Final Acc 201
what is the inventory turnover ratio?
COGS/ average inventory
Assume that Canadian Falcon issues 1,000 shares of $30 par value preferred stock for $40 per share. We record the transaction as:
Cash (1,000 x 40) Preferred (1000 x 30) Add. paid in capital (Cash - Preferred) Debit 40,000 (Cash) Credit 30,000 (Preferred) Credit 10,000 (Add paid in cap)
What is the equation for acid-test ratio?
Cash + Current investments + Accounts receivable / Current liabilities
Canadian Falcon, a specialty retailer of casual apparel and accessories, issues 1,000 shares of no-par value common stock at $30 per share. We record this transaction as:
Cash Debit 30,000 Common stock credit 30,000
Frequent reason for a stock to split is to what?
Cause the market price per share to decline
What is the purpose for adjusting net income on a BS?
Convert items included in the net income to cash
Which of the following expenditures associated with Equipment would not be capitalized?
Cost necessary to provide utilities to operate the equipment It does capitalize any updates you need to make in future years
What is the current ratio?
Current assets / Current liabilities
How do you calculate a year to year percentage change?
Current year amount - prior year amount --------------------------------------------- prior year amount all times 100
Which is more conservative? Acid test ratio or current ratio?
ACID because the top part of the fraction includes only cash, current investments, and accounts receivable. Because it eliminates current assets such as inventories and prepaid expenses that are less readily convertible into cash, the acid-test ratio often provides a better indication of a company's liquidity than does the current ratio
Do you add, subtract, or ignore a loss of sale of land for operating activities?
Added to the net income because it decreased net income before
By matching expenses with revenues:
Benefits are matched with their associated costs
On March 5, American Corp. provides services on account to National Corp. for $1,500, with terms 2/10, n/30. On March 13, American receives payment from National and records the following:
DEBIT Service Rev: 1500 ( i think this part is right) CREDIT Acc Rec 1500
How do you record when a company sells inventory which costs $8,000 to customers for $12,000 on account
DEBIT: Acc Rec 12,000? CREDIT: Sales Rev for 12,000
How would you record inventory : sold inventory for $1,200 that was purchased for $700
Debit: COGS 700 Credit: Inventory 700 Think of how much it costs the company to buy the items in the first place, not how much they made off of it
Record the signing of an installment of a notes payable:
Debit: Cash Credit: Notes Payable
What would be recorded: Company issues a bond at premium
Debit: Cash Credit: Premium on bonds payable Credit: Bonds payable
When a bond issues at discount, how do you record it?
Debit: Cash Debit: Discount on bonds payable Credit: bonds payable
How do you record a payment of a bond?
Debit: interest expense Credit: cash
Which of the following ratios measures the underlying risk of a company?
Debt to equity
Which two ratios have to do with solvency?
Debt to equity and times interest earned
What is the financial statement effect of recording a contra revenue account?
Decrease Net Income
What is a possible impact of closing entries on account balances?
Decreases revenues (Doesn't affect PALS)
Disposal of stoves and oven product line would be reported as what?
Discontinued operations
What is most common for bonds to be sold at: face value, discount, or premium?
Discount
Investing, financing, or operating: Issuing stock to owners
Financing
What effect would an adjustment to record inventory at the lower of cost and net realizable value have on the company's financial statements?
First think of what your financial statement consists of (a, l and se) It will increase your expense
Conservative accounting will usually result in the appearance of:
Higher risk and lower profitability (Looks like you will not be making enough and looks like you will have higher risk of losing)
What is the amount of money paid into a company by its owners?
Invested Capital
What stock is recognized at par value?
Large stock dividends
Callable bonds are beneficial for:
Lender (bond issuer) insures money will be paid back if interest rates change
If a company fails to record its estimate of future bad debts at the end of the current year:
Net Income is overstated
What is the asset turnover ratio?
Net Sales/ Average total assets
Using indirect method, what is the starting point for preparing the operating activities section?
Net income
What is the formula for return on equity?
Net income/ average totals shareholders equity
Disposal of old delivery truck would be reported as what?
Other revenues and expenses
The sale of most assets is reported as?
Other revenues and expenses
Shareholders equity consists of 3 main things?
PAID IN CAPITAL is the amount stockholders have invested in the company. RETAINED EARNINGS is the amount of earnings the corporation has kept or retained—that is, the earnings not paid out in dividends. TREASURY STOCK is the corporation's own stock that it has reacquired. Illustration 10-1 shows those components in the stockholders' equity section of the balance sheet for American Ea
What are the 5 profitability ratios?
PE ratio Return on assets Gross profit Return on equity profit margin
According to the conceptual framework, relevant information possesses which qualitative characteristics?
Predictive value and confirmatory value
How do you find inventory?
Quantity x cost
When issuing stock, a corporation must obtain approval from the:
Securities and Exchange Commission
What additional extra features can be granted with preferred stock holders?
Shares can be redeemed for cash, and can convert shares to common stock
What stock is recognized at market vale?
Small stock dividends
What is Solvency? What is Liquidity?
Sol: refers to a company's ability to pay its long-term liabilities Liz: having sufficient cash (or other assets readily convertible into cash) to pay its current liabilities
Which final statement summarizes the changes in the balance of each stockholders equity account?
Statement of Stockholders equity only
The accounting measure of the value of a corporation to its owners is referred to as:
Stockholders Equity
the accounting group responsibility for the establishment of worldwide financial accounting is?
The International Accounting Standards Board
What is Quality of Earnings?
The ability of reported earnings to reflect the company's true earnings, as well as the usefulness of reported earnings to predict future earnings.
If a company understates its count of ending inventory in Year 1, which of the following is true?
The balance of retained earnings is correct at the end of Year 2.
The net increase/decrease in cash reported in the Statement of Cash Flows equals:
The change in the balance of the Cash account reported in the Balance Sheet
What ratio indicates the portion of each sales dollar above its COGS?
The gross profit ratio
Convertible bonds are beneficial for:
beneficial for buyer and lender
What is debt financing?
borrowing money from creditors
preferred stock tends to have attributes of:
both bonds and common stock (it is flexible)
preferred stock carries priority over common stock:
both for dividends and liquidation
What does a decrease in accounts receivable mean?
cash collected from customers was greater than the sales on account
Is depreciation expense have outflow of cash, inflow of cash, or cash not included
cash not included: Because we deducted this noncash expense in the determination of net income, we need to add it back in calculating operating cash flows
vertical analysis is also known as?
common-size analysis
What do you classify a bond at a discount?
contra-liability
How do we get market value?
current stock price per share x number of shares outstanding
The profit margin measures the income earned on what? What is the formula?
each dollar of sales net profit/ net sales
If you use FIFO, will your gross profit be higher or lower than if you use LIFO?
higher
what are two primary advantages over sole proprietorships and partnerships?
limited liability and the ability to raise capital and transfer ownership.
In a corporation, shareholders liability is?
limited to the amount of investment
If you use FIFO, will your inventory turnover be higher or lower than if you use LIFO?
lower
What is the formula to compute the return on assets?
net income / average (not ending) total assets
What are the three primary sources of long-term debt financing?
notes, leases, and bonds.
What is equity financing?
obtaining investment from stockholders (stockholders' equity).
Inflow or outflow: Sale of equip.
outflow
inflow or outflow: purchase of investment
outflow
the legal capital per share of stock is assigned when their corporation is first established is referred to as what?
par value
What is the Price earnings (PE) ratio?
price of single share of stock / earnings per share
2 types of corporations:
public and private
If the bonds' stated interest rate equals the market interest rate, then will the bonds issue below, at, or above face value?
then the bonds will issue at face amount.
If the bonds' stated interest rate is less than the market interest rate, then will the bonds issue below, at, or above face value?
then the bonds will issue below face amount (discount).
Horizontal analysis is also known as?
trend analysis or time-series analysis.
what do you need to calculate the issuing price of bonds?
# of periods until maturity face amount of bonds interest payment each period
Straight line is:
(Purchase price - residual value)/ life expectancy
formula when you see "Rules under lower of cost and net realizable value"
(cost-net realizable value) x Quantity This is essentially your COGS
preferred stock is "preferred" over common stock by providing preferred stock holders with these rights:
1) first right to specific amount of dividends 2) preference in distribution of assets during dissolution of corporation
Corporations are?
are formed in accordance with the laws of individual states. They are separate legal entities with liability for its owners
What does the price of a bond include?
the present value of the face amount plus the present value of the periodic interest payments.
How can you find a firm's financing activities?
We can find a firm's financing activities by examining changes in long-term liabilities and stockholders' equity accounts from the balance sheet.
What type of entry would be most frequently manipulated?
Year-end earnings
What two ratios are liquidity ratios?
acid test current
Proceeds from issuing new par value stock are allocated between
additional paid in capital and common stock
Changes of current assets or liabilities require adjustment of net income under the indirect method because?
related cash may be higher or lower than the accrued amount included in net income
Treasury Stock is?
reported as a contra equity, or negative amount, because treasury stock reduces total stockholders' equity. Is shares of stock no longer outstanding
Noncash investing and financing activities are reported where?
reported on the statement of cash flows and reported in the notes of the financial statement
What are term bonds?
require payment of the full principal amount of the bond at the end of the loan term. Most bonds have this characteristic.
The gross profit ratio will typically be higher for companies that:
sell products that are more highly specialized
The P/E ratio is calculated by
stock price/ Earnings per share
if the bonds' stated interest rate is more than the market interest rate, then will the bonds issue below, at, or above face value?
the bonds will issue above face amount (premium).
E-Games' accounts receivable increased $7,000 during the year (from $20,000 in 2017 to $27,000 in 2018) What does this tell us?
the company must have collected less cash than its $1,012,000 in sales revenue. Why? Because customers owe the company $7,000 more than before
