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Intro to Financial Accounting > exam practice questions > Flashcards

exam practice questions Flashcards

1
Q

inventory turnover

A

how many times a year a company is replenishing its inventory, should be increasing

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2
Q

what is capitalization

A
  • recording a cost as an asset instead of expensing it immediately on the income statement.
  • done when the cost is expected to provide future economic benefits to the company beyond the current accounting period.
  • equipment
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3
Q

intangible assets

A

trademarks, patents, franchisses, worth money as an asset to the company but not something you can physically touch such as equipment

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4
Q

when doing double declining formula

A

if it is 2017-2019, its 3 years, so you have to do the formula 3 times

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5
Q

what is residual value

A

estimated amount the company will receive when it disposes of the asset

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6
Q

gross profit =

A

net sales - COGS

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7
Q

Cost of goods sold is reported

A

as an expense on the income statement

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8
Q

Depreciation of assets refers to the process of

A

allocating the cost of the asset to the periods of use

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9
Q

what is included in the cost of equipment

A

-insurance while in transit
- sales tax paid when purchased
- installation costs

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10
Q

where are payable accounts recorded

A

liabilities on the balance sheet

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11
Q

where are supplies reported

A

current asset on the balance sheet

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12
Q

the journal entry to record declaration of a dividend,

A

credit to dividends payable

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13
Q

net profit margin

A

determines the percentage of revenue that ultimately makes it to net income after deducting expenses, increase is good

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14
Q

gross profit margin/gross profit %

A

percentage of revenue that exceeds the cost of goods sold (COGS). It provides insights into how efficiently a company is producing and selling its goods or services.

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15
Q

to determine dividends paid to preferred stock holders

A

Preferred par value x % x amt of preferred shares

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16
Q

what is included in operating activities

A

cash received and paid for day to day activities with customer, suppliers, employees and landlords, dividends paid is not included

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17
Q

the purchase of equipment by issuing a note payable would be classifies on the statement of cash flows as an

A

non cash transaction

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18
Q

interest received is a _______ activity

A

operating activity

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19
Q

financing activity

A

cash received and paid for exchanges with lenders and stockholders

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20
Q

investing activity

A

cash paid and received from buying and selling investments and long lived assets

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21
Q

accrued revenues recorded at the end of the current period

A

often result in cash receipts from customers in the next period

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22
Q

what is the proper journal entry for recording cash paid for rent three months in advance

A

debit prepaid rent and credit cash

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23
Q

what is book value of assets, how do you calculate?

A

this is the value of an asset after accumulated depreciation is accounted for. Cost - depreciation

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24
Q

how do you calculate the amt of interest to be accrued

A

face value X % X (months passes/12 months) =, count months carefully

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25
Q

what type of account is expenses

A

stock holders equity because they increase and decrease retained earnings

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26
Q

when bonds are first issued the liability is entered in ________account at _______

A

entered in bonds payable account at face value

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27
Q

when do cash dividends become a liability of the corporation

A

declaration date

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28
Q

what is the journal entry on declaration date of dividends

A

debits dividends, credit dividend payable

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29
Q

what is treasury stock

A

stock that has been repurchased by the company, a contra stockholder equity account

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30
Q

what is the price-earnings ratio

A

Compares the price of a company’s stock to the earnings per share . Shows what the market is willing to pay today for a stock based on its past/future earnings

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31
Q

what is the earnings per share ratio

A

how much money a company makes for each share of stock, increase is good

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32
Q

what is return on equity (ROE)

A

How much net income a company generates per dollar of invested capital, increase is good

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33
Q

what is fixed asset turnover ratio

A

indicates how much revenue the company generates in sales for each dollar invest in fixed assets, higher the better

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34
Q

what is current ratio

A

measures the company ability to pay its current liabilities, higher the better

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35
Q

what weighted average process of inventory

A

COGS on income states is price of all units sold/units sold, to find the average price per unit and calculate how many units were sold. Inventory

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36
Q

what is LIFO process

A

COGS on income statement is newest cost, newest inventory. Inventory on balance sheet is oldest cost, oldest inventory

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37
Q

what is FIFO process

A

COGS on income statement is the oldest cost, oldest inventory cost. Inventory on balance sheet is the, newest cost, newest inventory

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38
Q

dividends paid is a

A

financing activity

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39
Q

dividends received is a

A

operating activity

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40
Q

interest paid is a

A

operating activity

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41
Q

interest received is a

A

operating expense

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42
Q

year to year percentage change =

A

new NI - old NI / old NI

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43
Q

what is accrual baed accounting?

A

revenues and expenses are reordered as they are earnings and incurred

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44
Q

Accrual basis accounting the only method allowed under GAAP, true or false?

A

True

45
Q

what are temporary accounts

A

accounts that are closed at the end of an accounting period, revenues and expenses

46
Q

what are permanent accounts

A

non revenue and non expense accounts, they dont get closed at the end of a period they continue to grow

47
Q

what are dividend in arrears

A

amount of dividend owed but not yet paid

48
Q

what are fixed assets

A

long term assets

49
Q

asset turnover ratio

A

measures the efficiency of a company’s assets in generating revenue or sales, higher the better

50
Q

receivable turnover ratio

A

how many times on average this process of selling and collecting on credit sales is repeated during the period, higher the better

51
Q

debt to assets ratio

A

indicates proportion of total assets that creditors finance, below one is safe, above 2 is risky.

52
Q

times interest earned ratio

A

Company’s ability to meet its interest and debt obligations based on its current income high ratio meets company is less risky. ratio of 5 means the biz is able to meet the total interest payments owed on its outstanding long term debt 5 times over

53
Q

IFRS and GAAP are concerned with

A

when an item should be recognized
how it should be classified
the amount at which each item should be measured

54
Q

does GAAP or IFRS say to report fixed assets at fair value

A

IFRS

55
Q

days to collect

A

measures the average number of days it takes for a company to collect payment after a sale has been made. It is an important indicator of how efficiently a company manages its accounts receivable. lower the better

56
Q

days to sell

A

how long it takes for inventory to be sold, lower the better

57
Q

what is ratio analysis

A

conducted to understand relationships among various items reported in one or more of the financial statements same year

58
Q

what are the three categories of ratios

A

profitability ratio, liquidity, solvency

59
Q

what are profitability ratios

A

examine a companys ability to generate income

60
Q

what are liquidity ratios

A

helps us determine if a company has sufficient current assets to repay liabliliites when due

61
Q

solvency ratios

A

examine a company ability to pay interest and repay debt when done

62
Q

vertical/common size analysis

A

list each line item as a percentage of a base figure within the statement. The first line of the statement always shows the base figure at 100%, with each following line item representing a percentage of the whole.

IS: sales = 100%
BS: Assets = 100%

63
Q

year to year change %

A

(current yr total - prior yr total)/prior years total

64
Q

horizontal trend analyses

A

used to evaluate a company’s performance over time. By comparing prior-period financial results with more current financial results, a company is better able to spot the direction of change in account balances and the magnitude in which that change has occurred.

65
Q

fraud is

A

an attempt to deceive others for personal gain

66
Q

3 types of fraud

A

corruption, asset misappropriation, financial statement fraud

67
Q

what is bank reconciliation

A

comparing your company’s bank statements to your own records, ensuring all transactions are accounted for

68
Q

goods available for sale =

A

beginning inventory + purchases

69
Q

specific identification

A

individually identifies and records the cost of each item sold as a part of COGS. EX, items sold were $70 and 95$, one $75 was not, so COGS is (70+95) and 75 is added to inventory on balance sheet at end of period

70
Q

lower of cost or market/net relizable value rule

A

when inventory falls below its recorded cost the amount recorded for inventory is written down to its lower mark/net realizable value

71
Q

what type of account is COGS

A

expense, debit to increase, credit to decrease

72
Q

journal entry for a mark down item

A

after calculating write down per item and multiplying by the amt of units that is how much you debit COGS as you will not be making that money it is not costing you and you credit inventory that same amt as you inventory has lost value

73
Q

what are bad debts

A

money that is owed to the company but is unlikely to be paid bad debts expense

74
Q

expense matching principle

A

record expenses in same accounting period as the related revenue

75
Q

what is the allowance method

A

record an estimate of bad debt expense with an adjust entry at the end of the accounting period

76
Q

allowance method two step process

A
  1. make an end of period adjustment to record the estimated bad debts in the period credit sales occur
  2. write off specific customer balances when they are known to be uncollectible
77
Q

bad debts journal entry

A

debit: bad debt expense credit: allowance for doubtful accounts

78
Q

write off journal entry

A

debit: allowance for doubtful accounts
credit: accounts receivable

79
Q

net reliable value of accounts receivable

A

accounts receivable - allowance for doubtful accounts

80
Q

estimate for allowance of doubtful accounts is reordered

A

at the end of period journal entry

81
Q

estimate for write off is recorded

A

during the account period

82
Q

percentage of credit sales method

A

estimates bad debt expense by multiplying historical % of bad debt losses by the current periods account sales(income statement approach)

83
Q

aging of accounts receivable

A

based on the age of each amt in accounts receivable. as time goes on more and more money is less likely to be paid. focuses on estimating ending balance in the allowance for Doubtful accounts

84
Q

account recoveries

A

collection of previously written off account, reverse the write off, record collection of account receivable

85
Q

journal entry for recovery

A

1) D: account R +800
C: allowance for DA 800
2) D:cash +800
C: account R - 800

86
Q

interest =

A

principal x Interest rate x time (proportion of a year

87
Q

Establish a note receivable

A

to establish you journal the principal first
D: notes receivable +100k
C: cash -100k,

88
Q

accruing interest earned on a note at year end

A

= principal x % x time
D: interest receivable
C: Interest revenue

89
Q

record interest received at maturity

A

D: cash (total amt owed)
C: interest receivable (amt that was accrued at year end
C: interest revenue (left over amount from end of yr to maturity

90
Q

factoring receivables

A

sell outstanding accounts receivable to another company. Your company receives cash for the recievables it seems to the factor

91
Q

intangible assets with a limited life are subject to

A

amortization ex, patents

92
Q

straight line method and double declinging method account for

A

the whole year so consider partial periods

93
Q

recording for disposal of tangible assets

A

D: cash
D: accumulated D (book value)
C: equipment (book value)
C: gain on disposal (gain if cash received is greater than the assets book value) if it were a lost debit loss on disposal

94
Q

bond issued at face value

A

D cash face val
C bonds payable

95
Q

bond issued at premium

A

total received = issued x $ of bonds x 1.0726 (107.26%)
d cash
c bonds payable face value
c premium on bonds payable

96
Q

advantages of equity

A

doesn’t have to be repaid, dividends are optional

97
Q

advantages of debt

A

intersect on debt is tax deductible. debt doesn’t change stockholder control

98
Q

stock issuance

A

D cash
C common stock par value
C additional paid in capital (Total value - par)

99
Q

repurchase of stock

A

D treasury stock
C cash

100
Q

Reissuance of treasury stock

A

D cash
C treasury
C aditinoal

101
Q

dividends declaration

A

D dividends
C dividends payable

102
Q

dividends payment

A

D dividends payable
C cash

103
Q

Dividends year end closing

A

D retained earnings
C dividends

104
Q

what is needed for statement of cash flows

A

comparative balance sheets
income statement
additional details concerning selected accounts
additional transactions that dont involve cash

105
Q

indirect reporting of operating cash flows

A

start with net income
- adjust for items that are included in net income but not involving cash (depreciation)
- adjust for items that are not included in net income but do involve cash (current assets/current liabilities)

106
Q

Changes in current assets/liabilities

A
  • non cash current assets Increase, subtract from NI
  • non cash current assets decrease, add to NI
  • current liabilities increase, add to NI
  • current liabilities decrease, subtract from net income
107
Q

operating cash flows must be

A

positive over the long run for a company to be successful, will be negative in the beginning

108
Q

investing cash flows is usually

A

negative for healthy companies, will be positive when there is a decline

109
Q

evaluating financing cash flows

A

can’t evaluate with just a (+) or a (-), consider detailed line items with this section to asses the companys overall financing strategy. will be very high in the beginning

Intro to Financial Accounting (2 decks)

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