ACCT 2013 Final Review
The original cost of the asset less the accumulated depreciation is the ___ of the asset
book value
No-par value stock is common stock that:
has not been assigned a par value
Significant non cash investing and financing activities are disclosed because they
provide more complete information
Depreciation
Allocation of the cost of a tangible fixed asset
Amortization
Allocation of the cost of an intangible asset
What is an important criteria used to determine the reporting of a contingent liability?
The likelihood of future payment or loss
A ___ ___ difference in cash occurs when a company records a transaction either before or after the bank records the same transaction.
Timing difference
a ___ is an exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service.
Trademark
Depreciation expenses is added back to net income when preparing the cash flow from operating activities section because depreciation represents a(n) ___ reduction to net income
noncash
Significant non cash investing and financing activities are disclosed be because they
provide more complete information
Declaration date
the board of directors officially approves a dividend
An increase in prepaid insurance is subtracted from net income because
the company paid additional premiums this period in excess of the insurance expense recorded on the income statement
The depreciable cost is
the cost of the asset - the residual value
The allowance method estimates
uncollectible accounts
List the steps for a bank reconciliation:
1. Adjust bank's cash balance 2. Adjust the company's cash balance 3. Update the company's cash account by recording items identified in the previous step
When adjusting the company's cash account balance in a bank reconcile, which items must decrease the company's cash account balance?
Charges for NSF checks Service charges
The entries that transfer the balances of all temporary accounts to retained earnings are referred to as
Closing entries
When 2 or more persons work together to circumvent internal control procedures and commit a fraud, this is called
Collusion
A ___ liabilities is an existing uncertain situation that might result in a loss depending on the outcome of a future event.
Contingent
Franchise
Contract term
Beneficial for both, the borrower (bond issuer) and lender (bond investor)
Convertible
Permits stockholder to exchange preferred stock with common stock
Convertible
Who has the responsibility for preparing financial statements in accordance with generally accepted accounting principles?
Corporate management
Long-term liability
Normally payable more than one year from now
The journal entry necessary to establish a petty cash fund is:
Debit petty cash: Credit cash
Current liability
Normally payable within one year
The 3 classifications on the statement of cash flows are cash flow from
Financing activities Operating activities Investing activities
A ____ is a collection of accounts used to keep track of increases and decreases in financial position elements
General ledger
Adjustments referred to as "accruals" include:
Goods and services provided, not yet collected Expenses incurred, not yet paid
Goodwill
Indefinite
What comparative advantages do notes receivables possess compared to other receivables?
Interest-bearing Higher likelihood of collectibility
For a toy manufacturer, slippery floors in the factory are an example of what type of risk?
Internal
A company reports a net loss if its revenues were __ than its expenses.
Less
An asset that can quickly be turned into cash has the characteristic of
Liquidity
___ refers to a company's cash position and overall ability to obtain cash in the normal course of business.
Liquidity
Who has the responsibility to apply accounting standards when communicating with investors and creditors?
Management
The market value of equity is equal to the product of these 2 factors:
Number of shares outstanding and Current stock price
The 2 sources of stockholders' equity are amounts
Paid in from shareholders Earned by the corporation
The exclusive legal right to manufacture a product or to use a process is called a
Patent
The accounting for copyrights uses the same accounting rules as
Patents
This assumption allows the life of the company to be divided into artificial time periods to provide timely information
Periodicity
2 important ratios that help in understanding a company's effectiveness in managing receivables are the:
Receivables turnover ratio Average collection period
Large stock dividend
Recognized at par value
Permits return of preferred shares at pre-specified price
Redeemable
Strong internal control systems allow greater reliance by investors on:
Reported financial statements
The Public Company Accounting Reform and Investor Protection Act of 2002 is known as the
Sarbanes-Oxley Act
___ refers to a company's ability to pay its long-term liabilities
Solvency
Employees pay
State and federal income tax
Employers pay
State and federal unemployment tax
The ___ rate of interest is used to compute the cash interest paid to bondholders.
Stated
What are the 2 criteria used to determine whether a contingent liability is reported in the financial statements?
The likelihood of the loss The ability to estimate the amount of the loss
The 2 approaches for a systematic and rational allocation of the cost of an asset over its service life are
Time-based methods Activity-based methods
Best measure of a company's profitability:
accrual-based net income
Dividing the sum of cash, current investments and accounts receivables by current liabilities, derives the
acid-test ratio
Net realizable value of accounts receivable is the
amount of cash the firm expects to collect
Current assets are
assets that provide benefits within the next year
A frequent reason for a stock split is to
cause the market price per share to decline
A signed agreement between a lender and a borrower from loaning money to other entities, extending credit to customers, or from selling assets or service to others is called
note receivable
The legal capital per share of stock that is assigned when the corporation is first established is referred to as
par value
A business that is co-owned by 2 or more persons, and whose investors have unlimited liability, is called a
partnership
The acid-test ratio is based on a more conservative measure than the current ratio of the company's ability to:
pay its current liabilities
Corporations may be ___ held or ___ held.
private; public
Small stock dividend
recognized at market value
Klein Company's accountant is unable to reconcile the current year bank and cash account balance. If no cause can be determined to explain this difference, the difference should be
recognized in the current year income statement
When a corporation repurchases its bonds from the bondholders, the bonds are called
retired bonds
Corporate bonds most often pay interest
semiannually
A distribution of additional shares of a corporation's stock to current shareholders of the corporation is a
stock dividend
PE ratio
stock price/earnings per share
date of record
stock record are finalized to determine which stockholders are to receive payment
Bonds that require payment of the full principle amount of the bonds at the end of the loan term are referred to as
term bonds
An interest rate, unless otherwise specified, is typically a(n) ___.
Annual rate
If a transaction decreases cash by $100, the balance sheet will balance if what occurs?
Another asset is increased A liability is decreased
What is found on the balance sheet?
Assets Stockholders' Equity Liabilities
Using the accounting equation, stockholders' claims on the resources of the corporation can be expressed as
Assets - Liabilities
Trademark
10 years renewable, possibly indefinite
Patent
20 years
Payment for credit sales are typically due in ___ to ___ days
30; 60
When a company pays salary expense, the balance sheet effects are to
Decrease stockholders' equity Decrease assets
____ is an allocation of the cost of buildings, vehicles, and equipment to expense over time as they are used.
Depreciation
A periodic performance review is an example of what kind of control?
Detective
Methods that may be used to prepare the statement of cash flows
Direct and Indirect methods
____ is recognized only when one company acquires another company.
Goodwill
A contigent liability is recorded if which conditions are met?
It is probable that a future loss will occur The amount of the loss can be reasonably estimated
The 2 most common sources of occupational fraud are:
Misuse of company resources Financial statement manipulation
Revenues - Expenses =
Net Income
The starting point for preparing the operating activities section using the indirect method is:
Net income
At maturity
No gain or loss is recognized (Carrying value is equal to face)
A small amount of cash on hand to pay for minor purchases is commonly referred to as a(n) ___
Petty cash fund
Separation of duties and E-commerce controls are examples of ___ controls
Preventive
The 2 types of control procedures are ___ and ___
Preventive; Detective
Depreciation methods that allocate the cost of long-term assets based on time:
Straight-line Declining-balance
Prior to maturity
Typically results in gain or loss recognized (Carrying value tends to be less or greater than call amount)
Return on assets is calculated as net income divided by
average total assets
The expense associated with the estimate of the amount of accounts receivables that may not be collected during the year is referred to as ____
bad debt expense
The ratio that shows approximate number of days the average accounts receivable balance is outstanding is referred to as the average___ ___
collection period
The Sarbanes-Oxley Act applies to
companies that are required to file with the SEC
A(n) ___ is an existing uncertainty that might result in a gain
contingent gain
A(n) ___ is protected by law and gives the creator a published work of the exclusive rights to reproduce and sell the work for the life of the creator plus 70 years.
copyright
A(n) ___ in the accounts receivable from the prior period is added to net income in the ___ actives section of the statement of cash flow
decrease; operating
The amount of dividends paid out relative to the share price is referred to as
dividend yield
An ___ is a mistake in accounting, which can be intention or unintentional.
error
A contract in which an owner provides a user the right to use an asset in return for periodic cash payments over a period of time is called a(n)
lease
An increase in accounts receivable indicates that the company collected ___ cash than the amount of ___.
less; sales revenue
Bonds and leases are normally classified as ___ liabilities.
long-term
A common reason for redeeming a bond prior to its maturity date is that
market interest rates decreased
Net income / average total assets
return on assets ratio
Periodic payments on installment notes typically include
A portion that reduces the outstanding loan balance A portion that reflects interest
the basic ______ is referred to as the fundamental model of business valuation.
Accounting equation
Depletion
Allocation of the cost of natural resources
What is the effect of expenses on stockholders' equity?
Decrease
The declaration and payment of a cash dividend ultimately causes a(n):
Decrease in Retained Earnings, Cash, and Stockholder's Equity
Research and development costs
Expensed
The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the ___ of accounts of receivables
aging method
A ___ ___ is a business, or a competent of a business, that the organization has already discontinued or plans to discontinue
discontinued operation
Payroll withholdings are
the items subtracted from an employee's gross pay to arrive at net pay
The price of bond includes
the present value of the face amount plus the present value of the periodic interest payments
Revenue is
the price earned from selling goods or services to customers
The average collection period is calculated as 365 divided by
the receivables turnover ratio
A common-size balance sheet presents each line item as a percentage of ___ ____
total assets
Market rates of bonds vary depending on the ___ risk of the company issuing the bonds.
Default
The possibility that a company will be unable to pay its bonds payable and the related interest when due is commonly referred to as
Default risk
A(n) ____ is a cost of doing business that is necessary to produce ____
Expense; Revenue
Expenditures for repairs and maintenance should be ___ in the period incurred.
Expensed
What led to the passage of the Sarbanes-Oxley Act of 2002?
High profile accounting scandals during the early 2000s.
We record interest expense in the period in which we
Incur it
Careful consideration of internal and external factors that may cause harm to a company is called
Risk assessment
Bonds obligate
The issuing company to pay a specific amount The issuing company to repay the bonds at a specific date
Sales return
a customer returns merchandise purchased during the month and receives a refund of the full sales price
A customer account that is not expected to be collected is referred to as a(n)
bad debt
The components of internal control are
based on the ethical tone by management
Which of the following will require a journal entry following a bank reconciliation? a. Outstanding checks b. Deposits outstanding c. NSF checks d. Notes collected by the bank
c and d
For a corporation, the owners' claims to the resources of a company are called
Stockholders' Equity
The SEC requires that companies with publicly traded stock must have their financial statements verified by an independent auditor. What type of designation or degree is required to issue an independent audit opinion?
A certified public accountant license
If ABC Company issues 100 of its $1,000 bonds at a price of 110, the journal entry will include which of the following entries?
A debit to Cash of $110,000 A credit to Bonds payable of $100,000 A credit to Premium on Bonds Payable of $10,000
The journal entry to record the declaration of a dividend includes __.
A debit to Dividends; A credit to Dividends Payable
The purpose of a trial balance is to
Assist in preparing financial statements Assist in preparing adjusting entries
What is capitalized into the cost of a patent?
Attorney fees to secure patent Purchase price Filing fees Legal fees
Detective controls include
Audits Reconciliations Performance reviews
Smith Company's journal shows a debit to cash and a credit to notes payable, both for $15,000. This indicates that Smith Company:
Borrowed $15,000 cash and a signed note
Internal controls consists of plans to
Encourage adherence to company policies and procedures Safeguard company assets Minimize errors and theft
Capitalized as incurred
Expenditure increase future benefits derived from asset
Expensed as incurred
Expenditure yields benefits in current period only
Expenditures classified as ___ involve the replacement of a major component of an asset.
Improvements
What financial statement reports revenues and expenses?
Income Statement
According to the ____ ____ principle, revenues should be recognized when goods or services are provided to customers, not necessarily when cash is received.
Revenue Recognition
The contra account used to record a company's repurchase of its own common stock is the ___ stock account.
Treasury
___ analysis identifies the relative contribution made by each financial statement line item.
Vertical
What tends to be the source of the most commonly reported contingent liability?
Warranties
Sally Company manufactures large kitchen appliances. For the first year of purchase, the company will repair any manufacturing defect free of charge. Sally apparently sells its appliances with a ___.
Warranty
Sales allowance
a customer receives partial refund of the sales price after the customer discovers a flaw in the merchandise. The customer keeps the merchandise
Gain contingencies are
not accrued
At the end of the year, Kunze Corporation estimates that $1,600 worth of merchandise sold during the current year will still be returned by customers during the subsequent year. Kunze Corporation must
record the estimated returns at the end of the year
The receivables turnover ratio indicates
the number of times during a year that the average accounts receivables were collected
When a company performs services for a customer, and the customer agrees to pay for the services at a later date, the transaction is recorded in which account?
Accounts Receivable
Primarily beneficial for lender (bond issuer)
Callable
Purchase price + costs necessary to get ready for use
Capitalized
A journal entry that affects a company's Statement of Cash Flows will include an inflow or out flow of ___.
Cash
Reporting revenues only when cash is received and expenses only when cash is paid is called the ___ basis of accounting
Cash
A(n) ___ is a short-term liability that occurs when a company purchases goods and does not immediately pay with cash.
Accounts payable
Quick ratio is another commonly used term for the ___.
Acid-test ratio
A new major component that is added to an existing asset is considered a(n) ___ and should be capitalized.
Addition
Describe the effect that adjustments have on liabilities
Adjustments increase liabilities for the amount of any accrued and unpaid expenses at the end of the period
Raven receives a 3-year note receivable from a customer for goods sold. How should Raven report this note receivable in its financial statements?
As a concurrent asset
The correct order of the items on the balance sheet:
Assets Liabilities Stockholders' equity
The journal entry to recognize the signing of an installment notes payable includes:
Debit to Cash Credit to Notes Payable
The journal entry to record a bad debt expense includes a :
Debit to bad debt expense; Credit to allowance for uncollectible accounts
If a specific expenditure cannot be identified for a missing petty cash amount, the amount should be:
Debited to Miscellaneous Expense
For every journal entry, total ____ must be equal to total ____.
Debits; credits
___ financing refers to borrowing money from creditors.
Debt
2 ratios commonly used to asses a company's financial risk:
Debt to equity ratio Times interest earned ratio
"Net credit sales" refers to credit sales net of:
Discounts Allowances Return
A distribution of net income to owners is called a
Dividend
What appears on the statement of stockholders' equity?
Dividends Net Income Beginning balance of retained earnings
Accounting rules for a franchise agreement:
Expense periodic payments as incurred Capitalize the cost of the franchise Amortize the cost of the franchise over its life
___ control components are built on the foundation of the ethical tone established by a top management in its control environment.
Internal
___ capital is the amount of money paid into a company by its owners.
Invested
Types of contingent liabilities
Product warranties Frequent flier program awards Future ligation losses
The term used to describe the amount the company expects to receive for an asset at the end of its service life is
Residual value
Undistributed profits that have accumulated in the company over time are called
Retained Earnings
___ is the amount recorded as a result of the sale of products or services to customers
Revenues
The account deferred revenue is used to record
Revenues received in advance from the customers
Temporary accounts:
Revenues, Expenses, and Dividends (RED is dead)
The financial statement that provides information about cash receipts and cash disbursements for the period is the
Statement of cash flows
When adjusting the bank balance in a bank reconciliation, which item must be added to the bank balance? a. Service charges b. Charges for NSF checks c. Deposits outstanding d. Outstanding checks
c. Deposits outstanding
The mixture of debt financing and equity financing a company uses is referred to as the company's ___
capital structure
A distribution of assets to shareholders is referred to as a(n)
dividend
payment date
dividend payable is decreased
The payment of dividends and changes in the Dividends Payable account are classified as ___ activities
financing
Additional benefits such as health insurance, retirement benefits, or life insurance that are paid by the employer are called
fringe benefits
To analyze changes in a company's net income over the last 10 years, you should perform a ___
horizontal analysis
Goodwill may only be recognized
in a business acquisition
The amount of net credit sales is reported on the ___ ___
income statement
A calendar-year-end company that accepts a 3-month interest-bearing note on December 1 must accuse ___ revenue on December 31.
interest
(Face value x annual rate x fraction of the annual period) is the formal for
interest on a note
Average days in inventory is calculated as 365 divided by the
inventory turnover ratio
Cash flows from ___ activities are both outflows and inflows of cash caused by the acquisition an disposal of long-term assets
investing
A liability
is a future sacrifice
An asset
is probably future benefit
Copyright
life of creator plus 70 years
earnings per share measures the ___ earned per share of common stock
net income
