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ACTG 1P91 Chapter Notes - Chapter 3: Cash Out, Income Statement, Accrual

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orchidlion134
2 Oct 2013
School
Brock University
Department
Accounting
Course
ACTG 1P91
Professor
Sohyung Kim

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ACTG 1P91 Full Course Notes
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ACTG 1P91 Full Course Notes
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1. 1 income statement reports a company"s operation over a particular period of time. 1. 2 revenues are earned when a company delivers goods or provides services. At this point, the company may or may not receive cash. 1. 3 - when a company incurs a cost, that cost is recorded as an expense if there is no future benefit (e. g. utility bills) and this accounting treatment is called expensing a cost. If there is future benefit, the cost is recorded as an asset (e. g. purchase of equipment) and this accounting treatment is called capitalizing a cost . 1. 4 income statement also reports gains and losses, which arise from non-core operating activities: format of income statement, accrual basis. Business activities are measured and reported when the activities actually occur, not when the cash related to the item is received or paid. 365: two important principles under accrual basis. 4. 2 matching principle: record expenses in the period when the related revenues are earned.

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Related Questions

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.

The Coca-Cola Company and PepsiCo, Inc. The financial statementsof Coca-Cola and PepsiCo are presented in Appendices C and D,respectively. The companies' complete annual reports, including thenotes to the financial statements, are available online.Instructions Use the companies' financial information to answer thefollowing questions.

(a) What type of income format(s) is used by these twocompanies? Identify any differences in income statement formatbetween these two companies.

(b) What are the gross profits, operating profits, net incomes,and net incomes attributable to noncontrolling interests for thesetwo companies over the 3-year period 2012-2014? Which company hashad better financial results over this period of time?

(c) What income statement format do these two companies use toreport comprehensive income?

CA-4-2,p.190 Instructions Indicate the deficiencies in theincome statement presented above. Assume that the corporationdesires a single-step income statement. CA4-2 GROUPWORK (EarningsManagement) Bobek Inc. has recently reported steadily increasingincome. The company reported income of $20,000 in 2014, $25,000 in2015, and $30,000 in 2016. A number of market analysts haverecommended that investors buy the stock because they expect thesteady growth in income to continue. Bobek is approaching the endof its fiscal year in 2017, and it again appears to be a good year.However, it has not yet recorded warranty expense. Based on priorexperience, this year's warranty expense should be around $5,000,but some managers have approached the controller to suggest alarger, more conservative warranty expense should be recorded thisyear. Income before warranty expense is $43,000. Specifically, byrecording a $7,000 warranty accrual this year, Bobek could reportan increase in income for this year and still be in a position tocover its warranty costs in future years. Instructions

(a) What is earnings management?

(b) Assume income before warranty expense is $43,000 for both2017 and 2018 and that total warranty expense over the 2-yearperiod is $10,000. What is the effect of the proposed accounting in2017? In 2018?

(c) What is the appropriate accounting in this situation?

P18-2 (LO2,3,4) (Allocate Transaction Price, Modification ofContract) Refer to the Tablet Bundle A revenue arrangement inP18-1. In response to competitive pressure for Internet access forTablet Bundle A, after 2 years of the 3-year contract, TabletTailors offers a modified contract and extension incentive. Theextended contract services are similar to those provided in thefirst 2 years of the contract. Signing the extension and paying $90(which equals the standalone selling of the revised Internetservice package) extends access for 2 more years of Internetconnection. Forty Tablet Bundle A customers sign up for this offer.Instructions

(a) Prepare the journal entries when the contract is signed onJanuary 2, 2019, for the 40 extended contracts. Assume themodification does not result in a separate performance obligation.(b) Prepare the journal entries on December 31, 2019, for the 40extended contracts (the first year of the revised 3-yearcontract).

P18-3 (LO2,3,4) (Allocate Transaction Price, Discounts, TimeValue) Grill Master Company sells total outdoor grilling solutions,providing gas and charcoal grills, accessories, and installationservices for custom patio grilling stations. Instructions Respondto the requirements related to the following independent revenuearrangements for Grill Master products and services.

(a) Grill Master offers contract GM205, which is comprised of afree-standing gas grill for small patio use plus installation to acustomer's gas line for a total price $800. On a standalone basis,the grill sells for $700 (cost $425), and Grill Master estimatesthat the standalone selling price of the installation service(based on cost-plus estimation) is $150. (The selling of the grilland the installation services should be considered two performanceobligations.) Grill Master signed 10 GM205 contracts on April 20,2017, and customers paid the contract price in cash. The grillswere delivered and installed on May 15, 2017. Prepare journalentries for Grill Master for GM205 in April and May 2017.

(b) The State of Kentucky is planning major renovations in itsparks during 2017 and enters into a contract with Grill Master topurchase 400 durable, easy maintenance, standard charcoal grillsduring 2017. The grills are priced at $200 each (with a cost of$160 each), and Grill Master provides a 6% volume discount ifKentucky purchases at least 300 grills during 2017. On April 17,2017, Grill Master delivered and received payment for 280 grills.Based on prior experience with the State of Kentucky renovationprojects, the delivery of this many grills makes it certain thatKentucky will meet the discount threshold. Prepare the journalentries for Grill Master for grills sold on April 17, 2017. Assumethe company records sales transaction net.

(c) Grill Master sells its specialty combination gas/wood-firedgrills to local restaurants. Each grill is sold for $1,000 (cost$550) on credit with terms 3/30, net/90. Prepare the journalentries for the sale of 20 grills on September 1, 2017, and uponpayment, assuming the customer paid on (1) September 25, 2017, and(2) October 15, 2017. Assume the company records sales net.

(d) On October 1, 2017, Grill Master sold one of its superdeluxe combination gas/charcoal grills to a local builder. Thebuilder plans to install it in one of its "Parade of Homes" houses.Grill Master accepted a 3-year, zero-interest-bearing note withface amount of $5,324. The grill has an inventory cost of $2,700.An interest rate of 10% is an appropriate market rate of interestfor this customer. Prepare the journal entries on October 1, 2017,and December 31, 2017.


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.