ACC 131 Lecture Notes - Lecture 1: Gross Margin, Profit Margin, Financial Accounting Standards Board

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10 May 2016

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Year begins w/ balance sheet -> net income. Net income -> income statement increase retained earnings. Statement of cash flows explains change in cash in year. Generally accepted accounting principles (gaap)- common set of rules/conventions developed to guide preparation of financial statements. Securities and exchange commission (sec)- sets accounting rules for publicly traded companies. Financial accounting standards board (fasb)- sec delegated ^ above authority working closely with international accounting standards (iasb) board in its development of international financial reporting standards (ifrs) Operating cycle- average time that it takes a company to purchase goods, resell goods, and collect cash. Unearned revenue- obligation to deliver goods/service for which company has already paid. Long-term liabilities-obligations that require payment over a longer period. Notes payable- repaying cash borrowed at a future date. Bonds payable- form of interest note payable issued by corp. attempting to attract large amount of investors.

Related Questions

1) The statement of cash flows is used for _____.

A. showing the relationship of net income to changes in currentassets

B. determining a company%u2019s acceptable level of debtfinancing

C. revealing commitments that may restrict future courses ofaction

D. evaluating the creditworthiness of the organization

2) Nonoperating items on the income statement _____.

A. are revenues and expenses arising from adjusting entries

B. include interest income and expense

C. appear only on corporate income statements

D. appear on the income statement immediately after grossprofit

3) The difference between a single-step and multiple-step incomestatement is that a single-step income statement _____.

A. groups all revenues together and all expenses together, whereasa multiple-step income statement separates certain revenues andexpenses from each other and presents subtotals

B. calculates net income using one method, whereas a multiple-stepincome statement calculates net income using two or moremethods

C. calculates gross profit and operating income, whereas amultiple-step income statement does not

D. shows only 1 year's net income, whereas a multiple-step incomestatement shows multiple years' net income

4) Which one of the following statements is true?

A. The statement of cash flows reports the cash receipts but notcash payments of an entity over a period of time.

B. Both the statement of cash flows and the income statementdetermine the net income for a company.

C. Transactions affecting the sale and the purchase or productionof goods and services are reported in the financing activitiessection of the statement of cash flows.

D. Investing activities in the statement of cash flows includeacquiring and selling long-term assets.

5) The _____ accounting convention uses the acquisition cost minusdepreciation in valuing an asset on the balance sheet.

A. continuity

B. conservatism

C. cost-benefit

D. materiality

6) A new corporation issuing a common, no-par value stock for cashwould include a journal entry a debit to _____.

A. paid-in capital and a credit to retained earnings.

B. cash and a credit to common stock.

C. retained earnings and a credit to cash.

D. cash and a credit to retained income.

7) Which type of organization would most likely havework-in-process inventory?

A. A retail store

B. A manufacturing company

C. A service organization

D. A real-estate investment trust

8) _____ is a measure of income or profit divided by the investmentrequired to obtain that income or profit.

A. Return on sales

B. Capital turnover

C. Return on investment

D. Residual income

9) The following information is available for the PeterCompany:

Sales: $150,000

Invested capital: $156,250

ROI: 10%

The return on sales is _____.

A. 10.00%

B. 10.42%

C. 62.50%

D. 9.60%

10) The following information is available for the PeterCompany:

Sales: $500,000

Invested capital: $312,500

ROI: 10%

The return on sales is _____.

A. 10.00%

B. 6.250%

C. 1.000%

D. 62.50%

35.A corporation has 50,000 shares of $100 par value stockoutstanding. If the corporation issues a 4-for-1 stock split, thenumber of shares outstanding after the split will be (Points :3)

200,000 shares.
50,000 shares.
250,000 shares.
12,500 shares.

Read the 2015 annual report of Air France â KLM and answer the 20 questions asked regarding the accounting issues. Link is provided below:

http://www.airfranceklm.com/sites/default/files/publications/afkl_registration_doc_2015.pdf

1. Air France-KLM reports âConsolidated statement of recognized income and expensesâ for the year ended December 31, 2015. If this statement was a U.S. GAAP statement, what would be the title of this statement?

a. Consolidated statement of total net income

b. Consolidated statement of other comprehensive income

c. Consolidated statement of comprehensive income

d. Consolidated statement of recognized net income

2. What method does Air France-KLM use for the Statement of Cash Flows?

a. Indirect method

b. Direct method

c. Gross method

d. Net method

3. The basic and diluted earnings per share for the year ended December 31, 2015, indicates that Air France-KLM has:

a. no convertible debts.

b. some dilutive securities.

c. no preferred stocks.

d. some treasury stocks.

4. What method is used to account for investments in companies over which Air France-KLM can âexercise significant influence on financial and operating policy decisions?â

a. Cost method

b. Liability method

c. Equity method

d. Fair value method

5. Sale of passenger tickets is accounted for at the time of ticket sale as:

a. Sales revenue

b. Deferred revenue

c. Contingent asset

d. No recognition

6. How does Air France account for business combination costs other than those related to the issuance of debt or equity securities?

a. Expensed as incurred

b. Capitalized as incurred

c. Included in goodwill

d. Used to offset fair value of the acquisition

7. Which of the following is not an âaccumulated other comprehensive incomeâ item among those reported in the âreserves and retained earningsâ in the 2015 consolidated balance sheet of Air France-KLM?

a. Available for sale securities reserves.

b. Derivatives reserves.

c. Legal reserves.

d. Pension defined benefits reserves.

8. What is the carrying amount of investments in debt and equity securities that are classified as available-for-sale?

a. Fair value Cost

b. Amortized cost

c. Lower of cost or market

9. Inventories are carried at:

a. The lower of the first-in-first-out cost or net realizable value.

b. The first-in-first-out cost.

c. The lower of the weighted-average cost or net realizable value.

d. The weighted-average cost.

10. Air France-KLM classifies its frequent flyer programs as:

a. Noncurrent liability

b. Current liability

c. Current asset

d. Other debt

11. The followings are included in Air France-KLMâs intangible assets, except for:

a. Trademarks

b. Leased aircraft

c. Customer relationships

d. Slots for takeoff and landing

12. Air France-KLM reports bank overdrafts as:

a. A contra account to cash and cash equivalents.

b. A current liability.

c. An expense.

d. A bank deposits in transit.

13. Which method does Air France-KLM use to record depreciation expense for its flight equipment?

a. The activity-based method.

b. The sum-of-yearsâ-digit method.

c. The straight-line method.

d. The group method.

14. Which accounting standards does Air France-KLM use?

a. U.S. GAAP

b. French GAAP

c. Netherlands GAAP

d. International Financial Reporting Standards

15. As of December 31, 2015, what assets are held for sale?

a. Land

b. Aircraft

c. Equipment

d. Buildings

16. Which of the following is included in âincome from operating activitiesâ but not in âincome from current operations?

a. Sale of aircraft equipment

b. Research and development costs

c. Bad debt expense

d. Interest revenue

17. Which of the following is not true about accounting treatment for the overhaul cost of major airframe and engine?

a. The cost is treated as separate asset component.

b. The cost is capitalized.

c. The cost is depreciated over the remaining useful life.

d. The cost is expensed as incurred.

18. How are financial assets accounted for if the Air France-KLM intends to sell them in the near future to realize capital gains?

a. At fair value with fair value changes recognized in the current period profit and loss

b. At fair value with fair value changes recognized as other comprehensive income

c. At cost with no recognition of fair value changes

d. At amortized cost with no recognition of fair value changes

19. Which of the following is not true about impairment test?

a. Tangible fixed assets, intangible assets, goodwill, and other assets with indefinite useful life are subject to an impairment test.

b. The impairment test is done at least once a year.

c. Recoverable value is the lower of the net realizable value and value in use.

d. The value in use is determined according to the discounted future cash flow method.

20. Which of the following is not an âother non-current income and expensesâ item?

a. Restructuring costs

b. Gains and losses on disposal of shares available for sale

c. Gains and losses on disposal of subsidiaries and affiliates

d. Gains and losses on sale of trading securities

ACC 131 Lecture Notes - Lecture 1: Gross Margin, Profit Margin, Financial Accounting Standards Board

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