Chapter 1 Flashcards
Which of the following would not be an example of a merchandising business?
a. Wal-Mart
b. JCPenney c. Amazon.com d. The Walt Disney Company
d. The Walt Disney Company
Which of the items below is not a business organization form?
a. Proprietorship
b. Venture entrepreneurship c. Corporation d. Partnership
b. Venture entrepreneurship
Which of the following is not a characteristic of a corporation?
a. A corporation can elect to be taxed as a partnership.
b. Corporations experience an ease in obtaining large amounts of resources by issuing stock. c. Corporations are organized as a separate legal taxable entity. d. Ownership is divided into shares of stock.
a. A corporation can elect to be taxed as a partnership.
Who has the first preference to assets in case a business fails?
a. Employees
b. Customers c. Long-term creditors d. Stockholders
c. Long-term creditors
The resources a business owns are called:
a. stockholders
’
equity.
b. liabilities. c. assets. d. earnings.
c. assets.
The purchase of factory equipment would be an example of which type of business activity?
a. Investing
b. Operating c. Financing d. All of these choices are correc
a. Investing
_____ is the increase in assets from selling products and services.
a. Revenue
b. Liabilities c. Products d. Stockholders' Equity
a. Revenue
_____ is the increase in assets from selling products and services.
a. Revenue
b. Liabilities c. Products d. Stockholders' Equity
a. $27,000
The debt created by a business when it makes a purchase on account is referred to as an:
a. account receivable.
b. expense payable. c. asset. d. account payable.
d. account payable
The financial statement that presents a summary of the revenues and expenses of a business for a specific period of time, such as a month or an year, is called a(n):
a. balance sheet.
b. statement of retained earnings. c. prior period statement. d. income statement.
d. income statement
Tadeo, Inc. had the following account balances at September 30, 2015. What is Tadeo’s net income for the month of September?
Accounts Payable $ 5,800 Capital Stock 12,000 Cash 15,500 Equipment 14,300 Fees Earned 53,000 Miscellaneous Expense 16,800 Rent Expense 4,000 Retained Earnings 7,000 Wages Expense 17,850
a. $14,350
b. $27,500 c. $14,450 d. $10,800
a. $14,350
Which of the following is true about the cost principle?
a. It initially records assets in the accounting records at their purchase price.
b. It limits the economic data recorded in an accounting system to data related to the activities of that company.
c. It reports the revenues earned by a company for a period with the expenses incurred in generating the revenues.
d. It assumes that a company will continue in business indefinitely.
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a. It initially records assets in the accounting records at their purchase price.
Recording revenue when a sale is made most directly relates to which concept?
a. Periodicity concept
b. Going concern concept c. Adequate disclosure concept d. Matching concept
d. Matching concept
Expressing financial data as if a business will continue operating for an indefinite period time refers to which concept?
a. Objectivity concept
b. Business entity concept c. Adequate disclosure concept d. Going concern concept
d. Going concern concept
Due to various fraudulent business practices and accounting coverups in the early 2000s, Congress enacted the Sarbanes-Oxley Act of 2002. The act was responsible for establishing a new oversight board for public accountants called the:
a. Congressional Accounting Oversight Board.
b. Public Company Accounting Oversight Board. c. Generally Accepted Accounting Practices for Public Accountants Board. d. Financial Accounting Standards Board.
b. Public Company Accounting Oversight Board.
Which of the following is true of rate of return on assets?
a. It is a measure of the optimum capital structure.
b. It is used to evaluate a company's ability to pay off its short-term debts. c. It is used to determine the financial leverage of a company. d. It is a measure of a company's profitability.
d. It is a measure of a company’s profitability.
The return on assets is calculated by _____.
a. dividing net income before taxes and interest expense by average total asset
b. dividing net income before taxes and interest expense by average current assets c. dividing interest expense by average total asset and average current assets d. dividing average total asset and interest expense by net income taxes
a. dividing net income before taxes and interest expense by average total asset
eturn on assets of 4.25% implies:
a. $4.25 return on every $100 of total assets.
b. $4.25 return on every $100 of debt. c. $4.25 return on every $100 of current assets. d. $4.25 return on every $100 invested to purchase new assets
a. $4.25 return on every $100 of total assets.
summary of revenue and expenses for a specific period of time
income statement
retained earnings
summary of the changes in the retained earning in the corporation
balance sheet
summary of cash receipts and cash payment for a period fo time
What is the order financial statement are prepared?
IRBS: Income Statement, Retained Earnings, Balance Sheet, Statement of cashflow
GAAP
Generally accepted accounting principles
FASB
Financial Accounting Standards Board
IASB
International Accounting Standards Board
Rate of Return on Assets
Net Income before taxes and expense/ average total assets Note: avg of total asset is beg. asset with ending balance/2
What does rate of return on asset measure?
measures company’s profitability
PCAOB
Public Company Accounting Oversight Board -SOX
What does it mean when a company rate of return on assets is 38.1%?
$38.1 return on every $100 of total assets
Ending cash on that statement of cash flow must equal _________ in the __________sheet?
cash, balance sheet
net income on the ______statement must equal the net effects in the ____________.
income statement, retained earnings
used to look at financial condition and performance over time
common size financial statement
how do you calculate common size financials?
Take the number and divide it by the sales to get a percent.
What are examples of prepaid/deferred expense?
car insurance, supplies used, depreciation of office equipment
What are examples of deferred revenue?
concert ticket, airline tickets
What is deferral?
Cash is received or paid after the revenue has been earned or expense has been incurred.
What is an examples of accrual expense?
wages owed but not paid to employees
What is an example of accrued revenue
service provided but not billed to insurance company
All adjustment affect the balance sheet and income statement? True or False
True
Working capital
current assets - current liabilities measures how a company pay for its liabilities
current ratio
current assets/ current liaibilities = measures ability for company to pay
must be at least 2
quick ratio
quick assets/current liabilities
if less than 1 then there is liquid concerns
quick assets
cash, receivables, short term investment
does not include inventory or prepaid assets because it takes time to convert
gross profit
sales
-cogs
= gross profit
gross profit - _____= net income
operating expenses
net sales
sales return & allowance - sales discounts
what is contra account to sales?
sales returns and allowance
FOB - free on board shipping point
buyer pays freight
FOB destination
seller pays freight
gross profit percent
gross profit/ net sales
average markup percent
gross profit/ cogs
ratio of sales to assets
net sales/ avg. total assets
used to asses how efficient a company generate sales from its assets
What are element of internal control?
Control environment Risk Assessment Control Procedures Monitoring Information and Communication
What is part of control environment?
- manager’s philosophy and operating style
- organizational structure
- personnel policies
What is part of control procedures?
competent personnel, separating responsibilities, separating operations, proof and security measures
_________ the internal control system is used to locate weakness and improve controls?
Monitor
ratio of cash to monthly cash expenses
cash and cash equivalent/ monthly cash expense
used to assess if it can continue to operate
monthly cash expense
net cash flows from operations/12
allowance for doubtful account
accounts receivable contra account affects income and balance sheet
how does FIFO affects cgs and gross profit?
Lowers cgs,
higher gross profit
how does LIFO affects cost of goods sold and gross profit?
Higher Cost of goods sold, and lower gross profit
cost of merchandise purchased
purchase+freight
net purchase
purchase - purchase returns and allowance - purchase discounts ------------------------------- net sale
