ACTG 201 ch 1-3
The organization responsible for creating a single set of global accounting standards is the:
International Accounting Standards Board -The goal of the International Accounting Standards Board (IASB) is to create a single set of global accounting standards. The standards being developed and promoted by the IASB are called International Financial Reporting Standards (IFRS).
The act passed in 2002 that provides for the regulation of auditors and the types of services they furnish to clients is known as the Sarbanes-Oxley Act.
true
If stockholders' equity is $50,000 and liabilities are $78,000, then assets must equal:
$128,000 Assets = Liabilities ($78,000) + Stockholders' Equity ($50,000) = $128,000
Catalina Corporation begins the year with a $195,000 balance in Retained Earnings and a $320,000 balance in Common Stock. During the year, the company generated net income of $46,000, issued additional common stock for $28,000, and paid a dividend of $5,000. What is total stockholders' equity at the end of the year?
$584,000 -Stockholders' Equity at the beginning of the year = Common Stock ($320,000) + Retained Earnings ($195,000) = $515,000. The change in Stockholders' Equity during the year = Issuance of Common Stock ($28,000) + Net Income ($46,000) − Dividends ($5,000) = $69,000. Stockholders' Equity at the end of the year = $515,000 + $69,000 = $584,000
Financial Accounting
*focus of this course* information provided for external users
Beta Company paid utilities expense of $2,000 for the current month. Which of the following statements correctly shows the effect of this transaction on the accounting equation?
Assets will decrease by $2,000, liabilities will remain unchanged, and stockholders' equity will decrease by $2,000
Total stockholders' equity appears in which two financial statements?
Balance Sheet and Statement of Stockholders' Equity
What are the primary components of stockholders' equity?
Common Stock and Retained Earnings
Expenses are best defined as:
Costs of providing products and services
Net income appears in which two financial statements?
Income Statement and Statement of Stockholders' Equity
The FASB has explicitly stated the specific objectives of financial accounting. Which of the following is not one of those objectives?
It is useful to company management in making decisions. -The three objectives of financial accounting as defined by the FASB are that the information (1) is useful to investors and creditors in making decisions, (2) helps to predict cash flows, and (3) tells about economic resources, claims to resources, and changes in resources and claims.
What was the objective of the 1933 Securities Act?
It set forth accounting and disclosure requirements for initial offerings of securities.
The balance sheet:
Presents the financial position of a company at a point in time
Expenses
The cost of selling products or services
Which of the following is an important indicator of a company management's ability to respond to business situations and the possibility of bankruptcy?
Total liabilities -A company's debt level is an important indicator of management's ability to respond to business situations and the possibility of bankruptcy.
Financial accounting measures the business activities of a company and communicates those measurements to external parties for decision-making purposes.
True
Which of the following questions is most likely to be asked by a creditor?
Will the company be capable of repaying its debt when it is due?
Which of the following questions is most likely to be asked by an investor?
Will the company's stock increase in value?
Partnership
a business owned by two or more people
trial balance
a list of all accounts and their balances at a particular date...
Which of the following is not an asset account?
accounts payable -Cash, Equipment, and Supplies are asset accounts. Accounts Payable is a liability account.
revenues, expenses, dividends
all profits of the company are claimed solely by stockholders
adjusting entries
are used to record changes in assets and liabilities (and their related revenues and expenses) that have occurred during the period but that we have not yet recorded
the resources of a company are referred to as:
assets
which relationship is reflected in the balance sheet?
assets= liabilities+ stockholders equity
coporation
business is legally separate from its owners -limited liability of stockholders
financing cash flows
cash transactions involving lenders and stockholders
investing cash flows
cash transactions involving purchase and sale of long-term assets
Operating Cash Flow
cash transactions involving revenues and expenses
which of the following accounts would appear in the credit column of a trial balance?
common stock
liabilities
creditors claims to resources (OWE)
employees
decide employment opportunities
competitors
decide market share and profitability
local communities
decide on environmental issues
regulators
decide on social welfare
tax authorities
decide on taxation policies
Indicate whether each of the following transactions is classified as a financing, investing, or operating activity:
img on notes
Primary Financial Statements
income statement, statement of stockholders' equity, balance sheet, statement of cash flows
Managerial Accounting
information provided for internal users
Accruals
involve cash flows that occur after either expense or revenue recognition
the cash collected from a customer would recorded as which type of activity in the Statement of Cash Flows?
operating activity
stockholders equity
owners claims to resources
If you are able to predict the change in financial accounting's measure of profitability, you can predict the change in stock prices, too.
true -If you are able to predict the change in financial accounting's measure of profitability—net income—then you can predict the change in stock prices as well.
An increase in revenues increases net income, and net income increases stockholders' equity.
true -Stockholders' equity has two components: common stock and retained earnings.
Use the following amounts to calculate net income: Assets, $165,000; Dividends, $9,000; Expenses, $61,000; Liabilities, $74,000; Revenues, $82,000.
21,000 -Net Income = Revenues ($82,000) − Expenses ($61,000) = $21,000
Franklin Corporation has the following account balances at the end of the year. What is stockholders' equity?
48,000 -the accounting equation indicates that Assets = Liabilities + Stockholders' Equity. Rearranged, Stockholders' Equity = Assets − Liabilities. Assets = Accounts Receivable ($23,000) + Cash ($35,000) + Equipment, net ($41,000) + Supplies ($3,000) = $102,000. Liabilities = Accounts Payable ($17,000) + Notes Payable ($29,000) + Salaries Payable ($8,000) = $54,000. Therefore, Stockholders' Equity = Assets ($102,000) − Liabilities ($54,000) = $48,000
Sole Proprietorship
A business owned by one person
Which of the following events will not pose an immediate impact on the accounting equation of a retail company?
A change in marketing strategy -When a business changes its approach to marketing products, even though the hope is that those events will positively affect the company's financial position, there is no immediate or quantifiable effect on the accounting equation.
Ethics is best described as:
A code or moral system that provides criteria for evaluating right and wrong behavior. -Investors, creditors, government, and the general public rely on general ethical behavior among those who record and report the financial activities of the business.
Which of the following is true of public accounting?
A public accountant usually gets to work with multiple clients.
Sampson Corporation pays dividends of $9,000 to shareholders. Which of the following statements correctly shows the effect of this transaction on the accounting equation?
Assets will decrease by $9,000, liabilities will remain unchanged, and stockholders' equity will decrease by $9,000 -The payment of dividends decreases Cash, an asset account, and decreases Retained Earnings, a stockholders' equity account. Liabilities will remain unchanged.
Microlith received $20,000 cash in advance from customers. Which of the following statements correctly shows the effect of this transaction on the accounting equation?
Assets will increase by $20,000, liabilities will increase by $20,000, and stockholders' equity will remain unchanged
Amber Corporation provided services to customers on account for $26,000. Which of the following statements correctly shows the effect of this transaction on the accounting equation?
Assets will increase by $26,000, liabilities will remain unchanged, and stockholders' equity will increase by $26,000
Palmer Corporation borrows $40,000 cash by signing a note with the bank. Which of the following statements correctly shows the effect of this transaction on the accounting equation?
Assets will increase by $40,000, liabilities will increase by $40,000, and stockholders' equity will remain unchanged
Bell Company purchased supplies for $700 cash. Which of the following statements correctly shows the effect of this transaction on the accounting equation?
Assets will remain unchanged, liabilities will remain unchanged, and stockholders' equity will remain unchanged
Which of the following is an alternate form of the accounting equation?
Assets − Liabilities = Stockholders' Equity
The balance in the cash account appears in which two financial statements?
Balance Sheet and Statement of Cash Flows
You are reading a particular section of a bank's annual report. This section provides the bank's views about the impact of an upcoming regulation on the banking industry as a whole and the bank in particular. Which section of the annual report are you reading?
Management's discussion and analysis
Which government agency has the authority to set accounting and reporting standards in the United States?
Securities and Exchange Commission
The statement of cash flows:
Shows the net change in cash over a period of time -is a financial statement that measures activities involving cash receipts and cash payments over an interval of time
managers
decide production and expansion
suppliers
decide the customers ability to pay for supplies
investors
decide whether to invest in stock
creditiors
decide whether to lend money
customers
decide whether to purchase products
dividends
distribution of profit to stockholders
Which of the following is a feature of the corporate form of business ownership?
double taxation (a disadvantage)
Ron owns five percent of a corporation's common stock. The concept of limited liability would imply that Ron is personally responsible for only five percent of the financial obligations of the corporation.
false
Dividends represent expenses of operating the company.
false -Dividends are not necessary to run the business to produce revenues.
Investors and creditors rely heavily on managerial accounting information in making investment and lending decisions.
false -Investors and creditors rely heavily on financial accounting information when making investment and lending decisions.
All business events have an immediate and quantifiable effect on the accounting equation.
false -Only business activities that cause increases and decreases to accounts pose an immediate and quantifiable effect on the accounting equation.
The balance of retained earnings represents the amount of earnings paid out in the form of dividends to stockholders.
false -The balance of retained earnings represents the amount of "earnings retained" (not paid out in the form of dividends) over the life of the company.
limited liability
means the stockholders are not held personally responsible for the financial obligations of the corporation
statement of cash flows
measures activities involving cash receipts and cash payments over an interval of time
Which of the following best explains a company's stock price performance?
net income -No single piece of company information better explains a company's stock price performance than does financial accounting net income.
balance sheet
presents the financial position of the company on a particular date
which of the following accounts would appear in a company's income statement?
rent expense
income statement
reports the company's revenues and expenses over and interval or period of time
assets
resources of the company (OWN) -ex: cash, inventory, supplies, buildings, and equipment
the amounts recorded when the company sells products or provides services to customers are referred to as:
revenues
Revenues
sales of products or services to customers
statements of stockholders equity
summarizes the changes in stockholders equity over an interval of time
From the list that follows, identify a company where a private accountant could possibly work.
target -A career in private accounting means providing accounting services to the company that employs you.
four primary financial statements
the income statement, the statement of stockholders' equity, the balance sheet, and the statement of cash flows
Investing Activities
transactions involving the purchase and sale of resources that provide benefit for several years
Operating Activities
transactions that relate to the primary operations of the company
Financing Activities
transactions the company has with investors and creditors
Which of the following is not one of the four primary financial statements?
trial balance
An account is defined as a record of the business activities related to a particular item.
true
If mistakes or fraudulent reporting behavior are discovered, auditors require the company to correct all significant information before issuing financial statements.
true -If auditors find mistakes or fraudulent reporting behavior, they require the company to correct all significant information before issuing financial statements.
The organization primarily responsible for establishing accounting and reporting standards in the United States is the Financial Accounting Standards Board (FASB).
true -The FASB is an independent, private-sector body that is primarily responsible for establishing accounting and reporting standards in the United States.
The income statement records activity over an interval of time
true -The income statement records activity over an interval of time.
The value of a company to its owners equals total resources of the company.
false -The value of a company to its owners equals total resources of the company minus amounts owed to creditors. Creditors expect to receive only resources equal to the amount owed them. Stockholders or owners, on the other hand, can claim all resources in excess of the amount owed to creditors.
With a finance degree, you can apply for almost any position available to accounting majors.
false -With an accounting degree, you can apply for almost any position available to finance majors. However, it doesn't work the other way: Finance majors often lack the accounting background necessary to apply for accounting positions.
The main functions of financial accounting are to measure business activities and to communicate those measurements to investors and creditors.
true -Financial accounting serves two main functions: (1) it measures business activities, and (2) it communicates those measurements to investors and creditors.