Acg 4101 exam 1

Exam 1 Review

1.Who sets accounting standards in the US?

FASB

2.What does activity ratio measure?

Asset Ratio = Net Sales / Average Total Assets

3.How do you record bills for services? Debit what? Credit what? Invoice for advertising

Advertising Expense 1,000           

Acc Payable (Short/Long Term)  1,000

4.Calculate income from continuing ops from list of accounts

Income from continued operations = Operating Income - Interest Expense - Income Tax Expense - Gains/Losses

5.What is the matching principle?

Match Expenses and Revenues in the same accounting period

6.Company records insurance by debiting prepaid insurance, how much did they pay through the year? 3 out of 4

Cash                                12,000           (Over 4 years)

Insurance Expense 3,000
Prepaid Insurance  9,000

7.What is the purpose of closing entries?

To insure the entries for a fiscal year don’t overflow to the next year

8.What kind of opinion is issued on financial statements for a large omission?

Unqualified Opinion = Financial statements accurate/compliant

Qualified Opinion = Minor issues but overall accurate

Adverse Opinion = Significant misstatements, not reliable

Disclaimer of opinion = not enough to form opinion

9.Net income for year, AP for beg and end year, Inv beg and end of year, what’s operating cash flow?

Operating Cash flow = Net Income - Decrease in Accounts Payable - Increase in Inventory

AP Beg 20,000 -> AP Ending 30,000  30,000 (End) - 20,000 (Beg) = 10,000

Inventory Beg 50,000 -> 40,000 50,000 (Beg) - 40,000 (End) = 10,000

Net Income 100,000 + 10,000 + 10,000

10.End balance of tax payable given beg balance, payments, and current year expenses (calculate them)

Ending Balance of Tax Payable = Beginning Balance + Tax Expense - Tax Payments

Beginning Balance 5,000

Tax Expense 20,000

Tax Payments 15,000
5,000 + 20,000 - 15,000 = 10,000

11.What are the current liabilities from a list of accounts?

Expenses, Accounts Payable, Short Term Debt, Notes Payable, Unearned Revenue

12.What are the current assets from a list of accounts?

Cash/Cash Equivalents, Accounts Receivables, Inventory, Prepaid Expenses, Short-Term Investments

13.Supplies given beg balance, end balance, and expense (3 out of 4)

Supplies Used = Beginning Balance + Purchases - End Balance

Beginning Balance 8,000

End Balance 5,000

Supplies Purchased 12,000

8,000+12,000-5,000=15,000

14.How is land report on financial statements?

As a long term asset

15.What goes into retained earnings?

End Retained Earnings = Beginning of Retained Earnings + Net Income - Cash Dividends - Stock Dividends

Beginning of Retained Earnings 50,000

Net Income 30,000

Cash Dividends (Paid) 5,000

Stock Dividends (Issued) 2,000

50,000 + 30,000 - 5,000 - 2,000 = 73,000

16.Tax benefits/expenses given tax rate, disc ops, and total income (WACC)

Tax Benefit/Expense = Income from Discontinued Operations * Tax Rate

Income After Tax Benefit/Expense = Total Income + Income from Discontinued Operations - Tax Benefit/Expense

Tax Rate 30%

Income from Discontinued Operations 50,000

Total Income 200,000

50,000 * 30% or 0.30 = 15,000

200,000 + 50,000 - 15,000 =  235,000

17.What does rent collected in advance indicate/create?

Cash                      2,400

Deferred Revenue           2,400 (Rent Collected in Advance)

18.Effects of accounts on RE

Net Income/Loss, Dividends, Changes in Accounting Principle, Changes in Tax Rates/Liabilities

19.Which of the following are included in operating income?

Operating Income Includes:

Revenue, COGS, Operating Expenses, Expenses, Gains and Losses that directly relate to the primary revenue generating activities of the company

20.What is the entry for prepaid insurance?

Prepaid Insurance 2000

Cash                               2000

21.Beg bal, purchase, and use of prepaid insurance for ending balance (3 out of 4)

Beginning Balance + Additional Purchases - Insurance used During the Year

22.Multiple step income statement subtotals

Multi step income statements include:
Gross Profit, Operating Income, Earnings Before Taxes and Net Income

23.What does the balance sheet report?

Assets = Liabilities + Shareholders Equity

24.What is the benefit of reporting disc ops separately?

Allows investors to distinguish if the profits/losses are from continued operations of discontinued operations

25.Tax payable decreased during the year, figure out payment (3 out of 4)

Ending Tax Payable = Beginning Tax Payable + Tax Expense - Tax Payments

Beginning Tax Payable 45,000

Tax Expense for the Year 120,000

Ending Tax Payable 35,000

Find Tax Payments which is 45,000 - 35,000 = 10,000

120,000 + 10,000 = 130,000

26.What would be reported on financing activities for cash flows?

Financing Cash Inflows includes Cash Paid: 

When shares are sold to owners 

When creditors borrow cash through notes, loans, mortgages and bonds

Financing Cash Outflows includes Cash Paid:

To owners in forms of dividends or other distributions

To owners for the reacquisition of shares

To creditors as repayment of principal amounts of debt (does not include trade payables that relate to operating activities)

27.Loss on disc ops?

This includes the operating losses or gain from discontinuing operations of some part of the company to the date of disposal including selling, where the book value is what the operation is worth and if you were given a current value higher than it would be a gain

28.What does comprehensive income include?

Comprehensive Income = Net Income + Other Comprehensive Incomes

Changes in a company’s equity during a period apart from owner transaction (like issuing stocks or paying dividends): Including Net Income and Unrealized Gains/Losses

29.Cash basis of accounting vs accrual basis of accounting

Cash basis only recognizes revenues/expenses when cash is paid or received

Simple and easy to use

Recognizes money when money is exchanged not beforehand

Used in small businesses and individuals

Accrual Basis recognizes the revenues/expenses when earned or incurred

Follows matching principle (expenses recorded when revenue is)

Required by GAAP for large companies

Provides clear picture of a company’s financial standing for investors

30.What are gains?

Gains in assets that are not from your regular business operations

31.Relevance and faithful representation

Relevance is financial information that is capable of influencing decisions

Uses Predictive Value, Confirmatory Value, and Materiality

Faithful Representation reflects the economic reality of transactions

Is going to be to Complete, Neutral, and Free of Error

32.What adjusting entry needs to be made for interest receivable?

This records interest that has been earned but not yet received

Interest Receivables 5,000

Interest Revenue                5,000

33.What is the comprehensive income given to different accounts?

All equity changes in a period apart from owner investment and distributions

Includes:

Net Income (Revenue Accounts, Expense Accounts, and Gains/Losses)

Other Comprehensive Income

34.What is MD&A (Management Discussion & Analysis)?

It is a company’s annual report or 10-K filing with the SEC (overview of company’s financial performance, significant events, and future prospects of management)

Broken Down into steps it includes:

Financial Results

Operational Performance

Risk Factors

Liquidity and Capital Resources

Future Outlook

Critical Accounting Estimates