Chapters 2-4

Question 1

Perpetual Inventory Systems

Answer 1

Companies keep detailed records of COGS and continuously update them so that the amount of inventory on hand is up to date

Question 2

Periodic Inventory System

Answer 2

Companies wait until the end of the period to determine GOGS
-> usually smaller inventory companies use this

Question 3

How do you determine you COGAS

Answer 3

Beginning inventory + Net Purchases

Question 4

What are Net Purchases

Answer 4

Your purchase plus any freight in and then you subtract things like purchase returns and allowances and purchase discounts

Question 5

How do you determine COGS

Answer 5

COGAS - Ending Inventory

Question 6

What are Periodic System Temporary Accounts

Answer 6

Purchases, Freight In, Purchase Returns and Allowances

Question 7

Where do you close out your Periodic Inventory Accounts at the end of the period

Answer 7

Close Temporary Accounts to COGS

Question 8

Why do companies prepare adjusting entries

Answer 8

To ensure that companies follow the revenue recognition and expense recognition principals
-to ensure that the correct amounts of assets, liabilities, and owners equity are reported on the balance sheet
- to ensure that proper revenues and expenses are reported on the income statement
-Required every time a company prepares financial statements

Question 9

What are the two things adjusting entries are classified as

Answer 9

Deferrals and Accruals

Question 10

What are deferrals

Answer 10

Cash payment has been made but expense or revenue has not been applied

• prepaid expenses
  -unearned revenues

1.) cash now 2.) rev/expense later

Question 11

What are accruals

Answer 11

Expense or Revenue has been applied but cash has not been payed/received

-accrued expenses
-accrued revenue

1.) rev/expense now 2.) cash later

Question 12

When are reversing entries completed

Answer 12

Reversing entries are completed AFTER the previous period’s financial statements are prepared and closing entries have been done

Question 13

How to reversing entries affect accrued expenses and revenues

Answer 13

It always reverses them

Question 14

When should deferrals be reversed?

Answer 14

when the original cash transaction is recorded as an expense or revenue

Question 15

What to reversing entries do

Answer 15

Simplifies the recording of transactions in the next accounting period

Question 16

what is never reversed

Answer 16

bad debts expense and depreciation (no original cash entry)

Question 17

What are two special items that may be added to the income statement

Answer 17

1.) Discontinued Operations
2.) Other comprehensive income

Question 18

When does a discontinued operation happen

Answer 18

1.) A company eliminates the results of operations of component of the buisiness
2.) The elimination of a represents a strategic shift that impacts a company’s operations and financial results

Question 19

Are the discontinued operations reported gross or net tax

Answer 19

net

Question 20

What does a company report of its discontinued operations

Answer 20

All impacts

Both income (loss) from operations for the year and any gain/loss from disposal, net of tax

Question 21

What is intraperiod tax allocation

Answer 21

“Let the tax follow the income”

Question 22

Intraperiod tax allocation is used for

Answer 22

1.) Income from continuing operations
2.) Discontinued operations

Question 23

What does comprehensive income not include

Answer 23

changes resulting from investments

Question 24

What does comprehensive income include?

Answer 24

1.) All revenues and gains and expenses and losses reported in net income
2.) All gains and losses that bypass net income but affect stockholders equity

Question 25

what are the gains and losses that bypass the income statement considered

Answer 25

other comprehensive income

Question 26

what are the ways that a company could display comprehensive income

Answer 26

one statement approach or two statement approach

Question 27

What is the revenue recognition principal

Answer 27

revenue is recognized when its performance is satisfied (transfer of good or service)

Question 28

what is the deciding factor in determining when a performance obligation is satisfied

Answer 28

change in control

Question 29

What adjustments are made for a change in principal

Answer 29

• retrospective adjustments
  -cumulative effect adjustments to the beginning of R.E

Question 30

What adjustments are made for changes in Estimates

Answer 30

-prospective changes
-changes are only made for the future

Question 31

What adjustments are made for Errors

Answer 31

-PPA
-adjustments to R.E

Question 32

What increases R.E

Answer 32

N.I, changes in accounting principal, PPA

Question 33

what decreases R.E

Answer 33

Net loss, dividends, PPA, changes in accounting principals

Question 34

EPS

Answer 34

(N.I - Pref. Dividends)/ Outstanding shares