Principles of Accounting I
Principles of Accounting I ACCT 2101
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This 5 page Class Notes was uploaded by Darius Kessler Jr. on Monday October 12, 2015. The Class Notes belongs to ACCT 2101 at Gordon College taught by Karen McCarron in Fall. Since its upload, it has received 8 views. For similar materials see /class/222105/acct-2101-gordon-college in Accounting at Gordon College.
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Date Created: 10/12/15
Part 2 7 identification You are reviewing a set of financial statements and come across the following headings Indicate the financial statement you would expect to find the heading listed on and enter the letter at the top of the column that corresponds to the question number on the Scantron form Assume the direct format of the cash flow statement is being used Some items may appear on more than one statement or not at all Income Stockholders39 Part 3 iproblems 7 Enter the answers to the following problems in the space following each problem on the test Show all of your work if you want any credit Papers completed in ink will not be graded 1 Information about Space Travel Corporation which sells rocket engines is shown below Common shares outstanding 150000 Advertising expense 9000 Cost of goods sold 330000 Depreciation expense 13500 Income tax expense 15000 Income tax payable 7500 Interest expense 6000 Payments to owners 4500 Retained earnings 37500 Salaries expense 45000 Sales revenue 450000 Compute the following a gross profit b income from operations c net income d earnings per share for the period Test 1 Study Guide pagel Compare major types HOW THEY CREATE PROFIT of organizations and explain their purposes owners law firms Forms OWNers of organizations Proprietorship All liabilities and only one person s knowledge You get all the pro t Partnership Dotn have legal entities separate from owners Share liabilities Work load decreases Two people opinion Limited decision making 2 people knowledge Mutual agency Legal identity changes when property is sold Corporations Legal entity continuous life can resell stocks after owners die Can enter contracts to buyownsell property Have stockholders that aren t liable Pay taxes on income Double tax dividends Regulated by state and gov t agencies Resources owned by the company rather than owners Direct Taxation ofprofit Limited liability Stockholders aren t responsible Distinct Legal entity Controlled by board of directors Mangers risk ofmoral Hazard Temptation to produce nancial stm that favor the managers And not necessarily the stockholders When CFO managers have interest in the company Access to large amounts of capital Descrtibe how businesses create value purpose of an organization is to create value through transformations 2 a getting Are created to make transformations changing goods into usable materials for consumers What things create profits more for providing selling goods and services than it costs to provide the goods and services reflected in the accounting equation Assets Liabilities owner s equity Cash assets I Banking I Other nonicash Assets Liabilities Contributed Capital I Retained Values I I Stockholder s I Wage s payable Test 1 Study Guide pageZ s claims How is the pro t reported or communicated to owners investors and other interested parties Follow Exhibit 6Pro t Report Explain how accounting helps investors and other decision makers undersmnd businesses Return on investment I Pro t I I Amount invested I e E CliVe business is one that is successful in providing goods and services demanded by customers e icientbusiness is one that keeps the cost of resources consumed in providing goods and services low relative to the selling prices of these goods and services Even though less than 25 of all organizations are corporations corporations bring in 91 of all sales revenue Identify uses of accounting information for making decisions about corporations Contracts Legal agreements establish the rights and responsibilities of the contracting parties I Accountin can help evaluate the risk and return they can expect from their investments determine the amt of compensation that they will receive Investors creditors Test 1 Study Guide page3 Managers e mployees assess the risk and return of their employment contracts helps managers assess employee performance determine whether managers of companies they invest in are meeting the terms of their contracts Suppliers helps companies evaluate the abilities of their suppliers to meet their resource needs evaluate the risk ofa buyer not being able to pay for goods and services acquired assess the risks ofbuying from speci c companies and selling to specific customers Government agencies information to make taxation and regulatory decisions information about organizations as a basis for economic forecasts and planning The rules that tell the accountants how to put together the financial statements are called generally accepted accounting principles or GAAP FASB develops GAAP SEC enforces or requires that everyone follows them What is the moral hazard problem When is it a problem Temptation to produce financial stm that favor the managers And not necessarily the stockholders When CFO managers have interest in the company
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