MGT 6201 Accounting Test Exam Study Questions With Well Elaborated Solutions

MGT 6201 Accounting Test Exam Study Questions With Well Elaborated Solutions Operating vs. Non-operating Expenses - ANSWER -· Operating expenses are the usual and customary costs that a company incurs to support its main business activities · Nonoperating expenses relate to the company's financing and investing activities Gains/Losses - ANSWER -Money made or lost outside of normal firm operations · Examples of gains/losses include: Gain on sale of operating equipment and Losses on sale of land Statement of Shareholder's Equity - ANSWER -· The statement of equity is a reconciliation of the beginning and ending balances of shareholders' equity accounts Main Equity Categories - ANSWER -o Capital stock § Selling shares o Retained earnings o Treasury stock § Repurchase own shares o Other comprehensive income Statement of Cash Flows - ANSWER -The financial statement that describes an entity's cash inflows and outflows during a period. · Designed to show info about the change in the cash balance from first balance sheet to second balance sheet · Only required since 1983 Cash is defined as - ANSWER -"cash and cash equivalents". Includes bank account balances, cash, coin, and short-term liquid investments Operating activities - ANSWER -· Cash transactions that enter into the determination of net income o Two methods - direct/indirect Investing Activities - ANSWER -Cash transactions involved in the purchase and sale of PPE (property, plant, equipment), other long-term assets and making/collecting loans (an investment to our firm) What is used in all of these financial statements: Balance Sheet, Statement of Equity, Income Statment - ANSWER -Retained Earnings Relationships of Financial Statements - ANSWER -· Financial statements are linked within and across time · Balance sheet and income statement are linked via retained earnings · Balance sheet and statement of cash flow are linked by changes in cash · The operating section of the statement of cash flows is a cash-basis income statement Revenue Recognition - ANSWER -Companies recognize revenue when goods or services are transferred to customers for the amount the company expects to be entitled to receive in exchange for those goods or services. · Recognize revenue when the "performance obligation is satisfied" 5 Steps to recognize revenue - ANSWER -1. Identify the contract with a customer. 2. Identify the performance obligation(s) in the contract. 3. Determine the transaction price. 4. Allocate the transaction price to each performance obligation. 5. Recognize revenue when (or as) each performance obligation is satisfied. Cash - ANSWER -includes money or currency the firm has on hand or in checking accounts, and items acceptable for deposit in these accounts, such as checks and money orders. Cash Equivalents - ANSWER -include items such as money market funds, short-term certificates of deposit, and treasury bills. Companies typically classify investments with maturity dates of three months or less when purchased as cash equivalents. Restricted Cash - ANSWER -cash that is restricted and not available for current use usually is reported as investments or other assets. Accounts Receivable - ANSWER -• Funds owed to our firm from the sale of goods or services • When companies sell to other companies, they offer credit terms, which are called sales on credit (or credit sales or sales on account). • Initial valuation of A/R is at the amount of the credit sale • Subsequent valuation of A/R is at the amount expected to be received, called the net realizable value. Two things must be estimated to determine the net realizable value - ANSWER -(Gross A/R - Amount not collected = Net A/R): (1) The amount that will not be collected because some customers are unable to pay - called uncollectibles (2) The amount that will not be collected because of sales returns Uncollectible A/R - ANSWER -• Bad Debts: Customers who don't pay the amount they owe Allowance for Uncollectible Accounts (also called the Provision Method): - ANSWER -• Estimate future bad debts and match that expense against the related revenues in the same period as the revenues are recognized. • Write-off accounts receivable when it becomes uncollectible. • The amount of expected uncollectible accounts is usually computed based on an aging analysis or a simple percentage • Matches expenses to the same period as revenues Inventory - ANSWER -Inventories are assets consisting of goods owned by the business and held for resale or for future use in the manufacturing of goods for sale. What costs should be included in inventory? - ANSWER -Inventory should include costs of the goods plus all costs required to obtain physical possession and to put the merchandise in saleable condition. Two types of inventory: - ANSWER -Merchandising Inventory Manufacturing Inventory Merchandising Inventory - ANSWER -• physical form of the goods is not altered prior to the sale. Cost = purchase price + [taxes, duties, freight, storage, insurance during transit, etc] - [discounts & allowances, purchase returns, purchase discounts] Manufacturing Inventory - ANSWER -• physical form of the goods is altered prior to the sale. Typically includes three categories: (1) Raw Material Inventory (2) Work-in-Process Inventory (3) Finished Good Inventory Calculation for Manufacturing Inventory Cost - ANSWER -raw materials + direct labor cost (only workers creating inventory. Not their wage expense. Cost of goods sold when inventory is sold) + indirect factory costs [overhead] (e.g., electricity, depreciation of equipment & building, supervisory salaries, supplies, etc.) Inventory Costing Methods - ANSWER -• Specific Identification i. Keeping track of inventory separately (usually just for unique or expensive items) 1. i.e paintings, battleships, etc.