ACCT 2020 Chapter 15 and 16 Quiz Questions

Operating activities

A cash flow category; generally related to transactions that enter into the determination of income. Items that are not investing or financing

Investing activities

A cash flow category; including receipts from disposal of investments in long-term assets and payments to require long-term assets and investments

Financing activities

A cash flow category; including receipts from stock issues, bonds, notes and loans. And payments for a loan repayment acquisitions of treasury stock and dividend distributions

Earnings

A concept that relates to income from continuing operations plus/minus discontinued operations

Statement of cash flow's

A financial statement that summarizes the cash flow is relating to operating and busting financing and non-cash investing/financing activities of an entity

Faithful representation

A fundamental quality of accounting such that information must be truthful complete neutral and free from error

Public company accounting oversight board

A private sector nonprofit corporation charged with overseeing the auditors of public companies

Return on assets ratio

A ratio comparing income (net income minus interest) to the average total asset

Return on equity ratio

A ratio comparing income (net income minus preferred dividends) to the average total equity

Distinguish between the terms restatement and retrospective adjustment, knowing which is applicable to changes in principle.

A restatement is fixing the previous statements. A retrospective adjustment is using a different principle on a previous statement.

Entity assumption

Accounting information should be presented for circumscribed distinct economic units

Monetary Unit Assumption

Accounting measures transactions in advance and the units of money, in contrast to some other unit of measure

Inventory turnover and accounts receivable turnover are examples of

Activity ratios

American Institute of certified public accountant's

An organization whose members are CPAs interested in advancing the accounting profession

Stable Currency Assumption

And accounting assumption that presumes the currency is not impacted overtime by inflation

Verifiability

And enhancing quality of accounting such a different knowledgeable and independent observer's reach similar conclusions

Understandability

And enhancing the quality of accounting is such that information is clear and concise to those with reasonable business knowledge

Comparability

And enhancing the quality of accounting such that even though different companies may use different accounting methods there's still sufficient basis for valid comparison

Timeliness

And enhancing the quality of accounting such that information is available in sufficient time to be capable of influence

Exchange gains and losses should be recognized on the date of settlement of the foreign currency payable or receivable and also

At the end of each accounting period

What is the purpose of an audit

Auditors evaluate the system and data that lead to the reported financial statements

_____ Earnings per share is calculated by ignoring the dilutive the affects of convertible securities

Basic

What are the key objectives of accounting

Be able to use the information to help with business decisions

And preparing the statement of cash flow's house and non-cash investing/financing activities be reported

Be reported in a separate schedule accompanying the statement of cash flow's

One specific objective of financial accounting is the right information useful and assessing the amounts timing and uncertainty of an organizations what

Cash flows

When preparing a statement of cash flow's under the indirect method, supplemental disclosure should be made for which of the following

Cash paid for interest and taxes

Show how to reconcile net income to cash flows from operating activities

Cash received from customers, merchandise inventory, wages, interest, other operating expenses, and income taxes

Foreign currency payables and receivables results and exchange gains and losses of exchange rates

Change or fluctuate

Accounting changes

Changes from one acceptable method of accounting to another acceptable method; like straight-line depreciation to a declining balance approach

Define generally accepted accounting principles

Combination of standards that are generally excepted throughout most places

In calculating earnings per share, The numerator should consist of earnings available to _________ stockholders and the denominator should consist of weighted average common shares outstanding

Common

What is book value per share and how should it be interpreted and how is it calculated

Common equity divided by common shares outstanding. You calculate the Per share book value of a company based on the common shareholders equity in the company

book value per share

Common stockholders equity divided by common shares outstanding, to indicate stockholders equity per share

complex capital structure

Companies with options, warrants, or convertible bonds and stocks that may result in the issuance of additional shares

Usefulness of accounting information is enhanced if a company's financial statements are _____ with the statements of other enterprises

Comparable

On a statement of cash flow's which of the following types of activities would not be disclosed in a separate section

Contractual activities

To be understandable, accounting information must be comprehensible to those who have a reasonable understanding of business and economic activities

Correct

The utilization of a prior period Adjustment is appropriate for

Correction of an error

Show how to calculate cash payments for merchandise

Cost of good sold minus the decrease in inventory and inventory purchased minus the increase in accounts payable

Which is included in the numerator of the inventory turnover ratio

Cost of goods sold

One of the most widely used liquidity measures which compares current assets and current liabilities

Current ratio

Insight into the amount of protection that is afforded the long-term creditors is provided by ratios called ____ to total assets and times ____ earned

Debt; interst

Cash received from customers can be calculated by starting with the accrual basis sales and adding

Decreases in accounts receivable

What items found on an income statement tend to be ignored in the preparation of a statement of cash flow's

Depreciation and the gain on sale of land

Which of the following takes into account potential dilution from convertible securities

Diluted earnings per share

Under what approach are individual items on the income statement translated from the accrual basis to the cash basis

Direct

Describe the special accounting treatment associated with discontinued operations.

Discontinues operations are reported separately from continuing operations on an income statement.

Which of the following activities would generally be regarded as a financing activity in preparing a statement of cash flow's

Dividend distribution

Show how to calculate the dividend payout ratio and the dividend yield

Dividend payout ratio = annual cash dividend divided by earnings per share dividend yield = annual dividend per-share divided by stocks price per share

Dividend payout ratio

Dividend per-share divided by earnings per share

Dividend rate

Dividend per-share divided by stock price; also called dividend yield right

The annual cash dividend per share divided by the current market price of stock is the

Dividend yield

What is the meaning of the terms EBIT and EBITDA?

EBIT is a way to look at a company's profit before you take into account interest & tax expenses. EBITDA is a way to look at a company's profit before you take into account interest, taxes, depreciation, and amortization.

EBITDA

Earnings before interest, taxes, depreciation, and amortization

The dividend payout ratio is calculated by dividing dividend per-share by

Earnings per share

Generally accepted accounting principles

Encompass the rules practices and procedures that define the proper execution of accounting

If a foreign currency account payable is established in the accounts as $.50 per unit in the exchange rates of subsequently changes to $.60 per unit then which of the following will result

Exchange loss

Which of the following would constitute a non-cash investing/financing transaction

Exchanging land for stock

In preparing a worksheet for the statement of cash flow's, the lower portion corresponds to a statement of cash flow's prepared using the indirect method. Items in the debit column of the slower portion most closely correspond to items which

Explain increases in cash

Book value per share is the same as fair value per share

False

Earnings per share is a popular measure of corporate book value

False

Only transactions that directly generate or consent cash I reported on a statement of cash flow's

False

The establishment of generally excepted accounting principles means that all organizations record and measure financial activity in the same manner

False

The financial accounting standards board currently requires all companies to report supplemental information on the effects of inflation

False

The statement of cash flow's is primarily designed to explain the changes and retained earnings

False

Today, no attempt has been made to establish uniformity for international accounting standards

False

When two classes of stock are outstanding, the book value per share computation involves dividing total stockholders equity by the sum of the number of common and preferred shares outstanding

False

The private sector group responsible for the Stabley Schmidt of financial accounting rules is the

Financial accounting standards board

The private sector organization currently in charge of formulating standards for financial reporting is the

Financial accounting standards board

What bodies are instrumental in the development of GAAP

Financial accounting standards board, accounting principles board, American Institute of certified public accountant's

Activities are those that supply a firm with funds from either their firms owners or creditors

Financing activities

The payment of dividends and receipts of proceeds from Bonds issues are example of what

Financing activities

In the indirect approach for the statement of cash flow's is presented, which of the following items should be subtracted from accrual basis not income to derive cash flow from operating activities

Gains on the sale of long-term investments

Financial statements are generally regarded as

General purpose

Are the assumptions concepts and procedures that collectively serve as an underlying foundation of accounting

Generally accepted accounting principles

earnings per share

Generally understood as the amount of income for each share of stock, but is actually better refined as basic and diluted EPS

A presumption that the business will continue to operate for an indefinite period of time unless there is a substantial evidence to the contrary is that

Going concern assumption

Diluted EPS

In earnings per share number; adjusted to reflect the potential effect of diluted securities

Going Concern Assumption

In the absence of evidence to the contrary, accountants assume that a business will continue to operate well into the future

Illustrate an example of a comprehensive income statement.

Income Statement Sales Cost of Gross Sales Gross Profit Operating Expenses Income Tax Net Income/Expenses Comprehensive Income

Show how do you calculate basic earnings per share

Income available to common divided by the weighted average number of common shares outstanding

Net Income

Income from continuing operations plus/minus discontinued operations, but before other comprehensive income

As a generalization the adjustment of accrual basis and come to cash provided by operating activities requires which of the following to be added

Increases and currently abilities related to operating activities

Which of the following approaches to preparing the statement of cash flow's translates income from the accrual basis to the cash basis

Indirect method

The times interest earned ratio consist of income before income taxes and interest divided by

Interest charges

The numerator for the return on assets ratio includes net income and

Interest expense

Activities are those that involve investing of an entities resources

Investing activities

The purchase of land disposal of equipment are ____ activates

Investing activities

What is the purpose of A statement of cash flow's

It is maybe the best indicator of a business success or failure

What is a prior period adjustment, and when is this accounting device used?

It is used to fix an error in the previous statements. It is used when someone notices a mistake made previously.

What is the importance of the statement of cash flow's and providing information about business solvency

It provides information that is helpful in assessing the amount timings and uncertainty of an organizations cash inflows and outflows

Sarbanes-Oxley Act

Legislation that imposes stringent controls of reporting an auditing; created the public accounting oversight board

In calculating book value per share for a company with more than one class of stock, the amount allocated to preferred stock should be based on the preferred stocks call volume, sometimes referred to as a redemption or _____ value

Liquidation

Financial statement ratio analysis may be undertaken to study liquidity turnover profitability and other indicators. To which does the current ratio most relate

Liquidity

Which type of ratio is useful for measuring the ability of a business to make current debts as they can

Liquidity ratio

Measures the ability of a business to make current debts and obligations as they come

Liquidity ratios

Describe the price earnings ratio

Market price per share divided by earnings per share

Comprehensive Income

Meant income plus items of other comprehensive income (market value adjustment of available for sale securities)

Which of the following is excluded and calculating the quick ratio

Merchandise inventory

Activities in which arise from transactions and events that enter Into net income

Operating activities

Which activities were late primarily to the production and sale of goods and services and enter into the determination of income

Operating activities

What three categories make up the major body of the statement of cash flow's in what other information is presented

Operating activities investing activities and financing activities. It also takes into account non-cash investing

Dilutive securities

Options, warrants, convertible bonds, convertible stocks, and other items that have the potential to increase the number of shares outstanding

Cash dividends paid are reported as financing cash

Outflow

Assumption hold that and entities life can be divided into discrete time periods

Periodicity

Correction of an error that occurred in the computation of the net income of a previous period is accomplished by the use of a

Prior period Adjustment

What government entity oversees the audit profession

Public company accounting oversight board

Show how to calculate return on assets and return on equity

ROA equals net income plus interest expenses divided by the average assets ROE equals Net income minus preferred dividends divided by average common equity

Accounting information should be comprehensible to those who have a _____ understanding a business and economic activities

Reasonable

Securities and exchange commission

Regulatory body with which public companies must file and reports

Which characteristic of financial accounting pertains to the degree to which information bears on the decision making process

Relevancy

What fundamental qualities serve to make accounting useful

Relevancy and faithful representation

Information is deemed to be ____ if it influences the actions of a decision maker

Relevant

Accounting standards codification

Research tool deem to be the primary a third of the source and reference guide on accounting standards

Changing from one generally excepted accounting method to another one should be account for via:

Retrospective adjustment

Retrospective adjustment

Revision of the financial statements for prior periods to reflect the application of a current change in accounting method

What is typically included in the investing and financing activities section of the statement of cash flow's

Sale of land, proceeds from issuing stock, purchase of equipment, dividends on common stock, repayment of long-term loans

Which of the following would constitute a typical cash inflow from investing activity

Sale of stocks of other firms

Congress establish the ______ commission to regulate business reporting practices for companies that issue publicly traded securities

Securities and exchange

The organization that has been given the authority by Congress to sit accounting principles for public companies is

Securities and exchange commission

Intraperiod Tax allocation

Separately reported items like discontinued operations, prior period Adjustments, and other comprehensive income, at to reported net of their

The exchange rate in effect at a particular point in time is known as the

Spot rate

For purposes of calculating cash receipts from customers which of the following adjustments should be made to convert accrual basis sales to cash base sales

Subtract an increase in accounts receivable from accrual basis sales

To calculate cash flow from operating activities under the indirect method, non-operating gain should be

Subtracted

Relevance is a qualitative characteristics of accounting information. Which definition best applies to the concept of relevance

The capacity of information to make a difference in the decision process

restatement

The financial statements a prior periods are redone to reflect the current amount

Relevancy

The fundamental quality of accounting such that information should be timely and bear on the decision making process by possessing predictive or confirmatory value

rules based approach

The idea that accounting standards must be very specific to provide adequate guidance and drive consistency in reporting

Principles-based

The idea that accounting standards should articulate broad-based principles rather than specific and detailed rules

Significant non-cash investing/financing transactions are reported on the statement of cash flow's prepared using either the direct method or

The indirect method

What body influences the formulation of international accountancy

The international accounting standards board, international financial reporting standards

Accounting standards update

The official notification issued by the financial accounting standards board of a new or modified accounting rule

Price Earnings Ratio

The per share market value of a stock divided by its earnings per share

Accounting principles board

The private sector group charged with developing accounting standards from 1959 to 1973; primary authority pronouncements were known as opinions

Basic EPS

The simplest earnings per-share number; earnings available to common shares divided by weighted average shares, without factoring in potential delusion

Discontinued operations

The special income statement reporting of the impact of disposing or abandoning of a component of a business

International financing reporting standards

The specific accounting rules developed by the international accounting standards board

What are the confounding affects on book value calculations when there is more than one class of stock

There are many ways to calculate book values based on which class of stock the company has. This is more of an estimation of an a precise known number

What is the nature of an audit report

They usually issue an opinion letter on the fairness of the reports

Describe the journal entry and financial statement effect of restatements for errors.

This is to fix errors when a mistakes has been made. You need to accurately fix the problem & not just make somethings up until they balance.

What is diluted earnings per share

This is used to assess the quality of a companies EPS

Identify the nature of discontinued operations.

This is when they close one location but still have another location that sells the same products??

Describe intraperiod tax allocation, and state why this approach is used.

This is when you allocate income taxes to different parts in the income statement. This is used when continuing operations are presented net of tax.

Which of the following is a stated objective of financial reporting

To provide information useful in assessing the amounts timing and uncertainty of an organizations cash inflows and outflows

Show how to calculate cash received from customers

Total sales minus the increase in net receivables

Defined the form and content of the operating activities section

Transactions and events that enter into the determination of income and includes receipts from customers for providing goods and services, cash received from interest and dividend income, and proceeds from the sale of trading securities

Defined the form and content of the investing activities section

Transactions to not until a direct and flow or outflow of cash

And objective of accounting information is to provide information that is useful in decision making processes for investors and creditors

True

And preparing a statement of cash flow's the proceeds from the disposal of equipment should be reported as cash inflow from investing activities

True

But the direct and indirect methods are acceptable for external financial reporting

True

Cash flow information provided signals and about the maturity of a business as well as information about looming financial problems

True

Continuing operations, discontinued operations, and prior period Adjustments should all be reported net is there a related tax affect

True

The statement of cash flow's reveals the cash generated or consumed by firms operating investing in financing activities

True

With the indirect approach to calculating cash flow from operating activities, increases in current assets related to operations should be subtracted from the accrual basis income figure

True

Activity ratios are also known as

Turnover ratios

Remeasurement

Uses a variety of exchange rates to convert assets and liabilities of a foreign affiliate to the reporting currency; adjustment may impact operating income

Explain the same of cash flows under the direct approach

Uses actual cash inflows and outflows from the company's operations

Translation

Uses prevailing exchange rates to convert assets and liabilities of a foreign affiliate to the reporting currency; adjustment may impact other comprehensive income

The calculation of earnings per share is based on

Weighted average common shares outstanding

Describe how to account for and report changes in accounting principle.

You have to apply the changes to all the prior reporting. You act as if it had always been in place.

EBIT

earnings before interest and taxes

Prior period adjustment

to correct errors from prior years; prior financial statements are retroactively changed to make them correct