ACG 2021 Final Exam Questions and answers, rated A+.

ACG 2021 Final Exam Questions and answers, rated A+. Which of the following would appear on an income statement? a. Cash b. All of these appear on income statements c. Retained earnings d. Accounts payable e. ...

ACG 2021 Final Exam Questions and answers, rated A+. Which of the following would appear on an income statement? a. Cash b. All of these appear on income statements c. Retained earnings d. Accounts payable e. Service revenue - ✔✔e. Service Revenue The income statement reports revenues, expenses, and net income. This information relates to Harold Corporation: Dividends, $5,000 Sales revenue, $75,000 Cash, $15,000 Salaries and wages expense, $20,000 Rent expense, $10,000 How much was its net income? - ✔✔Net income equals the revenues earned during the year minus the expenses incurred during the year. Net income = Revenue - expenses Net income = $75,000 - 20,000 - 10,000 = $45,000 Dividends is not an expense. In which of the following sequences are these financial statements usually prepared? a. The balance sheet is prepared before the retained earnings statement. b. The balance sheet is prepared before the inncome statement. c. The retained earnings statement is prepared before the income statement. d. None of these e. All of these - ✔✔d. None of these The financial statements are prepared in the following order: income statement, retained earnings statement, and balance sheet. This is because net income (from the income statement) is a required input for the retained earnings statement, ending retained earnings (from the retained earnings statement) is a required input for the balance sheet. Jeremiah Company recorded the following cash transactions for the year: Collected $460,000 from customers Collected $50,000 from lenders Paid $10,000 to purchase office equipment. Paid $140,000 for salaries. Paid $20,000 in dividends. Paid $260,000 of goods and services What was the company's net cash provided by operating activities for the year? - ✔✔Net cash flow provided by operating activities = $460,000 - 140,000 - 260,000 = $60,000 Purchasing office equipment (or any PPE) is an investing activity, NOT an operating activity. Chris's Maid Service began the year with total assets of $100,000 and stockholders' equity of $40,000. During the year the company earned $110,000 in net income and paid $5,000 in dividends. Total assets at the end of the year were $240,000. How much are total liabilities at the end of the year? - ✔✔40k + 110k -5k = 145k Ending SE Ending Assets is 240k. Use the accounting equation to find Ending Liabilities: Assets = Liabilities + Stockholders' equity 240k = L + 145k Solve for L, Ending Liabilities = 95k An annual report includes all of the following except: a management discussion and analysis section. an auditor's report. a listing of all of the stockholders. notes to the financial statements. an income statement. - ✔✔a listing of all of the stockholders. Primary Components of an Annual Report: Introduction Section Income Statement Balance Sheet Statement of Cash Flows Notes to Financial Statements May also include: A management discussion and analysis section. An auditor's report. When the auditor is satisfied that the financial statements provide a fair representation of the company's financial position and results of operation in accordance with generally accepted accounting principles, the auditor will express - ✔✔an unqualified opinion. unqualified opinion - perfect qualified opinion - not everything is in accordance with GAAP adverse opinion - really bad, possibly fraud, very much against GAAP procedure Which of the following is the correct order for listing assets on the balance sheet? Short-term investments, patents, cash, equipment Cash, short-term investments, land, and patents Short-term investments, cash, equipment, patents Cash, patents, land, and short-term investments Cash, short-term investments, inventories, patents, and land - ✔✔Cash, short-term investments, land, and patents The presentation of assets is: (i) current assets (ii) long-term investments (iii) property, plant, and equipment (iv) intangibles. Within current assets, items are listed in the order of liquidity. Cash is always listed first among current assets. Then, Short-term investments, Receivables, Inventory, Supplies, and Prepaid Rent/Insurance. Which of the following is a financial ratio classification that measures the income or operating success of a company for a given period of time? - ✔✔Profitability ratios There are three well-known financial ratio classifications including: (i) profitability ratios - measure the income or operating success of a company for a given period of time (ii) liquidity ratios - measure short-term ability of a company to pay its maturing obligations and to meet unexpected needs for cash (iii) solvency ratios - measure the ability of the company to survive over a long period of time At the end of the year, Blue Company had retained earnings of $2,840,000. During the year, the company issued stock for $108,000 and paid dividends of $43,000. Net income for the year was $402,000. How much was the retained earnings balance at the beginning of the same year? $1,816,000 $1,914,000 $2,481,000 $2,253,000 $2,154,000 - ✔✔$2,481,000 Ending retained earnings equals beginning retained earnings plus net income minus dividends. $2,840,000 = X + $402,000 - $43,000 Solve for X: Beginning retained earnings = $2,481,000. Issuing new shares of common stock will increase liabilities. decrease retained earnings. increase common stock. increase retained earnings. decrease common stock. - ✔✔increase common stock. The issuance of common stock increases the common stock account; **it does not affect retained earnings.** Jose Inc. reports the following balances and amounts. The following information is presented in random order (amounts are in dollars). Accounts payable, 125,000 Accounts receivable, 140,000 Accumulated depreciation—Equipment, 60,000 Cash, 100,000 Equipment, 400,000 Intangible assets, 20,000 Inventory, 200,000 Long-term investments, 80,000 Long-term liabilities, 200,000 Notes payable (short-term), 56,000 Prepaid insurance, 2,000 Salaries and wages payable, 8,000 Short-term investments, 80,000 Stockholders' equity, 493,000 How much is its working capital? - ✔✔**Working capital is current assets minus current liabilities.** Current assets = $140,000 + 100,000 + 200,000 + 2,000 + 80,000 = $522,000 Current liabilities = $125,000 + 56,000 + 8,000 = $189,000 Working capital = $522,000 - $189,000 = $333,000 Clawson Corporation has current assets of $3,150,000 and current liabilities of $2,250,000. If Clawson Corporation pays $500,000 of its accounts payable what will its new current ratio be? - ✔✔Current ratio equals current assets divided by current liabilities. Accounts payable is a current liability. Paying accounts payable reduces cash (i.e., current assets) and reduces accounts payable (i.e., current liabilities). Current ratio = ($3,150,000 − $500,000) ÷ ($2,250,000 − $500,000) Current ratio = 1.514 (i.e., 1.51 to 1 or 1.51:1) Even though the entry affects both the numerator and denominator of the ratio, you still have to recalculate. Bombay Corporation had $24,000 of cash at the beginning of the year and it had cash receipts of $21,000 during the year. At the end of the year, Bombay Company had $33,000 of cash. What was Bombay Corporation's cash disbusements for the year? - ✔✔The ending balance equals beginning cash minus cash disbursements plus cash receipts $33,000 = $24,000 + $21,000 - X Solve for X: Cash disbursements = $12,000. "cash receipts" is money coming in, "cash disbursements" is money going out What is the primary accounting standard-setting body in the United States? - ✔✔The Financial Accounting Standards Board, or the "FASB," is the primary accounting standard-setting body in the U.S. A company can change to a new method of accounting if management can justify that the new method results in: less likelihood of clerical errors. a lower net income for tax purposes. more meaningful financial information. a higher net income. - ✔✔Management can justify a new method of accounting if the financial information is more meaningful. The manipulation of financial accounting information to increase net income is usually not ethical. The manipulation of financial accounting information to lower net income for tax planning is usually not ethical. The consistency of clerical errors indicates a requirement for training and education within the company. Which of the following are constraints that allow a company to modify generally accepted accounting principles without jeopardizing the usefulness of the financial statements? Calendar constraint Timeliness and neutrality Consistency and comparability Relevance and faithful representation Cost constraint - ✔✔The cost constraint states that the cost that companies incur to provide information should be weighed against the benefit that financial statement users will gain from having the information available. Consistency and comparability must be maintained to comply with GAAP. These features allow comparisons from year-to-year and within the industry. Relevance and faithful representation must be maintained to comply with GAAP. These factors insure the financial information is factual, neutral, and timely for the decision makers. Timeliness and neutrality must be maintained for GAAP. These features preclude expired information or biased information from being provided to decision makers. Materiality is a characteristic or aspect of relevance. An item is considered to be material if - ✔✔its size is likely to influence the decision of an investor or creditor. Materiality is an aspect of relevance. An item of information is material if its size makes it likely to influence decision-making. Faithful representation means that information accurately depicts what really happened. Characteristics associated with faithfully representative accounting information include being - ✔✔complete, neutral, and free from error Faithful representation means information accurately depicts what actually happened. To provide a faithful representation, information must be complete (i.e., nothing important omitted), neutral (i.e., the information s not biased toward one position of another), and free from error. The assumption that requires only those things that can be expressed in money are included in the accounting records is the - ✔✔The monetary unit assumption requires that only those things that can be expressed in money are included in the accounting records. This means that certain important information needed by investors, creditors, and managers, such as customer satisfaction, is not reported in the financial statements. The notion that the life of a business can be divided into artificial time periods for financial reporting purposes is known as - ✔✔The periodicity assumption states that the life of a business can be divided into artificial time periods (such as a calendar or fiscal year or a quarter or a month) and that useful reports covering those periods can be prepared for the business. Carpenter Company receives cash in advance from customers. This transaction will immediately affect the - ✔✔balance sheet and cash flows statement only. When collecting cash in advance from customers, the company receives cash (which increases its assets) and increases its liabilities (the liability account is called unearned revenues). Thus, assets increase and liabilities increase by the same amount. Collecting cash also affects the cash flows statement. This transaction does not affect income statement accounts (e.g., revenues and expenses). It also does not affect retained earnings or the retained earnings statement. Payment of a dividend - ✔✔decreases cash and decreases retained earnings. Payment of dividends reduces cash and increases dividends. Dividends is a temporary account that will be closed at the end of the period (such as a year) and closing it will cause retained earnings to decrease. Which of the following is evidence that a transaction has occurred that needs to be recording in a company's accounting records? - ✔✔Source document The recording process does steps in a certain order. The first step is to analyze each transaction in terms of its effects on the accounts. What is examined is the transaction's source document (e.g., sales receipts is an example of a source document). A source documents is evidence that a transaction has occurred. By the way, the second step is to enter the transaction information in the journal (i.e., journalize the transaction). Which of these statements about a journal is false? It helps to locate errors because the debit and credit amounts for each entry can be readily compared. It contains only revenue and expense accounts. All of these are true. It provides a chronological record of transactions. It discloses the complete effect of a transaction in one place. - ✔✔It contains only revenue and expense accounts. A journal contains entries affecting all accounts, not just revenue and expense accounts. The journal does provide a chronological record of transactions. The journal does help