ACTG 201 ch 1-3

The organization responsible for creating a single set of global accounting standards is the:

International Accounting Standards Board -The goal of the International Accounting Standards Board (IASB) is to create a single set of global accounting standards. The standards being developed and promoted by the IASB are called International Financial Reporting Standards (IFRS).

The act passed in 2002 that provides for the regulation of auditors and the types of services they furnish to clients is known as the Sarbanes-Oxley Act.

true

If stockholders' equity is $50,000 and liabilities are $78,000, then assets must equal:

$128,000 Assets = Liabilities ($78,000) + Stockholders' Equity ($50,000) = $128,000

Catalina Corporation begins the year with a $195,000 balance in Retained Earnings and a $320,000 balance in Common Stock. During the year, the company generated net income of $46,000, issued additional common stock for $28,000, and paid a dividend of $5,000. What is total stockholders' equity at the end of the year?

$584,000 -Stockholders' Equity at the beginning of the year = Common Stock ($320,000) + Retained Earnings ($195,000) = $515,000. The change in Stockholders' Equity during the year = Issuance of Common Stock ($28,000) + Net Income ($46,000) − Dividends ($5,000) = $69,000. Stockholders' Equity at the end of the year = $515,000 + $69,000 = $584,000

Financial Accounting

*focus of this course* information provided for external users

Beta Company paid utilities expense of $2,000 for the current month. Which of the following statements correctly shows the effect of this transaction on the accounting equation?

Assets will decrease by $2,000, liabilities will remain unchanged, and stockholders' equity will decrease by $2,000

Total stockholders' equity appears in which two financial statements?

Balance Sheet and Statement of Stockholders' Equity

What are the primary components of stockholders' equity?

Common Stock and Retained Earnings

Expenses are best defined as:

Costs of providing products and services

Net income appears in which two financial statements?

Income Statement and Statement of Stockholders' Equity

The FASB has explicitly stated the specific objectives of financial accounting. Which of the following is not one of those objectives?

It is useful to company management in making decisions. -The three objectives of financial accounting as defined by the FASB are that the information (1) is useful to investors and creditors in making decisions, (2) helps to predict cash flows, and (3) tells about economic resources, claims to resources, and changes in resources and claims.

What was the objective of the 1933 Securities Act?

It set forth accounting and disclosure requirements for initial offerings of securities.

The balance sheet:

Presents the financial position of a company at a point in time

Expenses

The cost of selling products or services

Which of the following is an important indicator of a company management's ability to respond to business situations and the possibility of bankruptcy?

Total liabilities -A company's debt level is an important indicator of management's ability to respond to business situations and the possibility of bankruptcy.

Financial accounting measures the business activities of a company and communicates those measurements to external parties for decision-making purposes.

True

Which of the following questions is most likely to be asked by a creditor?

Will the company be capable of repaying its debt when it is due?

Which of the following questions is most likely to be asked by an investor?

Will the company's stock increase in value?

Partnership

a business owned by two or more people

trial balance

a list of all accounts and their balances at a particular date...

Which of the following is not an asset account?

accounts payable -Cash, Equipment, and Supplies are asset accounts. Accounts Payable is a liability account.

revenues, expenses, dividends

all profits of the company are claimed solely by stockholders

adjusting entries

are used to record changes in assets and liabilities (and their related revenues and expenses) that have occurred during the period but that we have not yet recorded

the resources of a company are referred to as:

assets

which relationship is reflected in the balance sheet?

assets= liabilities+ stockholders equity

coporation

business is legally separate from its owners -limited liability of stockholders

financing cash flows

cash transactions involving lenders and stockholders

investing cash flows

cash transactions involving purchase and sale of long-term assets

Operating Cash Flow

cash transactions involving revenues and expenses

which of the following accounts would appear in the credit column of a trial balance?

common stock

liabilities

creditors claims to resources (OWE)

employees

decide employment opportunities

competitors

decide market share and profitability

local communities

decide on environmental issues

regulators

decide on social welfare

tax authorities

decide on taxation policies

Indicate whether each of the following transactions is classified as a financing, investing, or operating activity:

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Primary Financial Statements

income statement, statement of stockholders' equity, balance sheet, statement of cash flows

Managerial Accounting

information provided for internal users

Accruals

involve cash flows that occur after either expense or revenue recognition

the cash collected from a customer would recorded as which type of activity in the Statement of Cash Flows?

operating activity

stockholders equity

owners claims to resources

If you are able to predict the change in financial accounting's measure of profitability, you can predict the change in stock prices, too.

true -If you are able to predict the change in financial accounting's measure of profitability—net income—then you can predict the change in stock prices as well.

An increase in revenues increases net income, and net income increases stockholders' equity.

true -Stockholders' equity has two components: common stock and retained earnings.

Use the following amounts to calculate net income: Assets, $165,000; Dividends, $9,000; Expenses, $61,000; Liabilities, $74,000; Revenues, $82,000.

21,000 -Net Income = Revenues ($82,000) − Expenses ($61,000) = $21,000

Franklin Corporation has the following account balances at the end of the year. What is stockholders' equity?

48,000 -the accounting equation indicates that Assets = Liabilities + Stockholders' Equity. Rearranged, Stockholders' Equity = Assets − Liabilities. Assets = Accounts Receivable ($23,000) + Cash ($35,000) + Equipment, net ($41,000) + Supplies ($3,000) = $102,000. Liabilities = Accounts Payable ($17,000) + Notes Payable ($29,000) + Salaries Payable ($8,000) = $54,000. Therefore, Stockholders' Equity = Assets ($102,000) − Liabilities ($54,000) = $48,000

Sole Proprietorship

A business owned by one person

Which of the following events will not pose an immediate impact on the accounting equation of a retail company?

A change in marketing strategy -When a business changes its approach to marketing products, even though the hope is that those events will positively affect the company's financial position, there is no immediate or quantifiable effect on the accounting equation.

Ethics is best described as:

A code or moral system that provides criteria for evaluating right and wrong behavior. -Investors, creditors, government, and the general public rely on general ethical behavior among those who record and report the financial activities of the business.

Which of the following is true of public accounting?

A public accountant usually gets to work with multiple clients.

Sampson Corporation pays dividends of $9,000 to shareholders. Which of the following statements correctly shows the effect of this transaction on the accounting equation?

Assets will decrease by $9,000, liabilities will remain unchanged, and stockholders' equity will decrease by $9,000 -The payment of dividends decreases Cash, an asset account, and decreases Retained Earnings, a stockholders' equity account. Liabilities will remain unchanged.

Microlith received $20,000 cash in advance from customers. Which of the following statements correctly shows the effect of this transaction on the accounting equation?

Assets will increase by $20,000, liabilities will increase by $20,000, and stockholders' equity will remain unchanged

Amber Corporation provided services to customers on account for $26,000. Which of the following statements correctly shows the effect of this transaction on the accounting equation?

Assets will increase by $26,000, liabilities will remain unchanged, and stockholders' equity will increase by $26,000

Palmer Corporation borrows $40,000 cash by signing a note with the bank. Which of the following statements correctly shows the effect of this transaction on the accounting equation?

Assets will increase by $40,000, liabilities will increase by $40,000, and stockholders' equity will remain unchanged

Bell Company purchased supplies for $700 cash. Which of the following statements correctly shows the effect of this transaction on the accounting equation?

Assets will remain unchanged, liabilities will remain unchanged, and stockholders' equity will remain unchanged

Which of the following is an alternate form of the accounting equation?

Assets − Liabilities = Stockholders' Equity

The balance in the cash account appears in which two financial statements?

Balance Sheet and Statement of Cash Flows

You are reading a particular section of a bank's annual report. This section provides the bank's views about the impact of an upcoming regulation on the banking industry as a whole and the bank in particular. Which section of the annual report are you reading?

Management's discussion and analysis

Which government agency has the authority to set accounting and reporting standards in the United States?

Securities and Exchange Commission

The statement of cash flows:

Shows the net change in cash over a period of time -is a financial statement that measures activities involving cash receipts and cash payments over an interval of time

managers

decide production and expansion

suppliers

decide the customers ability to pay for supplies

investors

decide whether to invest in stock

creditiors

decide whether to lend money

customers

decide whether to purchase products

dividends

distribution of profit to stockholders

Which of the following is a feature of the corporate form of business ownership?

double taxation (a disadvantage)

Ron owns five percent of a corporation's common stock. The concept of limited liability would imply that Ron is personally responsible for only five percent of the financial obligations of the corporation.

false

Dividends represent expenses of operating the company.

false -Dividends are not necessary to run the business to produce revenues.

Investors and creditors rely heavily on managerial accounting information in making investment and lending decisions.

false -Investors and creditors rely heavily on financial accounting information when making investment and lending decisions.

All business events have an immediate and quantifiable effect on the accounting equation.

false -Only business activities that cause increases and decreases to accounts pose an immediate and quantifiable effect on the accounting equation.

The balance of retained earnings represents the amount of earnings paid out in the form of dividends to stockholders.

false -The balance of retained earnings represents the amount of "earnings retained" (not paid out in the form of dividends) over the life of the company.

limited liability

means the stockholders are not held personally responsible for the financial obligations of the corporation

statement of cash flows

measures activities involving cash receipts and cash payments over an interval of time

Which of the following best explains a company's stock price performance?

net income -No single piece of company information better explains a company's stock price performance than does financial accounting net income.

balance sheet

presents the financial position of the company on a particular date

which of the following accounts would appear in a company's income statement?

rent expense

income statement

reports the company's revenues and expenses over and interval or period of time

assets

resources of the company (OWN) -ex: cash, inventory, supplies, buildings, and equipment

the amounts recorded when the company sells products or provides services to customers are referred to as:

revenues

Revenues

sales of products or services to customers

statements of stockholders equity

summarizes the changes in stockholders equity over an interval of time

From the list that follows, identify a company where a private accountant could possibly work.

target -A career in private accounting means providing accounting services to the company that employs you.

four primary financial statements

the income statement, the statement of stockholders' equity, the balance sheet, and the statement of cash flows

Investing Activities

transactions involving the purchase and sale of resources that provide benefit for several years

Operating Activities

transactions that relate to the primary operations of the company

Financing Activities

transactions the company has with investors and creditors

Which of the following is not one of the four primary financial statements?

trial balance

An account is defined as a record of the business activities related to a particular item.

true

If mistakes or fraudulent reporting behavior are discovered, auditors require the company to correct all significant information before issuing financial statements.

true -If auditors find mistakes or fraudulent reporting behavior, they require the company to correct all significant information before issuing financial statements.

The organization primarily responsible for establishing accounting and reporting standards in the United States is the Financial Accounting Standards Board (FASB).

true -The FASB is an independent, private-sector body that is primarily responsible for establishing accounting and reporting standards in the United States.

The income statement records activity over an interval of time

true -The income statement records activity over an interval of time.

The value of a company to its owners equals total resources of the company.

false -The value of a company to its owners equals total resources of the company minus amounts owed to creditors. Creditors expect to receive only resources equal to the amount owed them. Stockholders or owners, on the other hand, can claim all resources in excess of the amount owed to creditors.

With a finance degree, you can apply for almost any position available to accounting majors.

false -With an accounting degree, you can apply for almost any position available to finance majors. However, it doesn't work the other way: Finance majors often lack the accounting background necessary to apply for accounting positions.

The main functions of financial accounting are to measure business activities and to communicate those measurements to investors and creditors.

true -Financial accounting serves two main functions: (1) it measures business activities, and (2) it communicates those measurements to investors and creditors.