chapter 9 accounting

What are some common causes of inventory shrinkage?

Errors Obsolescence Theft

When a product or service has been exchanged for cash, claims to cash, or an asset that is readily convertible to a known amount of cash or claims to cash, the (realization/earned/measurable) criterion has been met.

realization

When revenues are earned, how are the financial statement affected? More than one answer may be correct.

An increase to net income An increase to Sales or Service Revenues

What questions are answered by the income statement? More than one answer may be correct. What will total revenues be in the next fiscal period? Are sales increasing relative to cost of goods sold and other operating expenses? What were the financial results of the firm's operations for the fiscal period? How much profit or loss did the firm have?

Are sales increasing relative to cost of goods sold and other operating expenses? What were the financial results of the firm's operations for the fiscal period? How much profit or loss did the firm have?

Under the current accounting standard, how are extraordinary items to be reported?

As a separate component of income from continuing operations

Identify the reason for which indirect method is preferred to direct method for cash flow presentation by most firms.

Companies do not need any separate accounting procedures to accumulate cash flow data when the indirect method is used.

The "other income and expense" category is normally reported after income from operations and includes which items?

Interest income Losses

Which activities are summarized in the statement of cash flow?

Investments Operating activities Financing activities

A company's income statement is prepared to provide essential information to which groups of people? More than one answer may be correct.

Managers Potential investors Stockholders

Which of these would be included as investing activities in the statement of cash flows? More than one answer may be correct.

Purchase and sale of long-term investments in debt and equity securities of other companies Payment of cash for the purchase of land, buildings, and equipment

What principal categories of other operating expenses are frequently reported on the income statement?

Research and development expenses Selling expenses General and administrative expenses

By reporting discontinued operations on the income statement as a separate item, net of taxes, all the effects of the discontinued business segment are excluded from the Blank______ of continuing operations. More than one answer may be correct.

Revenues Expenses

Identify the correct statements about the matching principle.

Some expenses (depreciation, for example) are an allocation of the cost of an asset to the periods expected to benefit from its use. Expenses such as administrative salaries are recognized in the period in which they are incurred, because the benefit of the expense is used up simultaneously or soon after incurrence. Some expenses (cost of goods sold, for example) are recognized concurrently with the revenues to which they relate.

Identify a true statement about extraordinary items.

The current accounting standard requires firms to report extraordinary items as a separate component from continuing operations.

Concerning the direct method presentation of the statement of cash flows, which of the following statements are true? More than one answer may be correct.

The direct method involves listing each major class of cash receipts transactions and cash disbursements transactions for each side of three activity areas. The FASB encourages companies to use the direct method. The operating activity transactions include cash paid to employees, cash payments of interest, and cash payments for taxes.

Concerning the direct method presentation of the statement of cash flows, which of the following statements are true?

The operating activity transactions include cash received from customers and cash paid to suppliers. The direct method lists each major class of cash receipts and cash disbursements transactions for each of the three activity areas. Each of the captions reported on the statement explains how much cash was received or paid during the year for that item. The direct method involves listing each major class of cash receipts transactions and cash disbursements transactions for each side of three activity areas. The operating activity transactions include cash paid to employees, cash payments of interest, and cash payments for taxes. The FASB encourages companies to use the direct method.

Which of these are true, in regard to investing activities in the statement of cash flows? More than one answer may be correct.

They include the use of cash to acquire land, buildings, and equipment. They relate primarily to the purchase and sale of noncurrent assets.

Which of these are true, regarding financing activities in the statement of cash flows? More than one answer may be correct.

They include the use of cash to retire bonds. They relate primarily to changes during the year in nonoperating liabilities (such as bonds payable) and in stockholders' equity accounts other than net income or loss. They include the use of cash to pay dividends.f

What key interpretations are typically made from the statement of cash flows? More than one answer may be correct.

Whether the company's cash balance increased or decreased during the year Whether net cash flows provided by operations exceed the company's cash used for investing activities

Financing activities in the statement of cash flows:

include the purchase and sale of treasury stock. include the issuance of bonds and common stock. relate primarily to changes during the year in nonoperating liabilities and stockholders' equity accounts.

Most firms report the statement of cash flows using the indirect method because Blank______.

operating activities information reported under the direct method is not so readily determinable

The buyerBlank 1Blank 1 buyer , Incorrect Unavailable (seller/buyer) incurs the freight cost for shipments made FOB destination; the sellerBlank 2Blank 2 seller , Incorrect Unavailable (seller/buyer) incurs the cost of shipments made FOB shipping point.

seller; buyer

What document explains the change in the firm's cash from the beginning to the end of the fiscal period by summarizing the cash effects of the firm's operating, investing, and financing activities during the period?

statement of cashflows