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56 Cards in this Set
- Front
- Back
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What is accounting? |
accounting is the process of providing financial information about an entity so people can make a decision |
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what is comprehensive income? |
Comprehensive income includes all the changes in net assets not from selling stock or declaring dividends. In other words, it is the gains and losses that bypass net income but effect stockholder's equity. |
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What are the 10 elements of accounting? |
1) assets 2) liabilities 3) equity 4) Investments by Owners 5) Distribution to Owners 6) Revenue 7) expenses 8) Gains 9) Losses 10) Comprehensive Income |
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What are closing entries and what is their purpose? |
closing entries are when a company closes their nominal accounts to zero, by posting the ending balance of each nominal account to the Income Summary account. The Income summary account's ending balance will equal net income or net loss, which is then debited or credited to Retained earnings. The purpose of closing accounts is to prepare nominal accounts for the next period and to transfer net income or net loss to owner's equity. |
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Give two examples of adjusting entries that are deferrals. |
1) Prepaid Expenses Dr. Insurance Exp. Cr. Prepaid Insurance 2) Unearned Revenues Dr. Service Revenue Cr. Unearned Service Revenue |
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Give two examples of adjusting entries that are accruals. |
1) Accrued Revenues Dr. Accounts Receivable Cr. Sales Revenue 2) Accrued Expenses Dr. Interest Expense Cr. Interest Payable |
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What is the difference between cash basis accounting and accrual basis accounting? |
accrual basis accounting is when a company recognizes revenue when he performance obligation is satisfied and expense in the period incurred, without regard to the time of receipt or cash payment. Cash basis is when a company recognizes revenue only when they receive cash and recognize expenses only when they dispense cash. |
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What is the difference between a single step income statement and a multiple step income statement? |
a single step income statement is a simple presentation of revenues and expenses without any implication that one revenue has priority over another. A multiple step income statement categorizes operating and non-operating revenues and expenses, giving more detail. |
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what is an extraordinary item and where is it found on the income statement? |
an extraordinary item is nonreccuring material items that differ significantly from a company's typical business activities. The item has to be both unusual in nature and infrequent in occurrence. It is found after discontinued operations on the multiple step income statement. |
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What is intra period allocation? What is inter period tax allocation? |
Intraperiod allocation is tax allocation within one year, whereas inter period allocation is in between years. |
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What are three sources and uses of cash? |
1) Operating Activities 2) Investing Activities 3) Financing Activities |
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A decrease in net assets arising from peripheral or incidental transactions is called a(n): a) Capital expenditure b) Cost c) Loss d) Expense |
C |
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The pervasive criterion by which accounting information can be judged is that of: a) decision usefulness b) freedom from bias c) timeliness d) comparability |
A |
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Changing off the cost of a water basket with an estimated useful life of 10 years as an expense of the period when purchases is an example of application of the: a) consistency characteristic b) expense recognition principle c) materiality characteristic d) historical cost principle |
C |
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The elements of financial statements include investments by owners. These are increases in an entity's net assets resulting from owners': a) transfers of assets to the entity b) rendering services to the entity c) satisfaction of liabilities d) all of the above |
D |
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When converting from cash basis to accrual basis accounting, which of the following adjustments should be made to cash receipts from customers to determine accrual basis service revenue? a) Subtract ending accounts receivable b) subtract beginning unearned service revenue c) Add ending accounts receivable d) Add cash basis |
C |
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Which of the following statements best describes the purpose of closing entries? a) to facilitate posting and taking a trial balance b) to determine the amount of net income or net loss for the period c) to reduce the balances of revenue and expense accounts to zero so that they may be used to accumulate the revenues and expenses of the next period d) to complete the record of various transactions that were stated in a prior period |
C |
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Tate Company purchased equipment on November 1, 2012 and gave a 3-month 9% note with a face value of $40,000. The December 31, 2012 adjusting entry is: a) Debit Interest Expense and credit Interest Payable $3,600 b) Debit Interest Expense and credit Interest Payable $900 c) Debit Interest Expense and Credit Cash $600 d) Debit Interest Expense and credit Interest Payable $600 |
D |
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Maso company recorded journal entries for the issuance of common stock for $80,000, the payment of $26,000 on accounts payable, and the payment of salaries expense of $42,000. What net effect do these entries have on owner's equity? a) Increase of $80,000 b) Increase of $54,000 c) Increase of $38,000 d) Increase of $12,000 |
C |
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In 2012, Esther Corporation reported net income of $600,000. It declared and paid preferred stock dividends of $150,000 and common stock dividends of $60,000. During 2012, Esther has a weighted average of 200,000 common shared outstanding. compute Esther's 2012 earning per share. a) $1.95 b) $2.25 c) $3.00 d) $3.75 |
B |
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Classification as an extraordinary item on the income statement would be appropriate for the: a) Gain or loss on disposal of a component of the business b) Substantial write-off of obsolete inventories c) Loss from strike D) None of these |
D |
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A company is not required to report a per share amount on the face of the income statement for which of the following items? a) Net Income b) Prior Period Adjustment c) Extraordinary item d) Discontinued operations |
B |
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Sandstrom Corporation has an extraordinary loss of $150,000, an unusual gain f $105,000, and a tax rate of 40%. At what amount should Sandstrom report each item? Extraordinary Loss Unusual gain a) $(150,000) $105,000 b) $(150,000) $63,000 c) $(90,000) $105,000 d) $(90,000) $63,000 |
C |
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Changint the method of inventory valuation should be reported in the financial statements under what qualitative characteristic of accounting information? a) Consistency b) Verifiability c) Timeliness d) Comparability |
A |
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Which of the following elements of financial statements is not a component of comprehensive income? a) Revenues b) Distribution to owners c) Losses d) Expenses |
B |
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Valuing assets at their liquidation values rather than their costs is inconsistent with the: a) Periodicity assumption b) Expense recognition principle c) Materiality constraint d) Historical Cost Principle |
D |
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When converting from cash basis to accrual-basis accounting, which of the following adjustments should be made to cash paid for operating expenses to determine accrual basis operating expense? a) Add beginning accrued liabilities b) Add beginning prepaid Expense c) Subtract ending prepaid expense d) Subtract interest expense |
B&C |
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An accrued expense can best be described as an amount: a) Paid and currently matched with earnings b) Paid and not currently matched with earnings c) Not paid and not currently matched with earnings d) Not paid and currently matched with earnings |
D |
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Starr corporation loaned $150,000 to another corporation on December 1, 2012 and received a 3-month, 8% interest-bearing note with a face value of $150,000. What adjusting entry should Starr make on December 31, 2012? a) Debit Interest Receivable and Credit Interest Revenue, $3,000 b) Debit Cash and credit Interest Revenue, $1,000 c) Debit Interest Receivable and Credit Interest Revenue, $1,000 d) Debit Cash and credit Interest Recevable, $3,000 |
C |
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Mune Company recorded journal entries for the declaration of $100,000 of dividends, the $64,000 increase in accounts receivable for services rendered and the purchase of equipment for $42,000. What net effect do these entries have on owner's equity? a) Decrease of $142,000 b) Decrease of $78,000 c) Decrease of $36,000 d) Increase of $22,000 |
C |
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In 2012, Linz Corporation reported an extraordinary loss of $1,000,000, net of tax. It declared and paid preferred stock dividends of $100,000 and common stock dividends of $300,000. During 2012, Linz had a weighted average of 400,000 common shared outstanding. Compute the effect of the extraordinary loss, net of tax, on earnings per share. A. $1.50 B. $1.75 C. $2.25 D. $2.50 |
D |
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Under which of the following conditions would material flood damage be considered an extraordinary item for financial reporting purposes? a) only if floods in the geographical area are unusual in nature and occur infrequently b) Only if the flood damage is material in amount and could have been reduced by prudent management c) Under any circumstances as an extraordinary item d) Flood damage should never be classified as an extraordinary item |
A |
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A correction of an error in prior periods' income will be reported in the: Income Statement Net of Tax a) Yes Yes b) No No c) Yes No d) No Yes |
D |
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Prophet corporation has an extra ordinary loss of $600,000, an unusual gain of $420,000, and a tax rate of 40%. At what amount should prophet report each item? Extraordinary Loss Unusual Gain a) $(600,000) $420,000 b) $(600,000) $252,000 c) $(360,000) $420,000 d) $(360,000) $252,000 |
C |
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Current Ratio |
current assets/ current liabilities |
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Current Ratio purpose/ use |
measures short-term debt-paying ability |
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Quick/ acid-test ratio |
Cash+ short-term investments+ net receivables/ current liabilities |
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Quick/acid test ratio purpose/use |
measures immediate short term liquidity |
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Current Cash debt coverage |
Net cash provided by operating activities/ average current liabilities |
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current cash debt coverage purpose/use |
measures a company's ability to pay off its current liabilities in a given year from its operations |
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Accounts Receivable turnover |
net sales/ average trade receivables (net) |
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accounts receivable turnover purpose/use |
measures liquidity of receivables |
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Inventory turnover |
Cost of Good Sold/ Average Inventory |
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Inventory turnover purpose/use |
measures liquidity of inventory |
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Asset turnover |
net sales/ average total assets |
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asset turnover purpose/use |
measures how efficiently assets are used to generate sales |
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Profit margin on sales |
net income/ net sales |
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profit margin on sales purpose/use |
measures net income generated by each dollar of sales |
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Return on assets |
Net income/ average total assets |
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return on assets purpose/use |
measures overall profitability of assets |
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earnings per share |
net income- preferred dividends/ weighted average number of shares outstanding |
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earning per share purpose/use |
measures net income earned on each share of common stock |
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Debt to assets |
total liabilities/ total assets |
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debt to assets purpose/use |
measures the percentage of total assets provided by creditors |
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free cash flow |
net cash provided by operating activities- capital expenditures- dividends |
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free cash flow purpose/use |
measures the amount of discretionary cash flow |
