Financial Accounting FAC SIMILE EXAM
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Questions and Answers

Which of the following should be included in the Machinery account?

  • The cost of insurance while the machinery is being overhauled.
  • The cost of calibrating the machinery after it has been used for a year.
  • The cost of a maintenance insurance plan after the machinery is up and running.
  • The cost of transporting the machinery to its setup location. (correct)

A PPE is acquired by a business on January 1, 20X6, for $30,000. The asset's estimated residual value is $8,000 and its estimated life is 5 years. Management chooses to use straight-line depreciation. On January 1, 20X8, management revises the total useful life to 6 years and the residual value to be zero. Compute the balance in Accumulated Depreciation on December 31, 20X8.

14100

A negative translation adjustment is:

  • like a loss.
  • reported as a contra item in the shareholders' equity section of the balance sheet.
  • part of other comprehensive income.
  • all of the above. (correct)

A bond with a stated interest rate of 6% and a market rate of 8% was issued at a price reflecting the market interest rate. As the bond matures:

<p>the Discount on Bonds Payable decreases. (D)</p> Signup and view all the answers

The journal entry to record the receipt of a cash dividend arising from an available-for-sale investment held by a company includes:

<p>a debit to Cash and a credit to Dividend Revenue. (C)</p> Signup and view all the answers

Associated Services Company paid twelve months' insurance in advance totaling $9,000. At the end of the first month, the adjusting entry would include a:

<p>debit to Prepaid Insurance for $750. (B)</p> Signup and view all the answers

High Times Corporation owns 300 shares of Low Tide Company's ordinary shares. Low Tide has 1,000,000 ordinary shares outstanding. High Times Corporation will show the investment on their books as:

<p>an asset. (C)</p> Signup and view all the answers

Company A has a Note Receivable of $5,000. The note will be collected in installments. $1,000 is due within a year and the remainder is due after a year. The classification of the note on the balance sheet is:

<p>$1,000 is a current asset and $4,000 is a long term asset. (C)</p> Signup and view all the answers

A company purchased merchandise inventory on credit for $600 per unit, and later sold the inventory for $800 per unit. The journal entry to record the purchase of inventory included a debit to:

<p>Inventory. (C)</p> Signup and view all the answers

The trial balance is used to determine whether:

<p>total debits equal total credits. (D)</p> Signup and view all the answers

Flashcards

Balance Sheet

A financial statement that shows a company's assets, liabilities, and equity at a specific point in time.

Assets

Resources owned by a company that have future economic benefits.

Liabilities

Obligations a company owes to others.

Equity

The owners' stake in a company.

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Share Capital

The amount of money shareholders have invested in the company.

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Retained Earnings

The accumulated profits of a company that have not been distributed to shareholders as dividends.

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Accounts Receivable

The amount of money customers owe a company for goods or services.

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Accounts Payable

The amount of money a company owes to its suppliers for goods or services.

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Journal Entry

A record of a financial transaction in the company's accounting system.

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Debit

A recording of an increase in an asset or expense account, or a decrease in a liability or equity account.

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Credit

A recording of a decrease in an asset or expense account, or an increase in a liability or equity account.

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Dividend

A distribution of a company's profits to its shareholders.

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Inventory

Goods held by a company for sale in the ordinary course of business.

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Cost of Goods Sold (COGS)

The direct costs associated with producing the goods sold by a company.

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Allowance for Doubtful Accounts

A contra asset account that reduces the value of accounts receivable to reflect the expected uncollectible amounts.

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Notes Payable

A written promise to repay a debt at a specific date and interest rate.

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Unearned Revenue

Revenue received by a company for goods or services that have not yet been delivered or performed.

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Depreciation

The systematic allocation of the cost of a long-lived asset over its useful life.

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Straight-line Depreciation

A depreciation method that allocates an equal amount of depreciation expense each period.

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Double-declining Balance Depreciation

A depreciation method that accelerates depreciation expense in the early years of an asset's life.

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Units of Production Depreciation

A depreciation method that allocates depreciation expense based on the actual usage of an asset.

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Net Realizable Value (NRV)

The estimated selling price of an asset minus the estimated costs of selling the asset.

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Trading Securities

Investments that are bought and sold frequently, with the intent of generating short-term profits.

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Available-for-Sale Securities

Investments that are held for longer periods and are not intended to be sold frequently.

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Unrealized Gain or Loss

The change in fair value of an investment that has not yet been sold.

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T-Account

A visual representation of a company's accounts, with debits on the left and credits on the right.

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Trial Balance

A list of all the accounts in a company's ledger, with their debit and credit balances.

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Adjusting Entries

Journal entries made at the end of an accounting period to ensure that revenue and expenses are recorded in the proper period.

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Closing Entries

Journal entries made at the end of an accounting period to close the temporary accounts (revenue, expense, and dividend) and transfer their balances to retained earnings.

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Income Statement

A financial statement that shows a company's revenues and expenses over a period of time.

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Statement of Changes in Equity

A financial statement that shows the changes in a company's equity over a period of time.

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Cash Flow Statement

A financial statement that shows a company's cash inflows and outflows over a period of time.

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Study Notes

Financial Accounting Final Exam Notes

  • Balance Sheets: Used to present a snapshot of a company's financial position at a specific point in time. Lists assets, liabilities, and equity.

  • Assets: Resources owned by a company that have future economic value. Examples: cash, accounts receivable, inventory, equipment.

  • Liabilities: Debts or obligations of a company to external parties. Examples: accounts payable, salaries payable, notes payable.

  • Equity: Residual interest in the assets of a company after deducting its liabilities. Represents the owners' stake in the company.

  • Transactions: Events that affect a company's financial position. Examples include sales, purchases, payments, and collections.

  • Journal Entries: Record transactions in a general journal, specifying debit and credit accounts affected.

  • T-Accounts: Visual representation of a specific account, with debits on one side and credits on the other, to track transaction impacts on that account's balance.

  • Adjusting Entries: Entries needed at the end of an accounting period to account for accruals, deferrals, and estimates. Necessary to update accounts to reflect the correct balances.

  • Depreciation: Systematic allocation of the cost of a tangible asset over its useful life. A non-cash expense.

  • Inventory: Goods held for sale in the ordinary course of business. Valuation methods include FIFO (First-In, First-Out), LIFO (Last-In, First-Out), and Weighted-Average.

  • Dividends: Distributions of profits to shareholders. A reduction of retained earnings.

  • Notes Payable: A written promise to pay a specific amount of money at a future date; a type of liability.

  • Accounts Payable: Amounts owed to suppliers for goods or services purchased on credit.

  • Receivables: Amounts owed to a company by customers for goods or services delivered on credit.

  • Cash: Currency, coins, and demand deposits held by a company. A highly liquid asset.

  • Allowance for Doubtful Accounts: Estimate of uncollectible accounts receivable.

  • Net Realizable Value (NRV): Estimated selling price less costs to complete and sell. Used to assess inventory valuation.

Specific Accounting Concepts for Students Studying

  • Accounting Equation: Assets = Liabilities + Equity. A fundamental accounting principle that helps evaluate a company's financial position.

  • Trial Balance: A list of all the general ledger accounts and their corresponding balances, used to ensure debits and credits in the general ledger are equal.

  • Financial Statements: Include balance sheets, income statements, and cash flow statements. They provide a comprehensive overview of the company's financial performance.

  • Accrual Accounting: Recognizing revenues and expenses when they are earned or incurred, regardless of when cash is exchanged.

  • Cash Accounting: Recognizing revenues and expenses when cash is received or paid.

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