is a short-term, highly liquid investment that is readily convertible into known amounts of cash and

is so near its maturity that it presents insignificant risk of changes in interest rates

The amount of time that is expected to elapse until an asset is realized or otherwise converted into cash is referred to as

liquidity

In a statement of cash flows, receipts from sales of property, plant, and equipment and other productive assets should generally be classified as cash inflows from

investing activities

Making and collecting loans and disposing of property, plant and equipment are

investing activities