BUS 321 Intermediate Accounting I Jan. 24, 2016 Name

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1 BUS 321 Intermediate Accounting I Jan. 24, 2016 Name 1. GAAP What does GAAP stand for? Generally Accepted Accounting Principles 2. OBJECTIVE OF FINANCIAL REPORTING Write the objective of Financial Reporting. The objective of general purpose financial reporting is to provide financial information about companies that is useful to capital providers in making decisions. 3. REVENUE Write the definition of revenue. Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. Inflows or other enhancements of assets of an entity or settlements of its liabilities during a period from delivering or producing goods, rendering services, or other activities that constitute the entity s ongoing major or central operations. 4. LIABILITIES Write the definition of liabilities. Outflows or other using up of assets or incurrences of liabilities during a period from delivering or producing goods, or rendering services, or other activities that constitute the entity s ongoing major or central operations. Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events. 5. EXPENSES / LOSSES Briefly explain the difference between Expenses and Losses. I do not want the definitions of Expenses and Losses, I want you to explain what makes them different. Expenses involve delivering or producing goods, rendering services or other activities that constitute the entity s ongoing major or central operations. Losses arise from peripheral of incidental transactions of the entity.

2 6. FINANCIAL STATEMENTS Use the following Trial Balance to prepare a Multi-Step Income Statement. 14,085 14,085 # Accounts payable 2,000 # Accounts receivable 2,500 # Accum depreciation 50 # Cash 2,100 # Common stock 5,000 # Cost of goods sold 2,200 # Depreciation expense 50 # Equipment 2,000 # Interest expense 25 # Interest payable 25 # Interest receivable 10 # Interest revenue 10 # Inventory 1,600 # Note receivable 2,000 # Notes pay 10% 6 mo 3,000 # Prepaid rent 300 # Rent expense 300 # Retained earnings 100 # Salaries expense 700 # Sales revenue 4,000 # Utilities expense 200

3 7. ADJUSTING ENTRIES FOR SUPPLIES. MMC began the year with a $25 balance in Supplies. On Jan. 9 th, MMC bought supplies costing $180. Prepare the Adjusting Journal Entry MMC will make on Dec. 31 st if $30 worth of supplies remain. Supplies expense 175 Supplies ADJUSTING ENTRIES FOR PREPAID INSURANCE. MMC began the year with $25 in their Prepaid Insurance account. The insurance expired on March 31, On March 31 st, they paid $108 to renew the insurance policy for another 12 months. How much insurance expense should MMC report for 2017? What was the balance in the Prepaid Insurance account as of 12/31/17? Insurance expense 106 Prepaid Insurance COST OF GOODS SOLD. MMC began the year with $600 Inventory. During the year Purchases totaled $8,010; Freight-in totaled $25; Freight-out totaled $70; Purchase discounts totaled $44, and $120 of merchandise was returned. On Dec. 31 st, the amount of Inventory on hand in the warehouse totaled $788. Calculate Cost of Goods Sold for the year. 600 Purchases 8,010 - purchase discounts purchase returns freight in 25 = goods available 8, / =Cost of Goods Sold 7, JOURNAL ENTRY FOR SALES. Miller Motor Co. is a used car dealership. Prepare the journal entry when MMC sells a car costing $17,500 to a customer for $19,000 cash. Cash 19,000 Sales 19,000 Cost of Goods Sold 17,500 Inventory 17,500

4 11. BALANCE SHEET Assets, liabilities and equity are further broken down in classifications on the balance sheet. List five (5) classifications of assets and two (2) classifications of liabilities on the balance sheet? Current Assets Investments Property, Plant and Equipment Intangible Assets Other Assets Current Liabilities Non-Current Liabilities Stockholders Equity 12. PROPERTY, PLANT AND EQUIPMENT What are the common characteristics of property, plant and equipment? The common characteristics of property, plant and equipment are that they are tangible, long-lived, and used in the operations of the business. Cash and other assets that are reasonably expected to be converted into cash or consumed within the coming year, or within the normal operating cycle of the business if it is longer than one year. 13. CURRENT LIABILITIES Write the definition of Current Liabilities? Those obligations that are expected to be satisfied through the use of current assets or the creation of other current liabilities.

5 14. FINANCIAL STATEMENTS Use the following Trial Balance to prepare a Classified Balance Sheet. 14,085 14,085 # Accounts payable 2,000 # Accounts receivable 2,500 # Accum depreciation 50 # Cash 2,100 # Common stock 5,000 # Cost of goods sold 2,200 # Depreciation expense 50 # Equipment 2,000 # Interest expense 25 # Interest payable 25 # Interest receivable 10 # Interest revenue 10 # Inventory 1,600 # Note receivable 2,000 # Notes pay 10% 6 mo 3,000 # Prepaid rent 300 # Rent expense 300 # Retained earnings 100 # Salaries expense 700 # Sales revenue 4,000 # Utilities expense 200

6 Inventory on 1/1 60,000 Sales 87,500 Sales returns 2,000 Inventory on 12/31 78,859 Sales discounts 1,020 Purchases 80, COST OF GOODS SOLD. Use the information in the preceding table to calculate Cost of Goods Sold. 16. GROSS PROFIT Use the information in the preceding table to calculate Gross Profit. 60,000 Sales 87,500 Purchases 80,100 sales discounts - 1,020 = goods available 140,100 sales returns - 2, /31 78,859 Net sales 84,480 =Cost of Goods Sold 61,241 Cost of Goods Sold 59,850 Gross Profit 24, DISCONTINUED OPERATIONS Miller Motor Co. was comprised of two divisions: TAD Inc. and PAT Inc. On March 16 th MMC sold its Pat Inc. operating division for $1,000. Use the information from Pat Inc. s financial statements on the right-hand side of the following table to complete MMC s Income Statement on the left-hand side. Assume a 30% tax rate. MMC PAT Inc. Income Statement Income State Balance Sheet For the year ending 12/31/2017 thru 4/16/2017 As of 4/16/17 Sales 20,000 Sales 7,800 Cash 200 Operating exp 15,000 Operating exp 7,400 Current assets 1,000 Inc before tax 5,000 Inc before tax 400 Equipment 1,500 Inc 30% 1,500 Inc 30% 120 Total assets 2,700 Income from continuing operations 3,500 Net income 280 Gain on discountinued operations: Current liabilities 700 Gain on disposal 400 Long term debt 1,400 Operating income 400 Stockholders' equit 600 less income tax Liab and equity 2,700 Net Income 4,060

7 18. CHANGE IN ACCOUNTING PRINCIPLES We use three different presentations to report accounting changes. The left-hand column of the top section indicates whether the change is the result of changing an accounting principal, an estimate or the correction of an error in the prior period's financial statements. In the lower section you are to indicate whether the amount of the change is reported on the Income Statement, Statement of Retained Earnings or neither for each of the three presentation methods. type of change presentation method prospective retrospective modified retrospective Change in accounting principal always sometimes never always sometimes never always sometimes never Change in accounting estimate always sometimes never always sometimes never always sometimes never Correction of a prior period error always sometimes never always sometimes never always sometimes never On which financial statement will the amount of the change appear prospective retrospective modified retro income statement IS IS IS statement of retained earnings SoRE SoRE SoRe not applicable neither neither neither 19. COMPREHENSIVE INCOME The Stockholders s Equity section of MMC s balance sheet appears below. During the year, MMC reported Net Income of $27 and Total Comprehensive Income of $20. MMC did not pay dividends during the year. What would the ending balances be in Retained Earnings and Accumulated Other Comprehensive Income. Common Stock Additional Paid in Capital Retained Earnings Accumulated Other Comprehensive Income Stockholders Equity STATEMENT OF CASH FLOWS List the three types of activity classifications on the Statement of Cash Flows. Operating Investing Financing 21. FASB What does FASB stand for?, Financial Accounting Standards Board

8 Sales 102,870 cost of goods sold 91,948 net income 2,061 12/31/ /31/2016 accounts receivable 1,201 1,026 inventory 7,894 7,096 total assets 30,283 27,140 total liabilities 19,271 14,622 shareholders equity 11,015 12, GROSS PROFIT calculate the gross profit. 23. LIQUIDITY calculate the current ratio. 4, ,910 = , PROFITABILITY calculate the return on assets. 25. ACTIVITY RATIOS calculate the Receivables Turnover

Financial Statements. M. En C. Eduardo Bustos Farías

Financial Statements. M. En C. Eduardo Bustos Farías Understanding 1 Financial Statements M. En C. Eduardo Bustos Farías 2 Objectives 1. Define the elements of financial statements. 3 Balance Sheet It It also is is called a statement of of financial position.