Chapter 1 F.A.
On the balance sheet, accounts receivable represents ______.
amounts not yet collected from customers
A net loss ______ retained earnings.
decreases
If a company were to go out of business, who has first claim to the company's assets?
Creditors
Which of the following increase the common stock balance? (Select all that apply.)
Financing provided by owners Investments by owners
The abbreviation SEC stands for the ______.
Securities and Exchange Commission
Careful consideration is taken when making changes in GAAP ______. (Select all that apply.)
and is actively debated before the changes are required because they may affect selling prices of public companies' stock
A code or moral system that provides criteria for evaluating right and wrong is referred to as ______.
ethics
Managerial accounting reports are used by the company's ______.
managers
The statement of stockholders' equity reports the ______.
changes in earnings and dividends for a specified period of time
The line item "net income" appears on the ______. (Check all that apply.)
income statement statement of stockholders equity
The ___ to the financial statements are an integral part of the financial statements and provide a more complete understanding of the company. (Enter one word per blank.)
notes
The statement of stockholders' equity is ______.
one of the four financial statements usually prepared by profit-making organizations
Revenues and expenses relate to the cash inflows and outflows found in the Cash flows from _____activities section of the statement of cash flows. (Enter only one word per blank.)
operating
The SEC ______. (Check all that apply.) has created a code of ethics for all companies to follow oversees the US stock exchanges writes accounting rules for companies around the world oversees financial reporting by US public companies
oversees financial reporting by US public companies determines the financial statements that public companies must provide to stockholders
Which of these appears on both the statement of stockholders' equity and the balance sheet?
retained earnings
Companies typically prepare ______ financial statements each accounting period.
4
The amount of cash reported on the balance sheet is ______ the ending cash balance reported on the statement of cash flows.
the same as
Ending retained earnings appears on the ______. (Check all that apply.)
Balance sheet; Statement of stockholders equity
The ending cash balance on the balance sheet equals the sum of which of the following items? (Check all that apply.)
Beginning of the year cash balance The change in cash on the statement of cash flows for the year ended
Which of the following would be included in the operating section of the statement of cash flows? (Check all that apply.)
Cash paid to employees Cash paid to suppliers Cash received from customers
Which of the following transactions would be classified as investing activities? (Check all that apply.)
The purchase of equipment The purchase of investments for cash The sale of a building used in the business
GAAP are
accounting rules (or principles) developed by the FASB for use in the US
Which item would be reported as an investing activity?
cash paid to buy equipment
A company may list more than one type of revenue if it ______.
comes from different sources such as services versus sales of goods
____is a term that refers to a code or moral system that provides criteria for evaluating right or wrong. (Enter one word per blank)
ethics
Creditors expect to receive ______ from the money they lend.
interest
______ are earned by selling goods or services to customers.
revenues
Changes in GAAP are ______.
ultimately decided by FASB after the changes have been debated among interested parties
IFRS are
International Financial Reporting Standards
The statement of stockholders' equity provides information about ______. (Check all that apply.)
net income as a source of financing dividends amounts reinvested for future growth
How is Cash paid to employees classified on the statement of cash flows?
operating activity
Identify the ways in which companies assure investors that the financial statements are accurate. (Check all that apply.)
Maintain a system of internal control Form a committee of the board of directors to oversee the financial reporting Hire an outside independent auditor to verify the fairness of the financial statements
Which of these line items appear on a balance sheet? (Check all that apply.)
Accounts payable; Inventories; Property, plant, equipment
Which of these line items appears on a balance sheet? (Check all that apply.)
Accounts receivable; Retained earnings; common stock; cash
The official pronouncements of the FASB are called the FASB ______.
Accounting Standards Codification
Match each balance sheet element with the information it provides creditors and stockholders.
Assets- Whether the company has sufficient resources to operate Liabilities-Whether there are excessive creditors' claims to the company's resources Stockholders' equity-Whether there is sufficient investment and cushion should the company close the doors of its business
Identify the uses of generally accepted accounting principles (GAAP). (Check all that apply.)
Auditors need to be sure the financial statements are prepared in accordance with GAAP. Companies use GAAP when preparing financial statements.
Which of these would be reported as an investing activity? (Check all that apply.)
Cash paid to build a new corporate headquarters Cash paid to buy equipment
Identify the steps in the process to follow when faced with an ethical dilemma. (Select all that apply.)
Choose the course of action that is most ethical. Identify the benefits of a decision and who will be harmed. Identify alternative courses of action.
Creditors supply chain managers Human resource managers Managers
Creditors- Decide whether to lend money Supply chain managers- Decide the best place to purchase products for companies Human resource managers-Decide the amount of bonuses for employees Managers- Decide production and expansion
True or false: Creditors hope to gain in two ways—they hope (1) to receive dividends and (2) to sell their shares at a higher price.
False-Reason: Investors, not creditors, hope to receive dividends and to sell their shares at a higher price. Borrowers are legally obligated to pay creditors interest, not dividends, and repay the principal.
True or false: Revenues earned are equal to the total cash collected during the accounting period.
False-Reason: Revenues are earned when goods or services are delivered to customers. Cash can increase from other activities, such as borrowing or owner contributions.
The heading on the Statement of Stockholders' Equity include which of the following?
For the period ended December 31
Which financial statement best indicates whether a company will be able to sell goods and services for more than they cost to produce and deliver in the future?
Income statement
Which financial statement is a company's primary measure of profit?
Income statement
An income statement includes which of the following items. (Check all that apply.)
Revenues Net income Expenses
Which of the following may be included in the heading of the statement of stockholders' equity for Xoff, Inc? (Check all that apply.)
Statement of Stockholders' Equity For the year ended December 31, 2020 Xoff, Inc. (in thousands of dollars)
Which of the following are alternative titles for the income statement? (Select all that apply.)
Statement of comprehensive income Statement of earnings Statement of operations Statement of income
The heading of a balance sheet for a company that has been in business for years and has a June 30 year end might include which of the following? (Check all that apply.)
The name of the business At June 30,2019 The title "balance sheet"
The heading of an income statement should include which of the following? (Check all that apply.)
The name of the entity The title of the financial statement The accounting period covered by the statement
True or false: The Income Statement is sometimes called the Statement of Earnings, Statement of Operations, or Statement of Comprehensive Income.
True-Reason: There is more than one title for an income statement.
The notes to financial statements ______. (Check all that apply.)
are an integral part because the financial statements do not contain all the necessary details provide supplemental information about the financial condition of a company along with the financial statements provide a more complete picture of a company's financial health
On the balance sheet, Notes payable represents ______. (Check all that apply.)
borrowings from formal written debt contracts; a liability; an obligation that is to be repaid in the future
Which groups have claims to a business's assets? (Check all that apply.)
creditors stockholders
A business's assets are financed by ______. (Check all that apply.)
creditors stockholder
A net loss is reported when ______.
expenses are greater than revenues
True or false: The primary responsibility for the information in the financial statements lies with the outside independent auditors.
false- Reason: The primary responsibility for the information in the financial statements lies with management.
Balance sheets report amounts
for a specific time point
To help ensure the company's records are accurate, the board of directors should ______.
form a committee to oversee the integrity of the controls over the accounting records and assets of the company
Notes payable are ______. (Select all that apply.)
formal written debt contracts liabilities
Which of the following annual financial statements will have "for the year ended December 31, 2020" in its heading? (Check all that apply.)
income statement; statement of stockholders equity; statement of cash flows
Primary responsibility for the information in a company's financial statements lies with ______.
management
Ace Electronics prepared a detailed report that outlines its future plans for making and marketing a new product. This report must be a(n) ______.
managerial accounting report
Expenses reported in one accounting period ______ accounting period. (Check all that apply.)
may be paid in the same may be paid for in a prior may be paid in a later
Financial statements can be prepared ______. (Select all that apply.)
monthly quarterly annually
Which of the following are not found in the heading of a balance sheet? (Select all that apply.)
name of owner period covered
Mauricio, the owner of Pizza Aroma, spent $2,500 of his own money to take his family to Disney World. Pizza Aroma's financial statements will report ______.
nothing of this trip
Net Income _____
on the income statement causes retained earnings to increase on the statement of stockholders' equity
Expenses are ____
the amount of resources used to earn revenue
The statement of cash flows is needed in addition to the income statement because the statement of cash flows reports ______.
the cash received and paid, which differs from the revenues earned and the expenses incurred on the income statement
The income statement reports ______. (Select all that apply.)
the revenues minus the expenses for the accounting period; the profitability of the company for the accounting period; how well the company performed during the accounting period
Which of the following is an investing activity?
Paying cash to buy equipment
Which of the following line items appear on an income statement? (Check all that apply.)
Sales revenue Cost of goods sold Income tax expense
Mauricio invested $30,000 in Pizza Aroma in exchange for its stock. Pizza Aroma now has ______ under shareholders' equity.
common stock
Net income appears as a line item on the ______. (Check all that apply.)
income segment; statement of stockholders equity
____ activities involve the buying and selling of land, buildings, and equipment used in the business. (Enter one word per blank)
investing
Net income on the income statement equals the ______ during the accounting period. (Check all that apply.)
net amount earned, which often does not equal the cash received and paid to operate the business revenue minus the expenses
____activities involve purchasing goods from suppliers, designing and manufacturing products, and selling products to customers. (Enter one word per blank.)
operating
The classifications used to categorize cash inflows and outflows on the statement of cash flows includes cash flows from ___activities, cash flows from ____activities, and cash flows from ____ activities
operating; financing; investing
Profits earned by a company that have not been paid to stockholders are called ___ earnings
retained
Keepers, Inc.'s balance sheet reported Retained earnings as $10,000 at December 31, 2019 and $12,000 at the December 31, 2020. The income statement reported Net income of $3,000 for the year ended December 31, 2020. Dividends declared for the year ended December 31, 2020 must equal $
1000
At December 31, Aloe, Inc.'s assets equal $8,000 and stockholders' equity equals $5,000. Liabilities must equal $
3000
During 2019, Revitup, Inc.'s employees earned $4,500 for the work they performed. Revitup paid $4,000, but still owes its employees $500. How much expense should be reported on the income statement for the year ended December 31, 2019?
4500
At December 31, Equate, Inc.'s assets equal $50,000 and liabilities equal $30,000. Stockholders' equity must equal $
Assets- Liabilities = 20,000
Which of the following are financial statements? (Check all that apply.)
Balance sheet; income statement; statement of stockholders equity; Statement of cash flows
Which information is obtained from a statement of cash flows that is not found on the income statement? (Check all that apply.)
Cash from operating activities Cash flows from financing activities Cash flows from investing activities
Which of the following statements are true? (Check all that apply.)
Common stock increases when the company gets cash in exchange for stock; Retained earnings increases when a company earns and keeps its profit.
True or false: Stockholders and creditors are internal decision makers that use accounting information to manage the operating, investing and financing activities of the firm.
False- Reason: Managers, not stockholders and creditors, are internal decision makers.
True or false: If net income during the year increased by $10,000, then cash must also have increased by $10,000 during the year.
False-Reason: Revenues are not the same as cash collected, and expenses are not the same as cash paid. Often revenues are earned and expenses incurred in a different accounting period than the period in which the cash is received or paid.
True or false: The income statement is useful for determining the amount of economic resources held by the company.
False-Reason: The balance sheet, not the income statement, reports the economic resources, assets. The income statement reports the revenues minus the expenses for the accounting period.
Which of these would be captured and reported by an accounting system? (Check all that apply.)
Financing activities such as the selling of stock; Investing activities such as the purchasing of equipment; Operating activities such as the payment of wages
The purpose of a balance sheet is to report the ______ accounts. (Check all that apply.)
Liability stockholders equity assets
Identify the 4 significant items in the headings of balance sheets.
Name of entity Specific date Unit of measure Title of Statement
Which of the following are operating activities? (Check all that apply.)
Selling products to customers; Purchasing materials to produce products
Identify which of the various terms may be used to describe revenue on the income statement. (Select all that apply.)
Service revenue Sale of goods Provision of services Sales revenue
Identify which of the various terms may be used to describe revenue on the income statement. (Select all that apply.)
Service revenue Sales revenue Sale of goods Provision of services
The heading of a calendar year-end balance sheet would include which of the following? (Check all that apply.)
The title "Balance Sheet" The name of the business At December 31
Why would a banker want a copy of a company's financial statements?
To decide if a company is doing well enough to repay the amounts it has borrowed
True or false: The corporation, and not the owners, are viewed as owning the resources and as owing the debts of the business.
True- Reason: The owners are considered separate from the business entity. It is the business entity that owns the assets and owes the liabilities.
Liberty, Inc., a US company, sold merchandise to Belle, a French company, for 10,000 euros. In Liberty's US financial statements, this sale should be reported in ______.
US dollars
The asset, ___ ____, represents the amount customers owe for goods or services.
accounts ; receivable
Creditors want to see that a company that owes them money has ______.
assets that are greater than its liabilities
The four financial statements include the: ____ sheet ____ statement Statement of ___ equity and statement of ___ flow
balance income stockholders cash
Notes payable appear on the ______.
balance sheet as a liability
The main goal of an accounting system is to ______.
capture information about a business so that it can be reported to decision makers
If a company were to go out of business, _____ would have first claims to a company's assets before the company's stockholders receive any money.
creditors
Most investors hope to get ______ from their investments in a company's stock in addition to a higher price for the stock.
dividends
During an accounting period, net income normally ______ equal the cash generated from operations because ______.
does not; revenues are earned even if the cash has not been collected
The two sources of stockholders' equity are amounts ______.
earned and retained by the corporation paid in from shareholders
While the term profit is used widely, accountants use the technical terms net ____ or _____
earnings; income
Managers are _____decision makers who need information to manage the operating, investing and financing activities of a business. Stockholders and creditors are ______ decision makers
internal; external
The two sources of stockholders' equity are amounts ______.
paid in from shareholders; earned and retained by the corporation
Which of the following are part of "stockholders' equity"? (Check all that apply.)
retained earnings common stock
Quartz Instruments had retained earnings of $145,000 at December 31, 2018. Net income for 2019 was $90,000, and dividends for 2019 were $30,000. What amount of retained earnings should be reported at December 31, 2019?
retained earnings+ net income- dividends = 205,000
Net income is ______. (Check all that apply.)
revenues minus expenses net earnings
Net income equals ______. (Select all that apply.)
revenues minus expenses; cash and promises received from delivery of goods and services minus resources used to earn revenues
Investors buy stock in a corporation in hopes to increase their wealth by receiving dividends and ______.
selling the stock at a higher price than its cost
Ace Electronics bought equipment for $4,000. Normally the equipment would have cost $4,500, but the supplier gave Ace a special discount. Ace's balance sheet should report equipment of ______.
$4,000
Which financial statement should investors examine to determine whether the company is reinvesting a sufficient portion of the current year's earnings to support future growth?
statement of stockholders' equity
A financial statement heading states that it was prepared: "For the Year Ended December 31, 2019." What types of financial statements could this be? (Check all that apply.)
Income statement Statement of cash flows Statement of stockholders' equity (NOT BALANCE SHEET BC THATS A POINT IN TIME)
Which of the following are not found in the heading of a balance sheet? (Select all that apply.)
period covered name of the owner
List these liability accounts in the same order in which they would appear on a company's balance sheet from top to bottom.
1. Note payable (due iin 5 months) 2. Note payable (due in five years) Mortgage payable (due in 25 years)
$100 in thousands is
100,000
Which of these would be reported in the financing activities section of the statement of cash flows? (Check all that apply.)
Cash dividends paid to stockholders Cash borrowed from the bank Cash paid to reduce the principal borrowed from banks
The heading of an income statement should include which of the following? (Check all that apply.)
The name of the entity The accounting period covered by the statement The title of the financial statement
Identify the 4 significant items in the headings of balance sheets.
Title of the statement Unit of measure Specific date Name of the entity
When a company sells goods to customers on credit, ______.
accounts receivable will be reported on the seller's balance sheet
The statement of cash flows shows ______. (Check all that apply.)
cash flows from investing activities cash flows from financing activities cash flows from operating activities
A(n) ______ is a cost of doing business that is necessary to earn ______.
expense; revenue
Financial statements that are prepared for external uses every three months are referred to as ______ reports.
quarterly
The income statement is used by many to indicate whether the company ______. (Check all that apply.)
sold goods and services for more than the cost to produce and deliver has the ability to earn more in the future, so that the stock price will improve
Z Company bought land 20 years ago for $30,000. Over the last 20 years, the value of the land has doubled. The increase in the land's value ______.
will not be reported in Z Company's financial statements
Which group was given the primary responsibility of writing US generally accepted accounting principles?
Financial Accounting Standards Board
Which of the following may be included in the heading of the statement of cash flows for Cashews, Inc? (Check all that apply.)
(in thousands of dollars) Statement of Cash Flows Cashews, Inc. For the year ended December 31, 2020
Rank the following steps applied in ethical decision making in the proper order, beginning with the first step.
1. Identify the benefits of a decision and who will be harmed. 2. Identify the alternative course of action 3. evaluate the course of action in terms of what you would like your family or friends to see
Which information is obtained from a statement of cash flows that is not found on the income statement? (Check all that apply.)
Cash from operating activities Cash flows from investing activities Cash flows from financing activities
Prior to becoming finalized, changes in GAAP are ______. (Check all that apply.)
actively debated by many interested parties analyzed to identify potential negative economic consequences
The main goal of US GAAP is to ______.
ensure that companies produce useful information for users of financial statements
Cash flows from ____ activities on the statement of cash flows reports the cash activity with stockholder and creditors such as banks
financing
Accounting rules in the United States are _______ accounting rules used in other countries.
similar to
Which of the following classifications is not used to categorize cash inflows and cash outflows on the statement of cash flows?
spending
The ending retained earnings' amount appears on the ______. (Select all that apply.)
statement of stockholders' equity