Final Acc 201

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what is the inventory turnover ratio?

COGS/ average inventory

Assume that Canadian Falcon issues 1,000 shares of $30 par value preferred stock for $40 per share. We record the transaction as:

Cash (1,000 x 40) Preferred (1000 x 30) Add. paid in capital (Cash - Preferred) Debit 40,000 (Cash) Credit 30,000 (Preferred) Credit 10,000 (Add paid in cap)

What is the equation for acid-test ratio?

Cash + Current investments + Accounts receivable / Current liabilities

Canadian Falcon, a specialty retailer of casual apparel and accessories, issues 1,000 shares of no-par value common stock at $30 per share. We record this transaction as:

Cash Debit 30,000 Common stock credit 30,000

Frequent reason for a stock to split is to what?

Cause the market price per share to decline

What is the purpose for adjusting net income on a BS?

Convert items included in the net income to cash

Which of the following expenditures associated with Equipment would not be capitalized?

Cost necessary to provide utilities to operate the equipment It does capitalize any updates you need to make in future years

What is the current ratio?

Current assets / Current liabilities

How do you calculate a year to year percentage change?

Current year amount - prior year amount --------------------------------------------- prior year amount all times 100

Which is more conservative? Acid test ratio or current ratio?

ACID because the top part of the fraction includes only cash, current investments, and accounts receivable. Because it eliminates current assets such as inventories and prepaid expenses that are less readily convertible into cash, the acid-test ratio often provides a better indication of a company's liquidity than does the current ratio

Do you add, subtract, or ignore a loss of sale of land for operating activities?

Added to the net income because it decreased net income before

By matching expenses with revenues:

Benefits are matched with their associated costs

On March 5, American Corp. provides services on account to National Corp. for $1,500, with terms 2/10, n/30. On March 13, American receives payment from National and records the following:

DEBIT Service Rev: 1500 ( i think this part is right) CREDIT Acc Rec 1500

How do you record when a company sells inventory which costs $8,000 to customers for $12,000 on account

DEBIT: Acc Rec 12,000? CREDIT: Sales Rev for 12,000

How would you record inventory : sold inventory for $1,200 that was purchased for $700

Debit: COGS 700 Credit: Inventory 700 Think of how much it costs the company to buy the items in the first place, not how much they made off of it

Record the signing of an installment of a notes payable:

Debit: Cash Credit: Notes Payable

What would be recorded: Company issues a bond at premium

Debit: Cash Credit: Premium on bonds payable Credit: Bonds payable

When a bond issues at discount, how do you record it?

Debit: Cash Debit: Discount on bonds payable Credit: bonds payable

How do you record a payment of a bond?

Debit: interest expense Credit: cash

Which of the following ratios measures the underlying risk of a company?

Debt to equity

Which two ratios have to do with solvency?

Debt to equity and times interest earned

What is the financial statement effect of recording a contra revenue account?

Decrease Net Income

What is a possible impact of closing entries on account balances?

Decreases revenues (Doesn't affect PALS)

Disposal of stoves and oven product line would be reported as what?

Discontinued operations

What is most common for bonds to be sold at: face value, discount, or premium?

Discount

Investing, financing, or operating: Issuing stock to owners

Financing

What effect would an adjustment to record inventory at the lower of cost and net realizable value have on the company's financial statements?

First think of what your financial statement consists of (a, l and se) It will increase your expense

Conservative accounting will usually result in the appearance of:

Higher risk and lower profitability (Looks like you will not be making enough and looks like you will have higher risk of losing)

What is the amount of money paid into a company by its owners?

Invested Capital

What stock is recognized at par value?

Large stock dividends

Callable bonds are beneficial for:

Lender (bond issuer) insures money will be paid back if interest rates change

If a company fails to record its estimate of future bad debts at the end of the current year:

Net Income is overstated

What is the asset turnover ratio?

Net Sales/ Average total assets

Using indirect method, what is the starting point for preparing the operating activities section?

Net income

What is the formula for return on equity?

Net income/ average totals shareholders equity

Disposal of old delivery truck would be reported as what?

Other revenues and expenses

The sale of most assets is reported as?

Other revenues and expenses

Shareholders equity consists of 3 main things?

PAID IN CAPITAL is the amount stockholders have invested in the company. RETAINED EARNINGS is the amount of earnings the corporation has kept or retained—that is, the earnings not paid out in dividends. TREASURY STOCK is the corporation's own stock that it has reacquired. Illustration 10-1 shows those components in the stockholders' equity section of the balance sheet for American Ea

What are the 5 profitability ratios?

PE ratio Return on assets Gross profit Return on equity profit margin

According to the conceptual framework, relevant information possesses which qualitative characteristics?

Predictive value and confirmatory value

How do you find inventory?

Quantity x cost

When issuing stock, a corporation must obtain approval from the:

Securities and Exchange Commission

What additional extra features can be granted with preferred stock holders?

Shares can be redeemed for cash, and can convert shares to common stock

What stock is recognized at market vale?

Small stock dividends

What is Solvency? What is Liquidity?

Sol: refers to a company's ability to pay its long-term liabilities Liz: having sufficient cash (or other assets readily convertible into cash) to pay its current liabilities

Which final statement summarizes the changes in the balance of each stockholders equity account?

Statement of Stockholders equity only

The accounting measure of the value of a corporation to its owners is referred to as:

Stockholders Equity

the accounting group responsibility for the establishment of worldwide financial accounting is?

The International Accounting Standards Board

What is Quality of Earnings?

The ability of reported earnings to reflect the company's true earnings, as well as the usefulness of reported earnings to predict future earnings.

If a company understates its count of ending inventory in Year 1, which of the following is true?

The balance of retained earnings is correct at the end of Year 2.

The net increase/decrease in cash reported in the Statement of Cash Flows equals:

The change in the balance of the Cash account reported in the Balance Sheet

What ratio indicates the portion of each sales dollar above its COGS?

The gross profit ratio

Convertible bonds are beneficial for:

beneficial for buyer and lender

What is debt financing?

borrowing money from creditors

preferred stock tends to have attributes of:

both bonds and common stock (it is flexible)

preferred stock carries priority over common stock:

both for dividends and liquidation

What does a decrease in accounts receivable mean?

cash collected from customers was greater than the sales on account

Is depreciation expense have outflow of cash, inflow of cash, or cash not included

cash not included: Because we deducted this noncash expense in the determination of net income, we need to add it back in calculating operating cash flows

vertical analysis is also known as?

common-size analysis

What do you classify a bond at a discount?

contra-liability

How do we get market value?

current stock price per share x number of shares outstanding

The profit margin measures the income earned on what? What is the formula?

each dollar of sales net profit/ net sales

If you use FIFO, will your gross profit be higher or lower than if you use LIFO?

higher

what are two primary advantages over sole proprietorships and partnerships?

limited liability and the ability to raise capital and transfer ownership.

In a corporation, shareholders liability is?

limited to the amount of investment

If you use FIFO, will your inventory turnover be higher or lower than if you use LIFO?

lower

What is the formula to compute the return on assets?

net income / average (not ending) total assets

What are the three primary sources of long-term debt financing?

notes, leases, and bonds.

What is equity financing?

obtaining investment from stockholders (stockholders' equity).

Inflow or outflow: Sale of equip.

outflow

inflow or outflow: purchase of investment

outflow

the legal capital per share of stock is assigned when their corporation is first established is referred to as what?

par value

What is the Price earnings (PE) ratio?

price of single share of stock / earnings per share

2 types of corporations:

public and private

If the bonds' stated interest rate equals the market interest rate, then will the bonds issue below, at, or above face value?

then the bonds will issue at face amount.

If the bonds' stated interest rate is less than the market interest rate, then will the bonds issue below, at, or above face value?

then the bonds will issue below face amount (discount).

Horizontal analysis is also known as?

trend analysis or time-series analysis.

what do you need to calculate the issuing price of bonds?

# of periods until maturity face amount of bonds interest payment each period

Straight line is:

(Purchase price - residual value)/ life expectancy

formula when you see "Rules under lower of cost and net realizable value"

(cost-net realizable value) x Quantity This is essentially your COGS

preferred stock is "preferred" over common stock by providing preferred stock holders with these rights:

1) first right to specific amount of dividends 2) preference in distribution of assets during dissolution of corporation

Corporations are?

are formed in accordance with the laws of individual states. They are separate legal entities with liability for its owners

What does the price of a bond include?

the present value of the face amount plus the present value of the periodic interest payments.

How can you find a firm's financing activities?

We can find a firm's financing activities by examining changes in long-term liabilities and stockholders' equity accounts from the balance sheet.

What type of entry would be most frequently manipulated?

Year-end earnings

What two ratios are liquidity ratios?

acid test current

Proceeds from issuing new par value stock are allocated between

additional paid in capital and common stock

Changes of current assets or liabilities require adjustment of net income under the indirect method because?

related cash may be higher or lower than the accrued amount included in net income

Treasury Stock is?

reported as a contra equity, or negative amount, because treasury stock reduces total stockholders' equity. Is shares of stock no longer outstanding

Noncash investing and financing activities are reported where?

reported on the statement of cash flows and reported in the notes of the financial statement

What are term bonds?

require payment of the full principal amount of the bond at the end of the loan term. Most bonds have this characteristic.

The gross profit ratio will typically be higher for companies that:

sell products that are more highly specialized

The P/E ratio is calculated by

stock price/ Earnings per share

if the bonds' stated interest rate is more than the market interest rate, then will the bonds issue below, at, or above face value?

the bonds will issue above face amount (premium).

E-Games' accounts receivable increased $7,000 during the year (from $20,000 in 2017 to $27,000 in 2018) What does this tell us?

the company must have collected less cash than its $1,012,000 in sales revenue. Why? Because customers owe the company $7,000 more than before


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