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Accounting Exam 4

What are current Liabilities? Obligations that a company reasonably expects to pay within one year of the operating cycle, which ever is longer, using existing current assets or through the creation of another current liability .
What is FICA? Social Security and Medicare taxes are commonly called this. The employee and the employer must make equal contributions to social security and Medicare.
What is FUTA? Federal Unemployment Tax (Act) Paid entirely by employer FUTA and SUTA for most companies totals 6.2% of the first $7,000 paid to each employee
What is SUTA? State Unemployment Tax (Act) Paid entirely by employer SUTA can be charged on up to the first $13,000 (SUTA)
What is an EMPLOYEE? If the business has the right to control or direct not only what is to be done, but also how it is to be done, then workers are most likely employees
What is an Independant Contractor? If the business can direct or control only the result of the work done -- and not the means and methods of accomplishing the result -- then workers are probably independent contractors 
Who fills out the W- 4 form? Employee
WHo fills out the W-9 form? Independant contractor
What are Long Term Liabilities? Obligations that a company expects to pay more than one year in the future Examples include: Notes payable Mortgage notes payable (Mortgage payable) Bonds payable
What are bonds? a form of interest-bearing notes payable issued by corps, universities, and gov't agencies. Sold in small amts ( $1,000) When a corporation issues bonds, it is borrowing money. The person who buys the bonds (the bondholder) is investing in bonds.
What are the bonds issuing procedures? Bond certificate Issued to the investor. Provides name of the company issuing bonds, face value, maturity date, and contractual (stated) interest rate.
What are the bonds issuing procedures? (Part 2) Face value - principal due at the maturity. Maturity date - date final payment is due. Contractual interest rate – rate to determine cash interest paid, generally semiannually.
How to determine the market value of bonds the dollar amounts to be received, the length of time until the amounts are received, and the market rate of interest Bond: Long-Term Liabilities
What is Number of periods? length of time from the beginning of the investment until termination
What is Interest rate ? annual percentage earned on the investment
Principal amount amount of the investment or borrowing
Present value the value now of a given amount to be paid or received in the future assuming compound interest
Present value of annuity is the value now of a series of future receipts or payments, discounted assuming compound interest.
Entity an entity is a person, unit, organization or group
Proprietorship a form of business owned by one person
Partnership a form of business owned by two or more persons or entities
own shares of stock A form of business owned by one or more entities who own shares of stock in the business. Characteristics include
Share the corporate earnings through receipt of dividends
Authorized shares are the number of shares of a class of stock authorized by the corporation’s charter. The maximum number of shares the corporation can legally issue.
Issued shares are the number of shares of a class of stock that have been issued (usually sold) to stockholders
Treasury stock is the corporation’s own stock (can be common or preferred) that has been issued, fully paid for and reacquired by the corporation and is being held by the company for future use.
Outstanding shares are the number of shares of a class of stock held by stockholders. The number of shares used in calculating dividends payable. (Issued minus Treasury)
Treasury stock in this text is the difference between Issued and Outstanding shares. Dividends are not paid on Treasury Stock.
Purchase of Treasury Stock Generally accounted for by the cost method. Debit Treasury Stock for the price paid. Treasury stock is a contra stockholders’ equity account, not an asset. Treasury Stock decreases by the same amount when the company later sells the shares.
Par value an arbitrary value assigned to stock when a corporation is first organized. This value is assigned to the stock in the corporate charter. Par value x shares issued is $ amount shown in stockholder’s equity
No-par value stock is capital stock that has not been assigned a value in the corporate charter. Total $ amount paid to corporation for stock is shown in SE
Stated value a value per share which may be assigned by the corporation’s board of directors to no-par stock. Stated value x shares issued is $ amount shown in stockholder’s equity
Paid-in capital the amount stockholders have paid to the corporation in exchange for shares of ownership. Divided into Legal capital and Additional paid-in capital.
Legal capital the amount associated with capital stock that has been issued by a corporation. Legal capital is generally the par value or stated value of the shares issued and must be retained in the business for the protection of corporate creditors.
Additional paid-in capital the amount of paid-in capital in excess of par or stated value. The amount in excess of par or stated value paid by investors when they originally purchase the company’s stock from the company.
Dividend a distribution made by a corporation to its stockholders on a pro rata (proportional) basis
Cash dividend is a dividend paid in cash
Stock dividend is a pro rata distribution of the corporation’s own stock to stockholders
Cumulative dividend is a feature of preferred stock entitling the stockholder to receive current and unpaid prior-year dividends before common stockholders receive any dividends
Dividends in arrears are preferred dividends that were supposed to be declared but were not declared during a given period
Companies favor the indirect method for two reasons: Easier and less costly to prepare. Focuses on differences between net income and net cash flow from operating activities.
Order of Presentation Operating activities. Investing activities. Financing activities.
Purchased inventory with cash Operating activities section
Issued common stock in exchange for equipment. Noncash transaction
Paid off a $10,000 long-term note payable. Financing activities section
Purchased land for cash. Investing activities section
Land is a Non-Current Asset Investing activity
Operating – transactions that affect: Net income Current assets Current liabilities
Investing – transactions that affect Long-term assets
Financing – transactions that affect Long-term liabilities Stockholders equity
Indirect method The first item listed on the SCF statement under the Cash flows from operating activities section is usually “net income”
Depreciation expense - most common noncash expense Depreciation expense reduces net income, it does not reduce cash. Must be added back to NI to determine cash provided by operating activities
Gain on a sale equipment sold for more than its net book value (cost less accumulated depreciation) Gains are deducted from NI (added to NI originally)
Loss on the sale equipment sold for less than its net book value
Gains/losses included in NI but don’t affect cash The amount of cash received (proceeds) from the sale of an asset are reported as a source of cash in the investing section
Changes in current asset accounts Increases in current asset accounts are subtracted (-) from net income Decreases in current asset accounts are added (+) to net income
Changes in current liability accounts Increases in current liability accounts are added (+) to net income Decreases in current liability accounts are subtracted (-) from net income
Which of the following statements is true regarding a statement of cash flows? The statement of cash flows reports the changes in cash and cash equivalents during the period.
Created by: alishabenefield
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