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ACCT 2000 Lowe-Ardoin Exam 1, ACCT 2000 Lowe-Ardoin Exam 2, ACCT 2000 Lowe-Ardoin Exam 3 And Acct 2000 Lowe-Ardoin Final Exam Exams
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ACCT 2000 Lowe-Ardoin Exam 1 What is an advantage of corporations relative to partnerships and sole proprietorships? A. Greater difficulty of raising funds B. More difficult to transfer ownership C. Reduced legal liability for investors D. Most common form of organization- ANSWER C. Reduced legal liability for investors
Which of the following did not result from the Sarbanes-Oxley Act? A. Top management must now certify the accuracy of financial information B. Penalties for fraudulent activity increased. C. Increased independence of the outside auditors D. Tax rates on corps increased. - ANSWER D. Tax rates on corps increased Securities & Exchange Commission Agency of the US Government that oversees the US financial markets and the account standard-setting bodies
Financial Accounting Standards Board (FASB) The primary accounting standard-setting body in the US, a major contributor
International Accounting Standards Board (IASB) Issue standards (IFRS) for countries oversees, engages in transactions in foreign countries
Public Company Accounting Oversight Board (PCAOB) Issues auditing standards and reviews performance of audit firms. Oversees audits at companies.
According to FASB, useful information should possess what two essential qualities? Relevance & Faithful Representation
Verifiability Information that can be proved that it is free from error
Timeliness Information that is available to decision-makers before it loses capacity to influence decision-makers
Comparability Results when different companies use the same accounting principles
Consistency Results when a company uses the same principles and methods from year to year
Understandability Information has this quality if it is presented in a clear and concise fashion
Full Disclosure Principle continued: What is an example of a circumstance or event that investors would want disclosed? a lawsuit
Historical Cost Principle Dictates companies record assets at their cost.
Fair Value Principle Indicates that assets and liabilities should be recorded at fair value.
What principle does FASB require most assets to follow? Historical Cost Principle
What kind of assets is the Fair Value Principle used for? Only for assets that are actively traded, like investment securities.
The Cost Constraint Relates to the fact that providing information is costly. FASB considers the cost of accounting standards, and the cost must not outweigh the benefits.
The Accounting Information System is a system of Collecting, processing transaction data, & commuting financial information to decision makers.
Are all economic events recorded in financial statements? No, only events that change the accounting equation are recorded.
What is the basic accounting equation? Assets = Liabilities + Stockholders' Equity
The Classified Balance Sheet Reports the assets, liabilities, and equity at a particular point in time. Groups together similar assets & similar liabilities, using standard classifications
Current Assets Assets that a company expects to be converted to cash or used within one year or the operating cycle, whichever is longer
What is the Operating Cycle? The average length of time it takes from buying inventory or providing a service to collecting cash from customers.
What are the 3 types of Ratios? Profitability, liquidity, solvency
Profitability "operations", record economic events from events in the income statement;
What is the purpose of Profitability? To measure the income or operating success of a company for a given period of time. Ex: Earnings Per Share
Liquidity "short-term", meet its unexpected cash
What is the purpose of Liquidity? To measure the short-term ability of the company to pay it's maturing obligations and to meet unexpected needs for cash. Ex: Working Capital, Current Ratio
Solvency "long-term"
What is the purpose of Solvency? To measure the ability of the company to survive over a long period of time. Ex: Debt (liability) to Total Assets
Earnings Per Share (EPS) equation EPS = (Net Income - Preferred Dividends) / Average Common Shares Outstanding
Working Capital formula Working Capital = Current Assets - Current Liabilities
Current Ratio formula Current Ratio = Current Assets / Current Liabilities
Debt to Total Assets Ratio formula Debt to Total Assets Ratio = Total Liabilities / Total Assets
Free Cash Flow formula Free Cash Flow = Net Cash provided by Operating Activities - Capital Expenditures - Dividends Paid
Sole Proprietorship-meaning, advantages, & disadvantages "one
Advantages: easy to establish, control, tax advantages
Disadvantages: personal liability (if sued, the person can take everything), no protection
Partnership (meaning, advantages, & disadvantages) "two or more"
External "outside" Financial Accounting Ex: Investors (hold stock in the company), Creditors (someone we owe money to -> banks), Regulators (SEC, IRS)
IRS Internal Revenue Service
Effective financial reporting depends on sound ethical behavior
Why did Congress pass the Sarbanes-Oxley Act in 2002? Financial scandals
What are the three types of business activities? Financing, investing, & operating
Financing Activities Raising money Ex: debt financing (borrowing money from a creditor - creating debt or a liability & interest must be paid), equity financing (Issue/sell shares of stock to investors - "stockholder's equity")
Investing Activities Purchase of resources (assets) needed to operate Ex: resources owned and used by a business (NOT employees)
Operating Activities Day to day operations Ex: shoe store selling shoes, dentist cleaning teeth, etc
List of Assets Cash, accounts receivable, inventory, supplies, PPE
List of liabilities Accounts payable, notes payable, bonds payable
List of stockholder's equity Common stock & retained earnings
What are assets? Resources owned by a business
What are expenses? Cost of assets consumed or services used
What is net income? Revenues > Expenses (good)
What is net loss? Expenses > Revenues (bad)
Do dividends go on income statements? No
What are the 4 financial statements companies prepare to communicate financial information to users? Income statement, Retained Earnings statement, Balance Sheet, & Statement of Cash Flows
What is an Income Statement? -Reports revenue and expenses over a period of time
- Revenue - Expenses = Net income/loss
Occurs over a period of time(time span)(month, quarter, year)
What is a Retained Earnings (R/E) Statement? The net income rained in the business. Statement reports changes.
+beginning retained earnings ± net income/loss - dividends = ending retained earnings
Occurs over a period of time(time span)(month, quarter, year)
What is a Balance Sheet? Reports assets and claims to assets at a specific point in time
Assets = Liabilities(debt) + stockholder's equity
Occurs at the end of the time span
What is a Statement of Cash Flows? Shows sources and uses of cash from business activities
+beginning cash ± financing ± operating ± investing = ending cash
Occurs over a period of time(time span)(month, quarter, year)
What are the components of an Annual Report?
B. the operating section C. the financing section D. the cash flow statement does not give this information - ANSWER A. the investing section
If total liabilities decreased by $15,000 and stockholders' equity increased by $5,000 during a period of time, then total assets must change by what amount and direction during that same period? A. $20,000 increase B. $10,000 decrease C $10,000 increase D. $15,000 decrease - ANSWER B
Which is not one of the three forms of business organization? A. sole proprietorship B. creditorship C. partnership D. Corp - ANSWER B
What is an advantage of corps relative to partnerships and sole proprietorships? A. increased difficulty of raising funds B. harder to transfer ownership C. reduced legal liability for investors D. most common form of organization - ANSWER C
Ease of transferring ownership is a characteristic of which form of business organization? A. sole proprietorship B. partnership
C. Corp D. All of the above - ANSWER C
In what forms of business organizations are the owners personally liable for all debts of the business? A. sole proprietorships and corps B. sole proprietorships and partnerships C. Partnership and corp D. All of the above - ANSWER B
The sole proprietorship form of business org A. must have at least 2 owners in most states B. generally receives favorable tax treatment relative to a corp C. Combines the records of the business with the personal records of the owner D. is classified as a separate legal entity - ANSWER B
What forms of business org are considered to be separate accounting entities? A. sole proprietorships and partnerships only B. partnerships and corps only C. only corps D. sole proprietorships, corps, and partnerships - ANSWER D
To which of the following questions will internal users want answers? A. what selling price for our product will maximize the company's net income? B. Which product line is most profitable? C. Is cash sufficient to pay dividends to stockholders? D. All of the above - ANSWER D
Paying interest expense and collecting interest revenue are examples of A. operating activities B. financing activities C, investing activities D. delivery activities - ANSWER A
The declaration of dividends is an example of a A. operating activity B. financing activity C. investing activity D. delivery activity - ANSWER B
Which one of the following is not one of the three major business activities? A. Financing B. Operating C. Advertising D. Investing - ANSWER C
Which of the following is an example of a financing activity? A. issuing shares of common stock B. selling goods on account C. buying delivery equipment D. buying inventory - ANSWER A
Resources owned by a business are termed A. stockholders' equity
B. liabilities C. assets D. revenues - ANSWER C
As to the major types of business activities, paying salaries expense is an example of an A. operating activity B. Financing activity C. investing activity D. advertising activity - ANSWER A
What type of account classification is cost of goods sold? A. asset B. expense C. liability D. revenue - ANSWER B
On jan. 10, novis company purchased manufacturing equipment for $80,000 cash. What type of activity is this? A. operating activity B. financing activity C. investing activity D. accrual activity - ANSWER C
In what section of the statement of cash flows would the purchase of office equipment for $10,000 cash appear? A. operating activities B. Investing activities
