GB 310 Ch 8

accounts payable

An obligation to pay a short-term debt to a company's creditors or suppliers. It appears in the current liabilities section of the balance sheet.

basic accounting equation

Assets = Liabilities + Equity (Stockholders' or Owners')

Certified Public Accountant (CPA)

An accountant that has a professional qualification and is licensed to perform audits.

Packers Parkas Inc. had retained earnings of $650,000 at the end of the current year. For the current year, revenues were $1,200,000 and expenses totaled $975,000. Kinder paid no dividends in the current year. What was the balance in retained earnings at the end of the prior year? A. $425,000 B. $875,000 C. $225,000 D. $650,000 E. $1,200,000 F. None of the above is the single best answer.

A BRE = ERE - NI + D ERE_Year1 = BRE_Year2 NI = Rev - Exp = 1,200,000 - 975,000 = 225,000 BRE = 650,000 - 225,000 + 0 = 425,000

49ers Gold Mining Inc. acquired office equipment with a five-year useful life for $5,000 by paying cash of $3,000 with the balance on account. What is the total effect of this transaction on Eli Corporation's balance sheet? A. increase assets $2,000; increase liabilities $2,000 B. increase assets $5,000, increase liabilities $5,000 C. increase revenues $5,000; increase expenses $5,000 D. increase expenses $5,000; increase assets $5,000 E. increase liabilities $2,000; increase expenses $2,000 F. None of the above is the single best answer.

A BS: Assets: Equipment up by 5,000; Cash down by 3,000 Net Assets = +5,000 - 3,000 = up by 2,000 Liabilities: Accounts Payable up by 2,000 Net Liabilities = up by 2,000

At the beginning of the period, Bengals Brewing LLC had assets $500,000, liabilities $225,000, and stockholders' equity $275,000. During the period, the company purchased land for $70,000 cash, bought supplies for $10,000 on account, and issued a note payable for $5,000 cash. What is the total amount of assets reported at the end of the period? A. $515,000 B. $530,000 C. $570,000 D. $575,000 E. $585,000 F. None of the above is the single best answer.

A Beginning: A (500,000) = L (225,000) + SE (275,000) During: 1. Assets: Land up by 70,000; cash down by 70,000 2. Assets: Supplies up by 10,000 Liabilities: Accounts payable up by 10,000 3. Assets: Cash up by 5,000 Liabilities: Notes payable up by 5,000 Changes in Assets during the period: +70,000 - 70,000 + 10,000 + 5,000 = +15,000 Ending Assets = 500,000 + 15,000 = 515,000

common stock

A balance sheet term used to describe the total amount invested in the company by stockholders in return for shares of the business.

going concern

A basic accounting assumption that a company will be able to continue operating for a period of time that is sufficient to carry out its objectives and obligations.

Generally Accepted Accounting Principles (GAAP)

A common set of accounting rules, standards, and practices defined by standard-setting bodies that public companies must use to compile and report their financial statements.

liability

A company's legal debts or obligations owed to creditors that arise over the course of business operations.

statement of cash flows

A financial statement that reports on the cash inflows and cash outflows due to the operating, financing, and investing activities of a business for a specific financial reporting period.

balance sheet

A financial statement that reports the assets, liabilities, and stockholders' equity of a business as of a specific date. The balance sheet reports the cumulative financial impact of the business over the many years it has operated.

statement of retained earnings

A financial statement that reports the changes in retained earnings for a specific financial reporting period.

income statement

A financial statement that reports the revenues and expenses and the resulting net income or loss of a company for a specific financial reporting period.

auditor

A person, typically a certified public account, authorized to review and comment on a company's accounting system and financial statements.

auditor's report

A written opinion of an independent external auditor that attests to the fairness of the financial statements and their conformance with generally accepted accounting principles (GAAP). The company's annual report contains the auditor's report and it may offer an unqualified, qualified, or adverse opinion.

Sarbanes-Oxley Act (SOX)

An act passed by Congress in 2002 to protect investors from the possibility of fraudulent accounting activities by corporations.

adverse opinion

An auditor's opinion that a firm's financial statements do not accurately reflect its financial performance and health.

qualified opinion

An auditor's opinion that the financial statements may not be complete or the methods used by the company do not comply with generally accepted accounting principles (GAAP).

tangible assets

Assets reported on the balance sheet that have physical form, such as PPE.

intangible assets

Assets that have non-physical form, such as copyrights, patents, trademarks and other intellectual property.

If liabilities total $350,000 and stockholders' equity totals $500,000, then total assets must be: A. $150,000 B. $850,000 C. $350,000 D. $500,000 E. $650,000 F. None of the above is the single best answer.

B A = L + SE = 500,000 + 350,000 = 850,000

Lions Leather Company had retained earnings of $150,000 at the end of last year. For the current year, net income was $35,000 and dividends paid was $10,000. What is the balance in retained earnings at the end of the current year? A. $25,000 B. $175,000 C. $150,000 D. $35,000 E. $140,000 F. None of the above is the single best answer.

B ERE_Year2 = BRE_Year2 + NI - D BRE_Year2 = ERE_Year1 = 150,000 ERE = 150,000 + 35,000 - 10,000 = 175,000

Steelers Sanitation Company had the following balances at the end of the period: Revenues $100,000 Expenses 82,000 Dividends 3,000 Cash flows from operating activities 12,000 Cash flows from investing activities (6,000) Cash flows from financing activities 4,000 Given this information what must be the Cash balance on the balance sheet? A. $18,000 B. $10,000 C. $15,000 D. $12,000 E. $100,000 F. None of the above is the single best answer.

B Ending Cash balance = Sum of cash flows from operating, investing, and financing activities Ending Cash balance = 12,000 - 6,000 + 4,000 = 10,000

The financial statements for Bears Boats LLC contained the following information: Accounts payable $10,000 Sales revenue 80,000 Rent expense 22,000 Accounts receivable 17,000 Salaries and wages expense 35,000 What was Bears' net income for the period? A. $80,000 B. $23,000 C. $70,000 D. $48,000 E. $7,000 F. None of the above is the single best answer.

B NI = Rev (sales revenue) - Exp (rent expense and salaries and wages expense) NI = 80,000 - (22,000 + 35,000) = 23,000

22. Raiders Radar Inc. began the year with total liabilities of $40,000 and assets of $120,000. During the year the company earned $35,000 in net income and paid dividends of $15,000. What is the balance in stockholders' equity at the end of the year? A. $35,000 B. $100,000 C. $120,000 D. $140,000 E. $160,000 F. None of the above is the single best answer.

B. Ending SE = Beginning SE + changes in RE + changes in CS Beginning SE = Beginning A - Beginning L = 120,000 - 40,000 = 80,000 Changes in RE = +35,000 (NI) - 15,000 (D) = 20,000 increase Ending SE = 80,000 + 20,000 + 0 (changes in CS) = 100,000

Firms want to obtain a(n) ____________________ opinion from their audits in order provide reasonable assurance to their investors that information is not materially misstated in their financial statements. Select one or more correct answers based on the chapter's vocabulary. A. affirmative B. unqualified C. substantive D. unbiased E. de jure F. None of the above correctly completes the sentence.

B. Unqualified

If total assets for the period increased $10,000 and stockholders' equity decreased $5,000, then liabilities must have_____________. A. increased $5,000 B. decreased $5,000 C. increased $15,000 D. decreased $15,000 E. increased $10,000 F. None of the above is the single best answer.

C (A + 10,000) = (L +/- X) + (SE - 5,000) +10,000 = X - 5,000 X = +15,000

If assets increased $48,000 during a given period and stockholders' equity increased $10,000 during the same period, then liabilities must have _____________. A. increased $10,000 B. decreased $10,000 C. increased $38,000 D. decreased $38,000 E. decreased $48,000 F. None of the above is the single best answer.

C A = L + S (A + 48,000) = (L +/- X) + (SE + 10,000) +48,000 = X + 10,000 X = +38,000, liabilities must increase by 38,000 to keep the equality

In which section of the annual report will you find an unqualified opinion? A. MD&A B. Financial Statements C. Auditor's Report D. Notes to the Financial Statements E. Letter from the Chairman of the Board F. None of the above is the single best answer.

C. Auditor's Report

Stockholders' equity represents: A. claims of employees B. claims of creditors C. claims of owners D. the difference between revenues and expenses E. the difference between common stock and net income F. None of the above is the single best answer.

C. Claims of owners

Which section of the statements of cash flows represents the cash received from issuing bonds? A. Operating B. Investing C. Financing D. None of the above is the single best answer.

C. Financing

Which of the following are financing activities in the statement of cash flows? I. Payment of dividends II. Purchase of office building III. Payment of wages to employees IV. Issuance of a note payable A. I only B. I, II, and IV C. I and IV D. II and III E. III and IV F. None of the above is the single best answer.

C. I and IV

Which of the following statements is incorrect? A. The responsibility for the preparation and integrity of financial statements rest with management. B. Assets on the balance sheet must equal liabilities and stockholders' equity. C. Revenue and expense accounts belong on the balance sheet. D. Net income is the link between the income statement and the statement of retained earnings. E. The cash account is the link between the balance sheet and the statement of cash flows. F. None of the above is the single best answer.

C. Revenue and expense accounts belong on the balance sheet

Which of the following items is a liability? A. common stock B. supplies C. salaries and wages payable D. rent expense E. prepaid rent F. None of the above is the single best answer.

C. Salaries and wages payable

External users of accounting information include: A. the CEO B. part-time employees C. shareholders D. the director of human resources E. the general manager F. None of the above is the single best answer.

C. Shareholders

The new accountant at Seahawk Salvage Corporation is asked to prepare financial statements for the first quarter of 2014. Which financial statement will she not prepare? A. balance sheet B. statement of cash flows C. statement of earnings and taxation D. retained earnings statement E. income statement F. None of the above is the single best answer.

C. Statement of earnings and taxation

financing activities

Refers to the actions a company takes to raise funds to finance its long-term investments either by issuing stock or debt.

expenses

Costs that are matched with revenues on the income statement. For example, Cost of Gods Sold is an expense caused by Sales.

During the year, Broncos Braising issued bonds for $35,000, issued stock for $20,000, generated revenues of $120,000, incurred expenses of $90,000, and paid $10,000 in dividends. What is the effect on the stockholders' equity section of the balance sheet? A. increase $20,000 B. increase $140,000 C. decrease $35,000 D. increase $40,000 E. decrease $20,000 F. None of the above is the single best answer.

D NI = Rev - Exp = 120,000 - 90,000 = 30,000 RE = NI - D = 30,000 - 10,000 = 20,000 SE = CS + RE = 20,000 + 20,000 = 40,000 increase

Vikings Valves Incorporated reported net income of $80,000 for the period. The company paid $10,000 in dividends, had $250,000 of revenue, issued stock for $30,000, and acquired equipment for $50,000. What are Vikings Inc.'s total expenses for the period? A. $120,000 B. $140,000 C. $160,000 D. $170,000 E. $220,000 F. None of the above is the single best answer.

D NI = Rev - Exp Exp = Rev - NI Exp = 250,000 - 80,000 = 170,000

Which of the following has the authority to set accounting standards in the U.S.? A. Generally Accepted Accounting Principles B. Federal Reserve System C. Federal Deposit Insurance Corporation D. Financial Accounting Standards Board E. Private Accounting System of Regulation F. None of the above is the single best answer.

D. Financial Accounting Standards Board

Which of the following are expenses? A. payment of an outstanding notes payable B. purchasing land C. payment of an accounts payable D. payment of the current period's rent E. retirement of long-term bonds payable F. None of the above is the single best answer.

D. Payment of the current period's rent

Net Income results when_____________________. A. assets exceed liabilities B. cash flows from operating activities exceed cash flows from financing activities C. stockholders' equity exceeds liabilities D. revenues exceed expenses E. revenues exceed liabilities F. None of the above is the single best answer.

D. revenues exceed expenses

investing activities

Refers to the purchase of the long-term assets a company needs to operate.

assets

Resources owned by a company that will provide future economic benefits.

net loss

Results when expenses exceed revenues.

Cardinals Canning Corporation issued a long-term bond for $350,000. It used the cash proceeds to purchase a building to use in operations. What is the impact on stockholders' equity for these transactions? A. increase $350,000 B. decrease $350,000 C. increase $700,000 D. decrease $700,000 E. the transactions will not impact stockholders' equity F. None of the above is the single best answer.

E A (+350,000 building) = L (+350,000 bond) + SE (no change)

Dolphin Data had the following account balances at the end of the period for December 31: Notes payable $10,000 Common stock 80,000 Retained earnings, 12/31 this year 50,000 Accounts payable 2,000 Retained earnings, 12/31 last year 30,000 Given this information, what must be the balance in the Assets account? A. $130,000 B. $118,000 C. $20,000 D. $35,000 E. $142,000 F. None of the above is the single best answer.

E A_Current Year = L_Current Year + SE_Current Year L = Notes payable + Accounts payable = 10,000 + 2,000 = 12,000 SE = CS + RE_Current Year = 80,000 + 50,000 = 130,000 A = 12,000 + 130,000 = 142,000

Which of the following accounts are on the balance sheet? A. Sales revenue B. Service revenue C. Rent expense D. Dividends E. Accounts payable F. None of the above is the single best answer.

E. Accounts Payable

Which of the following will increase Liabilities on the balance sheet? A. issuing stock B. incurring a net loss C. purchasing equipment for cash D. paying dividends E. buying supplies on account F. None of the above is the single best answer.

E. Buying supplies on account

Within the statement of cash flows, which of the following would appear in the operating activities section? A. dividends paid to stockholders B. cash paid to purchase a new building C. cash received from issuing a note payable D. cash received from issuing common stock E. cash received from sales to customers F. None of the above is the single best answer.

E. Cash received from sales to customers

The primary business activities include: I. Investing III. Purchasing II.Marketing IV. Operating A. I only B. I, II, and III C. II and IV D . II and III E. I and IV F. None of the above is the single best answer.

E. I and IV

The primary objective of financial accounting is __________________. A. to monitor and control company activities B. to provide the Board of Directors with information regarding the decisions of management B. to provide the Board of Directors with information regarding the decisions of management C. to provide the IRS the tax returns of a company D. to issue a company's annual report to the SEC E. to provide financial statements to help external users analyze an organization's activities D. to issue a company's annual report to the SEC E. to provide financial statements to help external users analyze an organization's activities F. None of the above is the single best answer.

E. to provide financial statements to help external users analyze an organization's activities

external users

Individuals or entities that are not directly involved with running the business. External users include investors, creditors, taxing authorities, customers, labor unions, and regulatory agencies.

property, plant, and equipment (PPE)

Long-term tangible assets reported on the balance sheet that typically have a life of more than a year. Examples include land, buildings, machinery, office furniture, and vehicles.

internal users

Managers who use information to plan, organize and run a business.

accounts recievable

Money owed to a business by customers for goods or services delivered. It appears in the current assets section of the balance sheet.

operating activities

Pertains to a company's core business activities, such as manufacturing, distributing, marketing and selling a product or service.

assymetric information

Potential lenders, customers, investors, and unions have poorer information about the true economic viability of companies than do the managers.

net income

Revenues less expenses.

notes to the financial statements

Supplemental information added to the end of the financial statements to clarify and expand upon information presented in the financial statements.

unqualified opinion

The auditors' judgment that a company's financial statements comply with GAAP and that the financial statements give a fair view of the financial position of the company.

revenue

The increase in assets, usually cash and accounts receivable, that results from the sale of goods or services during the normal course of business.

retained earnings

The portion of net income retained by the corporation rather than distributed to shareholders as dividends.

Equity, stockholders' equity, owners' equity

The portion of the balance sheet that represents the owners' claim to the residual interest in the business, which are assets minus liabilities.

Financial Accounting Standards Board (FASB)

The primary accounting standard-setting body in the U.S.

financial accounting

The type of accounting concerned with the preparation of financial statements for external users. It must conform with GAAP.

tax accounting

The type of accounting that focuses on tax issues faced by corporations. The Internal Revenue Code governs tax accounting, not GAAP.

managerial or cost accounting

The type of accounting used by company management to run ongoing operations. A cost accounting system is company specific and focuses on internal users of financial information. Cost accounting does not have to conform with GAAP, and in many cases, is different from GAAP.

Patriot Pete's Pub has the following items on their balance sheet: Cash $ 80,000 Company Car $ 15,000 Building $300,000 Loans ??? If Pete initially used $250,000 of his own money to fund the pub's assets and has made no loan payments, what is the total loan amount on the balance sheet?

Total Assets = $80,000 + $15,000 + $300,000 = $385,000 Total Liabilities = Total Assets - Total Equity = $385,000 - $250,000 = $145,000