question

The company's financial operations must be completed: (3)

answer

Fairly, Clearly, Completely

question

The identification, measurement, and communication of financial information about economic entities to interested parties is _______ ____________ __ ___________.

answer

Essential characteristics of accounting.

question

Name 3 organizations involved in Standard Setting.

answer

1. SEC Securities and Exchange Commission 2. AMerican Institute of Certified Public Accountants (AICPA) 3. Financial Accounting Standards Board (FASB)

question

GAAP Major sources of GAAP (principles with substantial authoritative support): 3

answer

1. FASB Standards, interpretations and Staff positions 2. APB Opinions 3. AICPA Accounting Research Bulletins

question

Goal of FASB Codification is

answer

to provide in one place all the authoritative literature related to a particular topic.

question

Name the two sets of standards accepted for international use.

answer

1. U.S. GAAP issued by the FASB 2. International Financial Reporting Standards (FRS) issued by the IASB

question

When companies in the same industry are using the same accounting priciples what qualitative characteristic is being employed?

answer

Comparability

question

The quality of the information that confirms users' earlier expectations is called _______ __________.

answer

Confirmatory Value

question

This is imperative for providing comparisons of a company from period to period.

answer

Consistency

question

Ignores the economic consequences of a standard or rule:

answer

Neutrality

question

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

answer

verifiability

question

predictive value is an ingredient of this primary quality of information:

answer

Relevance

question

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

answer

1. camparability, 2. verifiability, 3. timeliness, 4. understandability

question

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

answer

materiality

question

neutrality is an ingredient of this primary quality of accounting information:

answer

Faithful Representation

question

two primary qualities that make accounting information useful for decision-making purposes:

answer

Relevance and Faithful Representation

question

Issuance of interim reports is an example of what primary ingredient of relevance:

answer

Timeliness

question

Arises from peripheral or incidental transactions:

answer

Gain?

question

Obilgation to transfer resources arising from a poast transaction:

answer

liability

question

increases ownership interest:

answer

investments by owners, comprehensive income

question

declares and pays cash dividends to owners:

answer

Distributions to owners

question

increases in net assets in a period from nonowner sources:

answer

comprehensive income?

question

items characterized by service potential or future economic benefit:

answer

assets

question

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

answer

comprehensive income? or net worth?

question

arises from income statement activities that constitute the entity's ongoing major or central operations:

answer

revenues, expenses

question

residual interest in the assets of the enterprise after deducting its liabilities:

answer

equity

question

increases assets during the a period through sale of product:

answer

revenues

question

decreases assets during a period by purchasing the company's own stock:

answer

distributions to owners

question

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

answer

comprehensive income

question

allocates expenses to revenues in the proper period.

answer

Expense Recognition

question

indicates that fiar value changes subsequent to purchase are not recorded in the accounts (do not use revenue recognition principle):

answer

Historical Cost

question

Ensures that all relevant financial information is reported:

answer

Full Disclosure

question

Rationale why plant assets are not reported at liquidation value. (do not use historical cost principle):

answer

Going Concern principle

question

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

answer

economic entity

question

permits the use of fair value valuation in certain industries. (do not use fair value principle) :

answer

INdustrial practices?

question

Assumes that the dollar is the "Measuring Stick" used to report on financial performance:

answer

monetary unit

question

Objective of fiancial reporting: Provide?

answer

Fianacial Information

question

Objective of fiancial reporting: About who?

answer

Reporting Entity

question

Objective of fiancial reporting: Useful To?

answer

Present and Potential

question

Objective of fiancial reporting: Useful FOr?

answer

Making Decisions

question

Objective of fiancial reporting: Useful About what?

answer

Providing Resources

question

2nd level: Qualitative Characteristics: 1. primary users 2. constraint 3. criterion

answer

1. capital providers 2. cost 3. decision usefulness

question

2 aspects of Decision Usefulness

answer

1. relevance 2. faithful representation

question

2nd level: Basic Elements: 3 elements (out of 10 total ) these are under "Moment in Time" :

answer

1. assets 2. liabilities (balance sheet) 3. equity

question

2nd level: Basic elements: 7 elements (out of 10 total) these are under "Period of Time"

answer

1. investment by owners 2. distribution to owners 3. comprehensive income 4. revenue 5. expenses 6. gains 7. losses

question

T or F accual accounting attempts to measure revenues and expenses that occurred during accounting periods so they equal net operating cash flow.

answer

F Accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged. The term "accrual" refers to any individual entry recording revenue or expense in the absence of a cash transaction

question

T or F the primary responsibility for properly applying GAAP when communicating with investors and creditors through financial statements lies with a firm's auditors

answer

False

question

T or F Materiality can be affected by the dollar amount of an item , the nature of the item or both.

answer

True

question

T or F Balance sheet accounts are referred to as temporary accounts because their balances are always changing.

answer

False

question

T or F debits increase asset accounts and decrease liability accounts

answer

True

question

Name the accounting assumption for the rationale used to allocate expenses to revenues in the proper period:

answer

Expense Recognition

question

Name the accounting assumption for the rationale used to report plant assets at historical cost rather than liquidation value:

answer

Going concern principle?

question

Name the accounting principle that ensures all relevant financial information is reported:

answer

Full disclosure principle

question

What are the two fundamental qualities that make accounting information useful for decision making purposes?

answer

Reliability and Faithful representation

question

what is the objective of general purpose financial reporting?

answer

Provide financial information to financial entities, that is useful to present and potential investors for making decisions about finances.

question

What is the AIS?

answer

Accounting Information System: collects and processes transaction data, disseminates the information to interested parties

question

The Accounting Cycle: Steps 1 through 3

answer

1. Journalization 2. Posting 3. Trial Balance

question

The Accounting Cycle: Steps 4 through 6

answer

4. adjustments (work sheet) 5. adjusted trial balance 6. financial statements (work sheet with 4)

question

The Accounting Cycle: 7 through 9

answer

7. Closing Entries 8. Post closing trial balance 9. reversing entries

question

Types of Adjusting Entries: Deferrals: 2

answer

1. prepaid expenses, expenses paid in cash and recorded as assets before they are used or consumed 2. unearned revenues, revenues received in cash and recorded as liabilities before they are earned.

question

Types of Adjusting Entries: Accruals: 2

answer

1. Accrued revenues, revenues earned but not yet received in cash or recorded 2. accrued expenses, expenses incurred but not yet paid in cash or recorded

question

most companies use accrual-basis accounting (2)

answer

1. recognize revenue when it is earned 2. expenses in the period incurred without regard to the time of receipt or payment of cash

question

Income statement usefulness: 3

answer

1. evaluate past performance 2. predicting future performance 3. help assess the risk or uncertainty of achieving future cash flows

question

elements of the income statement (2)

answer

1. gains- increases in equity (not assets) from peripheral or incidental transactions 2. losses - decreases in equity (not assets) from peripheral or incidental transactions

question

reporting irregular items as discontinued operations when a company eliminates the results of operations and cash flows of a component , the AMOUNT REPORTED =

answer

"Net of tax"

question

reporting irregular items as extraordinary item which must be unusual in nature and occur infrequently. Amount reported =

answer

"Net of tax"

question

Extraordinary or NOT: a large diversified company sells a block of shares from its portfolio of securities which it has acquired for investment purposes. this is the first sale from its portfolio of securities.

answer

NOT

question

Extraordinary or NOT: an earthquake destroys one of the oil refineries owned by a large multi-national oil company. Earthquakes are rare in the geographical location.

answer

Extraordinary

question

Extraordinary or NOT: A company experiences a material loss in the repurchase of a large bond issue that has been outstanding for 3 years. The company regularly repurchases bonds of this nature.

answer

NOT

question

Extraordinary or NOT: A large portion of a tobacco manufacturer's crops are destroyed by a hail storm. Severe damage from hail storms in the locality where the manufacturer grows tobacco is rare.

answer

Extraordinary

question

Extraordinary or NOT: a citrus grower's florida crop is damaged by frost.

answer

NOT

question

Extraordinary or NOT: a company sells a block of common stock of a publicly traded company. the block of shares, which represents less than 10% of the publicly held company is the only securrity investment the company has ever owned.

answer

Extraordinary

question

reporting irregular items : Unusual gains and losses MEANS material items that are ...

answer

unusual or infrequent (BUT NOT BOTH)

question

reporting irregular items: Changes in accounting principles : Examples include:

answer

1. Change from FIFO to average cost 2. change from the percentage0of-completion to the completed-contract method

question

reporting irregular items changes in estimate examples include:

answer

1. useful lives and salvage values of depreciable assets 2. allowance for uncollectible receivables 3. inventory obsolescence.

question

reporting irregular items corrections of errors result from: (3)

answer

1. mathematical mistakes 2. mistakes in application of accounting principles 3. oversight or misuse of facts

question

Special Reporting Issues; intraperiod tax allocation where income tax is allocated to the following items: (3)

answer

1. income from continuing operations before tax 2. descontinued operations 3. extraordinary items

question

special reporting issues: earnings per share formula

answer

net income - preferred dividends / weighted average number of shares outstanding

question

Gains and losses that bypass net income but affect stockholders' equity are referred to as:

answer

OTHER COMPREHENSIVE INCOME

question

The FASB decided that the components of other comprehensive income must be displayed : a. in a second sparate income statement b. in a combined income statement of comprehensive income. c. as a part of the staement of stockholders' equity d. any of these options is permissable.

answer

D

question

statement of cash flows: content and format: 3 activities

answer

1. operating 2. investing 3. financing

question

usefulness of the statement of cash flows: financial liquidity: formula:

answer

current cash debt coverage ratio = net cash provided by operating activities / average current liabilites

question

usefulness of the statement of cash flows: financial liquidity: ratio indicates whether this company can pay off its current liabilities from its operations : a ratio near ____ is good.

answer

1:1

question

usefulness of statement of cash flows: Free Cash FLow formula:

answer

Net Cash provided by operating activities less capital expenditures (and less) dividends

question

usefulness of the statement of cash flows : financial liquidity formula:

answer

cash debt coverage ratio = net cash provided by operating activities / average total liabilities

question

usefulness of the statement of cash flows : financial liquidity meaning:

answer

this ratio indicates a company's ability to repay its liabilities from net cash provided by operating activities without having to liquidate the assets empoyed in its operations.

question

3 primary ingredients for relevance

answer

predictive value, feedback value, timeliness

question

3 primary ingredients for reliability

answer

verifiable, representational, faithfulness

question

2 primary qualities that make accounting information useful to decision making

answer

relevance, reliability

question

2 secondary qualities that make accounting information useful to decision making

answer

comparability, consistency

question

Information that is measured and reported in a similar matter for different companies is considered

answer

comparability

question

A company that applies the same accounting treatment to similar events, from period to period uses:

answer

consistency

question

What are the basic elements of Financial Statements?

answer

assets, liabilities, equity, investment by owners, revenues/expenses, gains/losses

question

economic entity assumption

answer

economic activity applies to a unit of accountability

question

going concern assumption

answer

expectation that a business lasts long enough to fulfill its objectives and commitments.

question

monetary unit assumption

answer

only provide information of monetary value, not in units

question

periodicity assumption

answer

activities can be divided into artificial time periods.

question

fair value principle

answer

The price that would be received to sell an asset or paid to transfer liability

question

historical cost principle

answer

Reporting assets and liabilities based on the acquisition price

question

revenue recognition principle

answer

Revenue is recognized when it is BOTH Recognized / Realiable AND Earned

question

What industries ignore the Revenue Recognition Principle?

answer

construction, farming and real estate

question

expense recognition principle

answer

MATCH efforts (EXPENSE) with accomplishment (REVENUE)

question

full disclosure principle

answer

Providing information that is of sufficient importance to influence judgement and decisions of an informed user

question

cost benefit relationship

answer

The cost of providing information compared to the benefits that can be derived from the information

question

Decision to report items that are significant (Material) in comparison to ones that are insignificant (Immaterial).

answer

materiailty

question

Particular industries may depart from GAAP due to the nature of their industry. In example: Farmers or Utility Companies

answer

industry practice

question

When in doubt, choose the solution that is least likely to overstate assets or income

answer

conservatism

question

What are these 4 things: Economic Entity, Going Concern, Monetary Unit, Periodicity

answer

4 accounting assumptions

question

what are these 4 things: Measurement, Revenue Recognition, Expense Recognition, Full Disclosure

answer

4 accounting priciples

question

what are these 4 things: Cost-Benefit, Materiality, Industry Practice, Conservatism

answer

4 accounting constraints

question

Fair Value changes are not recognized in the accounting records

answer

Historical Cost

question

Lower of cost or market is used to value inventories

answer

conservatism

question

Financial information is presented so that investors will not be misled

answer

full disclosure principle

question

Intangible assets are capitalized and amortized over periods benefited

answer

expense recognition principle

question

Repair tools are expensed when purchased

answer

materiality

question

Agricultural companies use fair value for purposes of valuing crops

answer

industry practices

question

Each enterprise is kept as a unit distinct from its owner or owners

answer

economic entity

question

All significant postbalance sheet events are reported

answer

full disclosure

question

Revenue is recorded at point of sale

answer

revenue recognition

question

The use of consolidated statements is justified

answer

economic entity

question

Reporting must be done at defined time intervals

answer

periodicity

question

An allowance for doubtful accounts is established

answer

expense recognition

question

All payments out of petty cash are charged to Miscellaneous Expense

answer

materiality

question

Goodwill is recorded only at time of purchase

answer

cost principle

question

No Profits are anticipated and all possible losses are recognized

answer

conservatism

question

A company charges its sales commission costs to expense

answer

expense recognition

question

Allocates expenses to revenues in the proper period

answer

expense recognition

question

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

answer

historical cost

question

Ensures that all relevant financial information is reported

answer

full disclosure principle

question

Rationale why plant assets are not reported at liquidation value

answer

going concern principle

question

Anticipates all losses, but reports no gains

answer

conservatism

question

Indicates that personal and business record keeping should be separately maintained

answer

economic entity

question

Separates financial information into time periods for reporting purposes

answer

periodicity

question

Permits the use of fair value valuation in certain industries

answer

industrial practices

question

Requires information not significant enough to affect the decision of reasonably informed users should be disclosed

answer

materiality

question

Assumes that the dollar is the measuring stick used to report financial performance

answer

monetary unit

question

Arises from peripheral or incidental transactions

answer

gains or losses

question

Obligation to transfer resources arising from a past transaction

answer

liability

question

Increases ownership interest

answer

investments by owners

question

Declares and pays cash dividends to owners

answer

distributions to owners

question

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

answer

equity

question

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

answer

expenses/ revenues

question

Items characterized by service potential or future economic benefit

answer

assets

question

Increases assets during a period through sale of product

answer

revenues

question

BALANCE SHEET CLASSIFICATION: Stock owned in affiliated companies

answer

Investments

question

BSC: Advances to suppliers.

answer

Current Asset

question

BSC: Preferred stock.

answer

Capital Stock

question

BSC: Additional paid-in capital on preferred stock.

answer

Paid in capital in excess of par

question

BSC: Additional paid-in capital on preferred stock.

answer

Current Asset

question

BSC: Accrued interest on notes receivable.

answer

Current Asset

question

BSC: Twenty-year issue of bonds payable that will mature within the next year. (No sinking fund exists, and refunding is not planned.)

answer

Current Liability

question

BSC: Salaries that company budget shows will be paid to employees within the next year.

answer

Not on balance sheet

question

BSC: Fully depreciated machine still in use. Should you include a note?

answer

Plant, Property and Equipment - YES

question

BSC: Accrued interest on bonds payable.

answer

Current Liability

question

BSC: Discount on bonds payable. (Assume related to bonds payable in No. 12.)

answer

Current Liability

question

BSC: Accumulated depreciation—buildings.

answer

PPE

question

BSC: Machinery retired from use and held for sale.

answer

Current ASSET

question

Current Liability? $? a) On December 20, 2012, an employee filed a legal action against Arnold for $108,500 for wrongful dismissal. Management believes the action to be frivolous and without merit. The likelihood of payment to the employee is remote.

answer

Not a CL

question

Current Liability? $? Bonuses to key employees based on net income for 2012 are estimated to be $153,700.

answer

CL - 153700

question

Current Liability? $? On December 1, 2012, the company borrowed $988,800 at 8% per year. Interest is paid quarterly.

answer

CL - 6592

question

Current Liability? $? Credit sales for the year amounted to $10,177,800. Arnold's expense provision for doubtful accounts is estimated to be 2% of credit sales.

answer

Not A CL

question

Current Liability? $? On December 15, 2012, the company declared a $2.50 per share dividend on the 40,900 shares of common stock outstanding, to be paid on January 5, 2013.

answer

CL - 102250

question

Current Liability? $? During the year, customer advances of $200,300 were received; $58,300 of this amount was earned by December 31, 2012.

answer

CL - 142000

question

1. Operating activity—add to net income. 2. Operating activity—deduct from net income. 3. Investing activity. 4. Financing activity. 5. Reported as significant noncash activity a) Issuance of capital stock.

answer

Financing

question

(b) Purchase of land and building.

answer

Investing

question

(c) Redemption of bonds

answer

Financing

question

(d) Sale of equipment.

answer

Investing

question

(e) Depreciation of machinery.

answer

Operating - ADD

question

(f) Amortization of patent.

answer

Operating - ADD

question

(g) Issuance of bonds for plant assets.

answer

Sig. Noncash

question

h) Payment of cash dividends.

answer

Financing

question

(i) Exchange of furniture for office equipment

answer

Sig. Noncash

question

(j) Purchase of treasury stock.

answer

Financing

question

(k) Loss on sale of equipment.

answer

Operating - ADD

question

l) Increase in accounts receivable during the year.

answer

Operating - DEDUCT

question

m) Decrease in accounts payable during the year.

answer

Operating - Deduct

question

m) Decrease in accounts payable during the year.

answer

Operating - Deduct

question

m) Decrease in accounts payable during the year.

answer

Operating - Deduct

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