ACCT 2301 Exam 1, ACCT 2301 Exam 2, ACCT 2301 Exam 3, ACCT 2301 Final
Basic Accounting Equation
Assets = Liabilities + Stockholders' Equity
Accounting is
"the language of business"
Johnston Company buys land for $50,000 on 12/31/14. As of 3/31/15, the land has appreciated in value to $50,700. On 12/31/15, the land has an appraised value of $51,800. By what amount should the Land account be increased in 2015?
$0
The interest charged on a $90,000, 3-month note payable, at the rate of 8%, would be?
$1,800
installment note
Liability requiring a series of periodic payments to the lender.
Detective controls to ensure that the business is following proper procedures
1. reconciliation 2. performance reviews 3. audits
sales discount
A cash discount on sales taken by a customer
Accounting serves two functions:
1. measure business activities of a company 2. communicate those measurements to external parties for decision-making purposes
A retail store credited the Sales Revenue account for the sales price and the amount of sales tax on sales. If the sales tax rate is 5% and the balance in the Sales Revenue account amounted to $294,000, what is the amount of the sales taxes owed to the taxing agency?
$14,000
On February 1, 2021, Miter Corp. lends cash and accepts a $3,000 note receivable that offers 10% interest and is due in six months. How much interest revenue will Miter Corp. report during 2021? (Do not round intermediate calculations.)
$150
A bond with a face value of $200,000 and a quoted price of 102 1⁄4 has a selling price of
$204,500
DW has an ending Retained Earnings balance of $51,100. If during the year DW paid dividends of $4,300 and had net income of $22,500, then what was the beginning Retained Earnings balance?
$32,900. (Beg RE + NI 22,500 - DIVIDEND 4300= ending RE 51100, Beg RE = 51000+ 4300-22500=32900)
Prior to adjusting entries, Salaries Expense had a balance of $22,300. The following year-end adjusting entry was made by the company: Salaries expense $4,400 Debit Salaries Payable $4.400 Credit What balance would be shown for Salaries Expense in the adjusted trial balance?
$22,300 + $4,400 = $26,700
A company purchased $270,000 in supplies during the year. The supplies account increased by $10,000 during the year to an ending balance of $66,000. For what amount was the adjusting entry to supplies expense?
$260,000
Equipment was purchased $150,000. Freight charges amounted to $7,000 and there was a cost of $20,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $30,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be?
$29,400
Accounts receivable arising from sales to customers amounted to $86,000 and $77,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $290,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is
$290,000 + ($86,000 - $77,000) =$299,000
A retail store credited the Sales Revenue account for the sales price and the amount of sales tax on sales. If the sales tax rate is 5% and the balance in the Sales Revenue account amounted to $630,000, what is the amount of the sales taxes owed to the taxing agency?
$30,000
Julie's Boutique has total receipts for the month of $31,920 including sales taxes. If the sales tax rate is 5%, what are Julie's sales for the month?
$30,400
The following amounts are reported in the ledger of Mariah Company" Assets Liabilities Retained Earnings $80,000 $36,000 $12,000 What is the balance in the Common Stock account?
$32,000 Assets - Liabilities - Retained Earnings
If the month-end bank statement shows a balance of $54,000, outstanding checks are $15,000, a deposit of $6,000 was in transit at month end, and a check for $900 was erroneously charged by the bank against the account, the correct balance in the bank account at month end is
$45,900
In a rent year Cold Corporation had net income of $250,000, interest expense of $50,000, and a times interest earned of 10. What was Cold Corporation's income before taxes for the year?
$450,000 = ($250,000 + $50,000 + Tax exp.)/$50,000 = 10, Tax exp. = $200,000; $250,000 + $200,000 = $450,000
Horton Company purchased a building on January 2 by signing a long-term $480,000 mortgage with monthly payments of $4,500. The mortgage carries an interest rate of 10 percent. The amount owed on the mortgage after the first payment will be
$479,500 = ($480,000 × .10 × 1/12 = $4,000; $480,000 - ($4,500 - $4,000) = $479,500)
In 2015, Chandler Company had net credit sales of $1,125,000. On January 1, 2015, Allowance for Doubtful Accounts had a credit balance of $27,000. During 2015, $42,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivables basis). If the accounts receivable balance at December 31 was $380,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2015?
$48,000
Fresh Veggies, Inc (FVI), purchases land a warehouse for $490,000. In addition, to the purchase price, FVI makes the following expenditures related to the acquisition: broker's commission, $290,000; title insurance, $1,900; and miscellaneous closing costs, $6,000. The warehouse is immediately demolished at a cost of $29,000 in anticipation of building a new warehouse. Determine the amount FVI should record as the cost of land.
$490k + $290k + $1900 + $6k + 29k = $550,900
Receivables
1. accounts receivables 2. notes receivables 3. other receivables (loans, settlement amounts due for non- current asset sales, rent receivable, term deposits)
On January 1, 2018, K.T. Manufacturing Corporation purchased a machine for $41,100,000. K.T.'s management expects to use the machine for 32,000 hours over the next six years. The estimated residual value of the machine at the end of the sixth year is $47,000. The machine was used for 4,000 hours in 2018 and 6,000 hours in 2019. What is the depreciation expense for 2018 if the corporation uses the units-of-production method of depreciation? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)
$5,131,640
The interest charged on a $50,000, 60-day note payable, at the rate of 6%, would be
$500.
Classic Autos specializes in selling gently used specialty sports cars and uses the specific identification method of determining ending inventory and cost of goods sold. Item 507k was sold for $90,000. Classic purchased the sports car for $50,000 and paid $1,800 for freight in and $1,000 for freight out. What is the cost of goods sold?
$51,800
Why do companies issue incorrect financial statements?
1. error 2. fraud
The interest charged on a $400,000, 90-day note payable, at the rate of 8%, would be
$8,000.
Use the following appropriate amounts to calculate net income: Revenues, $12,000; Liabilities, $5,000; Expenses, $4,000; Assets, $19,000; Dividends, $4,000.
$8,000Revenues ($12,000) − Expenses ($4,000) = Net Income
The current carrying value of Kane's $800,000 face value bonds is $797,000. If the bonds are retired at 103, what would be the amount Kane would pay its bondholders?
$824,000
A $1,000 face value bond with a quoted price of 98 is selling for
$980
KayJo Corporation bought equipment on January 1, 2015. The equipment cost $360,000 and had an expected salvage value of $60,000. The life of the equipment was estimated to be 6 years. The depreciation expense using the straight-line method of depreciation is?
($360,000 - $60,000) / 6 = $50,000
To calculate the present value:
(1) The face amount of the bond. (2) The interest payment each period based on the stated interest rate of the bond. (3) The number of periods until the bond matures. (4) The market interest rate per period.
Acid Test Ratio
(Current Assets - Inventory) / Current Liabilities
Gross Margin Ratio
(Net Sales - Cost of Goods Sold) / Net Sales
Are notes receivable to Accounts Receivable?
- Accounts receivable tracks money you're owed but haven't received yet. - Notes receivable does too, but this category only includes debts that have a promissory note attached.
Atlas Company uses the activity-based method in computing depreciation. A new plant asset is purchased for $48,000 that will produce an estimated 100,000 units over its useful life. Estimated salvage value at the end of its useful life is $4,000. What is the depreciation cost per unit?
- Answer:$.44 - Working: depreciation per unit=(cost of asset-salvage value)/number of units produced =($48000-$4000)/100000units =$44000/100000units =$.44 per unit
Who reports higher profits? FIFO or LIFO
- FIFO gives a more accurate value for ending inventory on the balance sheet. - FIFO increases net income and increased net income can increase taxes owed. - If costs were to steadily decrease over several years, LIFO would result in a higher gross profit than FIFO
Reason why we have (FASB)
- Financial accounting and reporting standards in the United States are established primarily by this - independent, private-sector body with full-time voting members and a very large support staff. Members include representatives from the accounting profession, large corporations, financial analysts, accounting educators, and government agencies.
Which of the following represents an advantage of leasing rather than buying an asset with an installment note?
- Leasing may offer protection against the risk of declining asset values. - Lease payments often are lower than installment payments. - Leasing offers flexibility and lower costs when disposing of an asset.
Which of the following best describes a purpose of source documents?
- Provide information related to external transactions, such as date and amount. - Used by accountants to record transactions in specific accounts. - Keep a record of transactions between the company and its vendors, customers, and other parties with whom the company conducts business.
On October 1, 2015, Geniker Company places a new asset into service. The cost of the asset is $120,000 with an estimated 5-year life and $30,000 salvage at the end of the its useful life. What is the book value of the plant asset on the December 31, 2015, balance sheet assuming the Geniker Company uses the double-declining-balance method of depreciation?
- Straight line Depreciation rate = 100% /5 = 20% - Double declining balance depreciation rate = 20% * 2 = 40% - Depreciation for year 2021 = $120,000 * 40%*3/12= $12000 - Book value of the plant asset on the December 31, 2021 = $120,000 - $12,000 = $108,000
A plant asset cost $288,000 and is estimated to have a $36,000 salvage value at the end of its 8- year useful life. The annual depreciation expense recorded for the third year using the double- declining balance method would be?
- Straight line depreciation rate = (288000/8) / 288000 = 12.5% Annual Depreciation = 2 × Straight-line depreciation rate × Book value at the beginning of the year - Thus, the annual depreciation expense recorded for the third year using the double-declining-balance method would be $40500
Financial Accounting
- external users: - measure and communicate to external decision makers
Managerial Accounting
- internal users - presentation of measures to inside
Accounting is a system of ____________________ of a company's operations and ____________________ that information to decision makers. Early use was for systematic ________________.
- maintaining records - communicating - record-keeping dates back thousands of years to when records were kept of delivered agricultural products.
In accounting you must understand
- the nature of economic activities that accounting information describes- the assumptions and measurement techniques involved in developing accounting information- which information is relevant for a particular type of decision that is being made
Which statement below best describes the objectives of financial accounting?
-Provide information that helps predict cash flows. -Provide information about the economic resources, claims to resources and changes in resources and claims. -Provide information that is useful in making decisions.
Things that are in effect because of SOX
1) internal control procedures 2) auditor-client relations
Moore, Inc. had 250,000 shares of common stock outstanding before a stock split occurred, and 1,000,000 shares outstanding after the stock split. The stock split was
1-for-4
What are the Four Financial Statements?
1. Income Statement 2. Balance Sheet 3. Statement of Cash Flows 4. Statement of Retained Earnings
Steps in Preparing Statement of Cash Flows
1. Prepare the operating activities section by converting net income from an accrual basis to a cash basis. 2. Prepare the investing activities section by presenting cash activity for noncurrent assets. 3. Prepare the financing activities section by presenting cash activity for noncurrent liabilities and owners' equity. 4. Reconcile the change in cash.
When measuring external transactions there is a six-step process:
1. Use source documents to identify accounts affected by an external transaction. 2. Analyze the impact of the transaction on the accounting equation. 3. Assess whether the transaction results in a debit or credit to account balances. 4. Record the transaction in a journal using debits and credits. 5. Post the transaction to the general ledger. 6. Prepare a trial balance.
Is there an implementation process to eliminating fraud?
1. safeguard the company's assets 2. improve the accuracy and reliability of accounting information
Trinity Bikes Shop is a retail store that sells biking equipment and bikes. Due to declining cash sales, John, the CEO, decides to extend credit sales to all his customers. In the fiscal year ended December 31, 2017, there were $100,000 gross credit sales, and returns of $10,000. Starting and ending accounts receivable for the year were $10,000 and $15,000, respectively. John wants to know how many times his company collects its average accounts receivable over the year.
100,000 - 10,000 / (10,000 + 15,000)2 = 7.2
The current assets of Myers Company are $250,000. The current liabilities are $100,000. The current ratio expressed as a proportion is
2.5 : 1.
How many years is a patent good for
20 years
average days in inventory
365/inventory turnover ratio
During 2015, Ashley's Corporation reported net sales of $5,000,000 and net income of $2,100,000. Ashley's also reported beginning total assets of $1,000,000 and ending total assets of $1,500,000. Ashley's asset turnover is?
4.0 times 5,000,000 / (1mil + 1.5mil)/2
In a recent year Joey Corporation had net income of $150,000, interest expense of $40,000, and tax expense of $20,000. What was Joey Corporation's times interest earned for the year?
5.25 = Times Interest earned = ( Net income + Tax expense + Interest Expense) / Interest Expense = $ ( 150,000 + 20,000 + 40,000) / $ 40,000 = 5.25
Assume PPEW Corporation had a net income of $2,500 for the year ending December 2018. Its beginning and ending total assets were $32,500 and $19,500, respectively. Calculate PPEW's return on assets (ROA). (Round your percentage answer to two decimal places.)
9.62% 2500 / (32500 + 19500)/2
Trademark
A brand that has exclusive legal protection for both its brand name and its design
Franchise
A business established or operated under an authorization to sell or distribute a company's goods or services in a particular area
Partnership
A business in which two or more persons combine their assets and skills Disadvantages: - owners must have sufficient personal funds to finance the business in addition to the ability to borrow money. - neither offers limited liability. Owners (and partners) are held personally responsible for the activities of the business.
Sole Proprietorship
A business owned by one person Disadvantages: - owners must have sufficient personal funds to finance the business in addition to the ability to borrow money. - neither offers limited liability. Owners (and partners) are held personally responsible for the activities of the business.
Corporation
A business owned by stockholders who share in its profits but are not personally responsible for its debts
Corporation
A business owned by stockholders who share in its profits but are not personally responsible for its debts Advantages: stockholders have limited liability. Disadvantages: double taxation
how is Cash reported on each Financial Statement
A cash flow statement shows changes over time rather than absolute dollar amounts at a point in time. It uses and reorders the information from a company's balance sheet and income statement. The bottom line of the cash flow statement shows the net increase or decrease in cash for the period.
Treasury Stock
A corporation's own stock that has been reacquired by the corporation and is being held for future use.
In the first year of a company's operations, it uses FIFO for internal recordkeeping but LIFO for reporting ending inventory. Ending inventory under FIFO is $90,000, and ending inventory under LIFO is $80,000. The company's year-end LIFO adjustment would include:
A debit to cost of goods sold for $10,000.
straight-line method
A depreciation method that allocates an equal amount of depreciation each year. (Cost - Residual value) / Useful life.
Income Statement
A financial statement showing the revenue and expenses for a fiscal period.
Income Statement
A financial statement showing the revenue and expenses for a fiscal period. Formula: Communicating business activity:
Statement of Cash Flows
A financial statement that provides financial information about the cash receipts and cash payments of a business for a specific period of time.
Balance Sheet
A financial statement that reports assets, liabilities, and owner's equity on a specific date.
Balance Sheet
A financial statement that reports assets, liabilities, and owner's equity on a specific date. assets = liabilities + equity
fiscal year
A fiscal period consisting of 12 consecutive months.
limited liability
A form of business ownership in which the owners are liable only up to the amount of their individual investments.
Deferred Revenue
A liability created when a business collects cash from customers in advance of completing a service or delivering a product.
direct write-off method
A method of accounting for bad debts that involves charging receivable balances to Bad Debt Expense at the time receivables from a particular company are determined to be uncollectible.
indirect method
A method of preparing a statement of cash flows in which net income is adjusted for items that do not affect cash, to determine net cash provided by operating activities.
Making insurance payments in advance is an example of:
A prepaid expense transaction.
bank reconciliation
A report that accounts for the differences between the bank statement and a checkbook balance
preferred stock
A special type of stock whose owners, though not generally having a say in running the company, have a claim to profits before other stockholders do.
Cash Flow Statement
A summary that shows total income and spending for a given time period
Cash Flow Statement
A summary that shows total income and spending for a given time period Formula: Communicating business activity:
Does Generally Accepted Accounting Principles apply to Cash-Basis Accounting or Accrual- Basis Accounting?
Accrual basis
A company recognizes revenue in the period in which it records an asset for the related account receivable, rather than in the period in which in the account receivable is collected in cash. This company is using:
Accrual-basis accounting
Which of the following regarding adjusting entries is correct?
Adjusting entries are needed because we use accrual-basis accounting.
The basic principle involved with expense recognition is:
All costs that are used to generate revenue are recorded in the period that revenue is recognized.
Accounts Payable
Amounts to be paid in the future for goods or services already acquired
Accounts Receivable
Amounts to be received in the future due to the sale of goods or services
The primary difference between a note receivable and an account receivable is:
An account receivable is more likely to be collected.
The International Accounting Standards Board:
An accounting standard-setting body that issues standards adopted by many countries outside of the United States.
How does Credits Sales and Account Receivable relate to Cash Basis and Accrual Basis?
An accrual accountant would debit accounts receivable and credit sales revenue in the current period. Once cash is received, the accrual accountant debits cash and credit accounts receivable.
specific identification method
An actual physical-flow costing method in which particular items sold and items still in inventory are specifically costed to arrive at cost of goods sold and ending inventory.
The purchase of a new cooling system for $150,000 to upgrade an office building owned by the company would be accounted for as:
An addition to the buildings account
credit
An arrangement to receive cash, goods, or services now and pay for them in the future. - right side of the account
Deferred Expense
An asset created when a business makes advance payments of future expenses.
From a liquidity standpoint, it is more desirable for a company to have a current
Assets exceed current liabilities
Time Period Concept
Assumes that a business's activities can be sliced into small time segments and that financial statements can be prepared for specific periods, such as a month, quarter, or year.
Ability to raise capital and transfer ownership
Attracting outside investment and transferring ownership is easier for a corporation
Under the allowance method, which of the following does not change the balance in the Accounts Receivable account?
Bad debt expense adjustment.
Which financial statement best reveals to investors and creditors information about a company's debt?
Balance sheet
Retained Earnings Equation
Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings
a formal debt instrument issued by a company to borrow money.
Bond
A common advantage of obtaining long-term funds by issuing bonds, rather than borrowing from the bank, includes which of the following?
Bonds involve less surrendering of ownership control.
convertible bonds
Bonds that can be converted into common stock at the bondholder's option
secured bonds
Bonds that have specific assets of the issuer pledged as collateral.
Which financial statement are leases reported on?
Capital leases are classified under the "fixed assets" or "plant, property and equipment" heading in the assets section of a small or large company's balance sheet.
The cash interest payment each period is calculated as the:
Carrying value times the market interest rate
Operating Activities
Cash flow activities that include the cash effects of transactions that create revenues and expenses and thus enter into the determination of net income.
Cash transactions recorded by the bank but not yet recorded by the company include all of the following except -
Checks outstanding.
Which of the following would NOT need to be accounted for in a bank reconciliation?
Checks written by the company and recorded by the bank.
The account "Allowance for Uncollectible Accounts" is classified as a(n):
Contra asset to accounts receivable in the balance sheet.
Interest Payable
Current Liability, Balance Sheet, Credit
Providing services to customers for $1,000 on account is recorded as:
Debit Accounts Receivable $1,000, credit Service Revenue $1,000.
Which of the following is recorded upon receipt of a payment on April 7, 2021, by a customer who pays a $900 invoice dated March 3, 2021, with terms 2/10, n/60?
Debit Cash $900.
At the time a $350 petty cash fund is being replenished, the company's accountant finds vouchers totaling $300 and petty cash of $50. The vouchers include: postage, $70; business lunches, $105; delivery fees, $90; and office supplies, $35. Which of the following is NOT recorded when recognizing expenditures from the petty cash fund?
Debit Cash, $300.
McGregor Company allows customers to pay with credit cards. The credit card company charges McGregor 1% of the sale. When a customer uses a credit card to pay McGregor $1,600 for services provided, McGregor would:
Debit service fee expense for $16.
Using a perpetual inventory system, the entry to record the return of inventory previously purchased on account includes a:
Debit to Accounts Payable.
Providing services on account would be recorded with a:
Debit to accounts receivable
Which method is not allowed under Generally Accepted Accounting Principles for the purpose of accounting for uncollectible accounts?
Direct write-off method.
Ogden Motors, Inc. is involved in a lawsuit. It is reasonably possible that the jury will find in favor of the plaintiff and Ogden will owe ten million dollars. What is the appropriate reporting of this lawsuit and what is the effect in the balance sheet?
Disclose; no effect in the balance sheet.
Separation of Duties
Dividing responsibilities between two or more people to limit fraud and promote accuracy of accounting records.
Allowing only certain individuals to have passwords to conduct online purchases is an example of which preventive control?
E-commerce controls.
Which of the following would NOT represent good controls over cash disbursements?
Employees responsible for making cash disbursements should also be in charge of cash receipts.
Which of the following are included in an employer's payroll tax expense?
Employer portion of FICA taxes. Federal unemployment taxes. State unemployment taxes.
In accounting for inventory, net realizable value equals:
Estimated selling price less expected returns by customers.
The cost of inventory sold during the current year is classified as a(n) ______ in the ______.
Expense; Income statement
The inventory cost flow assumption that generally best matches the physical flow of inventory is:
FIFO
Who reports higher ending inventory? FIFO or LIFO
FIFO can be a better indicator of the value for ending inventory because the older items have been used up while the most recently acquired items reflect current market prices.
interest =
Face Value x Annual Interest Rate x Fraction of the year
Independent auditors express an opinion on the:
Fairness of financial statements.
Most of the costs associated with internally developed intangible assets are recorded as intangible assets in the balance sheet.
False
The Sales Returns account is an expense account.
False (Sales Returns is a contra revenue account)
Sales revenue minus cost of goods sold is referred to as operating income.
False, Sales revenue minus cost of goods sold equals gross profit.
Using the weighted-average cost method, the average cost of inventory is calculated as the average unit cost of inventory purchased during the year.
FalseThe average is a weighted-average cost which includes both beginning inventory and purchases and is equal to total cost of goods available for sale divided by the total number of units available for sale.
Issuing common stock for cash is considered a(n):
Financing cash flow.
How are Financial Accountings Standards setting today in the United States?
Generally Accepted Accounting Principles (GAAP or U.S. GAAP) is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC).
Standards are vital to accounting, investors, and creditors, so we must follow the rules of
Generally Accepted Accounting Principles (GAAP) - It helps investors to accurately compare financial information among companies when they are making decisions about where to invest or lend their resources.
How does Average Days in Inventory affect a business?
Generally, a small average of days sales, or low days sales in inventory, indicates that a business is efficient, both in terms of sales performance and inventory management.
If a company has gone bankrupt, its financial statements likely violate the:
Going concern assumption
Investors
Groups of individuals who invest their money in various types of companies in search of making a profit
The equation that shows assets equal liabilities plus stockholders' equity signifies that a company:
Has resources equal to claims to those resources
service life
How long the company expects to receive benefits from the asset before disposing of it; also referred to as useful life
Which of the following statements accurately describes depreciation? I. Depreciation is used to allocate the cost of the asset over periods benefited. II. Depreciation is used to track the fair value of the asset. III. The book value of an asset is its original cost less accumulated depreciation.
I and III
How do we handle Research and Development (R&D) as intangible assets?
If these assets do not have an alternative future use, the costs are expensed as incurred. If the assets have some future alternative use, the costs are capitalized.
Investing Activities
Includes cash transactions involving the purchase and sale of long-term assets and current investments
Multi-Step Income Statement
Income statement format that contains subtotals to highlight significant relationships. In addition to net income, it reports gross profit and operating income.
single-step income statement
Income statement format that groups all revenues together and then lists and deducts all expenses together without calculating any subtotals.
Which of the following is recorded by the lessee at the beginning of the lease?
Increase in liabilities.
Gross Profit Ratio
Indicates the portion of each dollar of sales above its costs of goods sold. gross profit/net sales
How to calculate interest for accounts receivable
Interest = Face Value * Annual Interest Rate * Fraction of the year
What is IFRS?
International Financial Reporting Standards
How does Average Collection Period affect a business?
It indicates the efficiency of the collection process and the lower it is the shorter the cash cycle of the business is, which has a positive impact on its profitability.
From the seller's perspective, ending inventory is equal to the cost of items on hand plus:
Items in transit sold FOB destination.
The following events pertain to Bills Company: Dec. 28, 2021 Bill was contacted by a customer for possible accounting and tax services Dec. 30, 2021 Bill signed a formal agreement with customer to provide acct. and tax Services in 2022 Jan. 4, 2022 The customer paid $1,000 in advance for the services to provide Bill Co. Jan. 11, 2022 Bills provided accounting and tax services to the customer. Using accrual-basis accounting, on which date should Bills Company record revenue for the accounting and tax services?
January 4
Which inventory method is better described as having an income-statement focus and why is it considered as such?
LIFO; better approximates inventory cost necessary to generate revenue.
Does Land improvements have limited useful lives?
Land is not depreciated because land is assumed to have an unlimited useful life. Other long-lived assets such as land improvements, buildings, furnishings, equipment, etc. have limited useful lives. ... Since land's life is not limited, there is no need to allocate the cost of land to any accounting periods.
Assets =
Liabilities + Owner's Equity
A ________________ is an informal agreement that permits a company to borrow up to a prearranged limit without having to follow formal loan procedures and prepare paperwork.
Line of Credit
A trial balance represents the:
List of all accounts and their balances at a particular date to ensure that debits equal credits
How does Receivables turnover affect a business?
Low accounts receivable turnover ratios mean your business isn't collecting customer debts, which means your business isn't making money and/or your business is sinking into debt
Under the provisions of the Sarbanes-Oxley Act, auditors must do which of the following?
Maintain working papers for at least seven years following an audit.
Which of the following is not part of measuring external transactions?
Making payments on all amounts owed.
A potential risk of a company with a high ratio of cash to noncash assets is:
Management may not foresee any growth opportunities.
Suppose Company A places an order with Company B on May 12. On May 14, Company B ships the ordered goods to Company A with terms FOB destination. The goods arrive at Company A on May 17. Company A begins selling the goods to customers on May 19 and pays Company B on May 20. When would Company B record the sale of goods to Company A?
May 17.
The following events pertain to Jasper Corporation: May 1 Jasper purchased office supplies of $3,000 on account. May 5 The office supplies were shipped to Jasper. May 8 Jasper used these office supplies for a one-time event. May 9 Jasper paid $3,000 cash for the office supplies purchased on May 1. Using cash-basis accounting, on which date should Jasper record supplies expense?
May 9
Return on Assets (ROA)
Measures how profitably a company uses its assets. Net income / Average total assets.
FIFO (first in, first out)
Method of rotating stored food according to its use-by or expiration dates so that oldest products are used first.
An increase in a company's receivables turnover ratio typically means the company is:
More effectively granting credit to and collecting cash from customers.
Do Franchises have an initial cost
Most companies require a new them to pay a one time initial fee to become one.
The type of income statement that reports a series of subtotals such as gross profit, operating income, and income before taxes is a ______ income statement.
Multiple-step.
Under the provisions of the Sarbanes-Oxley Act, corporate executives:
Must personally certify the company's financial statements.
The formula for the receivables turnover ratio is:
Net credit sales divided by average accounts receivable.
Which financial accounting number impacts stock prices more than any other single piece of information?
Net income.
Receivables Turnover Ratio
Net sales / avg net accounts receivable
Assuming a current ratio of 1.0 and an acid-test ratio of 0.80, how will the borrowing of cash by issuing a six-month note payable affect each ratio?
No change to the current ratio and increase the acid-test ratio.
Nord Company had $375,000 of current assets and $150,000 of current liabilities before borrowing $70,000 from the bank with a 3-month note payable. What effect did the borrowing transaction have on the amount of Nord Company's working capital?
No effect
Explain the purpose of International Accounting Standards Board (IASB)?
Not all countries follow the same accounting and reporting standards.
A customer purchased a drill press on November 14 on account from Sears. The drill press was delivered two weeks later. The customer paid for the drill press on December 5. When should Sears record the revenue for this transaction according to the revenue recognition principle?
November
Receivables Turnover Ratio
Number of times during a year that the average accounts receivable balance is collected (or "turns over"). It equals net credit sales divided by average accounts receivable. Net sales / avg net accounts receivable
E-commerce controls
Only authorized personnel should have passwords to conduct electronic business transactions
What is Securities and Exchange Commission (SEC)?
Oversees and regulates trading on the stock exchange
Creditors
People who lend money - make decisions related to lending money to the company
Which of the following is NOT a reason why a bank reconciliation is necessary?
Petty cash has a low balance.
A bond is a formal debt instrument that obligates the borrower to repay a stated amount at the maturity date. This stated amount is referred to as the:
Principal or face amount.
Young Company is involved in a lawsuit. The liability that could arise as a result of this lawsuit should be recorded on the books if the probability of Young owing money as a result of the lawsuit is:
Probable and the amount is reasonably estimable.
Cost of equipment:
Purchase Price + all other costs necessary to prepare the asset for use.
Investing cash flows would include which of the following?
Purchase of a building with cash.
After evaluating the lower of cost and net realizable value of inventory, the accountant prepares a year-end adjustment. That adjustment would:
Reduce the company's stockholders' equity.
Cash Basis Accounting
Reporting income when the cash is received and expenses when the cash is paid.
Statement of Retained Earnings
Reports the way that net income and the distribution of dividends affected the financial position of the company during the accounting period.
An accrued revenue represents:
Revenue being recorded prior to cash collection from the customer.
Service Revenue
Revenue from service Normal Balance: Credit Type of Account: Revenue Financial Statement: IS
Which accounting principle states that a company should "record revenues when they provide goods and services to customers?"
Revenue recognition.
intangible assets
Rights, privileges, and competitive advantages that result from the ownership of long-lived assets that do not possess physical substance.
paperwork
Routine work involving written documents such as forms, records, or letters
cash inflows from operating activities
Sale of goods or services, receipt of interest and dividends
Which of the following items would not appear in an income statement?
Sales revenue
Sales Tax Payable
Sales tax collected from customers by the seller, representing current liabilities payable to the government
All bonds will always fall into which one of the following pairs of categories?
Secured or unsecured
The gross profit ratio will typically be higher for companies that:
Sell products that are more highly specialized.
Which of the following accounts has a debit balance?
Service Revenue
Notes Payable
Short-term or long-term liabilities that a business promises to repay by a certain date.
A bond secured by specific assets set aside to redeem the bonds is called a
Sinking fund bonds
Consider the following list of accounts: Cash, Service Revenue, Salaries Expense, Accounts Payable, Equipment, Retained Earnings, Utility Expense, Accounts Receivable, Common Stock, Dividends How many of these accounts have a normal debit balance?
Six. - Cash, Salaries Expense, Equipment, Utilities Expense, Accounts Receivable, Dividends.
Which of the following are not included in an employer's payroll tax expense?
State and federal income taxes
Limited Liability means:
Stockholders of a corporation are not obligated to pay the corporation's debts out of their own pocket.
Depreciation Methods
Straight-line depreciation; Accelerated depreciation; Units-of-Production method
Long-term assets are classified in two major categories
Tangible and intangible
common stock
Term used to describe the total amount paid in by stockholders for the shares they purchase.
Which of the following best explains the meaning of total stockholders' equity?
The amount of capital invested by stockholders plus profits retained over the life of the company.
In each succeeding payment on an installment note:
The amount of interest expense decreases.
If the estimate of uncollectible accounts at the end of the current year is too high, which of the following is true in the following year?
The amount reported for Bad Debt Expense will be less than the ending balance of Allowance for Uncollectible Accounts after its year-end adjustment.
The current portion of long-term debt is:
The amount that will be paid within one year of the balance sheet date.
Average Collection Period
The average amount of time that a receivable is outstanding, calculated by dividing 365 days by the accounts receivable turnover. 365/accounts receivable turnover
Employee Management
The company should provide employees with appropriate guidance to ensure they have the knowledge necessary to carry out their job duties.
How does the amortization schedule for an installment note such as a car loan differ from an amortization schedule for bonds?
The final carrying value is zero in an amortization schedule for an installment note.
If accounting information is considered to have faithful representation, then which of the following is true?
The information represents to users what it claims to represent.
difference between a Public or Private Corporation
The main difference is that the shares of a public company are traded on a stock exchange. Stocks, also known as equities, represent fractional ownership in a company, while private shares are not.
The amount of revenue recorded at the time of a sale will be greatest when the customer pays with a:
The revenue will be the same amount for each of the above payment methods.
Fraud Triangle
The three factors that contribute to fraudulent activity by employees: opportunity, financial pressure, and rationalization.
The primary difference between accrual-basis and cash-basis accounting is:
The timing of when revenues and expenses are recorded.
The lower of cost and net realizable value rule causes losses in the value of inventory to be recognized in the period when:
The value of inventory declines below cost.
How does Inventory Turnover Ratio affect a business?
This helps businesses make better decisions on pricing, manufacturing, marketing, and purchasing new inventory.
How is Bad Debt Expense used in a real-life scenario?
This is recorded as a debit to the this account and a credit to the allowance for doubtful accounts.
Why is the aging method applied for estimated uncollectible accounts?
This is used as an ending balance of allowance for doubtful accounts.
Large, highly-rated firms sometimes sell commercial paper:
To borrow funds at a lower rate than through a bank.
Debt to Equity Ratio
Total Debt/Total Equity
Sales Returns and Allowances
Transactions in which the seller either accepts goods back from the purchaser (a return) or grants a reduction in the purchase price (an allowance) so that the buyer will keep the goods.
Credit Sales
Transfer of products and services to a customer today while bearing the risk of collecting payment from that customer in the future. Also known as sales on account or services on account.
Posting transactions to the T-accounts involve:
Transferring debit and credit information from the journal to the accounts in the general ledger.
Horizontal analysis is also called
Trend analysis
Airlines do not record revenue when a ticket is sold, but wait to record revenue until the actual flight occurs.
True
The acid-test ratio, or quick ratio, is similar to the current ratio but is based on a more conservative measure of current assets available to pay current liabilities.
True
The aging method for estimating uncollectible accounts considers that a higher percentage of "older" accounts will not be collected compared to "newer" accounts.
True
When a company receives cash in advance, it debits Cash and credits a revenue account called Deferred Revenue.
True
Identify the condition(s) that must exist for a sale and the related receivable to be recognized.
Two of the other answers are conditions that must exist: - Collection of cash is probable. - Goods or services have been provided to the customer.
The direct write-off method is used when:
Uncollectible accounts are not anticipated or are immaterial.
difference between wholesalers and retailers
Wholesalers are merchandisers that sell to other merchandisers whereas retailers are merchandisers that sell directly to consumers
Receivables Turnover Ratio measures
a company's ability to collect its accounts receivables.
inventory
a complete list of items such as property, goods in stock, or the contents of a building.
lease
a contract granting use or occupation of property during a specified time for a specified payment
declining balance method
a depreciation method that applies a constant rate to the declining book value of the asset and produces a decreasing annual depreciation expense over the asset's useful life
organization chart
a diagram that shows the structure of an organization, classifications of work and jobs, and the relationships among those classifications
statement of stockholders' equity
a financial statement that shows changes in a corporation's ownership for a fiscal period Formula: Communicating business activity:
trade discount
a reduction in the list price granted to customers
serial bonds
a sequence of small bond issues of progressively longer maturity
Article of Incorporation
a written legal document that defines ownership and operating procedures and conditions for the business
A note payable is in the form of
a written promissory note
The amount of cash owed to a company by its customers from the sale of goods or services on account is commonly referred to as:
accounts receivable
When a company provides services on account, the transaction would be recorded with a debit to:
accounts receivable
Interest expense on an interest-bearing note is
accrued over the life of the note.
What is the primary purpose of Financial Accounting?
accurately prepare an organization's financial accounts for a specific period, otherwise known as financial statements
similar to the current ratio but is a more conservative measure of current assets available to pay current liabilities.
acid-test ratio
If a check correctly written and paid by the bank for $427 is incorrectly recorded on the company's books for $472, the appropriate treatment on the bank reconciliation would be to
add $45 to the book balance.
How to calculate net revenue
adding up all the sales that a company recorded and then subtracting direct selling expenses, like commissions, discounts and returns.
Stock Dividends
additional shares of a company's own stock given to stockholders
Which one of the following items is not generally used in preparing a statement of cash flows?
adjusted trial balance
Direct Method
adjusts the items on the income statement to directly show the cash inflows and outflows from operations, such as cash received from customers and cash paid for inventory, salaries, rent, interest, and taxes
The statement of cash flows will not report the
amount of checks outstanding at the end of the period
sinking fund
an account managed by the bond trustee for early bond redemption
contra revenue
an account that is offset against a revenue account on the income statement
Bad Debt Expense
an expense account to record losses from extending credit
Goodwill
an intangible asset that arises when a buyer acquires an existing business. represents assets that are not separately identifiable.
Current Liabilities are due
and payable within the current operating cycle or one year, whichever is longer
If a company provides services on account, which of the following is true?
assets increase, stockholders' equity increases
long term assets
assets that are expected to be used in business operations for longer than one year
If the market interest rate is greater than the contractual interest rate, bonds will sell
at a discount.
proper authorization
authority and responsibility for approval of purchases/writing checks, etc.
What does average collection period do
average number of days between the date a credit sale is made and the date the purchaser pays for that sale. indicative of the effectiveness of its accounts receivable management practices.
What Financial Statement is Cash recorded on
balance sheet
What financial reporting statement is Long-term liabilities reported on?
balance sheet
Which Financial Statement is Bad Debt Expense reported on?
balance sheet
Which financial statement is Treasury Stock reported
balance sheet
On what Financial Statement is Goodwill recorded on?
balance sheet under the long-term assets account.
Accounts receivable is reported on which Financial Statement
balance sheet, current asset
Stockholders of a corporation directly elect
board of directors
term bonds
bonds that all mature at the same time
callable bonds
bonds that the issuing company can redeem (buy back) at a stated dollar amount prior to maturity
Upside of extending credit to customers
boosts sales by allowing customers the ability to purchase on account and pay cash later
The property, plant, and equipment category consists of
buildings, machinery, land, office equipment, furniture, and vehicles.
Activity-based method
calculated on the basis of asset's activity such as the number of units produced or the number of hours the asset is used during the period. In other words, this method focuses on the actual use of the asset rather than the passage of time.
Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called
callable bonds
par value stock
capital stock that has been assigned a value per share in the corporate charter
outstanding stock
capital stock that has been issued and is being held by stockholders
Assets
cash, petty cash, temporary investment, accounts receivable, inventory, supplies, prepaid insurance, land, buildings
cash balance
coins and currency checks received savings accounts checking accounts credit card sales debit card sales cash equivalents
Vertical analysis is also known as
common size analysis
Equity
common stock, retained earnings, other income
The third (final step) in preparing the statement of cash flows is to
compare the net change in cash with the cash account reported on the balance sheet
Treasury Stock is a(n)
contra stockholders' equity account
Why is IFRS important?
contribute to economic efficiency by helping investors to identify opportunities and risks across the world, thus improving capital allocation.
Physical Controls
controls that restrict unauthorized individuals from gaining access to a company's computer facilities
Bonds that may be exchanged for common stock at the option of the bondholders are called?
convertible bonds
The concept of an "artificial being" refers to which form of business organization?
corporation
additional taxes
corporations pay income taxes as a separate legal entity and in addition, stockholders pay taxes on cash dividends
Inventory Turnover Ratio
cost of goods sold/average inventory
a long term asset is recorded as
cost plus all expenditures necessary to get the asset ready for use. Assets appear on the balance sheet.
Freight In
cost to transport inventory to the company, which is included as part of inventory cost
Current Ratio
current assets/current liabilities (liquidity)
Advances from customers are classified as a(n)
current liability
compares current assets to current liabilities
current ratio
Bonds that have specific assets of the issuer pledged as collateral are
debenture bonds
unsecured bonds
debentures, or bonds that are not backed by specific collateral
Dividends normally carry a _____ balance and are shown in the ______.
debit; stockholder's equity
Liabilities
debts that you owe
Receiving cash from customers before services are performed results in:
deferred revenue
Which of the following would be added to net income using the indirect method?
depreciation expense
Payroll Liabilities
employers incur expenses and liabilities from having employees
With an interest-bearing note, the amount of assets received upon issuance of the note is generally
equal to the note's face value
internal transactions
events that affect the financial position of the company but do not include an exchange with a separate economic entity
Patents
exclusive rights to make or sell inventions
accrued expenses
expenses incurred but not yet paid in cash or recorded
A ratio calculated in the analysis of financial statements
expresses a mathematical relationship between two numbers
A lower current ratio or acid-test ratio generally indicates a greater ability to pay current liabilities on a timely basis.
false
Companies are free to choose FIFO, LIFO, or weighted-average cost to report inventory and cost of goods sold.
false
Cost of goods sold is an asset reported in the balance sheet and inventory is an expense reported in the income statement.
false
During periods of rising costs, LIFO generally results in a higher ending inventory balance.
false
In a classified balance sheet, we categorize all liabilities as current.
false
One disadvantage of the allowance method (over the direct write-off method) for recording uncollectible accounts is that it generally records accounts receivable for the net amount of cash expected to be collected.
false
The amount of cash reported in a company's balance sheet includes the balance of accounts receivable if cash collection is highly likely in the near future.
false
The direct write-off method involves recording an adjustment at the end of each period to account for the possibility of future uncollectible accounts.
false
The net amount of accounts receivable is the full amount owed by customers.
false
When customers pay for services with a check, the company should debit Accounts Receivable and credit Service Revenue.
false
Operating Income
gross profit - operating expenses
audit
hire an independent auditor to assess the theatre's internal control procedures to detect any deficiencies or fraudulent behavior of employees
tax withholding
holding back required taxes from the gross amount due an employee
Inventory Turnover measures
how rapidly merchandise inventory is sold
Financing Activities
includes cash transactions resulting from the external financing of a business
The times interest earned is computed by dividing
income before interest expense and income taxes by interest expense
On which financial statement do we report vertical analysis on?
income statement
When bonds are issued at a discount (below face amount), the carrying value and the corresponding interest expense:
increases over time.
Reconciling the bank statement monthly is an example of
independent internal verification.
Starting with net income and adjusting it for items that affect reported net income but which did not affect cash is called the
indirect method
What can an organization do to eliminate fraud?
internal control
One of the major differences between service companies and retail or manufacturing companies is that retailers and manufacturers must account for:
inventory
An adjusted trial balance
is a list of all accounts and their balances after adjusting entries.
The acid-test ratio
is a quick calculation of an approximation of the current ratio.
The authorized stock of a corporation
is indicated in its charter
The par value of a stock
is selected by the SEC
cash inflows from financing activities
issuance of bonds or notes payable, issuance of stock
Under the allowance method, a company reports
its accounts receivable for the net amount expected to be collected.
Rationalization
justification for the deceptive act by the one committing the fraud
Manufacturing companies produce
large-scale production of goods that converts raw materials, parts, and components into finished merchandise using manual labor
long-term liabilities
liabilities owed for more than a year
Sales taxes collected by the retailer are recorded as a (n)
liability.
Short-term creditors are usually most interested in evaluating
liquidity
What is the reasoning for having a list "chart of accounts"?
listing of the names of the accounts that a company has identified and made available for recording transactions in its general ledger.
Liabilities are classified on the balance sheet as current or
long term
The cash effects of transactions that create revenues and expenses are
operating activities
reporting rules intangible assets are when purchasing property, plant, and equipment
long-term asset or non-current asset section of the balance sheet that reports the tangible, long-lived assets that are used in the company's operations.
Using accounting to ______________________________________ development of more complex societies.
maintain a record of multiple transactions allowed for better exchange among individuals and aided in the
Reconciliation
management should periodically determine whether the amount of physical assets of the company [cash, concession items, t-shirts, etc.] agree with the accounting records
Price Earnings Ratio
market price per share/earnings per share
What happens when you overstate assets or understate expenses when improperly classified?
may be overstated due to incorrect valuations or appraisals at the end of the year. This may involve increasing the value of inventories or trade receivables. ... For example, the overstatement of an inventory increases the profit of a business by reducing the cost of goods sold.
If a company reports a net loss, it
may still have a net increase in cash
Asset Turnover
measures sales volume in relation to the investment in assets. net sales/average total assets
Return on Equity (ROE)
measures the income earned for each dollar in stockholders' equity Net Income/Total Equity
profit margin
measures the income earned on each dollar of sales. net income/net sales
Return on Assets (ROA)
measures the income the company earns on each dollar invested in assets Net Income/Total Assets
perpetual record keeping
method of accounting for inventory that records the sale or purchase of inventory immediately through the use of computerized point-of-sale systems and enterprise asset management software.
The formula for horizontal analysis of changes since the base period is the current year amount
minus the base year amount divided by the base year amount.
The component of internal control that includes the formal procedures for reporting control deficiencies is:
monitoring
The Land account represents land a company is using in its operation. We capitalize to Land all expenditures _________________ to get the land ready for its intended use.
necessary
Profit margin is calculated by dividing
net income by net sales
Profit Margin Ratio
net income/net sales
Gross Profit
net sales - cost of goods sold
Asset Turnover
net sales/average total assets
Downside of extending credit to customers
not all customers will pay fully on their accounts
long-term liabilities are due
not within the next 12 months or within the company's operating cycle if it is longer than one year.
Liabilities
notes payable, account payable, salaries payable, deferred revenue
how does a company's debt to equity ratio measure a company's risk
ompares a company's total liabilities to its shareholder equity and can be used to evaluate how much leverage a company is using. Higher leverage ratios tend to indicate a company or stock with higher risk to shareholders.
The carrying value of bonds will equal the market price
on the date of issuance.
Quick assets include
only cash, short-term investments, and accounts receivable.
Indicate where the issuance of common stock issued for cash would appear, if at all, on the indirect statement of cash flows.
operating activities section
times interest earned ratio
operating income divided by interest expense
The order of presentation of activities on the statement of cash flows is
operating, investing, and financing
Most companies pay current liabilities
out of current assets
primary components of Stockholders' Equity
outstanding shares, additional paid-in capital, retained earnings, and treasury stock
Which of the following is an operating activity?
paying electricity bills for the month
annuity
payment received every year
Control over cash disbursements is generally more effective when
payments are made by check.
purchase price of land means purchase price
plus closing costs such as fees for the attorney, real estate agent commissions, title, title search, and recording fees. - Also, the property may be subject to + add back taxes or other obligations.
What is the importance of posting to the General Ledger?
posting organizes business transaction details into the proper accounts
If a corporation has only one class of stock, it is referred to as
preferred stock
Which step in the process of measuring external transactions involves assessing the equality of total debits and total credits for the period?
preparing a trial balance
Profitability
primary measure of company success. Profitability ratios measures the earnings or operating effectiveness of a company.
LIFO (last in, first out)
principle applied to asset management in life insurance products, under which it is assumed that the funds paid into the policy last will be paid out first
Internal controls are concerned with
protecting against theft of assets and enhancing the reliability of accounting information.
Why must Management safeguard assets?
protecting the firm's assets through a good internal control system. The objective is to guard against loss of assets because of theft, accidental destruction, and errors.
The primary purpose of the statement of cash flows is to
provide information about the cash receipts and cash payments during a period
amortization schedule
provides a summary of the cash interest payments, interest expense, and changes in carrying value for debt instruments
What is the importance of having auditors involved in accounting?
provides credibility to a set of financial statements and gives the shareholders confidence that the accounts are true and fair. It can also help to improve a company's internal controls and systems.
Sarbanes-Oxley Act of 2002
provides sweeping new legal protection for employees who report corporate misconduct
Financial accounting does not deal with which of the following?
providing information to internal users
The two ways that a corporation can be classified by ownership are
publicly held and privately held
cash outflows from investing activities
purchase of investments, purchase of long-term assets, lending with notes receivable
The acid-test ratio is also known as the
quick ratio
times interest earned ratio
ratio that compares interest expense with income available to pay those charges
With classifying inventory for a manufacturer, we have three categories:
raw materials work in process finished goods.
In accounting you will learn how to: _________________, _______________, and ____________ company's financial story.
read, interpret, and communicate
Matching Principle
recognize expenses in the same period as the revenues they help to generate
periodic record keeping
relies upon an occasional physical count of the inventory to determine the ending inventory balance and the cost of goods sold
cash outflows from financing activities
repayment of bonds or notes payable, acquisition of treasury stock, payment of dividends
Accrual Basis Accounting
reporting income when it is earned and expenses when they are incurred
Accrues Revenues
revenue that has been earned by providing a good or service, but for which no cash has been received.
cash inflows from investing activities
sale of investments, sale of long-term assets, collection of notes receivable
Which of the following sales would typically be reported as a cash sale?
sale with a credit card
The relationship of current assets to current liabilities is used in evaluating a company's
short-term debt paying ability
non cash activities
significant investing and financing activities that do not affect cash
3 types of businesses: ______________, ____________________, and __________________.
sole proprietorship, partnership, corporation
refers to a company's ability to pay all its liabilities, which includes long-term liabilities as well.
solvency
Motivation
someone feels the need to commit fraud, such as the need for money
Profits generated by the company are a(n):
source of internal financing.
No - Par Value
stock is issued without a par value. The value is determined by the price investors are willing to pay on the open market. The advantage is that companies can then issue stock at higher prices in future offerings.
Under the corporate form of business organization
stockholders wishing to sell their corporation shares need not get the approval of other stockholders, thus making it easy to transfer ownership rights.
If they receive any cash from selling (-) salvaged building materials, we
subtract from total purchase price of land - If there is a cost leveling a land (+ add) you must add. To equal the total cost of land.
The statement of cash flows
summarizes the operating, financing, and investing activities of an entity.
performance review
the amount of concessions sold should be compared to the number of tickets sold over a period of time
Cost of Goods Sold
the amount of money a firm spent to buy or produce the products it sold during the period to which the income statement applies
Invested Capital
the amount of money paid into a company by its owners Average Equity + Average Net Debt
authorized stock
the amount of stock that a corporation is authorized to sell as indicated in its charter
residual value (salvage value)
the amount the company expects to receive from selling the asset at the end of its service life
What is the Average Collection Period?
the average amount of time needed to collect accounts receivable
Net Income
the difference between total revenue and total expenses when total revenue is greater
stock split
the division of a single share of stock into more than one share
Liquidity
the ease with which an asset can be converted into the economy's medium of exchange
If no-par stock is issued without a stated value, then
the entire proceeds are considered to be legal capital
Copyrights
the exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and disperse their work as they see fit
Debit
the left side of an account
Issued Stock
the number of shares sold to investors; includes treasury shares
opportunity
the situation allows the fraud to occur
Weighted Average Cost of Capital (WACC)
the weighted average of the cost of equity and the aftertax cost of debt
tangible assets
those assets that can be appraised by value or seen or touched
Comparative balance sheets are usually prepared for
three years
cash outflows from operating activities
to suppliers for inventory to employees for wages to government for taxes to lenders for interest to others for expenses
common stock formula
total equity - retained earnings
Debt Ratio Formula
total liabilities/total assets
Debt to Equity Ratio
total liabilities/total equity
When authorizing bonds to be issued, the board of directors does not specify the
total number of bonds authorized to be sold
merchandisers
trade sector buyers who secure needed products at the best possible prices
External Transactions
transactions the firm conducts with a separate economic entity
The person responsible for maintaining the company's cash position is the
treasurer
Significant noncash transactions would not include
treasury stock acquisition
A company's ratio of cash to noncash assets is calculated as the total cash balance divided by all noncash assets.
true
A petty cash fund should have just enough cash to make minor expenditures over a reasonable period (such as a week or a month).
true
Accounts receivable are reported at the net amount expected to be collected.
true
An NSF check is an example of a cash transaction that is initially recorded by the bank and later by the company after notification.
true
During periods of rising costs, FIFO generally results in a higher ending inventory balance.
true
The Public Company Accounting Oversight Board (PCAOB) has the authority to establish standards dealing with auditing, quality control, ethics, independence, and other activities relating to the preparation of audited financial reports.
true
The gross profit ratio measures the amount by which the sale price of inventory exceeds its cost per dollar of sales.
true
The inventory turnover ratio equals cost of goods sold divided by average inventory.
true
The percentage-of-receivables method for estimating uncollectible accounts is commonly referred to as the balance sheet method, because the estimate of bad debts is based on a balance sheet amount—accounts receivable.
true
Two important ratios that help in understanding the company's effectiveness in managing receivables are the receivables turnover ratio and the average collection period.
true
Consider the following cash flow items: - Pay amount owed to bank for previous borrowing. - Pay utility costs. - Purchase equipment to be used in operations. - Purchase office supplies. - Purchase one year of rent in advance. - Pay workers' salaries. - Pay for research and development costs. - Pay taxes to the IRS. - Sell common stock to investors. How many of these cash flow items involve financing activities?
two
Generally Accepted Accounting Principles (GAAP) requires that we account for
uncollectible accounts using what's called the allowance method
The relationship between current liabilities and current assets is
useful in evaluating a company's liquidity
A current liability is a debt that can reasonably be expected to be paid
within one year
