Financial Accounting Exam 1 Review
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Questions and Answers

Financial statements can be used by which of the following groups? (Select all that apply)

  • Regulatory bodies
  • Individuals
  • Investors and creditors
  • All of the above (correct)
  • An organization's investors and creditors will primarily use information provided by:

  • The Financial Accounting Standards Board
  • The organization's financial accounting system (correct)
  • The organization's managerial accounting system
  • The Internal Revenue Service
  • Under the historical cost principle, Frost should record the building for:

  • $570,000 (correct)
  • $620,000
  • $525,000
  • $586,000
  • To be useful, information must have which of the following fundamental qualitative characteristics?

    <p>Relevance and faithful representation</p> Signup and view all the answers

    Which principle would be violated if a business is headed for bankruptcy, and its financial statements were prepared using standard U.S. GAAP?

    <p>Continuity assumption</p> Signup and view all the answers

    The accounting equation can be expressed as:

    <p>Assets + Liabilities = Equity</p> Signup and view all the answers

    How much are Sebastapol's total assets and liabilities?

    <p>$115,000 $46,000</p> Signup and view all the answers

    Net income for the year was:

    <p>$128,000</p> Signup and view all the answers

    How would the issuance of common stock for cash affect the accounting equation?

    <p>Increase assets and increase stockholders' equity</p> Signup and view all the answers

    Which financial statement would show how well a company performed over the past year?

    <p>Income statement</p> Signup and view all the answers

    What item flows from the income statement to the statement of retained earnings?

    <p>Net income</p> Signup and view all the answers

    How much retained earnings should White report at December 31, 2018?

    <p>$455,000</p> Signup and view all the answers

    How much net income (or net loss) did Terry experience for the year?

    <p>$55,000</p> Signup and view all the answers

    All of the following are current assets except:

    <p>Accounts payable</p> Signup and view all the answers

    Amounts owed to a company by its customers would be:

    <p>Accounts Receivable</p> Signup and view all the answers

    Identify the asset from the following list of accounts:

    <p>Inventory</p> Signup and view all the answers

    Which of the following is an asset?

    <p>None of the listed accounts is an asset</p> Signup and view all the answers

    The impact of purchasing a new delivery truck with a note payable on Thorpe Corporation is:

    <p>Increases assets and increases liabilities</p> Signup and view all the answers

    Study Notes

    Financial Statements and Users

    • Financial statements are utilized by regulatory bodies, individuals, investors, and creditors.
    • Investors and creditors primarily rely on an organization’s financial accounting system for information.

    Historical Cost Principle

    • Frost Enterprises purchased a warehouse for $570,000; it should record the building at this historical cost, not the appraised or previous purchase value.

    Qualitative Characteristics of Information

    • Useful information must possess relevance and faithful representation as fundamental qualitative characteristics.

    Bankruptcy and GAAP Principles

    • If a company is headed for bankruptcy with liabilities exceeding assets, the continuity assumption principle is violated under standard U.S. GAAP.

    Accounting Equation

    • The accounting equation is represented as Assets = Liabilities + Equity.

    Total Assets and Liabilities Calculation

    • Sebastapol Corporation has total assets of 115,000andliabilitiesof115,000 and liabilities of 115,000andliabilitiesof28,000, calculated as cash, accounts receivable, inventory, and land.

    Net Income Calculation

    • GreenWash Corporation's net income is calculated by subtracting expenses from revenues, totaling $125,000 when factoring in dividends.

    Issuance of Common Stock

    • Issuing common stock for cash increases both assets and stockholders' equity in the accounting equation.

    Financial Statements Overview

    • The income statement reflects a company’s performance over the past year, unlike the balance sheet or statement of cash flows.

    Flow from Income Statement to Retained Earnings

    • Net income flows from the income statement to the statement of retained earnings, influencing the overall retained earnings balance.

    Retained Earnings Calculation

    • White Instruments should report retained earnings of $515,000 at year-end, factoring in previous earnings, net income, and dividends declared.

    Net Income Analysis

    • Terry Corporation experienced a net loss of $32,000 for the year after accounting for all revenue and expenses along with the year-end cash balance.

    Current Assets Identification

    • Current assets include accounts receivable, prepaid expenses, and inventory; accounts payable is not categorized as a current asset.

    Accounts Owed to Company

    • Amounts owed to a company by its customers are classified as Accounts Receivable.

    Asset Identification

    • Inventory is an asset, while common stock and retained earnings are not classified as assets.

    Impact of Purchases on Financials

    • Thorpe Corporation’s purchase of a new delivery truck financed by a note payable results in an increase in both assets and liabilities.

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    Description

    This quiz covers essential concepts related to financial statements and their use by various stakeholders including regulatory bodies, individuals, and investors. It also examines how financial information is utilized by an organization's accounting systems. Prepare thoroughly to excel in your financial accounting exam!

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