Ch. 1 Smartbook

Ending retained earnings is calculated as

beginning retained earnings + net income - dividends

Keepers, Inc.'s balance sheet reported retained earnings as $10,000 at December 31, 2017 and $12,000 at the December 31, 2018. The income statement reported net income of $3,000 for the year ended December 31, 2018. Dividends declared for the year ended December 31, 2018 must equal

$1000

Quartz Instruments had retained earnings of $145,000 at December 31, 2017. Net income for 2018 was $90,000, and dividends for 2018 were $30,000. What amount of retained earnings should be reported at December 31, 2018?

$205,000

Rahls issues stock to investors for $20000, and has $5000 of net income in its first year of operation. During Year 2, Rahls earns $10000 in net income and pays a dividend to stockholders of $4000, what is the balance in stockholders'' equity at the end of year 2?

$31,000; 0+$20,000+$5,000+$10,000-$4,000 = $31,000

Gem corporation is a new company and obtains financing by issuing common stock to investors for $30,000. During the year, Gem ears $8000 in net income and pays stockholders a dividend of $5000. What is the total stockholders' equity by the end of the year?

$33,000 because $0+$30000+$8000-$5000 = $33000

Milton corp. has beginning retained earnings of $800. During the year, Milton had $2000 of revenues and $900 in expenses. Milton paid a dividend of $100, what is retaining earnings at year-end?

1,800; 800+2000-900-100

Which of the following aspects relate to the information provided in an income statement?

Ability to earn a profit form its operations during the current period.

Which of the following appear(s) on the balance sheet?

Accounts receivable, Utilities payable, Common stock

Which of the following accounts is on the statement of stockholders' equity?

Common stock

Which of the following accounts are stockholders' equity accounts?

Common stock, retained earnings

If the same accounting principles and methods are used for similar events by two different firms, this enhances what accounting qualitative characteristic?

Comparability

Who has the responsibility for preparing financial statements in accordance with generally accepted accounting principles?

Corporate management

A net loss ...

Decreases retained earnings

The two sources of stockholders' equity are amounts

Earned by the corporation, paid in from shareholders

Which of these would be found on a company's balance sheet? (Select all that apply.)

Equipment, Notes Payable, Accounts receivable

.... is the common abbreviation for the Board that currently establishes financial accounting and reporting standards in the U.S. (Enter the acronym.)

FASB

beginning retained earnings + net income - dividends

balance sheet

True or false: Dividends paid to shareholders are recorded on the income statement as an expense.

False

True or false: Technical accounting skills represent the only skills required of accounting professionals.

False

True or false: The SEC has delegated the primary responsibility for setting accounting standards to the AICPA.

False

The private sector organization that is currently responsible for setting accounting standards in the United States is the

Financial Accounting Standards Board.

What statement represent a company's primary means of communicating information to external users

Financial Statement

Where is the time period covered by the income statement found?

In the heading

Which financial statement reports revenues and expenses?

Income statement

The three classifications on the statement of cash flows are cash flows from (Select all that apply.)

Investing, operating, financing activities

The accounting equation is: Assets = ______ + Stockholders' Equity.

Liabilities

Which of the following items are found on a balance sheet? (Select all that apply.)

Liabilities, stockholders' equity, assets

Who has the responsibility to apply accounting standards when communicating with investors and creditors?

Management

Pizza Aroma generated 11,000 dollars in revenues and had expenses of 6000 dollars, Pizza Aroma's net income or loss is:

Net income of $5000

When revenues are less than expenses, the company is experiencing a...?

Net loss

Faithful representation requires information to have which of the following three characteristics?

Neutrality, Free from material error, completeness

Which of the following items are reported on the balance sheet as liabilities?

Notes payable, wages and supplies payable

Which of the following are operating activities? - Purchasing plant and equipment - Paying salaries to employees - Providing services to customers - Borrowing from creditors - Paying advertising expenses

Paying salaries to employees, providing services to customers, and paying advertising expenses

Which of the following knowledge and skills should an accounting professional possess?

Presentation skills Technical accounting knowledge Ability to work in teams Leadership skills

Which of the following are attributes of FASB? (Select all that apply.)

Private sector organization, Independence, Full-time board members

Predictive value and confirmatory value are components of which fundamental qualitative characteristic?

Relevance

Which of the following items appear on a income statement?

Revenues and supplies expense

An income statement reports? - Amounts contributed by stockholders - Revenues - Expenses - Cash - Net income or loss

Revenues, Expenses, and Net income or loss

Dividends paid to shareholders is on which financial statement?

Statement of Shareholders' Equity

Which of the following are financial statements?

Statement of stockholders' equity, income statement, balance sheet

The accounting equation is: Assets = Liabilities +

Stockholders' Equity

Which of the following line items appear on a income statement?

Supplies expense, salaries expense, service expense

True or false: Accounting professionals enjoy a wide variety of career opportunities.

T

The heading on the statement of stockholders equity include which of the following?

The period of time covered

Identify which of the following are included in the heading of the statement of stockholders' equity for Xoff, Inc

The period of time covered by the statement, Xoff, Inc. , and Statement of Stockholders' equity

The heading of an income statement should include which of the following?

The title of the financial statement, the name of the business, the accounting period covered by the statement

Retained earnings represent:

The total net income earned over the life of the company that has not been distributed as dividends

A consensus among different individuals appraising the value of land describes which qualitative accounting characteristic?

Verifiability

The concept of understandability assumes that the users of financial statements should have

a reasonable understanding of business and economic activities.

The two main functions of ... are to (1) measure business activities and (2) to communicate those measurements to investors and creditors.

accounting

Management discussion and analysis and note disclosures to the financial statements are included in the

annual report

Accounting professionals:

are in high demand

Which of the following financial statements shows a firm's financial position on a particular date?

balance sheet

The purpose of a statement of cash flows is to provide information about the

cash receipts and cash disbursements during a period.

In our society, the two main functions of accounting are to

communicate information to investors and creditors, measure business activities.

An enhancing qualitative characteristic of accounting information that refers to the financial statement users' ability to utilize accounting information to differentiate between companies that are reporting similar events is

comparability.

The qualitative characteristic of using the same accounting method each period over time refers to the concept of

consistency

Using the same accounting methods in each period refers to the qualitative characteristic of

consistency

Stockholders' equity arises primarily from amounts invested by shareholders and amounts

earned by the corporation

The two sources of stockholders' equity are amounts ______.

earned by the corporation, paid in from shareholders

A code or moral system that provides criteria for evaluating right and wrong is referred to as

ethic

Salaries already paid to employees for the month is a(n) ______ account that appears on the ______.

expense; income statement

To be useful for decision making, information should possess the fundamental qualities of relevance and ________ representation

faithful

If the SEC does not agree with a standard issued by the private sector, it can

force a change in the standard.

Faithful representation requires that information is complete, neutral, and

free from material error.

The income statement is considered most useful for predicting

future profitability

Information that best explains companies' stock price performance is reported in the

income statement

The financial statement that is most useful in explaining a company's stock price performance is the

income statement.

Financial information that may impact investors' and creditors' decisions is referred to as _____ and must be reported under GAAP

material

The impact of financial accounting information on investors' and creditors' decisions is closely related to the concept of:

materiality

When revenues are greater than total expenses, a company classifies that as a?

net profit

The characteristic that a new accounting standard should not favor one group of companies over others or achieve a particular social outcome is an example of

neutrality

In addition to the financial statements, which of the following must be included in the annual reports?

notes disclosure, management discussion and analysis.

The statement of cash flows classifies items as

operating, investing, and financing.

Careers for accounting professionals typically include a choice between public and ..... accounting

private

The hierarchy of qualitative characteristics of financial information require that, in order to be useful for decision making, information should possess the fundamental characteristics of

relevance and faithful representation.

The accumulated net income earned since the inception of the corporation and not yet paid to shareholders is referred to as:

retained earnings

The financial statement that provides information about cash receipts and cash disbursements for the period is the

statement of cash flows.

The purpose of an income statement is to:

summarize the profit-generating activities that occurred during a particular reporting period

The heading on the Statement of Stockholders' Equity includes which one of the following?

the period of time covered

_______ refers to information being available to users early enough to allow them to use it in the decision process.

timeliness

The qualitative characteristic wherein information is available early enough allowing it to be useful for a decision describes the concept of

timeliness.

The accounting characteristic that requires a user to comprehend the information within the context of the decision being made is referred to as

understandability

When the cost of an item can be traced to objective evidence of a transaction, such as a sales receipt, canceled check, and bank statement, the information has the quality of

verifiability.