ACCOUNTING MIDTERM Ch. 1

Given the following information, determine Fees Earned. Wages expense equals $4,400; supplies expense equals $2,900; and miscellaneous expense equals $1,250. Net income equals $5,100.

$13,650

Typically perform general accounting, audit, or tax services.

Certified Public Accountants (CPA)

Which of the following statements provides a summary of cash receipts and cash payments for a specific period of time, such as a month or a year?

statement of cash flows

On August 1, Harvey Company offered to pay $13,000 for equipment that was advertised as being sold for $19,000 by Carrone Company. The equipment had a retail value of $23,000 on that day. On August 10, Carrone Company offered to sell the equipment for $14,700, and Harvey Company agreed to buy at that price. At what value will Harvey Company record the equipment on the books?

$14,700

Marvin Company negotiated the purchase of a new building for $250,000. Marvin paid a $100,000 down payment and will pay off the remainder over 7 years. What affect does this transaction have on the accounting equation?

$150,000 net increase in assets and $150,000 increase in liabilities

Given the following information, determine net income. The retained earnings balance on January 1, 2016 equals $58,000; dividends during 2016 total $18,350; the retained earnings balance at December 31, 2016 equals $64,850.

$25,200 The retained earnings statement is as follows: Retained earnings, beginning balance plus net income (or minus net loss) less dividends equals retained earnings, ending balance.

Cool Taste Company recorded $5,000 in sales on account for the week. What effect does this transaction have on the accounting equation?

$5,000 increase in assets and $5,000 increase in stockholders' equity

Ramos Inc. has total assets of $1,000 and total liabilities of $450 on December 31, 2016. Assume that assets increased by $130 and liabilities decreased by $25 during 2017. What would stockholders' equity be as of December 31, 2017?

$705 The accounting equation is Assets = Liabilities + Stockholders' Equity. Thus, if one side of the equation increases by $130, the net increase on the other side must also be $130.

Equipment with a sales price of $100,000 is purchased at a discount of 10% by Aaron Company. At what value should the equipment be recorded in Aaron Company's records?

$90,000

Assets and liabilities of a company are $150,000 and $30,000, respectively. Determine stockholders' equity using the accounting equation.

120,000

Information system that provides reports to users about the economic activities and condition of the business.

Accounting

Resources owned by a business. Include cash, land, buildings, and equipment. The rights or claims to the assets are divided into two types: 1) the rights of creditors 2) the rights of owners.

Assets

A list of the assets, liabilities, and stockholder's equity as of a specific date, usually at the close of the last day of a month or a year

Balance sheet

Career Options in private accounting

Bookkeeper Payroll clerk General accountant Budget analyst Cost accountant Internal auditor Information technology auditor

An organization in which basic resources (inputs), such as materials and labor, are assembled and processed to provide goods or services (output) to customers.

Business

Limits the economic data in an accounting system to data related directly to the activities of the business. The business is viewed as an entity separate from its owners, creditors, or other businesses. For example, the accountant for a business with one owner would record the activities of the business only and would not record the personal activities, property, or debts of the owner.

Business entity concept

An economic event or condition that directly changes an entity's financial condition or its results of operations

Business transaction

Ethics in Accounting-Culture of Greed and Ethical indifference

By their behavior and attitude, senior managers set the company culture. In most companies listed in business frauds, the senior managers created a culture of greed.

Certification in Public accounting?

CPA

Certification in private accounting?

Certified Payroll Professional (CPP) Certified Management Accountant (CMA) Certified internal auditor (CIA) Certified Information Systems Auditor (CISA)

Shares of ownership distributed to investors of a corporation. It represents the portion of stockholders' equity contributed by investors.

Common Stock

What type of transactions affect Stockholders' Equity?

Common stock, Dividends, Revenue and expenses

Organized under state or federal statutes as a separate legal taxable entity. Generates 90% of business revenues. 20% of the business organizations in the US. Ownership is divided into shares called stock. Can obtain large amounts of resources by issuing stock. Used by large businesses.

Corporation. Ex) Apple Google Ford Motor Company

Amounts are initially recorded in the accounting records at their cost or purchase price.

Cost concept

External users of accounting information include investors, creditors, customers, and the government. These users aren't directly involved in managing and operating the business. This area of accounting that provides external users with information is called...

Financial accounting

Which of the following statements about GAAP is not true?

GAAP allows a company's management to record and report data as it sees fit.

Financial accountants follow ___ in preparing reports. These reports allow investors and other users to compare one company to another.

Generally accepted accounting principles (GAAP)

A summary of the revenue and expenses for a specific period of time, such as a month or a year. (based on the matching concept)

Income Statement

Many countries outside the U.S. use generally accepted accounting principles adopted by the __

International Accounting Standards Board (IASB)

Combines the attributes of a partnership and a corporation. 10% of business organizations in the US (combined with partnerships) Often used as an alt. to a partnership. Has tax and legal liability advantages for owners.

Limited liability company (LLC) ex) Mosel & Farmers, CPAs, LLC

Career options in public accounting?

Local firms, National firms

Provides relevant and timely information for managers' and employees' decision-making needs. The area of accounting that provides internal users with information is called...

Managerial accounting

Ethics in Accounting Failure of Individual Character

Managers and accountants often face pressures from supervisors to meet company and investor expectations. Managers and accountants justified small ethical violations to avoid such pressures.

Change basic inputs into products that are sold to customers. ex) Ford Motor Co. (cars, trucks, vans) Dell Inc. (personal computers)

Manufacturing businesses

Matching the expenses incurred during a period with the revenue that those expenses generated.

Matching concept

Sell products they purchase from other businesses to customers. ex) Walmart (general merchandise) Amazon.com (internet books, music, videos)

Merchandising businesses

_________________ sell products purchased from other businesses to make their objective of maximizing their profits.

Merchandising businesses

Requires that the amounts recorded in the accounting records be based on objective evidence. In exchanges between a buyer and a seller, both try to get the best price. Only the final agreed-upon amount is objective enough to be recorded in the accounting records.

Objectivity concept

Owned by two or more individuals. 10% of business organizations in the U.S. Combines the skills and resources of more than one person

Partnership

Difference between the amounts received from customers for goods or services and the amounts paid for the inputs used to provide the goods or services.

Profit

Owned by one individual 70% of business entities in the U.S. Easy and inexpensive to organize. Resources are limited to those of the owner. Used by small businesses

Proprietorship

Accountants and their staff who provide services on a fee basis are said to be employed in ___

Public accounting

Stockholders' equity created from business operations through revenue and expense transactions.

Retained Earnings

A summary of the changes in the retained earnings that have occurred during a specific period of time, such as a month or a year. Prepared after the income statement because the net income or net loss for the period must be reported in this statement.

Retained earnings statement

Congress passed this law to establish a new oversight body for the accounting profession called the Public Company Accounting Oversight Board (PCAOB). This law also established standards for independence, corporate responsibility, and disclosure.

Sarbanes-Oxley Act (SOX)

_____, an agency of the U.S. government, has authority over the accounting an financial disclosures for companies whose shares of ownership are traded and sold to the public.

Securities and Exchange Commission (SEC)

Provide services rather than products to customers. Ex( Delta Air Lines (transportation) The Walt Disney Company (entertainment)

Service businesses

A summary of the cash receipts and cash payments for a specific period of time, such as a moth or a year.

Statement of cash flows

Who develops the GAAP in the US?

The Financial Accounting Standards Board (FASB) has the primary responsibility for developing accounting principles.

Financial analysis: Ratio of liabilities to stockholders' equity

The lower the ratio of liabilities to stockholders' equity, the better able the company is to withstand poor business conditions and to pay its obligations to creditors.

Ratio of Liabilities to Stockholders' Equity

Total liabilities / Total Stockholders' Equity

Requires that economic data be recorded in dollars.

Unit of measure concept

Which of the following concepts requires that economic data be recorded in dollars in the U.S.?

Unit of measure concept

Which of the following users is not considered an internal user of accounting information?

a supplier

All business transactions can be stated in terms of

changes in the elements of the accounting equation.

Which of the following forms of business entities generates 90% of business revenues in the U.S.?

corporations

Which financial statement reports financial data based on the matching concept?

income statement

The business entity concept is important because

it limits economic data in the accounting system to data directly related to the activities of the business.

The area of accounting concerned with providing internal users with information is called

managerial accounting.

Included in the retained earnings statement are

net income (loss) and dividends.

The ratio of liabilities to stockholders' equity is a tool used to assess a company's ability to

pay its creditors.

Which of the following is not accurate when it pertains to managerial accounting?

provides economic data reports on the operations and condition of the business that are useful for banks and other creditors in deciding whether to lend money to the business

Assets are the

resources owned by the business.

The paying of an expense reduces

stockholders' equity

Paying an amount on account reduces

the amount owed on a liability.

The amounts to calculate ratio of liabilities to stockholders' equity can be found on

the balance sheet.

Each of the following transactions affects stockholders' equity except

the purchase of land with cash.

Corporations refer to total owner's equity as

total stockholders' equity.