Learn smart chapter 1 – Flashcards
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Monster media's accounting records indicate that the company has $500 of cash; $2500 of land ; $1600 of common stock; and $1400 of retained earnings. Based on this information, the maximum cash dividend the company can pay is?
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$500 because the company has all me $500 cash available to pay dividends. There is no cash in retained earnings.
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The right side of the accounting equation for a corporation may be viewed as?
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Obligations and commitments of the business, claims of creditors and owners ; sources of assets
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Assume a business is liquidated when it has assets of $1000 cash, $800 of liabilities and $600 common stock and ( $400 )deficit and retain earnings. Based on this information,:
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Owners will receive $200 and creditors will receive $800
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West company has $200 of cash, $ $1,200 land, $600 liabilities and $800 stockholders' Equity. West has earned profits every year since it's inception. Based on this information,:
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If the liabilities are due immediately, West could be forcing into bankruptcy. (West has only $200 cash to pay off $600 of liabilities. West could be forced to liquidate the land to repay the debt.) West may be forced to sell its land in order to pay its debt!
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Which of the following is an asset use the transaction?
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Repaying debit with cash , paying a cash dividend
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True or false: the matching concept states that expenses should be matched to revenues earned during the accounting period.
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True
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A company that has $2000 in revenue and $1900 in expenses should report
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Net income on the income statement
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Activities dealing with purchasing and selling long-term assets used in the operations of the business are?
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Investing activities (The purchasing or selling of assets that would be used for more than one accounting period are normally classified as investments.
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Accounts that carry a balance from one accounting period to another are called
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Permanent accounts
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If a company has $2000 in revenue and $1500 in expenses during the year 2 accounting period, what is the balance in the retained earnings account after the year 2 closing? Assume that the company started the year number to accounting period with a $1,000 balance in retained earnings.
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$1,500 (1,000+ 2,000- 1,500= 1,500)
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In a business liquidation,:
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Creditors may be unable to collect the full amount of the liabilities. Liabilities are paid in full before funds are distributed to owners.
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From the options below, which are service companies?
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Accounting firm, Law firm, doctor
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How does an increase in the fair market value of an asset affect the financial statements?
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No affect
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True or False: world financial statements may contain subject matter that is not covered in the this text.
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True
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When it's liquidated, a business has assets of $500 cash, $800 of liabilities and $400 common stock and ($700) deficit in retained earnings. Based on this information,:
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Owners will receive zero , creditors will receive $500
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Businesses that perform services are called
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Service companies
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True or false: A change in the fair value of a building is shown on the income statement.
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False
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Acquiring cash by issuing common stock will cause assets on the ( ) side of the accounting question to ( ) and common stock on the ( )side of the account equation to ( ).
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1.left 2. increase 3. Right 4. Increase
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What items are not presented on the balance sheet?
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Net cash flow from financing activities Net cash flow from operating activities Revenue Net income Dividends Expense
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Revenue
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Increases in assets caused by operating a business
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Expense
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Decrease in assets caused by operating a business
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Dividend
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Wealth transfers from a business to its owners/ investors
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Retained Earnings
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All past and present earnings minus all past and present dividends
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Which of the following is an operating activity?
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Paying employees
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Dividends are paid to ( ), while interest is paid to ( ).
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1. Investors 2. Creditors
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An event that causes assets and common stock to increase is an asset ( )transaction
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Asset source transaction
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How does declaring and paying a cash dividend affect the income statement?
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No affect
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Paying cash to pay off debt will cause the :
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Amount of liabilities to decrease. Amount of cash to decrease.
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A home builder used $80,000 of materials and $70,000 of labor to build a house that was sold for $160,000. Based on this information the Builder produce a profit amounting to ?
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$10,000 ( $160,000-$80,000-70,000=$10,000)
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Which of the following may be included in a list of the stakeholders who use accounting information?
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Investors, the federal government, creditors and newspaper reporters
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An event that causes one asset account to decrease and another asset account to increase is called an asset ( ) transaction
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Asset exchange transaction
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Which statements report what happened over a span of time?
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Income statement, statement of changes in stockholders equity, statement of cash flows
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Assets are normally shown on the company's books at the amount of their
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Historical cost
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Taylor Company has $10,000 of assets, $2000 of liabilities, and $5000 of common stock. Based on this information alone, the company has retained earnings amounting to.
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$10,000 Assets= $2,000 liabilities + $5,000 common stock + retained earnings. ($3,000 retained earnings)
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Earning cash revenue by providing services to customers will cause the amount of cash to ( ) in the amount of retained earnings to ( ).
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Increase Increase
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Cash inflows and outflows a report on the
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Statement of cash flows
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X company purchased land from Y Company. Based on this information alone, the amount of:
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X company's land increased
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Paying cash expenses will cause the amount of cash to ( ) and the amount of retained earnings to ( ).
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Decrease Decrease
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The balance sheet reports assets, liabilities, and stockholders' equity as of the end of the
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Accounting period
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What items are not presented on the statement of cash flows?
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Common stock, end retained earnings, total stockholders' equity, land, dividends, notes payable, revenue, assets, net operating income, liabilities and expenses
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In accounting terms, the obligations a business does to his creditors are called ( ).
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Liabilities
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What effect does earning cash revenue have on a balance sheet?
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Increases total assets, increases total stockholder's equity, increases retained earnings.
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Which of the following is not a business asset?
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An obligation to repay debt
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Borrowing money from creditors will cause the amount of:
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Liabilities to increase, cash to increase
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The Financial statement that shows all the revenues earned and expenses incurred during the accounting period is the ?
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Income statement
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Ending balances for assets, liabilities, and stockholder's equity are reported on the
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Balance sheet
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( ) is a resource used by businesses.
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Money
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When a company acquires cash from investors, it issues a certificate that describes the rights and responsibilities of the ownership. This receipt is for commonly called
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Common stock
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Companies must follow generally accepted accounting principles for _______ (internal/external) accounting reports, but not for ______ (internal/external) accounting reports.
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External Internal
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"For the period ended" indicates that information reported on the financial statement refers to
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What happened of the accounting period
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What items are presented on the income statement?
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Net income, revenue, expense
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Paying a cash dividend Will cause the amount of cash to ______ and the amount of retained earnings to _______.
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Decrease Decrease
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Which of the following activities are considered financing activities?
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Replaying the principle on a loan Paying a dividend to stockholders Issuing common stock
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Which financial statement only reports account balances as of a specific point in time?
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Balance sheet
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Borrowing money from creditors will cause the:
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Left side of the accounting equation to increase Right side of the accounting equation to increase
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Paying off a liability with cash what cause assets on the _____ side of the accounting equation to _____ and liabilities on the _____ side of the accounting equation to ____
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Left Decrease Right Decrease
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Recognizing cash expenses will cause the amount of cash
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And the amount of retained earnings to decrease
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What effect does earning cash revenue have an income statement?
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Increases net income
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David Harbert recently started a business. During the first few days of operation, Mr. Harbert transferred cash from his personal account into a business account for a company named Harber Enterprises. Mr. Harbert's Brother, George, invested cash in Harbert Enterprises for which she received a 25% ownership interest in the company. Harbert enterprises borrowed cash from First Federal Bank. Harbert Enterprises paid cash to purchase a building from city properties, INC. How many reporting entities are mentioned in this scenario?
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5
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Borrowing money from creditors will cause the left side of the accounting equation to ____ and the right side of the accounting equation to _____.
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Increase Increase
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What items are presented on the statement of cash flows?
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Net cash flow from financing activities, ending cash balance, net cash flow from operating activities, cash receipts for borrowing funds, cash payments for dividends, and net cash flow from investing activities.
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Paying cash castle expenses will cause the amount of
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Retained earnings to decrease, cash to decrease
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Which of the following lists includes only items that are reported on the balance sheet?
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Assets, liabilities, stockholders equity, and retained earnings
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Which of the following is considered a financing activity?
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Raising money by issuing stock
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A business that consumes $3,000 of resources to make a product that is sold for $4000 has earned a ____ of $1,000.
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Profit
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Borrowing money from creditors will cause the
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Amount of cash and the amount of liabilities to increase
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" For the period ended" refers to
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A span of time
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How does issuing stock forecast affect the financial statements?
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Increases stockholders equity, increases common stock, increases financing cash flow, increases assets
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The quickness in which an asset can be sold for cash is referred to as
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Liquidity
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Which of the following are operating activities?
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Cash receipts from customers Paying employees Paying expenses
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What's the following is considered a financing activity?
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Paying a dividend to stockholders
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What items are presented on the statement of changes in stockholders' equity?
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Net income Total stockholders equity Dividends Beginning common stock Ending retained earnings
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Which of the following is an operating activity?
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Selling services to customers
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The interrelationships among the various elements of the financial statements are known as
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Articulation
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Activities doing with resuming to start a business
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Financing activities
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As of refers to
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A specific point in time
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_____ accounting practice is designed to meet the needs of internal stakeholders, such as managers and other employees
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Managerial
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How does incurring cash expenses affect the financial statements?
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Decreases net income Decreases stockholders equity Decreases assets Decreases operating cash flow Decreases retained earnings
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Which of the following show that effects of borrowing from creditors on the financial statements?
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Increases cash flow from financing activities Increases assets Increases liabilities
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Cash and land are ___ accounts
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Asset
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The acronym CPA stands for certified _____ accountant
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Public
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The statement of changing stockholders equity shows.
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How common stock and retain earnings changed over the accounting period
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Which of the following accounts are closed and the return earnings account?
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Revenue Operating expense Salaries expense Dividends
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What effect does purchasing land with cash have on total assets?
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No effect on total assets
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Acquiring cash from the issue of stock will affect the accounting equation in at least ___ places
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Two
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The horizontal statements model is
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A teaching tool used to show how transactions A fact the income statement, balance sheet, and statements of cash flows
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The term used to describe pairing expenses with revenues earned during the accounting period is the
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Matching concept
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How does declaring and paying a cash dividend affect the balance sheet?
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Decreases retained earnings Decreases Total assets Decreases stockholders equity
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What items are not presented on the statement of changes in stockholders equity?
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Cash, revenue, notes payable, expense, liabilities, assets, land
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Recognizing cash revenue will cause assets on the ___ side of the accounting equation to ___ and retained earnings on the ___ side of the accounting equation to ___
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Left Increase Right Increase
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Using cash to pay off debt will cause the amount of cash to ___ and the amount of liabilities to ____
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Decrease Decrease
