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C213- Accounting
| Question | Answer |
|---|---|
| The focus of financial accounting is the three primary financial statements: | the balance sheet, the income statement, and the statement of cash flows. |
| Users of financial statements, such as investors, creditors, and management, rely on information to make informed decisions about | the entity's financial health |
| Generally Accepted Accounting Principles (GAAP), ensure | consistency and transparency in financial reporting |
| play distinct roles in setting accounting standards and guidelines | Accreditation organizations, such as the American Institute of Certified Public Accountants (AICPA) and the Financial Accounting Standards Board (FASB) |
| A borrower benefits from providing financial information regarding income and expenses in the form of a lower interest rate on the loan because of reduced uncertainty for the lender with regard to repayment. | true |
| One reason for a company's preparing and providing financial statements is to reduce uncertainty for an investor regarding the firm's future financial performance. | true |
| A balance sheet presents the financial position of a company at a | particular point in time |
| Assests | resources owned or controlled by a company that will provide future economic benefit |
| Future economic benefits. | Help forecast the future |
| Obtained or controlled (Aka) | "substance over form, meaning that financial statements should reflect the underlying economic substance and not the superficial legal form |
| if a company controls the future economic benefits associated with an item, that item qualifies as an asset whether it is legally owned or not | Obtained or controlled |
| Balance sheet should report | economic substance, not legal form. |
| A business typically has many different types of assets. Some assets have | physical substance, |
| Assets generally are listed on the balance sheet in the order of their | liquidity, |
| liquidity, | is the ease with which the item can be turned into cash. |
| balance sheet cash and items that can be turned into cash are listed | first. |
| Liabilities are the economic obligations of a company and comprise primarily the | money or services that the company owes its creditors |
| What is the formula of to calculate Long-term Assets | Long-term Assets=Total Assets−Current Asset |
| Formula to find total assessts | Assets=Liabilities+Owners’ Equity |
| Which term is defined as the residual interest in the net assets of a company? | Owner’s equity |
| Accrual: An accounting method in which revenues are recognized when they are | earned and expenses are recognized when they are incurred, regardless of when cash is received or paid |
| Accrual example is | - Revenue is recognized when it is earned, not when cash is received. * Earn it → record it * Use it → record it |
| Ex Which situation should result in revenue recognition on the income statement for the year ending 12/31/14 if the firm is using accrual-basis accounting? | In 2014, a company provides services to a customer for which cash will be collected the next year (2015). |
| The income statement lists all of the | revenues, expenses, gains, and losses that the company earned or incurred during the accounting period. |
| What does accounting focus on? | The impact a business's activities have on its overall financial performance |
| Which report summarizes cash collections and cash expenditures from operating, investing, and financing activities over a period of time? | Statement of cash flows |
| Which users would have a primary concern with an organization’s ability to provide healthcare benefits? | Employees |
| Which benefit does a corporation gain by following Generally Accepted Accounting Principles (GAAP)? | An increase in its comparability to other companies |
| Which body regulates a certified public accounting firm’s audit practices when the firm is auditing a large publicly traded company? | The Public Company Accounting Oversight Board (PCAOB) |
| What has had the most significant impact on accounting practices? | Information technology |
| What two items of information are revealed on the balance sheet? | Ownership & Debt |
| Which term is defined as the residual interest in the net assets of a company? | Owners’ equity |
| A corporation has total liabilities of $300 million, total owners’ equity of $100 million, and current assets of $50 million. What is the value of the firm's long-term assets? | $350 million |
| Which situation should result in revenue recognition on the income statement for the year ending 12/31/14 if the firm is using accrual-basis accounting? | In 2014, a company provides services to a customer for which cash will be collected the next year (2015). |
| Which category on the statement of cash flows summarizes cash receipts and payments to owners and creditors of the company? | Cash flows from financing activities |
| Where would an investor find a summary of a company’s significant accounting policies? | In the notes to financial statements |
| Which assurance does an external audit report provide for its readers? | The company’s financial statements fairly reflect its financial position |
| Reliable : accounting term with its definition. | Information that can be verified |
| Relevant : accounting term with its definition. | Information having to do with the matter at hand |
| Material: accounting term with its definition. | Information that is important enough to make a difference |
| Conservatism: accounting term with its definition. | Information related to recognizing losses as they occur |
| Order the steps in the decision cycle from first (1) to last (5). | 1. Prepare financial statements 2. Analyze financial statements 3. Gather information 4. Make decision 5. Implement decision |
| Current assets$36,543, Total assets $58,719 Current liabilities$24,824, Total liabilities $48,561 Stockholders' equity $10,158, Sales $46,997 Net Income$ 3,761, Market value of shares$41,316 What is the price-earnings (PE) ratio for this company? | 11.0 |
| What does it mean if a company has a debt ratio of 101.5%? | The company has 1.5% more total liabilities than total assets. |
| What is consistent with a continual decline in gross profit if the firm's cost of goods sold remains the same? | Continual decrease in sales |
| Which two cash flow adequacy ratios represent a cash cow? | $6,991 / $5,486 & $5,220 / $1,875 |
| Which formula yields a cash times interest earned ratio of 11? | Cash before interest and taxes of $11,000 / cash paid for interest of $1,000 |
| Which form of debt should be reported in the long-term liability category? | Notes payable expected to be paid in 18 months |
| Which two values affect the measurement of net income? | Operating expenses and Ordinary gains and losses |
| Which two items’ subtotals are included in a multi-step income statement? | Gross profit and Income from operations |
| On May 1, 2011, using accrual accounting s. At the time of purchase, the company also purchased a one-year insurance policy on this equipment, which cost $6,000. How much insurance expense should the company have recognized for the year ending in 2011? | $4,000 |
| If 2013 pro forma profit = $187,000 and that is a 22% increase, then: A 22% increase means | 22% increase means you add 22% on top of the original 100%: So after the increase, the new amount (2013) is 122% of the old amount (2012). That’s why we use 1.22 in the math: 100% = 1.00 22% = 0.22 Total = 1.22 |
| Pro forma (Latin for “as a matter of form”) refers to | financial statements or figures that are projected, adjusted, or hypothetical, rather than actual historical results. |
| What is a common category in a statement of cash flows? | Cash from investing activities |
| Which cash flow category would include "cash received from investors"? | Cash from financing activities |
| Which item is an investing activity? | Cash payments for purchase of plant assets |
| What impact does the sale of equipment have on the statement of cash flows? | Increase in cash from investing activities |
| What is known about the direct and indirect methods of preparing statements of cash flow? | The indirect method is more popular among large U.S. companies |
| Which two examples represent financial statement errors? | 1. The accounting department miscalculates the payroll tax due at year-end, resulting in an inaccurate liability 2. The accountant unintentionally records amounts as revenue that were prepaid by customers but not yet earned |
| Which internal control is intended to ensure that a company does not mistakenly pay a supplier for an invoice that includes more items than were actually received? | The inventory department counts and inspects items as received and forwards the receiving record to accounts payable. |
| What are two common reasons for managers to manipulate reported earnings? | 1. They are feeling pressured to meet internal sales goals. 2. They are preparing to qualify for a bank loan. |
| Which two requirements must accounting firms that audit public companies meet under the Sarbanes-Oxley Act? | 1.Firms must not provide certain nonaudit services to audit clients, such as management functions or legal services. 2. Firms must report to and be retained by the audit committee rather than the CFO or other company management. |
| Which two requirements must management of public companies meet under the Sarbanes-Oxley Ac | 1. They must provide an assessment of the effectiveness of internal controls with each annual report. 2. They must support a stronger board and audit committee. |
| Which two actions do internal auditors perform to assist in maintaining the integrity of financial statements? | 1. They search for and investigate fraud. 2. They review financial records and internal controls. |
| What is a significant role of the U.S. Securities and Exchange Commission (SEC) in financial reporting? | They ensure that financial statement users are provided with reliable information to use in decision making. |
| What does management accounting provide? | 1. The insight that management needs so the business can perform more effectively 2.The detailed data that managers need to make decisions that will give the business a competitive edge |
| How does management accounting differ from financial accounting? | Management accounting is used primarily for internal planning, control, and evaluation. |
| Which account is seen on the balance sheet of a manufacturing company but not on the balance sheet of a service-oriented company? | Inventory |
| What is a cost that will change in the future based upon the decision made? | Differential cost |
| Which two examples are period costs? | 1. Administrative expenses 2. Selling expenses |
| A company manufactures custom-built wooden bookshelves. Which two costs would the company classify as period costs? | 1. Salary cost of the receptionist 2.Advertising cost |
| What role do ethical standards have in management accounting? | To guide the resolution to possible ethical dilemmas that the managerial accountant may encounter |
| What are the manufacturer’s total product costs for the month? | $43,000 |
| Which two costs are included when calculating inventory costs? | 1. Direct labor 2.Overhead |
| In which scenario would activity-based costing be more appropriate than traditional costing? | A company produces five different products. The products are highly differentiated and have significantly different demands for their use of overhead costs. |
| Which category of ABC activities are machine setup and material movement costs associated with? | Batch-level activities |
| The director of a marathon race wants to assign the cost of having police officers along the race route to manage crowd control. | The number of race participants and spectators |
| The statement of cash flows provides information that is not | readily apparent by looking at just the balance sheet and the income statement. |
| Cash flows are partitioned into three categories | operating, investing, and financing |
| Preparing a statement of cash flows is a simple process if one has access to the record of a company's detailed cash transactions. | ne simply scans the list of cash transactions and sorts them into operating, investing, and financing items. |
| Knowledge of how the three primary financial statements tie together allows one to forecast how interactions among management decisions might affec | a company's future financial position. |
| airs of shoes expected to be produced 1,950,000 Pairs of shoes produced 2,500,000 Overhead rate $0.75 What is the amount of applied overhead? | $1,875,000 |
| Which two concepts are studied in cost-volume-profit analysis? | 1. Profits 2. Levels of activity |
| What are two impacts on costs as sales volume increases? | 1. Total fixed costs will stay the same. 2. Fixed costs per unit will decrease. |
| A company manufactures and sells widgets. The following information is available:Each widget sells for $100. The variable cost per widget is $50.. Total fixed costs per month are $300,000. How many widgets does the company need to sell each month to brea | 6k |
| What was the original selling price per gallon? | 500,0001,500,000=$3.00 per gallon |
| What is the total production cost? | Direct materials: $575,000 Direct labor: $300,000 Applied overhead (ABC): $655,000 Total = $1,530,000 |
| What is the formula for total sales? | Selling price per unit×Units sold |
| ow do you calculate the new total sales after a $0.10 price increase? | (3.00+0.10)×500,000=1,550,000 |
| Does a selling price increase affect production costs? | ❌ No. Production costs stay the same unless quantities or cost drivers change. |
| What is the formula for gross profit? | Sales−Cost of Goods Sold |
| Break-even units=Contribution Margin per unitFixed Costs=50300,000=6,000 | Selling price per widget: $100 Variable cost per widget: $50 |
Created by:
mnapole