ACCT 2020 Chapter 15 and 16 Quiz Questions
Operating activities
A cash flow category; generally related to transactions that enter into the determination of income. Items that are not investing or financing
Investing activities
A cash flow category; including receipts from disposal of investments in long-term assets and payments to require long-term assets and investments
Financing activities
A cash flow category; including receipts from stock issues, bonds, notes and loans. And payments for a loan repayment acquisitions of treasury stock and dividend distributions
Earnings
A concept that relates to income from continuing operations plus/minus discontinued operations
Statement of cash flow's
A financial statement that summarizes the cash flow is relating to operating and busting financing and non-cash investing/financing activities of an entity
Faithful representation
A fundamental quality of accounting such that information must be truthful complete neutral and free from error
Public company accounting oversight board
A private sector nonprofit corporation charged with overseeing the auditors of public companies
Return on assets ratio
A ratio comparing income (net income minus interest) to the average total asset
Return on equity ratio
A ratio comparing income (net income minus preferred dividends) to the average total equity
Distinguish between the terms restatement and retrospective adjustment, knowing which is applicable to changes in principle.
A restatement is fixing the previous statements. A retrospective adjustment is using a different principle on a previous statement.
Entity assumption
Accounting information should be presented for circumscribed distinct economic units
Monetary Unit Assumption
Accounting measures transactions in advance and the units of money, in contrast to some other unit of measure
Inventory turnover and accounts receivable turnover are examples of
Activity ratios
American Institute of certified public accountant's
An organization whose members are CPAs interested in advancing the accounting profession
Stable Currency Assumption
And accounting assumption that presumes the currency is not impacted overtime by inflation
Verifiability
And enhancing quality of accounting such a different knowledgeable and independent observer's reach similar conclusions
Understandability
And enhancing the quality of accounting is such that information is clear and concise to those with reasonable business knowledge
Comparability
And enhancing the quality of accounting such that even though different companies may use different accounting methods there's still sufficient basis for valid comparison
Timeliness
And enhancing the quality of accounting such that information is available in sufficient time to be capable of influence
Exchange gains and losses should be recognized on the date of settlement of the foreign currency payable or receivable and also
At the end of each accounting period
What is the purpose of an audit
Auditors evaluate the system and data that lead to the reported financial statements
_____ Earnings per share is calculated by ignoring the dilutive the affects of convertible securities
Basic
What are the key objectives of accounting
Be able to use the information to help with business decisions
And preparing the statement of cash flow's house and non-cash investing/financing activities be reported
Be reported in a separate schedule accompanying the statement of cash flow's
One specific objective of financial accounting is the right information useful and assessing the amounts timing and uncertainty of an organizations what
Cash flows
When preparing a statement of cash flow's under the indirect method, supplemental disclosure should be made for which of the following
Cash paid for interest and taxes
Show how to reconcile net income to cash flows from operating activities
Cash received from customers, merchandise inventory, wages, interest, other operating expenses, and income taxes
Foreign currency payables and receivables results and exchange gains and losses of exchange rates
Change or fluctuate
Accounting changes
Changes from one acceptable method of accounting to another acceptable method; like straight-line depreciation to a declining balance approach
Define generally accepted accounting principles
Combination of standards that are generally excepted throughout most places
In calculating earnings per share, The numerator should consist of earnings available to _________ stockholders and the denominator should consist of weighted average common shares outstanding
Common
What is book value per share and how should it be interpreted and how is it calculated
Common equity divided by common shares outstanding. You calculate the Per share book value of a company based on the common shareholders equity in the company
book value per share
Common stockholders equity divided by common shares outstanding, to indicate stockholders equity per share
complex capital structure
Companies with options, warrants, or convertible bonds and stocks that may result in the issuance of additional shares
Usefulness of accounting information is enhanced if a company's financial statements are _____ with the statements of other enterprises
Comparable
On a statement of cash flow's which of the following types of activities would not be disclosed in a separate section
Contractual activities
To be understandable, accounting information must be comprehensible to those who have a reasonable understanding of business and economic activities
Correct
The utilization of a prior period Adjustment is appropriate for
Correction of an error
Show how to calculate cash payments for merchandise
Cost of good sold minus the decrease in inventory and inventory purchased minus the increase in accounts payable
Which is included in the numerator of the inventory turnover ratio
Cost of goods sold
One of the most widely used liquidity measures which compares current assets and current liabilities
Current ratio
Insight into the amount of protection that is afforded the long-term creditors is provided by ratios called ____ to total assets and times ____ earned
Debt; interst
Cash received from customers can be calculated by starting with the accrual basis sales and adding
Decreases in accounts receivable
What items found on an income statement tend to be ignored in the preparation of a statement of cash flow's
Depreciation and the gain on sale of land
Which of the following takes into account potential dilution from convertible securities
Diluted earnings per share
Under what approach are individual items on the income statement translated from the accrual basis to the cash basis
Direct
Describe the special accounting treatment associated with discontinued operations.
Discontinues operations are reported separately from continuing operations on an income statement.
Which of the following activities would generally be regarded as a financing activity in preparing a statement of cash flow's
Dividend distribution
Show how to calculate the dividend payout ratio and the dividend yield
Dividend payout ratio = annual cash dividend divided by earnings per share dividend yield = annual dividend per-share divided by stocks price per share
Dividend payout ratio
Dividend per-share divided by earnings per share
Dividend rate
Dividend per-share divided by stock price; also called dividend yield right
The annual cash dividend per share divided by the current market price of stock is the
Dividend yield
What is the meaning of the terms EBIT and EBITDA?
EBIT is a way to look at a company's profit before you take into account interest & tax expenses. EBITDA is a way to look at a company's profit before you take into account interest, taxes, depreciation, and amortization.
EBITDA
Earnings before interest, taxes, depreciation, and amortization
The dividend payout ratio is calculated by dividing dividend per-share by
Earnings per share
Generally accepted accounting principles
Encompass the rules practices and procedures that define the proper execution of accounting
If a foreign currency account payable is established in the accounts as $.50 per unit in the exchange rates of subsequently changes to $.60 per unit then which of the following will result
Exchange loss
Which of the following would constitute a non-cash investing/financing transaction
Exchanging land for stock
In preparing a worksheet for the statement of cash flow's, the lower portion corresponds to a statement of cash flow's prepared using the indirect method. Items in the debit column of the slower portion most closely correspond to items which
Explain increases in cash
Book value per share is the same as fair value per share
False
Earnings per share is a popular measure of corporate book value
False
Only transactions that directly generate or consent cash I reported on a statement of cash flow's
False
The establishment of generally excepted accounting principles means that all organizations record and measure financial activity in the same manner
False
The financial accounting standards board currently requires all companies to report supplemental information on the effects of inflation
False
The statement of cash flow's is primarily designed to explain the changes and retained earnings
False
Today, no attempt has been made to establish uniformity for international accounting standards
False
When two classes of stock are outstanding, the book value per share computation involves dividing total stockholders equity by the sum of the number of common and preferred shares outstanding
False
The private sector group responsible for the Stabley Schmidt of financial accounting rules is the
Financial accounting standards board
The private sector organization currently in charge of formulating standards for financial reporting is the
Financial accounting standards board
What bodies are instrumental in the development of GAAP
Financial accounting standards board, accounting principles board, American Institute of certified public accountant's
Activities are those that supply a firm with funds from either their firms owners or creditors
Financing activities
The payment of dividends and receipts of proceeds from Bonds issues are example of what
Financing activities
In the indirect approach for the statement of cash flow's is presented, which of the following items should be subtracted from accrual basis not income to derive cash flow from operating activities
Gains on the sale of long-term investments
Financial statements are generally regarded as
General purpose
Are the assumptions concepts and procedures that collectively serve as an underlying foundation of accounting
Generally accepted accounting principles
earnings per share
Generally understood as the amount of income for each share of stock, but is actually better refined as basic and diluted EPS
A presumption that the business will continue to operate for an indefinite period of time unless there is a substantial evidence to the contrary is that
Going concern assumption
Diluted EPS
In earnings per share number; adjusted to reflect the potential effect of diluted securities
Going Concern Assumption
In the absence of evidence to the contrary, accountants assume that a business will continue to operate well into the future
Illustrate an example of a comprehensive income statement.
Income Statement Sales Cost of Gross Sales Gross Profit Operating Expenses Income Tax Net Income/Expenses Comprehensive Income
Show how do you calculate basic earnings per share
Income available to common divided by the weighted average number of common shares outstanding
Net Income
Income from continuing operations plus/minus discontinued operations, but before other comprehensive income
As a generalization the adjustment of accrual basis and come to cash provided by operating activities requires which of the following to be added
Increases and currently abilities related to operating activities
Which of the following approaches to preparing the statement of cash flow's translates income from the accrual basis to the cash basis
Indirect method
The times interest earned ratio consist of income before income taxes and interest divided by
Interest charges
The numerator for the return on assets ratio includes net income and
Interest expense
Activities are those that involve investing of an entities resources
Investing activities
The purchase of land disposal of equipment are ____ activates
Investing activities
What is the purpose of A statement of cash flow's
It is maybe the best indicator of a business success or failure
What is a prior period adjustment, and when is this accounting device used?
It is used to fix an error in the previous statements. It is used when someone notices a mistake made previously.
What is the importance of the statement of cash flow's and providing information about business solvency
It provides information that is helpful in assessing the amount timings and uncertainty of an organizations cash inflows and outflows
Sarbanes-Oxley Act
Legislation that imposes stringent controls of reporting an auditing; created the public accounting oversight board
In calculating book value per share for a company with more than one class of stock, the amount allocated to preferred stock should be based on the preferred stocks call volume, sometimes referred to as a redemption or _____ value
Liquidation
Financial statement ratio analysis may be undertaken to study liquidity turnover profitability and other indicators. To which does the current ratio most relate
Liquidity
Which type of ratio is useful for measuring the ability of a business to make current debts as they can
Liquidity ratio
Measures the ability of a business to make current debts and obligations as they come
Liquidity ratios
Describe the price earnings ratio
Market price per share divided by earnings per share
Comprehensive Income
Meant income plus items of other comprehensive income (market value adjustment of available for sale securities)
Which of the following is excluded and calculating the quick ratio
Merchandise inventory
Activities in which arise from transactions and events that enter Into net income
Operating activities
Which activities were late primarily to the production and sale of goods and services and enter into the determination of income
Operating activities
What three categories make up the major body of the statement of cash flow's in what other information is presented
Operating activities investing activities and financing activities. It also takes into account non-cash investing
Dilutive securities
Options, warrants, convertible bonds, convertible stocks, and other items that have the potential to increase the number of shares outstanding
Cash dividends paid are reported as financing cash
Outflow
Assumption hold that and entities life can be divided into discrete time periods
Periodicity
Correction of an error that occurred in the computation of the net income of a previous period is accomplished by the use of a
Prior period Adjustment
What government entity oversees the audit profession
Public company accounting oversight board
Show how to calculate return on assets and return on equity
ROA equals net income plus interest expenses divided by the average assets ROE equals Net income minus preferred dividends divided by average common equity
Accounting information should be comprehensible to those who have a _____ understanding a business and economic activities
Reasonable
Securities and exchange commission
Regulatory body with which public companies must file and reports
Which characteristic of financial accounting pertains to the degree to which information bears on the decision making process
Relevancy
What fundamental qualities serve to make accounting useful
Relevancy and faithful representation
Information is deemed to be ____ if it influences the actions of a decision maker
Relevant
Accounting standards codification
Research tool deem to be the primary a third of the source and reference guide on accounting standards
Changing from one generally excepted accounting method to another one should be account for via:
Retrospective adjustment
Retrospective adjustment
Revision of the financial statements for prior periods to reflect the application of a current change in accounting method
What is typically included in the investing and financing activities section of the statement of cash flow's
Sale of land, proceeds from issuing stock, purchase of equipment, dividends on common stock, repayment of long-term loans
Which of the following would constitute a typical cash inflow from investing activity
Sale of stocks of other firms
Congress establish the ______ commission to regulate business reporting practices for companies that issue publicly traded securities
Securities and exchange
The organization that has been given the authority by Congress to sit accounting principles for public companies is
Securities and exchange commission
Intraperiod Tax allocation
Separately reported items like discontinued operations, prior period Adjustments, and other comprehensive income, at to reported net of their
The exchange rate in effect at a particular point in time is known as the
Spot rate
For purposes of calculating cash receipts from customers which of the following adjustments should be made to convert accrual basis sales to cash base sales
Subtract an increase in accounts receivable from accrual basis sales
To calculate cash flow from operating activities under the indirect method, non-operating gain should be
Subtracted
Relevance is a qualitative characteristics of accounting information. Which definition best applies to the concept of relevance
The capacity of information to make a difference in the decision process
restatement
The financial statements a prior periods are redone to reflect the current amount
Relevancy
The fundamental quality of accounting such that information should be timely and bear on the decision making process by possessing predictive or confirmatory value
rules based approach
The idea that accounting standards must be very specific to provide adequate guidance and drive consistency in reporting
Principles-based
The idea that accounting standards should articulate broad-based principles rather than specific and detailed rules
Significant non-cash investing/financing transactions are reported on the statement of cash flow's prepared using either the direct method or
The indirect method
What body influences the formulation of international accountancy
The international accounting standards board, international financial reporting standards
Accounting standards update
The official notification issued by the financial accounting standards board of a new or modified accounting rule
Price Earnings Ratio
The per share market value of a stock divided by its earnings per share
Accounting principles board
The private sector group charged with developing accounting standards from 1959 to 1973; primary authority pronouncements were known as opinions
Basic EPS
The simplest earnings per-share number; earnings available to common shares divided by weighted average shares, without factoring in potential delusion
Discontinued operations
The special income statement reporting of the impact of disposing or abandoning of a component of a business
International financing reporting standards
The specific accounting rules developed by the international accounting standards board
What are the confounding affects on book value calculations when there is more than one class of stock
There are many ways to calculate book values based on which class of stock the company has. This is more of an estimation of an a precise known number
What is the nature of an audit report
They usually issue an opinion letter on the fairness of the reports
Describe the journal entry and financial statement effect of restatements for errors.
This is to fix errors when a mistakes has been made. You need to accurately fix the problem & not just make somethings up until they balance.
What is diluted earnings per share
This is used to assess the quality of a companies EPS
Identify the nature of discontinued operations.
This is when they close one location but still have another location that sells the same products??
Describe intraperiod tax allocation, and state why this approach is used.
This is when you allocate income taxes to different parts in the income statement. This is used when continuing operations are presented net of tax.
Which of the following is a stated objective of financial reporting
To provide information useful in assessing the amounts timing and uncertainty of an organizations cash inflows and outflows
Show how to calculate cash received from customers
Total sales minus the increase in net receivables
Defined the form and content of the operating activities section
Transactions and events that enter into the determination of income and includes receipts from customers for providing goods and services, cash received from interest and dividend income, and proceeds from the sale of trading securities
Defined the form and content of the investing activities section
Transactions to not until a direct and flow or outflow of cash
And objective of accounting information is to provide information that is useful in decision making processes for investors and creditors
True
And preparing a statement of cash flow's the proceeds from the disposal of equipment should be reported as cash inflow from investing activities
True
But the direct and indirect methods are acceptable for external financial reporting
True
Cash flow information provided signals and about the maturity of a business as well as information about looming financial problems
True
Continuing operations, discontinued operations, and prior period Adjustments should all be reported net is there a related tax affect
True
The statement of cash flow's reveals the cash generated or consumed by firms operating investing in financing activities
True
With the indirect approach to calculating cash flow from operating activities, increases in current assets related to operations should be subtracted from the accrual basis income figure
True
Activity ratios are also known as
Turnover ratios
Remeasurement
Uses a variety of exchange rates to convert assets and liabilities of a foreign affiliate to the reporting currency; adjustment may impact operating income
Explain the same of cash flows under the direct approach
Uses actual cash inflows and outflows from the company's operations
Translation
Uses prevailing exchange rates to convert assets and liabilities of a foreign affiliate to the reporting currency; adjustment may impact other comprehensive income
The calculation of earnings per share is based on
Weighted average common shares outstanding
Describe how to account for and report changes in accounting principle.
You have to apply the changes to all the prior reporting. You act as if it had always been in place.
EBIT
earnings before interest and taxes
Prior period adjustment
to correct errors from prior years; prior financial statements are retroactively changed to make them correct