General Purpose Financial Statements Flashcards
1
Q
How are current assets listed on the balance sheet?
A
Declining order of liquidity.
2
Q
What is another name for the balance sheet?
A
The statement of financial position.
3
Q
Define “measurement base”.
A
The attribute of an account being measured and reported.
4
Q
Define “net realizable value”.
A
The amount the firm expects to receive from the sale or collection of an item.
5
Q
What is the operating cycle?
A
The period of time from the purchase of inventory, to payment of the payable on inventory purchase, to the sale of goods, to the collection of receivable, and then to purchasing inventory all over again.
6
Q
What is a valuation account used for?
A
Used to increase or decrease the book value of an item to a measure of current value.
7
Q
Define “current liability”.
A
A liability expected to be extinguished through the use of current assets or by the incurrence of other current liabilities.
8
Q
Describe the formula for quick or acid test ratio.
A
(Cash + short-term investments + Accounts Receivable)/Current Liabilities.
9
Q
A contra account must have a credit balance.
A
FALSE
10
Q
Historical cost , market value, and present value are all measurement attributes presented on the balance sheet.
A
TRUE
11
Q
Could a firm with an operating cycle of three years in duration report as current a liability due two years from the balance sheet date?
A
YES
12
Q
All contra accounts are also valuation accounts.
A
FALSE
13
Q
Account Form is the term applied to the balance sheet format that shows assets on the left and liabilities and equity on the right.
A
TRUE
14
Q
An account balance of $10,000 may represent different attributes, depending on the account.
A
TRUE
15
Q
Are at least two formats for reporting balance sheet information found in common use?
A
YES
16
Q
Does accounting income take a transactions-based determination of income or a change in net worth?
A
Accounting income is transaction based.
17
Q
What represent increases in net assets or settlements of liabilities by providing goods and services?
A
Revenues.
18
Q
Define “losses”.
A
Decreases in equity or net assets from peripheral or incidental transactions.
19
Q
Define “gains”.
A
Increases in equity or net assets from peripheral or incidental transactions.
20
Q
Define “expenses”.
A
Decreases in net assets or incurrence of liabilities through the provision of goods or services.
21
Q
What items are not shown on the income statement?
A
Prior period adjustments;
Foreign currency translation adjustments;
Unrealized gains and losses on available for sale (AFS) securities;
Unrecognized pension items;
Cumulative effect of changes in accounting principle;
Unrealized gains and losses on cash flow hedges.
22
Q
What is economic income?
A
The change in the net worth of a business enterprise during an accounting period.
23
Q
How are unusual and/or infrequent items reported?
A
They must be separately reported if material as a component of income from continuing operations.
24
Q
What is the order of income statement presentation?
A
Income from Continuing Operations;
Income from Discontinued Operations (net of tax);
Net Income.
25
What is operating margin?
The excess of operating revenues over operating expenses.
26
What does the multiple-step income statement present?
Includes multiple subtotals of revenues, expenses, gains, and losses. (Sales - Cost of Goods Sold = Gross profit; Gross profit - operating expenses = income from operations; Income from operations + or ? other income / expenses= Income B/F Taxes; IBT ? taxes = Net Income.)
27
What does the single-step income statement present?
Total revenues and gains less total expenses and losses.
28
GAAP prescribes detailed reporting requirements for items appearing above continuing operations in the income statement.
FALSE
29
All inflows of assets are revenues.
FALSE
30
Prior period adjustment is not found below income from continuing operations in the income statement.
TRUE
31
All items of operating income would appear above income from continuing operations in the income statement.
TRUE
32
Gross margin is subject to intraperiod tax allocation.
FALSE
33
Both losses and expenses cause income to decrease and cause a benefit for the firm.
FALSE
34
A loss could be associated with the incurred liability.
TRUE
35
Intraperiod tax allocation requires that cumulative effects of accounting principle changes be reported net of tax.
TRUE
36
Unusual and infrequent items appear above income from continuing operations.
TRUE
37
Miscellaneous revenues and expenses appear below income from continuing operations in the income statement.
FALSE
38
One example of an expense is an increase in a liability from providing the firm's main service.
TRUE
39
Gains and revenues arise from the same transactions.
FALSE
40
Intraperiod tax allocation is the process that adjusts deferred tax accounts.
FALSE
41
Income from continuing operations is more indicative of future performance than is net income.
TRUE
42
The income tax expense account reflects the tax effect only on those items above income from continuing operations.
TRUE
43
What are the types of statements of other comprehensive income?
1) Single statement of net income and comprehensive income; and 2) two separate statements: a statement of net income and a statement of comprehensive income.
44
What is other comprehensive income (OCI) reclassification adjustment?
When an OCI item from previous year is removed from accumulated other comprehensive income (AOCI).
45
What type of account is accumulated other comprehensive income (AOCI)?
Owner's equity.
46
What are other comprehensive income items?
Unrealized gains and losses on securities available for sale, unrecognized pension gains and losses, foreign currency translation adjustments, certain derivative gains and losses.
47
What is net income plus or minus other components of comprehensive income?
Comprehensive income.
48
What are the two ways of reporting comprehensive income?
As a separate statement of comprehensive income or as part of the income statement.
49
What is comprehensive income?
Net income plus or minus unrealized gains and losses on securities available for sale, unrealized pension cost, certain unrealized gains and losses on derivatives, and foreign currency translation adjustments.
50
What is the main purpose of disclosing comprehensive income?
To report the net change in equity in a single amount.
51
What is comprehensive income?
Net income + other comprehensive income items.
52
What are the forms of the statement of comprehensive income?
Single statement and two statements.
53
Comprehensive income is a required disclosure.
TRUE
54
Unrealized loss on trading securities is not a component of comprehensive income.
TRUE
55
"Accumulated other comprehensive income" is the change in other comprehensive income for the reporting period.
FALSE
56
Net income is always included in comprehensive income.
TRUE
57
Foreign currency translation adjustment is not a component of other comprehensive income.
FALSE
58
Comprehensive income = net income + other comprehensive income.
TRUE
59
Comprehensive income includes all changes in owners' equity.
FALSE
60
Net income would not be included in "other" comprehensive income.
TRUE
61
Comprehensive income equals the net change in owners' equity for the period other than from transactions with owners.
TRUE
62
Comprehensive income can equal net income.
TRUE
63
Comprehensive income includes most nonowner changes in owners' equity.
TRUE
64
Comprehensive income may be disclosed at the bottom of the income statement, in a separate combined statement of income and comprehensive income, or in the owners' equity statement.
FALSE
65
If a firm discloses comprehensive income, it need not disclose net income.
FALSE
66
List the other names for Statement of Changes in Equity.
Statement of Changes in Owners' Equity, Owners' Equity Statement, Statement of Shareholders' Equity, and Statement of Owners' Equity.
67
In what type of format does the Statement of Changes in Equity appear?
The format is vertical and horizontal.
68
How are accounts listed in the vertical format?
They are listed in separate columns.
69
What do vertical format statements allow accountants to do?
Check accuracy by comparing total Owner's Equity (OE) computed as (1) the sum of each transaction affecting OE and (2) the sum of individual OE account balances.
70
Does accumulated other comprehensive income (AOCI) have its own column in the vertical format?
Yes, it has its own column.
71
How many years of Owners' Equity (OE) must be reported by Securities and Exchange Commission (SEC) registrants?
Three years of OE statements.
72
Is the Statement of Changes in Equity required under International Financial Reporting Standards (IFRS)?
Yes, it is required.
73
Retrospective change in accounting principle adjustments are to beginning retained earnings.
TRUE
74
Contributed capital from conversion of bonds would not be reported in the statement of changes in owners' equity.
FALSE
75
Three years of changes are required by the SEC in the statement of changes in owners' equity.
TRUE
76
Capital loans from owners would not be a component of the statement of changes in owners' equity.
TRUE
77
What is the basic purpose of the statement of cash flows?
The basic purpose is to provide information about the cash receipts and cash payments for an entity to help investors, creditors, and others.
78
When is a Statement of Cash Flows required?
For all business enterprises that report both financial position (Balance Sheet) and results of operations (Income Statement) for a period.
79
What is reported on the Statement of Cash Flows?
Information about the cash receipts and cash payments for an entity;
The difference between net income and net operating cash flows;
Information about investing and financing activities which do not involve cash inflows or outflows.
80
What is the reporting basis of the statement of cash flows?
The reporting basis is cash and cash equivalents.
81
List the required categories for the Statement of Cash Flows.
Net cash inflow or outflow from Operating Activities;
Net cash inflow or outflow from Investing Activities;
Net cash inflow or outflow from Financing Activities;
Effects of Foreign Currency Translation;
Reconciliation of net cash inflows/outflows with the reported change in cash and cash equivalents on the Balance Sheet;
Non-cash Investing and Financing Activities.
82
Name the four major sections in the direct method cash flow statement.
Operating cash flows;
Investing cash flows;
Financing cash flows.
Reconciliation of net income and net operating cash flows.
83
What is the cash flow category for collections of principal amounts on loans made to other entities?
The category is Investing.
84
Name the two formats permitted for the statement of cash flows.
Indirect.
| Direct.
85
What is the indirect method on the statement of cash flows?
Reconciles net income to cash flows from operating activities.
86
What is the direct method on the statement of cash flows?
This method presents actual inflows and outflows from cash operations. Must also disclose the indirect method (reconciliation of net income to cash flows from operations) as a supporting schedule.
87
What is the cash flow category for interest paid and received?
This category is Operating Activities.
88
What is the cash flow category for principal payments on short-term and long-term loans (from financial institutions or dealers) made to acquire plant assets?
The category is Financing.
89
What is the cash flow category for principal payments on short-term and long-term loans from financial institutions made to acquire inventory for resale?
The category is Financing.
90
What is the cash flow category for principal payments on short-term and long-term loans from suppliers made to acquire inventory for resale?
The category is Operating.
91
What is the cash flow category for loans made to other entities?
The category is Investing.
92
What is the cash flow category for dividends paid?
The category is Financing.
93
What is the cash flow category for purchases of securities available for sale?
The category is Investing.
94
What is the cash flow category for purchases of trading securities?
The category is Operating.
95
What are some examples of cash outflows classified as Financing Activities?
Repurchase of own stock;
Paying back lenders (principal only);
Payment of dividends.
96
What are some examples of cash inflows classified as Financing Activities?
Sale of own stock;
| Proceeds from borrowing.
97
What are some examples of cash outflows classified as Investing Activities?
Purchase of long-term assets;
Lending to others;
Investment in debt and equity securities held to maturity and available for sale);
Purchase of productive assets (not inventory).
98
What are some examples of cash inflows classified as Investing Activities?
Sale of long-term assets;
Collection of loan principal;
Disposal of held to maturity (HTM) and available for sale (AFS) debt and equity securities;
Sale of productive assets (not inventory).
99
Where are non-cash investing and financing activities reported?
They are reported on the face of the Statement of Cash Flows or as a separate disclosure.
100
Where is the cash effect on foreign currency translation reported?
It is reported as a separate part of the reconciliation of the change in cash and cash equivalents during the period.
101
Using the indirect method for reporting cash flows from operations, should a decrease in unearned revenue be added to or subtracted from accrual based net income?
A decrease in unearned revenue should be subtracted.
102
Using the indirect method for reporting cash flows from operations, should an increase in accounts payable be added to or subtracted from accrual based net income?
An increase in accounts payable should be added.
103
Using the indirect method for reporting cash flows from operations, should a decrease in inventory be added to or subtracted from accrual based net income?
A decrease in inventory should be added.
104
Using the indirect method for reporting cash flows from operations, should an increase in accounts receivable be added to or subtracted from accrual based net income?
An increase in accounts receivable should be subtracted.
105
What is the purpose of the operating section of the statement of cash flows under the direct method?
The purpose is to show all cash inflows and outflows for operating activities.
106
What is the purpose of the operating section of the statement of cash flows under the indirect method?
The purpose is to adjust accrual net income to net cash flow from operating activities.
