Financial Accounting questions and answers in December 2022

Financial Accounting questions and answers in December 2022

increase stockholders equity

Accounts Receivable was originally used to recognize the future customer payment; now that the customer has paid in full, Accounts Receivable will decrease. Accounts Receivable is an asset, and assets decrease on the credit side. Printing Plus provided the services, which means the company can recognize revenue as earned in the Service Revenue account. Service Revenue increases equity; therefore, Service Revenue increases on the credit side. If your accounts don’t balance—total debits don’t equal total credits—you know you’ve made an error that must be investigated. If you use the cash method of accounting, you record income only when you receive cash from your customers. You record an expense only when you write the check to the vendor.

  • Sales are recognized when cash is received, but no gross profit is recognized until all of the cost of goods sold is collected.
  • Items on a common-size income statement are stated as a percentage of revenue .
  • B) effectiveness of a firm’s inventory management.
  • A) The bond will be shown on the balance sheet at the premium value.

B) lower net income in the earlier years of the lease. A) the weighted average number of preferred shares outstanding. Explanatory notes, including a summary of accounting policies. C) a $90 million gain in other comprehensive income.

Sell Goods on Credit

He spends most of his time researching and studying to give the best answer to everyone. Let’s look at one of the journal entries from Printing Plus and fill in the corresponding ledgers. Printing Plus provided the service, thus earning revenue. Service Revenue would increase on the credit side.

  • Company X provides consulting services to Client Q in May.
  • Liabilities will decrease, since Accounts Payable is a liability.
  • Of the $90 million excess of fair value over carrying value, $80 million is recognized as a gain on the income statement to reverse the $80 million loss that was previously recognized.
  • If, however, they are not expected to reverse in the future, then they should be classified as equity.
  • B) subtracted from earnings available to common shareholders after an adjustment for taxes.
  • Which of the following is NOT an element of a company’s annual pension expense for a defined-benefit plan?

A. Under IFRS, which of the following would be disclosure on the statement of a company’s financial statements? Revenues, Finance costs, Tax expenses Revenues, tax expenses, and advertisi… The accounting equation relies on a double-entry accounting system. In a double-entry accounting system, every transaction affects at least two accounts. For example, if a company buys a $1,000 piece of equipment on credit, that $1,000 is an increase in liabilities but also an increase in assets. A company pays for assets by either incurring liabilities or by obtaining funding from investors (which is the Shareholders’ Equity part of the equation).

How Is a Material Cash Overdraft Reported in a Balance Sheet?

And finally, net profit is the difference between net sales and ALL expenses, including income taxes. The market rate on the balance sheet date is not typically disclosed. The amount of principal scheduled to be repaid over the next five years and collateral pledged are generally included in the footnotes to the financial statements. Leverage ratios will increase because debt increases while equity remains unchanged, and debt increases proportionally by more than assets. Coverage ratios decrease because interest payments increase while EBIT is unchanged. Statement #2 – Common-size financial statements can be used to highlight the structural changes in the firm’s operating results and financial condition that have occurred over time. Trading securities are reported in the balance sheet at fair value.


A) both flow from operations and cash flow from financing would increase. Shares that were issued previously but are not outstanding are treasury shares . Thus, there are 600,000 treasury shares (2.4 million issued – 1.8 million outstanding). Treasury shares are reported as a reduction in shareholders’ equity on the balance sheet. Common size income statements express all income statement items as a percentage of sales. A) not be reported on the statement of cash flows because it is a non-cash event. Always consider deferred tax liabilities as stockholder’s equity.

1 Defining the Accounting Equation Components

Through the statement, you can witness the inflow of new assets into a business and measure the outflows incurred to produce revenue. Owner’s equity is the residual interest or amount that assets exceed liabilities. It also represents the amount of paid-in capital and retained earnings as a result of doing business for profit.

Expressing each line item of the cash flow statement as a percentage of revenue is useful in forecasting future cash flows since revenue usually drives the forecast. The change in the net pension asset or liability is reflected in a firm’s comprehensive income each year. The company must disclose the nature of the error and its effect on net income and restate any prior period results that are presented in the current financial statements. Taxes payable are the taxes due to the government and are determined by taxable income and the tax rate. Note that pretax income is income before tax expense and is used for financial reporting.

What Are Expenses? Definition, Types, and Examples

Higher asset levels and higher equity levels in the early years of the asset’s life. Higher asset levels and lower equity levels in the early years of the asset’s life. The firm can call the bonds for 101% of $10 million, or $10,100,000. Redeeming bonds for less than the carrying value of the bond liability results in a gain.

income of $

Expense all costs of this project in the periods incurred. ~Dividends paid is a transaction with shareholders and is not included in comprehensive income. Total asset turnover measures operating efficiency and interest coverage measures a company’s financial risk. Classifying interest paid as an investing cash flow. LIFO will result in the lowest pre-tax financial income and FIFO will result in the highest pre-tax income.

Is when there is more than one account listed under the debit and/or credit column of a journal entry . If your business has inventories, you must use the accrual method, at least for sales and merchandise purchases. You also need to decide whether you will be using the cash or accrual accounting method. We recommend the accrual method because it provides a more accurate picture of your financial situation. Early in the current year, Jerry gifts shares of a public corporation to his 25-year-old son.

  • The next transaction figure of $4,000 is added directly below the $20,000 on the debit side.
  • Management may follow generally accepted accounting principles and still make biased (i.e., aggressive or conservative) accounting choices.
  • Toys-A-Bunch’s 2012 financial statements were recently released to the public.
  • Supplies are considered assets until an employee uses them.

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