Chapter 4 Practice Flashcards
(23 cards)
adjusted deferred revenue
remove from liabilities if done service
add to revenue if done service
depreciation
added to expense
reduce from asset (anti-asset)
Supplies used =
Beginning amount on hand + purchase - sell - ending amount on hand
Wages earned by employees during November, unpaid and unrecorded at November 30, amounted to x
X add to expense and X add to liabilities
identify the expense or revenue account that should be adjusted
Unpaid wages for the last three days of December amounting to $X were not recorded.
X wage expense
identify the expense or revenue account that should be adjusted
The unpaid $X telephone bill for December has not been recorded.
X - utilities expense
identify the expense or revenue account that should be adjusted
Interest on a $X, one-year, 10 percent note payable dated October 1 of the current year, was not recorded. The full amount of interest is payable on the maturity date of the note.
X x (10%:12xperiod) - interest expense
identify the expense or revenue account that should be adjusted
Maintenance expense includes $X, which is the cost of maintenance supplies still on hand at December 31. These supplies will be used in the next year.
-X maintainence expense
identify the expense or revenue account that should adjusted at Dec 31.
The deferred rental revenue account at December 31 includes $5,800 to be earned in January of the next year.
Not required
identify the expense or revenue account that should be adjusted
Depreciation on rental cars, amounting to $X for the current year, was not recorded.
X depreciation expense
Statement of Earnings Order
- Revenue
- Expense
- 2.1 Total expense
- Earnings before income tax
- Income tax expense
- Net earnings
- Earnings per share
Net profit margin =
Net earnings : Net Sales (or revenue)*100
Net profit margin = 23.4% indicates that
for every $1 of rental revenues, Barton earns $0.23 (23.4%) in net earnings
Higher -> more profitable + better able to manage its business
ROE: Return on Equity =
Net earnings/Average shareholders’ Equity*100
To accrue income tax expense incurred but not yet paid=
Earnings before any of the adjustments or income taxes +/- effects of adjustments * Income tax rate
Quality of earnings
Cash flow from operations/net earnings (or net income)
Why does Air Canada recognize passenger and cargo revenues when transportation is provided, rather than when cash is received?
Air Canada prepares its financial statements in accordance with IFRS. In particular, it is recognizing revenue during the time period it has been earned, that is when it provides the transportation service.
cash collected from customers, assume all on credits, fiscal year 2020
Trade receivable beg. (2019) + Sales - Collections = Trade receivable 2020
=> Collections = Trade 2019 + Sales - Trade receivable 2020
Dividend paid =
Beginning dividends payable + dividend declared - ending dividends payable
the accrual of interest expense effect
- liabilities: increase interest payable, reduce income tax payable (if subject to income tax rate)
- reduced net earnings -> retained earnings -> shareholders’ equity
decrease in R&D investment’s effect on ROE
- Current ROE: lower expense -> increase net earnings -> increase ROE
- Future ROE: less research -> fewer products are brought to market in future periods -> net earnings and ROE likely to decrease
advertising for next year’s effect on ROE
- advertising for next year = prepaid asset not an expense => current ROE would not be affected
- Assume movie earns greater net earnings in future periods -> increase future ROE
Issuance of additional shares’s + purchase other high-tech companies’s effect on ROE
- increase shareholders’ equity -> decrease current ROE
- assume those companies are profitable -> increase net earnings -> increase future ROE
