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AFM101 Chapter Notes - Chapter 3: Income Statement, Weighted Arithmetic Mean, Issued Shares

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School
University of Waterloo
Department
Accounting & Financial Management
Course
AFM101
Professor
Donna Psutka

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AFM101 Full Course Notes
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Document Summary

Long term objective of any business is to turn cash into more cash. Operating cycle/cash-to-cash cycle: the length of time between the payment of cash to suppliers or inventory and to employees and the collection of cash from customers (this length depends on the nature of the business) Shortening the operating cycle means higher profits and faster growth. Result in a sale of goods and ownership (recognize it when there is a transfer of ownership from the seller to the buyer) Sometimes a company receives cash/receivables for a promise to provide goods or services in the future (this is called deferred revenue-liability) Only when the service is performed or the company provides the goods, then it is recognized as revenue: operating expenses. Expenditure: any outflow of cash for any purpose. Expense: it results when an asset (equipment or supplies) is used to generate revenue during a period, or when an amount is incurred to generate revenues during a period (electricity)

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Related Questions

Which of the following characteristics may result in theclassification of a liability being changed from current tononcurrent:

a) violation of a subjective acceleration clause

b) violation of a objective acceleration clause

c) a demand provision for payment

d) refiancing after the balance sheet date

Pending litigation would generally be considered:

a) nonmonetary liabilty

b) contingent liability

c) estimated liability

d) current liability

Barrons Co. current ratio is 2:1. Which of the followingtransactions would normally increase Barney's current ratio?

a) purchasing inventory on account

b) borring money by signing a long-term note

c) collecting an account receivable

d) purchasing land for cash

On multiple step income statement, gains or losses on sale ofequipment would be shown

a) before gross profit on sales

b) after gross profit on sales but before income from conitnuingoperations

c) after income from continuing operations but before incomefrom extraordinary items

d) after income before extraordinary items but before netincome

A single step income statement is a format that

a) compares the current years income with last year's income

b) recongnizes subtotals at intermediate stages such as grossmargin

c) combines revenues and gains and subtracts from them expensesand losses, resulting in income from operations

d) reports sales revenue, cost of goods sold, gross margin, andall other expenses

In contrast with a multiple-step income statement, a single stepincome statement does NOT show the amount of

a) income taxes on continuing operations

b) cost of goods sold

c) gross profit

d) earnings per share

The amount of income reported for tax purposes

a) is nomally greater than the net income reported tostockholders

b) must be computed according to GAAP

c) is used to compute earnings per share

d) may differ from the amount of income detemined for financialreporting purposes

Under the general rule of revenue recognition, revenue isrecognized when

a) marketability and market price are assured

b) a contractual agreement exists, and cash collection isassured

c) the earnings process is complete, and a valid promise ofpayment has been received

d) all related expenses have been incurred

Seaworth Company's gross sales in 2014 were 3930000. Assumingsales returns and allowances were 74000 sales discounts were 35000and freight-out was 28000 what were Seaworthy's net sales in2014?

a) 3792000

b) 3821000

c)3856000

d) 3930000

On June 30, 2014 Sonata COmpanys operating facilities inNebraska were detroyed by a flood. The loss of $700000 was notcovered by insurance. Sonata's tax rate for 2014 is 40 percent. InSonatas income statement for the year ended sept 30 2014 this eventshould be reported as an extraordinary loss of

a) 0

b) 280000

c) 420000

d) 700000

In a statement of cash flows, payments to acquire debtinstruments of other entities would typically be classified as cashoutflows for

a) financing activities

b) equity activities

c) operating activities

d) investing activities

A gain on the sale of a plan asset in the ordinary course ofbusiness should be presented in a staement of cash flows preparedusing the indirect method as

a) a cash inflow from investing activities

b) a cash inflow from financing activities

c) a deduction from net income

d) a addition to net income

In a statement of cash flows, proceeds from issuing equityinstruments should be classified as cash inflows from

a) brokerage activities

b) financing activities

c) investing activites

d) operating activities

When preparing a statement of cash flows using the indirectmethod, the amortization of trademarks should be reported as a

a) increase in cash flows from investing activities

b) reduction in cash flows from investing activities

c) increase in cash flows from operating activities

d) reduction in cash flows from operating activites

A loss in the sale of machinery in the ordinary course ofbusiness should be presented in a statement of cash flows( indirectmethod) as

a) an addition to net income

b) a deduction from net income

c) an inflow and outflow of cash

d) an outflow of cash

In preparing a statement of cash flows, which of the followingtransactions would be considered an investing activity?

a) sale of a business segment

b) Issuance of bonds payable at a discount

c) purchase of treasury stock

d) sale of capital stock

In a statement of cash flows (indirect method), depreciation istreated as an adjustment to reported net income becausedepreciation

a) is an inflow of cash to reserve account for assetreplacement

b) reduces the reported net income and involves an inflow ofcash

c) reduces the reported net inome but does not involve anoutflow of cash

d) usually represents a significant portion of operatingexpense

1. Which statement is normally prepared first? (Points : 3) Income statement Balance sheet Statement of cash flows Retained earnings statement2. When a business borrows money, it incurs a(n) (Points : 3) tax. liability. cash payment. all of these.3. More than 70% of businesses are organized as what type of business? (Points : 3) Not-for-profit Corporation Partnership Sole proprietorship4. Brennan, Inc. had revenues of $234,000, expenses of $175,000, and dividends of $40,000 during 2009. Which of the following statements is correct? (Points : 3) Net income for 2009 totaled $19,000. Net income for 2009 totaled $59,000. Total retained earnings increased by $59,000 during 2009. Total retained earnings decreased by $40,000 during 2009.5. The statement of cash flows is integrated with the balance sheet because (Points : 3) the cash at the beginning of the period plus or minus the cash flows from operating, investing, and financing activities equals the end of period cash reported on the balance sheet. the cash at the beginning of the period plus or minus the net income equals the end of period cash reported on the balance sheet. the cash at the beginning of the period plus or minus assets and liabilities equals the end of period cash reported on the balance sheet. the cash at the beginning of the period plus or minus the cash flows from operating activities equals the end of period cash reported on the balance sheet.6. The basic financial statements do NOT include the (Points : 3) income statement. tax return balance sheet. statement of cash flows.7. A __________ is an economic event that under generally accepted accounting principles affects an element of the financial statements and must be recorded. (Points : 3) framework control set of rules transaction8. The payment of a liability (Points : 3) decreases assets and stockholders' equity. increases assets and decreases liabilities. decreases assets and increases liabilities. decreases assets and decreases liabilities. 9. Co. received $1,000 from Newbie as rent for the use of a building owned by UNI. How does this transaction affect UNI's accounts if UNI recognizes a liability? (Points : 3) Cash is increased and revenue is increased. Cash is increased and revenue is decreased. Cash is increased and unearned revenue is increased. It is not recorded.10. Depreciation Expense and Accumulated Depreciation are classified, respectively, as (Points : 3) expense and contra asset. asset and contra liability. revenue and asset. contra asset and expense.11. Deferred expenses (prepaid expenses) are items initially recorded as assets but are expected to become __________ over time. (Points : 3) Liabilities Assets stockholders%u2019 equity Expenses12. A&M Co. provided services of $1,000,000 to clients on account. How does this transaction affect A&M%u2019s accounts? (Points : 3) Increase accounts receivable and cash by $1,000,000 each Increase accounts receivable and revenues by $1,000,000 each Increase accounts receivable and unearned revenues by $1,000,000 each No effect at this time13. Multiple-step income statements show: (Points : 3) gross profit but not income from operations. neither gross profit nor income from operations. both gross profit and income from operations. income from operations but not gross profit.14. Since merchandise inventory is normally sold within a year, how is it reported on the balance sheet? (Points : 3) As a revenue As the cost of merchandise sold It does not appear on the Balance Sheet As a current asset15. The credit terms of a sale are normally indicated on a(n) (Points : 3) purchase order. invoice. bill of lading. account receivable.16. Inventory shortage is recorded when (Points : 3) merchandise is returned by a buyer. merchandise purchased from a seller is incomplete or short. merchandise is returned to a seller. there is a difference between a physical count of inventory and inventory records. 17. The bank reconciliation (Points : 3) should be prepared by an employee who records cash transactions. is part of the internal control system. is for information purposes only. is sent to the bank for verification.18. A special cash fund used to make small payments that occur frequently is called a(n) (Points : 3) operating expenses fund. change fund. market fund. petty cash fund.19. The objectives of internal control are to (Points : 3) control the internal organization of the accounting department personnel and equipment. provide reasonable assurance that assets are safeguarded, information is processed accurately, and laws and regulations are complied with. prevent fraud and promote the social interest of the company. provide control over %u201Cinternal-use only%u201D reports and employee internal conduct.20. When a firm uses internal auditors, it is adhering to which of the following internal control elements? (Points : 3) Risk assessment Proofs and security measures Monitoring Separating responsibilities for related operations21. What type of account is Allowance for Doubtful Accounts? (Points : 3) Contra asset Asset Revenue Expense22. Merchandise inventory is reported on the balance sheet in the section entitled (Points : 3) current assets. fixed assets. current liabilities. stockholders' equity.23. Receivables are usually a significant portion of (Points : 3) total current liabilities. total liabilities. total current assets. total assets.24. The inventory data for an item for November are: Nov.1 Inventory 25 units at $20 10 Purchased 30 units at $21 30 Purchased 10 units at $22 Sold 35 unitsUsing the first-in, first-out method, what is the cost of the merchandise inventory of 30 units on November 30? (Points : 3) $640 $605 $623 $66025. All amounts paid to get an asset in place and ready for use are referred to as (Points : 3) capital expenditures. revenue expenditures. residual value. cost of an asset.26. Fixed assets are ordinarily presented in the balance sheet (Points : 3) at current market values. at replacement costs. at cost less accumulated depreciation. in a separate section along with intangible assets.27. Goodwill is (Points : 3) amortized similar to other intangibles. only written down if an impairment in value occurs. charged to expense immediately. amortized over 40 years or its economic life, whichever is shorter.28. If a capital expenditure is treated as a revenue expenditure, then (Points : 3) expenses are overstated and owners' equity is understated. expenses are overstated and assets are overstated. expenses are understated and owners' equity is overstated. net income is overstated and owners' equity is understated.29. A bond indenture is (Points : 3) a contract between the corporation issuing the bonds and the underwriters selling the bonds. the amount due at the maturity date of the bonds. a contract between the corporation issuing the bonds and the bondholders. the amount for which the corporation can buy back the bonds prior to the maturity date.30. Gross earnings for a payroll period less payroll deductions are referred to as (Points : 3) overtime pay. bonus pay. gross pay. net pay.31. How is treasury stock shown on the balance sheet? (Points : 3) As an asset As a decrease in stockholders' equity As an increase in stockholders' equity Treasury stock is not shown on the balance sheet.32. Current liabilities are (Points : 3) due but not receivable for more than one year. due but not payable for more than one year. due and receivable within one year. due and payable within one year.33. The total earnings of an employee for a payroll period are referred to as (Points : 3) take-home pay. pay net of taxes. net pay. gross pay.34. Where is interest expense listed on the income statement? (Points : 3) Other expense section Cost of merchandise sold Operating expenses Interest expense is on the balance sheet, not the income statement.35. A corporation has 50,000 shares of $100 par value stock outstanding. If the corporation issues a 4-for-1 stock split, the number of shares outstanding after the split will be (Points : 3) 200,000 shares. 50,000 shares. 250,000 shares. 12,500 shares.


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.