Balance Sheet & Statement of Financial Position Part 1

Question 1

an increase in expense decreases what?

Answer 1

assets and stockholders equity

Question 2

what is stockholder’s equity comprised of?

Answer 2

Contributed (paid in) capital
preferred stock
common stock
addtional PIC (from various sources)
total PIC
noncontrolling interest in subsidiaries
RE (appropriated & unappropriated)
Accumulated other comprehensive income (loss)
LESS: TREASURY STOCK
Total stockholders equity

Question 3

what is treasury stock

Answer 3

shares of stock repurchased by the company but not retired

Question 4

what type of account is treasury stock?

Answer 4

contra account so you always deduct it

Question 5

what is accumulated other comprehensive income (loss)?

Answer 5

the change in net assets that is a result of transactions that are not included in net income and don’t affect retained earnings

Question 6

what is accumulated other comprehensive income (loss) made up of?

Answer 6

1. derivate cash flow hedges
2. excess adjustment for pension planned benefit obligations and fair value of plan assets
3. net unrealized holding gain or loss on available for sale debit securities
4. foreign currency translation adjustments

Question 7

how is FV treated in relationship to available for sale (AFS) debt securities

Answer 7

if FV is lower than the original cost (due to market conditions) the difference is credited to AFS securities-unrealized
losses, a contra account to the investment

if FV is greater than the original cost, AFS securities-unrealized gain, an adjunct account is debited

the corresponding amount of the entry is debited or credited in OCI

Question 8

what are current assets (CA)?

Answer 8

assets that can be converted into cash within one year or the operating cycle, whichever is longer

Question 9

what are some types of current assets (CA)?

Answer 9

1. cash
2. receivables
3. temporary investments (trading securities)
4. inventory
5. prepaid expenses
6. WIP in excess of billings

Question 10

what are current liabilities (CL)?

Answer 10

debts or obligations due within on year or the operating cycle, whichever is longer that can be settled with a CA or creation of another CL

Question 11

what are some types of current liabilities (CL)?

Answer 11

1. accounts payable
2. unearned revenue
3. short-term loans
4. advances/deposits from customers
   (security deposits, unearned rents, credits on account)
5. accured expenses
6. notes payable
7. dividends payable
8. income tax payable
9. current portion of long term debit

Question 12

what are the 3 tips of legal forms of business?

Answer 12

1. merger
2. consolidation
3. acquisition

Question 13

what are assets?

Answer 13

economic resources with probably future benefits. they are controlled by the entity

Question 13

what are liabilities?

Answer 13

unavoidable obligations that are settled with assets

Question 14

what is equity?

Answer 14

ownerships interests that can be calculated as assets-liabilities

Question 15

deposits/prepayments received for goods or services to be provided in the future are deferred revenues that are reported as….

Answer 15

liabilities

Question 16

common stock has a ________ that is assigned by the board of directors

Answer 16

par value or stated value

Question 17

preferred stock is a separate class of stock that has…

Answer 17

dividends and liquidation preferences over common stock

Question 18

issue price > par (stated value)

Answer 18

excess is allocated to APIC common or preferred stock

Question 19

if there is no par or stated value…

Answer 19

the entire amount is recorded in common stock

Question 20

what is equity made up of?

Answer 20

contributed capital and retained earnings

Question 21

net income or loss in an increase or decrease to…

Answer 21

retained earnings, affecting equity

Question 22

if prepaid taxes approximately cover the tax liability for the year, they need to be…

Answer 22

reclassified as an expense and deducted from income cause the year has ended

Question 23

what is net working capital (other than cash)?

Answer 23

CA - CL

Question 24

what is the cause and effect principle

Answer 24

expenses that have a direct link with revenue and
provide benefits at specific points in time

ex. COGS

Question 25

what is the systematic and rational allocation principle?

Answer 25

expenses that provide benefits over long periods of time

ex. Depreciation

Question 26

what is the immediate recognition principle?

Answer 26

Expenses with no direct link to specific benefits

ex. Research and development

Question 27

what is GAAP?

Answer 27

-general purpose accounting framework
-encompasses rules, conventions and procedures
-defines accounting practices at a specific time
-maintained and updated by FASB

Question 28

TRUE OR FALSE:

non-mailed checks are considered cash because the entity has possession of the checks and the ability to send them or not

Answer 28

TRUE

Question 29

TRUE OR FALSE:

cash overdraft is usually reported as a current liability or can be netted against other bank accounts at the same bank

Answer 29

TRUE