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Acct 351 Quiz 2
Ch 4 and 5 EWU
33
Accounting
10/24/2011

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Term
The major elements of the income statement are:
Definition
revenues, expenses, gains, and losses.
Term
Irregular transactions such as discontinued operations and extraordinary items should be reported separately in which type of income statement?
Definition
both a single-step and multiple-step income statement report this separately
Term
Intraperiod tax allocation is used for which of the following:
A. changes in accounting principle.
B. discontinued operations.
C. extraordinary items.
D. unusual gains/losses.
Definition
Intraperiod tax allocation is applied to all of the options except unusual gains/losses.
Term
Which balance sheet classification would normally require the greatest amount of supplementary disclosure?
Definition
Due to their various covenants and restrictions, long-term liabilities normally require the greatest supplementary disclosure.
Term
Making and collecting loans and disposing of property, plant, and equipment are:
Definition
investing activities
Term
The issuance of stock and the payment of dividends are:
Definition
financing activities
Term
The current cash debt coverage ratio is often used to assess:
Definition
liquidity
Term
The basis for classifying assets as current or non-current is:
Definition
the period of time normally required to convert cash invested in inventory back into cash, or 12 months, whichever is longer
Term
What is the difference between account form and report form balance sheet formats?
Definition
1) lists assets on the left and liabilities and stockholders' equity on the right.
2) lists liabilities and stockholders' equity below assets on the same page.
Term
Display in IS of discontinued operations
Definition
Shown in separate section after continuing operations and before extraordinary items, net of tax
Term
Display in IS of extraordinary items
Definition
Shown in separate section before net income, net of tax
Term
Display in IS of unusual gains/losses when not extraordinary
Definition
Shown in separate section before extraordinary items, not net of tax
Term
Display in IS of changes in accounting principal
Definition
Make a retrospective adjustment to prior periods' statements and adjust beginning RE in earliest period presented. Not shown separately on IS.
Term
Display in IS of changes in estimates
Definition
Shown only in affected accounts in current period, no adjustment for prior periods.
Term
Display in IS of correction of errors
Definition
Restate prior year's IS and offset JE with RE in current period.
Term
Usefulness of the income statement
Definition
1. For evaluating past performance of the company
2. Provides a basis for predicting future performance
3. Helps assess the risk or uncertainty of achieving future cash flows
Term
Limitations of the income statement
Definition
1. Companies omit items they cannot measure reliably
2. Income numbers are affected by the accounting methods used
3. Income measurement involves judgment
Term
Format of single-step income statement
Definition
Two groups: rev and exp
Term
Format of multi-step income statement
Definition
1. Operating section
2. Nonoperating section
a)other rev/gains
b)other exp/losses
3. Income tax
4. Discontinued operations
5. Extraordinary items
6. Earnings per share
Term
What is intraperiod tax allocation and when is it used?
Definition
:when companies allocate tax within a period to the specific items that gave rise to the tax provision. Used for:
-income from continuing operations
-discontinued operations
-extraordinary items
Term
Earnings per share calculation
Definition
(NI-preferred dividends)/Weighted Avg of common shares outstanding
Term
Comprehensive income
Definition
all changes in equity during a period except those resulting from investments by/distributions to owners.
Term
Other comprehensive income
Definition
Non-owner changes in equity that bypass the income statement, add to NI to arrive at comprehensive income.
Term
Extraordinary Items
Definition
Nonrecurring material items that differ significantly from a company's typical business activities. Must be both unusual and infrequent in nature.
Term
Usefulness of the balance sheet
Definition
to analyze liquidity, solvency, and financial flexibility
Term
Limitations of the balance sheet
Definition
-most assets and liabilities are reported at historical cost
-use of judgements and estimates for some items
-omits items of financial value that cannot be recorded objectively
Term
How to classify short-term investments on balance sheet: held-to-maturity, trading, available for sale
Definition
1. current or noncurrent depending on circumstances
2. current assets
3. current or noncurrent depending on circumstances
Term
Working Capital
Definition
CA-CL
Term
Current Asset classification
Definition
if company expects to convert an asset to cash or use it to pay a current liability within 1 year or the operating cycle (whichever is longer)
Term
5 basic current assets in order of liquidity and there basis of valuation
Definition
1. cash/cash equivalents: fair value
2. short-term investments: usually fair value
3. A/R: Estimated amount collectible
4. inventories (first finished, then WIP, last raw materials): lower-of-cost-or-market
5. prepaid expenses: cost
Term
operating activities:
Definition
the cash effects of transactions that create revenues and expenses, and thus enter into the determination of net income. Includes: net income, CA/CL (excluding investments), amortization, all gains/losses, most revenues/expenses
Term
investing activities:
Definition
cash flow activities that include (1) purchasing and disposing of investments and productive long-lived assets using cash, and (2) lending money and collecting the loans. Includes: investments and PP&E (#s may include offset for gains/losses in op act)
Term
financing activities
Definition
cash flow activities that include (1) obtaining cash from issuing debt and repaying the amounts borrowed, and (2) obtaining cash from stockholders and paying them dividends. Includes: company's own stock, bonds, and dividends but no RE