Financial Accounting. (Exam)

Transcription

1 Financial Accounting (Exam) Your AccountingCoach PRO membership includes lifetime access to all of our materials. Take a quick tour by visiting

2 Table of Contents (click to navigate) Recording Transactions 3 Answers (1-40) 6 Accounting Principles 7 Answers (41-80) 11 Adjusting Entries 12 Answers (81-120) 16 Financial Statements 17 Answers ( ) 20 Balance Sheet 21 Answers ( ) 24 Stockholders Equity 25 Answers ( ) 28 Income Statement 29 Answers ( ) 32 Cash Flow Statement 33 Answers ( ) 36 Financial Ratios and Analysis 37 Answers ( ) 41 Accounts Receivable and Bad Debts Expense 42 Answers ( ) 46 Inventory and Cost of Goods Sold 47 Answers ( ) 51 Investments 52 Answers ( ) 55 Depreciation 56 Answers ( ) 60 Bonds Payable 61 Answers ( ) 64 Bank Reconciliation and Petty Cash 65 Answers ( ) 69 Payroll Accounting 70 Answers ( ) 74 For personal use by the original purchaser only. Copyright AccountingCoach.com. 2

3 Recording Transactions Fill-in the Blanks 1. Recording each transaction with a minimum of one debit and one credit is known as -entry bookkeeping. 2. An entry on the left side of a T-account is a. 3. The journal entry to record depreciation is recorded in the journal. 4. The entries recorded in the general journal are also posted to accounts in the. 5. A listing of the names and numbers of the accounts that are available for recording transactions is the of accounts. 6. A listing of all of the account balances in order to prove that the total of the debit balances is equal to the total of the credit balances is a. 7. Entries to bring the accounts up to the accrual basis of accounting prior to issuing the financial statements are known as entries. 8. Entries made at the end of the accounting year to the income statement accounts after the financial statements have been prepared are entries. 9. The accounting equation for a corporation is assets = liabilities + stockholders. 10. Purchasing supplies on credit will be recorded with a credit to the account. 11. Sales of merchandise and fees earned from providing services are examples of the income statement element. 12. A company providing services on credit will debit the account. For personal use by the original purchaser only. Copyright AccountingCoach.com. 3

4 13. The financial statement that has the form of the accounting equation is the. 14. The word for a cost that has expired or has been matched with revenues is. Multiple Choice 15. The income statement accounts are referred to as permanent real temporary 16. The sole proprietor s drawing account is closed to the income summary account owner s capital account 17. Revenues have the effect of causing owner s or stockholders equity to decrease increase remain the same 18. When a company pays a bill by writing a check, the account Cash is credited debited 19. The account that is debited when a sole proprietor withdraws some of the business s cash for personal use is Cash Owner s Drawing Salary Expense 20. Book of original entry describes a journal the general ledger a subsidiary ledger 21. Accumulated Depreciation will be listed on which financial statement? balance sheet income statement 22. Under the accrual basis of accounting, a payment in late 2015 for the 2016 insurance expense will decrease the asset Cash and will increase another asset reduce owner s equity in Recording revenues when they are earned rather than when the money is received is part of which basis or method of accounting? accrual cash 24. Generally, which accounts are closed at the end of the accounting year? balance sheet accounts income statement accounts For personal use by the original purchaser only. Copyright AccountingCoach.com. 4

5 25. Under the accrual basis of accounting, which of the following will not cause a change in owner s equity? purchase of land advertising a product performing services on credit 26. At the end of the accounting year Depreciation Expense is closed to Accumulated Depreciation Income Summary 27. Which is not an expense on the income statement of a sole proprietorship? advertising depreciation owner s draw 28. Under the accrual basis of accounting, owner s equity is increased by a bank loan collecting a receivable providing a service Matching For each of the accounts in items 29-39, indicate which type of balance you would expect to find in the account. debit credit Revenue accounts Expense accounts Inventory Accounts Payable R. Smith, Drawing Accumulated Depreciation Sales Returns and Allowances Purchases (of merchandise for resale) Purchase Discounts Allowance for Doubtful Accounts Contra-liability accounts For personal use by the original purchaser only. Copyright AccountingCoach.com. 5

6 Calculations 40. A sole proprietor s owner s equity balance was $10,000 at the beginning of the year and was $22,000 at the end of the year. During the year the owner invested $5,000 in the business and had withdrawn $24,000 for personal use. The sole proprietorship s net income for the year was $. Answers (1-40) 1. double 2. debit 3. general 4. general ledger 5. chart 6. trial balance 7. adjusting 8. closing 9. equity 10. Accounts Payable 11. revenues 12. Accounts Receivable 13. balance sheet 14. expense 15. temporary 16. owner s capital account 17. increase 18. credited 19. Owner s Drawing 20. a journal 21. balance sheet 22. increase another asset 23. accrual 24. income statement accounts 25. purchase of land 26. Income Summary 27. owner s draw 28. providing a service 29. credit 30. debit 31. debit 32. credit 33. debit 34. credit 35. debit 36. debit 37. credit 38. credit 39. debit 40. $31,000 Beginning credit balance 10,000 Add: Owner investment 5,000 Less: Owner draws (24,000) Subtotal () = debit balance (9,000) NET INCOME 31,000 Ending credit balance 22,000 For personal use by the original purchaser only. Copyright AccountingCoach.com. 6

7 Accounting Principles Fill-in the Blanks 41. GAAP is the acronym for. 42. FASB is the acronym for. 43. The U.S. government agency with authority over the reporting by corporations whose stock is publicly traded is the Securities and. 44. The official accounting rules established by the FASB include its Statements of Financial Accounting. 45. The FASB is working with the IASB to have similar accounting standards. The IASB is the Accounting Standards Board. 46. The objectives of financial reporting and the definitions of the elements of financial statements can be found in the FASB s Statements of Financial Accounting. 47. income is a broader (more inclusive) term than net income. 48. Terms such as assets, liabilities, revenues, losses are referred to as financial statements. of 49. The costs of efforts to earn revenues are reported on the income statement as. 50. The cumulative amount of a corporation s other comprehensive income is reported as a separate component of. For personal use by the original purchaser only. Copyright AccountingCoach.com. 7

8 Multiple Choice 51. The non-government organization that currently establishes accounting standards in the United States is FASB IRS SEC 52. Relevance, reliability, comparability, and consistency are referred to as elements objectives qualitative characteristics 53. Advertising costs and research and development costs are usually deferred to a future period expensed when they occur 54. Increases in equity from peripheral transactions are referred to as gains revenues 55. The matching principle is best achieved when a company s vacation expense and liability are reported in the period when the employees the vacation days. earn take or use 56. Selling, general and administrative expenses are referred to as period costs product costs 57. Factory depreciation and other manufacturing overhead costs are period costs product costs Matching Select the accounting principle or term that best matches the descriptions listed as items Each principle or term can be used several times. conservatism cost economic entity full disclosure going concern industry practices matching materiality monetary unit time period 58. In the U.S., assets are reported in U.S. dollars and the dollar s purchasing power is assumed to be constant or stable over time. 59. Public utilities balance sheets report plant assets before current assets. For personal use by the original purchaser only. Copyright AccountingCoach.com. 8

9 60. Allows accountants to round financial statement amounts to the nearest thousand dollars. 61. Results in dozens of pages of notes to the financial statements. 62. Allows accountants to report a proprietor s business assets separately from the proprietor s personal assets. 63. When doubt exists between two alternatives, the accountant should select the one with the lesser asset amount or the one resulting in less profit. 64. Allows an ongoing business to prepare quarterly financial statements. 65. Requires accrual accounting and adjusting entries. 66. Defined as the cash or cash equivalent amount. 67. Allows inexpensive equipment to be expensed immediately instead of being depreciated. 68. Also referred to as periodicity. 69. Justifies stating assets at cost and the deferral of some costs to a future accounting period. 70. Assumption that the company will continue in business long enough to carry out its objectives and commitments. For personal use by the original purchaser only. Copyright AccountingCoach.com. 9

10 Match one of the following qualitative characteristics to items Each term may be used several times. (These items are based on the FASB s Statement of Financial Accounting Concepts No. 2, Qualitative Characteristics of Accounting Information, which is available at www. FASB.org.) comparability consistency relevance reliability 71. Objective, unbiased. 72. Is enhanced through common accounting rules. 73. Will make a difference to a decision maker. 74. Using the same accounting principle period after period within the same company. 75. A reader of the financial statements can assume that the same accounting rules are being followed year after year unless noted. 76. Lack of timeliness can hinder this. 77. Has representational quality. 78. Using the same principles at different automobile manufacturers. 79. Has feedback value. 80. Verifiability and neutrality are associated with this characteristic. For personal use by the original purchaser only. Copyright AccountingCoach.com. 10

11 Answers (41-80) 41. generally accepted accounting principles 42. Financial Accounting Standards Board 43. Exchange Commission 44. Standards 45. International 46. Concepts 47. Comprehensive 48. elements 49. expenses 50. stockholders equity 51. FASB 52. qualitative characteristics 53. expensed when they occur 54. gains 55. earn 56. period costs 57. product costs 58. monetary unit 59. industry practices 60. materiality 61. full disclosure 62. economic entity 63. conservatism 64. time period 65. matching 66. cost 67. materiality 68. time period 69. going concern 70. going concern 71. reliability 72. comparability 73. relevance 74. consistency 75. consistency 76. relevance 77. reliability 78. comparability 79. relevance 80. reliability For personal use by the original purchaser only. Copyright AccountingCoach.com. 11

12 Adjusting Entries Fill-in the Blanks 81. Generally an -type adjusting entry will cause revenues to be reported on the income statement before a sales invoice is prepared. 82. An adjusting entry that involves prepaid insurance is known as a prepayment-type adjusting entry. -type or 83. Adjusting entries are usually dated as of the day of the accounting period. 84. An adjusting entry usually involves an a account. account and 85. Adjusting entries are required by the principle. 86. The adjusting entry for depreciation will include a debit to Depreciation Expense and a credit to. 87. Adjusting entries help to convert accounting records from the cash basis of accounting to the basis of accounting. 88. Insurance premiums that have not expired as of the balance sheet date are reported in the account Insurance. 89. Insurance premiums that have expired during the accounting period are reported in the account Insurance. 90. Adjusting entries will explain the difference between an an adjusted trial balance. trial balance and 91. Unearned revenues and customer deposits are reported as balance sheet. on the 92. Accumulated depreciation is a contra- account. 93. Accrued are reported on the balance sheet as liabilities. 94 Prepaid or unexpired costs are reported on the balance sheet as. For personal use by the original purchaser only. Copyright AccountingCoach.com. 12

13 Multiple Choice 95. An adjusting entry that involves the accrual of an expense will also involve this type of account. asset liability revenue 96. An adjusting entry that involves the accrual of revenue will also involve this type of account. asset liability expense 97. A company with a calendar year and calendar months is more likely to need adjusting entries for which group of employees? hourly employees paid weekly salaried paid semimonthly 98. The cost of utilities such as electricity and natural gas are likely to require this type of adjusting entry accrual deferral 99. Prepayments are associated with accruals deferrals 100. Failure to accrue interest expense at the end of an accounting period will mean that the reported net income will be too high too low the proper amount 101. Failure to accrue interest expense at the end of an accounting period will mean that the reported amount of liabilities will be too high too low the proper amount 102. Accumulated depreciation will appear on the balance sheet income statement 103. Adjusting entries involving advance payments are accrual-type deferral-type 104. These adjusting entries involve amounts that will be paid in future accounting periods. accrual-type deferral-type 105. These adjusting entries are more likely to be followed by a reversing entry accrual-type deferral-type For personal use by the original purchaser only. Copyright AccountingCoach.com. 13

14 106. Failure to accrue interest earned as of December 31 will cause an understatement of Cash a liability a receivable 107. Accruing wages expense as of December 31 has what effect on the December 31 balance sheet? assets decrease liabilities increase owner s equity increases Calculations For all calculations, assume that the accrual basis of accounting is being used. Use the following information for answering Questions : On December 1, ABC Co. lent $100,000 to a supplier. The note specifies interest at an annual rate of 9%. The interest is due when the note matures on March The amount of accrued interest at December 31 is $ The account to be debited when ABC Co. accrues interest at December 31 is On December 1 a company paid $1,200 for the insurance premium covering the cost of insurance from December 1 through May 31. When making the payment on December 1, the company debited Prepaid Insurance for $1,200 and it credited Cash for $1,200. The adjusting entry to be made as of December 31 will include a debit to the account and a credit to the account for $ (omit cents) On December 1 a company paid $1,200 for the insurance premium covering the cost of insurance from December 1 through May 31. When making the payment on December 1, the company debited Insurance Expense for $1,200 and it credited Cash for $1,200. The adjusting entry to be made as of December 31 will include a debit to the account and credit to the account for $ (omit cents) A retailer opened its store for business on December 10. Its electric meter was read by the electric utility for the first time on January 9 and the resulting bill was $300. The adjusting entry to be made as of December 31 will include a debit to the account Electricity for $ (round to the nearest $100) On December 31 a company made the following adjusting entry: Wages Expense 3,000 Wages Payable 3,000 The reversing entry to be entered in January will include a debit to the account. For personal use by the original purchaser only. Copyright AccountingCoach.com. 14

15 114. A company s asset account Supplies had a debit balance of $20,000 at the beginning of the year. At the end of the year the account had a debit balance of $17,000. During the year all of the supplies purchased were debited to this account. If the amount of supplies purchased had a cost of $200,000, the amount of Supplies Expense for the year will be $ On December 1, 2015 Hosting Services LLC received $120,000 from customers who paid for twelve months of service (December 1, 2015 through November 30, 2016). The $120,000 received on December 1 was debited to Cash and credited to Hosting Revenues. The adjusting entry to be made as of December 31 will include a debit to the account for $ (omit cents) On December 1, 2015 Hosting Services LLC received $120,000 from customers who paid for twelve months of service (December 1, 2015 through November 30, 2016). The $120,000 received on December 1 was debited to Cash and credited to Unearned Hosting Revenues. The adjusting entry to be made as of December 31 will include a debit to the account for $ (omit cents). Use the following information for answering Questions : A law firm received an advance payment of $15,000 on December 1 for fees that will be earned evenly in December, January, and February. The entire $15,000 was credited to Unearned Fees on December The adjusting entry to be made as of December 31 will include a debit to the account for $ (omit cents) If the firm fails to make an adjusting entry on December 31, its net income will be $ too (high, low) If the firm fails to make an adjusting entry on December 31, its liabilities will be (overstated, understated) by $ If the firm fails to make an adjusting entry on December 31, its owner s equity will be (overstated, understated) by $. For personal use by the original purchaser only. Copyright AccountingCoach.com. 15

16 Answers (81-120) 81. accrual 82. deferral 83. last 84. income statement balance sheet 85. matching 86. Accumulated Depreciation 87. accrual 88. Prepaid 89. Expense 90. unadjusted 91. liabilities 92. asset 93. expenses 94. assets 95. liability 96. asset 97. hourly employees paid weekly 98. accrual 99. deferrals 100. too high 101. too low 102. balance sheet 103. deferral-type 104. accrual-type 105. accrual-type 106. a receivable 107. liabilities increase 108. $750 ($100,000 x 9% x 1/12) 109. Interest Receivable Insurance Expense 200 Prepaid Insurance 200 Prepaid Insurance 1,000 Insurance Expense 1,000 Utilities/Electricity Expense 200 Utilities/Electricity Payable Wages Payable 114. $203,000 ($20,000 + $200,000 - $17,000) 115. Hosting Revenues...$110, Unearned Hosting Revenues...$10, Unearned Fees 5,000 Service Revenues 5, $5,000 low 119. overstated by $5, understated by $5,000 For personal use by the original purchaser only. Copyright AccountingCoach.com. 16

17 Financial Statements Fill-in the Blanks 121. Assets are reported on the financial statement known as the The financial statement that reports the components of a company s earnings is the Generally a asset is one that will turn to cash or will be used up within one year of the balance sheet date Plant assets used in the business are reported under the heading of property, plant, and A resource that has future economic value describes an The cumulative amount of a corporation s other comprehensive income can be found in the section of the balance sheet The basis or method of accounting does a better job of measuring a company s profitability during an accounting period than the cash basis or method of accounting An expense will cause an owner s or stockholders to decrease Current assets minus current liabilities is An obligation due within one year of the balance sheet date is a The significant accounting policies are presented in the statements. to the financial 132. The statement of cash flows explains the change in cash and cash Financial statements distributed to stockholders and other external parties must comply with generally accepted FASB is the acronym for Accounting Standards Board. For personal use by the original purchaser only. Copyright AccountingCoach.com. 17

18 135. The current period amounts that comprise other comprehensive income are reported in the statement of in stockholders equity Multiple Choice The amounts reported on the balance sheet represent a period of point in time The amounts reported on the income statement represent a period of point in time The amounts reported on the statement of cash flows represent a period of point in time The Securities and Exchange Commission report that must be filed annually by publicly traded corporations is Form 10-K Form 941 Form The non-government organization for researching and establishing the U.S. accounting rules for financial reporting is FASB IRS SEC Matching Choose one of the following elements of financial statements for each of the items Each element can be used several times. The questions are taken from or are based on information contained in the FASB s Statement of Financial Accounting Concepts No. 6, Elements of Financial Statements, which is available at assets revenues losses liabilities expenses comprehensive income equity gains Net assets. Outlflows or use of assets in delivering goods or services that constitute an entity s ongoing main activities. Is a broader concept than net income Probable future sacrifices of economic benefits arising from present obligations as a result of past transactions or events. For personal use by the original purchaser only. Copyright AccountingCoach.com. 18

19 Increases in equity from peripheral activities other than revenues or investments by owners. Residual interest in the assets of an entity that remains after deducting its liabilities. Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. Decreases in equity from peripheral transactions other than expenses or distributions to owners. Inflows or other enhancements from delivering goods or services that constitute the entity s main activities. Creditors claims against a company s assets. Indicate which financial statement best matches items Each financial statement may apply to several items. BS IS SCF SE Balance Sheet Income Statement Statement of Cash Flows Statement of Changes in Stockholders Equity Reports amounts by operating, investing, and financing activities. Also referred to as the statement of operations. Also known as the statement of financial position. Replaced the funds flow statement. Format is similar to the basic accounting equation. Reports the amount of deferred revenues. Reports the earnings per share for a publicly traded corporation. Its supplemental information reports the exchange of significant noncash items such as stock for land. Shows the specific gains, losses, and expenses of the current period that were not reported on the income statement of the current period. Discloses the amount of income taxes and interest paid. For personal use by the original purchaser only. Copyright AccountingCoach.com. 19

20 Answers ( ) 121. balance sheet 122. income statement 123. current 124. equipment 125. asset 126. stockholders equity 127. accrual 128. equity 129. working capital 130. current liability 131. notes 132. equivalents 133. accounting principles 134. Financial 135. changes 136. point in 137. period of 138. period of 139. Form 10-K 140. FASB 141. equity 142. expenses 143. comprehensive income 144. liabilities 145. gains 146. equity 147. assets 148. losses 149. revenues 150. liabilities 151. SCF 152. IS 153. BS 154. SCF 155. BS 156. BS 157. IS 158. SCF 159. SE 160. SCF For personal use by the original purchaser only. Copyright AccountingCoach.com. 20

21 Balance Sheet Fill-in the Blanks 161. Current assets are presented on the balance sheet in order of Working capital is defined as. minus 163. Allowance for Doubtful Accounts is a contra account to Inventory is often reported at the lower of or The cost of insurance premiums that have been paid but have not yet expired are reported in the asset account Insurance Plant assets used in the business are reported under the heading of property, plant, and The contra asset account that is associated with the depreciable assets is An asset s cost minus its accumulated depreciation is known as its carrying value. value or 169. Goodwill, patents, copyrights, and mailing lists are examples of assets An obligation due within one year of the balance sheet date that will require the use of a current asset or create another current liability is the definition of a A long-term debt security that usually pays interest semiannually is a Expenses that have occurred but were not yet processed into the accounts payable system are known as expenses A loan secured by a lien on real estate is a loan. For personal use by the original purchaser only. Copyright AccountingCoach.com. 21

22 174. A corporation s total assets minus its total liabilities is the total of the balance sheet section A sole proprietorship s total assets minus its total liabilities is reported on the balance sheet as Unearned fees, unearned revenues, and customer deposits will likely appear on the balance sheet as current Credit sales that have not been collected are reported in the asset account A negative cash balance should be reported under the balance sheet heading of The guarantee of another party s loan is a liability A current asset is an asset that will turn to cash or be consumed within the longer of 1) one year, or 2) the cycle A corporation s stockholders equity section of its balance sheet could contain four major categories: paid-in, earnings, other income, and treasury stock Income taxes that result from the difference in the timing of depreciation on the tax return versus the depreciation recorded on the books is often reported in the liability account income taxes A balance sheet is also referred to as the statement of position The purchase of supplies or merchandise on credit terms will be credited to the liability account A contingent liability is recorded in the general ledger accounts if it is both 1), and 2) the amount can be estimated A current liability is an obligation that is due within one year of the date and will require the use of a current asset or will create another current liability. For personal use by the original purchaser only. Copyright AccountingCoach.com. 22

23 187. When a corporation owns more than 50% of another corporation, it is normal for a balance sheet to be prepared The book value of a corporation is related to its reported amount of. Multiple Choice 189. The balance sheet heading specifies a period of time a point in time 190. Balance sheet accounts are known as nominal permanent temporary accounts Which of the following is not an asset account? Goodwill Prepaid Expense Unearned Revenue 192. Which of the following will generally appear as the first current liability? Accrued Expenses Notes Payable due in less than one year Warranty Liability 193. The liability and expense associated with a product warranty is best reported at the time that the product becomes defective is replaced or repaired is sold 194. Which of the following current assets will appear first on a classified balance sheet? accounts receivable inventory prepaid insurance 195. Securities that were bought and are being held primarily to be sold in the near future are securities. available-for-sale held-to-maturity trading 196. Held-to-maturity securities are securities owned by a corporation that has the intent and ability to hold them until they become due. debt equity 197. Available-for-sale securities and trading securities are reported on the balance sheet at cost fair value maturity value For personal use by the original purchaser only. Copyright AccountingCoach.com. 23

24 Calculations Use the following information for answering Questions : The total cost of a hotel room for one evening was $ This amount represents the cost of the room, a 6% sales tax, and an 8% tourism tax The cost of the room without the taxes was $ The 6% sales tax was $ The 8% tourism tax was $. Answers ( ) 161. liquidity 162. current assets current liabilities 163. Accounts Receivable 164. cost market 165. Prepaid 166. equipment 167. Accumulated Depreciation 168. book 169. intangible 170. current liability 171. bond 172. accrued 173. mortgage 174. stockholders equity 175. owner s equity 176. liabilities 177. Accounts Receivable 178. liabilities 179. contingent 180. operating 181. capital, retained comprehensive 182. deferred 183. financial 184. Accounts Payable 185. probable 186. balance sheet 187. consolidated 188. stockholders equity 189. a point in time 190. permanent 191. Unearned Revenue 192. Notes Payable due in less than one year 193. is sold 194. accounts receivable 195. trading 196. debt 197. fair value 198. $99.00 (1.14Sales = $112.86) 199. $5.94 ($99.00 x 0.06) 200. $7.92 ($99.00 x 0.08) For personal use by the original purchaser only. Copyright AccountingCoach.com. 24

25 Stockholders Equity Fill-in the Blanks 201. An advantage of the corporate form of business is stockholders. liability for the 202. The directors of a corporation are elected by the corporation s The costs of forming a corporation are known as costs The maximum number of shares that a corporation can issue is its number of shares The difference in the number of issued shares of stock and the number of outstanding shares of stock is the number of shares of stock If the shares of a corporation s common stock have a very small amount (such as $0.10) assigned to each share, it is likely to be the share s value If a corporation has only one type of stock, it will be stock The type of stock issued by some corporations that has a specified dividend rate and the owners generally do not participate in the growth of the corporation is stock When a corporation declares a cash dividend, it credits the current liability account The declaration of a cash dividend has the effect of reducing the section within stockholders equity known as The section of stockholders equity which reports the amounts received by the corporation at the time its stock was issued has the heading -in or contributed capital The section of stockholders equity which reports the cumulative earnings minus the cumulative dividends declared is A corporation s own stock that has been repurchased by the corporation and has not been retired is known as stock. For personal use by the original purchaser only. Copyright AccountingCoach.com. 25

26 214. If a corporation fails to declare a regular dividend on its preferred stock with the feature, it will have dividends in arrears If common stock is issued for assets other than cash, the transaction should be recorded at the fair value of 1) the stock issued, or 2) the assets acquired, whichever is more clearly determinable A corporation cannot record a gain or loss on its income statement for transactions involving its own The preferred requirement must be deducted from a corporation s net income when computing the earnings per share An advantage of the corporation is the stockholders ease in ownership interest. their 219. Additional paid-in capital includes amounts received in excess of the stock s par or value Preferred stockholders will receive their stockholders will receive theirs. before the common 221. The cumulative amount of other separate component of stockholders equity. income is to be reported as a 222. A disadvantage of the regular corporation (not an S-corporation) as a form of business involves income A stockholder will receive the same number of shares if a corporation has a 2-for-1 stock split or a % stock dividend A corporation whose stock is traded on a stock exchange is said to be held Multiple Choice What is the effect of a stock (not cash) dividend on the total amount of stockholders equity? a decrease an increase no effect 226. The declaration of a cash dividend will have the following effect on the normal balance of the Retained Earnings account. decrease increase no effect For personal use by the original purchaser only. Copyright AccountingCoach.com. 26

27 227. The account Common Stock Dividend Distributable resulting from the declaration of a 10% stock (not cash) dividend is a liability account stockholders equity account 228. What is the effect of a stock split on the total amount of stockholders equity? a decrease an increase no effect 229. A corporation will record a liability on the date a cash dividend is declared omitted paid 230. Stockholders or owner s equity has this type of claim against assets. residual secured 231. Callable preferred stock is callable at the option of the investor issuing corporation 232. The market value per share and the par value per share of stock will decrease when the corporation has a significant sized stock dividend stock split 233. The election of a corporation s directors is normally done by which stockholders? common preferred both common and preferred 234. The earnings per share calculation uses which number of common shares of stock for the period? beginning ending weighted average 235. A small stock dividend will transfer which amount from retained earnings to paid-in capital? fair value of new shares par value of new shares 236. Paid-in capital is also known as book value contributed capital 237. When a corporation acquires treasury stock, its number of shares of stock will be reduced. authorized issued outstanding For personal use by the original purchaser only. Copyright AccountingCoach.com. 27

28 238. The sale of treasury stock for more than its cost will increase net income paid-in capital retained earnings 239. Cash dividends on most publicly traded shares of stock occur annually monthly quarterly semiannually 240. The name assigned to a negative balance in retained earnings is asset deficit liability Answers ( ) 201. limited 202. stockholders 203. organization 204. authorized 205. treasury 206. par 207. common 208. preferred 209. Dividends Payable 210. retained earnings 211. paid 212. retained earnings 213. treasury 214. cumulative 215. market 216. stock 217. dividend 218. transferring 219. stated 220. dividends 221. comprehensive 222. tax % 224. publicly 225. no effect 226. decrease 227. stockholders equity account 228. no effect 229. declared 230. residual 231. issuing corporation 232. stock split 233. common 234. weighted average 235. fair value of new shares 236. contributed capital 237. outstanding 238. paid-in capital 239. quarterly 240. deficit For personal use by the original purchaser only. Copyright AccountingCoach.com. 28

29 Income Statement Fill-in the Blanks 241. The main revenue account of a retail store is Sales minus the cost of good sold equals Sales Discounts is a -revenue account Sales minus 1) Sales Discounts, and 2) Sales Returns and Allowances equals sales The cost of goods sold is the cost of goods available minus the costs in inventory A -step income statement will present the amount of gross profit If a store sells its old delivery truck for cash and the amount it receives is more than its book value, a is reported on the income statement Some components of statement. income are not reported on the income 249. The basis or method of accounting does a better job of measuring a company s profitability during an accounting period than the cash basis of accounting The income statement is also known as the statement of Some refer to the income statement as the profit and statement Generally, a merchandiser s largest expense on its income statement is the If a corporation sells one of its plant assets for a cash amount that is less than the asset s book value, a on the sale of a plant asset will be recorded and will be reported on the company s income statement. For personal use by the original purchaser only. Copyright AccountingCoach.com. 29

30 254. If the income statement is distributed to stockholders and to others outside of the company, it must be in compliance with generally accepted accounting The organization for researching and establishing the accounting standards for U.S. enterprises is the Standards Board. Multiple Choice 256. The income statement heading will specify a period of time point in time 257. Revenue and expense accounts are which type of accounts? permanent real temporary 258. The income statement heading of Other Income refers to operating revenues nonoperating revenues 259. The accrual of revenues and expenses assists in complying with the principle. conservatism historical cost matching 260. The anticipation of losses but not gains is associated with conservatism matching time period 261. The expired portion of prepaid premiums for property insurance should be reported as an asset an expense a loss 262. Management s Discussion and Analysis provides valuable information on the company s operations during the period of the income statement. It is part of a publicly held corporation s annual report to the FTC IRS SEC 263. Under accrual accounting, amounts received in advance of providing a service should be reported as a liability revenues not reported 264. A significant amount of supplies that have been purchased at the end of the year 2015 will not be used until the year At the end of the year 2015 these supplies should be reported as an asset an expense not reported For personal use by the original purchaser only. Copyright AccountingCoach.com. 30

31 265. A corporation s failure to accrue an expense will cause expenses and understated. assets liabilities retained earnings to be Matching Indicate which of the following sections of the income statement is the most appropriate section for reporting the items in questions Each section may be used several times. REV Operating Revenues COGS Cost of Goods Sold OE Operating Expense NOR Nonoperating Revenues NOE Nonoperating Expense NOT Not reported on income statement Freight-in under a periodic system Freight-out under a periodic system Purchases of merchandise under periodic system Purchase returns under a periodic system Sales discounts Insurance expense Gain on sale of plant asset Interest expense Delivery expense Sale of merchandise inventory Interest earned Loss on sale of plant asset Bad debts expense Selling expenses Unrealized holding gain on available-for-sale securities For personal use by the original purchaser only. Copyright AccountingCoach.com. 31

32 Answers ( ) 241. sales 242. gross profit 243. contra 244. net 245. ending 246. multiple 247. gain 248. comprehensive 249. accrual 250. operations (or earnings) 251. loss 252. cost of goods sold 253. loss 254. principles 255. Financial Accounting 256. period of time 257. temporary 258. nonoperating revenues 259. matching 260. conservatism 261. an expense 262. SEC 263. a liability 264. an asset 265. liabilities 266. COGS 267. OE 268. COGS 269. COGS 270. REV 271. OE 272. NOR 273. NOE 274. OE 275. REV 276. NOR 277. NOE 278. OE 279. OE 280. NOT For personal use by the original purchaser only. Copyright AccountingCoach.com. 32

33 Cash Flow Statement Fill-in the Blanks 281. The statement of cash flows reports on three main activities:,, and The exchange of bonds for stock shall be reported as information Corporations are to disclose the amount of interest and income taxes that were The statement of cash flows explains the change during the period in cash and cash The statement of cash flows replaced the flow statement 286. The reporting requirements for the statement of cash flows are contained in Statement No. 95 issued by the Standards Board. Multiple Choice 287. The heading of the statement of cash flows specifies a period of time a point in time 288. Under the indirect method, an increase in accounts receivable will be net income in the operating activities section of the statement of cash flows. added to deducted from 289. Under the indirect method, a decrease in accounts payable will be net income in the operating activities section of the statement of cash flows. added to deducted from 290. Generally, an increase in the balances of increase of cash on the statement of cash flows. asset liability accounts will result in an 291. Generally, a decrease in the balances of of cash on the statement of cash flows. asset liability accounts will result in an increase For personal use by the original purchaser only. Copyright AccountingCoach.com. 33

34 292. Under the indirect method, the gain on the sale of a plant asset will be net income in the operating activities section of the statement of cash flows. added to deducted from 293. Under the indirect method, depreciation expense will be in the operating activities section of the statement of cash flows. added to deducted from net income 294. Which of the following would be added to net income in the operating activities section of a statement of cash flows prepared using the indirect method? gain on sale of equipment increase in wages payable 295. Which of the following would be deducted from net income in the operating activities section of a statement of cash flows prepared using the indirect method? increase in inventory increase in accounts payable 296. The FASB recommends which method of preparing the statement of cash flows? direct indirect no recommendation 297. Generally, cash equivalents include only investments which had maturities of months or less when acquired. two three six twelve 298. A corporation s purchase of treasury stock will be reported as a the statement of cash flows. negative positive amount on 299. The retirement of bonds payable will be reported as a statement of cash flows. negative positive amount on the 300. If the operating activities section of the statement of cash flows begins with the enterprise s net income, the statement is being prepared under the method. direct indirect 301. Under the indirect method, the current period s amortization expense will appear as a amount in the operating activities section of the statement of cash flows. negative positive For personal use by the original purchaser only. Copyright AccountingCoach.com. 34

35 Matching For items indicate which of the following sections of the statement of cash flows is appropriate for reporting the item. (Assume the statement of cash flows is prepared under the indirect method.) operating activities investing activities financing activities supplemental information Reduction in the amount of Inventory. Increase in the amount of Accounts Receivable. Increase in the amount of Accounts Payable. Decrease in the amount of Accrued Expenses. Amount spent on capital expenditures. The cash amount received from the sale of a plant asset. The reported loss amount on the sale of a plant asset. Decrease in the amount of Bonds Payable. The total of this section is used to calculate free cash flow. The exchange of bonds for stock. Proceeds from issuing common stock. Interest paid on a corporation s bonds payable. Interest received from investments in bonds. Remittance of payroll tax withholdings. Purchase of a long-term investment. Used to assess the quality of a company s earnings. Depreciation expense. Cash dividends declared and paid. Proceeds from the sale of a long-term investment. For personal use by the original purchaser only. Copyright AccountingCoach.com. 35

36 Answers ( ) 281. operating, investing, financing 282. supplemental (or supplementary) 283. paid 284. equivalents 285. funds 286. Financial Accounting 287. a period of time 288. deducted from 289. deducted from 290. liability 291. asset 292. deducted from 293. added to 294. increase in wages payable 295. increase in inventory 296. direct 297. three 298. negative 299. negative 300. indirect 301. positive 302. operating 303. operating 304. operating 305. operating 306. investing 307. investing 308. operating 309. financing 310. operating 311. supplemental 312. financing 313. operating 314. operating 315. operating 316. investing 317. operating 318. operating 319. financing 320. investing For personal use by the original purchaser only. Copyright AccountingCoach.com. 36

37 Financial Ratios and Analysis Fill-in the Blanks 321. The ratio of current assets to current liabilites is the ratio Collecting accounts receivable will not change the current ratio or the ratio The average time it takes for a retailer s cash to go into inventory and then return to cash is known as the cycle The amount of credit sales for a year divided by the average balance of accounts receivable is the receivables ratio The days sales in inventory is calculated by dividing 360 or 365 days by the ratio expenditures are amounts spent for property, plant and equipment Important financial information is provided by corporations whose stock is publicly traded in its Form, an annual report to the SEC Current assets minus current liabilities is If a company has an inventory turnover ratio of 6, its average days sales in inventory is approximately days (Rounded to the nearest whole day.) 330. A company averages 40 days of credit sales in its accounts receivable. Its receivable turnover ratio is (Rounded to the nearest whole number.) 331. If a company offers credit terms of net 30 days, it is likely that its receivables turnover ratio will be no greater than (Rounded to the nearest whole number.) 332. A significant current asset that is excluded from a retailer s quick ratio, but is included in its current ratio is The quick ratio is also referred to as the -test ratio. 334 Net sales divided by the average amount of assets is the asset ratio. For personal use by the original purchaser only. Copyright AccountingCoach.com. 37

38 335. A company is said to be highly relationship to owner s equity. when it has a large amount of debt in 336. In financial ratios, debt refers to the total amount of In the vertical analysis of a retailer, each amount on its income statement will be divided by net In vertical analysis each item on the balance sheet is divided by total Capital expenditures (and perhaps dividends) are deducted from the net cash flow from activities when calculating free cash flow. Multiple Choice 340. Common-size financial statements are related to horizontal analysis vertical analysis 341. Trend analysis is related to horizontal analysis vertical analysis 342. A manufacturer s current ratio will be larger smaller than its quick ratio The income statement and cash flow statements of a publicly traded corporation will report amounts for years. one two three or more 344. Dividend yield is the annual cash dividend per share of stock divided by the per share of stock. book value market price net income 345. The ratio is the common stock s cash dividend per share divided by the earnings per share. dividend yield payout price earnings 346. Earnings per share is calculated by using the weighted average number of shares of common stock authorized issued outstanding For personal use by the original purchaser only. Copyright AccountingCoach.com. 38

39 Calculations 347. During the past year a corporation had sales of $500,000. Its cost of goods sold was $400,000 and its selling and administrative expenses were $25,000. Its gross profit percentage was % During the most recent year, a company s sales were $26 million. Its cost of goods sold was $20 million and its average inventory was $4 million. On average the company s inventory could supply its customers for days. Use the following information for answering Questions : A company has the following current assets and current liabilities: Cash $10,000 Temporary marketable securities $50,000 Accounts receivable $40,000 Inventory $95,000 Prepaid expenses $5,000 Notes payable due in 180 days $60,000 Accounts payable $32,000 Accrued expenses $8, The current ratio is to The quick ratio or acid-test ratio is to A company s credit sales during the past year were $8,000,000. Its accounts receivable averaged $800,000 during the first six months of the year and averaged $900,000 during the final six months of the year. The receivable turnover ratio for the year was times. Use the following information for answering Questions : A corporation had after-tax earnings of $1,000,000 for the most recent calendar year. Its preferred dividend requirement for the same year was $200,000. The corporation started the year with 90,000 shares of common stock outstanding. On July 1 it issued 20,000 shares of common stock. The corporation did not have any treasury stock during the year The denominator for the calculation of earnings per share is: The earnings per share is $ A corporation had 100,000 shares of common stock issued during its accounting year ending December 31. At the start of the year the corporation had no treasury stock. On October 1 it acquired 12,000 shares of treasury stock and held the shares of treasury stock through December. The denominator for calculating the corporation s earnings per share is. For personal use by the original purchaser only. Copyright AccountingCoach.com. 39