Rest of accounting
Lucia Ltd. reported net income of $135,000 for the year ended December 31, 2013. January 1 balances in accounts receivable and accounts payable were $29,000 and $26,000, respectively. Year-end balances in these accounts were $30,000 and $24,000, respectively. Assuming that all relevant information has been presented, Lucia's cash flows from operating activities would be:
$132,000 $135,000 - 1,000 - 2,000 = $132,000
prospective
(adj) potential, in the future
Emma's Clothes, Inc. has accounts receivable of $21,000. She has noticed an increase in uncollectible accounts. In 2018, her sales were $32,600 and in 2019, sales were $38,000. She has estimated in the past that 2% of sales would eventually be uncollectible. Emma believes that her losses were closer to 3% last year. What should be the bad debt expense for 2018 and 2019 in the comparative income statements for 2018 and 2019?
2018, $652; 2019, $1,140 2018: $32,600 x 2% = $652 2019: $38,000 x 3% = $1,140
In its year-end income statement, Black Knights Company reported cost of goods sold of $450,000. Changes occurred in several balance sheet accounts during the year as follows: Inventory $160,000 decrease Accounts payable - suppliers $ 40,000 decrease What amount should the Black Knights Company report as cash paid to suppliers in its cash flow statement, prepared under the direct method?
330,000
How many different ways may pertinent information be disclosed in the financial statements?
4
Auditor's Report
A report prepared by an independent outside auditor stating the auditor's opinion as to the fairness of the presentation of the financial position and results of operations and their conformance with generally accepted accounting principles.
Management discussion and analysis (MD&A)
A section of the annual report that presents management's views on the company's ability to pay near-term obligations, its ability to fund operations and expansion, and its results of operations.
The proper accounting treatment to account for a change in inventory valuation from FIFO to LIFO under US gaap is
Prospective application
Permanent items
Sales, COGS, expenses, income
Bales company is preparing a statement of cash flows. Which of the following would not be shown on the statement
Stock dividend, stock split, appropriation of retained earnings
Lyon Company has the following transactions in the current year. Assuming that all of the transactions are material, which of them will most likely have no effect on current year net income?
The collection of a receivable from a customer whose account was written off in the prior year by a charge to the allowance for bad debts account.
Beach and Poole, CPA is reviewing income statement presentation with some interns that are working with the firm during the summer break. The interns were asked to list three things that were true about the multiple-step income statement. Choose the item below that is a true statement.
The multiple step income statement shows income or loss from operations after the gross margin and operating expenses lines but before the revenues and gains
net of tax
The number shown represents income or loss after a reduction for income taxes
Stockholders' Equity
The owners' claim to assets.
Change in accounting principle
Use of an accounting principle in the current year different from the one used in the preceding year.
When a firm decides to change an accounting principle, but does not have sufficient information to use the retrospective approach, it may _______
Use the prospective approach
Nonoperating activities
Various revenues, expenses, gains, and losses that are unrelated to a company's main line of operations.
board of directors
a group of persons elected by the stockholders to manage a corporation
Discontinued Operations
the disposal of a significant component of a business
Which of the following investments should always be reported as current assets?
trading securities
Intraperiod tax allocation is used for all of the following except
unusual gains and losses
Earnings per share is not reported for
unusual gains/losses.
Kong Co. purchased a three-month U.S. Treasury bill. Kong's policy is to treat as cash equivalents all highly liquid investments with an original maturity of three months or less when purchased. How should this purchase be reported in Kong's statement of cash flows?
not reported
If additional explanations cannot be conveniently shown as parenthetical explanations, the information should be disclosed by
notes
Noncurrent Liabilities
obligations that a company does not expect to pay within one year
Gains and losses that bypass net income but affect stockholders' equity are referred to as
other comprehensive income
Contributed Capital
owner contributions to a corporation
A balance sheet is useful for analyzing all of the following except:
profitability
The balance sheet format listing liabilities and stockholders' equity directly below assets is called the
report form
Expenses in an income statement prepared under International Financial Reporting Standards:
Can be classified either by function or by natural description.
Which one of the following would not be affected by a change in revenue recognition requiring a retrospective change?
Cash
Financing Activities
Cash flow activities that include (a) obtaining cash from issuing debt and repaying the amounts borrowed and (b) obtaining cash from stockholders, repurchasing shares, and paying dividends.
Operating Activities
Cash flow activities that include the cash effects of transactions that create revenues and expenses and thus enter into the determination of net income.
Which one of the following is a change in estimate effected by a change in an accounting principle?
Change from declining-balance to straight-line depreciation
John Pickens writes mystery novels. His publisher pays him royalties for books sold each year. He is paid royalties for the first half of the year on September 30 and the second half of the year on March 31 of the following year. He received $42,000 in September, 2018. The publisher estimated that his royalties for the second half of the year would be $53,000. On March 31, 2019, he received $57,500. Assuming that he recorded $53,000 at December 31, 2019, what kind of change does this represent?
Change in Estimate An estimate was made in the first year that had to be revised in the second.
Change in Accounting Estimate
Change in an accounting estimate that results from new information, subsequent developments, or improved judgment that impacts current and future periods.
For which one of the following changes is it appropriate to use the prospective method?
Change in estimate
operating expenses
Costs involved in operating a business, such as rent, utilities, and salaries.
Income Statement depends on accounting methods selected
Disadvantage
Income Statement excludes certain items
Disadvantage
Income Statement requires extensive judgment
Disadvantage
Income statement can be manipulated and managed
Disadvantage
Which of the following is not a type of information that is supplemental to amounts presented in the balance sheet?
Discussion and analysis.
Which of the following items would not be included in the operating activity section of an entity statement of cash flows under US GAAP
Dividends paid
Moore Furniture Inc., a public company, has experienced a consistent 5% increase in net income over the past three years. Moore's management team is under a lot of pressure from investors to maintain its earnings ratios. In order to do so, the CEO could manipulate net income in order to manager the earnings of the company. Which one of the following is NOT a method typically used to manage earnings?
Engage in research and development projects to entice investors.
Long-term investments
Generally, (1) investments in stocks and bonds of other corporations that companies hold for more than one year; (2) long-term assets, such as land and buildings, not currently being used in the company's operations; and (3) long-term notes receivable.
Companies are not required to disclose information about
Identity of major stockholders
Investing Activities
Includes cash transactions involving the purchase and sale of long-term assets and current investments
Shively Mfg. Co. sold for $18,000 equipment that cost $40,000 and had a book value of $30,000. Shively would report:
Investing cash inflows of $18,000.
On August 31 of the current year Harvey Coe decided to change from the FIFO periodic inventory system to the weighted average periodic inventory system Harvey uses IFRS and is on a calendar year basis the cumulative effect of the change is shown as an adjustment to beginning retained earnings on the balance sheet for
January 1 of the prior year
Income Statement assesses risk or uncertainties of achieving future cash flows
Advantage
Income Statement evaluates past performance
Advantage
Income Statement predicts future performance
Advantage
Anzelmo Corporation invested in Jones Manufacturing by purchasing a 10% interest in the company. Anzelmo had no significant influence in Jones. Over time, Anzelmo acquired more shares in Jones, and in 2018, Anzelmo's president became a member of the board of directors when its ownership interest reached 30% of Jones. This change is ________.
An accounting principle change requiring retrospective adjustment This is a change in reporting entity which requires a retrospective adjustment.
On august 31 of The current year Harvey Co. decided to change from the FIFO periodic inventory system to the weighted average periodic inventory system. Harvey uses US gaap is on a calendar year basis and does not present comparative financial statements. A cumulative effect of the change is determined:
As of January 1 of the current year
What is an estimate that might be revised as a natural part of the accounting process?
Bad Debt Expense Depreciation Expense Warranty Expense
Judgments are important in determining which type of estimates used by accountants?
Bad debt expense
retrospective
Looking backward over a period of time
Which of the following is added to net income as an adjustment under the indirect method of preparing the statement of cash flows?
Loss on sale of equipment
transitory
temporary; lasting a brief time Unrealized loss on available for sale bonds, loss on asset impairment, gain
Current liabilities include all of the following
accrued warranty costs. advances received from customers. current portion of long-term debt.
The effect of a change in accounting principle is disclosed on the income statement:
after extraordinary items.
Prior period adjustments are reported as
an addition to (or a deduction from) the beginning balance of retained earnings.
intangible assets
assets that do not have physical substance
Property, Plant, and Equipment
assets with relatively long useful lives that are currently used in operating the business
Irregular transactions such as discontinued operations should be reported:
both a single-step and multiple-step income statement
Which of the following is not an intangible asset?
capitalized leases
current assets
cash and other assets expected to be exchanged for cash or consumed within a year
A change in depreciation from the double-declining to the straight-line method would be accounted for as a (an)
change in accounting principle
The FASB's stated preference for reporting operating cash flows is the:
direct method
Investors and creditors can use the information in the income statement to
evaluate the past performance of the enterprise. provide a basis for predicting future performance. help assess the risk or uncertainty of achieving future cash flows.
Subsequent Events
events occurring between the date of the financial statements and the date of the auditor's report
nonoperating income
includes gains and losses and revenues and expenses related to peripheral or incidental activities of the company.
The single-step income statement emphasizes
just two groupings exist -revenues and expenses.
Current Liabilities
liabilities due within a short time, usually within a year
Current assets are presented in the balance in order of
liquidity
noncurrent assets
long-term investments, plant assets, intangible assets