Intermediate Accounting 1: Exam 1 Chapter 1 and 2 Questions With 100% Correct Answers

Intermediate Accounting 1: Exam 1 Chapter 1 and 2 Questions With 100% Correct Answers Describe the function and primary focus of financial accounting - answerPRIMARY OBJECTIVE: to provide investors and creditors with useful information for decision making -provides information to predict the future risk and potential return of their prospective investments or loans -"Special" language used to communicate financial information to help people inside and outside of the business to make decisions -provides useful information about economic activity to help produce more good decisions and foster a prosperous society -by providing key information to capital market participants, it also plays a VITAL role that helps society's resources to the companies that will utlize those resources most effectively What is the primary focus of financial accounting? - answerchiefly concerned with providing financial information to various external users *Primary Focus* on the information needs of investors and creditors external user groups: financial intermediaries, financial analysts, stock brokers, mutual fund managers, and credit rating organizations financial statements most frequently provided - answer1. balance sheet (statement of financial position) 2. the income statement (statement of operations) 3. the statement of cash flows 4. the statement of shareholder's equity Financial reporting - answerRefers to the process of providing this information to external users (financial statements, how they are measured, concepts underlying measurements and related disclosures ) Capital markets - answerMarkets that provide a mechanism to help our economy allocate resources efficiently Composite of all investors and creditors Businesses come here to get cash necessary for them to function Corporations acquire ___ from —- in exchange for ownership ___ and from _____ by borrowing - answerCorporations acquire capital from investors in exchange for ownership and from creditors by borrowing Three primary forms of business organizations - answerSole proprietorship The partnership The corporation - in the Us sole proprietorships and partnerships outnumber corporations dominant form of business organization in terms of ownership of productive resources is the corporation Investors vs. Creditors - answerinvestors provide resources, usually cash, to a corporation in exchange for an ownership interest, that is shares of stock creditors lend cash to the corporation, either by making individual loans or by purchasing publicly traded debt such as bonds How are the decisions of investors and credits similar? - answerinvestors and creditors are only willing to provide capital to a corporation (buy stocks or bonds) ONLY IF they expect to receive more cash in return at some time in the future -corp. shareholders receive cash from investment through ultimate sale of the ownership shares of stock -many corporations distribute cash in the form of periodic dividends if the investor provides a company with $10,000 cash by purchasing stock at the end of 2020, receives $400 in dividends from the company during 2021, and sells the ownership interest (shares) at the end of 2021 for $10,600, what is the rate of return? - answer$400 dividends + $600 share price appreciation _________________________________________ $10,000 Initial investment =10% What are key variables in the investment decision? - answerThe expected rate of return and the uncertainty, or risk, of that return are key variables in the investment decision. =if potential return is high enough, investors will prefer to invest in a profit-oriented company even if it has more risk associated with it A company will be able to provide a POSITIVE return to investors and creditors ONLY IF IT CAN GENERATE ______ - answera profit from selling its product or services What does financial accounting help investors and creditors evaluate? - answerthe amounts, timing, and uncertainty of the enterprise's future cash receipts and disbursements the better the information the MORE EFFICIENT investor and creditor allocation decisions Lo 1-2 Explain the difference between cash and accrual accounting - answerpredicting cash flows is the primary goals for most u