Exam 1

Front 1

GAAP is the term used to indicate the whole body of FASB authoritative literature.

true false

Back 1

true

Front 2

Any company claiming compliance with GAAP must comply with most standards and interpretations but does not have to follow the disclosure requirements.

true false

Back 2

false

Front 3

The primary governmental body that has influence over the FASB is the SEC.

true false

Back 3

true

Front 4

The FASB has a government mandate and therefore does not have to follow due process in issuing a standard.

true false

Back 4

false

Front 5

The objective of financial statements emphasizes a stewardship approach for reporting financial information.

true false

Back 5

false

Front 6

The purpose of the objective of financial reporting is to prepare a balance sheet, an income statement, a statement of cash flows, and a statement of owners’ or stockholders’ equity.

true false

Back 6

false

Front 7

Because they are generally shorter, FASB interpretations are subject to less due process, compared to FASB standards.

true false

Back 7

false

Front 8

The objective of financial reporting uses an entity rather than a proprietary approach in determining what information to report.

true false

Back 8

true

Front 9

GAAP stands for:

Back 9

generally accepted accounting principles.

Front 10

generally provides a better indication of an enterprise’s present and continuing ability to generate favorable cash flows?

Back 10

Accrual basis accounting

Front 11

Accounting principles are "generally accepted" only when... ?

I. an authoritative accounting rule-making body has established it in an official pronouncement.

II. it has been accepted as appropriate because of its universal application.

Back 11

either or

Front 12

promotes productivity.

encourages innovation.

provides an efficient market for buying and selling securities.

these are the results of an ...?

Back 12

An effective capital allocation process

Front 13

The objective of general purpose financial reporting adopts an entity perspective, which means that

Back 13

companies are viewed as separate and distinct from their owners.

Front 14

the goal of this Codification was to provide one place where all authoritative literature about financial statement preparation could be found.

the purpose of this Codification is to create new GAAP.

this Codification changes the way GAAP is documented, presented, and updated.

Back 14

the FASB Codification

Front 15

The objective of financial reporting identifies ______________ as the primary users for general-purpose financial statements.

Back 15

Investors and creditors.

Front 16

General-purpose financial statements are the product of

Back 16

financial accounting.

Front 17

Which of the following represents a form of communication through financial reporting but not through financial statements?

Back 17

President's letter.

Front 18

The process of identifying, measuring, analyzing, and communicating financial information needed by management to plan, evaluate, and control an organization’s operations is called

Back 18

managerial accounting.

Front 19

Companies that are listed on a stock exchange are required to submit their financial statements to the

Back 19

SEC.

Front 20

Qualitative characteristic being employed when companies in the same industry are using the same accounting principles.

Back 20

Comparability

Front 21

Quality of information that confirms users’ earlier expectations.

Back 21

Confirmatory Value

Front 22

Imperative for providing comparisons of a company from period to period.

Back 22

Consistency

Front 23

Ignores the economic consequences of a standard or rule.

Back 23

Neutrality

Front 24

Requires a high degree of consensus among individuals on a given measurement.

Back 24

Verifiability

Front 25

Predictive value is an ingredient of this fundamental quality of information.

Back 25

Relevance

Front 26

Four qualitative characteristics that are related to both relevance and faithful representation.

Back 26

Comparability, Verifiability, Timeliness, and Understability

Front 27

An item is not recorded because its effect on income would not change a decision.

Back 27

Materiality

Front 28

Neutrality is an ingredient of this fundamental quality of accounting information.

Back 28

Faithful Representation

Front 29

Two fundamental qualities that make accounting information useful for decision-making purposes.

Back 29

Relevance and Faithful Representation

Front 30

Issuance of interim reports is an example of what enhancing quality of relevance?

Back 30

Timeliness

Front 31

Arises from peripheral or incidental transactions.

Back 31

Gains, Losses

Front 32

Obligation to transfer resources arising from a past transaction.

Back 32

Liabilities

Front 33

Increases ownership interest.

Back 33

Investments by Owners, Comprehensive Income

Front 34

Declares and pays cash dividends to owners.

Back 34

Distributions to Owners

Front 35

Increases in net assets in a period from nonowner sources.

Back 35

Comprehensive Income

Front 36

Items characterized by service potential or future economic benefit.

Back 36

Assets

Front 37

Equals increase in assets less liabilities during the year, after adding distributions to owners and subtracting investments by owners.

Back 37

Comprehensive Income

Front 38

Arises from income statement activities that constitute the entity’s ongoing major or central operations.

Back 38

Revenues, Expenses

Front 39

Residual interest in the assets of the enterprise after deducting its liabilities.

Back 39

Equity

Front 40

Increases assets during a period through sale of product.

Back 40

Revenues

Front 41

Decreases assets during the period by purchasing the company’s own stock.

Back 41

Distributions to Owners

Front 42

Includes all changes in equity during the period, except those resulting from investments by owners and distributions to owners.

Back 42

Comprehensive Income

Front 43

Allocates expenses to revenues in the proper period.

Back 43

Expense Recognition Principle

Front 44

Indicates that fair value changes subsequent to purchase are not recorded in the accounts.

Back 44

Measurement Principle (historical cost)

Front 45

Ensures that all relevant financial information is reported.

Back 45

Full Disclosure Principle

Front 46

Rationale why plant assets are not reported at liquidation value.

Back 46

Going Concern Assumption

Front 47

Indicates that personal and business record keeping should be separately maintained.

Back 47

Economic Entity Assumption

Front 48

Separates financial information into time periods for reporting purposes.

Back 48

Periodicity Assumption

Front 49

Assumes that the dollar is the “measuring stick” used to report on financial performance.

Back 49

Monetary Unit Assumption

Front 50

In the conceptual framework for financial reporting, what provides "the how" - the implementation of accounting?

Back 50

Measurement and recognition concepts such as assumptions, principles, and constraints.

Front 51

The underlying theme of the conceptual framework is

Back 51

decision usefulness.

Front 52

Enhancing qualities of accounting information include

Back 52

understandability.

comparability.

timeliness

Front 53

Under current GAAP, inflation is ignored in accounting due to

Back 53

the monetary unit assumption.

Front 54

Generally, revenues are recognized when the:

Back 54

performance obligation is satisfied.

Front 55

It allows the profession to quickly solve new and emerging issues.

It enables standard setters to issue more useful and consistent pronouncements over time.

It increases financial statement users’ understanding of and confidence in financial reporting.

These are reasons for why a ...

Back 55

A conceptual framework is necessary

Front 56

Which of the following is a fundamental quality of useful accounting information?

Back 56

Relevance

Front 57

Company A issuing its annual financial reports within one month of the end of the year is an example of which enhancing quality of accounting information?

Back 57

Timeliness.

Front 58

3 basic elements of financial statements?

Back 58

Assets.

Balance sheet.

Revenue.

Front 59

What accounting concept justifies the usage of depreciation and amortization policies?

Back 59

Going concern assumption

Front 60

Owner Invested $12,990 cash and $2,780 of equipment in the business.

record transaction...

Back 60

db - cash 12,990

db - equip 2780

cr - owners capital 15770

Front 61

Purchased supplies on account for $520. (Debit asset account.)

record transaction...

Back 61

db - supplies 520

cr - ap 520

Front 62

Performed services for clients, for which $1,300 was collected in cash and $620 was billed to the clients.

record transaction...

Back 62

db - cash 1300

db - ar 620

cr- service rev 1920

Front 63

Paid August rent $470.

record transaction...

Back 63

db - rent exp 470

cr - cash 470

Front 64

Counted supplies and determined that only $260 of the supplies purchased on August 7 are still on hand.

record transaction...

Back 64

db - supplies exp 260

cr - supplies

Front 65

Interest on notes payable of $500 is accrued.

record transaction...

Back 65

db - interest exp 500

cr - interst payable 500

Front 66

Services performed but unbilled total $1,470.

record transaction...

Back 66

db - ar 1470

cr - services rev 1470

Front 67

Salaries and wages earned by employees of $570 have not been recorded.

record transaction...

Back 67

db - salaries and wages exp 570

cr - salaries and wages payable 570

Front 68

Bad debt expense for year is $860.

record transaction...

Back 68

db - bad debt exp 860

cr - allow for doubtful 860

Front 69

Prepare the year-end closing entries.

close revenue accts...

Sales Revenue $856,010

Interest Revenue $17,620

Back 69

db - sales rev 856,010

db - int rev 17,620

cr - income summ 873,630

Front 70

Prepare the year-end closing entries.

close exp accts...

Cost of Goods Sold $567,260

Administrative Expenses $187,360

Income Tax Expense $36,960

Back 70

db - income summ 791,580

cr - cogs 567,260

cr - admin exps 187,360

cr - income tax exp 36,960

Front 71

Prepare the year-end closing entries.

close income/loss...

income (diff btwn rev and exps) $82,050

Back 71

db - income summ 82,050

cr - retained earnings 82,050

Front 72

Prepare the year-end closing entries...

close dividends...

Dividends $18,736

Back 72

db - retained earnings 18,736

cr - dividends 18,736

Front 73

adjusting entry: accrued salaries...

Salaries and Wages Payable $0. There are eight employees. Salaries and wages are paid every Friday for the current week. Five employees receive $860 each per week, and three employees earn $600 each per week. December 31 is a Tuesday. Employees do not work weekends. All employees worked the last 2 days of December.

5 x $860 x 2/5 = $1720

3 x $600 x 2/5 = 720

= $2440

Back 73

db - salaies and wages exp 2440

cr - salaries and wages payable 2440

Front 74

adjusting entry: rent recognized...

Unearned Rent Revenue $464,640. The company began subleasing office space in its new building on November 1. Each tenant is required to make a $5,520 security deposit that is not refundable until occupancy is terminated. At December 31, the company had the following rental contracts that are paid in full for the entire term of the lease.

5 x $6720 x 2 = $67,200

4 x $8890 x 1 = 35,560

= $102,760

Back 74

db - unearned rent rev 102,760

cr - rent rev 102,760

Front 75

adjusting entry: advertising exp...

Prepaid Advertising $14,200. This balance consists of payments on two advertising contracts. The contracts provide for monthly advertising in two trade magazines. The terms of the contracts are as shown below.

A - $300/mo x 8 mos = $2400

B - $442/mo x 3 mos = 1326

= $3726

Back 75

db - advertising exp 3726

cr - prepaid advertsing 3726

Front 76

adjusting entry: interest payable...

Notes Payable $60,700. This balance consists of a note for one year at an annual interest rate of 12%, dated June 1.

$60,700 x 12% x 7/12 = $4,249

Back 76

db - interest exp 4249

cr - interest payable 4249

Front 77

balance sheet equation ( accounting equation)

Back 77

assets = liabilities + equities

Front 78

assest = ___ + ____

Back 78

current assets + property, plant and equipment

Front 79

current assets - name 3 accounts

Back 79

cash

supplies

prepaid ins

Front 80

property, plant and equipment - name 3 accounts

Back 80

land

equipment

accum dep equip

Front 81

liabilities and stockholders equity = ___ + ____ + ___

Back 81

current liab + long term liabs + stockholders equity

Front 82

liabilities = ___ + ____

Back 82

current liabilities and long term liabilites

Front 83

current liabilities (5)

Back 83

ap

unearned service revenue

notes payable

interest payable

property tax payable

Front 84

a long term liability

Back 84

mortgage apayble

Front 85

stockholders equity (2)

Back 85

common stock

retained earnings

Front 86

The dual effect of each transaction is recorded with a debit and a credit is what?

Back 86

The double-entry accounting system

Front 87

When a corporation pays a note payable and interest they will debit what 2 accts?

Back 87

notes payable and interest expense.

Front 88

The accounting equation must remain in balance throughout each ?

Back 88

step in the accounting cycle.

Front 89

what chronologically lists transactions and other events, expressed in terms of debits and credits?

Back 89

A general journal

Front 90

A journal entry to record a payment on account will include a debit to what acct?

Back 90

Accounts Payable.

Front 91

Property taxes incurred during the year, to be paid in the first quarter of the subsequent year.

this is an example of ...?

Back 91

an accrued expense

Front 92

The failure to properly record an adjusting entry to accrue an expense will result in an understatement of what 2 acct types?

Back 92

expenses and liabilities

Front 93

At the time a company prepays a cost it debits what acct and why?

Back 93

an asset account

- to show the service or benefit it will receive in the future.

Front 94

The proper sequence of financial statement preparation is:

Back 94

The Income Statement, the Retained Earnings Statement, the Balance Sheet, and then the Statement of Cash Flows.

Front 95

The worksheet for Sharko Co. consisted of five pairs of debit and credit columns. The dollar amount of one item appeared in both the credit column of the income statement section and the debit column of the balance sheet section. That item is

Back 95

net loss for the period.