Financial Accounting Final Exam

Question 1

When is it appropriate to use special ID method

Answer 1

Companies will use special ID inventory methods when it is important to track specific inventory. This occurs at places with high-value items such as jewelry places

Question 2

Are FIFO and LIFO used with periodic and perpetual inventory systems or just one

Answer 2

FIFO and LIFO can be used as both perpetual and periodic inventory systems

Question 3

During rising prices which method results in the highest COGs, Net income, Lowest cogs, net income

Answer 3

When prices are rising LIFO produces the lowest net income and Cogs, and FIFO produces the highest net income and COGs

Question 4

During falling prices which method results in the highest COGs/net income and the lowest cogs and net income

Answer 4

When prices are falling the best method to use would be FIFO

Question 5

What are tangible plant assets or PP&E or fixed assets

Answer 5

Tangible plant assets are assets that have a useful life of more than one year and are used in the operation of a business. An example of this would be a building, equipment, machinery, ETC

Question 6

What costs can be incurred while acquiring an asset

Answer 6

Examples of costs that can be incurred from acquiring an asset would be the price of the asset itself, installation fees, delivery fees, potentially the cost of financing if needed,

Question 7

Revenue expenditures

Answer 7

Revenue expenditures can also be called operating expenses, they are costs incurred from day to day to activities. Examples include salaries, wages, utilities, rent, advertising, and COGS

Question 8

Capital expenditures

Answer 8

Capital expenditures refer to funds that are used to purchase, fix, or maintain plant assets.

Question 9

Depreciation

Answer 9

Depreciation is the process of allocating the price of an asset over the course of its useful life, this is done to account for the decline of value over time

Question 10

Accumulated depreciation

Answer 10

Accumulated depreciation that has been added up on a fixed asset over the course of its useful life

Question 11

Residual Value

Answer 11

Residual value refers to the estimated value of a fixed asset at the end of its useful life

Question 12

Book value

Answer 12

Book value is the net value of a firm’s assets found on its balance sheet

Question 13

Straight line depreciation method

Answer 13

A depreciation method where you divide the cost of an asset by its estimated useful life. (Cost of asset-Salvage value)/EUL

Question 14

Why do companies use half year convention rules

Answer 14

Companies use this method because it is considered to be a more accurate reflection of the amount of depreciation that actually took place considering it is broken up into half years

Question 15

Half year convention depreciation

Question 16

Liabilities

Answer 16

Liabilities debts or obligations that a company or individual owes to others

Question 17

Short term vs long term liabilities

Answer 17

Short-term liabilities are debts or obligations that are going to be paid within a year or less

Question 18

What is a bond

Answer 18

A bond is a loan made by an investor to a borrower (typically a government corporation) the borrower agrees to a specific interest rate until they pay back the principal amount

Question 19

Why do companies finance using bonds

Answer 19

Bonds can provide a predictable and stable source of funding for projects, they can obtain money at low-interest rates, issued in various allowances and maturities.

Question 20

Pros and Cons of financing with debt

Answer 20

Pros of financing with debt
Interest paid on debt is tax-deductible
A quick source of funds and easy to access
For companies with good cashflow its relatively low risk
Cons of financing with debt
Create financial obligations
Can create potential bankruptcy
interest rates can be high for some companies

Question 21

When is the account “Paid in capital” used

Answer 21

Paid-in capital is used when a company receives money in exchange for stock

Question 22

What does a stocks par value mean

Answer 22

Par value is the face value of a share of a stock which is determined by the company, usually from 0.01-1.00

Question 23

What does a stock’s market value mean

Answer 23

The value that the stock is trading for on the market at the time

Question 24

Legal Captial

Answer 24

The amount of money that a company has to keep legally as a minimum level of equity

Question 25

Paid in capital

Answer 25

amount of money a company has received in exchange for shares

Question 26

Retained earnings

Answer 26

Profits a company earns that goes back into the business to finance other operations

Question 27

Earned Captial

Answer 27

A portion of the company’s equity that is generated from its operations and financial performance

Question 28

Treasury stock

Answer 28

Stock that a company has repurchased from its shareholders

Question 29

Can you record basic common stock transactions, declarations of payment, dividends

Answer 29

Yes

Question 30

Basic rights of common stock holders

Answer 30

Rights to receive dividends
Right to vote on corporate decisions
Right to sell or transfer shares

Question 31

Basic rights of preferred stockholders

Answer 31

Right to receive fixed dividends
Receive dividends before common stockholders
Vote on certain matters

Question 32

Financing with equity

Answer 32

Pros of financing equity
Does not create financial obligations
The company can use the proceeds to expand
Strong balance sheet and health capital structure