Chapter 1-3 Accounting
at the beginning of the fiscal year, the balance sheet showed assets of $2,728 and stockholders' equity of $1,672. during the year, assets increases $148 and liabilities decreased $76. stockholders' equity at the end of the year totaled:
$1,896
On January 31, an entity's balance sheet showed net assets of $3,075 and liabilities of $675. Stockholders' equity on January 31 was:
$3,075
cash $13,000; short-term debt $21,000; buildings and equipment $420,000; inventory $44,000; notes payable $60,000; accumulated depreciation $110,000; common stock $80,000; accounts receivable $38,000; retained earnings $237,000; accounts payable $17,000
$405,000
which of the following statements are true regarding the statement of cash flows
- cash received from the sale of common stock is a financing activity, and the activity is a source of cash - cash paid for the purchase of buildings or equipment is an investing activity, and the activity is a use of cash - net income from the income statement is the starting point for determining cash provided or used by operating activities
which of the following statements is true regarding the statement of cash flows?
- cash received from the sale of long-term debt is a financing activity, and the activity is a source of cash - the increase in accounts payable for the year is a source of cash and is shown as an operative activity - cash received from the sale of buildings or equipment is an investing activity, and the activity is a source of cash - depreciation expense is added back to net income in the operating activities section
which of the following concepts/principles relate to financial statements?
- conservatism - full disclosure -consistency - materiality
it is important to recognize that financial accounting information is developed at a ___ (cost/benefit) and that the ___ (cost/benefit) to the user of the information should exceed the cost of providing it.
- cost -benefit
cost accounting standards board (CASB) establishes which of the following? (check all that apply)
- cost accounting standards applicable to government contracts in excess of $750,000 - cost accounting standards applicable to colleges and universities that receive major federal research grants
which of the following is true of financial accounting? (check all that apply)
- it is a form of historical scorekeeping - it is not the sole source of information about an entity - it is measured in dollars - it may provide information that is helpful in assessing an entity's future prospects
which statements are true regarding the cost of goods sold
- it is frequently called cost of sales or cost of products sold - it is normally shown as a separate expense because of its significance - it represents the total cost of merchandise sold to customers
which of the following statements are true regarding retained earnings?
- it is referred to as an accumulated deficit if cumulative losses and dividends exceed cumulative net income - it is reduced by any dividends paid to stockholders - it is the cumulative net income of the entity that has been retained for use in the business - it is increased each year by the entity's net income
which of the following statements are not true about net sales
- net sales represent the difference between gross profit and cost of goods sold - net sales include only credit sales, not cash sales
Another term for return on equity is
- return on investment - return on assets -return on retained earnings - none of these
which of the following entities would not require accounting information pertaining to their economic activities
- social clubs -not-for-profit entities - state governments - all of these entities require accounting information
which of the following statements are true regarding the statement of cash flows?
- the net increase in cash for the year is equal to the sum of the net cash provided or used by operating, investing, and financing activities. - payment of cash dividends on common stock is a financing activity, and the activity is a use of cash - if a current liability account increases for the year, this will show up as a source of cash in the operating activities section
Which of the following are qualified to express an auditor's opinion about an entity's financial statements?
A certified public accountant
Accounting can be defined as
The process of identifying, measuring, and communicating economic information about an organization for the purpose of making decisions and informed judgements
transactions are summarized in
The entity's accounts.
expenses are
decreases in net assets resulting from usual operating activities
Current U.S. Generally Accepted Accounting Principles and auditing standards require the financial statements of an entity for the reporting period to include:
financial position at the end of the period
which of the following is not a limitation of financial statements?
full disclosure requires that the financial statements and notes include all necessary information to prevent reasonably astute user of the financial statements from being misled.
income from operations
is a subtotal on the income statement that is not affected by the firm's tax rate or by amount of interest expense incurred
the return on investment measure of performance
is calculated using net income as the amount of return.
accrual accounting
is designed to match revenues and expenses.
the return on investment measure of performance
is used by individuals to compare investment performance
which of the following is not a principal form of business organization
limited unregistered business
the Statement of Changes in Stockholders' Equity shows
net income and dividends for the period
A concept or principle that relates to transactions is:
original cost
the two main components reported on the statement of changes in stockholders' equity are
paid0in capital and retained earnings
which of the following is not an example of a decision or informed judgement that a potential investor would make from accounting information
probability of success of a new product development
financial reporting is designed to meet the needs of users by providing information that is:
relevant to making rational investment and credit decisions and other informed judgements
in the horizontal model representation for the financial statements, the arrow going from net income to stockholders' equity means that net income affects the ____ _____ account within stockholders' equity
retained earnings
the balance sheet of an entity
shows amounts that are not adjusted for changes in the purchasing power of the dollar.
the Statement of Cash Flows
shows how cash changed during the period.
an unqualified auditors' opinion about an entity's financial statements
states that they are presentedMe in conformity with accounting principles generally accepted in the United States.
which of the following statements about the Financial Standards Board is correct?
the FASB follows a due process procedure that permits input from parties before an Accounting Standards Update (ASU) is issued.
in the horizontal model representation of the financial statements, ____.
the arrow pointing from net income to stockholders' equity indicated that net income affects retained earnings
the principle of consistency means that
the effect of any change in an accounting method will be disclosed in the financial statements or notes thereto.
stockholders' equity refers to which of the following
the ownership right of the stockholder(s) of the entity
the distinction between a current asset and other assets is based on
when the asset is expected to be converted to cash, or used to benefit the entity.
which of the following is not usually considered a measure of an entity's liquidity?
cash ratio
the two main concepts of paid-in capital are ______ _______ and _______ paid-in capital
common stock additional
the two main components of paid-in capital are
common stock and additional paid-in capital
Which of the following is not a characteristic of limitation of the kind of information that financial reporting by business enterprises can provide?
The information results in approximate, rather than exact, measure; the information largely reflects the financial effects of transactions that have already taken place; the information is provided and used at a cost (all of the answers are characteristics or limitations of the kind of information that financial reporting by business enterprises can provide)
If a firm borrowed money on a six-month bank loan, the firm's working capital immediately after obtaining the loan, relative to its working capital just prior to the loan, would be:
the same
a firm prepares comparative financial statement so that ____.
the users of the data can easily spot changes in the firm's financial position and in its results of operations
which of the following was not one of the reasons for the FASB's decision to undertake the Conceptual Framework project?
to provide detailed, industry-specific authoritative guidance for the accounting and financial reporting of complex business transactions.
which concept/principle supports the notion that for companies reporting their financial statements in United States dollars, no adjustments are made for the effects of inflation
unit of measurement.
at the beginning of the year, paid-in capital was $164 and retained earnings was $94. during the year, the stockholders invested $48 and dividends of $12 were declared and paid. retained earnings at the end of the year were $104 total stockholders' equity at the end of the year was
$316
the balance sheet shows the following accounts and amounts: inventory $84,000; long-term debt $125,000; common stock $60,000; accounts payable $44,000; cash $132,000; buildings and equipment $390,000; short-term debt $48,000; accounts receivable $109,000; retained earnings $204,000; notes payable $54,000; accumulated depreciation $180,000
$325,000
which of the following are considered selling, general, and administrative expenses?
- depreciation expense -advertising expense -wages expense
which of the following is true about the International Financial Reporting Standards
- the IASB has been working with the FASB in recent years to attempt to achieve convergence of International Financial Reporting Standards - the goal of the IASB is to develop a single set of high quality, understandable, enforceable, and globally accepted financial reporting standards based upon clearly articulated principles - the IASB's approach to accounting standard setting leans more toward defining broad principles that companies must follow, as opposed to the FASB's approach which tends to define detailed rules that companies must follow. - all of the answers are correct
financial statement ratios support informed judgments and decision-making most effectively
- when viewed for a single year -when viewed as a trend of entity data - when compared to an industry average for the most recent year - when the trend of entity data is compared to the trend of industry data.
which of the following statements are true about the Cost Accounting Standards Board (CASB)? (check all that apply)
-CASB is authorized by the U.S. Congress to establish cost accounting standards for government contractors -CASB operated as a governmental body to establish standards applicable to government contracts during the 1970-1980 period
financial ratios
-help financial statement users to evaluate the financial characteristics of companies by putting the large dollar amounts reported in financial statements into relative terms for comparison purposes. -provide for a more meaningful analysis when the trends of financial ratios for a company are compared to the industry average trends over a period of time. - both of these statements are true
which of the following are reported in the statement of changes in stockholders' equity ?
-total stockholders' equity at the end of the year - net income for the year - dividends for the year - year-end balance of retained earnings - common stock issued during the year
Yellowday Energy's margin was 3% and turnover was 4.0 on sales of $50 million for the year. Average assets for the year were
12,500,000
Around Square, Inc. had an ROI of 12.5%, turnover of 5.0, and sales of $8 million for the year. Around Square's margin for the year was:
2.5%
ZeroFued's net income for the year was $300,000. average assets totaled $2 million, and average liabilities totaled $500,000. return on equity (ROE) was:
20%
Mechforce Manufacturing's net income was $420,000 on sales of $14 million. Average assets for the year were $10 million. Margin for the year was
3.0%
Mechforce Manufacturing's net income was $420,000 on sales of $14 million. Average assets for the year were $10 million. ROI for the year was
4.2%
The ethical concept of independence means that an accountant employed:
By an auditing firm cannot own any stock in the company being audited
Which classification of accounting is most concerned with the use of economic and financial information to plan and control many of the activities of the entity?
Managerial accounting
Cost of Goods Sold
represents the total cost of merchandise sold to customers
gross profit
results from subtracting cost of goods sold from net sales
for a firm that presently has a current ratio of 2.0, the effect on this ratio of paying a current liability is that it
rises the current ratio
The ethical concept of integrity means that an individual must:
Attempt to be honest and forthright in dealings and communications with others
The provisions of the Sarbanes-Oxley Act of 2002 had the following components
Enforce auditing, attestation, quality control
The officer of a corporation is responsible for the firm's published financial statements would be most concerned about pronouncements of the:
FASB
The officer of a corporation responsible for the firm's published financial statements would be most concerned about pronouncements of the
FASB
The authoritative financial accounting standards-setting body in the United States is presently the:
Financial Accounting Standards Board (FASB)
Major classifications of accounting activity would not include
Financial accounting, national accounting, cost accounting
Cost accounting is a subset of which of the following?
Managerial accounting
Which of the following is not an example of a decision or informed judgment that a potential employee could make from accounting information?
Personnel turnover statistics (i.s., hiring and terminations)
Which of the following is not an example of a decision or informed judgment that a potential investor would make from accounting information?
Probability of success of a new product development
Which of the following entities would not require accounting information pertaining to their economic activities?
Social clubs, Not-for-profit entities, state governments (All of these entities require accounting information
An unqualified auditors' opinion about an entity's financial statements:
States that they are presented in conformity with accounting principles generally accepted in the United States
Which of the following statements about the Financial Accounting Standards Board is correct?
The FASB follows a due process procedure that permits input from interested parties before an Accounting Standards Update (ASU) is issued
Which of the following is true about the International Accounting Standards Board (IASB)?
The IASB has been working with the FASB in recent years to attempt to achieve convergence of International Financial Reporting Standards (IFRS) and U.S. GAAP; the goal of the IASB is to develop a single set of high-quality, understandable, enforceable, and globally accepted financial reporting standards based upon clearly articulated principles; the IASB's approach to accounting standard setting lens more toward defining broad principles that companies must follow, as opposed to the FASB's approach which tends to define detailed rules that companies must follow
The time frame associated with an income statement is:
a past period of time
the period of time selected for reporting financial statements is known as the ____ period
accounting
A=L+SE is called the _____ ______
accounting equation
the four concepts/principles that relate to bookkeeping procedures and the accounting process are
accounting period, matching, revenue recognition, and accrual
the going concern concept refers to a presumption that
the entity will continue to operate in the foreseeable future
The objectives of financial reporting for nonbusiness enterprises:
Focus on providing information for resource providers, rather than investors
which of the following is not a transaction to be recorded in the accounting records of an entity
receipt of a plaque recognizing the firm's encouragement of employee participation in the United Way fund drive.
Which of the following is an objective of financial reporting by business enterprises
Financial reporting should provide information about the economic resources of an enterprise, the claims to those resource, and changes in those resources and claims to them
Over the years, the Securities and Exchange Commission (SEC) has delegated its statutory authority to establish accounting principles for publicly traded companies in the United States. This delegated authority impact which organizations(s)?
The Committee on Accounting Procedures of the American Institute of Accountants; the Accounting Principles Board (APB); the Financial Accounting Standards Board (FASB); each of these organizations were at one time or another delegated authority by the SEC to establish accounting principles in the U.S.
accounting can be defined as
The process of identifying, measuring, and communicating economic information about an organization for the purpose of making decisions and informed judgments.
Which of the following was not one of the reasons for the FASB's decision to undertake the Conceptual Framework project?
The provide detailed, industry-specific authoritative guidance for the accounting and financial reporting of complex business transactions
Rotablade's net income was $600,000 on sales of $24 million for the year. Average assets for the year were $8 million. For the year:
margin was 3.5%, turnover was 3.0, and ROI was 7.5%
which of the following are qualified to express an auditor's opinion about an entity's financial statements?
a certified public accountant
the two main components of paid-in capital are common stock and
additional paid-in capital
the ethical concept of integrity means that an individual must
attempt to be honest and forthright in dealings and communications with others.
the ethical concept of independence means that an accountant employed:
by an auditing firm cannot own any stock in the company being audited.
financial statements that show a column for the current year and the prior year are known as _____ financial statements
comparative
most assets are not recorded at their current market values because of the limitations imposed by the _____ principle
cost
which concept/principle supports the fact that assets such as land, buildings, and equipment are not reported at their fair values?
cost principle
retained earnings represents the ___ net income of the entity that has been retained for use in the business
cumulative
retained earnings represents
cumulative net income that has not been distributed to stockholders as dividends.
