FINC Flashcards
Using the same inventory method from period to period is an example of what accounting principle?
Consistency / comparability
*What is meant by comparability when discussing financial accounting information?——Define the comparability principle.
Information that is presented and reported in a similar manner so that they can be compared to each other
Neutrality & Faithful Representation
Free from bias
The next accounting concept is neutrality, which means that financial statements must be free from errors or from other missions.
Financial statements cannot be prepared with the purpose to influence certain decisions, i.e. they might be neutral.
*What is predictive value?
Predictive valuerefers to the fact that quality financial information can be used to base predictions, forecasts, and projections on.
Financial annalists and investors can use past financial statements to chart performance trends and make predictions about future performance and profitability.
Define the relevance principle.
Information that is capable of making a difference when making a decision
Has to have predictive value or conformity value
Predictive value - has value as an input to predictive processes that investors use to form
Conformity value - helps users confirm or correct prior expectations
Materiality - when omitting or misstating information, this could influence decisions that users
would make on the basis of the financial statement information provided
*How are net assets affected when financial statements include investments by owners?
The elements of financial statements include investments by owners. These are increases in an entity’s net assets resulting from owners’
transfers of assets to the entity. satisfaction of liabilities of the entity. rendering services to the entity.
-Increase net assets
What are the components of comprehensive income?
Net Income
Unrealized gains/losses on hedges / derivatives
Foreign currency transaction gains / losses
Pension plan gain/losses
Know the difference between a loss and an expense.
Expenses - outflows or other using-up of assets or incurrences of liabilities
during a period from delivering or producing goods, rendering services, or carrying
out other activities that constitute the entity’s ongoing major or central operations
ie. cost of goods sold, depreciation, rent, salaries, and taxes
Losses - decreases in equity from peripheral or incidental transactions of an
entity except those that result from revenues or investments by owners
ie. Interest, sale of investments or fixed assets and write off of assets due to
impairments or casualty
*Know the definition of a receivable and trade receivable.
What are trade receivables ?
(Trade Receivables: purchases on account) allowed by customers for goods and/or services provided
(Receivables - claims) held against customers for money, goods, or services
Accounts Receivable
(with terms of due on receipt, net 10 days, 2/10, n/30)
*How should AR be presented from officers, employees, or affiliated companies on a balance sheet?
As assets but separately from other receivables.
An employee desires a $500.00 cash advance and is granted this advance
Employee Advance deb 500
Cash credit 500
*A decrease in net assets due to a peripheral or incidental transactions is a?
Loss
*What type of non-monetary exchanges may result in gains or losses?
-Acquisition of assets by assuming liabilities (including capital lease obligations) or
by issuing equity securities.
-Exchanges of non-monetary assets
-Refinancing of long - term debt
-Conversion of debt or preferred stock to common stock
-Issuance of equity securities to retire debt
*Understand partnership interests in exchange for service.
- Can exchange value in company for providing services.
- Exchange in similar interest for asset- now has same value that causes the company to have the same economic effect. One asset could earn more in the future-would have a gain
A decrease in net assets due to a peripheral or incidental transactions is a?
Loss
*When a plant asset is acquired by issuance of common stock, the cost of the plant asset is measured by the ?
How is the asset recorded?
*Market price of the stock.
Plant Asset - Debit XX. (Additional pd in capital)
Common Stock- Credit XX. (Value of common Stock)
APIC- Credit XX(Difference in Asset & common Stock
What intangible assets are not subject to amortization?
Trademarks
Goodwill
*What are treasury shares?
Issued but not outstanding stock.
- Market is saturated with your stock (not worth much) because there is too much supply. Trying to level stock price
- To prevent hostile takeover
*What must be disclosed when recording operating segments?
everything but liabilities
*Once it has been determined that a segment is to be reported, the following is the type of information that must be included for each segment:
No expenses, dep,income, equity-liabilities are not included
a. Revenues with external customers
b. Revenues with other operating segments
f. Unusual items
i. Extraordinary items
j. Other significant non-cash items not already included
*A partnership will be unable to pay $20,000 in liabilities that are currently due. What recourse is available to the partnership’s creditors?
They may seek remuneration from any partner they choose
*Thedisadvantagesof the partnership form of business organization, compared to corporations.
Unlimited liability for the partners
*If partnership owes liabilities and there is no financial opportunity of the partnership to pay those liabilities, what should the creditors do?
they go after their personal assets if not an LLC
Thedisadvantagesof the partnership form of business organization, compared to corporations
Unlimited liability for the partners
What is the primary advantage of a partnership in comparison to a corporation?
Tax advantage; Partnerships are taxed at the individual level and pay less taxes overall
A company went to court and successfully defended its patent from infringement. How will the cost of this defense be recorded?
It will be charged to patents and amortized over the remaining useful life of the patent
In January a newly formed company, issued 10000 shares of its $8 par common stock for $13 per share. On July 1 the company reacquired 1000 shares of its outstanding stock for $10 per share. How did the acquisition of these treasury shares affect stockholder equity?
Decreased total stockholders’ equity
