Chapter 1 Flashcards
Which of the following is not true about net operating cash flow?
A. It is the difference between cash receipts and cash disbursements from providing goods and services.
B. Over short periods, it may not be indicative of long-run cash-generating ability.
C. It is a measure used in accrual accounting and is recognized as the best predictor of future operating cash flows.
D. It is easy to understand and all information required to measure it is factual.
C. It is a measure used in accrual accounting and is recognized as the best predictor of future operating cash flows.
Porite Company recognizes revenue in the period in which it records an asset for the related account receivable, rather than in the period in which the account receivable is collected in cash.
Porite’s practice is an example of:
A. Cash basis accounting.
B. Economic entity.
C. Accrual accounting.
D. The matching principle.
C. Accrual accounting.
In a recent annual report, Apple Computer reported the following in one of its disclosure notes: “Warranty Expense: The Company provides currently for the estimated cost for product warranties at the time the related revenue is recognized.” This note exemplifies Apple’s use of:
Multiple Choice
A. Economic entity.
B. Conservatism.
C. Matching
D. Revenue recognition.
C. Matching
GAAP is an abbreviation for:
Generally accepted accounting principles.
The FASB issues accounting standards in the form of:
Multiple Choice
Financial Accounting Standards.
Financial Technical Bulletins.
Accounting Research Bulletins.
Accounting Standards Updates.
Accounting Standards Updates.
The FASB’s standard-setting process includes, in the correct order:
The FASB’s conceptual framework’s qualitative characteristics of accounting information include:
Multiple Choice
Exposure draft, research, discussion paper, Accounting Standards Update.
Research, discussion paper, exposure draft, Accounting Standards Update.
Discussion paper, research, exposure draft, Accounting Standards Update.
Research, exposure draft, discussion paper, Accounting Standards Update.
Research, discussion paper, exposure draft, Accounting Standards Update.
Accounting standard-setting has been characterized as:
Multiple Choice
Pure deductive reasoning.
Pure inductive reasoning.
Using the scientific method.
A political process.
A political process.
Independent auditors express an opinion on the?
Multiple Choice
Accuracy of financial statements.
Soundness of a company’s future.
Quality of a company’s management.
Fairness of financial statements.
Fairness of financial statements.
The FASB’s conceptual framework’s qualitative characteristics of accounting information include:
Multiple Choice
Historical cost.
Full disclosure.
Faithful representation
Realization.
Faithful representation.
The FASB’s conceptual framework’s qualitative characteristics of accounting information include:
Multiple Choice
Relevance.
Historical cost.
Full disclosure
Going concern.
Relevance.
The conceptual framework’s qualitative characteristic of relevance includes:
Multiple Choice
Neutrality.
Completeness.
Predictive value
Verifiability.
Predictive value.
The conceptual framework’s qualitative characteristic of faithful representation includes:
Multiple Choice
Predictive value.
Confirmatory value.
Neutrality.
Timeliness.
Neutrality.
Enhancing qualitative characteristics of accounting information include each of the following except:
Multiple Choice
Comparability.
Materiality.
Timeliness.
Verifiability.
Materiality.
Enhancing qualitative characteristics of accounting information include:
Multiple Choice
Relevance and comparability.
Comparability and timeliness.
Understandability and relevance.
Neutrality and consistency.
Comparability and timeliness.
Elements of financial statements do not include:
Multiple Choice
Comprehensive income.
Losses.
Monetary unit
Investments by owners.
Monetary unit.
Identify the accounting concept that was violated in each of the following situation.
Choices:
Revenue recognition
The full disclosure principles
Expense recognition, materiality
The economic entity assumption
The periodicity assumption
The historical cost
Listed below are several transactions that took place during the second and third years of operations for a company.
In addition, you learn that the company incurred advertising costs of $25,000 in year 2, owed the advertising agency $5,000 at the end of year 1, and there were no liabilities at the end of year 3. Also, there were no anticipated bad debts on receivables, and the rent payment was for a two-year period, year 2 and year 3.
Required:
Calculate accrual net income for both years.
Determine the amount due the advertising agency that would be shown as a liability on the company’s balance sheet at the end of year 2.
Calculate accrual net income for both years.
Year 2 Year 3 Revenues $350,000 $450,000
Expenses:
Rent (40,000) (40,000)
Salaries (140,000) (160,000)
Utilities (30,000) (40,000)
Advertising (25,000) (20,000)
Net income $115,000 $190,000
Answer; Advertising liability at end of Year 2 $15,000
Explanation
1. & 2.
Rent = $80,000 ÷ 2 = $40,000
Amount owed at the end of year one $5,000
Advertising costs incurred in year two 25,000
30,000
Amount paid in year two (15,000)
Liability at the end of year two 15,000
Less cash paid in year three (35,000)
Advertising expense in year three $20,000
