Acct 3110 Exam 1

Qualitative Characteristics of Accounting Information

Relevance, faithfulness, and comparability

Sale of equity investment for cash. O,I,F

Investing

Investment in trade debt securities is classified as what?

current asset

Payment on short-term nontrade debt. O,I,F

Financing

Paid Cash dividend: O,I,F

FINANCING

Loan cash in exchange for a long-term Notes receivable: O,I,F

Investment

Paid Cash to settle N/P: O,I,F

FINANCING

how do you calculate capital stock?

shares issued* market price

Accounting cycle

1. Identify transactions and events recorded

2. Record transactions and events in a journal'

3. post journal to ledger

4. prepare unadjusted trial balance

5. identify, record, and post AJE

6. prepare adjusted trial balance

7. Prepare financial statements

8. record and post closing journal entries

9. prepare post closing trial balance

Do changes in r/e go into the financing section?

NO

Investing

long-term assets

NCI needs to be taxed. T/F?

False

What is the difference between HFS and sol when doing the JE ?

Sold

• Loss on sale

HFS

• Impairment loss

Deferred Tax Liability

• current liability

• l-term liability

• revenue

long term liability

Investment in treasury bills is what type of asset?

• Current assets

• Investment

• PPE

• Operating Lease assets

  • other assets

current assets

Leasehold improvements

• Current assets

• Investment

• PPE

• Operating lease assets

• other assets

• PPEx

Operating right-of-use asset (long-term)

• Current assets

• Investment

• PPE

• Operating lease assets

• other assets

• Operating lease assets

If restricted cash is going to be used in 18 months, is it subtracted from cash?

Yes

preferred stock

a nonvoting share of ownership in a corporation that pays a fixed dividend

Cost of goods sold is recorded at the same time as the related product is sold. What principle?

expense recognition

Current Ratio

Current Assets / Current Liabilities

Quick Ration

(Cash+ Marketable Securities+A/R)/ Current Liabilities

Current Cash debt coverage

cash provided by operating activities/ Average Current Liabilities

Liquidity Rations

• Current ratio

• quick ratio

• current cash debt coverage

Solvency Ratio (forumalas)

• Total liabilities-to-equity

• Times interest earned

• cash debt coverage

• free cash flow

Total Liabilities to equity

Total liabilities/ total stockholders equity

Times interest earned

income before taxes and interest expense (EBIT)/ Interest expense, gross

Cash debt coverage

Cash provided by operating activities/ average total liabilities

Free cash flow

cash provided by operating activities- capital expenditures -cash dividend

measurement principle

assign a numerical value to a financial item

historical cost, current cost, current market value, NRV, present value of future cash flows

Classification of preferred stock issued for cash?

Financial

comprehensive income

investment by owners

the change in equity from non owner transactions

Fundamental Qualitative Characteristics

Relevance and Faithful representation

Enhancing Qualitative Characteristics

Comparability, verifiability, timeliness, understandability

Assumptions

economic entity, going concern, monetary unit, periodicity

Accounting Principles

measurement, revenue recognition, expense recognition, full disclosure

Accounting Constraints

cost effectiveness constraints: costs are justified by the benefits of reporting the information

Relevance

predictive value, confirmatory value, materiality

Faithfulness

completeness, neutrality, free from error

IASB

Private sector board with a goal of creating a single set of high quality, globally accepted standards.

EITF (Emerging Issues Task Force)

committee that identifies financial reporting issues and attempts to resolve them without involving the FASB

SEC

U.S. government agency with authority granted by congress, to prescribe and enforce financial reporting standards

FASB

Private Sector board that is primarily responsible for establishing general accepted accounting principles

AICPA

Private sector organization of certified public accountants that establishes audit standards for private companies and develops and grades the Uniform CPA Examination

T-account

form a ledger

Chart of Accounts

master list of accounts and unique identifiers

posting

to transfer from journal to ledger

general ledger

all-purpose record of transactions in a chronological sequence

source document

provides evidence for transactions

special journal

record of similar transactions such as sales and cash receipts

Adjusting Journal Entries

allows for revenues and expenses to recognized in the correct accounting period

deferral

cash received/paid and service or expense recognized LATER

accrual

recognition of an expense or a revenue that has been incurred or earned but has not yet been recorded

Prospective treatment

Results from a change in accounting estimate

Retrospective treatment

Result from a change in accounting principle or an error correction

Modified retrospective treatment

Result specified when adopting an accounting standard update

What is a Cash surrender value of life insurance balance sheet classification?

Investment

Bond issuance that took place on January 10 of the next year. (notes?)

Disclosed as separate note

Sale of property to a sibling of the CEO (Chief Executive Officer).

Disclosed as separate note

Use of straight-line method to amortize a patent (intangible asset with a finite life). notes?

Disclosed as part of the summary of significant accounting policies note.

Use of the average cost method to account for inventory. (notes)

Disclosed as part of the summary of significant accounting policies note.

Management's discussion and analysis of financial condition and results of operations.

Not reported as part of the financial statements and accompanying notes.

Explanation of how the allowance for doubtful accounts was estimated.

Disclosed as part of the summary of significant accounting policies note.

Components of pension costs and a description of assumptions used to estimate pension liability.

Disclosed on a separate note

Return in Equity (ROE)

Net Income/ Average Stockholders Equity

Profit margin

Net Income/ Net Sales

Asset Turnover

Net Sales/ Average Total assets

Return on Assets

Net Income/ Average Total assets

Financial leverage

Average Total Assets/ average stockholders equity

IFRS:

International financial reporting standard: set of financial accounting principles maintained by IASB (Used internationally beside US)

Gross Profit Ratio

Gross Profit/ Net Sales

Operating-Expensese-to sale

Operating Expenses/ net sale

Accounts Recievable Turnover

Net Credit Sales / Avg A/R (gross)

efficiency of credit policies

Avg days to collect receivables

365/ (A/R Turnover)

lower the better

Inventory Turnover

COGS/ Avg Inventory

Average Days In inventory

365/ inventory turnover

avg days inventory sits on shelf

A/P Turnover

COGS/ Avg A/P

Avg Days Payable Outstanding

365 days/ A/P Turnover

avg days to pay invoices (supplies)

Cash conversion cycle

Avg days to collect receivables+ avg days in inventory- avg days payable outstanding

ROE (Long ver)

Profit Margin* Assets turnover* financial leverage

Operating

anything in inc stmt; ni

financing

debt and own equity

What things go into Other Comprehensive income?

• Foreign Currency Translation

• Deffered/ Unrealized Gain or loss

An accrued expense is a what?

liability

Multistep Income

1. Gross Profit Margin

   1. Operating Expenses

2. Operating Income

   1. Non-Op Exp(±)

3. Income Before Taxes

4. NI

Single Step Income

1. Revenues and Gains

2. Expenses and Losses

3. Income before taxes

4. Net Income

Earning quality

predivtive quality to make future projections consider permanent and transitioning (not op or non-op)

Discontinued Operations (sold)

1. Income from contiuing operations

2. Discontinued oPERATIOns

   1. Loss from discontinued operations, net of tax

   2. impairment loss on discontinued loss, net of tax

3. Net Income

What is restructuring expense?

Operating Expense

Earnings per share (and long ver)

(Ni-preferred dividend)/ Weighted Average Common Shares Outstanding

Non-controlling interest aka minority interest definition

The portion of equity (net assets) in a subsidiary not attributable, directly, or indirectly to a parent. aka

NCI

Net income (including non controlling interest)

-Noncontrolling interest

=Net income attributable

Single continuous statement of Comprehensive Income vs separate comprehensive income

separate stops at ni and makes separate statements while the other is continuous

Statement of Stockholders Equity

• PIC

  • common stock

  • preferred stock

  • additional PIC

• RE

  • beg re

  • NI

  • Dividends declared

  • prior adjustment (after-tax)

• NCI

• AOCI

  • OCI

    • MINUS TREASURY STOCK

What is restricted cash?

current asset

What is rest cash (long-term)?

non-current assets

What is operating lease assets?

non-current asset

What is a callable obligations?

current liabilities

Working capital

Current assets- current liabilities