Order of assets listed on the balance sheet - ANSWER Assets are listed in the order of li-
quidity. Liquidity is the amount of time it would usually take to covert an asset into cash. Ob-
viously, cash would be listed first, followed by marketable investments (a company can
quickly convert a short-term investment into cash). Accounts receivable would be listed next
followed by inventory, and long-term investments, fixed assets, and intangibles.
Current assets are listed before long-term assets.
Current liabilities are listed before long-term liabilities, but there is no specific order they are
listed in outside of current and long-term.
There is also no specific order equity accounts are listed on the balance sheet; although, typ-
ically you will see paid-in-capital followed by retained earnings followed by accumulated
other comprehensive income, and lastly, treasury stock.
Difference between a manufacturing company and a service company.
Period Costs Product Costs
Service Co. Selling Costs Direct Labor
Administrative Costs Service Overhead
Manufacturing Co Selling Costs Direct Labor
Administrative Costs Manufacturing Overhead
Direct Materials (inventory - ANSWER The only difference is - a manufacturing company
has direct materials (inventory).
Evaluating a historical income statement to project a future income statement.
1
,Projected growth for 2017 = 10% increase over 2016 sales.
Step 1: Convert the income statement into a common-sized income statement.
Step 2: Multiply 2016 sales by 1.10 (10% growth) to get the forecasted 2017 sales. Then mul-
tiply the projected 2017 sales by the percentages from step 1.
Now, what would you do if you were given the 2017 sales figure and you need to calculate
the 2016 sales figure based off the 10% growth for 2017? - ANSWER Calculation for 2016:
110,.10 = 100,000
Role of the U. S. Securities and Exchange Commission (SEC) in financial reporting. - AN-
SWER Regulates the U.S. Stock exchanges.
Seeks to create a fair information environment in which investors can buy and sell stocks.
Congress created the first securities act in 1933 and the second securities act in 1934 in re-
sponse to the stock market crash of 1929.
The Securities Act of 1933 requires most companies planning to issue new debt or stock se-
curities to the public to submit a registration statement to the public for approval.
The Securities Act of 1934 requires a public company to file detailed periodic reports includ-
ing audited financial statements (form 10-K is the annual report; Form 10-Q is the quarterly
report).
Granted the legal authority to establish accounting standards. Currently the SEC accepts the
pronouncements set by FASB.
The SEC can suspend trading of a company's stock, and if hearings show that the issue failed
to comply with the securities laws, the SEC can de-list the security.
Congress strengthened the SEC through the enactment of Sarbanes-Oxley (SOX), which was
enacted after the massive frauds that occurred in the late 1990s and the early 2000s.
2
, Compare and Contrast Traditional Costing to Activity-Based Costing (ABC). - ANSWER ABC
is a more accurate product costing system than traditional product costing systems.
ABC requires more time and expense to administer than do traditional costing systems.
Companies with diverse products involving substantially different production processes, an
ABC system yields better cost data and better management decisions.
Describe how basic cost behavior patterns change as sales volumes change. - ANSWER
Fixed costs (FC) are fixed in total, but as sales volume increases, the per unit FC decreases.
Variable costs (VC) are fixed per unit, but as sales volume increases, total VC increases.
Stewart Manufacturing produces and sells die cast race cars. VC for each die cast car is $3
and total FC are $300,000
Per Unit Variable costs remains the same
Total Fixed Costs remains the same
Per Unit Fixed Costs decrease
Analyze a statement of cash flows to identify operating, investing, and financing activities.
Operating Activities: - ANSWER All categories that are on the income statement, and all
current assets and liabilities. i.e. sales (cash received from customers); cost of goods sold
(cash paid for inventory); operating expenses (cash paid for rent);
Analyze a statement of cash flows to identify operating, investing, and financing activities.
3
quidity. Liquidity is the amount of time it would usually take to covert an asset into cash. Ob-
viously, cash would be listed first, followed by marketable investments (a company can
quickly convert a short-term investment into cash). Accounts receivable would be listed next
followed by inventory, and long-term investments, fixed assets, and intangibles.
Current assets are listed before long-term assets.
Current liabilities are listed before long-term liabilities, but there is no specific order they are
listed in outside of current and long-term.
There is also no specific order equity accounts are listed on the balance sheet; although, typ-
ically you will see paid-in-capital followed by retained earnings followed by accumulated
other comprehensive income, and lastly, treasury stock.
Difference between a manufacturing company and a service company.
Period Costs Product Costs
Service Co. Selling Costs Direct Labor
Administrative Costs Service Overhead
Manufacturing Co Selling Costs Direct Labor
Administrative Costs Manufacturing Overhead
Direct Materials (inventory - ANSWER The only difference is - a manufacturing company
has direct materials (inventory).
Evaluating a historical income statement to project a future income statement.
1
,Projected growth for 2017 = 10% increase over 2016 sales.
Step 1: Convert the income statement into a common-sized income statement.
Step 2: Multiply 2016 sales by 1.10 (10% growth) to get the forecasted 2017 sales. Then mul-
tiply the projected 2017 sales by the percentages from step 1.
Now, what would you do if you were given the 2017 sales figure and you need to calculate
the 2016 sales figure based off the 10% growth for 2017? - ANSWER Calculation for 2016:
110,.10 = 100,000
Role of the U. S. Securities and Exchange Commission (SEC) in financial reporting. - AN-
SWER Regulates the U.S. Stock exchanges.
Seeks to create a fair information environment in which investors can buy and sell stocks.
Congress created the first securities act in 1933 and the second securities act in 1934 in re-
sponse to the stock market crash of 1929.
The Securities Act of 1933 requires most companies planning to issue new debt or stock se-
curities to the public to submit a registration statement to the public for approval.
The Securities Act of 1934 requires a public company to file detailed periodic reports includ-
ing audited financial statements (form 10-K is the annual report; Form 10-Q is the quarterly
report).
Granted the legal authority to establish accounting standards. Currently the SEC accepts the
pronouncements set by FASB.
The SEC can suspend trading of a company's stock, and if hearings show that the issue failed
to comply with the securities laws, the SEC can de-list the security.
Congress strengthened the SEC through the enactment of Sarbanes-Oxley (SOX), which was
enacted after the massive frauds that occurred in the late 1990s and the early 2000s.
2
, Compare and Contrast Traditional Costing to Activity-Based Costing (ABC). - ANSWER ABC
is a more accurate product costing system than traditional product costing systems.
ABC requires more time and expense to administer than do traditional costing systems.
Companies with diverse products involving substantially different production processes, an
ABC system yields better cost data and better management decisions.
Describe how basic cost behavior patterns change as sales volumes change. - ANSWER
Fixed costs (FC) are fixed in total, but as sales volume increases, the per unit FC decreases.
Variable costs (VC) are fixed per unit, but as sales volume increases, total VC increases.
Stewart Manufacturing produces and sells die cast race cars. VC for each die cast car is $3
and total FC are $300,000
Per Unit Variable costs remains the same
Total Fixed Costs remains the same
Per Unit Fixed Costs decrease
Analyze a statement of cash flows to identify operating, investing, and financing activities.
Operating Activities: - ANSWER All categories that are on the income statement, and all
current assets and liabilities. i.e. sales (cash received from customers); cost of goods sold
(cash paid for inventory); operating expenses (cash paid for rent);
Analyze a statement of cash flows to identify operating, investing, and financing activities.
3
