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ACC-318: Intermediate Accounting I > Final Exam (Conceptual Questions) > Flashcards

Final Exam (Conceptual Questions) Flashcards

1
Q

What is a Real Accounts vs a Nominal Account?

A

Real = permanent (assets, liab.)

Nominal = temporary (revenues, expenses)

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2
Q

Where is Net Income (loss) transferred to after nominal accounts are reduced to zero?

A

Retained Earnings

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3
Q

When are revenues recorded? Expenses recognized?

A

Revenues = when performed (performance obligation satisfied)

Expenses = when incurred (matching principle)

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4
Q

What is the usefulness of the Income Statement?

A

Evaluate past performance
Predict future performance
Help assess risk or uncertainty of achieving future cash flows

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5
Q

What is the formula for Earnings Per Share?

A

Net Income - Preferred Dividends / # Wt. Avg. Common Stock Shares Outstanding

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6
Q

What must happen if there are Changes in Accounting Principle (e.g. LIFO to FIFO)?

A

Must restate prior years (shown retrospectively)

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7
Q

What happens if there are Changes in Accounting Estimates?

A

No restatement to prior years (shown prospectively)

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8
Q

How are Correction of Errors shown?

A

Shown as prior period adjustment; must restate prior years

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9
Q

How are Net Sales calculated? (EXPECT THIS ON TEST)

A

Gross Sales - Sales Discounts - Sales Returns and Allowances

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10
Q

What are assets and liabilities recorded at on the Balance Sheet?

A

Either historical cost or fair value

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11
Q

What are Assets listed in order of?

A

Liquidity

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12
Q

What are Liabilities listed in order of?

A

Maturity

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13
Q

What is the Usefulness of the Balance Sheet?

A

Compute rates of return
Evaluate capital structure
Assess risk and future cash flows
Analyze liquidity, financial flexibility of the company

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14
Q

What is the purpose of the Statement of Cash Flows?

A

Provide relevant information about the cash receipts and cash payments of an enterprise during a period

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15
Q

What is Present Value?

A

The value now of a future amount
Amount invested now to produce a known future value
always smaller than the future value

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16
Q

What is Future Value?

A

Value at a future date of a given amount invested now
always greater than the present value

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17
Q

What is an Annuity

A

Requires periodic payments or receipts (called “rents”) of the same amount

18
Q

When does an Ordinary Annuity occur?

A

End of each period

19
Q

When does an Annuity Due occur?

A

Beginning of each period

20
Q

What is a Non-trade Receivable and an example?

A

Amounts owed to the business for reasons other than the normal sale of merchandise or services

E.g. income tax refunds receivable, advances to officers and employees

21
Q

TRUE OR FALSE: There is a requirement that the cost flow assumption (e.g. FIFO, LIFO, weighted-average) adopted be consistent with the actual physical movement of goods

A

False

22
Q

What is Specific Identification?

A

Identifying each item sold and each item in inventory

E.g. jewelry

23
Q

When does title pass in FOB Shipping Point?

A

When shipped

24
Q

When does title pass in FOB Destination?

A

When received

25
Q

What is the purpose of Net Realizable Value (NRV) and its formula?

A

For purposes of inventory valuation

Inventory decline in value could go below the original (historical) cost, but the market value exceeds NRV

Accounts Receivable - Allowance for Doubtful Accounts

26
Q

What is the basis for recording the acquisition of PP&E?

A

Historical cost

Reflects fair value
Involves actual transactions as is the most reliable

27
Q

What are the types of Costs Subsequent to Acquisition?

A

Additions
Improvements and replacements
Rearrangements and reinstallation
Repairs (usually expensed)

28
Q

What should happen if PP&E is disposed?

A

Asset and Accumulated depreciation is relieved from books
Recognize gain or loss

29
Q

What is the formula for depreciable base?

A

Cost - Salvage Value

30
Q

What happens if there is a Revision of Depreciation Rate or Life?

A

Report changes in current year and prospectively (no restatement)

31
Q

What is Depletion (Amortization) and what method is used?

A

Process of recording the consumption of natural resources

Units-of-Production method used

32
Q

What are Characteristics of Intangibles?

A

Long-lived
Result in future benefit
May be amortized over current and/or future years

33
Q

What is the formula for Valuation (e.g. patent valuation)?

A

Purchase Price + Legal Fees + Other Incidental Costs

34
Q

What are the Types of Intangibles?

A

-Marketing Related: trademarks
-Customer Related: customer lists
-Artistic Related: copyrights
-Contract Related: franchise and licensing agreements
-Technology Related: patents

35
Q

What must companies do when R&D is incurred?

A

Expense it

36
Q

What is Limited Life vs Indefinite Life?

A

Limited Life = amortize over useful life; credit intangible asset

Indefinite Life = no amortization; test for impairment

37
Q

What is the formula for Goodwill?

A

Purchase Price - Fair Value of Net Assets

Fair Value of Net Assets = (FV Assets - FV Liab)

38
Q

What are Characteristics of Liabilities?

A

Present obligation that entails settlement by probable future transfer or use of cash, gods, or services
Unavoidable obligation
Transaction or other event creating the obligation has already occurred

39
Q

What happens if there is a Gain Contingency?

A

Do NOT recognize, NO journal entry

40
Q

What are the three possible Loss Contingencies and what should you do for each?

A
  1. Probable:
    -Estimable: accrue on balance sheet as liability
    -Not Estimable: footnote disclosure
  2. Possible: footnote disclosure
  3. Remote: ignore

ACC-318: Intermediate Accounting I (4 decks)

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