FINANCIAL ACCOUNTING IVY SOFTWARE FINAL FINANCIAL ACCOUNTING PRE-ASSESSMENT FINANCIAL ACCOUNTING -MBA PREPWORKS COMBINED SETS COMPLETE SOLUTION FOR EASY PASS!!

FINANCIAL ACCOUNTING IVY SOFTWARE FINAL FINANCIAL ACCOUNTING PRE-ASSESSMENT FINANCIAL ACCOUNTING -MBA PREPWORKS COMBINED SETS COMPLETE SOLUTION FOR EASY PASS!! "CPA stands for certified private accountant T/F - Correct Answer FALSE - it stands for certified public accountant" "The owner is responsible for all debt incurred by the business regardless of how much he has invested - Correct Answer Proprietorship" "Partnership - Correct Answer the same as a proprietorship except that it is owned by two or more individuals" “From a banker’s perspective, the most important ratio on the customers financial statement is - Correct Answer Current Ratio" "Economic Entity - Correct Answer one firm, one set of books" "Going Concern - Correct Answer a firm has value beyond the liquidation value of its assets" "Horizontal analysis compares the components of a balance sheet with a base item. T/F - Correct Answer False" "Monetary Unit - Correct Answer financial transactions are denominated in a stable unit of measure" "There are two ratios that help define the operating cycle. They are: receivables and inventory turnover receivables and accounts payable inventory and accounts payable turnover none of these - Correct Answer Receivables and accounts payable" "Revenue/Epense matching - Correct Answer accounting entities should aspire to recognize expenses in the same accounting periods as the revenues they generate" "Net Sales / Average Accounts Receivable - Correct Answer receivables turnover" "This principle of recognizing revenues and expenses only during the period in which they have occurred is called the ______ method of accounting. - Correct Answer accrual" "Who is FASB? - Correct Answer the authoritative body of the US accounting profession" "The ratio that shows the markup in price over the cost of goods sold is profit margins gross margin ratio return on assets asset turnover none - Correct Answer Gross margin ratio" "Conservatism - Correct Answer given an uncertain and imprecise environment, it is better to understate than overstate economic well-being" "The ratio that shows how investors value the stock is payout ratio earnings per share return on equity return on assets none - Correct Answer None" "Understandability - Correct Answer Financial conditions and results should be communicated so that they are understandable by an educated user of financial information" "Relevance - Correct Answer Financial data must also be relevant to a user to be of value, extraneous information need not appear" "Financial strength ratios are utilized to help predict the long-run solvency of a company. T/F - Correct Answer True" "Ratio analysis is popular because ratios: summarize important info are useful in comparisons within a company over time are useful in comparisons with other companies all the above - Correct Answer All the above" "Method of accounting where revenue is recognized only when cash is received, regardless of when the sale was made or the service performed. - Correct Answer cash method of accounting" "The term "Days Sales Outstanding" is commonly used to refer to - Correct Answer Net Sales / Average Accounts Receivable (receivables turnover)" "Cost of Goods Sold / Average Inventory - Correct Answer Inventory Turnover" "Consistency - Correct Answer accounting entities must consistently apply the elections available to them so that results from different periods can be compared" "ROE shows how much income was earned for every dollar invested by owners. T/F - Correct Answer True" "Materiality - Correct Answer there is a cost/benefit aspect to financial reporting; insignificant data need not be reported if it would not affect a user's decision making" "A company's annual report is used primarily by the taxing authorities. T/F - Correct Answer True" "Managerial accounting is involved in: external reports internal reports tax reports economic reports - Correct Answer Internal reports" "Using an accelerated depreciation method for tax purposes would be an example of: managerial accounting financial accounting tax accounting none - Correct Answer Tax accounting" "Owners in corporations are liable only for the amount they have invested and no more. T/F - Correct Answer True" "Information that can make a difference to the decision at hand is considered to be: reliable comparable conservatism understandability none - Correct Answer None - relevancy" "Elson Inc estimated the useful life of a patent and amortized it over its useful life. This GAAP is known as: monetary concept matching economic entity going concern none - Correct Answer Matching" "Presenting an asset in the balance sheet at its historical cost less accumulated depreciation is an example of: managerial accounting tax accounting financial accounting none - Correct Answer Financial accounting" "The quality that assumes that information is reasonably free from error is relevant conservatism understandability consistency none - Correct Answer None - reliability" "Preparing a production plan would be an example of: tax accounting managerial accounting financial accounting none of these - Correct Answer Managerial accounting" "The capital stock account combined with the retained earnings account reflects the valuation the open market places on the company. T/F - Correct Answer False" "Current assets are properly listed in order of liquidity on a balance sheet as shown in the following example: cash, accounts receivable, prepaid insurance, inventory. T/F - Correct Answer False" "Capital stock represents the markets value of the company. T/F - Correct Answer False" "The financial position at the end of a period is reflected on the: income statement balance sheet statement of retained earning none - Correct Answer balance sheet" "Which of the following statements represents a flow concept? Balance sheet statement of retained earnings inventory statement none - Correct Answer none" "Arrow Inc was incorporated in 1904. Land was purchased at that time for $10,000. This same land would be carried on the balance sheet of Arrow, Inc in 2004 as $10,000. T/F - Correct Answer True" "Which of the following accounts represents the original investment of the shareholders? Capital stock Retained earnings Liabilities Assets None - Correct Answer Capital Stock" "The balance maintained in a checking account (also called a demand deposit or DDA account) is considered a part of a company's cash account. T/F - Correct Answer True" "Which of the following is a snapshot of the financial position of the company? Income statement statement of retained earnings cash flow statement inventory statement none - Correct Answer None - balance sheet" "Prepaid items have already been converted to cash and therefore are the most liquid items in the current assets portion go the balance sheet. T/F - Correct Answer FALSE" "Blueline Inc had $10,000 in credit sales. The credit entry is to: Retained earnings Accounts payable Accounts receivable Cash non - Correct Answer Retained earnings" "Total debits = total credits T/F - Correct Answer True" "Redstone Inc borrows $10,000 from the bank. The terms of the note are 90 days at a 10% interest rate. Redstone debits: cash notes payable interest payable retained earnings none - Correct Answer cash" "Blue Talon purchases a three-year insurance policy for $3000. At the end of the first year, Blue Talon adjusts insurance expense by crediting: An asset account a retained earnings account a liability account both b and c none - Correct Answer An asset account" "Posting involves recording all debit entries on the left hand side of the appropriate t-accounts and credit entries on the right hand side of the t-accounts T/F - Correct Answer TRUE" "To increase the taxes payable account, the bookkeeper will: debit accounts receivable debit taxes payable credit taxes payable none - Correct Answer credit taxes payable" "The accounting process is concerned only with the external transactions representing economic events T/F - Correct Answer False" "The adjusting entry that is made at the end of the accounting period with respect to interest on a note credits: an asset account a liability account an owners equity account both b and c none - Correct Answer A liability account" "Although dividends are not an expense of a company, they still impact retained earning T/F - Correct Answer True" "Whitestone Company collected $10,000 on a credit sale. The left hand side of the entry would be a debit to: accounts receivable accounts payable cash owners equity none - Correct Answer cash" "Which of the following is a source of cash? increase in accounts receivable increase in inventories decrease in accounts payable decrease in accounts payable none - Correct Answer none" "Which of the following decreases cash? increase in accounts receivable increase in inventories decrease in accounts payable none - Correct Answer none" "Which of the following decreases cash? increase in accounts receivable increase in inventories increase in accounts payable increase in taxes payable both a and b - Correct Answer both - increase in accounts receivable and increase in inventories" "Dividends to stockholders is a use of cash T/F - Correct Answer True" "Which of the following increases cash? issuance of debt issuance of stock purchase of stock acquisition of assets both a and b - Correct Answer issuance of debt and stock" "If a company bought and manufactured more than the cost of goods shipped the effects on cash is a: decrease increase no effect none - Correct Answer decrease" "If a company pays out less than the costs incurred, the effect on cash is a: decrease increase no effect none - Correct Answer increase" "Non-cash expenses include the amortization of intangibles T/F - Correct Answer True" "Depreciation is added back to net income because depreciation is a non-cash expense T/F - Correct Answer True" "What is the impact on cash of purchasing inventory on 60 day credit: cash increases cash decreases no effect on cash none - Correct Answer no effect on cash" "Net income includes any gains from the sale of equipment T/F - Correct Answer True" "An accounting entity is considered to be any organization for which separate accounting data is gathered and processed T/F - Correct Answer True" "Accounting is a set of rules and methods by which economic information of a business is collected and made into reports that are useful to end users. T/F - Correct Answer TRUE" "When the bookkeeper of accountant of a business entity records an economic event, it is called a: record transaction balance - Correct Answer Transaction" "When the owner of a proprietorship or one of the partners of a partnership dies, the business ceases to exist T/F - Correct Answer TRUE" "The area of financial accounting is designed for the ______ type of user. - Correct Answer external" "The area of tax accounting is designed for the _____ type of user. - Correct Answer government" "The area of managerial accounting is designed for the _____ type of user. - Correct Answer Internal" "Even though tax laws are constantly changing they are fairly easy to predict T/F - Correct Answer FALSE" "Managerial accounting must follow strict rules which govern internal accounting procedures T/F - Correct Answer False" "In order to obtain a copy of a corporations financial reports, you must be either a stockholder or a lender to the firm T/F - Correct Answer FALSE - required to share with SEC and others upon request" "A ____ owns a proprietorship - Correct Answer individual" "A ____ owns a partnership - Correct Answer two or more individuals" "A _____ owns a corporation - Correct Answer stockholder" "An accounting assists corporations in making major decisions by: providing relevant economic info on costs and expected profits predicting the economic environment in which the corporation will exist mathematically integrating various economic and political models - Correct Answer providing relevant economic info on costs and expected profits" "Bookkeeping is a: communication system measuring and recoding system dull and tedious job suited only for small, wiry med with word rim glasses and green eyeshades system for recoding illegal bets by gamblers - Correct Answer measuring and recording system" "Financial accounting, like managerial accounting, has no firm guidelines that it must follow T/F - Correct Answer False" "Congress has authorized the SEC to govern the financial reporting of public corporations T/F - Correct Answer TRUE" "Large corporations, like GM, are required to round off their figures to the nearest million dollars on their financial reports T/F - Correct Answer FALSE" "The statement of retained earnings shows the revenues, expenses and net income of an enterprise over a period of time T/F - Correct Answer FALSE - it lists the beginning balance in retained earnings, to which net income for the period are added and dividends paid during the same time period are deducted" "The statement of financial position shows how well a company has performed over a period of time T/F - Correct Answer False - the statement of financial position (aka the balance sheet) lists a company's assets, liabilities, and owners equity" "Liabilities = assets -owners equity T/F - Correct Answer TRUE" "The net worth of a firm is shown on the company's balance sheet T/F - Correct Answer True" "The operating expenses shown on an income statement usually include ____ cost of goods sold salaries administration - Correct Answer salaries and administration" "Liabilities are the claims of creditors to a company's resources T/F - Correct Answer True" "Stockholders equity is the same as owners equity T/F - Correct Answer TRUE" "Current assets almost always equal current liabilities T/F - Correct Answer FALSE" "A company's property holdings are usually listed at fair market value on the balance sheet T/F - Correct Answer False - property is carried on the books at its original purchase price" "Which of the following is a liability? accounts payable inventory investments prepaid insurance none - Correct Answer Accounts payable" "One application of the conservatism principle is that inventory is valued on the balance sheet at either its original cost or market value, whichever is lower. T/F - Correct Answer TRUE - valuing inventories at the lower of cost or mark is conservatism" "The statement of retained earning shows the revenues, expenses and net income of an enterprise over a period of time T/F - Correct Answer FALSE - the statement of retained earnings shows the retained earnings at the beginning of the period, plus net income, less dividends" "Retained earnings are the earnings that a company saves and reinvests; they can be used whenever the company needs cash T/F - Correct Answer FALSE - retained earnings is the total net income of a company since it was incorporated, less any dividends paid over that time; accumulated successes of the enterprises" "The money spent to buy equipment is called an expense T/F - Correct Answer FALSE - money spent to bu equipment is called capital expenditure; each year a portion of the cost of equipment is charged against income in the form of depreciation expense" "Owners equity can also be shown on the balance sheet as ____ net worth net assets stockholders equity - Correct Answer net worth, assets, and stockholder's equity" "Dividends can be paid to stockholders only following a year in which a company has generated net income T/F - Correct Answer False - a company can pay dividends any time its board of directors chooses" "Depreciation can be considered an allocated cost of using an asset with a life of more than a year T/F - Correct Answer True - depreciation is a process of systematically and rationally allocating the cost of an asset over its useful life" "One purpose of the statement of retained earnings is to show _____. - Correct Answer distribution of earnings to the stockholders" "T-accounts are called such because they resemble the shape of a T. T/F - Correct Answer TRUE" "Increases in t-accounts are always shown on the right-hand side T/F - Correct Answer FALSE - "A=L+O"; asset accounts: L-H increase, R-H decrease liability accounts: L-H decrease, R-H increase owner's equity: L-H decrease, R-H increase" "The total of all the right-hand sides of the t-accounts must equal the total of all the eft-hand sides of the t-accounts T/F - Correct Answer TRUE" "Financial analysts interpret historical financial data in order to better predict the future performance of the reporting entity. T/F - Correct Answer TRUE" "Ratio analysis is unqualifiedly the best method of financial statement analysis T/F - Correct Answer False" "Profit margin provides the user with a comprehensive profit picture of a firm T/F - Correct Answer FALSE" "Current ratios and quick ratios indicate the relative liquidity of a company. These two ratios are essential in that they provide an analyst with information concerning a company's ability to meet its current obligations - Correct Answer True" "Horizontal and vertical analysis are two key techniques used in analyzing financial statements usually applied in tandem. Briefly stated, vertical analysis requires that a significant element be measured as a percentage of a base to which it is related. For example, the various components of an income statement might be measured as a percentage of sales. This technique can be applied to the balance sheet as well. T/F - Correct Answer True" "Debt-to-equity and debt-to-assets ratios usually provide a clear picture of the financial leverage employed by a firm. The higher the level of debt, the higher the implied financial risk. An informed reader, however, understands that it is appropriate to draw this general conclusion only when comparing firms within the same, or very similar, industries. T/F - Correct Answer True" "A company's operating cycle is measurement of the average length of time from the point of a sale to the collection of an account receivable. This measure is an important tool used in measuring operating efficiency and in forecasting the cash requirements of the firm. T/F - Correct Answer TRUE" "The inventory turnover ratio is one indicator of a firms operating efficiency. Typically, faster turns means that management is doing a better job of buying and controlling inventory. T/F - Correct Answer True" "Two major elements of return on assets are profit margin and asset turnover. An analysis of these two component parts can provide valuable insights into a firms performance T/F - Correct Answer TRUE - ROA = profit margin x asset turnover or net income/assets = net income/sales x sales/assets" "Analysts can rely principally on ratio analysis and other quantitative measures for enough information to make informed decisions. Qualitative techniques provide interesting but non-essential data, icing on the cake, as it were. T/F - Correct Answer False" "The statement of cash flows is considered a "funds statement". T/F - Correct Answer True - statement of cash flows complements the balance sheet and income statement" "The statement of cash flows is a substitute for the statement of changes in financial position and is an optional financial statement that may be presented at management's discretions T/F - Correct Answer False" "Increasingly, financial analysis are using cash flow analysis to evaluate and predict the performance of companies. T/F - Correct Answer true" "Earnings are always the best measure of evaluating and predicting the performance of a company T/F - Correct Answer False" "An increase in cash is good. T/F - Correct Answer True - depending on the source of cash" "Liquidity has become a major concern to managers and investors because of volatile interest rates and an uncertain economy T/F - Correct Answer TRUE" "A well-presented statement of cash flows can provide all of the information found in a balance sheet and income statement T/F - Correct Answer False" "The statement of cash flows as presented under FASB statement No. 95 is the only measure of a company's cash flow T/F - Correct Answer FALSE" "Comparative balance sheets do not show the liquidity effects of a company's operations during a period T/F - Correct Answer TRUE" "In the statement of cash flows, funds is usually described as cash working capital (current assets - current liabilities) cash and cash equivalents all the above - Correct Answer Cash and cash equivalents" "The statement of cash flows does not detail a company's sources and uses of cash report which balance sheet accounts increased and decreased during a period - Correct Answer " "What 3 types of people require the information that accounting systems provide? - Correct Answer Managers, Investors, and Creditors" "Economic event that affects the financial position of a company. - Correct Answer Accounting Transaction" "The company's financial position at a given date and its results of operations and changes in retained earnings for a period of time are based upon these 3 things - Correct Answer Accrual basis balance sheet, income statement and statement of retained earnings." "Using an accelerated depreciation method for tax purposes would be an example of... a. Managerial accounting b. Financial accounting c. Tax accounting d. None of the above - Correct Answer c. Tax accounting" "These financial statement users can be divided into three major groups: - Correct Answer investors, creditors, and managers." "The Financial Accounting Standards Board has stated that a complete set of financial statements for an entity should show its: - Correct Answer 1. Financial position at the end of the period 2. Cash flows for the period 3. Earnings for the period 4. Comprehensive income for the period 5. Investments by and distributions to owners during the period" "Book keeping - Correct Answer The process of identifying, measuring in monetary terms, recording and classifying appropriate economic transactions" "In periods of rising prices, which of the following generally accepted accounting principles is violated ? a. Matching b. Conservatism c. Going concern d. Monetary concept - Correct Answer d. Monetary concept" "Balance Sheet - Correct Answer shows a firm's financial position at a point in time" "The investor group is comprised of - Correct Answer shareholders and potential shareholders" "All accounting transactions cause a measurable change in - Correct Answer the statement of financial position (balance sheet) accounts" "In December 1987, FASB published Statement of Financial Accounting Standards No. 95, Statement of Cash Flows which required - Correct Answer companies present a statement of cash flows in published financial statements." "After a transaction is identified, it is assigned a ___________ reflecting the event's effect on the business. - Correct Answer dollar value" "Prior to FASB requiring statement of cash flows, what statement was presented? - Correct Answer Statement of changes in financial position (often referred to as a "funds statement")." "The creditor group may consist of - Correct Answer suppliers of groups who extend credit, lending institutions such as banks, individual lenders such as holders of bonds or notes payable, and even employees with claims on the company." "income statement - Correct Answer shows a firm's earnings and comprehensive income for a period" "Information that can make a difference to the decision at hand is considered to be a. Reliable b. Comparable c. Conservatism d. Understandability e. None of the above - Correct Answer e. None of the above" "Accounting - Correct Answer the process of recording, classifying and communicating financial information concerning the economic activity of an enterprise" "Accounting theory usually divides the study of the field into three areas differentiated by the type of user: - Correct Answer Financial, managerial, and tax accounting." "The SEC is the rule-making body for generally accepted accounting principles. a. TRUE b. FALSE - Correct Answer b. FALSE" "the statement of retained earnings - Correct Answer shows the distribution to owners during a period." "the increase in value of the stock over its original investment cost. - Correct Answer capital gains" "T/F Most accounting trnansactions are external - Correct Answer True. they concern economic events between an enterprise and an entity external to it." "Statement of cash flows could be presented in what two ways? - Correct Answer working capital flow basis or a cash flow basis" "The purchase of equipment, the sale of goods or services, and the borrowing of money are common examples of ___________ transactions. - Correct Answer external" "Which is easier to prepare? Working capital basis or cash basis? - Correct Answer working capital" "The key to financial statement analysis is - Correct Answer comparability." "Presenting an asset in the balance sheet at its historical cost less accumulated depreciation is an example of a. Managerial accounting b. Tax accounting c. Financial accounting d. None of the above - Correct Answer c. Financial accounting" "financial accounting - Correct Answer geared for the users outside the firm" "Assets - Correct Answer economic resources of a firm, and they are generally used to help produce, either directly or indirectly, future cash inflows for the firm" "managerial accounting - Correct Answer accounting style used by managers inside the firm" "The annual report is a good example of tax accounting. a. TRUE b. FALSE - Correct Answer b. FALSE" "These can be tangible, like inventory or equipment, or they can represent control of future benefits, such as accounts receivable due from customers or patent rights to a profitable product. - Correct Answer assets" "the two major forms of financial statement analysis - Correct Answer percentage and ratio comparisons" "The depreciation expense that a firm charges itself is a good example of an ___________ transaction. - Correct Answer internal" "Why did companies shift from working capital basis to cash flow basis? - Correct Answer working capital could not explain where money was moving to and from and the public wanted more info from businesses." "The value of every __________ must be measurable with some degree of accuracy in monetary terms. - Correct Answer asset" "The vertical stem of the "T" on the T Account divides the account into two columns: - Correct Answer Increases and Decreases" "net income plus its depreciation expense - Correct Answer cash flow" "Stapling Incorporated projects sales revenues will exceed $100 million next year. This is an example of a. Managerial accounting b. Tax accounting c. Financial accounting d. None of the above - Correct Answer a. Managerial accounting" "The two most common percentage approaches are called - Correct Answer horizontal analysis and vertical analysis." "tax accounting - Correct Answer involves the preparation of records and reports necessary for filing tax returns" "managerial accounting - Correct Answer used mostly by managers for planning and control purposes and is very specific to the needs of individual departments and managers" "In a proprietorship, a. There is no legal distinction between the business and its owner. b. There is a distinction between the business and its owner for accounting purposes. c. There is a legal distinction between the business and its owner. d. A and B - Correct Answer d. A and B" "Liabilities - Correct Answer The debts of an enterprise" "Compares how balance sheet or income statement items change from year to year. - Correct Answer Horizontal analysis" "Describe the T Account for an Asset Account - Correct Answer Left, debit, increases T Right, credit, decrease" "The sum of net income plus noncash expenses minus noncash revenues - Correct Answer cash flow" "Describe the T Account for a Liabilities Account - Correct Answer Left, debit, decrease T Right, credit, increase" "the amortization of intangibles, depreciation of plant assets and depletion of natural resources - Correct Answer noncash expenses" "External users of financial accounting reports include - Correct Answer stockholders, lenders, financial analysts, economists, labor unions, trade associations, and academic faculty" "Compares the components of the balance sheet with a base item, usually total assets, expressing various components as a percentage of the base. - Correct Answer Vertical analysis" "A non-profit organization such as a school does not prepare reports for external users. a. TRUE b. FALSE - Correct Answer b. FALSE" "Claims by creditors on the resources (assets) of a firm - Correct Answer liabilities" "Identifies key components of the income statement and the balance sheet and expresses their relationship in ratio form. - Correct Answer Ratio analysis" "Describe the T Account for an Owners Equity Account - Correct Answer Decrease, left, debit T Increase, right, credit" "accrued revenues that have not been collected during a prior period. - Correct Answer noncash revenues" "Creditor - Correct Answer An entity that provides an asset to a firm in exchange for future reimbursement, usually in the form of cash." "Managerial accounting is involved in a. external reports. b. internal reports. c. tax reports. d. economic reports. - Correct Answer b. internal reports." "Revolves around what is known as an accounting entity - Correct Answer Financial Accounting" "Accounting entity can be a - Correct Answer non-profit organization, an individual, or a business" "Which of the following is a liability? a. Cash b. Accounts Receivable c. Inventory d. None of the above - Correct Answer d. None of the above" "Almost all _______ are incurred to acquire assets. - Correct Answer liabilities" "Analysts usually evaluate companies in three main areas: - Correct Answer operating performance, liquidity, and financial strength." "Asset accounts typically have _____________ balances, - Correct Answer left-hand-side" "if a company's short-term debt (such as accounts payable) increases during a period, then its cash payments for expenses would be ______ than the expenses incurred - Correct Answer less" "Net Income / Net Sales - Correct Answer Profit Margin Ratio" "liabilities and owners' equity accounts typically have __________________ - Correct Answer right-hand-side balances." "increases in accounts receivable and decreases in short-term debt during a period would cause cash flow to ________________. - Correct Answer decrease" "Owners Equity - Correct Answer the residual claim of the owners on the assets of a firm" "Current assets are properly listed in order of liquidity on a balance sheet as shown in the following example: Cash, Accounts Receivable, Prepaid Insurance, Inventory a. TRUE b. FALSE - Correct Answer b. FALSE" "If the accounting entity is a business it can be a - Correct Answer proprietorship, partnership, or corporation" "Proprietorship - Correct Answer unincorporated business organizations with one owner" "The retained earnings account is a part of which of the following accounts? a. Owners' equity b. Liabilities c. Capital stock d. Long-term assets e. None of the above - Correct Answer a. Owners' equity" "Can also be called proprietor's equity, net assets, partners' equity, or stockholders' equity, depending on the type of entity. - Correct Answer Owners Equity" "Describes the operating efficiency of a company by showing how much of each sales dollar ends up as net income - Correct Answer Profit Margin Ratio" "T/F All data necessary to prepare an income statement is contained in the retained earnings account - Correct Answer TRUE." "whenever noncash assets decrease or liabilities increase, cash is flowing _______ the business - Correct Answer into" "whenever noncash assets increase or liabilities decrease, cash is flowing _______ the business. - Correct Answer out of" "T/F A transaction is an event that affects the financial position of a company - Correct Answer TRUE." "Accounting Equation - Correct Answer Assets = Liabilities + Owners Equity" "primary measure of a company's operating performance - Correct Answer profit margin ratio (sometimes called return on sales)" "Investments representing short-term holding of securities would appear on the balance sheet as a. Long-term liabilities b. Long-term assets c. Current assets d. Current liabilities e. None of the above - Correct Answer c. Current assets" "Since companies have different numbers of shares outstanding, it is not useful to compare earnings per share ratios. T/F - Correct Answer True" "Accounting Periods - Correct Answer the result of operations for an entity must be reported on a periodic basis, usually a year" "The capital stock account combined with the retained earnings account reflect the valuation the open market places on the company. a. TRUE b. FALSE - Correct Answer b. FALSE" "All headings for financial statements should have - Correct Answer company's name, the name of the financial statement, and the date" "Gross Profit / Net Sales - Correct Answer Gross Margin Ratio" "The total of all the right hand sides of the T-accounts must equal the total of ALL the left-hand sides of the T-Accounts. - Correct Answer TRUE. The double-entry system of accounting means that for each transaction recorded, there is a left-hand (debit) entry offset by a right-hand (credit)" "Cash inflows are _______________ of cash - Correct Answer sources" "Cash outflows are ____________ of cash - Correct Answer uses" "T/F A transaction is an event that affects the financial position of a company. - Correct Answer TRUE. A transaction is an accounting record of an economic event." "The two most common formats for balance sheets are - Correct Answer account form and the report form." "Shows the markup in price over the cost of goods sold. - Correct Answer Gross Margin Ratio" "The financial position at the end of a period is reflected on the a. Income statement b. Balance sheet c. Statement of Retained Earnings d. None of the above - Correct Answer b. Balance sheet" "Like proprietorships, a ____________ is not a legal entity but is recognized, for accounting purposes, as a business entity separate from the financial dealings of its individual owners - Correct Answer partnership" "T/F Partnerships and proprietorships cease to exist as an accounting entity when one of the owners dies - Correct Answer True" "T/F Bookkeeping accounts are a method of accumulating financial transactions and summarizing their effects on balance sheet items - Correct Answer TRUE. Bookkeeping accounts provide easy means for recording, collecting, and reporting financial transactions of a firm." "Increases in noncash assets Decreases in liabilities Decreases in owners' equity - Correct Answer Uses of Cash" "Which of the following accounts represents the market valuation of the company? a. Assets b. Liabilities c. Net assets d. Retained earnings e. None of the above - Correct Answer e. None of the above" "Difference between sales and the cost of goods sold - Correct Answer Gross Margin Ratio" "Account Form - Correct Answer lists the assets on the left-hand side of the statement and the liabilities and owners' equity on the right-hand side" "Large businesses owned by many individuals who are usually not active in their management - Correct Answer Corporations" "Arrow, Inc. was incorporated in 1904. Land was purchased at that time for $10,000. This same land would be carried on the balance sheet of Arrow, Inc. in 2004 as $10,000. a. TRUE b. FALSE - Correct Answer a. TRUE" "Report Form - Correct Answer lists the assets on the left-hand side of the statement and the liabilities and owners' equity on the right-hand side" "Net sales/ average total assets - Correct Answer asset turnover ratio" "T/F The main purpose of the trial balance is to make sure you have not committed any math errors in your T-Accounts. - Correct Answer TRUE. The trial balance is taken as a partial check of the arithmetic accuracy of the entries previously made." "Decrease in noncash assets increases in liabilites increases in owners equity - Correct Answer Sources of Cash" "Ownership in ___________ is divided into shares; thus the owners are called shareholders - Correct Answer corporations" "Capital stock represents the market's value of the company. a. TRUE b. FALSE - Correct Answer b. False" "The balance sheet in many cases gives _________ years of data for comparative purposes so that the user can look for trends - Correct Answer two to three" "shows how many sales dollars are generated for every dollar invested in the company's assets. - Correct Answer asset turnover ratio" "Name 4 income statement accounts - Correct Answer Wages, cost of goods sold, utilities, sales" "when a firm borrows money (inflow), it increases both its _______ and its _____________. - Correct Answer cash and liabilities" "When a firm purchases inventory or plant equipment, it is increasing ___________ (outflow) and decreasing its ________ - Correct Answer noncash assets and cash" "net income / average total assets - Correct Answer return on assets" "Current assets - Correct Answer An enterprise's resources that are expected to be converted into cash within a year as a result of the day-to-day operations of the firm" "Long-term investments in securities are recorded on the balance sheet at their original cost, unless the market value has increased significantly, in which case they should be written up to their fair market value. a. TRUE b. FALSE - Correct Answer b. FALSE" "Public Corporations - Correct Answer Corporations who have many shareholders and whose stock is traded widely" "Private Corporations - Correct Answer those whose stock is not traded in markets and who have relatively few owners" "Blue Talon purchases a three-year insurance policy for $3000. At the end of the first year, Blue Talon adjusts insurance expense by crediting a. An asset account b. a retained earnings account c. a liability account d. Both B and C e. None of the above - Correct Answer a. An asset account" "On the___________ the current assets are normally listed in order of liquidity, with cash, the most liquid asset, listed first. - Correct Answer balance sheet" "considered the best overall indicator of the efficiency of the investment in and use of assets. - Correct Answer return on assets" "When a firm pays off debt (outflow), it decreases both - Correct Answer liabilities and cash" "Declines in accounts receivable represents a ______ of cash - Correct Answer source" "Many analysts prefer to separate ROA into two components - Correct Answer profit margin and asset turnover" "Include all obligations that are expected to be paid within one year - Correct Answer Current Liabilities" "Legal entities which continue to exist after the death of the owners - Correct Answer Corporations" "Total debits = Total credits Select one: a. TRUE b. FALSE - Correct Answer a. TRUE" "Owners in ____________ are liable only for the amount they have invested and no more - Correct Answer corporations" "The accounting process is concerned only with external transactions representing economic events. Select one: a. TRUE b. FALSE - Correct Answer b. FALSE" "Asset Accounting Equation - Correct Answer Current Assets + Non-current Assets = Total Assets" "Profit Margin x Asset Turnover - Correct Answer Return on Assets" "Increase in accounts receivable represents a _______ of cash - Correct Answer use" "All headings for financial statements should have the - Correct Answer company's name, the name of the financial statement, and the date" "increases in payables and accruals are a _________ of cash - Correct Answer source" "The adjusting entry that is made at the end of the accounting period with respect to interest on a note credits Select one: a. An asset account b. A liability account c. An owners' equity account d. Both B and C e. None of the above - Correct Answer e. None of the above" "Net Income / Average Shareholders' Equity - Correct Answer Return on Equity" "The predominant form of organization for large businesses. - Correct Answer corporations" "Shows how much income was earned for every dollar invested by owners. - Correct Answer Return on Equity (ROE)" "Repayments require cash, so decreases in payable and accruals are a ______ of cash - Correct Answer use" "What does IASC stand for? - Correct Answer International Accounting Standards Board" "Includes cash on hand, checks on hand that have not been deposited, and cash in the bank. - Correct Answer Cash Account on Balance Sheet" "Silverstone Incorporated purchases a two-year insurance policy for $8000 cash. Silverstone debits Select one: a. An asset account b. A liability account c. And owners' equity account d. Both B and C e. None of the above - Correct Answer a. An asset account" "When was IASC founded? - Correct Answer 1973" "Debiting accounts receivable Select one: a. increases cash b. decreases cash c. increases accounts receivable d. decreases accounts receivable - Correct Answer c. increases accounts receivable" "Net Income Available for Common Shares / Average Number of Common Shares Outstanding - Correct Answer Earnings Per Share" "An increase in taxes payable means that tax payments were less than the tax expenses incurred, and thus, cash ___________. - Correct Answer increased" "If a firm decides that it temporarily has excess cash, it may invest some in ___________ until the cash is needed - Correct Answer short term securities" "Who founded IASC in 1973? - Correct Answer professional accounting organizations from nine countries" "Redstone Incorporated borrows $10,000 from the bank. The terms of the note are 90 days at a 10% interest rate. Redstone debits Select one: a. Cash b. Notes payable c. Interest payable d. Retained earnings e. None of the above - Correct Answer a. Cash" "______________________ can go under the heading of "investments" in non-current assets. - Correct Answer Long-term securities" "indicates how much of a company's earnings are available for distribution as dividends to each share of common stock. - Correct Answer Earnings Per Share" "Increases in capital stock indicate that stockholders have _____________ - Correct Answer invested additional funds in the company" "help investors judge the potentialfor future dividends and the firm's ability to finance its growth internally. - Correct Answer earnings per share" "The direct method approach to presenting the statement of cash flows reflects - Correct Answer the cash collected from customers and cash paid to suppliers, employees, and cash paid for interest and taxes." "Accounts Receivable - Correct Answer cash due from customers who have purchased goods or services from the company on credit" "Whitestone Company collected $10,000 on a credit sale. The left-hand side of the entry would be a debit to Select one: a. Accounts Receivable b. Accounts payable c. Cash d. Owners' equity e. None of the above - Correct Answer a. Accounts Receivable" "How many nations does IASC currently have members from? - Correct Answer 100" "Market Price Per Share / Earnings Per Share - Correct Answer Price -Earnings Ratio (P/E)" "The direct method approach to the statement of cash flows identifies positive cash flows as - Correct Answer revenues" "The most important professional accounting organization in the world - Correct Answer IASC" "Prepaid items - Correct Answer Orepayments of expenses that will occur in future periods, such as insurance or rent" "Debits always increase an account, while credits decrease an account. Select one: a. TRUE b. FALSE - Correct Answer b. False" "shows how much in excess of current earnings investors are willing to pay for a company's stock. - Correct Answer P/E Ratio" "The direct method of cash flows shows cash payments for expenses and related operating items as - Correct Answer negative cash flows." "They are considered _________ because they represent "probable future benefits." - Correct Answer assets" "The payment of an accounts payable Select one: a. debits cash and credits accounts payable b. debits accounts payable and credits cash c. debits accounts payable and debits cash d. none of the above - Correct Answer b. debits accounts payable and credits cash" "Preparers and Users of financial statements regularly refer to standards issued by - Correct Answer IASC" "Responsible for developing and issuing international accounting and reporting standards - Correct Answer IASC" "Which of the following decreases cash? Select one: a. increase in accounts receivable b. increase in inventories c. increase in accounts payable d. increase in taxes payable e. both A and B - Correct Answer e. both A and B" "Dividends / Net Income - Correct Answer Payout Ratio" "Increase in investments is a _____ of cash - Correct Answer use" "Prepayment of expenses over a period longer than a year would fall into the __________________ portion of the asset accounts. - Correct Answer non-current" "The IASC's objectives are: - Correct Answer a) to formulate & publish accounting standards to be used in the presentation of financial statements and to promote their worldwide acceptance; b) to work for the improvement and harmonization of regulations, accounting standards, and procedures relating to the presentation of financial statements" "If taxes payable increase from the beginning of the accounting period to the end of the accounting period, this is a use of cash. Select one: a. TRUE b. FALSE - Correct Answer b. False" "Investments - Correct Answer represent long-term holdings of securities." "Profit Before Interest and Taxes/ Interest - Correct Answer Times Interest Earned" "Expenditures on PP&E are considered ________ activities - Correct Answer investing" "The ratio that shows how many times a company's earnings cover its interest payments - Correct Answer Times Interest Earned" "Purchasing equipment with cash causes cash to - Correct Answer decrease" "Which of the following increases cash? Select one: a. increase in inventories b. increase in accounts receivable c. increase in accounts payable d. increase in taxes payable e. both C and D - Correct Answer e. both C and D" "Investments are shown on the balance sheet at their - Correct Answer market value" "The IASC has issued over ____ international accounting standards-sets of rules and regulations-dealing with a wide range of accounting topics - Correct Answer 35" "The IASC however does not have the power to.. - Correct Answer enforce its standards" "If a company bought and manufactured more than the cost of goods shipped, inventories would Select one: a. increase. b. decrease. c. remain the same. d. none of the above. - Correct Answer a. increase." "Owners' Equity is divided into two accounts - Correct Answer capital stock and retained earnings" "This ratio helps creditors assess the probability of a company not being able to meet its interest payment obligations. - Correct Answer Times Interest Earned" "T/F Noncash expenses include the amortization of intangibles. - Correct Answer True" "To-date the IASC has focused on three areas: - Correct Answer 1) to promulgate standards for financial reporting practices that are clearly arbitrary or unsound; 2) to persuade countries-that do not yet have their own financial reporting standards on an issue-to use the IASC standard; 3) to work with those countries which have their own standards (and whose standards give several options) to narrow the options down." "Increasing long-term debt is a use of cash. Select one: a. TRUE b. FALSE - Correct Answer b. FALSE" "The amount that owners have directly invested into the corporation. - Correct Answer Capital stock" "Current Assets - Current Liabilities - Correct Answer Working Capital" "T/F Increasing long-term debt is a use of cash. - Correct Answer False" "a company's ability to meet its short-term obligations - Correct Answer working capital" "T/F If a company collects less than it bills customers, cash will decrease. - Correct Answer True" "What does IOSCO stand for? - Correct Answer International Organization of Securities Commissions and Similar Organizations" "The total cumulative amount of earnings that the company has retained and reinvested in its operations. - Correct Answer Retained Earnings" "Depreciation is added back to net income because depreciation is a non-cash expense. Select one: a. TRUE b. FALSE - Correct Answer a. TRUE" "Formed in 1987-includes approximately 150 securities regulatory agencies - Correct Answer IOSCO" "Dividends to stockholders is a use of cash. Select one: a. TRUE b. FALSE - Correct Answer a. TRUE" "When a company becomes incorporated, its retained earnings account is ______ - Correct Answer $0" "the excess current resources expected to be converted into cash after all short-term obligations have been paid. - Correct Answer working capital" "What is the impact on cash of purchasing inventory on 60 day credit? - Correct Answer No effects on cash" "a form of funds, so the more of it that a firm has, the greater the firm's liquidity - Correct Answer working capital" "If a company bought and manufactured more than the cost of goods shipped, the effect on cash is a - Correct Answer decrease" "What was the original objective of IOSCO? - Correct Answer to ease requirements for multinational securities offerings and the use of common prospectuses" "Purpose of Income Statement - Correct Answer To provide information that can be used to evaluate a company's financial performance for a period of time" "Elron Company purchased office supplies on credit. This transaction had what effect on cash? Select one: a. no effect b. Cash increases c. Cash decreases d. None of the above - Correct Answer a. no effect" "In recent years IOSCO has expanded its mandate resolving to: - Correct Answer a) cooperate together to achieve a just and efficient securities market; b) exchange information on securities markets; c) unite to establish standards and an effective surveillance of international securities transactions; d) provide assistance to ensure the integrity of the markets" "If a company bought and manufactured more than the cost of goods shipped, the effect on cash is a Select one: a. decrease b. increase c. no effect d. none of the above - Correct Answer a. decrease" "Matches the revenues that a company earns during a period against the expenses it incurs for the same period. - Correct Answer Income Statement" "Current Assets / Current Liabilities - Correct Answer Current Ratio" "T/F If taxes payable increase from the beginning of the accounting period to the end of the accounting period, this is a use of cash. - Correct Answer False" "Elron Company purchased office supplies on credit. This transaction had what effect on cash? - Correct Answer No effect" "This ratio indicates how many dollars of current assets exist for every dollar in current liabilities - Correct Answer current ratio" "The inflows and outflows of a company's resources are expressed in terms of - Correct Answer revenues and expenses." "The Ambitious Company paid for an addition to its Fort Wayne plant by signing a 30-year mortgage. This transaction has what effect on cash? Select one: a. No effect b. Cash increases c. Cash decreases d. None of the above - Correct Answer a. No effect" "What does IFAC stand for? - Correct Answer The International Federation of Accountants" "Formed in 1977 to encourage a consistently high level of professionalism among accountants around the world. - Correct Answer IFAC" "An analyst discovers that inventory increased by 15% from one year to the next. This is an example of Select one: a. horizontal analysis. b. vertical analysis. c. qualitative analysis. d. none of the above. - Correct Answer a. horizontal analysis." "Costs incurred by the company in the process of generating revenues. - Correct Answer expenses" "The higher the ratio the greater the buffer of assets to cover short-term liabilities in case of unforeseen declines in the assets. - Correct Answer current ratio" "Which of the following is a source of cash? Select one: a. Increase in accounts receivable b. Increase in inventories c. Decrease in accounts payable d. None of the above - Correct Answer None of the Above" "The Ambitious Company paid for an addition to its Fort Wayne plant by signing a 30-year mortgage. This transaction has what effect on cash? - Correct Answer Cash Decreases" "Cash, Marketable Securities, and Account Receivable / Current Liabilities - Correct Answer quick ratio" "The difference between a firm's revenues and its expenses for a period - Correct Answer Net Income" "Which of the following is an operating performance ratio? Select one: a. Debt to total assets b. Times interest earned c. Payout ratio d. B and C e. None of the above - Correct Answer d. B and C" "More than 140professional accounting organizations from more than 100 nations are members - Correct Answer IFAC" "focuses on Management Accounting as well as on a variety of other related areas: Auditing, Professional Ethics and Accounting Education - Correct Answer IFAC" "A commercial bank uses ratios extensively to analyze their customers. Which ratio is of the utmost interest to the banker. Select one: a. Payout b. Return on equity c. Price-earnings d. Current - Correct Answer d. Current" "if a firm's revenues are greater than its expenses for a period, then the firm's net assets, or owners' equity, will ______________ - Correct Answer increase." "This rationis generally considered a better measure of immediate liquidity than the current ratio - Correct Answer The quick ratio (or acid-test ratio)" "What does FASB stand for? - Correct Answer Financial Accounting Standards Board" "Horizontal analysis compares the components of a balance sheet with a base item. Select one: a. TRUE b. FALSE - Correct Answer b. False" "the revenue, whether it is in the form of cash, receivables or other assets, must be measurable with some degree of _________ - Correct Answer reliability" "too high of a quick ratio may mean that - Correct Answer management is not productively investing excess cash" "The ratio that relates how much debt a company has in proportion to its equity is Select one: a. current. b. debt to total assets. c. shareholders' equity to assets. d. debt to equity. - Correct Answer d. debt to equity." "FASB's 3 major goals - Correct Answer The objectives stem primarily from the informational needs of external users who lack the authority to prescribe the financial info they want from an enterprise and therefore, must use the information that management communicates to them. Financial reporting should provide info that is useful to present to potential investors, creditors and other users in making a rational investment, credit and similar decisions. The role of financial reporting is to provide info that is useful in making business and economic decisions, not to determine what those decisions should be. The role of financial reporting requires it to provide even-handed, neutral or unbiased information." "The ratio that indicates the overall efficiency of the investment in and use of assets is Select one: a. ROA b. ROE c. Price to Earnings d. None of the above - Correct Answer a. ROA" "Indicates how fast accounts receivable are normally converted into cash. - Correct Answer Accounts Receivable tunover" "Concepts No.1 from FASB, goes on to say that financial statements should help investors and creditors assess the risks and potential returns associated with investing in or lending to an______________ - Correct Answer enterprise" "Since companies have different numbers of shares outstanding, it is not useful to compare earnings per share ratios. Select one: a. TRUE b. FALSE - Correct Answer a. TRUE" "Corporations use the __________ method of accounting - Correct Answer accrual" "FASB says that financial statements should also report information regarding the ___________ _______________of an enterprise as well as the claim to those resources by investors and creditors - Correct Answer economic resources" "Operating expenses - Correct Answer typically include expenses such as rent, utilities, insurance, salaries, advertising and promotion, and costs associated with running the administrative offices" "Vertical analysis compares the components of the balance sheet with a base item. Select one: a. TRUE b. FALSE - Correct Answer a. TRUE" "________________ are often the chief measure of performance by an enterprise - Correct Answer earnings" "ROE shows how much income was earned for every dollar invested by owners. Select one: a. TRUE b. FALSE - Correct Answer a. TRUE" "The ____________________ is a function of how the company has financed its operations and not a result of the operation itself. - Correct Answer interest expense" "Tells us how fast inventory normally is sold and replaced - Correct Answer Inventory Turnover" "What does GAAP stand for? - Correct Answer Generally accepted accounting principles" "The ratio that shows the markup in price over the cost of goods sold is Select one: a. profit margin ratio. b. gross margin ratio. c. return on assets d. asset turnover e. none of the above - Correct Answer b. gross margin ratio." "If capital stock represents the amount that owners have invested directly into the corporation, then one could consider ______________ as the owners' indirect investment - Correct Answer retained earnings" "Days Inventory + Days Receivable - Correct Answer Operating Cycle" "A rough estimate of the length of time that it takes to complete the cycle of cash to inventory to accounts receivable to cash - Correct Answer Operating Cycle" "T/F While these generally accepted accounting principles can be specific, in many instances leeway is left for the accountant's judgment - Correct Answer True