Final Study Guide
Final Study Guide ACCT 225 001
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ACCT 324 002
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This 0 page Study Guide was uploaded by Katie Rosen on Monday December 7, 2015. The Study Guide belongs to ACCT 225 001 at University of South Carolina taught by Tuttle in Summer 2015. Since its upload, it has received 65 views. For similar materials see Introduction to Financial Accounting in Accounting at University of South Carolina.
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Date Created: 12/07/15
Accounting 225 Final Exam Study Guide 1 The advantages of owning a corporation include a difficulty in transferring ownership b less paperwork c limited liability 01 lower taxes 2 Preferred stock is called preferred because it usually has two preferences over common stock These preferences relate to a the preemptive right and voting rights b dividends and distribution of assets if the corporation is dissolved c par value and dividends d dividends and voting rights 3 The correct order from the smallest number of shared to the largest number of share is a Authorized issued and outstanding b Issued outstanding and authorized c Outstanding issued and authorized 01 Issued authorized and outstanding 4 If a company issues parvalue stock the amount credited to common stock will be a The total market value of all the shares issued b The difference between the market and the par value per share times the total number of shares issued c The amount the board of directors chooses to assign to the shares 01 The par value per share times the number of shares issued 5 Treasury stock Increases stockholders equity Has a normal credit balance Is recorded as an investment Decreases stockholders equity 9965 6 When treasury stock is resold total stockholders equity a Decreases b Increases c The effect depends on the relationship between the purchase price and resale price 01 Does not change 7 Retained Earnings a Increases stockholders equity b Decreases stockholders equity c Has a normal debit balance 01 Is equal to the balance in cash 8 Cash dividends are initially recorded on which date a Date of declaration b Balance sheet date c Date of record 01 Date of payment 9 We record cash dividends on the 10 11 12 13 14 15 16 Record date and payment date Declaration date and record date Declaration date record date and payment date Declaration date and payment date 9065 Both cash dividends and stock dividends Reduce total liabilities Reduce total stockholders equity Reduce retained earnings Reduce total assets 9965 Which of the following is not true a Noncumulative preferred stock carries the right to current year dividends b Noncumulitive preferred stock carries the right to unpaid dividends from prior years c Cumulative preferred stock carries the right to current year dividends d Cumulative preferred stock carries the right to unpaid dividends from prior years The PE ratio Tends to be higher for value stocks Tends to be lower for growth stocks Indicates how a stock is trading in relation to current earnings Typically is less than 1 9965 Earnings per share measures Net income earned per share of common stock Cash earned per share of common stock Net income earned per share of common and preferred stock Cash earned per share of common and preferred stock 99 we One of the primary reasons for investing in equity securities includes Deducting dividend payments for taX purposes Receiving dividend payments Acquiring debt for competing companies Earning interest revenue 99 we One of the primary reasons for investing in debt securities includes Receiving dividend payments Earning interest revenue Acquiring ownership control in other companies Deducting interest payments for taX purposes 99 75 On January 1 EcoSafe Packaging issues 100000 of 8 5year bonds with interest payable semiannually on June 30 and December 31 The market interest rate for bonds of similar risk and maturity is 6 Tasty Foods purchases all of the bonds for 108530 How much interest revenue would Tasty Foods record at the time it receives the rst semiannual payment of June 30 a 3256 b 4341 c 6512 1 8000 17 On January 1 EcoSafe Packaging issues 100000 of 8 5year bonds with interest payable semiannually on June 30 and December 31 The market interest rates for bonds of similar risk and maturity is 6 Tasty Foods purchases all of the bonds for 108530 Which of the following would correctly record Tasty Foods invest in bonds on January 1 a Cash 108530 Investments 108530 b Investments 108530 Cash 108530 c Investments 100000 Cash 100000 01 Cash 100000 Investments 100000 18 On November 17 Tasty Foods purchased 1000 shares 10 of EcoSafe Packaging s voting stock for 12 per share Because Tasty Foods intent in making the investment is to make a quick pro t by trading in the near term the investment is classi ed as a trading security By the end of the year EcoSafe Packaging s stock price has dropped to 10 per share How would the drop in stock price affect Tasty Food s net income for the year a Decrease net income by 2000 b Decrease net income by 12000 c Decrease net income by 10000 01 No effect 19 On January 1 Tasty Foods purchased 3000 shares 30 of EcoSafe Packaging s voting stock for 12 per share On December 31 EcoSafe Packaging reports net income 10000 and a total dividend payment of 2000 and the stock price has dropped to 10 per share For how much would Tasty Foods report its investment in EcoSafe Packaging at the end of the year a 30000 b 39000 c 36000 01 38400 20 On November 17 Tasty Foods purchased 1000 shares 10 of EcoSafe Packaging s voting stock for 12 per share Because Tasty Foods has no immediate plans to sell the stock the investment is classi ed as an availableforsalesecurity By the end of the year EcoSafe Packaging s stock price has dropped to 10 per share How would the drop in stock price affect Tasty Foods net income for the year a Decrease net income by 10000 b No effect c Decrease net income by 2000 01 Decrease net income by 12000 21 Which of the following is not true a Comparative nancial statements report numbers from two or more periods b A multi step income statement reports net income before income from operations c Current and noncurrent liabilities are separated on a classi ed balance sheet 01 Current and noncurrent assets are separated on a classi ed balance sheet 22 Assets are listed in order of a Alphabetical order b Importance c Liquidity 01 Size 23 Gross pro t is de ned as a All revenues minus all eXpenses b Sales revenue minus cost of goods sold c Sales revenue minus operating expenses 01 Income before income taX eXpense 24 Operating income is de ned as Income before income taX eXpense All revenues minus all eXpenses Sales revenue minus cost of goods sold Gross pro t minus operating eXpenses 9965 25 Which of the following is usually not included with nancial statements a Notes to the nancial statements b Invitation to the annual shareholder s meeting c Management s discussion and analysis 01 Independent auditor s report 26 Which of the following is the correct sequence of presenting the activities in the statement of cash ows a Operating activities investing activities nancing activities b Financing activities investing activities operating activities c Operating activities nancing activities investing activities 01 Investing activities nancing activities operating activities 27 The indirect and direct methods a Arrive at different amounts for net cash ows from operating activities b Are used by companies about equally in actual practice c Affect the presentations of operating investing and nancing activities 01 Are two allowable methods to present operating activities in the statement of cash ows 28 We can identify operating activities from income statement information and changes in Longterm liability accounts Stockholders equity accounts Current asset and current liability accounts Longterm asset accounts 99 we 29 Depreciation expense is added to net income in the statement of cash ows indirect method because 30 31 32 33 34 35 36 9965 Depreciation expense reduces net income but is a noncash item Cash was paid Cash was received Depreciation is tax deductible Which of the following is an example of a cash in ow from investing activities 9965 Receipt of cash dividends Receipt of interest Cash received from the sale of equipment Payment of cash dividends We can identify investing activities from additional information and changes in 906 Stockholders equity accounts Current assets and current liability accounts Longterm liability accounts Longterm asset accounts The issuance of common stock is classi ed in the statement of cash ows as an 9965 Operating activity Financing activity Noncash activity Investing activity The issuance of bonds payable is classi ed in the statement of cash ows as an 9965 Noncash activity Investing activity Operating activity Financing activity Which of the following is an example of a cash out ow from a nancing activity 9965 Payment of cash dividends Purchase of land Purchase of an intangible asset Payment of interest Which of the following is an example of a non cash activity 99 we Purchase of land using cash proceeds from issuance of common stock Purchase of land by issuing common stock Sale of land for less than its cost Sale of land for more than its cost Horizontal analysis examines trends in a company 9965 Between income statement accounts in the same year Between balance sheet accounts in the same year Between income statement and balance sheet accounts in the same year Over time 37 Which of the following is an example of horizontal analysis a Comparing gross pro t across companies b Comparing property plant and equipment with total assets c Comparing the growth in sales with the growth in cost of goods sold 01 Comparing operating expenses with sales 38 When using vertical analysis we express balance sheet accounts as a percentage of a Total stockholders equity b Total liabilities c Total Assets 01 Sales 39 When using vertical analysis we express income statement accounts as a percentage Of Sales Total Assets Gross Pro t Net Income 9065 40 Which of the following is classi ed as a liquidity ratio Debt to equity ratio Gross pro t ratio Inventory turnover ratio Pro t margin 9965 41 The sports Shack reports net income of 120000 sales of 1200000 and average assets of 960000 The asset turnover is a 080 times b 125 times c 8 times 01 010 times 42 The Sports Addition reports net sale of 2 million cost of goods sold of 1 million operating expenses of 500000 and other revenues and expenses of 100000 The company s gross pro t ratio is a 50 b 5 c 25 d 100 43 Which of the following is not a red ag Decreased cash ow Inability to collect receivables Increasing gross pro t ratio Buildup of inventory 99 we 44 How does simple interest differ from compound interest a Simple interest if for a longer time interval b Simple interest includes interest earned on the initial investment plus interest earned on previous interest c Simple interest is for a shorter time interval 01 Simple interest includes interest earned on the initial investment only 45 Present value represents a The value today of receiving money in the future b The difference between the initial investment and the growth of that investment over time c A series of equal payments d The amount that an investment today will grow to be in the future 46 Cooper wants to save for college assuming he puts 5000 into an account at the end of each year for ve years and earns 12 compounded annually how much will he have saved by the end of the fth year rounded to the nearest whole dollar a 14096 b 25000 c 18024 d 31764 47 What is the future value of 100 invested in an account for eight years that earns 10 annual interest compounded semiannually rounded to the nearest whole dollar a 220 b 214 c 218 01 216 VOCABULARY DEFINITIONS Accumulated De cit A debit balance in retained earnings Additional paid in capital The portion of the cash proceed above par value Angel investors Wealthy individuals in the business community willings to risk investment funds on a promising business venture Article of incorporation Describes the nature of the rm s business activities the shares to be issued and the composition of the initial board of directors Authorized stock The total number of shares available to sell stated in the company s articles of incorporation Convertible Shares can be exchanged for common stock Cumulative Shares receive priority for future dividends if dividends are not paid in a given year Declaration date The day on which the board of directors declared the cash dividend to be paid Dividends Distribution by a corporation to its stockholders Dividends in arrears Unpaid dividends on cumulative preferred stock Double taxation A corporation pays income taxes on its earnings and when dividends are distributed to stockholders the stockholders pay taxes a second time on the corporate dividends they receive Earnings per share Measures the net income earned per share of common stock Growth stocks Stocks that tend to have higher price earnings ratios and are expected to have higher future earnings Initial public offering The rst time a corporation issues stock to the public Issued stock The number of shares sold to investors includes treasury shares Limited liability Stockholders in a corporation can lose no more than the amount they invested in the company No par value stock Common stock that has not been assigned a par value Organization chart Trace the line of authority within the corporation Outstanding stock The number of shares held by investors excludes treasury shares Paidin capital The amount stockholders have invested in the company Par value The legal capital assigned per share of stock Payment date The date of the actual cash distribution of dividends Preferred stock Stock with preference over common stock in the payment of dividends and the distribution of assets Priceearnings ratio The stock price divided by earnings per share so that both stock price and earnings are expressed on a per share basis Privately held corporation Does not allow investment by the general public and normally has fewer stockholders Publicly held corporation Allows investment by the general public and is regulated by the securities exchange commision Record date A speci c date on which the company will determine the registered owners of stock and therefore who will receive the dividend Redeemable Shares can be returned to the corporation at a xed price Retained earnings Represents all net income less all dividends since the company began Return on equity Net income divided by average stockholders equity measures the income generated per dollar of equity Return on the market value of equity Net income divided by the market value of equity S corporation Allows a company to enjoy limited liability as a corporation but tax treatment as a partnership Stated value The legal capital assigned per share to no par stock Statement of stockholders equity Summarizes the changes in the balance in each stockholders equity account over a period of time Stock dividends Additional shares of a company s own stock given to stockholders Stock split A large stock dividend that include a reduction in the par or stated value per share Treasury stock A corporation s own stock that it has reacquired Value stocks Stocks that tend to have lower price earnings ratios and are price low in relation to current earnings Venture capital rms Provide additional nancing often in the millions for a percentage ownership in the company Asset turnover Sales revenue divided by average total assets measures the sales revenue generated per dollar of assets Cash ow to sales Net cash ows from operating activities divided by sales revenue measures the operating cash ow generated per dollar of sales Cash return on assets Net cash ows from operating activities divided by average total assets measure the operating cash ow generated per dollar of assets Direct method Adjusts the items of the income statement to directly show the cash in ows and out ows from operations such as cash received from customers and cash paid for inventory salaries rent interest and taxes Financing activities Includes cash transactions resulting from the external nancing of a business Indirect method Begins with net income and then lists adjustments to net income in order to arrive at operating cash ows Investing activities Includes cash transactions involving the purchase and sale of longterm assets and current investments Noncash activities Signi cant investing and nancing activities that do not affect cash Operating activities Includes cash receipts and cash payments for transactions relating to revenue and expense activities Statement of cash ows A summary of cash in ows and cash out ows during the reporting period sorted by operating investing and nancing activities Acidtest ratio Cash current investments and accounts receivable divided by current liabilities measures the availability of liquid current assets to pay current liabilities Aggressive accounting practices Practices that result in reporting higher income higher assets and lower liabilities Average collection period Approximate number of days the average accounts receivable balance is outstanding It equals 365 divided by the receivables turnover ratio Average days in inventory Approximate number of days the average inventory is held it equals 365 days divided by the inventory turnover ratio Conservative accounting practices Practices that result in reporting lower income lower assets and higher liabilities Current ratio Current assets divided by current liabilities measures the availability of current assets to pay current liabilities Debt to equity ratio Total liabilities divided by stockholders equity measures a company s solvency risk Discontinued operations The sale or disposal of a signi cant component of a company s operations Extraordinary item An event that is unusual in nature and infrequent in occurrence Gross pro t ratio Gross pro t divided by net sales measures the amount by which the sale price of inventory exceeds its cost per dollar of sales Horizontal analysis Analyzes trends in nancial statement data for a single company over time Inventory turnover ratio Cost of goods sold divided by average inventory the number of times the rm sells its average inventory balance during a reporting period Liquidity Refers to a company s ability to pay its current liabilities Priceearnings PE ratio Compares a company s share price with its earnings per share Pro t margin Net income divided by net sales indicates the earnings per dollar of sales Pro tability ratios Measure the earning or operating effectiveness of a company Quality of earnings Refers to the ability of reported earnings to re ect the company s true earnings as well as the usefulness of reported earnings to predict future earnings Receivable turnover ratio Net credit sales divided by average accounts receivable the number of times during a year that the average accounts receivable balance is collected Return on assets Net income divided by average total assets measure the amount of net income generated for each dollar invested in assets Solvency Refers to a company s ability to pay its longterm liabilities Times interest earned ratio Ratio that compares interest expense with income available to pay those charges Value stocks Stocks that have lower share prices in relationship to their fundamental ratios and therefore trade at lower PE ratios Vertical analysis Expresses each item in a nancial statement as a percentage of the same base amount MEW Cb Cddbaad Cb Gabb ab adbb debadcaCdbdabdccaCb aCdadC QLZ34561amp90LZ34561amp90L234561890L234561 123456700911111111112222222222333333333344444444
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