Intermediate Ch 3 LS
Which type of activities involve cash inflows and outflows from transactions with creditors and owners -operating -financing -investing
financing
Assets are probable_____ economic benefits as a result of _____ transactions or events -past; future -future; past -future; future -past; past
future; past
What are increases or decreases in equity from peripheral or incidental transactions? -gains and losses -revenues and expenses -interest income and expense -assets and liabilites
gains and losses
Categorizing operating expenses as non operating expenses is an example of -channel stuffing -unauthorized income recognition -an illegal act -income statement classification shifting
income statement classification shifting
_____ from discontinued operations will result in additional income tax expense; _____ from discontinued operations will result in a tax benefit -loss; loss -income; loss -loss; income -income; income
income; loss
Default risk
is the risk that a company will not be able to pay its obligations when they come due
what does the balance sheet provide
it provides information useful for assessing future cash flows, liquidity and long term solvency
A chronological record of all economic events affecting a firm are recorded in a(n)___________
journal
Current Liabilities
liabilities expected to be satisfied within one year or the operating cycle whichever is longer accounts and notes payable,deferred revenue,accrued liabilities, and current maturities of long term debt
If discontinued operations have a _____ effect on the income statement, they must be reported separately -minimal -material -positive -negative
material
An income statement that classifies items and uses subtotals for gross profit, operating income and income from continuing operations is called a _______ income statement
multi-step
The time period necessary to convert cash to raw materials, convert raw materials into finished products, sell the products, and collect on the account receivable is referred to as the ________ cycle. -operating -production -liquidity -collection
operating
According to IFRS, interest and dividends paid can be classified as a(n)
operating activity Financing activity
Assets - liabilities =
owner's equity
Acid test ratio
provides more stringent indication of a company's ability to pay its current obligations
Short term investments
reffered to as temporary investments or short term marketable securities classified as current if management has the ability and intent to liquidate the investment in the near term
Other assets
represent a catch-all category of non current assets
Accrued liabilites
represent obligations created when expenses have been uncured but will not be paid until a subsequent reporting period ex salaries payable accrued interest payable and accrued taxes payable
Prepaid Expenses
represents an asset recorded when an expense is paid in advance creating benefits beyond the current period current or noncurrent depending on when its benefits will be realized
Which of the following items should not be included in cash and cash equivalents in the balance sheet? -treasury bills -restricted cash -cashiers checks -money market funds
restricted cash
accounts receivable
result from the sale of goods or services on credit usually due in 30 to 60 days
Accumulated net income earned since the inception of the corporation and not yet paid to shareholders is referred to as _______ _______.
retained earnings
Profits earned by company that have not been paid to stockholders are called
retained earnings
The inflow of resources resulting from providing goods or services to customers is referred to as _____
revenue
liabilities
The debt to equity ratio is calculated as total _____________ divided by shareholders' equity.
True or false: The stated interest rate on debt instruments is always stated as an annual rate
True
true
True or false? A liability is a present obligation.
false
True or false? Accrued salaries payable are classified as long-term liabilities
true
True or false? Natural resources are included in PPE
a and c
Which formats are acceptable for reporting comprehensive income? Select all that apply. a. Two separate but consecutive statements b. A single statement included in the shareholders' equity statement c. A single, continuous statement of comprehensive income
b, d, e
Which of the following are permanent accounts? (Select all that apply.) a. COGS b. equipment c. revenue d. common stock e. cash
a and d
Which of the following describe long-term liabilities? (Select all that apply.) a. They do not require the creation of current liabilities for payment b. They require the use of current assets c. They require the creation of current liabilities for payment d. They do not require the use of current assets
a
Which statement reports the changes in shareholders' equity during the period that were not a result of transactions by owners? a. The statement of comprehensive income b. The statement of cash flows c. Income statement d. Balance sheet
a
Which type of analysis uses ratios to analyze the financial statements of 2 or more years? a. horizontal analysis b. perpendicular analysis c. vertical analysis
Current Assets
a temporary investment or short-term marketable security should be reported in this section of the balance sheet
liquidity
ability to convert assets into cash to pay its debts that are coming due (current liabilities)
An expense that has been incurred but not yet paid results is a(n) -intangible asset -deferred charge -accrued liability -non current expense
accrued liability
probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events are referred to as _
assets
Accumulated other comprehensive income (AOCI) is found on what financial statement? -balance sheet -income statement -statement of cash flows
balance sheet
The purpose of a statement of cash flows is to provided info about the
cash receipts and cash disbursements during a period
The purpose of the statement of cash flows is to provide information about the
cash receipts and cash disbursements during a period.
Cash inflows from operating activities on the statement of cash flows?
collection from customers and receipt of interest
A discontinued operation is reported when a _____ of an entity (a) has been disposed of or (b) is classified as held for sale
component
Revenues are:
earned by selling goods and services to customers
Shareholder's equity arises primarily from amounts invested by shareholders and amounts
earned by the corporation
Another term for net assets is_____ -revenue less expenses -liabilities -retained earnings -equity
equity
An() is the cost of doing business that is necessary to earn()
expense;revenue
What represents the costs of providing goods and services to customers? -losses -expenses -revenues -gains
expenses
Liquidity
a company's ability to pay its current obligation (pay short term debts as they become due)
Retained Earnings represents
the total net income earned over the life of the company that has not been distributed as dividends.
Simply put, _ are the economic resources of a company.
Assets
periodic
A temporary purchases account is used when the _______________ inventory system is used
three types of accounting changes are a change in
accounting estimate, reporting entity, and accounting principle
The account that represents the amount of money owed by customers is called _____
accounts receivable
Hill Company pays its supplier 2,500 for supplies purchased three weeks easier
- An asset account decreases - A liability account decreases
true
True or false? Accounts receivable is a quick asset, but inventory is not
The form of business organization where an entity is legally separate from its owners and issues shares of stock is a
corporation
A () is a distribution of net income to the stockholders of a corporation.
dividend
The purpose of an income statement
summarize the profit-gen
Current assets minus current liabilities equals
working capital
A discontinued operation is reported when a _ of an entity either (a) has been disposed of or (b) is classified as held for sale.
Component
How are accounts receivable classified on the balance sheet?
Current assets
The type of activities related to the external financing of the company are _ activities.
Financing
An asset that has no physical substance is a _______ asset
Intangible
The two generally accepted formats for preparing the statements of cash flows under U.S. GAAP are the -direct and indirect method -current and noncurrent method -operating and nonoperating method -recurring and nonrecurring method
-direct and indirect method
The evidence that a financial statement user or analyst might use as evidence to suggest that earnings have been smoothed is -earnings may not increase more than 10% without a penalty -income is averaged with historical numbers -income is deferred until contractual relations are negotiated -earnings have a steady stream over time
-earnings have a steady stream over time
Which of the following are required SEC disclosures? -executive stock option information -director compensation -director and executive daily activity report -director and executive hourly wage information -executive compensation
-executive stock option information -director compensation -executive compensation
What are the primary elements found on a balance sheet? -revenues -liabilities -assets -equity -investments
-liabilities -assets -equity
Notes Payable Prepaid Insurance Accounts Payable Dividends
Liability Asset Liability Change to stockholders' Equity
An income statement that classifies items and uses subtotals for gross profit, operating income, and income from continuing operations is called a(n) _ -step statement.
Multiple
An income statement that classifies items and uses subtotals for gross profit, operating income, and income from continuing operations is called a ________ income statement
Multiple-step
The type of income statement that reports a series of sub totals such as gross profit, operating income, and income before taxes is a _ income statement.
Multiple-step
In calculating basic earnings per share, _ is divided by the weighted average common shares outstanding.
Net income less any preferred stock dividends.
Restructuring Costs
Operating income
Which of the following cash transactions are classified as cash inflows from investing activities?
Sale of land Sale of investment securities.
Match the income statement item with the related cash flows.
Sales and service revenue - cash collected from customers. Investment Revenue - Cash received from dividends and interest. Cost of goods sold - Cash paid to suppliers of inventory Interest expense - cash paid to creditors.
Discontinued Operations
Separately reported items at the bottom of the income statement
a & d
Short term investments are sometimes called which of the following?: (Select all that apply) a. Short-term marketable securities b. Non marketable securities c. Primary investments d. Temporary investments
b and c
Short-term investments are sometimes called which of the following? Select all that apply. a. Primary investments b. Short-term marketable securities c. Temporary investments d. Non-marketable securities
Norwalk Agreement
Signed by FASB and IASB in 2002, they pledged to remove existing differences between their standards and to coordinate their future standard-setting agendas
IFRS
Specifies a minimum list of items to be presented
Which of the following terms are used to describe an income statement?
Statement of Operations Statements of Earnings
Operating, investing and financing activities are found on which financial statements?
Statement of cash flows
Provide information about the cash receipted and cash disbursements of an enterprise that occurred during a period in the purpose of which financial statement.
Statement of cash flows
Providing information about the cash receipts and cash disbursements of an enterprise that occurred during a period is the purpose of which financial statement?
Statement of cash flows
Which of the following terms are used to describe an income statement?
Statement of operations and statement of earnings
For a corporation, the owner's claims to the resources of a company are called:
Stockholders' equity
A _ event is a significant development that occurs after a company's fiscal year-end but before the financial statements are issued or available to be issued?
Subsequent
Under the indirect method of deriving net cash flows from operating activities, decreased liabilities relating to operating activities must be
Subtracted from net income.
Under the indirect method deriving net cash flows from operating activities, increase in assets relating to operating activities must be
Subtracting from net income.
Plant, property, and equipment is a _____ asset
Tangible
Short-term investments are sometimes called which of the following?
Temporary investments Short-term marketable securities
c
The ability to pay its long-term debts as they become due is referred to as _____________ of the company a. working capital b. liquidity c. solvency
On January 1 of the current year, Lafferty signed a contract to rent a building for 1K per month for the next three years. On the date, affects pays 36K for rent. On January 1 when payment is made, what is the amount of the prepaid rent that should be classified as a current asset?
12K The portion of the rent that will be paid within the next 12 months is classified as current and the remainder is classified as non current
Sales on account are 200K, cash sales during the period are 50K. Beginning accounts receivable is 20K, and ending accounts receivable is 30K. What is the total cash collected from customers during the period.
240K 200K + 50K + 20K = 270K - 30K = 240K
Balance Sheet
= Statement of Financial Position
working capital
A popular measure of a company's ability to pay its short-term debt that is measured as current assets minus current liabilities is _______________ ______________.
c
A ratio used to measure liquidity is the..? a. earnings per share ratio b. price to earnings c. quick ratio d. debt to equity ratio
When a company spends large amounts on research and development to obtain a patent on its own, the research and development cost is... a. Expensed as incurred b. Included in intangible assets c. Included in investments
Ans: a Details: Not all intangible assets are purchased; some are developed internally. For example, instead of purchasing a patent granting the exclusive right to manufacture a certain drug, a pharmaceutical company may spend significant amounts in research and development to discover the drug and obtain a patent on its own. For internally developed intangibles, none of the research and development costs incurred in developing the intangible asset are included in reported cost. Instead, *research and development costs are expensed as incurred*.
Which of the following are required disclosures for related-party transactions?
Amounts due to or from related parties Nature off the relationship
Retained Earnings
Amounts earned by the corporation on behalf of its shareholders and not yet distributed as dividends
a
An account that is used for instructional purposes instead of drawing a formal general ledger account is referred to as a(n) __________________ a. T-account b. dual account c. general account d. bank account
Probable future economic benefits obtained or controlled by particular entity as a result of past transactions or events are referred to as ____________________.
Ans: Assets Details: *Assets* - probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. Simply, these are the economic resources of a company.
Identify the primary goal of the FASB/IASB Financial Statement Presentation project?
Ans: Develop new common standards for presenting financial statements. Details: above
Who is currently working on the Financial Statement Presentation project?
Ans: FASB and IASB Details: In 2004, the FASB and IASB began working together on a project, Financial Statement Presentation, to establish a common standard for presenting information in the financial statements, including classifying and displaying line items and aggregating line items into subtotals and totals. This project could have a dramatic impact on the format of financial statements. An important part of the proposal involved the organization of elements of the balance sheet ( statement of financial position), statement of comprehensive income (including the income statement), and statement of cash flows into a common set of classifications.
Which of the following are noncurrent assets? a. Investments b. A/R c. Inventory d. Machines e. Property
Ans: a, d, e Details: Property, plant, and equipment (long-term, noncurrent asset) includes *land, buildings, equipment, machinery, furniture, and vehicles*, as well as *natural resources, such as mineral mines, timber tracts, and oil wells.*
investments
Assets not used directly in the operations of the business are referred to as ______________________.
Purchased equipment, paying cash for 60% and owing the rest.
Cash - Deceased Equipment - Increased Accounts Payable - Increased
Which of the following are changes in accountings estimates?
Changing the bad debt estimates. Changing the estimates for future warranty expense Changing the useful life of an asset.
Crimson Corp. has a component that is a discontinued operation. The revenues and expenses of the component were $200,000 and $240,000, respectively. The component was sold with a resulting loss of $160,000. The tax rate is 30%. What is the total gain or loss on discontinued operations (net-of-tax effects) that will be reported on the income statement? -$24,000 loss -$122,000 loss -$160,000 loss -$140,000 loss
$140,000 loss (-40,000-16,000)(1-0.30)=140,000 loss net-of-tax
Valuation methods used to display items on the balance sheet
(1) Book Value (2) Historical Cost
On June 15, Davis company pays 610 for May's utilities bill. Earlier, on May 31, Davis company had accrued the utility cost.
- An asset account decreases. - A liability account decrease.
Bryant Company receives money in advance of performing the service, 6,400
- An asset account increases - A liability account increases
Ross Company purchases 4,000 of merchandise on credit.
- An asset account increases. - A liability account increases.
The balance sheet account that depreciation is recorded to is: -Depreciation expense -Accumulated depreciation -Plant and equipment
-Accumulated depreciation
A transaction is an event that -Has a single effect on the accounting equation -Increases or decreases total assets -Has a dual effect on the accounting equation -Increases or decreases income
-Has a dual effect on the accounting equation
Transaction analysis involves which of the following? -Posting the entry to the general ledger -Identifying the accounts to be debited and credited -Closing the temporary accounts -Identifying the elements involved in the transaction
-Identifying the accounts to be debited and credited -Identifying the elements involved in the transaction
Inflows and outflows of cash involving the acquisition and sale of long-term assets are: -Investing activities -Operating activities -Financing activites
-Investing activities
The statement of shareholder's equity discloses the changes in the shareholder equity accounts during the period from: -Property, plant, and equiptment -Investments by owners -Distributions to owners -Other comprehensive income -Assets and liabilities -Net income
-Investments by owners -Distributions to owners -Other comprehensive income -Net Income
The process of transferring debit and credit information from the journal to the ledger is called: -Identifying -Recording -Posting -Analyzing
-Posting
Property, plant, and equipment is a(n)_____asset -short-lived -long-lived -tangible -intangible
-long-lived -tangible
An error is _____; fraud is _____ misappropriation of assets or fraudulent financial reporting -unintentional; unintentional -intentional; intentional -unintentional; intentional -intentional; unitentional
-unintentional; intentional
What is basic earnings per share?
.20 140K - 40K / 400K + 600K = .20
What is basic earnings per share?
0.16 per share
Indicate the order of the following current assets on the balance sheet -accounts receivable -cash and cash equivalents -prepaid expenses -inventory
1-cash and cash equivalents 2-accounts receivable 3-inventory 4-prepaid expenses
The two primary functions of financial accounting are to
1. communicate measurements to external parties 2. measure business activities
What are the four basic assumptions underlying U.S. GAAP
1.Periodicity 2.Economic Entity 3.Monetary Unit 4.Going Concern
Sales on account are 100K. Beginning accounts receivable is 20K, and ending accounts receivable is 15. What is the cash collected from customers during the period.
105K 100k + 20K = 120K - 15K = 105K
Tax expense is 100k for the period. The beginning balance in taxes payable is 20K, and the ending balance is 14K. What is the amount of taxes paid during the period?
106K 100K + 20K = 120K - 14K = 106K
On January 1 of the current year, Lafferty signs a contract to rent a building for 1K per month for the next three years. On that date, Lafferty pays 36K for rent. On January 1 when payment is made, what is the amount of the prepaid rent that should be classified as a noncurrent asset?
24k The portion of rent that will be paid within the next 12 months is classified as current and the remainder is classier as noncurrent.
Barsky Corp. has the following items: Cash / 5K Prepaid expenses / 2K Building / 40K Land / 20K Inventory / 15K
60K
Colter Corp. has the following information Sale of land = 10K Purchase of Inventory = 20K Purchase of building = 100K Collection from customers = 50K Sale of available-for-sale securities = 30K What is the net cash from investing activities?
60K 30K - 100K = 60K
The purpose of the balance is to report
A company's financial position on a specific date.
a
A temporary investment or short-term marketable security should be reported in which section of the balance sheet?
an obligation to pay a supplier within 30 days should be recorded in _ payable, whereas a signed promise to pay at some pint in the future should be recorded as _ payable.
Accounts Notes
A __________ firm will include finished goods, work in process, and raw materials as part of their inventory. a. Manufacturing b. Service c. Retail d. Wholesale
Ans: a Details: above
Which of the following are noncurrent assets? a. Inventory b. Land c. Building d. Intangible assets
Ans: b, c, d Details: See above about noncurrent assets
a
Applies to initial offerings of securities such as stocks or bonds a. 1933 securities act b. 1934 securities exchange act
The financial statement that displays a firm's financial position on a particular date is the () ().
Balance Sheet
Name 3 financial statements
Balance Sheet Income Statement Statement of Stockholder's Equity
A company's total assets minus its total liabilities as shown on the balance sheet is known as the _ value.
Book
Which of the following are noncurrent assets?
Building Land Intangible assets
Which of the following items are included in property, plant, and equipment?
Building Natural resource Land
Another term for net assets is _.
Equity
Unearned revenue represents cash received from a customer for goods or services to be provided in a(n) _ period.
Future
Assets are probable _ economic benefits as a result of _ transactions or events.
Future Past
The income statement is considered most useful for predicting.
Future profitability
Generally Accepted Accounting Principles are abbreviated as().
GAAP
Which of the following are cash flows from financing activities?
Insurance of common stock to investors. Borrowing from bank
Which of the following are subsequent event that must be disclosed in the notes to the financial statements.
Insurance of debt securities. Sale of a business. Event that affects a loss contingency.
As assets that has no physical substance is referred to as a(n) _ asset.
Intangible
Two items that are treated differently on the statement of cash flows for U.S GAAP and IFRS are
Interest Dividends
Differences arise between U.S GAAP and IFRS on the statement of cash flows due to different classifications of _ and _.
Interest and Dividends
Creditor
Lends money to the company
Describe a specific accounting scenario where management intent is likely to impact the classification of an item on the balance sheet. Also discuss how the use of management intent for balance sheet classification might be abused.
Management intent plays a part in the classification of many components of the balance sheet. For example, management intent often determines whether an asset or liability is classified as current or long-term (that is, whether management intends on liquidating the asset or liability within 12 months). Another example is the classification of short-term investments, between trading securities, available for sale securities, and held-to-maturity securities. The holding gains and losses for these three classifications of investments are treated differently. Therefore, using management intent for classification purposes could be abused, for example, if an equity investment is classified as an available-for-sale security instead of a trading security. (In other words, management could claim that their intent is to not actively trade the security, when in fact they actually do.) If the security has a holding / unrealized loss, then classifying it as an available-for-sale security results in a reduction to other comprehensive income instead of net income, which could artificially inflate net income for the period.
Non-GAAP earnings are
Management's estimates and view of earnings
The full-disclosure principle requires financial statements to provide all _ _ information regarding the company.
Material relevant
The full-disclosure principle requires financial statements to provide all material relevant information regarding the company.
Material relevant
The indirect method for preparing a statement of cash flows begins with _ _.
Net income
Any receivable not exited to be collected within year of the operating cycle, whichever is longer, is classified as a
Noncurrent asset.
Rice Company purchases a building for $500,000, which will be used as a production facility. How should the building be classified on the balance sheet?
Noncurrent asset.
Long term liabilities
Noncurrent or long lasting liabilities usually are those payable beyond the current year
Match the income statement item with the related cash flows.
Not reported - depreciation expense / gains and losses Cash paid to employees - salaries expense Cash paid to governments - tax expense
These are classified as long-term liabilities
Notes due in more than 1 yr, lease obligations, and pension obligations
GAAP requires that restructuring costs are recognized when?
Only in the period incurred.
The _ operating refers to the period of time necessary to convert cash to raw materials, raw materials to finished product to receive able, and then receivables back to cash.
Operating
Where are the elements of net income found on a cash basis rather than an accrual basis?
Operating activists section of the statement of cash flows
Insurance of Stock Prepaid Insurance Supplies Expense
Other changes to Stockholders' Equity Asset Expense
For financing activities, a cash_ occurs when a company purchases its own securities as treasury stock; a cash_ occurs when a company issues stock for cash to investors.
Outflow ; inflow
Investor:
Owns stock in the company
The purpose of the statement of cash invade which of the following?
Provide information about cash receipts that occurred during the period. Provide information about the cash disbursements that occurred during the period. Provide information about the financial activities that occurred during the period. Provide information about the investing activities that occurred during the period.
The purpose of the statement of cash flows included which of the following?
Provide information about the financing activities that occurred during the period. Provide information about cash disbursements that occurred during the period. Provide information about the investing activities that occurred during the period. Provide information about cash receipts that courted during the period
Significant non cash investing and financing activities are disclosed because they
Provide more complete information
which document is required to provide information on executive and director compensation?
Proxy Statement
Which of the following would result inn a cash outflow from investing activities?
Purchase of a machine for cash.
Borrowing or lending money at an interest rate significantly different from the market interest rate is likely example of a(n): _ _ transaction
Related Party
b
Related third-party transactions ________ required to be disclosed in the notes to the financial statements. a. are not b. are
Which of the following transaction would be classified as financing activities in the statement of cash flows?
Repayment of a long-term loan. Payment of cash dividends.
Income Statement (Contains)
Revenues & Expenses
Property, plant and equipment is a(n) _ asset.
Tangible Long-lived
retained earnings
The accumulated net income earned since the inception of the corporation and not yet paid to shareholders is referred to as ____________________ __________________
Accounts receivable represents which of the following?
The amount owned by customers.
c
The changes during the period to common stock and retained earnings is reports on the: a. balance sheet b. income statement c. statement of shareholders' equity d. statement of cash flows
A summary of significant accounting polices included information regarding.
The choice of accounting policies
b and d
The components of the income statement are usually classified as: (Select all that apply) a. investing items b. operating items c. financing items d. non-operating items
liquidity
The current ratio and the quick ratio are used to measure _________________ of a company indicating the ability to pay current obligations.
Monetary (money) assumption:
The dollar is used and is not adjusted for price level increases.
material relevant
The full-disclosure principle requires financial statements to provide all _______________ _______________ information regarding the company.
operational
The risk that a company may not effectively manage its business and might impair its ability to earn profits is known as _________________ risk
default
The risk that a company will not be able to pay its obligations when they come due is referred to as _______________ risk.
The direct method and indirect method of preparing the statement of cash flows result in
The same presentation of investing an financing activities The same net cash flows from operating activities
Which of the following statements is correct regarding the relationship between the cash balance in the balance sheet and the net change inn cash reported in the statement of cash flows?
The two amounts usually are not the same.
a & d
The two sources of stockholders' equity are amounts ______________.: (Select all that apply) a. earned by the corporation b. borrowed from related companies c. borrowed from banks d. paid in from shareholders
c
The type of analysis that examines the relationship of items on the financial statements of one year is called... a. horizontal analysis b. perpendicular analysis c. vertical analysis
Net cash flows from fianancing activities, represents the total inflows minus the total outflows or cash from financing activities.
True
false (cash equivalents)
True or false? Cashier's checks payable on demand are considered cash equivalents.
true
True or false? EITF rulings are ratified by the FASB and are considered a part of GAAP
true
True or false? Noncurrent investments that are immaterial must be disclosed in other long-term assets on the balance sheet.
false (less, not plus)
True or false? Retained earnings equals net income plus distributions to shareholders
true
True or false? WIP and raw materials are included in inventory
later
Unearned revenue represents cash received from a customer for goods or services to be provided in a(n) __________________ period.
Which of the following are characteristics of land, property and equipment?
Used long-term in production Tangible
Basic earnings per share is calculated as net income available to common shareholders divided by
Weighed average common shares outstanding.
b and d
What is included in a company's paid in capital? Select all that apply. a. RE b. additional PIC c. Comprehensive income d. Common stock
a and d
Which accounts are found on the statement of shareholders' equity? Select all that apply. a. common stock b. gain on sale of equipment c. accounts receivable d. retained earnings
a, c & d
Which of the following items are required disclosures in the notes to financial statements?: (Select all that apply) a. description of subsequent events b. marketing strategies c. related third-party transactions d. significant accounting policies
b
Which of the following items represents an expense paid in advance that creates benefits used in the future? a. cash equivalents b. prepaid expense c. accounts receivable d. inventory
a, c, d
Which of the following items requires supplemental disclosures in the notes to the financial statements? a. long-term debt b. items that are immaterial c. pension plans d. leases
b and e
Which of the following make up shareholders' equity? Select all that apply. a. assets purchased by the corporation b. amounts earned by the corporation c. liabilities owed by the corporation d. assets owned by the shareholders e. amounts invested by shareholders
b and d
Which of the following ratios are used to evaluate a company's ability to pay long-term debts? Select all that apply. a. Cash flow per share ratio b. Times interest earned ratio c. Current ratio d. Debt to equity ratio
The cumulative total of other comprehensive income report as ________ other comprehensive income
accumulated
Intangible Assets
an asset that has no physical substance
Assets
are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events
Money on hand and in banks that is available for use in the operations of the business is shown in the _____ account on the balance sheet
cash
cash and cash equivalents
cash and high liquid investments that are mature in three monthes or less
Investments
classified as noncurrent because management does not intend to convert the assets into cash in the next year investments in equity and debt securities of other corporations land held for speculations, noncurrent receivables and cash set aside for special purposes
Solvency and Liquidity
classifying items on the balance sheet as current and noncurrent assists financial statement users in assessing what aspects about a company
Net income is a part of -comprehensive income -gross income -costs of goods sold -gross margin
comprehensive income
Which user of financial information contributes financial resources to a company?
creditors
The two external users of financial accounting information that contribute financial resources to a company are:
creditors investors
Is a type of risk a company not being able to pay its obligations when they come due?
default risk
Classify each item as an Asset, a Liability, or a Change to Stockholders' Equity.
deferred Revenue / Liabilities Accounts payable / Liabilities Lee Corporation Issued Stock / Change to stockholders Equity Merchandise Inventory / Asset
What account is affected when a customer pays in advance for services to be performed in the future -accounts receivable -deferred revenues -notes payable -accounts payable
deferred revenues
Revenues, expenses, gains, losses, and income tax related to a(n) ______ must be removed from continuing operations and reported separately on the income statement
discontinued operations
Assets
economic resources of a company
An essential assumption in accounting is that all economic events can be identified specifically with an individual economic ().
entity
Items that require separate disclosure on the income statement after income from continuing operations are
extraordinary items and discontinued operations
True or false: Income tax expense may be disclosed either on the income statement or in the notes to to the financial statements
false
Inventories
finished goods or goods in the course of production and raw materials to be used in production
Equity
for a corporation is the residual interest in the assets of an entity tat remains after deducting liabilities (total assets minus total liabilities)
What is the principle that requires that financial statements provide all material relevant information concerning the entity? -going concern -full-disclosure -conservatism -realization
full-disclosure
The() assumption anticipates that a business will continue to operate indefinitely.
going concern
An extraordinary gain or lose is reported separately because
if it remains in income from continuing operations is distorts earnings, it materially affects current year income, and it is unlikely to occur again in the forseeable future
Any long-lived asset, whether tangible or intangible, should have its balance reduced if there has been a significant _____ of value
impairment
Intangible assets
intangible assets generally represent exclusive rights that a company can use to generate future revenues ex patents,copyrights, franchises
Patents, copyrights, and franchises are examples of what? -intangibles -investments -property -prepaid assets
intangibles
Janex Company manufactures refrigerators. Which of the following items would likely be included in the determination of non operating income on Janex's income statement? -manufacturing overhead -interest expense -cost of goods sold -general and administrative expenses
interest expense
Non-GAAP earnings are -historical earnings for the previous 3 years -a good performance measure because they are audited -management's estimates and view of earnings -exclusively used for financial analysis
management's estimates and view of earnings
Pro forma earnings are
managements estimates and view of earnings
Operating Cycle
manufacturing company refers to the period of time necessary to convert cash to raw materials, raw materials to a finished product, a finished product to a receivable, and the finally receivables back to cash.
The () unit assumption states that financial statement elements should be measured in terms of the U.S. dollar.
monetary
The type of income statement that reports a series of subtotals such as gross profit, operating income, and income before taxes is a _____ income statement -single-step -multiple-step -current -classified
multiple-step
Which of the following is included with the annual report to help evaluate a firm's financial performance and financial health? -proxy statements -press releases -note disclosures -marketing data
note disclosures
Accrued liabilities
obligations created when expenses have been incurred but amounts owed will not be paid until a subsequent reporting period
GAAP requires that restructing costs are recognized when? -only in the period incurred -the period incurred and the following period -allocated over several periods
only in the period incurred
The statement of cash flows classifies items as
operating, investing, financing
Balance sheets often include a catch-all classification of non current assets called _____ long-term assets
other
what is liquidity
period of time until a asset can be converted to cash or until a liability can be paid off
The() assumption allows the life of the company to be divided into artificial time periods to provide timely information.
periodicity
Which of the following items represents an expense paid in advance that creates benefits used in the future? -cash equivalents -prepaid expense -inventory -accounts receivable
prepaid expense
Current rato
referred to as working capital and is the difference between current assets and liabilities is is a popular measure of a companys ability to satisfy its short term obligations
what is long term solvency
refers to the riskiness of a company with regard to the amount of liabilities in its capital structure
Liability
represents obligations owed to other entities
A summary of significant accounting policies includes information regarding -management's intentions in the future -the choice of accounting policies -achievement of performance policies -the calculation of specific items
the choice of accounting policies
Which of the following is a subsequent event that must be disclosed in the notes to the financial statements? -the issuance of debt or equity securities -investments sold after the balance sheet date -inventory purchased after the balance sheet date -accounts receivable collected after the balance sheet date before the issuance of financial statements
the issuance of debt or equity securities
In every journal entry debits must equal credits?
true
The Fundamental Model of business valuation is commonly referred to as?
Accounting Equation
Beginning inventory was $50,000. Inventory purchased during the year cost $75,000. Inventory on hand at year-end was $40,000. Cost of goods sold was: -$75,000 -$165,000 -$125,000 -$85,000 -$65,000
$85,000
Ramirez Company pays the current month's rent on office space, 2,300
- An asset account decreases. - Retained earnings decreases
Which of the following describe long-term liabilities? -they require the creation of current liabilities for payment -they require the use of current assets -they do not require the use of current assets -they do not require the creation of current liabilities for payment
- they do not require the use of current assets -they do not require the creation of current liabilities for payment
Accruals involve transactions where the cash outflow or inflow takes place in a period _____ expenses or revenue recognition -After -The same as -Before
-After
Interest earned, but not yet received is an example of: -An accrued receivable -A prepaid expense -An accrued expense
-An accrued receivable
Butler Company sends invoices to all clients for services rendered for a total of 4,950
-An asset account increases. - Retained earnings increases.
When are adjusting entries recorded? -At the end of a period when preparing financial statements -When any external transaction or event occurs -After closing entries are prepared for the period -At the beginning of each reporting period
-At the end of a period when preparing financial statements
A deferred revenue liability appears on the balance sheet for: -Cash received before revenue is earned -Cash received at the same time revenue is earned -Revenue earned before cash is collected
-Cash received before revenue is earned
On October 1, 2017, Swift Corporation received $1,200 from customers for services to be performed evenly over the next 12 months. Swift recorded the original transaction in a balance sheet account. The adjusting journal entry on December 31, 2017, will include which of the following entries? -Debit revenue $300 -Debit to deferred revenue $300 -Credit deferred revenue $1,200 -Credit to revenue $1,200
-Debit to deferred revenue $300
Which of the following is true regarding a trail balance? -Total debits equals the total assets -Debits must equal credits -Assets equal liabilities -The amount in retained earnings is ending retained earnings
-Debits must equal credits
Which of the following are permanent accounts? -Revenue -Equipment -Cost of goods sold -Common stock -Cash
-Equipment -Common stock -Cash
Prepaid expenses are: -Expensed in a later period than cash was paid -Expenses incurred before cash is paid -Expenses paid at the time incurred
-Expensed in a later period than cash was paid
Inflows and outflows of cash from transactions with creditors and owners are: -Operating activities -Investing activities -Financing activities
-Financing activities
True or false: Shareholder's equity includes only retained earnings and the accounts associated with retained earnings
-Flase
Which of the following are examples of prepayments? -Purchasing supplies that will be used later -Revenue collected when it is earned -Expense paid when it is incurred
-Purchasing supplies that will be used later
One of the purposes of adjusting entries is to: -Make assets equal liabilities plus owner's equity -Recognize all revenues earned during the period -Ensure debits equal credits -Record all external transactions at the end of the year
-Recognize all revenues earned during the period
Operating items include: -Revenues from the principal revenue-generating activities of the company -Revenues and expenses from peripheral activities -Gains and losses from peripheral activities -Expenses from the principal revenue-generating activities of the company
-Revenues from the principal revenue-generating activities of the company -Expenses from the principal revenue-generating activities of the company
Which statement reports the changes in shareholder's equity during the period that were not a result of transaction by owners -The statement of cash flows -The balance sheet -The statement of comprehensive income -The income statement
-The statement of comprehensive income
Which of the following would most likely affect earnings quality? -accelerating revenue recognition -losing a major customer -delaying payment of liabilities
-accelerating revenue recognition -losing a major customer
Which of the following would most likely affect earnings quality? -delaying payment of liabilities -accelerating revenue recognition -losing a major customer
-accelerating revenue recognition -losing a major customer
If a component of the business qualifies for discontinued operations treatment, which of the following statements are true? -Revenues from the discontinued operations is listed immediately below revenue in the operating section of the income statement -all related revenues, expenses, gains, and losses, must be removed from continuing operations -the tax expense effect is removed from continuing operations -revenues and expenses are reported in continuing operations , but gains and losses are reported as discontinued operations
-all related revenues, expenses, gains, and losses, must be removed from continuing operations -the tax expense effect is removed from continuing operations
Which of the following are common disclosures on the face of a financial statement? -allowance for uncollectible accounts -common stock information -lease obligations -pension plan details
-allowance for uncollectible accounts -common stock information
Schwinn is a company that makes bicycles. Which of the following items would be included in Schwinn's inventory? -Bicycle tires -finished bicycles -salary for salesperson -bicycle chains
-bicycle tires -finished bicycles -bicycle chains
Which of the following are likely examples of a related-party transaction? -purchasing goods from independent suppliers -borrowing or lending money at an unusually low interest rate to an affiliated company -selling goods to affiliated companies -loaning money to officers and directors
-borrowing or lending money at an unusually low interest rate to an affiliated company -selling goods to affiliated companies -loaning money to officers and directors
The ending balance of accumulated other comprehensive income is calculated by adding this amount to the beginning balance of accumulated other comprehensive income -current year net income -current year other comprehensive income -prior year total comprehensive income
-current year other comprehensive income
Which of the following are required disclosures for related-party transactions? -name of the related party -description of transaction -dollar amount of transaction -nature of the relationship
-description of transaction -dollar amount of transaction -nature of the relationship
U.S. GAAP requires that a statement of cash flows must be presented for -each period in which an income statement is not prepared -every reporting period to date -each period for which a balance sheet and income statement are prepared
-each period for which a balance sheet and income statement are prepared
The two sources of stockholders' equity are amounts_____ -borrowed from related companies -earned by the corporation -borrowed from banks -paid in from shareholders
-earned by the corporation -paid in from shareholders
Which of the following items are included in calculating operating income? -expenses related to peripheral activities -expenses related to primary revenue-generating activities - revenues related to primary revenue-generating activities -revenues related to peripheral activities
-expenses related to primary revenue-generating activities - revenues related to primary revenue-generating activities
Which of the following are considered illegal acts? -illegal contributions -kickbacks -unintentional distortion of financial statements -bribes
-illegal contributions -kickbacks -bribes
The advantages of a multiple-step income statement is -it reports expenses by function -it reports the relationships between various items -it is simpler to prepare than a single-step income statement -it provides more information than a single-step income statement
-it reports expenses by function -it reports the relationships between various items -it provides more information than a single-step income statement
Which of the following items requires a supplemental disclosures in the notes to the financial statements? -items that are immaterial -leases -pension plans -long-term debt
-long-term debt -leases -pension plans
Which of the following items are considered cash equivalents? -cashier's checks payable on demand -notes receivable -money market funds quickly converted into cash -commercial paper due in less than 3 months
-money market funds quickly converted into cash -commercial paper due in less than 3 months
Which of the following items are included in investments? -note receivable due in 5 years -accounts receivable due in 60 days -cash reserved to purchase land -inventory on hand
-note receivable due in 5 years -cash reserved to purchase land
A component is qualified as a discontinued operation. What are the two elements that may be reported in discontinued operations on the income statement if the component is not sold by the end of the reporting period? -operating income or loss from the component and an impairment loss both reported without consideration of the tax effect -estimated gain on sale of the component and the related tax effects -operating income or loss from the component and an impairment loss both reported on a net of tax basis -revenues and gains of the component for the period
-operating income or loss from the component and an impairment loss both reported on a net of tax basis
Shareholders' equity is composed of which of the following accounts -retained earnings -deferred revenues -long-term liabilities -paid-in capital
-retained earnings -paid-in capital
Identify which items on an income statement are included in calculating income from continuing operations -revenue -loss -discontinued operations -income tax
-revenue -loss -income tax
At what amount are the liabilities of a discontinued operation held for sale reported in the balance sheet? -the book value plus the expected gain on sale -the lower of the book value or fair value less costs to sell -the maturity value of the liability -the present value of future cash flows
-the lower of the book value or fair value less costs to sell
Rainer Corp. has the following information: Sale of building = 100K Sale on account: 40K Purchase of land = 30K Collection from customers = 50K Issue of stock = 30 K What is the net cash flow from investing activities?
70K 100,000 - 30,000 = 70K
Carol Corp. has a component that is a discontinued operation. The revenues and expense of the component were 100K and 160K respectively. The component was sold with a resulting gain of 200K. The tax rate is 40%. What is the total gain or loss on discontinued operations (net-of-tax effects) that will be reported on the income statement.
84K gains 100K - 160K = 60K 60K + 200K = 140K x (1-.40) = 84K
d
A ________________ satisfied within 1 year or the current operating cycle, whichever is longer. a. noncurrent asset b. noncurrent liability c. current asset d. current liability
Discuss the role of management intent in the preparation of a classified Balance Sheet, including two variations in reporting that could result, depending upon specific intentions that may be present, for at least two components of the Balance Sheet
A classified Balance Sheet separates assets and liabilities between current and non-current (or long-term). Determining whether an asset or liability is current or non-current depends very much on management intent. The classification of current is used for assets that are expected to convert to cash within 12 months or liabilities that are expected to be paid or come due within 12 months. Accounts receivable would normally be classified as current, but only if management intends on collecting the balances within 12 months. If not, then accounts receivable would be non current. Similarly, management's intention with regard to paying interest owed, for example, would determine whether the interest payable liability is reported as a current liability or a non-current liability. Even the most liquid of assets, cash, could be reported as a non-current asset if, for example, it has been set aside and restricted (for management's intention) to pay off debt or expand facilities
book
A company's total assets minus its total liabilities as shown on the balance sheet is known as the ____________ value.
In addition to the primary activities, what other required information must be presented in a statement of cash flows?
A reconciliation of the net increase or decrease in cash with the change in the cash balance. Noncash investing and financing activities.
d
A situation that requires an adjusting entry that is not a prepayment or an accrual entry is..? a. collecting cash from customers b. paying suppliers on account c. closing the accounts at year-end d. estimating bad debt
a and c
Abbey is preparing the closing journal entries for the year. To close the revenue accounts, Abbey should? Select all that apply a. credit income summary b. credit revenue c. debit revenue d. debit income summary
Received utilities bill but did not pay it until the following month.
Accounts Payable - Increased Retained Earnings - Deceased - Expense
Billed clients on credit for services rendered to date.
Accounts Receivable - Increased Retained Earnings - Increased - Revenue
Which of the following concepts governs recognition of revenue and expense?
Accrual accounting
The statement of cash flow is useful because
Accrual-based income is not an indicator ion of cash flows.
An expense that has been incurred but not yet paid results is a(n)
Accrued liability
Which of the following are significant noncash activities?
Acquiring equipment by issuing a long-term note. Acquiring land by issuing common stock.
Under the indirect method of deriving net cash flows from operating activities, decreases in assets relating to operating activities must be
Added to net income.
Under the indirect of deriving net cash flows from operating activities, increases in liabilities relating to operating activities must be
Added to net income.
disclosures
Additional ________________ are critical to understanding financial statements and to evaluating a firm's performance.
a and b
Adjusting journal entries are needed to record (Select all that apply). a. Revenue earned, but not yet received b. Expense incurred, but not yet paid c. Cash that has been collected from customers d. Cash that has been paid for expenses
The indirect method of statement of cash flow preparation
Adjustments for changes in liabilities to reconcile the difference between accrual net income and cash paid or received. Adjusts for changes in assets to reconcile the difference between accrual net income and cash paid or received. Adds back depreciation expense because it affects net income but does not reduce cash.
Periodicity (Period) assumption
All companies must summarize their financial transactions periodically.
If a component of the business qualifies for discontinued operations treatment, which of the following statements are true?
All related revenues, expenses, gains and losses use be removed from continuing operations. The tax expense effect is removed from continuing operations.
If a component of the business qualifies for discontinued operations treatment, which of the following statements are true?
All related revenues, expenses, gains, and losses must be removed from continuing operations. The tax expense effect is removed from continuing operations.
Describe in detail how estimates influence Balance Sheet reporting, including at least two example components from the Balance Sheet that are clearly influenced by estimation.
Almost all components of the Balance Sheet are likely influenced by estimates. Estimates are often necessary because needed information for exact determination of amounts to report will not be available until sometime in the future. For assets, estimates help to determine the value to report, in some cases using historical cost and in other cases using fair value. Estimates also can influence liabilities, in determining amounts to report for obligations. Two specific examples where estimates influence reporting on the Balance Sheet are (1) allowance for doubtful accounts, which is estimated based on either a percentage of credit sales or a percentage of accounts receivable and (2) premium on bonds payable, which is valued based on estimates of current market rates applicable to a certain variety of debt instrument. Many other examples exist
Accounting
An information system that measures, records, classifies records and reports economic information of a business entity for a period of time, in terms of money.
c
Another term for equity is ___________________. a. revenue less expenses b. total assets c. net assets d. retained earnings
a
Another term for equity is: a. Net assets b. Retained earnings c. Revenue less expenses d. total assets
Assets not used directly in the operations of the business are called what? a. Inventories b. Investments c. Property d. Prepaid assets
Ans: Details: *Investments*- Most companies occasionally acquire assets that are not used directly in the operations of the business. These assets include investments in equity and debt securities of other corporations, land held for speculation, long-term receivables, and cash set aside for special purposes (such as for future plant expansion). These assets are classified as long-term because management does not intend to convert the assets into cash in the next year (or the operating cycle if that's longer).
On January 1 of the current year, Lafferty signs a contract to rent a building for $1,000 per month for the next three years. On that date, Lafferty pays $36,000 for rent. On January 1 when payment is made, what is the amount of the prepaid rent that should be classified as a noncurrent asset?
Ans: $24,000 Details: Whether a prepaid expense is current or noncurrent depends on when its benefits will be realized. For example, if rent on an office building were prepaid for one year, then the prepayment is classified as a current asset. However, if rent were prepaid for a period extending beyond the coming year, a portion of the prepayment is classified as an other asset, a long-term asset.
___________________ _____________________ result from the sale of goods or services on credit.
Ans: Accounts Receivable Details: *Accounts receivable* - result from the sale of goods or services on credit (discussed in Chapter 7). Accounts receivable often are referred to as *trade receivables* because they arise in the course of a company's normal trade. Nontrade receivables result from loans or advances by the company to individuals and other entities. When receivables are supported by a formal agreement or note that specifies payment terms they are called notes receivable
The current versus noncurrent classification applies to what in the financial statements?
Ans: Assets and Liabilities Details: The usefulness of the balance sheet is enhanced when assets and liabilities are grouped according to common characteristics. The broad distinction made in the balance sheet is the current versus long-term (non-current) classification of both assets and liabilities.
Which of the following financial statements shows a firm's financial position on a particular date?
Ans: Balance sheet Details: The purpose of the balance sheet, sometimes referred to the statement of financial position, is to report a company's financial position on a particular date. The balance sheet presents an organized array of assets, liabilities, and shareholders' equity at a point in time. It is a freeze frame or snapshot of financial position at the end of a particular day marking the end of an accounting period
A company's total assets minus its total liabilities as shown on the balance sheet is known as the ________________ value.
Ans: Book value Details: Despite its usefulness, the balance sheet has limitations. One important limitation is that a company's book value, its reported assets minus liabilities as shown in the balance sheet, usually will not directly measure the company's market value. Market value is the amount someone would be willing to pay to own the company. For a company with publicly traded stock, market value can easily be computed as the current stock price times the number of shares outstanding.
Money on hand and in banks that is available for use in the operations of the business is shown in the ___________________ account on the balance sheet.
Ans: Cash Details: The most liquid asset, cash, is listed first. Cash includes cash on hand and in banks that is available for use in the operations of the business and such items as bank drafts, cashier's checks, and money orders.
A signed contract with a customer for him to pay his balance owed (related to a previous purchase) in equal monthly installments, plus interest, over the next 24 months. Reported as what on the balance sheet?
Ans: Current Assets and Other Assets (or long term investments) Details: The described notes receivable includes payments to be received within the next year but also additional payments beyond a year. So, it would be reported as both a current asset (for the portion due within a year) and a non-current asset (for the portion due beyond a year), either as OA or LTI
An agreement to replace or repair any appliances that the company sold, for one year after the date of sale. Reported as what on the balance sheet?
Ans: Current Liability Details: Because the warranty only covers the products for one year from the date of sale, the entire obligation is expected to "come due" within one year of the Balance Sheet date and thus it is only a current liability.
Pension obligations are generally not reflected on the Balance sheet of most companies, because it is impossible to know in advance when eligible employees will retire and for how long they will live after retiring. True or False
Ans: False Details: It is true that recording pension obligations requires considerable estimation. But, so do many other amounts that we record and report. An actuary is usually hired to provide estimates for retirement ages, future salaries, and lifespans, so that an appropriate obligation can be recorded and reported.
Land held for speculation is reported in the property, plant, and equipment section of the balance sheet. True or False
Ans: False Details: Only fixed assets in use in the business can be reported in the PP&E section. Land held for speculation would likely be reported as long-term investments.
For highly-liquid companies, the quick ratio will usually be substantially higher than 1.00 and also substantially higher than the current ratio for the same date. True or False
Ans: False Details: The usual threshold for adequate liquidity using the current ratio sometimes is lower than 1.00. The bigger issue here is that the quick ratio can never be higher than the current ratio (for the same company on the same date), because they both have the same denominator but the quick ratio excludes non-liquid current assets such as inventory and prepaids from the numerator.
Another term for equity is?
Ans: Net assets Details: *Equity* - (or *net assets*), called shareholder's equity or stockholders' equity for a corporation, is the residual interest in the assets of an entity that remains after deducting liabilities. Stated another way, *equity equals total assets minus total liabilities*.
The time period necessary to convert cash to raw materials, convert raw materials into finished products, sell the products, and collect on the account receivable is referred to as the ________ cycle.
Ans: Operating Details: Above
Investments in stock and debt securities of other corporations are included as ____________ if the company has the ability and intent to sell them within the next 12 months.
Ans: Short-term investments Details: Liquid investments not classified as cash equivalents are reported as *short-term investments*, sometimes called temporary investments or short-term marketable securities. Investments in stock and debt securities of other corporations are included as short-term investments if the company has the ability and intent to sell those securities within the next 12 months or operating cycle, whichever is longer.
What is the role of the auditors attest function?
Ans: To provide an opinion on the financial statements Details: Auditors examine financial statements and the internal control procedures designed to support the content of those statements. Their role is to attest to the fairness of the financial statements based on the examination. The auditors' attest function for public business entities results in an opinion stated in the *auditor's *report
Notes Receivable, including any associated premium or discount, is initially recorded at fair value; however, for late Balance Sheet dates, it is NOT reported at fair value. True or False
Ans: True Details: The computation of the premium or discount associated with a notes receivable issuance is based on the present value of the future cash flows related to the note, which considers the market rate of interest for similar notes on the date of issue. As such, the initial recorded amount, with the premium or discount included, should reflect the fair value for the note. However, in later periods, the premium or discount will be amortized using the effective interest method. Because the market rates will change, though, and because the amortization process continues to use the market rate as of the issuance date, the note will not generally be reported at fair value on later dates.
Which of the following assets would NEVER be reported at fair value on the Balance Sheet? a. Held-to-Maturity Investments b. Inventory c. Patent d. Trading Securities
Ans: a Details: Held-to-Maturity investments are reported at amortized cost, which would generally not equal fair value. Inventory is reported at the lower-of-cost-or-market, so it could be at historical cost or it could be at market/fair value. A patent is generally reported at historical direct cost, offset by accumulated amortization, although it could be reduced to market value if it satisfies all of the conditions for impairment. Trading securities are reported at fair value on the Balance Sheet date, with unrealized gains and losses included in net income.
An investment should be classified as current on the balance sheet if... a. It will be sold within 12 months b. Management has the intent and ability to liquidate it in the near term c. It does not have a maturity date. d. It is an investment of stock in another company
Ans: a, b Details: Investments in stock and debt securities of other corporations are included as short-term investments if the company has the ability and intent to sell those securities within the next 12 months or operating cycle, whichever is longer
Which of the following are common characteristics of property, plant, and equipment? a. Tangible b. Used in normal operations c. Used within 1 year or the operating cycle, whichever is longer d. Intangible e. Long lived
Ans: a, b, e Details: Virtually all companies own assets classified as property, plant, and equipment. The common characteristics these assets share are that they are *tangible, long-lived, and used in the operations of the business*. Property, plant, and equipment often are the *primary revenue-generating assets* of the business
A liability has which of the following characteristics? a. It is a probable future sacrifice of an economic benefit. b. It is a probable future economic benefit. c. It is a present obligation. d. It is due to a past transaction or event.
Ans: a, c, d Details: *Liabilities* - Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions of events. Simply, these are the obligations of a company.
Current ____________ include cash and other items that will be converted to cash or consumed within the coming year.
Ans: assets Details: Current Assets - include cash and other assets that are reasonably expected to be converted to cash or consumed within the coming year, or within the normal operating cycle of the business if that's longer than one year. The operating cycle for a typical merchandising or manufacturing company refers to the period of time from the initial outlay of cash for the purchase of inventory until the time the company collects cash from a customer form the sale of inventory.
Goodwill is shown on the balance sheet a. When a company has loyal customers and well trained employees. b. When one company acquires another company for a price above the fair value of the assets acquired c. When one company acquires another company for a price below the fair value of the assets acquired. d. When a company has a reputable management and executive team.
Ans: b Details: Another common type of intangible asset is goodwill. Goodwill isn't associated with any specific identifiable right, but instead arises when one company acquires another company. The amount reported for goodwill equals the acquisition price above the fair value of the identifiable net assets acquired.
What is the criterion to classify an investment as a cash equivalent versus a short-term investment? a. It is an investment in stock of another company that is held for active trading b. It is a highly liquid investment with a maturity date of 3 months or less from date of purchase c. It is a marketable security being held for sale d. It is a short-term investment with a maturity date of 12 months or less.
Ans: b Details: Most companies draw a distinction between investments classified as cash equivalents and the next category of current assets, short-term investments, according to the scheduled maturity of the investment. It is common practice to classify investments that have a maturity date of *three months or less* from the date of purchase as cash equivalents.
If a company's long-term investments are not material in amount, where should they be disclosed on the balance sheet? a. Intangible assets b. Other assets c. Cash and cash equivalents d. Goodwill
Ans: b Details: Other assets might also include any long-term investments that are not material in amount and that were not reported separately in the long-term investments category discussed earlier. In the disclosure notes to its financial statements
Cash set aside for future plant expansion and a 3-year note receivable are both examples of what on a company's balance sheet? a. Other assets b. Investments c. Property, plant, and equipment d. Intangible assets
Ans: b Details: See above
Assume a company has a policy that unused vacation leave can be carried over from year to year if not used. Also assume that employees of the company are expected to work for, on average, 15 more years and that, because of a staff shortage and busy work demands, no employees are expected to use vacation leave in the next year. Which of the following would be the proper Balance Sheet classification for compensable vacation leave? a. Current Liability b. Non-Current Liability c. Both Current and Non-Current Liability d. Neither Current Liability nor Non-Current Liability.
Ans: b Details: Because none of the employees are expected to use vacation leave in the next year, even though they are eligible to do so, the entire liability should be classified as non-current/long-term. This is an example of using management intent or expectations to classify appropriately on the Balance Sheet.
Which of the following items should not be included in cash and cash equivalents in the balance sheet? a. cashier's checks b. restricted cash c. Treasury bills d. Money market funds
Ans: b Details: Cash that is restricted for a special purpose and not available for current operations should not be included in the primary balance of cash and cash equivalents. *These restrictions could include future plans to repay debt, purchase equipment, or make investments*. *Restricted cash* is classified as a current asset if it is expected to be used within one year. Otherwise, restricted cash is classified as a long-term asset.
How should income taxes payable that are due to be paid on March 15th, 2015, but that the company does not expect to be able to pay until 2016 (or late), be reported on the December 31st, 2014 Balance Sheet? a. Current Liability b. Non-Current Liability c. Both (a) and (b) d. Neither (a) nor (b)
Ans: b Details: Even though the payable is due to be paid within one year of the Balance Sheet date, it should be reported as a non-current liability if the company does not expect to actually pay the debt within that time period. Management intent overrules liability due date when the two would result in different classifications.
Which of the following lists represents (in order) the most appropriate Balance Sheet classifications for unearned revenues, notes payable, preferred stock, and accumulated depreciation, respecitvely? a. Current Liabilities, Non-Current Assets, Investments, and Intangible Assets b. Current Liabilities, Non-Current Liabilities, Capital Stock, and Property, Plant, and Equipment c. Retained Earnings, Non-Current Assets, Capital Stock, and Intangible Assets d. Retained Earnings, Non-Current Liabilities, Investments, and Property, Plant, and Equipment
Ans: b Details: none
Which of the following items are considered to be cash equivalents? a. Cashier's checks payable on demand b. Commercial paper due in less than 3 months c. Money market funds quickly converted into cash d. N/R
Ans: b, c Details: *Cash equivalents* frequently include certain negotiable items such as *commercial paper, money market funds, and U.S. treasury bills*. Cash equivalents are highly liquid investments that can be quickly converted into cash.
Schwinn is a company that makes bicycles. Which of the following items would be included in Schwinn's inventory? a. Salary for salesperson b. Bicycle chains c. Finished bicycles d. Bicycle tires
Ans: b, c, d Details: *Inventories* for a *wholesale or retail company* consist of *finished goods* for sale to customers. For example, you buy finished goods such as shoes and athletic wear from Nike, potato chips at Costco, school supplies at Staples, and a new shirt at Gap. However, the inventory of a *manufacturer* will include not only finished goods, but also *goods in the course of production* (work in process) and goods to be consumed directly or indirectly in production (*raw materials*). Manufacturers typically report all three types of inventory either directly in the balance sheet or in a disclosure note Inventories are reported as current assets because they normally are sold within the operating cycle.
Which of the following items is classified as cash? a. Treasury bills b. Investment in stock of another company c. Bank drafts d. A/R
Ans: c Details: The most liquid asset, *cash*, is listed first. Cash includes cash on hand and in banks that is available for use in the operations of the business and such items as *bank drafts, cashier's checks, and money orders*.
Zantrol Corp. pays $100,000 for robotic equipment to be used in its production facility. Zantron should include this transaction as.... a. An increase in inventory b. Equipment expense on the income statement. c. An increase in plant, property, and equipment.
Ans: c Details: Above, everything involving PPE These various assets usually are reported as a single amount in the balance sheet, with details provided in a note. They are reported at original cost less accumulated depreciation (or depletion for natural resources) to date. Quite often, a company will present only the net amount of property, plant, and equipment in the balance sheet and provide details in a disclosure note.
Which of the following note disclosures is likely to occur for essentially all companies and periods? a. Pension Plans b. Subsequent Events c. Summary of Significant Accounting Policies d. All of the above
Ans: c Details: Almost every company will include a note that summarizes the significant accounting policies utilized, such as the inventory and depreciation methods used. That is usually either the first or second note. Some companies will have a pension plan note, but usually only if they have a defined-benefit pension plan. The subsequent events note is only included if a noteworthy transaction occurred between the end of the fiscal year and the issuance of the fin statement.
Which of the following would be most helpful in assessing solvency (the longer-term likelihood that a company will be able to pay its obligations) a. Asset Turnover Ratio b. Current Ratio c. Debt to Asset Ratio d. Return on Equity Ratio
Ans: c Details: Solvency relates to the long-term ability of a company to pay its debts, which is most commonly measured using the debt-to-assets ratio. That ratio divides total liabilities by total assets, so lower values are more desirable.
If an investor wants to know the useful lives that a company's management uses for depreciation of different property, plant, and equipment assets, what part of the Annual Report would provide that information? a. Financial Statements b. Management's Discussion and Analysis (MD&A) c. Notes to the Financial Statements d. None of the above (i.e. such information is not generally provided)
Ans: c Details: The financial statements might well indicate the depreciation expense for the period and the accumulated depreciation to date, but it is usually a note disclosure specific to PP&E that indicates the useful lives estimated for each asset type.
The two sources of stockholder's equity are amounts _____________ a. Borrowed from related companies b. Borrowed from banks c. Paid in from shareholders d. Earned by the corporation
Ans: c, d Details: Shareholders' equity for a corporation arises primarily from: *Paid-in capital* - is the amount that shareholders have invested in the company. It most often arises when the company issues stock. *Retained earnings* - represents the accumulated net income reported by a company since its inception minus all dividends paid to shareholders. In other words, it's the accumulated lifetime profits a company has earned for its shareholders but has not yet distributed to those shareholders. The fact that a company does not pay all of its profits each year as dividends is not necessarily a bad thing from the shareholders' perspective. Instead of paying additional cash dividends, Nike's management can put those undistributed profits to productive use, such as buying additional inventory or equipment or paying liabilities as they come due.
Other assets represent... a. A catch-all category of current assets b. Assets that are immaterial c. Any asset other than cash or cash equivalents d. A catch-all category of noncurrent assets
Ans: d Details: This category of long-term assets (reported by most companies) represents a *catch-all classification of long-term assets* that were not reported separately in one of the other long-term classifications. This amount most often includes long-term prepaid expenses, called deferred charges
How are accounts receivable classified on the balance sheet? a. Current liability b. Noncurrent liability c. Noncurrent asset d. Current asset
Ans: d Details: Accounts receivable usually are due in *30 to 60 days*, depending on the terms offered to customers and are, therefore, classified as current assets. Any receivable, regardless of the source, not expected to be collected within one year or the operating cycle, whichever is longer, is classified as a long-term asset, investments.
Inventories held for sale in the normal course of business are classified in the balance sheet as... a. Noncurrent liabilities b. Noncurrent assets c. Current assets d. Current liabilities
Ans: d Details: Inventories are reported as current assets because they normally are sold within the operating cycle.
What asset is listed as a separate item on the balance sheet because it has an unlimited life and is not depreciated? a. Furniture b. Investments c. Buildings d. Land
Ans: d Details: Land often is listed as a separate item in this classification because it has an unlimited useful life and thus is not depreciated
Which of the following items represents an expense paid in advance that creates benefits used in the future? a. A/R b. Inventory c. Cash equivalents d. Prepaid expense
Ans: d Details: a prepaid expense represents an asset recorded when an expense is paid in advance, creating benefits beyond the current period. Examples are prepaid rent and prepaid insurance. Even though these assets are not converted to cash, they would involve an outlay of cash if not prepaid.
The net assets of a business are equal to which of the following? a. Current Assets minus Current Liabilities b. Total Assets plus Total Liabilities c. Total Assets minus Total SHE d. None of the above
Ans: d Details: Net assets (which is the same amount as total stockholder's equity, based on the accounting equation) equals total assets minus total liabilities. Note that answer (a), current assets minus current liabilities, is the definition of working capital. Neither answer (b) nor answer (c) are common measures, although answer (c) should equal total liabilities.
Which of the following descriptions does NOT represent one of the limitations of the Balance Sheet, as discussed? a. Goodwill is not reported as an asset when it is internally developed b. Land is reported at the cost of acquiring it and readying it for use c. Receivables are reported net of estimated bad debts d. Trading Securities are reported at fair value
Ans: d Details: The three limitations of the Balance Sheet, as discussed, are (1) that most assets and liabilities are reported at historical cost, which relates to choice (b) (2) that judgments and estimates influence reported amounts, which relates to choice (c) (3) That many items of value are omitted, which relates to choice (a). Choice (d) actually is perceived as a positive attribute of the Balance Sheet, in that it varies from the otherwise presented limitation of reporting at historical cost.
The order of the following current assets on the balance sheet: a. A/R b. Inventory c. Prepaid expenses d. Cash and Cash Equivalents
Ans: d -> a -> b -> c Details: In keeping with common practice, the individual current assets are listed in the order of their liquidity (the ability to convert the asset to cash)
An asset that has no physical substance is referred to as a(n) ______________ asset.
Ans: intangible Details: Some assets used in the operations of a business have *no physical substance*. These assets are appropriately called *intangible assets*. Many intangible assets grant an exclusive right to a company to provide a product or service. This right can be a valuable resource in generating future revenues. Patents, copyrights, franchises, and trademarks are examples. Intangible assets generally are reported in the balance sheet at their purchase price less accumulated amortization
Rice Company purchases a building for $500,000, which will be used as a production facility. How should the building be classified on the balance sheet?
Ans: noncurrent asset Details: When assets are expected to provide economic benefits beyond the next year, or operating cycle, they are reported as long-term (or noncurrent) assets. Typical classifications of long-term assets are as follows: -Investments -Property, plant, and equipment -Intangible assets -Other long-term assets
a
Any information useful to decision makers should be provided in the financial statement, subject to the cost effectiveness constraint. This describes which accounting principle? a. full-disclosure principle b. historical cost principle c. Realization principle d. Matching principle
b
Applies to secondary market transactions. Mandates reporting for publicly traded companies. a. 1933 securities act b. 1934 securities exchange act
If a discontinued operation is held for sale and there is an impairment loss, what are the acceptable methods fro disclosing the impairment loss?
As a disclosure note in the notes to the financial statements. Parenthetically on the face of the income statement in discontinued operations.
How are discontinued operations reported?
As a separate line item on the income statement. Below income from continuing operations. With separate reporting of the tax effect on the item of discontinued operations.
Income tax expense is reported in what way on the income statement.
As a separate line item.
Which of the following is. Probable future economic benefit obtained or controlled by a particular entity as a result of past transaction or events?
Asset
Accounts Receivable Salaries Expense Service Revenue Deferred Revenue
Asset Change to Stockholders' Equity Change to Stockholders' Equity (Revenue) Liability
Below are four items from the financial records of Smith Corporation: Land Deferred Revenue Salaries Expense Service Revenue
Asset Liability Change to Stockholders' Equity Change to Stockholders' Equity
Current _ include cash and other items that will be converted to cash consumed within the coming year.
Assets
Probable future economic benefits obtained or controlled by a particular entity as a result of pat transactions or events are referred to as _.
Assets
What are a company's resources?
Assets
The current versus noncurrent classification applies to what in the financial statements?
Assets and liabilities
Which of the following are limitations of the balance sheet?
Assets minus liabilities is not representative of the company's true market value. The balance sheet is heavily on estimates rather than determinable amounts.
Balance Sheet (Contains)
Assets, Liabilities, & Stockholder's Equity
What is the Accounting Equation
Assets=Liabilities + Stockholder's Equity
The role of a(n) )_ is to attest to the fairness of the financial statements they have examined.
Auditor
Which of the following financial statements shows a firm's financial position on a particular date?
Balance sheet
Which of the following items is classified as cash?
Bank drafts
Which of the following is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding?
Basic earnings per share
Which of the following is computed by dividing income available to common shares holders by the weighted-average number of common shares outstanding?
Basic earnings per share
a
Bear Corp. has $100,000 cash in the bank restricted to repay a note payable that matures in 2 years. How should this $100,000 be reported? a. As restricted cash in the long-term section of the balance sheet b. As cash in the current asset section of the balance sheet c. As cash and cash equivalents on the balance sheet d. As part of the stockholders' equity on the balance sheetq
How are discontinued operations reported?
Below income from continuing operations. With separate reporting of the tax effect on the item of discontinued operations. With separate reporting of the tax effect on the item of discontinued operations. As a separate line item on the income statement.
The operating activites section on the statement of cash flows includes the elements of net income on a(n) _ basis rather than a(n) _ basis.
Cash Accrual
Paid off accounts payable.
Cash - Deceased Accounts Payable - Deceased
Corporation paid dividends to stockholders
Cash - Deceased Retained Earnings - Deceased - Dividends
Paid for six-month insurance premium. Coverage will start at the beginning of next month.
Cash - Decrease Prepaid Insurance - Increased
Paid for six-months insurance premium. Coverage will start at the beginning of next month.
Cash - Decreased Prepaid Insurance - Increased
Paid rent on office space for current month.
Cash - Decreased Retained Earnings - Decreased - Expense
Collected receivables on account.
Cash - Increased Accounts Receivable - Deceased
Corporation issues capital stock to investors.
Cash - Increased Capital Stock - Increased
Indicate whether each item is a cash inflow or a cash outflow from operating activities.
Cash Inflow = sales of services for cash, collection on account Cash Outflow = Payment on account, payment of salaries
Indicate the order of the following current assets on the balance sheet.
Cash and cash equivalents Accounts receivable Inventory Prepaid expense
d
Cash and other assets that are reasonably expected to be converted to cash or consumed within 1 year or the current operating cycle are classified as: a. fixed assets b. nonmonetary assets c. noncurrent assets d. current assets
Short-term, highly liquid investments that can be readily converted to cash, with little risk of loss, are referred to as _ _.
Cash equivalents.
a, b, c
Cash flows are classified on the statement of cash flows as: (Select all that apply) a. financing b. operating c. investing d. non-operating
Which of the following are included in the statement of cash flows?
Cash flows from operating activities. Cash flows from financing activities. Noncash investing and financing activities. Cash flows from investing activities.
The purpose of a statement of cash flows is to provide information about the
Cash receipts and cash disbursements during a period.
The direct method for preparing the statement of cash flows reports.
Cash received and cash paid from operating activities.
Which of the following are included in investments?
Cash reserved in purchase land Not reliable due in 5 years
a
Cash set aside for future plant expansion and a 3 year note receivable are both examples of what on a company's balance sheet? a. Investments b. Intangible assets c. PPE d. Other assets
b
Cash set aside for future plant expansion and a 3 year note receivable are both examples of what on a company's balance sheet?: a. Intangible assets b. Investments c. Other assets d. Property, plant, and equipment
Which of the following situations qualifies for treatment as a change in accounting principle?
Change from percent-of-completion to completed contract method. Change from LIFO to FIFO
Which of the following is a routine change in estimate that does not require a disclosure note if the amount is not material?
Change in depreciable lives Change in estimate for uncollectible accounts.
The net increase of decrease in the cash flows reported on the statement of of cash flows is always equal to the _ evident from the mounts reported on the comparative balance sheet.
Change in the cash balance
The net increase or decrease in the cash flows reported on the statement of cash flows is always equal to the_ evident from the amounts reported on the comparative balance sheet.
Change in the cash balance
Wilson Corporation Issued Stock Prepaid Insurance Equipment Notes Payable
Change to Stockholders' Equity Asset Asset Liability
Which of the following represent objectives of preparing a statement of cash flows?
Classifying the transaction and events correctly. Identifying all operating, investing, and financing events and transactions. Adhering to a proper statement format.
Which of the following items are considered cash equivalents?
Commercial paper due in 1 month U.S Treasury bills due in 2 months Money market funds that are quickly converted to cash.
The two types of adjustment to net income for indirect method share adjust the for
Components of net income that do not affect cash. Changes in operating assets and liabilities during the period that affected cash and were not in net income.
Companies have considerable flexibility in reporting income from continuing operations, but the reporting of income from discontinued operations is strictly mandated.
Continuing Discontinued
When a company discovered an immaterial error in a year subsequent to the year the error is made, what is the proper course of action?
Correct the error in the year discovered.
prepaid expenses
Costs of assets acquired in one accounting period and expensed in a future accounting period are...?
SEC
Created by Congress in 1929 in response to the stock market crash. Its goal is to restore investor confidence
The normal balance of the contra asset accumulated depreciation account is a(n)_____
Credit
If an accounts receivable is due within 60 days, it is classified on the balance sheet as a(n) _ asset.
Current
Inventories held for sale in the normal purse of business are classier on the balance sheet as
Current assets
Classification of elements in assets
Current assets Long term assets -Investments -property plant and equipment -intangible assets -other assets
Working Capital
Current assets - Current Liabilities
b & c
Current assets include which of the following?: (Select all that apply) a. Property and equipment b. Short term investments c. Cash d. Intangible assets
classification of liabilities
Current liabilities Long term liabilites
A _ is satisfied within 1 year or the current operating cycle, whichever is longer.
Current liability
What type of information that helps in the preparation of a current year statement of cash flows is readily available in the accounting system?
Current year balance sheet. Current years income statement. Prior year balance sheet.
In a journal entry, the amount to be _____ is entered in the first column, and the amount to be _____ is entered in the second column
Debited; credited
Competitors:
Decide market share and profitability
Creditors:
Decide whether to lend money
Investors:
Decide whether to purchase stock
Match the changes in operating liabilities to the adjustment needed to net income.
Deduct from net income - decreases inn liabilities related to income statement components. Ass to net income - increases in liabilities related to income statement components.
Classify each item as an Asset, a Liability, or a Change to Stockholders' Equity.
Deferred Revenue / Liability Supplies / Asset Dividends / Change to Stockholders' Equity Service Revenue / Change to Stockholders' Equity
What account is affected when a customer pays in advance for services to be performed in the future?
Deferred revenues
In preparing the operating activities section of a statement of cash flows using the indirect method, net income should be adjusted for
Deprecation expense Loss from sale of asset. Gain from sale of asset
conceptual framework
Described as an "accounting constitution," provides an underlying foundation for US accounting standards
Which of the following items are required disclosures in the notes to financial statements
Description of subsequent events Significant accounting polices Related third-party transactions.
Differences between IFRS and GAAP
Details: There are more similarities than differences in balance sheets prepared according to U.S. GAAP and those prepared applying IFRS. Some of the differences are: -International standards specify a minimum list of items to be presented in the balance sheet. GAAP has no minimum requirements. -IAS No. 1, revised, changed the title of the balance sheet to statement of financial position, although companies are not required to use that title. Some US companies use the statement of financial position title as well. -Under GAAP, we present current assets and liabilities before concurrent assets and liabilities. IAS No. 1 doesn't prescribe the format of the balance sheet, but balance sheets prepared using IFRS often report non current items first. A recent survey of large companies that prepare their financial statements according to IFRS reports that 73% of the surveyed companies list concurrent items first.
Initial purchase of inventory for a finished good. merchandising vs. manufacturing company.
Details: For a *merchandising company*, the initial purchase of inventory often is for a finished good, although some preparation may be necessary to get the inventory ready for sale (such as packaging or distribution). For a *manufacturing company*, the initial outlay of cash often involves the purchase of raw materials, which are then converted into a finished product through the manufacturing process.
Suppliers:
Determine the ability to pay for goods
The _ method of reporting cash flows from operating activities reports the cash effect of each operating activity.
Direct
The method that reports the cash effect of each operating activity of each operating activity explicitly on the statement of cash flows is referred to as the_method.
Direct
The two acceptable methods under U.S GAAP for preparing the statement of cash flows are the_ method and the _ method.
Direct Indirect
Additional _ are critical to understanding financial stamens and to evaluating a firm's performance.
Disclosure
two items that are excluded from continuing operations on the income statement
Discontinued operations and extraordinary items
Revenues, expenses, gains, losses, and income tax related to a(n) _ _ must be removed from continuing operations and reported separately on the income statement.
Discontinued operations in
U.S. GAAP
Does not specify a minimum list of items to be presented
US GAAP
Does not specify a minimum list of items to be presented
Which of the following is required to be disclosed on the face of a public company's income statement?
Earnings per share
b
Economic events cause changes in the: a. cash position of a company b. financial position of a company c. operating activities of a company d. operating results of a company
Classify each item as an Asset, a Liability, or a Change to Stockholders' Equity.
Equipment / Asset Notes Payable / Liability Accounts Receivable / Asset Salaries Expense / Change to Stockholders' Equity Prepaid Insurance / Asset
A change in the residual value of. Depreciable asset is treated as a change in accounting _.
Estimate
The three types of accounting changes are a change in accounting principle, a change in accounting _, and a change in reporting _.
Estimate Entity
a change in depreciation method is treated as a change in accounting _ that is achieved by a change in accounting _.
Estimate Principle
() is a term that refers to a code or moral system that provides criteria for evaluating right or wrong.
Ethics
Warranty liabilities, interest payable, and salaries payable
Examples of accrued liabilities
What represents the costs of providing goods and services to customers?
Expense
Rent Expense Accounts Payable Dividends
Expense Liability Other changes to stockholders Equity
Advertising Expense Insurance of Stock Prepaid Insurance
Expense Other changes to the stockholders Equity Asset
A gain from discontinued operations will result in an income tax_____, whereas a loss from discontinued operations will result in an income tax_____.
Expense, benefit
The outflows of resources incurred while generating revenue are referred to as _.
Expenses
Financing activities are inflows and outflows of cash resulting from the
External financing of a business
Investments are assets used directly in the operations of the business.
False
Net cash flows flows from investing activities represents the total inflows plus the total outflows of cash.
False
True or false: The balance sheet displays all items at their fair value or market value
False, The balance sheet displays many items at book value. Only certain items may be valued at fair value
The ability of a company to alter cash flows in order to take advantage of unexpected investments opportunities is known as what?
Financial flexibility
Cash received from the sale of common and preferred stock and the insurance of bonds and other debt securities are reported on the statement of cash flows as _ activities.
Financing
Which of the following are included in inventory?
Finished goods Work in progress Raw materials
Inventory for a wholesale or retail company includes which of the following ing?
Finished goods.
Financial _ is the ability of a company to alter cash flows in order to take advantage of unexpected investment opportunities and needs.
Flexibility
When a discontinued operation is sold perform the end of the reporting period, the income or loss from operations and the _ or _ on the disposal of assets is included in the reported income. (Enter one word per blank.)
Gain Loss
When a discontinued operation is sold before the end of the reporting period, the income or loss from operations and the _ or _ on the disposal of assets is included in the reported income.
Gain Loss
What are increases or decreases in equity from peripheral or incidental transactions?
Gains and Losses
A multiple-step income statement includes which of the following?
Gross Profit Income before taxes Operating income
EITF (Emerging Issues Task Force)
Identifies financial reporting issues and attempts to resolve them without involving the FASB (usually implementation issues)
economic entity
If a company pays the mortgage on the home of its CEO, and the company charges the expenditure to misc expense, its an example of which underlying assumption?
A(n) _ loss is reported if a discontinued operation is held for sale and the book value of the assets is ore than the fair value minus cost to sell.
Impairment
Any long-lived asset, whether tangible or intangible, should have its balance reduced if there has been a significant _ of value.
Impairment
In order to provide more complete information, U.S GAAP allows that any significant non cash investing and financing activities may be reported
In the notes to financial statements On the face of the statement of cash flows
When are restructuring costs recognized on the income statement?
In the period the exit or disposal obligation is incurred.
Earnings per share is disclosed at the bottom of the _ _
Income Statement
The financial statement that summarizes the profit-generating activities of a company during a particular period of time is the
Income Statement
The Four Financial Statements published to provide information to external users:
Income Statement Balance Sheet Statement of Cash Flows Statement of Stockholder's Equity
Revenues, expenses, gains and losses that will likely continue in future periods make up what
Income from continuing operations
Statement of operations and statement of earnings are additional titles for the _
Income statement
The statement used to predict future profit bailout and a company's future cash-generating ability is the
Income statement
When a company uses a special charge such as restructuring costs and shows a loss on the income statement, income may be manipulated through
Income statement classification shifting.
Cash flows from operating activities are both inflows and outflows of cash that result from activities reported in the
Income statement.
Which of the following statements includes the components of income from continuing operations and realized gains and losses during the period
Income statemtent
are items found on an income statement are included in calculating income from continuing operations
Income tax expense, expenses, gains
The _ method of preparing the statement of cash flows begins with net income.
Indirect
The _ method of reporting cash flows from operating activities begins with net income and works backwards to derive cash from activities.
Indirect
For financing activities, a cash_ occurs when cash is borrowed from a creditor; a cash _ occurs when owners receive a dividend.
Inflow ; outflow
The sale of a building is a cash_ investing activities; a loan made to another entity is a cash_ from investing activities.
Inflow; outflow
c
Inflows and outflows of cash related to transactions that impact net income are: a. Financing activities b. Investing activities c. Operating activities
Show the journal entry for the following transaction:
Inventory - Carrots 500$ A/P 500$
Which of the following are accused liabilities?
Invest payable Warranty liabilities Salaries payable
Paid in Capital
Invested capital consisting of primarily of amounts invested by shareholders when they purchase shares of stock from the corporation
Cash from the sale of land is reported on the statement. Of cash flows as a(n) _ activity
Investing
In financial accounting what are the three types of business activities of a company?
Investing activities Financing activities Operating activities
Assets not use directly in the operations of business are called what?
Investments
Assets not used directly in the operations of the business are called what?
Investments
Assets not used directly in the operations of the business are referred to as _.
Investments
Which of the following items should be classified as investments on the balance sheet?
Investments in stock of another company Cash restricted to purchase building Note receivable due in three years
Is classified as investments on the balance sheet
Investments in stock of another company, cash restricted to purchase building, note receivable due in 3 years
The income tax expense or benefit associated with discounted operations
Is reported separately from the tax computation for continuing operations. Is included in the computations of net income.
Land is listed separately on the balance sheet because
It has an unlimited life
A lability has which of the following characteristics?
It is a present obligation. It is due to a past transaction or event. It is a probable future sacrifice of an economic benefit.
The criteria used to determine if a liability should be classified as long-term is:
It will not be satisfied within 12 months or the operating cycle, whichever is longer.
Obligations to other entities are known as what?
Liabilities
Simple put, _ are the obligation of the company.
Liabilities
Simply put _____ are the obligations of a company (one word)
Liabilities
The three primary elements found on a balance sheet are assets, _ and shareholders equity.
Liabilities
What are the claims to a company's resources?
Liabilities & Stockholder's Equity
Which of the following is a probable future sacrifice of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.
Liability
Below are four items from the financial records of Cook Corporation. Notes Payable Land Service Revenue Buildings
Liability Asset Change to Stockholders' Equity Buildings
Notes payable Service Revenue Buildings Equipment Green Corp Issues Stock
Liability Change to Stockholders' Equity Asset Asset Change to stockholders' Equity
Refers to the period of time before an asset is converted to cash or a liability is paid?
Liquidity
liabilities
Long-term __________________ are obligations that will not be satisfied in the next year or operating cycle, whichever is longer.
Which of the following items should be disclosed in other long-term assets on the balance sheet?
Long-term prepaid expense No current investments that are not material.
Which of the following is a decrease in equity du to an incidental transaction.
Loss
Identify which items on an income statement are included in calculating income from continuing operations.
Loss Revenue Income tax
Which of the following items are invalided in property, plant and equipment?
Machines Oil wells Mineral mines Furniture
a, b, d
Majerek Company accrues salaries at year-end. What is the financial statement of this adjusting entry? Select all that apply. a. Net income is decreased b. Retained earnings is decreased c. Assets are decreased d. Expense is increased
Which of the following are accounting errors?
Making a mistake in calculating depreciation expense. Forgetting to accuse salary expense.
Which of the following requires disclosures for related-party transactions?
Nature of the relationship. Dollar amount of transaction. Description of transaction.
The time period necessary to convert cash to raw materials, convert raw materials into finished products, sell the products, and collect on the account receivable is referred to as the ______ cycle
Operating
The classifications on the statement of cash flows are cash flows from
Operating activities Investing activities Financing activities cash
Where are the elements of net income found on a cash basis rather than an accrual basis? -in the statement of earnings -in the statement of operations -operating activities section of the statement of cash flows -investing activities section of the statement of cash flows
Operating activities section of the statement of cash flows
According to IFRS, interest and dividends received can be classified as a(n)
Operating activity investing activity
When a component has been sold and qualifies for treatment as a discontinued operations, the reported income effect disclosed will include which of the following?
Operating income or loss of the component from the beginning of the reporting period to the disposal date. Gain or loss on disposal of the component's assets.
Statement of Cash Flows (Contains)
Operating, Investing, and financing activities
The objective in preparing the state of cash flows is to identify all transactions and events that represent_, _ and financing activities and to classify and list them in the proper format
Operating, investing and financing . 4r5t5t
The objectives in preparing the statement of cash flows is to identify all transactions and events that represent
Operating, investing and financing activities and report them in the proper statement format.
How are property, plant and equipment presented on the balance sheet?
Original cost less accumulated depreciation
If a company's long-term investments are not material in amount, where should they be disclosed on the balance sheet?
Other assets.
The purchase of a long-term investment is a cash_ from investing activities; sale of a long-term investment is a cash) from investing activities.
Outflow ; inflow
classification of shareholders equity
Paid in capital Retained earnings
Shareholders equity is composed of which of the following accounts?
Paid-in Capital Retained Earnings
The accounts common stock and paid-in capital in excess of par are classified as.
Paid-in capital
Gains and losses are increases or decreases in equity from which type of transactions?
Peripheral Incidental
The process of transferring information from a journal entry to the specific accounts affected in the general ledger is referred to as _____
Posting
Cost of assets acquired in one accounting period and expanses in a future accounting period are
Prepaid expense
Is an item that represents an expense paid in advance that creates benefits used in the future?
Prepaid expense
Which of the following items represents an expense paid in advance that creates benefits used in the future.
Prepaid expense
The correction of a material error in the prior year's financial statement is considered a
Prior period adjustment
Which of the following cash outflows from investing activities?
Purchase of building Purchase of land Purchase of long-term investments
IASB
Purpose is to develop a single set of high-quality, understandable, and enforceable global accounting standards
The ability of reported earnings to predict a company's future earnings is referred to as earnings _.
Quality.
If a casual relationship cannot be established between revenues and expenses, which of the following occurs?
Record the expense as incurred. Allocate the expense over several periods Relate the expense to a particular period.
Which of the following transactions would be classified as financing activities in the statement of cash flows?
Repurchase of the company's own common stock. Insurance of bonds. Sale of the company's common stock.
Which of the following is required to correct a material error in the financial statements?
Restate the financial statements of all years presented. Adjust the beginning balance in retained earnings fro the earliest period presented. Include a disclosure note explaining the impact of the error on income.
Costs that are planned and controlled by management that materially changed the scope of the business undertaken or the manner in which the business is conducted are called _ costs?
Restructuring
Which of the following represents the net income earned by a corporation and not yet paid to shareholders?
Retained earnings
net income
Retained earnings represents the accumulated ______________ _____________ reported since the inception of the corporation and not yet paid to shareholders as dividends.
What items must be removed from continuing operations and reported separately for a discontinued operation?
Revenues Tax expenses Expense Gains
Net income (or loss) is the result of netting together the_ recognized and the+ incurred during the current report period.
Revenues Expenses
Net Income =
Revenues - Expenses
When an immaterial error is discovered in the same year it is made before the financial statements are issued, what is the approximate course of action?
Reverse the erroneous journal entry and record the correct entry.
ABC Tax advisors Best Buy
Service Revenue Sales Revenue
FASB
Sets US accounting standards, 7 members, supported by Financial Accounting Foundation (FAF)
Which is a significant noncash activity?
Signing a note payable in exchange for land.
The two approaches for preparing an income statement are the _ step and _ step approaches.
Single Multiple
A company prepares its income statement by listing all sources of revenues and gains at the top, followed by a list of all expenses and losses. Which income statement approached does this describe?
Single-step
The type of income statement that does not classify items as operating and non operating is the _____ income statement -operating -non current -single-step -multiple-step
Single-step
Business entities: 3 major types:
Sole proprietorship - one owner who has unlimited liability, personally, for the debts of the business Partnership - two or more owners who have unlimited liability, personally, for the debts of the business. Corporation - separate legal entity from its owners. Ownership is through holding shares of the corporate stock. The owners, being separate, do not have unlimited liability for the debts of the corporation. We will focus on the corporate form of business entity in this course.
The financial statements that provides information about cash receipts can't cash disbursements for the period is the _
Statement of cash flows
Which of the following terms is also used as a heading for income statement?
Statement of operations
At the end of the month, we record the supplies that have been used throughout the period.
Supplies - Decreased Retained Earnings - Decreased - Expense
True
T or F?: Operational risk refers to how adept a company is at withdrawing various events that might impair its ability to earn profits.
Which of the following is a subsequent event that must be disclosed in the notes to the financial statements.
The insurance of debt or equity securities
Which of the following is a subsequent event that must be disclosed in the notes of the financial statements.
The issuance of debt or equity securities.
At what amount are the assets of a discontinued operation held for sale reported on the balance sheet.
The lower of the book value or fair value less costs to sell.
c
The management approach to segment reporting requires that _________ financial info is available a. accrual-based b. complete c. discrete d. monthly
FASB ASC
The only source of authoritative nongovernmental US GAAP
transaction analysis
The process of reviewing the source documents to determine the dual effect on the accounting equation and the specific elements involved is called...?
c
The purpose of the statement of comprehensive income is to report current period changes in equity that arose from a. internal transactions b. customers c. non-owner transactions d. owner transactions
Which statement reports the changes in shareholders quite during the period that were not a result of transactions by owners.
The statement of comprehensive income.
false
True or false? Support calculations for income taxes are included in the summary of significant accounting policies included in the notes to the financial statements.
a & d
What is included in a company's paid in capital?: (Select all that apply) a. Common stock b. Retained earnings c. Comprehensive income d. Additional paid-in capital
Current assets divided by current liabilities
What is the formula for the current ratio?
b
What refers to the riskiness of a company with regard to the amount of liabilities in its capital structure? a. Cash flow risk b. Long-term solvency c. Liquidity
b and d
Which of the following accounts represents amounts shareholders have invested in the company? Select all that apply. a. accumulated other comprehensive income b. Common stock c. Retained earnings d. Additional PIC
b, c, d,
Which of the following are accrued liabilities? Select all that apply. a. Notes payable b. Salaries payable c. Interest payable d. Warranty liabilities e. Bonds payable
a, c, d
Which of the following are cash inflows from investing activities? Select all that apply. a. sale of building b. sale of long-term investment c. purchase of land d. collection from customers
b, c, d
Which of the following are characteristics of an operating segment? Select all that apply. a. It is within the same geographic location as the company b. It engages in business to earn revenues and incur expenses c. Discrete financial info is available d. Its operating results are regularly reviewed by the chief operating decision maker
b and c
Which of the following are economic events? Select all that apply. a. A proposal to purchase $1,000 of inventory from supplier b. The payment of employee salaries for the week c. Borrowing $10,000 from the bank
a, b, c
Which of the following are likely example of a related-party transaction? a. Selling goods to affiliated companies b. Loaning money to officers and directors c. Borrowing or lending money at an unusually low interest rate to an affiliated company d. Purchasing goods from independent suppliers
b, c & d
Which of the following are required SEC disclosures?: (Select all that apply) a. Director and executive hourly wage information b. Director compensation c. Executive compensation d. Executive stock option information e. Director and executive daily activity report
b
Which of the following is in the number of the quick ratio? a. current assets b. quick assets c. quick liabilities d. current liabilities
b
Which of the following is included with the annual report to help evaluate a firm's financial performance and financial health? a. Press releases b. Note disclosures c. Proxy statements d. Marketing data
b and c
Which of the following items are included in the professional opinions given in the auditor's report? Select all that apply. a. The effectiveness of management strategy b. The fairness of the financial statements c. The effectiveness of internal control. d. The accuracy of the financial statements
c and d
Which of the following items should be disclosed in other long-term assets on the balance sheet? Select all that apply. a. goodwill from a business acquisition b. intangible assets used in the business c. Noncurrent investments that are not material d. Long-term prepaid expenses
b
Which of the following represents the net income earned by a corporation and not yet paid to shareholders? a. additional PIC b. RE c. Other comprehensive income d. PIC
c
Which type of analysis is used to determine if the company can pay its short-term debts as they come due? a. Currency analysis b. Solvency analysis c. Liquidity analysis d. Default analysis
A liability is classified as current if it is due
Within 1 year or the current cycle, whichever is longer.
If Expense exceed revenue
You gave a Net Income loss
accounts receivable
_____________________ __________________ result from the sale of goods and services on credit
Other assets represents -assets that are immaterial -any asset other than cash or cash equivalents -a catch-all category of non current assets -a catch-call category of current assets
a catch-all category of non current assets
Other assests represent
a catch-all category of noncurrent assest
Other assets represents
a catch-all category of noncurrent assets
solvency
ability to pay long term debts; allows one to assess the company's FINANCIAL FLEXIBILITY
What is the difference between an account payable and a note payable? -a note payable is always long-term -a note payable is owed to a bank -an account payable is usually due in 30-60 days -an account payable is a signed pro missionary note
an account payable is usually due in 30-60 days
Income tax expense is reported in what way on the income statement? -as a separate line item -as part of general expenses -as part of other expenses
as a separate line item
How should liquid investments expected to be converted to cash within the current operating cycle be reported in the balance sheet? -as a current liability in the liability section of the balance sheet -as a long-term investment in the non current asset section -as a short-term investment in the current asset section -as a restricted stockholders' equity account on the balance sheet
as a short-term investment in the current asset section
Cash flows from investing activities include inflows and outflows of cash related to the acquisition and disposition of long-term _____ used in operations
assets
Limitation of the Balance Sheet
assets minus liabilities measured according to GAAP is not likely to be representative of the market value of the entity
A company's assets minus its liabilities shown on the balance sheet is referred to as its ______ value
book
The common categories proposed under the Financial Statement Presentation project are similar, but not identical, to those currently found in a statement of ___ _____
cash flows
The purpose of a statement of cash flows is to provide information about the -assets, liabilities, and stockholders' equity used during the period -cash receipts and cash disbursement during a period -assets used during the period -income and related expenses during the period
cash receipts and cash disbursement during a period
Other assets
catch all of noncurrent assets includes long term prepaid expense called deferred charges and anything not falling into the other classificaitons
Another Cash inflows from operating activities on the statement of cash flows?
collection on account and interest received on notes receivable
Shareholders equity
composed of paid in capital and retained earnings
If an accounts receivable is due within 60 days, it is classified on the balance sheet as a(n) _____asset
current
Mathematically, the current ratio is expressed as current assets divided by ______ ___
current liabilites
A_____ is satisfied within 1 year or the current operating cycle, whichever is longer. -current liability -non current asset -current asset -non current liability
current liability
The two classifications used for assets and liabilities on the balance sheet are _____ and _____ -current;non current -fixed; variable -equity; non equity -monetary; non monetary
current;non current
The two acceptable methods for U.S. GAAP for preparing the statement of cash flows are the ____ method and the ______ method
direct and indirect
Shareholders' equity arises primarily from amounts invested by shareholders and amounts_____ -earned by the corporation -received by customers -borrowed from banks -borrowed from investors
earned by the corporation
Shareholders' equity arises primarily from amounts invested by shareholders and amounts________
earned by the corporation
Unearned revenue represents cash received from a customer for goods or services to be provided in a(n) ______period
future
When a discontinued operation is sold before the end of the reporting period, the income or loss from operations and the _____ or _____ on the disposal of assets is included in the reported income
gain, loss
The matching principle requires that expenses are recored
in the same period as the related revenues
current assets
include cash and other assets that are reasonably expected to be converted to cash or consumed within the coming year or within the normal operating cycle of the business if that is longer than one year
Cash
includes money on hand and in banks that is available for use in the operations of the business
The statement used to predict future profitability and a company's future cash-generating ability is the -statement of stockholders' equity -statement of financial position -balance sheet -income statement
income statement
accrual
increasing over time (usually dealing with interest)
Economic information
information pertaining to quantifiable businesstransactions that businessentities engage in over a specified period of time, in terms of money.
Managerial Accounting Provides information to an organization's () users
internal
The process of associating income tax effects with the income statement components that create those effects is referred to as _____ tax allocation
intraperiod
Cash flows from _ activities are related to the purchase and sale of long-term assets used in business operations.
investing
Assets not used directly in the operations of the business are called what? -investments -property -prepaid assets -inventories
investments
Land held for speculation, non current receivables, and cash set aside for future plant expansion are all examples of _____
investments
Key classification of assets and liabilities on the balance sheet
is current vs. long term distinction
Another term for equity is
net assets
Liabiltites
obligations of a company
Long term solvency
riskiness of company with regard to the amount of liabilities in its capital structure
Current Liability
satisfied within 1 year or the current operating cycle, whichever is longer
Operating and nonoperating items are NOT separately classified in a ________ - step income statement
single
The two approaches for preparing an income statement are the _____ step and _____step approaches
single, multiple
Operating, investing, and financing activities are found on which financial statement? -balance sheet -statement of cash flows -income statement -statement of operations
statement of cash flows
A significant development that occurs after a company's fiscal year-end but before the financial statements are issued is called a(n) -related party transaction -material transaction -extraordinary item -subsequent event
subsequent event
Property, plant,and equipment
tangible long lived assets used in operation of the business are classified as property plant and equipment`
Crimson Corp. has a component that is a discontinued operation. The component incurred a loss from operations of $40,000. The components was sold with an additional loss of $160,000. The tax rate is 30%. What is the income tax effect for the discontinued operation? -Tax benefit of $48,000 -tax benefit of $60,000 -tax expense of $60,000 -tax expense of $12,000
tax benefit of $60,000
Earnings quality refers to
the ability of reported earnings to predict future earnings
Financial Flexibility
the ability of the company to alter cash flows in order to take advantage of unexpected investment opportunities and needs.
Net income using the multiple-step income statement presentation is_____ net income using the single-step income statement presentation -the same as -greater than -less than
the same as
Debt to equity ratio
total liabilities / shareholders equity indicates the extent of reliance on creditors rather than owners in providing resoirces
A customer pays in advance for services to be performed in a future period. In which account should the transaction be recorded? -notes payable -unearned revenues -accounts receivable -accounts payable
unearned revenues