ACC 510

Question 1

financial reports provide

Answer 1

information to help users estimate value of the reporting entity

Question 2

debits must equal

Answer 2

credits

Question 3

account balance has debit on which side and credit on which side?

Answer 3

debit is left and credit is right

Question 4

general ledger vs general journal

Answer 4

general ledger contains all assets, liabilities, stockholder equity, rev, expenses. journal contains chronological record of all transactions

Question 5

cost of goods sold

Answer 5

cost of only the goods that were sold!!!

Question 6

how do us gaap and ifrs differ in their definitions of what is probable?

Answer 6

ifrs is over 50% and us gaap is pretty much 100%

Question 7

balance sheet required

Answer 7

to distinguish between current and non-current assets and between current and non-current liabailities

Question 8

Fundamental qualitative characteristics that make financial information useful include

Answer 8

Relevance and
− Faithful representation (complete, neutral, free from error)

Question 9

Enhancing qualitative characteristics that make financial information useful include

Answer 9

Comparability, Verifiability, Timeliness, and Understandability

Question 10

Underlying Assumptions

Answer 10

-Accrual accounting
− Going concern

Question 11

income statement format

Answer 11

Gross profit (i.e., revenue less cost of sales)
* Multistep format: Income statement shows gross profit subtotal.
* Single-step format: Income statement excludes gross profit subtotal.
* Operating profit (i.e., revenue less all operating expenses)
* Profits before deducting taxes and interest expense and before any other non-
operating items.
* Operating profit and EBIT (earnings before interest and taxes) are not
necessarily the same.

Question 12

Builder’s contract specifies consideration of $1 million and total costs of $700,000. Builder incurs costs of $420,000 in year 1. Assuming that costs incurred provide an appropriate measure of contract progress, how much revenue should Builder recognize in year 1?

Answer 12

For performance obligations satisfied over time, revenue is
recognized over time by measuring progress towards satisfying the obligation. Builder has incurred 60% of total expected costs and hence will recognize $600,000 revenue in year 1.

Question 13

Assume that the contract price is $1 million plus a bonus of $200,000 if the building is complete within 2 years. Builder only has limited experience of this type of construction and external factors (e.g. the weather) could cause delays. Builder’s expected total costs are $700,000. Builder incurs $420,000 costs in year 1. At the start of year 2, Builder and Customer agree to changing the building floor plan and modify the contract. Consideration increases by $150,000 and the allowable time for achieving the bonus is extended by 6 months. Builder expects its costs to increase by $120,000. Given the extension to the deadline, Builder concludes the bonus can now be achieved. How does Builder account for this change in the contract?

Answer 13

This is not a new contract but a modification to
the existing contract. Hence, a catch-up adjustment will
be needed. Builder’s total revenue is now $1.35 million
and contract progress is now 51.2%. An additional
$91,200 revenue is recognized as a cumulative catch-up
adjustment on the date of the contract modification.
(1+.15+.2=1.35)

Question 14

In January, Kelly’s Flower Shop purchases 100 exotic flowering plants for $25 each and 50 rose bushes for $15 each. Once March rolls around, it purchases 25 more flowering plants for $30 each and 125 more rose bushes for $20 each. It sells 50 exotic plants and 25 rose bushes during the first quarter of the year for a total of 75 items.

If Kelly’s Flower Shop uses LIFO, it will calculate COGS based on the price of the items it purchased in March.

Answer 14

COGS = 30 exotic flowering plants x $25 ($750) + 25 exotic flowering plants x $25 ($625) + 25 rose bushes x $20 ($500) = $1,875

Question 15

Andy’s Woodshop sells wooden figurines. His business has been doing well, resulting in larger inventory orders and better bulk pricing from suppliers. Andy decides to go to a local craft fair and bring his entire stock of 30 figurines. He takes the following three orders with him:

Order 1: 5 wooden figurines valued at $30 each
Order 2: 10 wooden figurines valued at $25 each
Order 3: 15 wooden figurines valued at $20 each
Andy succeeds at the craft fair and sells 20 of his 30 wooden figurines. He uses the LIFO method to determine his COGS. This means he assumes he sold all 15 figurines from order 3 and five from order 2. Here’s a look at his math under LIFO:

Answer 15

COGS = (15 figurines x $20) + (5 figurines x $25) = $300 + $125 = $425

Question 16

Basic EPS

Answer 16

(Net income – Preferred dividends)/Weighted average number of
shares outstanding

Question 17

Diluted EPS

Answer 17

Net income/(Weighted average number of shares outstanding
+ New shares issued at conversion)

Question 18

Antidilutive securities are

Answer 18

not included in the calculation of diluted EPS.

Question 19

silicon valley

Answer 19

Company hoisted on its own petard – the bank fueled tech companies but technology sped the ability to
withdraw funds
Depositors became concerned of financial health
Withdrew deposits – $41 billion in one day there were sharp rises in interest rates that werent expected to reverse

Question 20

liquidity

Answer 20

For a company overall, its ability to pay for short-term obligations

Question 21

trade receivables

Answer 21

Amounts owed to a company by its customers for products
and services already delivered.

Question 22

Property, plant, and equipment (PP&E):

Answer 22

Tangible assets that are used in company
operations over more than one fiscal period.

Question 23

Intangible assets

Answer 23

Identifiable non-monetary assets without physical substance (e.g., patents,
licenses, trademarks)

Question 24

Trade payables, also known as accounts payable:

Answer 24

Amounts that a company owes its
vendors for purchases of goods and services—in other words, the unpaid amounts of the
company’s purchases on credit as of the balance sheet date.

Question 25

tools for balance sheet

Answer 25

include common-size analysis and
balance sheet ratios

Question 26

balance sheet ratios indicate

Answer 26

liquidity and solvency.

Question 27

operating activities examples

Answer 27

Receiving cash from customers
* Paying cash to suppliers
* Paying cash for operating expenses

Question 28

Financing activities examples

Answer 28

Borrowing from creditors and repay the principal
* Issuing or repurchase stock
* Paying dividends

Question 29

do most companies use indirect or indirect method for operating cash flows

Answer 29

From an analyst perspective the direct method is better since it gives you more detailed information on the actual cash flows

Question 30

Rate of return =

Answer 30

Amount of return/Amount invested

Question 31

Applied to shareholders’ equity:

Answer 31

Net income/Average equity=(Net income /Average assets)*(
Average assets/Average equity)

Question 32

Net income/Average assets

Answer 32

(Net income/Revenue)*(Revenue/Average assets)

Question 33

A ratio is an indicator of

Answer 33

-Activity
- Profitability
- Liquidity
- Solvency