Financial Accounting Ch 1-4

Which of the following statements about the debit/credit framework is correct?

When payment is made on a liability such as accounts payable, the liability account is decreased with a debit

What would a user of financial statements learn from reading the auditors report?

Whether the financial statements present a fair picture of the company's financial results and are prepared in accordance with GAAP

Know the 3 types of Business Activities

Operating, Investing, and Financing

Understand how to record transactions using accrual basis accounting

Records revenues when they are earned and expenses in the same period as the revenues to which they relate, regardless of the timing of cash receipts or payments

Typical cash flows from investing activities include

Payments to purchase property and equipment

Assets:

Represent the resources presently controlled by a company

True/False. Corporate income taxes cannot be calculated until all other adjustments are made

True

True/False. The temporary accounts will have zero balances in a post-closing trial balance

True

True/false. A net profit of 15.4% means that the company used 84.6 cents of each sales dollar to cover costs and expenses

True

During its first year of operations, Widgets Incorporated reported Sales Revenue of $386,000 but collected only $303,000 from customers. At the end of the year, Accounts Receivable equal:

$83,000

The Sweet Smell of Success Fragrance Company borrowed $60,000 from the bank to be paid back in five years and used all of the money to purchase land for a new store. Sweet Smell's balance sheet would show this as:

$60,000 under Land and $60,000 under Notes Payable (long-term)

Know the formulas for these financial statements and what is reported on each:

-Balance Sheet: A = L + SE -Income Statement: R - E = NI

Know what is reported as Current Assets and Current Liabilities

-Current Assets cash, supplies, notes receivable - Current Liabilites Accounts Payable

Know the order of assets on the balance sheet

-cash then accounts receivable -current assets are assets that will be used up or turned into cash within 12 months

Assets reported on he balance sheet include

Accounts receivable, equipment, and cash

The he Buddy Burger Corporation owes $1.5 million to the Texas Wholesale Meat Company from whom Buddy Burger buys its burger meat. Which account would Buddy Burger use to report the amount owed?

Accounts Payable

Which of the following statements about the closing process is correct

After closing entries are posted, the balances of the income statement accounts will be zero

Know the accounting equation

Assets = Liabilities + Stockholders Equity

Temporary accounts are closed at what stage of the accounting process?

At the last journal entries at the end of each accounting year

Which of the following statements about the presentation of a trial balance is correct? A. The adjusted trial balance shows the end-of-the-year balance for Retained Earnings B. An adjusted trial balance presents account balances in the same level of detail as in the presentation of the financial statements C. The order sof accounts on a trial balance is as follows: assets, liabilities, stockholders equity, dividends, revenues and expenses D. The adjusted trial balance shows all the debit and credit postings to all the ledger accounts

C

A company receives $100,000 cash from investors in exchange for stock. Several weeks later, the company buys a $250,000 machine using all of the cash from the stock issue and signing a promissory note for the remainder. The accounts involved in these two transactions are:

Cash; equipment; common stock; and notes payable

Which of the following statements about a fiscal year is correct

Companies can choose to end their fiscal year on any date they feel is most relevant

Which of the following statements about the balance sheet is correct?

Current Liabilities are debts and other obligations that will be paid or fulfilled within 12 months of the balance sheet date

Which of the following statements about the unadjusted trial balance is not correct? A. It might only include a preliminary amount for income tax expense B. It might balance even if there is a mistake C. It does not yet include end-of-the-accounting period adjustments D. It is part of the financial statements issued to external decision makers

D

Which of the following would not represent a financial activity: A. Paying dividends to stockholders B. An investment of capital by the owners C. Borrowing money from a bank to purchase new equip D. Buying supplies on account

D

Which of the following statements about an adjusted trial balance is correct

Debits should equal credits both before and after adjustments are made

True/False. When expenses exceed revenues in a period, stockholders equity will increase

False

You paid $10,000 to buy 1% of the stock in a corporation that is now bankrupt. The company owes $10 million dollars to its creditors. As a result of the bankruptcy, you are responsible for paying $100,000 (or $10 million x1%) of the amount owed to the creditors. True/False

False

In part, a transaction affects the accounting equation by decreasing an asset. There is no effect on liabilities. Which of the following statements is correct with regards to this transaction?

If other assets are unchanged, stockholders equity must be decreasing

A company incurred $5,000 in wages for employees for the year. Of these wages, $4,500 was paid by the end of the year. Which of the following statements is correct?

Salaries and Wages Payable on the balance sheet will be $500

Dividends are reported on the:

Statement of retained earnings

After adjusting entries are prepared and posted, but before closing entries are prepared and posted, the balance in Retained Earnings is equal to:

The amount that was reported on the previous years balance sheet

B. Darin Company issued common stock to investors and received $50,000. Which of the following statements about this transaction is correct?

The journal entry to record this transaction will include a credit to Common Stock

On October 31, your company prepaid rent of $7,000 for November and December. Which of the following describes the effects of this transaction on your company's accounting equation?

There is no change to total assets, liabilities or stockholders equity

Which of the following represents a subtotal rather than an account?

Total revenues

Know the Adjusting Journal Entry Rules

a. Adjusting Journal Entries never impact cash b. Adjusting Journal Entries always use at least one Balance Sheet Account and at least one Income Statement Account

Understand the concept of a normal balance:

a. Assets= increases debit b. Liabilities= increases credit c. Stockholders Equity= increases credit d. Normal Balance is the side on which it increases

Know the differences in types of business ownership

a. Sole proprietorship- business organization owned by one person. The owner is personally liable for all debts of the business. b. Partnership- Business organization owned by two or more people. Each partner is personally liable for all debts of the business. c. Corporation- a separate legal entity. Owners of corporations (Stockholders) are not personally liable for debts of the corporation.