Accounting Terms and Multiple Choice thru Oct 26
Quick Ratio (Acid Test)
(Current Assets - Inventory) / Current Liabilities
Treasury Stock
A corporation's own stock that it has reacquired
Bond Ratings
A grade given to bonds that indicates their credit quality
Aardvark Corp and Zebra Corp are competitors in the same industry. Aardvark has a AA bond rating and Zebra has a CCC bond rating. A. The bonds of both companies would be considered "investment grade." B. All else equal, Zebra likely has a higher debt to equity ratio than Aardvark. C. Investors in Aardvark bonds should expect a higher interest rate than investors in Zebra bonds. D. James Bond
A is WRONG.....the lowers Investment Grade Rating is BBB- B is RIGHT....Debt to Equity is a measure of Risk.....the bond rating tells how likely the issuer loaning the money is likely to get paid back. C is WRONG ....the lower rating bonds have higher interest rate because of higher risk
Old Balance Sneaker Corporation was sued for $1 million by a customer who was displeased that his Old Balance sneakers did not significantly improve his ability to jump. The customer filed the lawsuit without the help of an attorney, and Old Balance believes that it is extremely unlikely that the company would lose a lawsuit or be forced to make a payment to settle the claims. Old Balance's Balance Sheet should include... A. $0 in liabilities related to the lawsuit (and Old Balance need not disclose the lawsuit). B. $0 in liabilities related to the lawsuit (though Old Balance must disclose the lawsuit). C. $1,000,000 in liabilities related to the lawsuit. D. Matt Damon
A. $0 in liabilities related to the lawsuit (and Old Balance need not disclose the lawsuit). If the lawsuit is frivolous, there may be no need for disclosure.
Which of the following is correct? A. Bad debt expense is estimated in the year during which the related sales occur. B. Bad debt expense is recorded at the time a company gives up trying to collect from a customer. C. The journal entry to record bad debt expense does not impact Total Assets. D. The journal entry to record bad debt expense does not impact Net Income.
A. Bad debt expense is estimated in the year during which the related sales occur. Bad Debt Expense is an estimate of the % of Sales you will not be able to collect on, usually 1.5% this goes to Allowance for Doubtful Accounts A JE is made at year end to reduce Accounts Receivable by 1.5% of Sales which reduces AR and Net Income
Accumulated Depreciation appears on the A. Balance Sheet B. Statement of Cash Flows C. Statement of Shareholders' Equity D. Income Statement
A. Balance Sheet You depreciate things like Equipment which are Assets on the Balance Sheet so Accumulated (total since the Eqpt was first purchased) Depreciation is ALSO on the Balance Sheet Under Assets there is a category called Equipment....a long term Asset that depreciates over a long period of time, say 10 year. On the Balance Sheet you reduce the value of that Asset every year by the annual depreciation. Example: bought a machine for $100,000 with a 10 year life so it depreciates $10,000 per year At the end of year one, the Equipment line on the Balance Sheet would look like this Equipment $100,000 Less Accumulated Depreciation ($10,000) Net Equipment $90,000
Notes Payable would appear as on a corporation's Balance Sheet. A. Current Liability B. Long-term Liability C. Shareholders' Equity account D. Cannot be determined from the information given
A. Current Liability
1. The journal entry to record the write off of an Accounts Receivable A. Decreases Accounts Receivable B. Decreases Stockholders' Equity C. Decreases Total Assets D. All of the above
A. Decreases Accounts Receivable Write off means you will never collect it so it is no longer AR
On January 1, 2021, Mahtani Corporation paid $200,000 for machinery to make protective cases for iPhones. Mahtani expects to make and sell 20,000 cases during 2021, but expects to make and sell significantly fewer cases during each subsequent year as new phones and new protective case technologies are introduced. Mahtani expects to use the machinery for 5 years and then sell the machinery for $40,000. A. In this specific example, the use of double-declining balance depreciation for the new machinery will likely result in better matching of revenues and expenses than the use of straight-line depreciation. B. At the end of the 5-year expected useful life, the Net Book Value of the machinery will be $40,000 regardless of whether straight-line or double-declining balance depreciation is used. C. Both "A" and "B" D. Neither "A" nor "B"
A. In this specific example, the use of double-declining balance depreciation for the new machinery will likely result in better matching of revenues and expenses than the use of straight-line depreciation.
If a firm's predicts a decrease in ROA and wants to avoid having its ROE decline, then the firm must A. Increase the percentage of total assets that it obtains from borrowing. B. Purchase additional inventory C. Pay its liabilities more quickly D. Decrease its dividend payout
A. Increase the percentage of total assets that it obtains from borrowing.
The purchase of inventory on account A. Increases Total Assets B. Increases Stockholders' Equity C. Both "A" and "B" D. Neither "A" nor "B"
A. Increases Total Assets Inventory is an Asset so it increases Assets....the other side is a liability, Accounts Payable so the JE would be Inventory $XXXX Accounts Payable $XXXXX
1. On March 18, Holmes Corp. received $6,000 cash in advance for services that Holmes will perform during April. Holmes' March 18 journal entry... A. Increases Total Assets B. Increases Total Equity C. Increases Net Income D. None of the above
A. Increases Total Assets The Journal Entry would be Cash $6,000 AN Increase in Cash which is an Asset Unearned Revenue $6,000
Where in King Corporation's Form 10K would a reader find the following statement: "In our opinion, the financial statements present fairly, in all material respects, the financial position of King Company..." A. Independent Auditor's Report B. Footnotes to the Financial Statements C. Management Discussion and Analysis section D. None of the above
A. Independent Auditor's Report All companies need to be Audited by accountants to make sure the financials are accurate
In which order do we present current assets on the balance sheet? A. Most liquid to least liquid B. Least liquid to most liquid C. Highest balance to lowest balance D. Lowest balance to highest balance
A. Most liquid to least liquid Cash.....AR is money you will be paid by customers...INV is product that can be sold and then the money collected
Which of the following is an advantage of owning preferred stock instead of common stock? A. Preferred shareholders get paid before common shareholders upon liquidation. B. Preferred shareholder votes have more weight than common shareholder votes. C. Preferred shareholders have unlimited upside on their investments. D. All of the above
A. Preferred shareholders get paid before common shareholders upon liquidation.
On April 1, 2020, Haas Drug Corporation acquired Innovatrix Corporation and all of its assets for $10,000,000 and allocated $3,000,000 of the purchase price to Goodwill. The expected synergies between Hass and Innovatrix never materialized and thus the Goodwill was determined to be impaired. The journal entry to record the impairment of Goodwill will... A. Reduce Haas' Net Income B. Increases Haas' Total Liabilities C. Both "A" and "B" D. Neither "A" nor "B"
A. Reduce Haas' Net Income The impairment results in a decrease in the goodwill account (an Asset) on the balance sheet. The expense is also recognized as a loss on the income statement, which directly reduces net income for the year. JE Impairment Expense $3,000,000 Goodwill $3,000,000 Not B because it does not affect liabilities
1. The debt to equity ratio is used to analyze A. Solvency B. Liquidity C. Profitability D. Turnover
A. Solvency
During 2020, Rockville Corp. earned $14,000 in sales revenues and incurred $9,000 in cost of goods sold. After Rockville records closing journal entries on December 31, 2020, A. The balance in the Cost of Goods Sold account will be $0. B. The balance in the Retained Earnings account will be $0. C. Both "A" and "B" are correct. D. Neither "A" nor "B" is correct.
A. The balance in the Cost of Goods Sold account will be $0. Revenue (Sales) and Cost of Goods Sold ( Labor, Ink, the cost of the blank tee shirt) are both on the Income Statement. At the end of the year, you "close the books" and on Jan 1 of every year a new Income Statement starts with every account at $0 Balance Sheet items carry over
Dulski Corporation was sued by customers during 2020. Dulski denies all claims, but believes it is reasonably possible that the corporation will pay cash to settle the claims. Dulski estimates that the amount of a settlement would be $300,000. What impact does this lawsuit have on Dulski's 2020 year-end debt to equity ratio? A. The lawsuit increases Dulski's Debt to Equity ratio B. The lawsuit decreases Dulski's Debt to Equity ratio C. The lawsuit has no effect on Dulski's Debt to Equity ratio D. Roddy Ricch
A. The lawsuit increases Dulski's Debt to Equity ratio Since I Contingent Liability is money you may owe, it is a form of debt....so increase Debt to Equity
A company declared and paid dividends to its shareholders. A. This is a Financing Cash Flow and will impact the Balance Sheet. B. This is a Financing Cash Flow and will impact the Income Statement. C. This is an Operating Cash Flow and will impact the Balance Sheet. D. This is an Operating Cash Flow and will impact the Income Statement.
A. This is a Financing Cash Flow and will impact the Balance Sheet. Financing Cash Flow is the issuance of stock or bonds/debt or the payment of interest on debt or the payment of dividends on stock......basically ANY payment or receipt of cash for stock or debt So, the Financing Cash Flow is affected and since Cash is paid, the Balance Sheet is affected
Cutrona Company received $1,000 cash in interest. Which of the following is correct? A. Under GAAP, Cutrona must include the interest in the operating section of the statement of cash flows in all cases. B. Under IFRS, Cutrona must include the interest in the operating section of the statement of cash flows in all cases. C. Both "A" and "B" are correct D. Under GAAP, the cash must be placed into a small, unmarked bag and left outside your professor's door.
A. Under GAAP, Cutrona must include the interest in the operating section of the statement of cash flows in all cases.
Zansky Corporation shipped golf shoes to Victory Golf Corporation on consignment. The Book Value of the shoes is $3,000 and the expected sales price is $4,200. Victory has not yet sold the inventory. A. Zansky Corporation should include the $3,000 in its reported inventory balance. B. Zansky Corporation should report $3,000 Cost of Goods Sold. C. Zansky Corporation should report $4,200 Cost of Goods Sold (Conservatism). D. None of the above
A. Zansky Corporation should include the $3,000 in its reported inventory balance. Consignment means they can return the product if it does not sell Since it has not yet sold, it is still considered Inventory
On December 31, Pullman Electronics had inventory with a historical cost of $80,000 and a net realizable value of $73,000. The necessary December 31 adjusting entry will... A. decrease Total Assets by $7,000 B. increase Total Assets by $73,000 C. increase Total Assets by $80,000 D. No adjusting entry is necessary for this inventory item.
A. decrease Total Assets by $7,000 Writing off $7,000 in INV will be a decrease in assets
DFS Company sold an asset for $8,500 in cash. The asset had a historical cost of $30,000 and accumulated depreciation of $20,000 on the day it was sold. How much is the gain or loss on the sale? A) $10,000 loss B) $1,500 loss C) $1,500 gain D) $21,500 loss
B) $1,500 loss B) $1,500 loss30,000 - 20,000 = $10,000 (Historical Cost less Accumulated Depreciation on that Asset) so current on the books for $10,0008,500 - 10,000 = (1,500) loss (Sale Price vs current value on the books)
Ford Sisters Pharmaceuticals Corporation (FSP) was sued by consumers who believe that the company's arthritis medicine causes side effects that were not disclosed by the company. FSP rigorously denies the claim, though they acknowledge that there is roughly a 20% chance that they could lose a lawsuit or be forced to make a payment to settle the claims. The amount that FSP could lose is estimated to be $20 million, which is a material amount to FSP. FSP's Balance Sheet should include... A. $0 in liabilities related to the lawsuit (and FSP need not disclose the lawsuit). B. $0 in liabilities related to the lawsuit (though FSP must disclose the lawsuit). C. 20% x $20,000,000 = $4,000,000 in liabilities related to the lawsuit. D. $20,000,000 in liabilities related to the lawsuit.
B. $0 in liabilities related to the lawsuit (though FSP must disclose the lawsuit). Contingent liabilities depends on outcome of an uncertain event like a lawsuit. To go on the Balance Sheet, you must be able to quantify it, which you can here, and it must have over 50% chance of happening....NOT the case here... If less than 50% it must just go in the footnotes of the financial statements
ABC company reported a Return on Sales of 0.02%. This suggests that A. ABC's customers rarely return their products for refunds. B. ABC might have a very difficult time withstanding an unanticipated increase in expenses. C. ABC likely has a very high gross margin percentage. D. Scoop-diddy-whoop
B. ABC might have a very difficult time withstanding an unanticipated increase in expenses.
Which of the following results in a "deferred expense" for Gordon Corporation? A. Gordon provided services to customers on account. B. Gordon bought equipment for $50,000 cash. C. Gordon received cash from customers for work that Gordon will perform in the future. D. All of the above
B. Gordon bought equipment for $50,000 cash. Deferred Expense is an expenses that have been paid but not yet incurred by the business a. Example: You buy Equipment for cash but the "expense" shows up as Depreciation Expense every month over the life of the equipment b. OR Prepaid Insurance or Prepaid Rent that get "expensed" monthly
DEF Corporation declared and paid a dividend to its shareholders. This transaction will affect all of DEF's financial statements except for DEF's... A. Balance Sheet B. Income Statement C. Statement of Cash Flows D. Statement of Shareholders' Equity E. All of DEF's financial statements are affected by the dividend
B. Income Statement Dividends are paid out of Year-end Net Income so they do NOT affect the Income Statement - Cash goes out to pay the Dividends so it does affect the Balance Sheet and the CF Statement
Which Financial Statement do companies report "For the Year Ended"? A. Balance Sheet B. Income Statement C. Both "A" and "B" D. Neither "A" nor "B"
B. Income Statement Income Statements are Reported "For Year/Quarter/Month Ended" and accounts all go to $0 on Jan 1 Balance Sheet can be reported any day and accounts do NOT go to $0 on Jan 1
Seven years ago, MNO Corporation purchased land for $24,000. During the current year, MNO sold half of that land for 14,000 cash. The sale of the land... A. Decreases MNO's Total Assets B. Increases MNO's Net Income C. Both "A" and "B" D. Neither "A" nor "B"
B. Increases MNO's Net Income Bought land for $24,000 (or bought half the land for $12,000) Sold half the land for $14,000 or a $2,000 ONE TIME profit This profit would show up "Below the Line aka Operating Income" in the Other Income/(Loss) Section which shows ONE TIME Gains or losses
Kansas Restaurants is a fast food chain. Kansas sold some of its land to a real estate developer for $800,000 cash. Kansas had paid $700,000 for the land several years earlier. At the time of the land sale... A. Kansas' revenues increased by $800,000. B. Kansas' Book Value increased by $100,000 C. Both "a" and "b" are correct D. Neither "a" nor "b" is correct
B. Kansas' Book Value increased by $100,000 A Gain of $100,000 would show up on the Income Statement under Other Income (a one time event) This would create $100,000 in one-time profit which would add to Retained Earning which would increase Shareholder Equity/Book Value The Cash received from the sale of the land would show up on the CF Statement Investing Section
A key benefit of being a creditor instead of an owner is A. Unlimited upside potential B. Liquidation preference C. Voting Rights D. More investment opportunities
B. Liquidation preference Creditor is someone who loaned the company money or are OWED money by the company (like employees) and they get paid back BEFORE equity holders
All else equal, which of the following might lead to an increase in Nelson Corporation's reported bad debt expense for the year? A. Nelson increased the required credit score that customers must have in order to make purchases. B. One of Nelson's largest customers became insolvent at the end of the year. C. Both "A" and "B" are correct D. Neither "A" nor "B" is correct
B. One of Nelson's largest customers became insolvent at the end of the year. #A would REDUCE potential Bad Debt by making it harder for customers to buy on Account Customer going out of Busines is BAD!!!
Tianli Corporation bought an asset with a 5-year expected useful life. Relative to double-declining balance depreciation, using straight line depreciation for the asset A. Results in higher Net Income during each of the 5 years. B. Results in higher Total Assets at the end of 4 years. C. Both "A" and "B" D. Neither "A" nor "B"
B. Results in higher Total Assets at the end of 4 years. Double declining accelerates the reduction of the asset thru faster depreciation
Tropeano Corp. shipped inventory to a customer "FOB Shipping Point." The responsible party had to pay the trucking company $1,000 for shipping the goods. Which of the following is correct? A. Tropeano Corp. reports the $1,000 as part of "Cost of Goods Sold." B. The buyer includes the $1,000 as part of the buyer's inventory. C. The buyer records the $1,000 as an expense. D. None of the above
B. The buyer includes the $1,000 as part of the buyer's inventory. FOB means the Buyer is paying for the shipping, it is added to his Inventory purchase cost
Which of the following accounts would appear on a Balance Sheet? A. Cost of Goods Sold B. Unearned Revenue C. Gain on the Sale of Stock Investments D. None of the above
B. Unearned Revenue Cost of Goods Sold is on the Income Statement..... Ink, Labor, cost of the blank tee shirt Gain on Sale of Stock Investments would be on the Income Statement, Below the Line in One TIME Gain/(Loss) and in the Investing Section of the CF Statement Unearned Revenue is when you were paid in advance for a job not complete...painting a house in the future....so it is currently a Liability on the Balance Sheet
XYZ Company bought land at a cost of $2,000,000 five years ago. A recent appraisal of the land valued the land at $2,500,000. Which of the following is correct? A. Using GAAP, the land must be valued at $2,000,000 on the balance sheet; using IFRS the land must be valued at $2,000,000 on the balance sheet. B. Using GAAP, the land must be valued at $2,000,000 on the balance sheet; using IFRS the land could be valued at $2,500,000 on the balance sheet. C. Using GAAP, the land could be valued at $2,500,000 on the balance sheet; using IFRS the land could be valued at $2,500,000 on the balance sheet. D. Using GAAP, the land could be valued at $2,500,000 on the balance sheet; using IFRS the land must be valued at $2,000,000 on the balance sheet.
B. Using GAAP, the land must be valued at $2,000,000 on the balance sheet; using IFRS the land could be valued at $2,500,000 on the balance sheet.
Which of the following would be considered a passive investment in equity securities by Von Kapff Corp.? A. Von Kapff Corp. purchased 12% of the stock of Almond Corp. Von Kapff's intends to play an active role in the management of Almond. B. Von Kapff Corp. purchased 12% of the stock of Almond Corp. Von Kapff's only intent in buying the stock was to earn a good return on their investment. C. Von Kapff Corp. purchased 51% of the stock of Almond Corp. Von Kapff's intends to play an active role in the management of Almond. D. Von Kapff Corp. purchased 51% of the stock of Almond Corp. Von Kapff's only intent in buying the stock was to earn a good return on their investment.
B. Von Kapff Corp. purchased 12% of the stock of Almond Corp. Von Kapff's only intent in buying the stock was to earn a good return on their investment. Passive means LESS than 50% and no active role
Which of the following is an example of ABC Corporation's creditors? A. The shareholders who have purchased stock in ABC B. Customers who have purchased products from ABC, but have not yet paid for them C. Employees who have done work for ABC, but have not yet been paid by ABC D. All of the above
C Employees who have done work for ABC, but have not yet been paid by ABC The employees are OWED money for their work and so they are Creditors
Which of the following is a long-lived asset? A. Cash B. A chair that a furniture store is trying to sell to its customers C. A cash register that a furniture store uses to record sales D. None of the above
C. A cash register that a furniture store uses to record sales
AAA Corp has a Current Ratio of 3.8 and BBB Corp has a Current Ratio of 1.5. Which of the following is the best interpretation of this information? A. AAA appears to be more profitable that BBB. B. AAA appears to be investing its assets more wisely than BBB. C. AAA appears to have greater liquidity than BBB. D. AAA appears to have more unearned revenue than BBB.
C. AAA appears to have greater liquidity than BBB. Current Ratio measures the amount of Current Assets/Current Liabilities which is a predictor of liquidity
Amazon communicated the following to stakeholders: "How do you stay ahead of ever-rising customer expectations? There's no single way to do it - it's a combination of many things. But high standards (widely deployed and at all levels of detail) are certainly a big part of it." Where did Amazon communicate this information: A. Footnotes to financial statements B. Management's Discussion and Analysis C. Annual letter from the CEO to shareholders D. Campus Currents
C. Annual letter from the CEO to shareholders Footnotes clarify detailed financials Management's Discussion and Analysis dicusses patterns in financials....."expenses went up because" General statements go in the Annual Letter
Return on Assets (ROA) can be viewed as a function of Return on Sales times A. Return on Equity B. Gross margin % C. Asset turnover D. Equity Multiplier
C. Asset turnover ROA = Net Income / Avg Assets ROA also = Return on Sales * Asset Turnover
Prior to paying any dividends to its common shareholders during a year, a corporation must A. Pay all amounts owed to creditors B. Pay dividends to all preferred shareholders C. Both "A" and "B" D. Neither "A" nor "B"
C. Both "A" and "B"
The Inventory T-Account is credited by.. A. Cost of Goods Sold B. Inventory Impairment Losses C. Both "A" and "B" D. Neither "A" nor "B"
C. Both "A" and "B"
1. Which of the following often is an advantage of issuing bonds rather than borrowing from a bank? A. Bonds usually have longer terms to maturity than notes issued to banks. B. All else equal, bond interest rates typically are lower than bank interest rates. C. Both "A" and "B" D. Neither "A" nor "B"
C. Both "A" and "B" Bonds have longer maturities and lower interest rates typically
Ryerson Corporation purchased a patent from a small technology firm for $1,000,000 on 1/1/2021. The patent has a legal life of 20 years. At the time of the purchase, Ryerson expected that the patent only would be useful in generating revenues for five years, after which the patent is expected to be worthless. The adjusting entry to record 2021 amortization of the patent... A. Reduces Net Income by $200,000 B. Reduces Stockholders' Equity by $200,000 C. Both "A" and "B" D. Neither "A" nor "B"
C. Both "A" and "B" Amortization is depreciation for non-tangible assets like patents and copyright or Goodwill Goodwill is the amount you paid for an acquisition of another business that is OVER the Book Value You must amortize it over the USEFUL life, in this case, 5 years......$1,000,000/5 = $200,000 per year JE would be Amortization Expense $200,000 Intellectual Property/Patent (the asset) $200,000 The expense LOWERS Net Income which then goes to Retained earnings and therefore lowers Shareholder Equity
JKL Corporation provided services for $8,000 on account. This transaction A. Increased Total Assets B. Increased Shareholders' Equity C. Both "A" and "B" D. Neither "A" nor "B"
C. Both "A" and "B" The Journal Entry would be Accounts Receivable $8,000 the customer owes us this....this is an INCREASE to AR Revenue $8,000 Since AR is an Asset, Assets goes up and since Revenue increase profit, Shareholder Equity in the form of Retained Earnings goes up
Which of the following is correct? A. The purchase of treasury stock at the very end of a fiscal year will increase reported EPS for that year. B. Stockholders' Equity if often thought of as a "safety net" for creditors. C. Both "A" and "B" are correct D. Neither "A" nor "B" is correct
C. Both "A" and "B" are correct A is corrent because if fewer shares are outstanding, then Earnings per Share goes up do to there being fewer shares EPS = Net Income/ Shares Outstanding
Shady Corporation purchased equipment on January 1, 2020 and uses the straight-line method of depreciation. Shady wants to mislead investors into thinking that the company was more profitable during 2020 than it really was. Which of the following might Shady do to exaggerate 2020 reported profits? A. Shady might use a salvage value for the equipment that is too high. B. Shady might use a useful life for the equipment that is too long. C. Both "A" and "B" are correct. D. Neither "A" nor "B" is correct.
C. Both "A" and "B" are correct.
Which of the following is correct? A. For financial accounting purposes, the estimated useful life of a new automobile is 5 years. B. For financial accounting purposes, the estimated useful life of an automobile is 7 years. C. For financial accounting purposes, the estimated useful life of an automobile is the period of time over which the automobile is expected to remain in service for the specific owner to generate revenues. D. North Dakota
C. For financial accounting purposes, the estimated useful life of an automobile is the period of time over which the automobile is expected to remain in service for the specific owner to generate revenues. ALWAYS Useful Life
Which of the following results in an "accrued expense" for Gilpin Corporation? A. Gilpin performed work for a customer that the customer had paid for in advance during the previous month. B. Gilpin purchased an office building with cash. C. Gilpin received accounting services and will pay the accounting firm next month. D. None of the above
C. Gilpin received accounting services and will pay the accounting firm next month. Accured Expense MEANS you had that Expense already but have not yet paid it Examples: Utilities used for the month but an invoice has not yet been received before the end of the period. Wages that are incurred but payments have yet to be made to employees. Answer A is refers to Unearned Revenue Answer B refers to a cash transaction
Which of the following is correct? A. Paying cash for interest impacts the Investing Activities section of the Statement of Cash Flows. B. Paying cash for interest does not impact the Statement of Cash Flows C. Interest expense impacts non-operating income on the Income Statement. D. Interest expense does not impact the Income Statement.
C. Interest expense impacts non-operating income on the Income Statement. A is wrong....affect the Financing B is wrong C is Correct because it falls "Below the Line" Non-recurring or One-time things....under Other Income/(Expense)
"Deferred Revenues" appear in the A. Operating Income section of the Income Statement B. Nonoperating Income section of the Income Statement C. Liabilities Section of the Balance Sheet D. Shareholders' Equity section of the Balance Sheet
C. Liabilities Section of the Balance Sheet Deferred or Unearned Revenue is a Liability
During the current year, Graham Pharmaceuticals performed drug research related to slowing the effects of Alzheimer's disease at a cost of $1,000,000. Graham hopes that the research performed during the current year will yield begin yielding benefits next year and that the benefits will last the company for roughly 20 years. The research... A. Reduces current year Net Income by $50,000 B. Reduces current year Net Income by $500,000 C. Reduces current year Net Income by $1,000,000 D. Does not impact current year Net Income
C. Reduces current year Net Income by $1,000,000 R&D must be expenses in the year it happens
Which of the following involves an operating cash flow? A. STU Corporation purchased inventory on account B. STU Corporation purchased equipment for cash C. STU Corporation made a cash interest payment D. None of the above
C. STU Corporation made a cash interest payment Interest is an Expense which is on the Income Statement and therefore an Operating part of the CF
On January 14, Marley Corporation paid $3,000 rent in advance for an office for the month of February. How did the January 14 payment of $3,000 impact the book value of the Marley Corporation? A. The $3,000 payment increased the book value of Marley Corporation. B. The $3,000 payment decreased the book value of Marley Corporation. C. The $3,000 payment had no effect on the book value of Marley Corporation. D. Cannot tell from the information provided.
C. The $3,000 payment had no effect on the book value of Marley Corporation. Book Value = Shareholder Equity and is only affected at the end of the year when Net Income is taken as Retained Earnings
All else equal, when a company declares and pays a dividend... A. The retained earnings of the business increases B. The wealth of the owners increases C. The value of the business decreases D. All of the above
C. The value of the business decreases A Wrong, if a dividend is paid, RE actually goes down B Wrong, owners get Net Income by either Dividends or RE....the wealth is the same either way C Correct since you paid our some of what could have gone to RE
Why do businesses often sell items or provide services on account (rather than for cash)? A. To increase liquidity B. To reduce liquidity C. To increase revenues D. To increase days in accounts payable
C. To increase revenues More customers are likely to buy if they do not have to pay for it today Ouray selling to Vail and letting them pay after Xmas, increases Ouray sales
Vasek Corporation issued $30,000,000 in bonds to the public. Which of the following is least likely to be included in Vasek's debt covenants? A. Vasek's Debt to Equity ratio cannot exceed 3.0. B. Vasek's Current Ratio must exceed 2.0. C. Vasek's Dividend Payout ratio must exceed 25% D. Vasek must provide audited GAAP financial statements annually.
C. Vasek's Dividend Payout ratio must exceed 25% Bank would not want you to pay out more money
Altamuro Corporation is a large, successful consulting firm. On January 1, 2020 Altamuro purchased a pencil holder for $2 that is expected to last for 10 years. Altamuro recorded the entire $2 as an expense during 2020. Recording the entire $2 as an expense during 2020... A. violates the conservatism principle. B. is not acceptable since pencil holders are long-term assets. C. is appropriate due to materiality. D. is appropriate due to the consistency principle.
C. is appropriate due to materiality. Materiality means that the expense has to be BIG enough to meaningfully change the financial outlook and $2 does not fit that
All else equal, when a corporation declares and pays a cash dividend, the wealth of the shareholders... A. increases B. decreases C. stays the same D. Black Lightning
C. stays the same Shareholders receive the Net Income from a Company every year by adding to Retained Earnings or in Dvidends....if a Company had $25,000 in Net Income and paid $5,000 in Divd and $20,000 in RE they are in the same position
Current Assets
Cash, AR, Inventory and Prepaid....listed in order of most to least liquid
1. Hoboken Consulting Corp. purchased a building that will act as an office site for $1,300,000 cash. This transaction results in a A. $1,300,000 Debit to Contributed Capital B. $1,300,000 Credit to Contributed Capital C. $1,300,000 Debit to Cash D. $1,300,000 Credit to Cash E. None of the above
D. $1,300,000 Credit to Cash The Journal Entry would be Land $1,300,000 Cash $1,300,000
Which of the following is correct? A. A company's book value cannot be greater than its market value. B. A company's market value typically is less than its shareholders' equity. C. If a corporation's market value is greater than its book value, then the company likely is overvalued by the stock market. D. A high market to book ratio might reflect the market's belief that a company has strong future potential.
D. A high market to book ratio might reflect the market's belief that a company has strong future potential.
Which of the following statements is correct? A. Debt can be too high or too low B. All else equal, a lower Debt-Equity ratio suggests lower financial risk C. Creditors can think of Shareholders' Equity as a "safety net." D. All of the above
D. All of the above
JQ Corp. bought land 12 years ago for $100,000. The sale of the land for $160,000 cash would... A. increase retained earnings by $60,000. B. increase total assets by $60,000. C. decrease the land account by $100,000. D. All of the above are correct.
D. All of the above are correct A gain = incr Net Income/RE B Land on BS at 100k, now $160k cash assets up ... C Land account down
Oberdorfer Corp. reported Net Income of $10,000,000. Shareholders' of Oberdorfer should be... A. Pleased B. Displeased C. Indifferent D. Cannot tell from the information given
D. Cannot tell from the information given Can't tell....$10mm is awesome but if it was from a one time sale and not normal business then it is not as great or Ouray v Apple
A company's leverage often is measured using the ratio. A. Return on Equity B. Quick C. Asset Turnover D. Debt to Equity
D. Debt to Equity Leverage means the amount of Debt/loans you have
The accrual basis of accounting records revenues when they are A. Collected B. Readily available for use C. Contracted D. Earned
D. Earned
Which of the following is correct? A. If a firm uses straight-line depreciation for tax purposes, then it must also use straight-line depreciation for financial statement purposes. B. If a firm uses double-declining balance depreciation for tax purposes, then it must also use double- declining balance depreciation for financial statement purposes. C. Both "A" and "B" are correct D. Firms are not required to use the same depreciation method for both tax purposes and financial statement purposes.
D. Firms are not required to use the same depreciation method for both tax purposes and financial statement purposes. A is not true....I would take all the depreciation Year 1 for Tax B not true , you can use different b methods
Cost of Goods Sold appears on the A. Balance Sheet B. Statement of Cash Flows C. Statement of Shareholders' Equity D. Income Statement
D. Income Statement
Which of the following is correct? A. Managerial Accounting information is more aggregated than Financial Accounting information. B. Publicly-traded companies are required to use GAAP when creating Managerial Accounting information. C. Both "A" and "B" D. Neither "A" nor "B"
D. Neither "A" nor "B" Managerial Accounting does NOT follow GAAP...INTERNAL Financial Statements
On March 29, Glassmacher Corporation purchased industrial heating and cutting equipment for $50,000. Glassmacher also paid the equipment manufacturer $1,000 for shipping and $3,000 for assembly of the machinery. The March 29 event(s)... A. reduce Net Income by $1,000. B. reduce Net Income by $3,000. C. reduce Net Income by $4,000. D. No expense is recorded on March 29.
D. No expense is recorded on March 29. Depreciated over the life of the asset.....total acquisition cost includes shipping and install
Garcia-Orozco Corporation's cash balance decreased by 15% during 2020. Based on this information, A. we can conclude that Garcia-Orozco performed well during 2020. B. we can conclude that Garcia-Orozco performed poorly during 2020. C. we can conclude that Garcia-Orozco performed poorly during 2020 only if the industry average cash balance decreased by less than 15% during 2020. D. None of the above
D. None of the above Cash balance changes every day so NO effect on any of these
Which of the following is correct? A. Compared to FIFO, LIFO provides a balance sheet amount that more closely approximates the true value of the inventory. B. Most U.S. firms use LIFO when completing tax returns, but FIFO when preparing financial statements. C. Under US GAAP, Grocery chains are required to use the FIFO inventory cost flow method. D. None of the above
D. None of the above Weighted Avg. true reflection, Firms must use the SAME method, GAAP does not require a method
On March 20, Florida Painting Corporation signed a contract to paint a building during April for $6,000. The contract required the customer to pay $6,000 after the job was completed. At the time that the contract was signed on March 20 A. Florida Painting recorded a revenue of $6,000. B. Florida painting recorded a gain of $6,000. C. Florida Painting recorded an increase in Shareholders' Equity of $6,000. D. None of the above
D. None of the above You can only RECOGINIZE Revenue/Sales when it is Earned....in this case, when the paint job is done
double declining balance method
Doubles the percentage and does NOT use Salvage Value so if Straight line is over 5 years 1/5 = 20% Double Decline uses 40% and the 40% of the remaining etc.
Current Liabilities
Due in less than one year Anything with Payable....Accounts Payable, Salary Payable etc. and Unearned Revenue or Warranty
Goodwill formula
Goodwill = Purchase Price - Stockholder Equity
Return on Equity Ratio
Net Income / Average Stockholders' Equity
Return on Sales Ratio
Net Income/Sales
High Return on Sales and Low Asset Turnover example
Nordstrom Fewer shirts sold but more profit per shirt
Low Return on Sales and High Asset Turnover example
Wal Mart Low profit per shirt but more shirts sold
Solvency
ability to meet all financial obligations
Most loans pay interest only
and Principal at the maturity date the interest each year is calculated off the orginal Prin amount so on a $100,000 loan at 8% you pay $8,000 every year
permanent accounts
balance sheet accounts whose balances are carried forward to the next accounting period
FOB Shipping
buyer pays for the shipping
Current Ratio Formula
current assets - current liabilities
Consignment
goods shipped to a customer but not paid for unless the are sold by the customer
Straight Line Depreciation depreciates
less Salvage Value
Installment Loans
loans repaid in regular payments over a period of time Part Prin and Part Interest The interest each year is calculated off the lower Prin balance So Yr 1 $100,000 at 8% would be $8,000 but say the installment pmt was $28,000.....$20,000 in Prin and $8,000 in Interest, In year 2 you pay 8% of $80,000
Contingent Liability Rules
must pass two thresholds before they can be reported in financial statements: it must be possible to estimate the value of the contingent liability, and the liability must have greater than a 50% chance of being realized. Any probable contingency needs to be reflected in the financial statements—no exceptions.
Return on Assets Ratio
net income/average total assets
Long-Lived Assets
tangible and intangible resources owned by a business and used in its operations over several years
Materiality
the expense has to be BIG enough to meaningfully change the financial outlook
Additional Paid In Capital
the portion of the cash proceeds above par value
Debt to Equity Ratio Formula
total liabilities/stockholders equity
