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ACCT II > PKU Accounting Final > Flashcards

PKU Accounting Final Flashcards

1
Q

Are purchased stocks of other companies assets?

A

Y

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2
Q

examples of noncurrent assets

A

PPE (property, plants, and equipment)

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3
Q

3 examples of cash

A

currency, bank deposits, investments witha maturity of 90 days or less

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4
Q

What is PPE?

A

tangible long-lived assets to be used in operations over time (not purchased for resale)

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5
Q

What cost are most assets reported?

A

Historical cost

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6
Q

Asset depreciation is recorded in the ____ as _____

A

income statement
expense – depreciation and amortization expense

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7
Q

Notes payable (def)

A

amount borrowed from creditors that are scheduled to be repaid more than 1 yr in the future

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8
Q

Owner’s equity (def)

A

company’s owners’ residual claim on assets after debts have been paid

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9
Q

Retained earnings (def)

A

total amount of earnings made by the firm over its lifetime - dividends paid to its shareholders

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10
Q

4 basic accounting assumptions

A

separate entity assumption
continuity assumption
time period assumption
unit of measure assumption

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11
Q

Separate entity assumption

A

the owner of the company is separate from the company itself
ex. X record personal financials

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12
Q

Continuity assumtpion

A

Company will not go bankrupt and will continue to operate in the foreseeable future

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13
Q

Time period assumption

A

accountant should divide up complex, ongoing activities of a business into periods. The precise time period covered is included in the heading of the IS and SoCF

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14
Q

Unit of measure assumption

A

all transactions must be consistently recorded using the same currency

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15
Q

For multinational companies, fin statements are usu reported in _____ currency

A

parent company’s

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16
Q

Why do we need adjusting entries

A

Some revenues and expenses are accrued and unrecorded; rev/exp affect more than 1 accounting period

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17
Q

Revenue recognition can affect multiple periods when (2)

A

company delivered products but has not collected cash
company collected cash but has not delivered products

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18
Q

Expense recognition can affect multiple periods when (2)

A

1) the comapny incurred exp to generate rev but has not yet paid cash for the exp
2) company paid for some exp before using the exp to generate rev

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19
Q

Matching principle

A

expenses should be recorded in the same period in which they are used to generate revenue

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20
Q

Depreciation

A

gradual reduction in the recorded value of an asset over its useful life by charging it to expense

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21
Q

Accumulated depreciation is classified as

A

conta asset

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22
Q

an item is “material” if _____

A

knowledge of the item might reasonably influence the decisions of users of financial statements

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23
Q

6 examples of items disclosed

A

1) lawsuits pending
2) schedules plant closings
3) governmental investigations
4) signif events occuring after BS date
5) specific customers that account for a large portion o revenue
6) unusual transactions and related party transactions

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24
Q

Clear the balance of ____ and ____ accounts, so that in the next period, these accounts start from zero balance

A

dividends and [is] accounts

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25
Q

Profitability and 3 measures

A

How is company’s ability to generate profits?
Return on assets (ROA)
Return on equity (ROE)
Net profit margin

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26
Q

Return on assets (ROA)
Return on equity (ROE)
Net profit margin
equations

A

1) net income/total assets
2) net income/total equity
3) net income/sales

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27
Q

Liquidity and 2 measures

A

Can the company pay off its ST liabilities
1) current ratio
2) cash ratio

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28
Q

Equations:
Current ratio
Cash ratio

A

current assets/current liabilities
cash /current liabilities

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29
Q

Cash def + 5 ex.

A

any deposit banks will accept
1) coins and paper $ 2) bank credit card sales 3) travelers checks 4) checks 5) money orders

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30
Q

cash equivalent
def + 2 ex

A

very safe + stable investments. usu maturity of 90- days
1) treasury bills 2) high-grade commercial papers

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31
Q

Restriction cash
def

A

cash held for a specific purpose and is not available for paying current liabilities

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32
Q

4 reasons for
Cash management

A

accurately account for cash
prevent theft and fraud
assure the availability of adeqaure amount of cash and anticipate need for borrowing
prevent unnecessarily large amounts of idle cash that produce no revenue

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33
Q

7 parts to
internal control over cash

A

1) sep f(x) o handling cash + maintaining accounting records
2) prep cash budget
3) req daily deposits o all cash reciepts
4) make all payments by check
5) rq that every expenditure be verified before payment
6) prep control listing o cash receipts
7) promptly reconcile bank statements

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34
Q

Statement of a depositor’s account to the depositor

A

explains the diff btwn cash reported on bank statement + cash balance in the company’s accounting records

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35
Q

–Ch 4–
4 steps to
Reconciling the bank statement

A

1) compare the deposits
2) adjust the bank statement
3) adjust the company’s own records
4) compare the balances

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36
Q

– 4 Reconciling the Bank Statement –
3 reasons to adjust the bank statement

A

1) add deposits in transit
2) deduct outstanding checks
3) add/deduct bank errors

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37
Q

– 4 Reconciling the Bank Statement –
3 reasons to adjust the company’s own records

A

1) add interest revenue
2) deduct service charges and NSF “not sufficient funds” checks
3) add/deduct errors

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38
Q

Accounts receivable is defined as a _____ asset

A

current
usu within 20-60 days

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39
Q

Net realizable value (eq)

A

Accounts receivable - allowance for doubtful accounts

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40
Q

–Estimating Credit Losses –
What is the Balance sheet approach? (3 steps)

A
  1. separate a.receivable into groups based on how long they are past due (age classifications)
    2) each age grouping has a diff likelihood of being uncollectible
    3) compute a separate allowance for each age grouping
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41
Q

–Estimating Credit Losses –
Income statement approach: What is the amount for the journal entry?

A

Net credit sales * % Estimated Uncollectible

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42
Q

–Estimating Credit Losses –
Difference between BS and IS approach

A

BS – estimate allowance, then record expense for increase in allowance; more accurate
IS – estimate expense for current period then add to that allowance

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43
Q

2 ways to get cash quicker from ac.receivable

A

1) factoring accounts receivable – co sell ac receivable to financial institutions for a lower price
2) credit card sales – co can deposit credit card payment directly into

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44
Q

What was the Huanrui Century Pictures example?

A

fabricated receipt of ac receivable
avoided recording expense for uncollectible accounts
higher net income

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45
Q

Promissory note (def)

A

terms and conditions of the repayment of a note receivable

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46
Q

Accounts Receivable Turnover rate (eq)

A

Net sales/ avg ac receivable

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47
Q

Days sales outstanding

A

365/ac receivable turnover ratio
avg number of days needed to collect ac receivable

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48
Q

Merchandising v Manufacturing companies

A

Purchase inventory in read to sell condition v
produce inventory from raw material; longer operating cycle

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49
Q

Perpetual v periodic inventory system

A

All transactions and costs - recorded immediately as they occur; uses inventory subsidiary ledger, T account for each type of inventory
v
only count them periodically

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50
Q

Reasons for inventory shrinkage

A

Breakage, spoilage, theft

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51
Q

4 inventory cost flow methods

A

1) specific cost identification 2) avg cost 3) FIFO 4) LIFO

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52
Q

COGS eq for periodic

A

beginning + purchase - ending inventory

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53
Q

FIFO LIFO effect on income

A

overstate net income
v
understate income saving the most taxes

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54
Q

Lower of Cost or Market Rule

A

inventory valued at lower of its cost or market value

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55
Q

When is a drop in inventory value material?

A

Loss is more than 2% of current net income

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56
Q

FOB shipping v destination point

A

ownership passes to the buyer at the point of shipment
ownership belongs to the seller until the goods reach its destination

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57
Q

Oriental Ocean example

A

large amount of write-dwons for sea cucumbers

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58
Q

inventory turnover

A

COGS/ avg inventory

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59
Q

days inventory outstanding

A

365/inventory turnover

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60
Q

credit terms format

A

discount/days offered, n/deadline for full

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61
Q

What else is considered part of the cost of the asset being aquired? (2)
3 ex

A

transportation cost and cost of getting asset ready to use
sales taxes, delivery costs, installation costs

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62
Q

Gross profit method (3 steps)

A

determine cog avail for sale
2) est cogs by multiplying the net sales by cost ratio
3) deduct cogs from cog available for sale

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63
Q

cost ratio eq for gross profit method v retail method

A

cogs/sales
v
retail price/cost

64
Q

gross profit ratio

A

(sales - cogs) / sales

65
Q

retail method (3 steps)

A

1) determine both historical and retail prices and goods avail for sales
2) compute cost ratio
3) est ending inventory by multiplying retail value of ending inventory by cost ratio

66
Q

Just in time inventories

A

purchases of raw materials just in time to process or completing goods just in time to ship to the customer

67
Q

capitalize def

A

recording a cost as an asset on the balance sheet

68
Q

PPE defined as (4 chara)

A

1) physical substance 2) used in operation of business 3) not intended for sale 4) expected to provide service to company for several years

69
Q

capitalize v depreciate
land improvements
remodeling/instruction
interest on loan to remodel

A

dep
cap
cap

70
Q

expense or capitalized once asset has been put in use
maintenence cost
improvement cost

A

expensed
capitalized

71
Q

–depreciation –
straight-line method

A

depreciation expense = (cost -residual value)/years of useful life

72
Q

–depreciation –
declining balance method

A

depreciation expense = remaining book value * accelerated depreciation rate

73
Q

China Southern airlines example

A

change in depreciation policy
less expenses –> higher net income

74
Q

Noncurrent assets (3 characterisitcs)

A

often provide exclusive rights or privleges
limited life or indef life
usu aquired for operational life

75
Q

Amortization

A

Systematic write-off of the cost of intangible assets over their useful life or legal life, whichever is shorter

76
Q

all expenditures classified as research and development should be charged to

A

expense when incurred

77
Q

Eq for depletion of natural resources

A

(cost - residual value)/ total unit natural resource

78
Q

Evidence of borrowing is issued when a company (3)

A

Obtains a bank loan
Purchases costly ppe or mech
3) replace a past-due account payable

79
Q

Amortization table steps

A

1) interest expense = unpaid * interest%
2) reduce unpaid by installment - interest expense

80
Q

4 types of bonds

A

1) mortage bonds
2) debenture bonds
3) convertible bonds
4) junk bonds

81
Q

bond prices =

A

% of face value (usually 1,000)

82
Q

contract rate

A

a bond’s stated rate of interest

83
Q

interest payment =

A

principle * contract rate * time

84
Q

Selling price of the bond =

A

present value of the bond + accrued interest since the last interest payment date

85
Q

bond issued at a discount v premium

A

company recieved a smaller amount of cash than the face value of the bond v larger

86
Q

discount rate aka effective interest rate

A

rate used to compute the PV of future cash flows

87
Q

carrying value of bond

A

bonds payable - discount on bonds payable

88
Q

If a bond is issued at discount, company must repay additional cost of borrow as a _____ which is ______ over its lifetime

A

interest expense
amortized

89
Q

bond prices vary _____ with changes in market interest rates

A

inversely

90
Q

bonds can be retired by

A

exercising a pcall provision
purchasing the bonds on the open market

91
Q

corporations 3 characteristics

A

1) created by law
2) rights and responsibilities are separate from those of its owners
3) assets and debts belong to the corp not its owners

92
Q

advantages of incorporation

A

1) limited personal liability for s.holders
2) ownership transferability
3) professional management
4) continuity of existence

93
Q

disadvantages of incorporation

A

1) heavy taxation
2) greater regulation
3) cost of formation
4) separation of ownership and management

94
Q

publicly owedn corporations must (4)

A

prep financial statements with GAAP
2) have fin statement audited by an indep CPA
3) comply w federal securities laws
4) submit fin info for SEC review

95
Q

3 stockholder rights

A

voting rights to elect director or set policies
2) proportionate distribution of dividends
3) proportionate distribution of assets in case of liquidation

96
Q

2 ways to increase S.Equity

A

1) paid-in capital – contributions by investors in exchange for capital stock
2) retention of profits earned by corporation – retained earnings

97
Q

outstanding v treasury shares

A

issued shares that are owned by stockholders
issued shares that have been required by the corp

98
Q

loss contingencies

A

existing uncertain situation that may reuslt in a possible loss

99
Q

loss contingencies are only reported as a liability if both:

A

likelihood that result = loss will occur
loss amount can be reasonably estimated

100
Q

commitments

A

contracts for future transactions; not a liability

101
Q

estimated liability

A

known to exist, but precise dollar amount cannot be determined until a later date

102
Q

accrued liabilities

A

recognition of expenses for which payment will be made in the future

103
Q

unearned revenue

A

cash collected from customer before revenue is earned, liability

104
Q

interest coverage ratio

A

operating income/ interest expense
margin of protection for creditors, higher = better

105
Q

3 special types of liabilities

A

leases – contracts where lessor gives lessee right to use an asset for x time for periodic rental payments
postretirement benefits – obligation of the employer for benefits that employees earn the right to recieve while they are working for that employer
deferred taxes – the portion of income taxes expense that is deferred to future tax returns as a result of timing diff btwn accounting principles and tax rules

106
Q

preferred stock

A

separate class of stock, typically having priority over common shares in 1) dividend distributions 2) distribution of assets in case of liquidation 3) cumulative dividend rights 4) usu callable by co 5) normally has no voting rights

107
Q

cumulative preferred stock

A

if all or part of the regular dividend on the preferred stock is omitted in a given year, the amount omitted is called divdend in arrears and must be paid in the next year before any dividend can be paid on common stock

108
Q

book value per share of common stock

A

(total s.equity - preferred stock and p.stock dividends in arrears)/number of common shares outstanding

109
Q

what is the price corporation records treasury stock

A

at cost (purchase price)

110
Q

dvidend characteristics (4)

A

declared by board of directors
not legally rq
created liability at declaration
rq sufficient REarnings and cash

111
Q

stock dividends

A

increasing each stockholders stock by some percentage, no change in par values

112
Q

prior period adjustments

A

correction of an error identified as affecting net income in a prior period; under statement of retained earnings

113
Q

prior period adjustment value

A

value forgotten * (1-tax rate)

114
Q

return on total assets

A

net income/ avg total assets

115
Q

return on common s.equity

A

net income/avh common s.equity

116
Q

comprehensive income

A

net income + other comprehensive income
released as its own statement or combined with net income on income statement

117
Q

how is a company’s investment in another valued?

A

cost method if ownership 0-20%
equity method if 20-50% ownership
consolidation if 50-100%

118
Q

cost method

A

investment is recorded at cost

119
Q

equity method

A

record investment at cost and subsequently adjusts investment account each period for the investors share of the associates net income and divdends received by the investor

120
Q

2 types of securities (2+2)

A

debt investments – trading securities and held-for-collection securities
share investments – trading investments and non-trading securities

121
Q

trading v non-trading v held-for-collection

A

trading – sell soon, record at fair.v and changes as net income
non-trading – hold for a while and see how they before, record at fv and changes - part of equity
held-for-collection – hold until maturity

122
Q

other comprehensive income

A

gains and losses that have not been realizes yet and are excluded from net income on an income statement

123
Q

accumulated other comprehensive income

A

equity account that accumulates OCIs over time

124
Q

earning per share

A

net income/ common shares

125
Q

price earnings ratio and meaning

A

market price per share of common stock/earnings per share of common stock

rep how much the market is willing to pay per dollar of a company’s earnings

126
Q

3 types of cash flows and their def

A

operating – related ot main busi operation
investing – related to fin investments or LT assets
financing – activities related to funding

127
Q

what is under investing activites?

A

cash proceeds from selling investments and intangible assets; collecting principal amounts on loans

128
Q

indirect method for cash flows from operations

A

start from net income and make adjustments to arrive at new cash flow from operations

adjustments made for noncash expenses (depreciation expense and amortization), nonoperating gains and losses, timing differences

129
Q

direct materials

A

raw materials and component parts used in production
can be traced directly to the specific products manufactured

130
Q

direct v indirect labor

A

direct labor hrs * wage rate; work directly on goods being manufactured

part of manufacturing overhead

131
Q

What does manu o/h include and not include?

A

incl/ supervisors, depreciation, utilities
DOES NOT INCL selling or general and admin expenses (not related to the production of goods)

132
Q

3 cost accounting systems

A

absorption – all manu costs in the cost of product
variable – all variable manu costs in cost of product
activity based costing – multiple OH rates to allocate manu OH costs for different activites

133
Q

what can absorption costing be separated into

A

job order costing

process costing

134
Q

job order costing

A

use predetermined overhead rate = est total overhead cost/estimated total units in activity base for coming period
uses a job cost sheet

135
Q

material requsition form and time ticket

A

– absorption costing.job order costing.job cost sheet–
authorizes the use of materials on a job

work record

136
Q

where do fixed costs go in absorption and variable costing?

A
  1. capitalized as inventory
    more inventory than sold = higher profit
  2. expensed
137
Q

product v period costs

A

costs directly related to the production of a product
not directly related to specific product; selling and administrative expenses

138
Q

flow of product costs

A

materials inventory + direct materials = WIP inventory + direct labor + manu o/h = finished goods inventory –> COGS

139
Q

contribution margin

A

revenue - variable costs

140
Q

break even point in units and in dollars

A

fixed units / contribution margin per unit

fixed costs/ contribution margin ratio: unit contribution margin/unit sales price

141
Q

margin of safety

A

actual sales - break even sales

142
Q

sales mix

A

relative combination in which a company’s different products are sold

143
Q

high low method

A

take highest - lowest cost period
estimate VC per unit
estimate FC

144
Q

3 assumptions of CVP

A

limited range of activity where CVP relationships are linea
2. sales mix - constant
3. production = sales

145
Q

out of pocket costs

A

costs that have not yet been incurred and may vary among the possible courses of action

146
Q

special order decisions

A

should be based on incremental costs and incremental revenues (what youll get/give if you do it)

147
Q

profit center v investment center v cost center

A

control over both costs and revenues but no control over investment funds
profit center where management also makes capital investment decisions

control over incurrence of costs but no control over revenues or investment funds

148
Q

financial budget

A

plans for sources o funds and capital expenditures, externally focused

149
Q

2 apporaches to setting budget amounts

A

behavioral approach – reasonable and achievable budget amounts
total quality management approach – set at absolute efficeincy

150
Q

ROI

A

operating income/avg total assets
capital turnover * reutrn on sales

151
Q

3 ways to imporve roi

A

increase sales prices
decrease expenses
lower invested capital

152
Q

residual income

A

operating earnings - (investment capital * minimul reutn * minimum return)

153
Q

economic value added

A

after tax operating income - (total assets - current liabilities)*weighted avg cost of capital

154
Q

4 parts of balanced scorecard lens

A

financial, customer, business porcess, learning and grotwh perspective

155
Q

where does US file financial reports?

A

EDGAR

156
Q

What is disclosed in financial reports? (3+3)

A

financial information – 1) management discussion and analysis 2) audit opinion 3) financial statements; notes to fin statements
non-financial information – 1) internal control 2) corporate social responsibility 3) environmental, social, and governance

157
Q

3 steps of auditing financial reports (1, 4, 4)

A

audit standard – AICPA
.process – planning, risk assessment, testing and evidence, reporting
.opinion – unqualified opinion, qualified opinion, adverse opinion, disclaimer of opinion

ACCT II (4 decks)

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