acc 2303 final
weighted average cost formula
$ goods available/ units goods available
for a 4 for 1 stock split, par value is reduced to
1/4 of what it was before the split
at par
CR=MR
which method is not allowed according to the IFRS
LIFO
cash flows from operating activities - decrease in CA (besides cash)
add
days' sales in receivables ratio
average net a/r / one day's sales
depreciable value
cost - residual value
stock dividends
neither assets, liabilities, nor total stockholder's equity chances as a result of a stock divided
how to calculate for discount
par - issue
credit sales increase
receivables
paid in capital in excess of par
sell stock for more than par value - note income or gain, but part of contributed capital
a company failed to recognize an accrued liability. as a result:
the current ratio is overstated because the denominator is understated
posting
the process of copying from the journal to the ledger
interest expense is tax deductible
true
straight line method formula
(cost-residual value)/useful life, in years
formula for income statement
(net) sales revenue -cost of goods sold =gross profit -operating expenses =income before taxes +other revenues / -other expenses -income taxes =net income
steps in accounting cycle
-analyze transaztions -journalize transactions and post from journal to ledger -prepare adjusting entries -use adjusted trial balance to prepare financial statements -prepare closing entries
closing entries are prepared in this order
-close all income statement accounts with a credit balance -close all income statement accounts with a debit balance -close dividends to retained earnings
effective system of internal control includes
-competent, reliable, ethical personnel and sound personnel procedures -assignment of responsibilities -separation of duties -comparison and compliance monitoring, including audits for periodic verification of records -design and use of adequate documents and records -electronic devices, computers, and other controls
advantages of using the perpetual method
-continuous record of amount of goods on hand and cost of goods that have been sold -more effective ordering of inventory -better control over inventory costs, managers can make better pricing decisions
disadvantages of issuing bonds
-corporations must pay interest periodically (per bond contract) -must provide for repayment of principal at maturity -increases debt/equity ratio
earned capital (retained earnings)
-cumulative total of all net incomes minus dividends, over the life of the business -net earnings not distributed to shareholders but retained in the business -earnings kept in the business to help meet needs of the business -balance in retained earnings = profit - losses -dividends
disadvantages of corporate form of business
-double taxation -governmental regulation
advantages of issuing bonds
-fixed costs to the corp (P+I) -no dilution of ownership
advantages of organizing a business as a corporation
-limited liability -separate legal entity; separate tax paying entity -unlimited, continuous existence/life -free and easy to transfer of ownership -ease of capital formation -no mutual agency separation of ownership and management
benefits of accrual basis
-more reliable financial statements -more accurate information -better measure of net income -less change for manipulation of income
examples of current liabilities
-notes payable -accounts payable -current portion of long term debt -wages, taxes, interest payable -unearned revenue
all cash flows must fit into one of these categories
-operating -investing -financing
stock will have one of these values
-par value -no par value -no par stock with stated value
what are the steps to internal control
-safeguard assets -encourage employees to follow company policy -promote operational efficiency -ensure accurate and reliable accounting records -comply with legal requirements
rights of a preferred shareholder
-usually non voting -receive dividends before common shareholders -share in assets at liquidation
rights of common shareholders
-vote at annual shareholders' meeting -share in dividends if declare -share in assets at liquidation
how to calculate cash flows from operating activites
1. begin with accrual basis net income 2. add back all expenses with no cash effect 3. add losses from the sale of plant assets or investments 4. subtract gains from the sale of plant assets or investments
one way to express credit terms is
2/10, n/30
double declining balance method formula
2/useful life in years
if a bookkeeper mistakenly recorded a disbursement as 48 instead of the correct amount of 84, the error should be shown on the bank reconciliation as a
36 deduction from the books
for a 4 for 1 stock split, the number of shares issued is equal to
4 times the amount it was before the split
disclosure issue
FASB requires detailed disclosure about financial instruments and financial liabilities; footnote data describes both actual and contingent liabilities
All of the following are true except: -FIFO uses more current costs in calculating cogs -FIFO generally results in higher net income and higher income taxes paid -FIFO reports the most up to date inventory values on the balance sheet -FIFO is generally less conservative as to the measure of net income
FIFO uses more current costs in calculating cost of goods sold
journal
a chronological listing of all business transactions; book of original entry
treasury stock
a corporation's own stock that was issued then reacquired, but not retired; it is held "in the treasury" until later sold, distributed, or retired
bond
a long term liability(security) or debt
accumulated depreciation is that portion of
a plant asset's cost that bas been recorded previously as an expense
which of the following statements regarding a trial balance is false? -a trial balance may be taken at any time the postings are up to date -a trial balance is a list of all accounts with their balances -a trial balance is the same as a balance -a trial balance provides a check on the equality of debits and credits
a trial balance is the same as a balance sheet
what does current ratio analyze
a way to evaluate liquidity; should be greater than 1.5
stable monetary unit assumption
accounting assume that the dollar's purchasing power is stable over time, ignore inflation; important because businesses that report their financial information publicly usually report competitive financial information
cash flows from operating activities - increase in CL
add
on the statement of cash flows in operating activity, you ____ amortization expense
add
a 600 deposit made on the last day of the current month did not appear on this month's statement
add to the bank balance
upon reviewing the bank statement, you notice that check #456 for $851, was deducted twice in error by the bank. on the bank reconciliation, you should
add to the bank balance
a check for 375 written by libby during the current month was erroneously recorded by libby as a 753 payment
add to the book balance
bank reconciliation - balance per bank
add: deposits in transit, bank error correction less: outstanding checks, bank error correction
bank reconciliation - balance per books
add: note collection, interest income, book error correction, eft less: service charge, nsf checks, book error correction, eft
the debit entry to unearned revenue represents the amount of
adjusting entry for revenue earned
bond indenture
agreement that lists rights and limitations of bondholders; also maturity date, interest rate, interest payment, special features of the bond issue
contributed (paid in) capital
all amounts paid in by shareholders
why does cash not equal net income
all cash flows are not net revenues and expenses
revenues
all increases in assets are not revenue and sometimes revenue is recorded but cash isn't received until later
expenses
all outflows of cash are not expenses and sometimes expense is recorded but no cash is paid, or cash is paid later
ledger
all the accounts in the ledger
depreciation
allocation of the cost of multi year asset (equipment, building, vehicle, etc) to expense, over the asset's useful life
depreciation is a process of _______ not a process of ________
allocation, valuation
slide on transposition error
always causes an error that is divisible by 9
accounting for treasury stock
always record at cost, not at par value
what is double declining balance method
an accelerated method, assumes most benefit from asset comes in early years of life; therefore record higher depreciation in early years
if the bookkeeper records a deposit of 3,300 as 330, the error should be shown on a bank reconciliation as
an addition to the book balance of 2,970
goodwill
an intangible with an infinite life. record goodwill only as a result of purchasing a business; results from higher than normal or regular future earnings
internal control
an organizational plan and all related measures designed to help management
failure to accrue interest at the end of the period on a short term note payable will result in
an overstatement of net income and an understatement of liabilites
cumulative preferred stock
any year dividends are passed, the preferred dividend accumulates and must be paid in later years before any dividends can be paid to common shareholders
which type of account decreases when a company pays its employees
asset account
accounting equation
assets = liabilities + owners equity
how does the entry to reissue treasury stock in excess of cost affect the statements
assets increase, o/e increase
what is the effect on the financial statements when you record the accrual of interest
assets increase, o/e increase, revenue increase, n/i increase
what is the effect on accounting equation when revenue is earned
assets increase, o/e increase, revenue increase, net income increase
secured (collateralized) bond
assets of company are pledged as collateral for debt
what is the effect on the financial statement of capitalizing an expense
assets overstated, o/e overstated, expense understated, ni overstated
if aje is omitted for accumulated depreciation, what is the result
assets overstated, o/e overstated, expenses understated, net income overstated
what is the effect on the financial statements of recording a 15,000 repair expense as a debit to machine and a credit to cash
assets overstated, o/e overstated, expenses understated, ni overstated
what is the effect on the financial statement of expensing a capital asset
assets understated, o/e understated, expense overstated, ni understated
long term assets
assets used for more than one year in operation of the business and not held for resale to customer; may be tangible or intangible
if the debit amount of an entry to record the purchase of supplies one account was not posted:
assets would be understated
name three accounts that will not be closed
assets, liabilities, common stock, retained earnings
what are permanent accounts
assets, liabilities, common stock, retained earnings
weighted average cost
assign values to ending inventory and cogs based on weighted average cost of BI plus all goods purchased during the period
continuity assumption
assuming that the entity will continue to operate long enough to sell its inventories, convert any receivables to bash, use other existing assets for intended purpose
order of stock terms
authorized, issued, outstanding
examples of long term assets
available for sale securities, property/plant/equipment, intangible assets
unsecured (debenture) bond
backed by good credit of the issuing company with no collateral pledged
the ending balance in retained earnings appears on the
balance sheet and statement of retained earnings
aging of receivables method
balance sheet approach, end and base the amount of uncollectible account expense on aging schedule; therefore, ending balance in the allowance account will be a percentage of total year end a/r
the account
basic summary device; a storage unit for accounting data
why is bond interest expense greater than cash paid for interest
because there is a portion of the discount being amortized
accounts payable t-account
beg balance + credit purchases from vendor - cash paid =end balance (credit side)
accounts receivable t-account
beg balance + credit sales to customer - collections from customer = end balance (debit side)
cost of goods sold model
beginning inventory +net purchases =cost of goods available for sale -ending inventory =cost of goods sold
owner's equity formula
beginning o/e + investments by owner - dividends + net income - net loss = ending o/e
the statement of retained earnings formula
beginning r/e + net income(or - net loss) - dividends = ending r/e
what is a corporation
body of persons who have been granted to operate an entity
registered and coupon bonds
bondholders are registered with issuing company; interest and principal are paid only to registered owner; some bonds have coupons attached for interest payments
aje must be prepared from what side of bank reconciliation
book side
what happens to carrying value over the life of the bonds
carrying value increases as discount decreases
acid test ratio
cash + short term investments + net receivables / current liabilities -acid test of 1 is safe
the credit entry to unearned revenue represents the amount of
cash collected in advance from customers
operating expenses must be the major ongoing source of
cash for a business
net income from income statement foes not equal
cash from operations
for the statement of cash flows, what does cash include
cash includes both cash and cash equivalents that are highly liquid and easily and quickly converted to cash
three accounts that will not be adjusted
cash, common stock, retained earnings
examples of current assets
cash, short term investments, accounts/notes receivable, inventory, prepaid expenses
for cash flow from investing activities, acquisitions
cause a decrease in cash while sales or dispositions cause an increase in cash
perpetual inventory system
common, record all purchases directly in the merchandise inventory account; as goods are sold, reduce the inventory account. cost of goods sold is recorded at the time of each sale
dalco coportation depreciated a building over a period of 30 years. in performing its depreciation calculation, the controller for dalco assumed the company will remain an operating business for at least the entire 30 years
continuity assumption
allowance for uncollectible account is a
contra asset account
accumulated depreciation
contra asset account; credit balance
discount on bonds payable
contra liability, represents additional interest expense (cost) to the company, for the right to use the money for 10 years
stated interest rate
contract or coupon rate, will not change over life of bond
carrying value
cost - accumulated depreciation = book value
remaining undepreciated cost
cost - depreciation taken to date
units of production formula
cost - residual/ useful life, in units
inventory turnover formula
cost of goods sold/average inventory
if the bank statement included an EFT payment of 670 for insurance, the journal entry to record this reconciling item should include a
credit to cash for 670
using perpetual inventory, the entry to record a sale of goods would include a
credit to inventory
expense
credit to the expense account
net working capital
current assets - current liabilities
current ratio
current assets / current liabilities
classification issue
current liabilities require use of current assets to pay off obligation within one year or one accounting cycle, whichever is longer
maturity date
date on which note must be repaid
debit/credit - common stock
debit decrease, credit increase
debit/credit - liabilties
debit decrease, credit increase
debit/credit - retained earnings
debit decrease, credit increase
debit/credit - revenues
debit decrease, credit increase
debit/credit - assets
debit increase, credit decrease
debit/credit - dividends
debit increase, credit decrease
debit/credit - expenses
debit increase, credit decrease
capitalize
debit to the asset account
aje - accrued revenue
debit: account, rent, interest receivable credit: service, rent, interest revenue
journal entry for when you sell merchandise under perpetual method
debit: accounts receivable credit: sales debit: cogs credit: inventory
journal entry: issuing shares of par value common stock, at par
debit: cash credit: common stock
entry to record sale of bonds
debit: cash, discount on bonds payable credit: bonds payable
aje - depreciation
debit: depreciation expense credit: accumulated depreciation
journal entry for date of payment of dividends
debit: dividends payable credit: cash
the entry to record interest and amortization a portion of discount
debit: interest expense credit:discount on bonds payable and cash
the entry to record accrued interest on note receivable would include a
debit: interest receivable credit: interest revenue
journal entry for date of declaration of dividends
debit: retained earnings credit: dividends payable
aje - accrued expense
debit: salary, interest expense credit: salary, interest payable
adjusting entry to record uncollectible account expense
debit: uncollectible account expense credit: allowance for uncollectible
aje - unearned revenue
debit: unearned revenue credit: service revenue
the entry to record a reissue of stock would be
debit:cash credit:treasury stock, paid in capital
aje - supplies and prepaid expense
debit:supplies expense credit:supplies
examples of long term liabilties
debts due in more than one year, including mortgage payable, bonds payable
for a 4 for 1 stock split market price per share will
decrease
how do dividends affect retained earnings
decrease r/e
how do expenses affect retained earnings
decrease r/e
the bank statement erroneously reported a 178 deposit for the lipton corporation
deduct from the bank balance
the bank deducted 100 for a safe deposit box that libby corporation rents to store car titles and other valuables
deduct from the book balance
the revenue principle requires that business record revenue when the business
delivers the goods or services to a customer
time period concept
divide the life of a business into equal reporting periods and measure NI each period; makes F>S comparable from period to period
straight line amortization
divide the original discount by # of interest periods; each interest period, record amortization along with the cash interest payment
bank reconciliation
document prepared to bring adjusted cash balance per books equal to adjusted cash balance per bank
entity assumption
each accounting entity stands separate and apart for all other organizations, as a separate and distinct economic unit for record keeping and reporting. keep separate set of records for each entity
market interest rate
effective rate, changes daily
uncollectible account expense is an ________ expense
estimated
what does debt ratio analyze
evaluate risl, lower is better
double entry accounting
every transaction has at least two parts to is, there must be at least one debit entry and one credit entry in each transaction
accrued expense
expense recorded now (added on) but cash not paid until later, the expense has been incurred
what does the statement of cash flows explain
explains the courses of cash and uses of cash, inflows and outflows
bonds are less risky to the issuing corporation than issuing stock
false
issuing bonds will increase current liabilities and decrease the current ratio
false
selling stock is less risky than
financing with bonds (issuing bonds payable) because dividends are optional for the corporation, not contractual
FIFO
first goods in are considered to be first goods sold, most nearly matches physical flow of goods
management accounting
for internal use only
investing activities are
from investing activities, buying and selling long term assets and marketable securities owned by the business, making loans and collecting payments on loans
account balances are taken from the
general ledger
bank card sales
get cash immediately
bond certificate
given to holder of bond as evidence of the debt
what is the statement of cash flows
gives different kinds of information from what is found on balance sheet or income statement; helps show relationship between NI and changes in cash during the period
under the allowance method for estimating uncollectible accounts, the entry to write off an account
has no effect on total assets or net income
the collection of cash from a customer on account would
have no effect on net income or stockholder's equity (debit cash, credit accounts rec)
zero coupon bonds
have no periodic interest payments, but simply pay a fixed amount at maturity. sold at a large discount, because bondholders receives no periodic payments
during a period of rising prices, FIFO results in the...
highest net income and therefore the business pays higher taxes
LIFO has the _____ cogs and _____ EI, GP, NI
highest, lowest
cost of goods sold
how much has been sold that should be expensed on the current period income statement and matched against revenue earned
ending inventory
how much is left that should carry over on the balance sheet as an asset, until sold in the next period
acid test (quick ratio) measures...
how quickly current liabilities can be paid using very liquid current assets; important that you do not include inventory or prepaid expenses in the numerator
what does rate of return on assets indicate
how well managers use total assets available to earn a profit for the company, higher the better
statement of cash flows
important because cash flows come from many sources besides just profitable operations, shows how cash was used and what were the sources of cash during the period
a potential investor interested in evaluating a company's financial performance for the current period would probably examine which of the following financial statements
income statement
percent of sales method
income statement approach, easiest method; based on net credit sales for the period
order of financial statements
income statement, statement of retained earnings, balance sheet(statement of financial position),statement of cash flows
current liabilities that need to be estimated
income tax payable and accrued warranty payable
how is a corporation formed
incorporators apply for charter, issued by state
accruing interest receivable on a note receivable causes net income and total assets to
increase
the effect on total stockholder's equity as a result of reissuing treasury stock
increase
the discount on bonds payable
increase interest expense on the income statement
how does revenue affect retained earnings
increase r/e
amortizing the discount on bonds payable
increases the carrying amount of the bonds
three major users of accounting information
insiders(management), outsiders(present/potential investors and creditors), government and regulatory groups, not for profit organizations
fraud
intentional misrepresentation of facts
discount on bonds payable will be written off to
interest expense over life of the bond by amortization of the discount
discounted note payable
interest included in the face amount
net accounts receivable communicates to
investors
treasury stock account
is a contra equity account with a debit balance, it is subtracted on the s/e section on the balance sheet to get total s/e
direct write off method
is required for tax purposes but violates the matching principle for financial reporting, can be used when amount of charge offs is small
during a period of rising prices, LIFO results in financial statements that appear to be...
less profitable because the highest prices are in cost of goods sold
why do shareholders buy preferred stock
less risky, steady return, preferences as to dividends
the unearned revenue account was not adjusted for work performed in the current year. the effect of this error is
liabilities are overstated and revenues are understated
what is the effect of the financial statements of making accrual entry of interest for bonds
liabilities increase, o/e decrease, expenses increase, net income decrease
if the liability is omitted, what is the effect on the financial statements
liabilities understated, o/e overstated, expenses understated, net income overstated
FIFO has the ______ cogs and _____ EI, GP, NI
lowest, highest
control over mail receipts
mailroom employee should open the mail and make duplicate list of cash received.
what is units of production most accurate for
matching, assumes depreciation is the result of use
term and serial bonds
maturity date is as one date in the future (term) or, bonds are due over a period of years
par value
maturity value, face value, principal
days' sales in receivables is used for
may be calculated to analyze how efficiently the company collects its accounts receivables; it helps measure success of the credit and collection policies
notes receviable
may be either current or long term, they are in writing and usually include an interest rate and maturity date
gross profit percentage is useful in
measuring profitability because it tells out each sales dollar, how much goes to cover the cost of the products and how much is gross profit or gross margin
receivables
monetary claims against customers; receivables arise from selling goods and services on credit or from loaning money
earnings per share
most quoted piece of information about any business because widely used to compare business performance and helps determine market value of the company's stock and its market capitalization
fraud triangle
motive, opportunity, rationalization
return on common stockholders' equity ratio
net income - preferred dividends / average common stockholder's equity
earnings per share ratio
net income - preferred dividends / weighted average # common shares o/s
return on equity is calculated as
net income/ average common stockholder's equity
roa ratio
net income/average total assets
another way to express income statement (simpler)
net sales -cogs =GP -expenses =NT
do you record gain or income on sale of stock
never
discarding the asset
never record gain on a discarded asset, record loss = to remaining BV
what is the total change in s/e as a result of the stock dividend
no change, r/e decrease and c/s increase
the effect on total stockholder's equity as a result of distributing stock dividend
no effect
journal entry for date of record of dividends
no journal entry
deprecation is a _____ expense
non cash
the purchase of equipment for cash would
not affect the total debits or credits on the trial balance
specific unit cost
not commonly used, under this method ending inventory is identified as coming from a specific purchase and therefore having a specific price
how is a company financed?
notes and bonds payable, common stock
what does a company invest in
notes receivable, all property and equipment, long term investments and marketable securities
authorized stock
number of shares listed in charter; maximum number of shares that can be sold or issued
why do assets depreciate
obsolescence and deterioration
financing activities are
obtaining and repaying funds to operate the business, including issuing and retiring stocks, all bond payable transactions, treasury stock transactions, and payment of dividends
periodic inventory system
old, record all purchases in the purchases account and adjust the merchandise inventory account only at the end of each period when a physical inventory is taken; cogs not determined until the end of the period
dividends in arrears
on cumulative preferred stock only, dividends are never a liability until declared
collecting a loan is a ______ activity
operating
interest expense is a part of what
operating expenses
the direct method of writing off uncollectible
overstates assets because no allowances
treating a capital expenditure as an immediate expense
overstates expenses and understates net income for the current year
use accounting information to make business decisions:
planning, control, evaluation
deferral
postpones recognition of an expense already paid or incurred, or a revenue already received; means cash flow occurs before the expense or revenue is recorded on the books
issue price of bonds is determined by calculating
present value of future interest and principal payments to be received by bondholer
balance in retained earnins
profit - loss - dividends
dividends
proportional distribution, usually of cash, to shareholders
straight line method of amortization provides what
provides a close measure of interest expense
lump sum
purchase of several assets; divide cost using relative sales value method
inventory turnover tells how...
quickly inventory is sold. a higher rate is preferable because the faster inventory is sold, the higher the business's income will be
collections and write offs decrease
receviables
recognition issue
recognize liability at the time obligation occurs or accrue the liability in period in which obligation is incurred
accrual
recognizes an expense or revenue that has not yet been recorded; means cash flow occurs after the expense or revenue is recorded on the books
SP > BV
record a gain
SP < BV
record a loss
valuation issue
record liability equal to amount of cash to be paid or the FMV of goods or services to be delivered
allowance for uncollectible account is a valuation account that
reduces a/r to net realizable value or expected realizable value
investing activites
relate to the purchase and sale of "fixed" or long term assets used in the business
financing activites
relate to ways the business obtains money to finance operations
income statement
reports net income(total revenues-expenses)
credit department
responsible for granting credit to worthy customers; however some bad debts occur when a company sells on credit
all dividends have a debit to
retained earnings
owners equity includes
retained earnings and common stock
accural basis
revenue is recorded (recognized) when earned and not when cash is received; expenses are recorded as incurred and not when cash is paid
cash basis
revenue is recorded when received in cash and expenses recorded when cash is paid; service businesses and businesses with a very small amount of inventory can use this method of accounting
expense recognition principle
revenue must be recorded in period in which goods are sold or service is performed and expenses must be deducted in period in which they were used to help generate revenue; a business will recognize expenses incurred at the time the related revenue is earned
accrued revenue
revenue recorded now (added on) but cash not received until later; the revenue has been earned
net income
revenues - expenses
the depreciation process attempts to match the
revenues earned by the asset and the cost of the asset
how do revenues, expenses, dividends, and issuing stock affect total stockholder's equity
revenues increase, expenses decrease, dividends decrease, issuing stock increase
what are temporary accounts
revenues, expenses, dividends
income statement format
sales - returns & allowances - sales discount = net sales
net sales formula
sales - returns/allowances - sales discount = net sales
cash received over the counter
sales should always be rung up on a cash register and cash should be deposited each day. sales clerks should not have access to the tape that is locked inside the cash register
three ways a note receivable can come onto the books
sell on a note, loan money, convert a/r to n/r
outstanding stock
shares issued and still in circulation. if company has treasury stock, shares outstanding are less than shares issued
issued stock
shares sold or distributed to shareholders
accounts receivable
short term and very liquid (current assets)
on a statement of cash flows, the purchase of machinery in exchange for common stock is
shown on a supporting schedule of non cash investing and financing activities
statement of retained earnings
shows changes in retained earnings during that period; includes information about dividends
maker
signs the note and owes I+P to the payee
four basic choices when organizing a business
sole proprietorship, partnership, limited liability company, corporation
joe beall is concerned about the impact of inflation on the comparability of the financial statements for his business. for financial accounting purposes, the dollar's purchasing power is deemed to remain stable
stable monetary unit assumption
note stated in days
start counting days tomorrow, the day after the note is dated
balance sheet
statement of financial position:shows if A=L+O/E
what financial statement should be prepared before the balance sheet is prepared
statement of retained earnings
historical cost principle
states that assets should be recorded at their actual cost, measured on the date of purchase as the amount of cash paid plus non cash types of compensation given in exchange
the steps to follow when using straight line method of amortization
step 1: par * pv% step 2: p * cr * 1/2 step 3: (par-issue)/# interest periods
cash flows from operating activities - decrease in CL
subtract
cash flows from operating activities - increase in CA (besides cash)
subtract
on the statement of cash flows in operating activity, you ____ decrease in accounts payable
subtract
on the statement of cash flows in operating activity, you ____ increase in prepaid insurance
subtract
the carrying value of a bond issued at a discount is calculated by
subtracting discount on bonds payable from bonds payable
principal
sum that is borrowed and repaid at maturity
dividends are not
tax deductible, so taxable income and thus taxes may be higher for a corporation that is financed by selling stock rather than by issuing bonds
revenue principle
tells the accountant when to record revenue and how much revenue to record; record revenue when the earning process is complete
what does trial balance not prove?
that there have been no errors in posting; that all transactions have not been posted
assume the beginning balance in retained earnings is zero. if a debit balance exists in retained earnings after closing out revenues and expenses at the end of the current period, it indicates that
the company incurred a net loss for the current period
note stated in months
the due date is exactly x months from today
accounting is...
the language of business, an information system, bookkeeping
LIFO
the latest goods purchased are considered to be the first goods sold. therefore the BI cost is left for EI
a contingent liability should be accrued if
the loss if probable and the amount of loss can be reasonable estimated
effective interest method of amortization
the most accurate for matching interest expense with carrying value of bonds payable
operating activites
the most important source of cash flows of a business; results from revenues and expenses of the company
when a company holds treasury stock
the number of shares outstanding will be less than the number of shares issued
the entity concept states that
the personal assets and liabilities of an owner now be shown on the business's financial statements
amortization
the process of expensing intangibles, but there is no accumulated amortization account
when you buy a bond, you are buying two things
the right to receive a principal at maturity and the right to receive interest semi-annually
if EI is overstated, GP and NI are overstated
then BI (next period) is overstated and GP and NI are understated. cogs for this period is understated and next period is overstated
if EI is understated, GP and NI are understated
then BI(next period) is understated and GP and NI are overstated. cogs for this period is overstated and next period is understated
interest income and dividend revenue are not part of investing activities
they are part of operating activites
all of the following are purposes of internal control except: -to safeguard assets -to promote operational efficiency -to ensure company sales targets are met -to ensure accurate and reliable accounting records
to ensure company sales targets are met
what best describes the purpose of internal control
to provide assurance that the entire business operates in accordance with management's plans and policies
effect on total assets, net income, and s/e as a result of declare and pay cash dividends
total assets: decrease net income: none s/e: decrease
effect on total assets, net income, and s/e as a result of reissue treasury stock at a price > cost
total assets: increase net income: none s/e increase
effect on total assets, net income, and s/e as a result of issue stock at a price > par value
total assets: increase net income: none s/e: increase
effect on total assets, net income, and s/e as a result of declare and distribute stock dividends
total assets: none net income: none s/e:none
debt ratio
total liabilities / total assets
how does the purchase of treasury stock cause EPS to increase
treasury stock no longer outstanding so number of shares outstanding decreases when treasury stock is purchased; lower denominator = higher EPS
a 600,000 bond due in three installments over three years is referred to as a serial bond
true
bonds do not dilute control of the corporation
true
the present value of a bond issued at a discount is less than the maturity value of the bond
true
if ending inventory for the current year is overstated, that error will cause net income for the next year to be ______
understated
financial accounting
use both internally and to communicate information about the business to outsiders(externally)
depreciation for tax purposes
use ddb for most assets except real property; straight line for real property
to write off natural resources
use deplection/unit
the primary objective of financial reporting is to provide information
useful for making investment and credit decisions
residual value
what asset will be worth at the end of useful life
bonds at a discount
when CR<MR and bonds sell for less than face value
bonds at a premium
when MR<CR and bonds sell for more than face value
stock split
when a corporation increases the number of shares of stock authorized, issued, and outstanding, and makes a proportional decrease in the par value of the stock
current assets are assets expected to be converted to cash, sold, or used up
within the longer of the next 12 months or the business's normal operating cycle
no longer amortize goodwill, but
write down only under certain circumstances (when the value of goodwill is impaired or decreased)
promissory note
written promise to pay a set amount on some future date or on demand, usually with a stated rate of interest