CH1: CH 1: Financial Statements and Business Decisions

Question 1

sole stockholders=

Answer 1

owners

Question 2

2 sources of fnan resources

Answer 2

creditors & stockholders

Question 3

Creditors (ex, and what they hope for)

Answer 3

-lenders (banks)
-hope for money through interest

Question 4

stockholders (ex, and what they hope for)

Answer 4

-ppl who buy stock in the company
-hope to earn cash through dividends
-hope for higher future stock prices

Question 5

internal decision makers characteristics

Answer 5

-ppl who run the company (ex managers)

-use managerial accting reports

-Need info about companies activities to manage operating, investing, and financing activities

Question 6

external decion makers characteristics

Answer 6

-people who evaluate the companu (creditors or stockholders)

-receive fnan accting reports

-Need info abt the sactivities to asses if the company is able to pay back its debts with interests/dividends

Question 7

4 basic fnan statements (in order)

Answer 7

-income statement
-statement of stockholders equity
-balance sheet
-statement of cash flows

Question 8

balance sheet characterstics

Answer 8

-reports fnan position at a point in time

-uses acct equation

-assets, liabilities, stockholders equity (common stock +retained earnings)

Question 9

acct equation

Answer 9

A=L+SE

Question 10

income statement characterstics include definitions

Answer 10

-reports revenues less expenses during acct period

-revenue: resources esrned from delivering goods/services

-expenses: resources incurred/used to earn revenue

-net income: net profit

Question 11

statement of stockholders equity charactertistics

Answer 11

-reports changes in the stockholder equity for acct period

-balance of commonstock/retained earnings
+ net income/stock issueances
-dividends
=ending retained earnings

Question 12

statement of cash flows

Answer 12

reports inflows and outflows of cash during acct peirod in operating, investing, and financing

Question 13

relationship amng fnan statements

Answer 13

income statement → use net income in statement of retained earnings→use retained earnings in balance sheet

Question 14

time period for fnan statements

Answer 14

-end of the year (for year ended/annual)

-quarterly (for quarter ended/quarterly)

-monthly (for month ended, monthly)

Question 15

fnan statements headings include

Answer 15

-business name (ulta)
-title of the statement (balance shet)
-date (for month ended)
-unit of measure (millions)

Question 16

fnan staement formatting rules

Answer 16

-monetary unit sign by first dollar amt in the group

-assets ordered by easyness of conversion to cash

-liabilities listed by maturity

-single underline under last item in group and double underline under totals

Question 17

GAAP

Answer 17

-rules that determine the content and rules of fnan statements

-suitable criteria for conducting fnan statement audit

Question 18

SEC

Answer 18

determine measurement rules for financial statements for publicly traded companies

Question 19

FASB

Answer 19

The responsibility to formulate GAAP.

Question 20

IFRS is issued by

Answer 20

ISAB

Question 21

objective of fnan statements

Answer 21

-provide fnan info that is useful to existing/potential investors, lenders, and other creditors

useful info includes
-info that is relevant
-a Faithful representation of company activities
-Timely, verifiable, comparable, understandable

Question 22

what is ethics and what is the three step process for making ethical decions

Answer 22

-standard of conduct for judging right and wrong

-identify benefits of a decision
-identify alt course of action
-choose action that u would like others to see reported

Question 23

primary responsibily for the info in fnan statements lies with…

Answer 23

management

Question 24

3 steps to assure investors that records are accurate

Answer 24

-1-maintain a system of internal controls over records & assets

2-they should hire outside auditors to audit fairness of fnan statements

3-they should form a committee of the board of directors to oversee the integrity of listed safeguards

Question 25

sole properitorship vs partnership

Answer 25

-1 person
full liability
Self employment tax, personal tax

-Owned by 2+ persons
Full liability
Self employment tax, personal tax

Question 26

LLC

Answer 26

1+
Limited liability
Self employment tax, personal tax or corporate tax

Question 27

C corp:
S corp:
B corp:
Non-profit:

Answer 27

-1+, limited liability, corporate tax

-1+ but not over 100, limited liability, personal tax

-1+, limited liability, corporate tax

-1+, limited liability, tax exempt but profits cant be distributed

Question 28

say land doubles is this reported on fnan sheets

Answer 28

no, only when it is sold. balance sheet stays the same as when the land was first bought

Question 29

assets are initially recorded as

Answer 29

the total cost incurred to acquire it

Question 30

characteristics are needed in order for information to be useful?

Answer 30

relevant and a faithful representation

Question 31

income statement including taxes

Answer 31

revenues
-expenses
=earnings before inc tax
(income tax)
=net earnings

Question 32

disadnavtage of coorperation

Answer 32

double taxation

Question 33

Operating

Answer 33

Selling inventory to customers
Paying employee salaries
Paying income taxes

Question 34

Investing

Answer 34

Purchasing equipment
Proceeds from disposal of property and equipment

Question 35

Financing

Answer 35

Issuing stock to shareholders for cash
Repayment of bank loan
Paying dividend

Question 36

Operating

Answer 36

Selling inventory to customers
Paying employee salaries
Paying income taxes