Financial Accounting: A Business Process Approach 3rd Edition

CHAPTER 1 BUSINESS: WHATS IT ALL ABOUT? CHAPTER OVERVIEW The chapter begins with a discussion of the purpose of a business, including a discussion of both for-profit organizations and not-for-profit organizations. Next, the nature of business operations is discussed. The four types of businesses are discussed: service, merchandising, manufacturing, and financial services. The

CHAPTER 1 NAME ___________________________________ TEN-MINUTE QUIZ SECTION _____________ DATE____________ _____________________________________________________________________________ _ _____ 1. The primary purpose of a business is to: a. Pay taxes to the IRS b. Sell a product c. Sell goods and/or services to make a profit for the owner(s) d. Help others _____ 2. Sources of capital include: a. Owners (investors) b. Creditors (lenders) c. Both A and

CHAPTER 10 USING FINANCIAL STATEMENT ANALYSIS TO EVALUATE FIRM PERFORMANCE CHAPTER OVERVIEW The chapter begins with a closer look at the income statement. Specifically, the discussion centers on separately reported items on the income statement, including discontinued operations and extraordinary items. The definition and accounting treatment for each of these items is briefly covered. The

CHAPTER 10 NAME ___________________________________ TEN-MINUTE QUIZ SECTION _____________ DATE____________ _____________________________________________________________________________ _ _____ 1. Items separated from the regular earnings of a company include: a. Discontinued operations b. Extraordinary items c. Loss on sale of equipment d. Two of the above _____ 2. To be reported as an extraordinary item, the event must be: a. Unusual and infrequent b. Unusual and

CHAPTER 11 QUALITY OF EARNINGS, CORPORATE GOVERNANCE, AND IFRS CHAPTER OVERVIEW Students start this final chapter by analyzing why earnings are important. The definition of quality of earnings, as well as a discussion of measurement techniques, is included. Common ways to manipulate earnings are given. These include big bath charges, cookie jar reserves, and

CHAPTER 11 NAME ___________________________________ TEN-MINUTE QUIZ SECTION _____________ DATE____________ _____________________________________________________________________________ _ _____ 1. A term accountants use to describe how well a particular earnings number communicates the firms true performance is: a. Earnings per share b. Net income c. Earnings growth ratio d. Quality of earnings _____ 2. Which of the following is not a method used to manipulate

CHAPTER 2 QUALITIES OF ACCOUNTING INFORMATION CHAPTER OVERVIEW The chapter begins with a discussion of the qualities of accounting information. First, the point is made that accounting information is used to make decisions. Next, the qualitative characteristics of accounting information are discussed: relevance, reliability, consistency, and comparability, all mitigated by cost-benefit and materiality. The second part

CHAPTER 2 NAME ___________________________________ TEN-MINUTE QUIZ SECTION _____________ DATE____________ _____________________________________________________________________________ _ _____ 1. Generally accepted accounting principles (GAAP) are established by: a. Internal Revenue Service (IRS) b. U.S. Congress c. Financial Accounting Standards Board (FASB) d. GAAP Commission _____ 2. The information in a financial statement relates to a specific business or company. The owners personal financial records are not

CHAPTER 3 ACCRUALS AND DEFERRALS: TIMING IS EVERYTHING IN ACCOUNTING CHAPTER OVERVIEW The chapter begins with a discussion of how income (also called net income, net profit, or net earnings) is measured over a particular period of time (month, quarter, or year). In order to measure earnings for a period of time, we have

CHAPTER 3 NAME ___________________________________ TEN-MINUTE QUIZ SECTION _____________ DATE____________ _____________________________________________________________________________ _ _____ 1. An accrual is a transaction in which: a. The recognition occurs before the exchange of cash b. The exchange of cash occurs before the recognition c. The exchange of cash and recognition occur at the same time d. The exchange of cash will not occur _____

CHAPTER 4 PAYMENT FOR GOODS AND SERVICES: CASH AND ACCOUNTS RECEIVABLE CHAPTER OVERVIEW The chapter begins with a discussion of cash collections that focuses on control over cash, emphasizing the bank reconciliation as a critical control function. A complete bank reconciliation example is presented. Next, there is a presentation of selling on credit and the

CHAPTER 4 NAME ___________________________________ TEN-MINUTE QUIZ SECTION _____________ DATE____________ _____________________________________________________________________________ _ _____ 1. Segregation of duties means that the person who has physical custody of an asset is not the same person who has _______ responsibilities for that asset. a. purchase b. sales c. record-keeping d. all of the above _____2. On the bank reconciliation, outstanding checks are: a.

CHAPTER 5 THE PURCHASE AND SALE OF INVENTORY CHAPTER OVERVIEW The chapter begins with an overview of the purchase and sale of inventory cycle. This leads to a discussion of merchandise inventory, how inventory is purchased (including purchase discounts, purchase returns and allowances, and shipping costs), and the physical flow of inventory through a

CHAPTER 5 NAME ___________________________________ TEN-MINUTE QUIZ SECTION _____________ DATE____________ _____________________________________________________________________________ _ _____ 1. Merchandise inventory is classified as a: a. Long-term asset b. Current liability c. Current asset d. Revenue _____ 2. Discount terms of 1/10, n/45 mean: a. 10% discount if paid within 45 days b. 1% discount if paid within 10 days c. 1% discount if paid within 45 days d.

CHAPTER 6 ACQUISITION AND USE OF LONG-TERM ASSETS CHAPTER OVERVIEW The chapter begins with an introduction of long-term assets (fixed assets). An overview of the acquisition of long-term assets is presented, including a discussion of tangible and intangible assets. This section also discusses acquisition costs and basket purchase allocation. The next part of the

CHAPTER 6 NAME ___________________________________ TEN-MINUTE QUIZ SECTION _____________ DATE____________ _____________________________________________________________________________ _ _____ 1. Long-term assets are assets that will be: a. Used up in one accounting period b. Used for more than one accounting period c. Converted into cash within one year d. Sold in the near future _____ 2. Assets that you can see and touch are: a. Long-term

CHAPTER 7 ACCOUNTING FOR LIABILITIES CHAPTER OVERVIEW The chapter begins with a discussion of types of liabilities: definitely determinable and estimated. Accounting for payroll, warranties, long-term notes payable, and mortgages are presented. The next part of the chapter introduces bonds. Examples are provided that show how bonds are issued and how periodic interest payments

CHAPTER 7 NAME ___________________________________ TEN-MINUTE QUIZ SECTION _____________ DATE____________ _____________________________________________________________________________ _ _____ 1. Long-term notes payable is an example of a(n): a. Liability b. Asset c. Equity d. Expense _____ 2. Interest on a $1,000, six-month loan, at 8% would be: a. $80 b. $40 c. $800 d. $160 _____ 3. Which of these accounts is not a definitely determinable liability? a. Accounts payable b. Warranty

CHAPTER 8 ACCOUNTING FOR SHAREHOLDERS EQUITY CHAPTER OVERVIEW The chapter begins with a discussion of contributed capital, including common stock, par value, additional paid-in capital, and dividends. The next part of the chapter covers treasury stock. Possible reasons for purchasing treasury stock, along with the effect on the financial statements, are presented. This

CHAPTER 8 NAME ___________________________________ TEN-MINUTE QUIZ SECTION _____________ DATE____________ _____________________________________________________________________________ _ _____ 1. Shareholders equity is made up of: a. Contributed capital and preferred stock b. Assets and liabilities c. Contributed capital and retained earnings d. Common stock and capital stock _____ 2. Common stockholders generally have which of the following rights? a. Right to vote for members of

CHAPTER 9 PREPARING AND ANALYZING THE STATEMENT OF CASH FLOWS CHAPTER OVERVIEW The chapter begins with a presentation of the importance of the statement of cash flows, focusing on the necessity of management and external users to monitor the cash flows of a business. Next there is a general discussion of the two methods of

CHAPTER 9 NAME ___________________________________ TEN-MINUTE QUIZ SECTION _____________ DATE____________ _____________________________________________________________________________ _ _____ 1. Two methods of preparing the statement of cash flows are the: a. Direct and operating methods b. Indirect and investing methods c. Direct and indirect methods d. Operating and investing methods _____ 2. The difference between the direct method and the indirect method applies only

1) An ERP includes ________. A) accounting information for financial statements B) human resources information C) information about production and distribution of products D) all of these Answer: D XOAXOA: 1 XOAXOA: LO B-1 Answer: D XOAXOA: 1 XOAXOA: LO B-1 Answer: D XOAXOA: 1 XOAXOA: LO B-1

14) Which of the following will cause the adjusted trial balance to be out of balance? A) An adjusting entry to record the cost of supplies used was recorded as a $200 debit to Supplies expense and a $200 debit to Supplies. B) An adjusting entry to record the

Answer: A. Date Transaction Debit Credit 12/31/11 Depreciation expense 12,000 Accumulated depreciation 12,000 To record depreciation for the year ____________________________________________________________ 12/31/11 Interest expense 3,300 Interest payable 3,300 To record interest expense for the year _____________________________________________________________ 12/31/11 Salary expense 10,000 Salary payable 10,000 To accrue salary expense at year end

1) The ownership structure of a business includes the following forms ________. A) individual, group, and corporate B) sole proprietorship, partnership, and corporation C) service, manufacturing, and financial D) debtors, creditors, and owners Answer: B XOAXOA: 1 XOAXOA: LO 1-1 Answer: B XOAXOA: 1 XOAXOA: LO 1-1 Answer: B

3) The stock exchange is ________. A) where all companies must register to exchange goods and services B) regulated by the Securities and Exchange Commission (SEC) C) regulated by the Internal Revenue Service (IRS) D) regulated by the Public Company Accounting Oversight Board (PCAOB) Answer: B XOAXOA: 1 XOAXOA:

39) Assume 2011 is the company's first year of business. There were no dividends declared in 2011 and $100 of dividends declared in 2012. For the year ended For the year ended December 31, 2011 December 31, 2012 Revenues $ 300 $ 2,500 Expenses $ $

92) Classify the following accounts according to the appropriate balance sheet category. a. Assets b. Liabilities c. Shareholders' equity _____ 1. Common stock _____ 2. Retained earnings _____ 3. Notes payable _____ 4. Cash _____ 5. Inventory _____ 6. Land Answer: c, c, b, a, a, a

14) Team Instructions: Divide the class into teams of three or four people. Each team member should work the following problem separately outside of class. Then give the students time in class to compare answers with their teammates and put together a final correct copy of the problem. Each

1) The financial statements used to analyze companies include all of these statements EXCEPT the ________. A) balance sheet B) income statement C) statement of cash flows D) statement of shareholders' rights Answer: D XOAXOA: 1 XOAXOA: LO 10-1 Answer: D XOAXOA: 1 XOAXOA: LO 10-1 Answer: D

36) Refer to the Ace Electronics annual report above. Using vertical analysis, 2012 Net income would be represented as ________. A) 28% B) 26% C) 18% D) 15% Answer: D XOAXOA: 2 XOAXOA: LO 10-2 Answer: D XOAXOA: 2 XOAXOA: LO 10-2 Answer: D XOAXOA: 2 XOAXOA: LO 10-2

54) Refer to the Acme annual report above. Calculate return on equity for 2012. A) 39.3% B) 49.0% C) 32.7% D) The answer cannot be determined from the information given. Answer: B XOAXOA: 2 XOAXOA: LO 10-3 Answer: B XOAXOA: 2 XOAXOA: LO 10-3 Answer: B XOAXOA: 2 XOAXOA:

Answer: 1. $48,737 / $16,877 = 2.89 2. $49,010 / $22,442 = 2.18 3. no 4. $16,605 / $16,877 = 98.4% 5. $14,404 / $22,442 = 64.2% 6. no 7. $6,031 / [($491 + 421) / 2] = 13.23 8. $7,650 / [($1,478 + 491) / 2] = 7.77

113) Match each of the following items with the appropriate definition. Each item is used only once. a. profitability ratios b. debt-to-equity ratio c. return on equity ratio d. solvency ratios e. dividend yield ratio f. market indicator ratios g. vertical analysis h. price/earnings ratio i. liquidity ratios

1) Earnings per share equals ________. A) retained earnings divided by dividends B) net income divided by the weighted average shares of outstanding common stock C) earnings divided by preferred shares outstanding D) net income divided by average total assets Answer: B XOAXOA: 1 XOAXOA: LO 11-1 Answer:

23) Recognizing revenue that belongs in future accounting periods is the type of manipulation where management maximizes its earnings to meet analysts' expectations. Answer: TRUE XOAXOA: 1 XOAXOA: LO 11-3 Answer: TRUE XOAXOA: 1 XOAXOA: LO 11-3 Answer: TRUE XOAXOA: 1 XOAXOA: LO 11-3 24) The big bath theory

C) the external auditors D) the PCAOB Answer: B XOAXOA: 1 XOAXOA: LO 11-5 Answer: B XOAXOA: 1 XOAXOA: LO 11-5 Answer: B XOAXOA: 1 XOAXOA: LO 11-5 13) Who is responsible for hiring, paying, and overseeing the work done by a company's external auditors? A) management B) the

1) Net income equals ________. A) the gross profit on a sale B) operating income minus cost of goods sold C) the increase in cash for the period D) revenue minus expenses Answer: D XOAXOA: 1 XOAXOA: LO 2-1 Answer: D XOAXOA: 1 XOAXOA: LO 2-1 Answer: D XOAXOA:

15) The four basic financial statements are the ________. A) income statement, balance sheet, statement of changes in shareholders' equity, and cash budget B) income statement, balance sheet, cash budget, and statement of cash flows C) income statement, balance sheet, statement of changes in shareholders' equity, and statement of

23) Clean Sweep contracted to clean an office building in July for $1,500. The work was contracted in July. The building was completely cleaned in August and Clean Sweep received a payment of $500. The remaining payment of $1,000 was received in September. Discuss how this event would be

16) Team Instructions: Divide the class into teams of three or four people. Each team member should work the following problem separately outside of class. Then give the students time in class to compare answers with their teammates and put together a final correct copy of the problem. Each

1) The revenue recognition principle requires that revenue be recognized in the accounting records ________. A) when cash is received B) when it is earned C) at the end of the accounting period D) in the period the income taxes are paid Answer: B XOAXOA: 1 XOAXOA: LO 3-1

7) Hen House, Inc. collects all subscription revenue in advance. At December 31, 2011, the company owed $50,000 to customers for unearned revenue. During 2012, the company received $150,000 in advance from its customers and delivered $190,000 of magazines to its customers. How much unearned revenue will Hen House

75) Enoch, Inc. began operations on July 1, 2011. On August 1, it received $12,000 in advance for services to be performed evenly over the next 12 months. How much of this revenue should the company report on its income statement for the MONTH ended August 31, 2011? A)

policy that covers all of its drilling equipment around the world. The company recorded the purchase as prepaid insurance. Complete the chart below: Cash Paid Insurance Expense Prepaid Insurance Year ended Dec. 31, 2009 $ $ $ Year ended Dec. 31, 2010 $ $ $ Year ended

Answer: Part A: Assets Liabilities Shareholders equity CC Retained earnings 1 (1,000) Prepaid insurance (1,000) Insurance expense 2 +3,200 Unearned revenue (3,200) Rental income 3 +1,250 Salaries payable (1,250) Salaries expense 4 +300 Inventory + 300 Accounts payable 5 + 300 Interest receivable + 300 Interest income Part B:

13) Airing & Spelling, Inc. began operations on January 1, 2011. The following amounts were obtained from its information system on December 31, 2011. These amounts are before any year-end adjustments have been made: 1. Accounts receivable $10,000 12. Interest payable 0 2. Accumulated depreciation 0

16) Part A: Enter the March transactions and adjustments in the accounting equation below. 1. March 1 Collected $6,000 of its accounts receivable from February sales. 2. March 1 Tims Tams paid $1,000 for two months rent beginning March 1. 3. March 1 Borrowed $16,000 on a 4-month,

1) The operating cycle for a merchandising firm is ________. A) obtain cash from stockholders, invest cash in equipment, earn more cash B) borrow cash from lenders, earn cash from customers, repay lenders C) start with cash, buy inventory, sell inventory to customers, collect cash from customers D)

77) Idaho Company made the following purchases during the month of October. October 6 Purchased $15,000 of merchandise, terms 2/10, n/30, FOB destination, freight cost $100 October 14 Purchased $12,000 of merchandise, terms 2/15, n/60, FOB shipping point, freight cost $100 October 22 Purchased $18,000 of merchandise, terms

28) Mighty Ducks, Inc.s inventory activity in October 2011 was as follows: Inventory, October 1 11 units @ $8 each Purchase, October 12 22 units @ $11 each Sale, October 25 23 units @ $24 each Which of the following shows the correct effect on the accounting

61) Match the statements below with the appropriate cost flow method. Some methods may be used more than once and others may not be used at all. F = FIFO L = LIFO W = Weighted average method S = Specific identification method ______ 1. the cost

14) At December 31, Payless, Inc. reported inventory on the balance sheet at its cost of $200,000. However, the market value of the inventory at that date was $190,000. Put an X in the appropriate box to show the effect of continuing to report the inventory at cost:

Part D: Part E: Part F: 1. 38.75%; 2. Increases in cost of the goods and decreases in price may explain a decrease in the gross profit ratio; 3. 2.5 times; 4. No; 5. 0.8 to 1.0; 6. a) lower, b) higher. XOAXOA: 3 XOAXOA: Analytic skills, Communication abilities,

1) Depreciation is ________. A) the loss in market value of an asset B) the allocation of a long-term assets cost to an expense account over the assets life C) an increase in an assets value over time or usage D) the revenue earned by a long-term asset

48) On January 1, 2011, the Peninsula Paper Company purchased manufacturing equipment for $600,000. The equipment has a 4-year estimated useful life and a salvage value of $22,500. The company expects to use the equipment for 275,000 hours. Actual hours the equipment was used are provided in the table

XOAXOA: Analytic skills XOAXOA: LO 6-1 & LO 6-4 XOAXOA: Analytic skills XOAXOA: LO 6-1 & LO 6-4 XOAXOA: Analytic skills XOAXOA: LO 6-1 & LO 6-4 13) On January 1 2010, Max, Inc. paid $80,000 for a truck with an estimated useful life of 10 years and

23) On January 1, 2011, Tiler Company purchased equipment that cost $30,000. The equipment has an estimated useful life of 6 years and an estimated salvage value of $3,000. Required: 1. Using the straight-line method, complete the chart below: Year Depreciation expense for the year ended Dec. 31

38) On January 1, 2011, XYZ Company bought a new, $2,000,000 mainframe computer. Because of rapid changes in technology and XYZs plans for growth, the computer has only a five-year useful life and no salvage value. The chief financial officer for XYZ has decided that the company should depreciate

19) Team instructions: Divide the class into teams of three or four people. Give the students time in class to answer the following questions. Students need access to both the Team Shirts, financial statements and the transactions to be able to answer these questions. Each team should turn in

1) How are liabilities classified on the balance sheet? A) paid and unpaid B) current and long-term C) current and unfunded D) definitely determinable and estimated Answer: B XOAXOA: 1 XOAXOA: LO 7-1 Answer: B XOAXOA: 1 XOAXOA: LO 7-1 Answer: B XOAXOA: 1 XOAXOA: LO 7-1 2)

Answer: Part A: Shareholders' equity Assets Liabilities CC Retained earnings 1 100,000 AR (60,000) Inventory 100,000 Sales (60,000) COGS 2 6,000 Estimated warranty liability (6,000) Warranty expense 3 (4,000) Cash (4,000) Estimated warranty liability Part B: Amount Financial Statement 1. Warranty expense $(6,000) Income statement 2. Estimated warranty liability

43) On May 1, 2009, DS Company borrowed $50,000 at 7% to buy a machine. The loan will be repaid in equal annual payments at the end of each of the next 5 years, beginning May 1, 2010. Part A: What is the annual payment on the $50,000

question(s): COMPANY Price Coupon % MATURITY Current Yield Fitch Ratings IBM 109.62 5.050 22-Oct-2012 4.067 A Ford MTR 58.00 7.700 15-May-2097 13.276 CCC 60) Refer to the information above. Will IBMs annual interest expense be higher or lower than the amount of cash paid to investors for

5) On OCTOBER 31, 2011, Bondable, Inc. issued $20,000 of 10-year, 6% bonds at 100. The bonds pay interest ANNUALLY on October 31. On its income statement for the year ended DECEMBER 31, 2011, the year the bonds were issued, Bondable will show Interest expense of ________. A) $0

22) Garys Gadgets prepared the following preliminary balance sheet a few days before its December 31 yearend: Gary's Gadgets Preliminary Balance Sheet December 27, 2011 Cash $ 6,000 Accounts payable $ 2,500 Accounts receivable 3,000 Inventory 2,000 Common stock 1,000 ______ Retained earnings

22) On January 1, 2011, Nadir Company issued $1,000,000 of 6%, 20-year bonds when the market rate of interest was 5%. The bonds pay interest annually on December 31. These bonds sold at a _____ because the market rate of interest is _____ than the stated interest rate. A)

1) Which stock offers shareholders preference in receiving dividends? A) common stock B) preferred stock C) treasury stock D) callable stock Answer: B XOAXOA: 2 XOAXOA: LO 8-1 Answer: B XOAXOA: 2 XOAXOA: LO 8-1 Answer: B XOAXOA: 2 XOAXOA: LO 8-1 2) Preferred stock offers shareholders

36) On December 15, 2011, the board of directors of Ryes, Inc. declared a cash dividend of $2 per share on the 100,000 common shares outstanding, payable January 8, 2012. No dividends were declared in 2012. For each item, write in the amount (even if $0) in the column

11) Dale Murphy Company had beginning retained earnings of $60,000. During the year the company had net income of $20,000, and paid dividends of $7,500. The Company repurchased 1,000 shares of its stock for $45 during the period. What is the net effect of these transactions on the items

11) Team Shirts had net income of $23,000. The balance sheet showed beginning and ending balances in shareholders equity of $100,000 and $110,000, respectively. There were no preferred shares and 20,000 common shares outstanding. Calculate the return on equity. A) 21.9% B) 1.15% C) 5.25% D) 4.56% Answer: A

42) Team Instructions: Divide the class into teams of three or four people. Each team member should work the following problem separately outside of class. Then give the students time in class to compare answers with their teammates and put together a final correct copy of the problem. Each

1) The statement of cash flows ________. A) reports all of the cash a company has received and all of the cash a company has disbursed during an accounting period B) reports all of the income, expenses, and profit or losses a company has earned or incurred during

12) The following information is from ABC, Inc.s December 31, 2011 annual report: Income statement Balance sheet 12/31/11 12/31/10 Sales revenue $800,000 Unearned revenue $8,000 $10,000 Interest expense $30,000 Interest payable $1,000 $3,000 Note: ABC, Inc. does not sell

10) Team Shirts, Inc. had net cash from operating activities of $50,000. It paid $40,000 to buy a new computer system by signing a $30,000 note and paying the balance. Net cash from (or used for) financing activities for the period was ________. A) $(30,000) B) $10,000 C) $30,000

69) Match each of the following line items with the type of ACTIVITY OR ACTIVITIES found on the statement of cash flows. Each can be used more than once. a. cash inflow from operating activities b. cash outflow for operating activities c. cash inflow from investing d. cash

37) How does the statement of cash flows aid analysts in the evaluation of a companys financial situation? Answer: The statement of cash flows reports the inflows and outflows of cash for specific accounting periods. The statement is divided into operating, investing, financing and noncash sections. In general, analysts