exam 2

Question 1

• The SEC requires companies to file, on an annual basis, four financial statements:

Answer 1

Thebalancesheet
The income statement
The statement of changes in owners’ equity The statement of cash flows

Question 2

fraud

Answer 2

Intentional misstatement of financial reports

Question 3

rationalization

Answer 3

We are bold and entrepreneurial…that is how we do things here

Question 4

opportunity

Answer 4

can occur when chief executive hires friends to important positions

Question 5

incentive

Answer 5

it can increase executives job prospect

Question 6

fraud triangle

Answer 6

presents the conditions under which fraud is most likely to occur.(rationalization, incentive, opportunity

Question 7

demand deposit accounts(checking account)

Answer 7

funds deposited by the company with a financial institution

Question 8

cash equivalents

Answer 8

Instruments that can be readily converted to a known amount of cash(CD and gov. securities)

Question 9

certificate of deposit

Answer 9

short-term investment purchased through a bank or financial
institution.

Question 10

Interest formula

Answer 10

Interest = principal x interest rate x time(Time is always in fractions of a year. 3/12, 1/4

Question 11

spread

Answer 11

he difference between interest rates charged and interest rates paid

Question 12

purchase of the CD

Answer 12

transaction has no effect on the income statement, no effect on the total Cash and Cash Equivalents reported on the balance sheet.

Question 13

interest income

Answer 13

how interest is recorded; net income will be higher on income statement

Question 14

interest receivable

Answer 14

asset indicates that SCE is entitled to receive that amount of interest in cash at a future date

Question 15

merchandise inventory

Answer 15

Acquired inventory is inventory that a company can purchase and resell with minimal or no cost for additional processing

Question 16

manufacturing inventory

Answer 16

inventory that is made by company

Question 17

• Capitalizing

Answer 17

means those expenditures become part of the cost of the inventory, and thus part of the asset value reported on the balance sheet.(will be recognized as expense in the future as part of cost of goods sold.)

Question 18

gross profit formula

Answer 18

revenue – COGS

Question 19

Gross profit rate

Answer 19

gross profit divided by revenue, in percentage

Question 20

FIFO

Answer 20

Costs of the earliest goods purchased are the first to be recognized in determining cost of goods sold.

Question 21

Cost of Goods Available for Sale (CoGAS)

Answer 21

Total cost of goods sold+Ending inventory balance

Question 22

Lifo

Answer 22

costs of the latest goods purchased are the first to be recognized in determining cogs

Question 23

In a period of price inflation

Answer 23

FIFO> Lifo net income lifo has tax advantage

Question 24

If prices are falling

Answer 24

LIFO>fifo net income

Question 25

average-cost produces

Answer 25

net income between FIFO and LIFO.

Question 26

LIFO reserve.

Answer 26

the difference between inventory reported using LIFO and inventory as-if using FIFO

Question 27

Average inventory

Answer 27

simple average of beginning and ending balances for the period covered by COGS.

Question 28

inventory turnover ratio

Answer 28

COGS/average inventory

Question 29

days in inventory

Answer 29

365/inventory turnover ratio

Question 30

perpetual system

Answer 30

record inventory transactions in chronological order.

Question 31

periodic inventory

Answer 31

COGS is recorded at the end of each period as an adjusting entry. * The order of purchases and sales does not matter.

Question 32

Cost of goods available for sale formula

Answer 32

beg inventory +cost of goods purchased end inventory+cost of goods sold

Question 33

Under Periodic Inventory, COGS

Answer 33

cost of goods available for sale - ending inventory

Question 34

conservatism principleCOGS using periodic inventory:

Answer 34

expenses and decreases in asset values are recognized immediately, but revenues and increases in asset values are delayed until they have occurred.

Question 35

property, plant, and equipment (PP&E)

Answer 35

non-current asset that is held not to sell, but to facilitate the generation of revenue tangible asset, meaning its value comes from its physical properties.

Question 36

* Capitalizable expenditures for PP&E include

Answer 36

associated with acquiring or putting the PP&E into service:

Question 37

Improvements

Answer 37

expenditures that improve the asset in a permanent way.(become part of assets accounting value)

Question 38

Maintenance

Answer 38

expenditures are necessary to maintain the asset’s current standard of productivity and expected period of use.( recorded as expense immediately)

Question 39

future benefit (improvements and maintenance)

Answer 39

improvements increase pp&e future benefit maintenance prevents loss of future benefit

Question 40

depreciation

Answer 40

allocation of PP&E depreciable cost to expense over the useful life of the asset.

Question 41

annual depreciation expense formula

Question 42

Historical cost

Answer 42

is the amount capitalized to acquire the asset

Question 43

Depreciation expense

Answer 43

an operating expense reported on the income statement.

Question 44

Accumulated depreciation

Answer 44

contra-asset account.It has a credit balance, which is opposite to (or contra) the debit balances that assets normally have. * It is paired with the related asset account

Question 45

Depreciable cost formula

Answer 45

Acquisition cost – salvage value

Question 46

Depreciable cost

Answer 46

is the total amount of depreciation expense that will be recognized over the useful life of the asset.

Question 47

Salvage value

Answer 47

the amount the company expects to receive upon disposing of an asset it will no longer use.

Question 48

straight-line depreciation formula

Answer 48

depreciable cost / useful life = (acquisition cost – salvage value) / useful life

Question 49

FASB

Answer 49

Accounting standards are developed

Question 50

SEC

Answer 50

* Accounting standards are enforced enforces that any public traded company must periodically file GAAP

Question 51

Establishment of Responsibility

Answer 51

Control is most effective when only one person is responsible for a given task. * Establishing responsibility often requires limiting access only to authorized personnel, and then identifying those personnel.

Question 52

documentation procedure

Answer 52

companies should use renumber documents and all document should be accounted for employees should forward source documnets for accounting entries to the accounting department

Question 53

segregation of duty

Answer 53

different individuals should be responsible for related activities responsibility for record-keeping for an asset should be separate from the physical custody of that asset

Question 54

Independent InternalVerification

Answer 54

records periodically verified by an employee who is independent discrepancies reported to managment

Question 55

human resource control

Answer 55

bond employees who handle cash rotate employees duties and require vacations conduct background checks