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business
understanding financial accounting

Questions and Answers of Understanding Financial Accounting

Identify and explain ihc three important dates with respect to dividends.LO1.
Define retained earnini^.s. What are the primary components of retained earnings at the end of each period'.'LO1.
What does restrictions on retained earnings mean'.'LO1.
Which feature is not applicable to common stock ownership'.'a. right to receive dividends before preferred stock shareholdersb. right to participate in management through votingc. right to receive
Which statement regarding treasury stock is false'.'a. Treasury stock is considered to be issued but not outstanding.b. Treasury stock has no voting, dividend, or liquidation rights.c. Treasury stock
Which of the following statements about stock dividends is true'?a. Stock dividends are repor ted on the statement of cash flow.b. Stock dividends are reported on the statement of retained
Which order best describes the largest number of shares to the smallest number o\' shar es'.'a. shares authorized, shares issued, shares outstandingb. shares issued, shares outstanding, shares
Which combination would be the best for an investor when shopping for a new stock'.'a. high dividend yield ratio, high earnings per shareb. low dividend yield ratio, high earnings per sharec. high
A journal entry is not recorded on what date'?a. date of declarationc. date of paymentb. date of r ecor dd. A journal entry is r ect)rded on all of these dates.
Which section of the statement of cash flows would include cash payments for the purchase of tr easury stock ?a. Operatingc. Financingb. Investingd. This transaction would be reported only in the
Which statement regarding dividends is false?a. Dividends represent a sharing of corporate profits with owners.b. Both stock and cash dividends reduce retained earnings.c. Cash dividends paid to
When treasury stock is purchased with cash, what is the impact on the balance sheet equation?a. No change: the reduction of the asset Cash is offset with the addition of the asset Treasury Stock.b.
Docs a stock dividend increase an investor's personal wealth immediately?a. no. because the stock price falls when a stock dividend is issuedb. yes, because the investor has more sharesc. yes.
Which of the following is not a specific account in a company's chart of accounts?a. Gainsc. Revenueb. Net Incomed. Unearned Revenue
Which of the following is not one of the four conditions that normally must be met for revenue to be recognized according to the revenue principle for accrual basis accounting?a. The price is
The matching principle controlsa. where on the income statement expenses should be presented.b. how costs are allocated between Cost of Sales (sometimes called Cost of Goods Sold) and general and
You have observed that the asset turnover ratio for a retail chain has increased steadily over the last three years. The most likely explanation is which of the following?a. A successful advertising
Cash payments for salaries are reported in what section of the Statement of Cash Flows?a. Financingc. Investingb. Operatingd. None of the above
A company collects this period $100 cash on an account receivable from a customer for a sale last period. How would the receipt of cash impact the following two financial statements this period? a.
When expenses exceed revenues in a given period.a. retained earnings is not impacted.b. retained earnings is increased.c. retained earnings is decreased.d. one cannot determine the impact on retained
Which account is least likely to be debited when revenue is recorded?a. Accounts Payablec. Cashb. Accounts Receivabled. Unearned Revenue
Which is the most likely goal of a business with regard to its operating cycle?a. To sustain its cunent operating cycleb. To expand its current operating cyclec. To shorten its current operating
Which of the following is the entry to be recorded by a law firm when it receives a retainer from a new client at the initial client meeting?a. debit to Accounts Receivable; credit to Sales Revenueb.
Define accounting. LO1.
Briefly distinguish financial accounting from managerial accounting.LO1.
The accounting process generates financial reports for both internal and external users. Identify some of the groups of users.LO1.
Briefly distinguish investors from creditors.LO1.
What is an accounting entity? Why is a business treated as a separate entity for accounting purposes?LO1.
Complete the following:LO1. Name of Statement a. Income statement b. Balance sheet c. Audit report a. b. C. Alternative Title
What information should be included in the heading of each of the four primary financial statements?LO1.
What are the puiposes of (
Explain why the income statement and the statement of cash flows are dated "For the Year Ended December 31. 2008." whereas the balance sheet is dated "At December 31, 2008."LO1.
Briefly explain the importance of assets and liabilities to the decisions of investors and creditors.LO1.
Briefly define the following: net income, net loss, and breakeven.LO1.
Explain the accounting equation for the income statement. What are the three major items reported on the income statement?LO1.
Explain the accounting equation for the balance sheet. Define the three major components reported on the balance sheet.LO1.
Explain the accounting equation for the statement of cash flows. Explain the three major components reported on the statement.LO1.
Explain the accounting equation for the statement of retained earnings. Explain the four major items reported on the statement of retained earnings.LO1.
Financial statements discussed in this chapter are aimed at external users. Briefly explain how a company's internal managers in different functional areas (e.g.. marketing, purchasing, huinan
Briefly describe the way that accounting measurement rules (generally accepted accounting principles)are determined in the United States.LO1.
Briefly explain the responsibility of company management and the independent auditors in the accounting communication process.LO1.
(Supplement A) Briefly differentiate between a sole proprietorship, a partnership, and a corporation.LO1.
(Supplement B) List and briefly explain the three primary services that CPAs in public practice provide.LO1.
Which of the following is iiol one of the four basic financial statements?a. balance sheetc. income statementb. audit ie|ioi td. statement of cash flows LO1.
As stated in the audit leport, or Repoi l oj liulcpcndciii AcvouiiiuDis, the primary responsibility for a company's financial statements lies witha. the owners of the companyc. the auditorsb.
Which of the following is true?a. FASB creates SEC.c. SEC creates AlCPA.b. GAAP creates FASB.d. FASB creates GAAP LO1.
Which of the following regarding retained earnings is false'.'a. Retained earnings is increased by net income and decreased by a net loss.b. Retained earnings is a component of stockholders' equity
Which of the following is not one of the four items required to be shown in the heading of a financial statement?a. the financial statement preparer's nameb. the title of the financial statementc.
How many of the following statements regarding the statement of cash flows is true?The statement of cash flows separates cash inflows and outflows into three major categories:operations, investing,
Which of the following is true regarding the income statement?a. The income statement is sometimes called the statement of operations.b. The income statement reports revenues, expenses, and
Which of the following is false regarding the balance sheet?a. The accounts shown on a balance sheet represent the basic accounting equation for a particular business entity.b. The retained earnings
Which of the following regarding GAAP is true?a. U.S. GAAP is the body of accounting knowledge followed by all countries in the world.b. Changes in GAAP can affect the interests of managers and
How does the classification of expenses by nature differ from classification by function?
"Accounting profit should be geared to the concept of taxable profit because the public understands the concept of taxable profit." Comment on this statement, and state why tax effect accounting is
Exxon Corporation of the U.S. had about \(\$ 11.1\) billion of deferred income taxes in 1992, equal to about 20 per cent of total liabilities. This percentage has risen or remained steady for many
Why should a gain or loss on discontinuing operations be disclosed separately on the income statement?
Explain the two major criteria for extraordinary items. How should extraordinary items be disclosed in the financial statements?
How are earnings per share disclosed in financial statements?
When does a company have a simple capital structure? A complex capital structure?
What is the difference between basic and diluted earnings per share?
What are retained earnings, and how do they relate to the assets of a corporation?
When does a company have a deficit in retained earnings?
Explain how the accounting treatment of share dividends differs from that of cash dividends
What is the difference between a share dividend and a share split? What is the effect of each on the capital structure of a corporation?
What is the purpose of restricting retained earnings?
What is the difference between the statement of shareholders' equity and the shareholders' equity section of the balance sheet?
Would you expect a corporation's book value per share to equal its market value per share? Why or why not?
Assume that the Shortall Furniture Company's chief financial officer gave you the following infor-LO 1 Corporate Income Statement LO 2 Tax Effect Accounting mation: Net Sales, 1,900,000; Cost of
The Delcampo Corporation reported the following accounting profit before income taxes, income taxes expense, and net profit for \(20 \times 2\) and \(20 \times 3\) :Also, on the balance sheet,
During 20x1, the Heath Corporation reported a net profit of \(1,529,500\). On January 1, 20x1, the Heath Corporation had 700,000 ordinary shares outstanding. The corporation issued an additional
The following items are components in the income statement of Cohen Corporation for the year Corporate Income Statement ended December 31, 20x1:Recast the \(20 \mathrm{x} 1\) income statement in
The Drennan Corporation had a balance in Retained Earnings on December 31, 20x1 of 520,000. During \(20 \times 2\), the company reported a profit of 224,000 after taxes. In addition, the company
The Geyer Company has 30,000 ordinary shares of 1 nominal value outstanding. Record the follow-LO 6 Journal Entries: Share Dividends
The Colson Company currently has 200,000 ordinary shares of 1 nominal value outstanding. There LO 6 Share Split are 500,000 shares authorised. The board of directors declared a 2 for 1 split on May
The board of directors of the Geroulis Company has approved plans to acquire another company LO 7 Restriction of Retained Earnings during the coming year. The acquisition will cost approximately
The shareholders' equity section of Kolb Corporation's balance sheet on December 31, 20x2 appears LO 8 Statement of Shareholders' Equity\section*{as follows:}Prepare a statement of shareholders'
Income statement information for the Shah Corporation during 20x1 is as follows:Corporate Income Statementa. Administrative expenses, 220,000 .b. Cost of goods sold, 880,000 .c. Extraordinary loss
The shareholders' equity on June 30, 20x1 of the Gagliano Company is shown below:Shareholders' equity transactions for the next accounting year are as follows:a. The board of directors declared a 2
The shareholders' equity section of the balance sheet of Borkowski Corporation as of December 31, 20x1 was as follows:The following transactions occurred in \(20 \times 2\) for Borkowski
What is the term cash flows in the cash flow statement understood to include?
In order to earn a return on cash available during 20x1, Sallas Corporation transferred 45,000 from its cheque account to a money market account, purchased a 25,000 government bond, and bought 35,000
What are the purposes of the cash flow statement?
Most of the information in the cash flow statement is available from a company's comparative balance sheets and the income statement. Why, then, is the cash flow statement needed?
What are the three classifications of cash flows? Give some examples of each.
How do the direct and indirect methods of determining cash flows from operations essentially differ?
Are these items shown as increases or decreases in cash flows from operations (assuming the direct method is used): (a) increase in accounts receivable, (b) decrease in inventory, (c) increase in
Glen Corporation has these other income and expense items: interest expense, 12,000 ; interest income, 3,000 ; dividend income, 5,000; and loss on retirement of bonds, 6,000 . How does each of these
Cell-Borne Corporation has a net loss of 12,000 in \(20 \times 1\) but has positive cash flows from operations of 9,000 . What conditions may have caused this situation?
What is the proper treatment on the cash flow statement of a transaction in which a building that cost 50,000 with accumulated depreciation of 32,000 is sold for a loss of 5,000 ?
What is the proper treatment on the cash flow statement of (a) a transaction in which buildings and land are purchased by the issuance of a mortgage for 234,000 and (b) a conversion of 50,000 in
Define cash-generating efficiency and identify three ratios that measure cash-generating efficiency.
Define free cash flow and identify its components. What does it mean to have a positive or a negative free cash flow?
Why is the work sheet approach considered to be more compatible with the indirect method of determining cash flows from operations than with the direct method of determining such flows?
Assuming in each of the following independent cases that only one transaction occurred, what transactions would be likely to cause (a) a decrease in investments and (b) an increase in ordinary
Identify each of the following transactions as (a) an operating activity, (b) an investing activity, (c) a financing activity, (d) a noncash transaction, or (e) none of the above. 1. Declared and
During 20x2, Union Chemical Company, a distributor of farm fertilisers and herbicides, had sales of LO 4 Cash Receipts from Sales
During 20x2, Union Chemical Company had cost of goods sold of \(3,800,000\). The ending balance of LO 4 Cash Payments for Purchases Inventory was 510,000 in \(20 \times 1\) and 420,000 in \(20 \times
During 20x2, Union Chemical Company had operating expenses of \(1,900,000\) and income taxes Operating Expenses and expense of 200,000 . Depreciation expense of 410,000 for \(20 \times 2\) was
Using the calculations you made in E 12-2, 12-3, and 12-4, prepare in good form a schedule of cash Activities-Direct Method flows from operating activities for \(20 \times 2\), using the direct
The condensed single-step income statement of Union Chemical Company, a distributor of farm fertilisers and herbicides, appears as follows: Activities-Indirect Method Sales Less: Cost of Goods

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