CHAPTER 1 PRACTICE Flashcards
When a business borrows cash from a creditor Blank______ increase.
Assets and liabilities increase because cash (assets) increase, and liabilities(money borrowed) does too
In a business liquidation, ______.
liabilities are paid in full before funds are distributed to investors, Yet, creditors may be unable to collect the full amount of the liabilities
Three distinct participants: consumers, businesses, and resource owners, are involved in the
_______
for business resources.
market
Businesses commonly acquire assets from
Borrowing from creditors, issuing common stock, and earning revenue
The amount of cash dividends a company can pay are limited by the amount of the company’s ______.
Retained earnings and cash.
Example: if the company has 600 in retained earnings and 400 in cash, the only amount they can pay for dividens is 400
Example 2: If the company decides to sell the land and the cash increases, and still have 600 in retained earnings, they cannot pay a 700 cash dividend because the company has only retained 600
A home builder used $80,000 of materials and $70,000 of labor to build a house that was sold for $160,000. Profit equals
PROFIT = 160000(market value) - 150000 (cost)
Companies are required to follow GAAP when preparing ____ accounting reports
Financial only
In the market trilogy of resource allocation___ add value
businesses
David Harbert recently started a business. During the first few days of operation, Mr. Harbert transferred cash from his personal account into a business account for a company he named Harbert Enterprises. Mr. Harbert’s brother, George, invested cash in Harbert Enterprises for which he received a 25% ownership interest in the company. Harbert Enterprises borrowed cash from First Federal Bank. Harbert Enterprises paid cash to purchase a building from City Properties, Inc. How many reporting entities are mentioned in this scenario?
Reason: The entities include David Harbert, Harbert Enterprises, George Harbert, First Federal Bank, and City Properties, Inc.
The amounts in liabilities, common stock, and retained earnings represent Blank______
sources of the company’s assets
A business has assets of $500 cash, $800 of liabilities and $400 common stock and ($700) deficit in retained earnings. If the business is liquidated Blank______.
Owners will receive 0 because since there is nothing left after creditors are paid, the owners receive 0
Creditos will receive 500 because creditors are limited to the amount of cash
The right side of the accounting equation for a corporation may be viewed as
-Claims of creditors and owners
-Obligations and commitments of the business
-Source of assets
Compared to financial accounting, managerial accounting information
-contains more estimates
-provides more detail about the everyday operations of a business
In the market trilogy of resource allocation, resource owners are compensated by
Businesses because they compensate resource owners
Recognizing cash expenses will cause cash
to and retained earning to decrease because
The stakeholder most likely use managerial accounting information is a(n)
Restaurant manager
The items presented on the income statement are
Cash, revenue, and net income
NO DIVDENDS AND RETAINED EARNINGS
Merchandising businesses are also called Blank______.
-retail companies
-wholesale companies
The 10k report is prepared Blank______.
anually
In accounting terms, the obligations a business owes to its creditors are called
liabilities
Which of the following statements are true?
Many procedures and practices used by accountants are based on a going concern assumption.
The going concern doctrine assumes a business will continue operations into the foreseeable future.
Which of the following is normally included in the articles of incorporation?
The expected life which may be listed as in perpetuity
The name and addresses of the members
The corporation’s name and proposed date of incorporation
Provisions for capital stock
Names and addresses of the members
A chief advantage of the corporate form of business is
Limited liability: corporate form limits an investor’s potential liability as an owned of a business venture. Creditors cannot claim owners’ personal assets
Which of the following items are shown on the selling and administrative expense budget?
Depreciation expense
Salary expense
Utility expense
The development of the sales forecast is normally coordinated by
the marketing department
Assume Durango Co. has cash sales of $80,000 and sales on account of $120,000 for the month of November. The company expects sales to grow 1% a month. Projected December sales equal Blank______.
$200,000 × 101% = $202,000
Which of the following are not part of the cash budget?
Investing activities
Sales
The schedule of cash receipts may include Blank______.
current cash sales
collections of accounts receivable
Total cash receipts equal $10,000, total cash payments equal $11,000, beginning cash equals $4,000 and ending cash equals $22,000. The total cash available is
$4,000 beginning cash + $10,000 cash receipts = $14,000.
Durango Co. maintains an ending inventory equal to 10% of next month’s cost of budgeted sales. Budgeted cost of sales are $100,000 for October and $200,000 for November. Required purchases for the month of October equal ______.
Desired ending inventory $200,000 × 10% + $100,000 budgeted sales - $100,000 × 10% beginning inventory = $110,000.
Which of the following are listed on the pro forma income statement?
Sales revenue
Cost of Goods sold
Gross margin
Selling and administrative expenses
Operating income
Interest expense
Net income
The sales forecast
generally includes economic analysis
may use statistical techniques
may use data regarding changes in competition
Which of the following appear on a cash budget?
Financing activities
Expected cash payments
Expected cash collections
Total cash receipts equal $20,000, total cash payments equal $14,000, beginning cash equals $10,000 and ending cash equals $22,000. The total cash available is Blank______.
$10,000 beginning cash + $20,000 total cash receipts = $30,000.
Which of the following appear on the pro forma balance sheet?
Total assets
Retained earnings
All information for the proforma statement of cash flows comes from the cash budget
True
