Financial Accounting Midterm review

Purchase equipment: $3,650 Pay rent: $625 Repay loan to the bank: $5,200 Pay workers salaries: $500 what is the total amount of cash paid for operating activities

$1,125 Paying rent and Paying workers salaries are both operating activities and if you add both them together you get $1,125

On January 1, Gucci brothers Inc. started the year with a $702,00 balance in retained earning and a $609,000 balance in common stock. During the year the company reported net income of $102,000 paid a dividend of $14,600 and issued more common stock for $26,000. what is total stockholders equity at the end of the year.

$1,424,400 Total Stockholders equity= common stock ($609,000+$26,000) + retained earnings ($702,000+$102,000-$14,600) which equals to $1,424,400

Emmitt had the following final balance after the first year of operations: assets:$35,500; stockholders equity: $14,200; dividends: $3,500 and net income: $10,900. what is the amount of Emmitt's liabilities

$21,300 Liabilities= $35,000 (assets) - $14,200 (stockholders equity) which equals to $21,300

Use the following appropriate amounts to calculate net income: Revenues: $10,900; liabilities: $3,800; Expenses:$3,400; Assets:$18,600; Dividends: $1,300.

$7,500 Net income= $10,900 (Revenues) - $3,400 (expenses) which is $7,500

Nina Corp. had the following net income (loss) for the three years of operations, respectively: $7,400, ($1,900) and $3,700. If the retained earnings balance at the end of year three $1,400, what was the total amount of dividends paid over these three years?

$7,800 Diviends= Beginning retained earnings ($0)+ net income ($7,400-$1,900+$3,700)- earned retained earnings ($1,400) = $7,800

The following transactions occur for badger biking company during the moth of june: a) Provide services to customers on account for $50,000 b) receive cash of $42,000 from customers in (a) above c) Purchase bike equipment by signing note with the bank for $35,000 d) pay utilities of 5,000 for the current month Analyze each transaction and indicate the amount of increase and decrease in the accounting equation

(a) assets $50,000= Liabilities $0+ stockholders equity $50,000 (b) increase: assets ($42,000)= liabilities $0 + stockholders equity $0 (b) decrease:assets ($42,000) = Liabilities $0 + stockholders equity $0 (c) assets $35,000= liabilities $35,000+ stockholders equity $0 (d) (5,000) assets = Liabilities $0 + stockholders equity (5,000)

1.ExxonMobil reports total assets of $202 billion and total liabilities of $94 billion 2. Citigroup reports total liabilities of $1,370 billion and stockholders equity of $97 billion 3. Amazon.com reports total assets of $3.4 billion and total stockholders equity of $0.17 billion 4.Nike reports an increase in assets of $1.07 billion and an increase in liabilities of $0.3 billion 5. Kellogg's reports a decrease in liabilities of $0.37 billion and an increase in stockholders equity of $0.02 billion Required: 1. what is the amount of stockholders equity of ExxonMobil? 2. what is the amount of total assets of Citigroup? 3. what is the amount of total liabilities of Amazon.com 4. what's is the amount of the change in stockholders equity of Nike? what is the amount of the change in total assets of Kellogg's?

1. 108 billion $202 (assets)-$94 (liabilities) =$108 billion 2. 96.863 billion $97 (stockholders equity) - .1370 (liabilities) = $96.863 billion *The reason why the liabilities became a decimal because you can not calculate it unless it was in decimal form. 3. $3.23 $3.4 (assets) - $0.17 (liabilities) =$ 3.23 billion 4. $0.77 $1.07 (assets) - 0.3 (liabilities) = $0.77 billion 5. $-.35 billion $0.37 (liabilities) - $0.02 (stockholders equity) = $-0.35 billion

the steps in the measurement process of external transactions

1. use source docs. to identify accounts affected by external transactions 2. analyze the impact of the transactions on the accounting equations 3. Asses whether the transactions results in a debit or credit to account balance 4. record the transactions in a journal using debits and credits 5. post transactions to the general ledger 6. prepare for a trail balance

demonstrates the link between cash reported in the balance sheet cash reported in the balance sheet and cash reported in the statement of cash flows

A company's cash balance should be high enough to ensure that it can pat debts as they become due, but not so high that cash is idle and not being used effectively

separation duties

A set of procedures intended to separate duties among employees for authorizing transactions, recording transactions, and controlling related assets

demonstrate the purpose and recording of adjusting entries

Adjusting entries are a necessary part of accrual-basis accounting. they're used to record changes in assets and liabilities (and their related revenues and expenses) that have occured during the period but have not yet been recorded by the end of the period Adjusting entries are needed when cash flows or obligations occur before the revenue or wxoense-related activity (prepayment) or when cash flows occur after the revenue or expense related activity (accrual) Adjusting entries are unnecessary in 2 cases. 1) for transactions that do not involve revenue or expense activities and 2) for transactions that result in revenues or expenses being recoreded at the same time as the cash flow

a company's own cash record show a balance of $3,200. after examining the bank statements the following information is revealed: banks balance for cash: $4,000 deposits outstanding: $2,300 NSF checks:$600 checks outstanding: $1,800 note collected by the bank: $2,000 service fee charged by the bank: $100

After reconciliation the correct balance of cash is $4,500 The entry to update the company's cash balance after the bank reconciliation is prepared would include a: debit to accounts receivable

issue common stock to investors

Financing activities

reconcile a bank statement

In a bank reconciliation we reconcile the banks cash balance for 1) cash transaction already recorded by the company but not yet recorded by the bank and 2) bank errors similarly we reconcile the company's cash balance for 1) cash transactions already recorded by the company and 2)company errors. after we complete the reconciliation the amounts for the bank balances and the company's balance should be equal. Andy adjustments to the company's balance need to be recorded

Bearcat construction begins operations in March and has the following transactions: March 1: Issue common stock for $21,000 March 5:obtained $9,000 loan from the bank by signinging a note March 10: purchase construction equipment for $25,000 cash March 15: purchase se e advertising for the current month for $1,000 cash March 22: provide construction services for $18,000 on account March 27: Recieve $13,000 cash on account from March 22 service March 28: pay salaries for the current month of 6,000 record each action:

March 1: debit: cash 21,000. credit: common stock 21,000 March 05: debit: cash 9,000. credit: notes payable 9,000 March 10: debit: equipment 25,000. credit: cash 25,000 March 15: debit: Advertising expense 1,100. credit: cash 1,100 March 22: debit: Accounts receivable 18,000. Credit: service revenue 18,000 March 27: debit: cash 13,0000. credit: accounts receivable 13,000 March 28: debit: salaries expense 6,000 credit: cash 6,000

which of the following is not a characteristic of adjusting entries

Reduce the balances of revenue, expense, and dividend accounts to zero.

on September 9, clearmore services receives a request for services from a customer. the service is scheduled for September 15. on September 15, the service is provide, and the customer pays one week later on September 22. using cash-basis accounting, on which date should Clearmore services record service revenue

September 22 (date of each receipt)

Employee Management

The company should provide employees with appropriate guidance to ensure they have the knowledge necessary to carry out their job duties.

understand when revenues and expenses are recorded

The revenue recognition principle states that we record revenue in the period in which we provide goods and services to customers, not necessarily in the period which we receive cash Most expenses are recorded in the same period as the revenues they help to generate. other expenses indirectly related to producing revenues are recorded in the period they occur

proper authorization

To prevent improper use of the company's resources, only certain employees are allowed to carry out certain business activities.

the entry to close the expense accounts includes:

a debut to retained earnings

Which of the following is not a an asset account

accounts payable

recording salaries owed to employees that will not be paid by the company until the following accounting period is an example of an:

accrued expense

financial statements are prepared from which of the following trial balance

adjusting trail balance

post closing entries and prepare a post closing trial balance

after we post the closing entries to general ledger the balance of retained earnings equals the amount shown in the balance sheet. the balances of all revenue,expenses, and dividend accounts are zero at that point

central activities

are policies and procedures that help ensures that management directives are being carried out. these activities include authorizations, reconciliations and separations of duties

adjusting entries

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

resources of a company

assets

The financial statement that represents the accounting equation is the:

balance sheet

resources equal creditors and owners claims to those resources

balance sheet

understand controls over cash receipts and cash disbursements

because cash is the assets of a company most susceptible to employee fraud, controls over cash receipts and. ash disbursements are an important part of a company's overall internal control system. important controls over vasg receipts include segregation of duties for those who handle cash and independent verification of cash receipts. important control over cash disbursements include payment by check credit card or debit card, separation of duties and various authorization and documentation procedures

A credit is used to decrease which of the following accounts

cash

define cash and cash equivalents

cash includes coins and currency, chances received and balances in savings and checking accounts. the cash balance also includes credit cards and debut card sales as well as cash equi6defines as investments that mature within 3 months from the date of purchase ( such as money market funds, treasury Bill's and certificates of deposits)

investing cash flows include which of the following?

cash received from the sale of a used company truck.

which of the following is considered cash for financial reporting purpose

checks received from customers

Demonstrate the purpose and recording of closing entries

closing entries serve 2 purposes. 1) to transfer the balances of temporary accounts (revenues, expenses, and dividends) to the retained earnings account and 2) to reduce the balances of these temporary accounts to zero to prepare them for measuring activity in the next period closing entries increase retained earnings by the amount of revenues for the period and decrease retained earnings by the amount of expenses and dividends for the period

sarbanes-oxley act (SOX) was passed in response to

corporate scandals involving unethical behavior of top executives

providing services to customers for cash would be recorded with a:

credit to service revenue

common stock

debit decrease credit increase

liablity

debit decreases credit increases

retained earnings

debit decreases credit increases

expense

debit increases credit decrease

assets

debit increases credit decreases

Dividends

debit increases credit increases

the purchase of supplies with cash would be recorded as

debit supplies; credit cash

the purchase of supplies on account would be recorded with a:

debit to supplies

the adjusting entry to record supplies used during the period includes a:

debut to supplies expense

which of the following adjusts the bank balance of cash in a bank reconciliation

deposits outstanding

distributions to stockholders

dividends

that balance of retained earnings in the adjusting trail balance

equals the balance of retained earnings at the beginning of the accounting period

cost of selling products or services

expenses

pay dividends to stockholders

financing

Transactions with lenders and owners

financing activities

burrow from the bank

financing activities

Risk assessment

identifies and analyzes internal and external risk factors that could prevent a company's objectives from being achieved

reconcile a bank statement

in a bank reconciliation we reconcile the banks cash balance for 1) cash transactions already recorded by the company but not yet recorded by the bank and 2) bank errors. similarly we reconcile the company cash balance for 1) cash transactions already recorded by the bank but not yet recorded by the company and 2) company errors. after we complete the reconciliation the amounts for the bank balance and the company's balance should be equal. any adjustments to the company's balance need to be recorded

profitability of the company

income statement

purchase building

income statement

providing services to customers for cash would have what effect on the accounting equation

increase total assets and total stockholders equity

The Sarbanes-Oxley Act (SOX) mandates which of the following?

increased regulations rated to internal control increased regulations rated to auditor-client relations increased regulations related to coperate executive accountability (all of them)

identify the components responsibilities and limitations of internal control

internal control refers to a company's plan to improve the accuracy and reliability of accounting information and safeguard the company assets. 5 components to an internal control system are 1) control environment 2) risk assessment 3) control activities 4)monitoring and 5) information and communication. control activities include those desse designed to prevent pr detect fraudulent pr erroneous behavior

Purchase land

investing

transactions involving the purchase and sale of productive assets

investing activities

FlintCo purchases additional office equipment to better serves its customers. This cash purchase is reported in the statement of cash flows as what type of activity.

investing activity

contra account

is an account with a balance that is opposite or "contra" to that of it's related accounts

which of the following transactions causes an increase in total assets

issue common stock in exchange for cash

transaction are recorded using debits and credits in an

journal

amounts owed

liabilities

Reconciliation (detective control)

management should periodically determine whether the amount of physical assets of company (cash, supplies, inventory, and other property) agree with the accounting records

audits (detective control)

many companies, such as those companies listed on stock exchange are required to have an independent auditor attest to the adequacy of their internal control procedure

on may 5, Johnson plumbing receives a phone call from a customer needing a new water heater and schedules a service visit for may 7. on may 7 Johnson installs the new water heater. the customer pays for services on may 10. according to the revenue recognition principle, on which date should Johnson record service revenue?

may 7 (date of service)

Eagle corp. operates Magnetic resonance imaging (MRI) clinics throughout the northeast. At the end of the current periods, the company reports the following amounts: =Assets=$33,000; Liabilities = $18,500; Dividends=$1,300; Revenues=$10,600; Expenses= $7,300. Calculate net income and Stockholders equity at the end of the period.

net income:$3,300 Equation (revenue-expenses=net income) Stockholders equity ( at the end of the Equation ( total assets- total liabilities=stockholders equity period) : $14,500

purchasing land with cash would have e what effect on the accounting equation?

no effect

On Novemeber 15, meler company received $3,000 cash from a customer for services that were performed on Novemeber 1. on which date should the revenue be recorded under cash basis accounting

novemeber 15

Monitoring

of internal activities and reporting of deficiencies is required. monitoring includes formal procedures for reporting control deficiencies

Pay rent for the current period

operating

Transactions related to revenues and expenses

operating activities

provide services to customers

operating activities

physical controls

over assets and accounting records

investing cash flows in the statement of cash flows would include which of the following

purchase land

which of the following transactions increases total liabilities?

purchase office supplies on account

e-commerce controls

refers to the wide range of electronic activities of a company, such as buying and selling over the Internet, digital information processing, and electronic communication

which of the following generally would not be considered good internal control of cash receipts?

requiring the employee receiving the cash from the customer to also deposit the cash into the company's bank account

the assets of a company represents

resources that will be used to benefit the company

sales of products or services

revenues

which of the following accounts is not listed in a post closing trial balance

service revenue

which of the following accounts normally has a credit balance?

service revenue

Control Environment

sets the overall ethical tone of the company with respect to internal control. It includes formal policies related to management's philosophy, assignment of responsibilities, and organizational structure

change in cash as a result of operating, investing, and financing activities

statement of cash flows

change in owners claims to resources

statement of stockholders' equity

owners claims to resources

stockholders equity

when preparing a bank reconciliation, outstanding checks would be:

subtracted from the banks cash balance

performance review (detective control)

the actual performance of individuals or processes should be checked against their expected performance

Distinguish between accrual-basis accounting and cash-basis accounting.

the difference between accrual-basis accounting and cash basis accounting is timing. under accrual-basis accounting we record revenues when we provide goods and services to customers and we record expenses when costs are used in company operations. under cash-basis accounting we record revenues when we receive cash and we record expenses when we pay cash. cash-basis accounting is not allowed for financial reporting purposes for most major companies

identify the major inflows and outflows of cash

the statement of cash flows reports all cash activities for the period. operating activities include those transactions involving revenues and expenses. investing activities include cash investment in long term assets and investments securities. financing activities include transactions designed to finance the business through borrowing and owner investment

accrual basis accounting creates timing differences between revenue recognition and cash flow as well timing differences between expenses recognition and cash outflows

these timing differences often cause account balances of assets liabilities revenues and expense to not be updated during the period

what is a direct purpose of internal controls

to improve the accuracy and reliability of accounting information

Account for employee purchase

to make purchases on behalf of the company some employees are allowed to use debut cards and credit cards ( purchase cards) write checks and spend available cash on hand (petty cash funds) at the end of the period all employee purchases are recorded and the petty cash fund is replenished

Accounting for employees purchases

to make purchases on behalf of the company's some employees are allowed to use debit cards and credit cards( purchase cards) write checks and soend available cash on hand (petty cash funds) at the end of the period all employee purchases are recorded and the petty cash fund is replenished

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

true

post adjusting entries and prepare and adjusted trial balance

we post adjusting entries to the general ledger to update the account balances and adjusted trail balance is a list of all accounts and their balance at a particular date after we have updated account balances for adjusting entries

prepare financial statement using the adjusted trail balance

we prepare the income statement, statement of stockholders equity and balance sheet from the adjusted trail balance. the income statement provides a measure of net income (profitability) calculated as revenues minus expenses. the balance sheet demonstrates that assets equal liabilities plus stockholders equity (the basic accounting equation)

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