Principles of Accounting Guide

Principles of Accounting Study Guide for Final Exam Test Format: • • • • • • • • • Multiple choice questions (50 @ 6.25 points each). Total possible points are 312.5. Maximum grade is 300! The extra points are to compensate for any weakness in the main test instrument and misunderstanding in the question wording. Students need to bring their own scantrons (form 882-E) and #2 pencils. Do not mark your scantron until you have selected your FINAL answer. Eraser marks confuse the scantron grading machine. All adverse consequences of eraser marks and mismarks are the student’s responsibility. Bring extra scantrons. Do not write notes before or during the exam on your scantron. All work should be written on the exam. You are permitted to use a simple four-function calculator (cell phones are NOT simple four-function calculators). Instructors/exam proctors will check each student’s calculator while distributing the exams. This is a closed book, closed note, and closed neighbor exam. You are NOT permitted to have scratch paper. You are NOT to look around during the exam. You are to keep your scantron sheet covered to the extent possible. Questions regarding the exam cannot be asked during the exam period. During the exam period, cell phones and all devices that can connect to the internet should be turned off or on silent and any ear piece should be removed. If an instructor or exam proctor sees a cell phone during the exam period, the student will receive a zero on the exam. Put your cell phones away! You must turn in your exam and scantron with your name and the version letter of the exam on both. You will be asked to show a picture id when you turn in your exam and scantron. You will have 120 minutes to complete the exam. This includes time to fill in your scantron. Do not start writing on the exam before you are instructed to begin. The exam covers Chapters 1 – 12. Approximately 45% of the exam will come from Chapters 1 – 9 and 55% from Chapters 10 – 12. Skills needed: Chapters 1 and 2: • Calculate components of the income statement, retained earnings statement, and balance sheet • Use the accounting equation to solve for an unknown. Chapter 3: • Analyze the effect of business transactions on the accounting equation. • Apply debit/credit rules. Chapter 4: • Apply the revenue recognition principle. • Calculate net income from an adjusted trial balance. Can be found by adding up all the expenses and subtracting from the given service revenue. All found at the bottom of the adjusted trial balance. NET INCOME= REVENUE – EXPENSES • Prepare adjusting journal entries. Chapter 5: • Interpret sales discounts and sales returns. • Calculate cost of goods sold under a periodic system. *No running account of changes in inventory, ending inventory determined by physical count, and cost of goods sold not determined until the end of the period* Chapter 6: • Calculate cost of goods sold or ending inventory using FIFO or LIFO. • Calculate cost of goods sold and gross profit using average cost. Chapter 7: • Prepare a bank reconciliation. • Calculate the amount of cash to borrow based upon a cash budget. Beg Cash Balance + Cash Receipts = Total Available Cash - Cash Disbursements, then you figure out how much you are borrowing or repaying. Look at HW 7-14 Chapter 8: • Prepare the adjusting entry to record the estimate of bad debt expense. • Calculate the duration of a note receivable given the interest rate and interest revenue. Chapter 9: • Identify items classified as property, plant, and equipment. • Calculate depreciation expense and accumulated depreciation using straight-line depreciation. Accumulated depreciation = Depreciation Expense X # of years • Determine correct accounting for repairs and maintenance. Chapter 10: • Define a current liability. • Prepare journal entries associated with notes payable. • Determine proper classification for a note payable on the balance sheet. • Identify the correct journal entries associated with current liabilities. • Calculate the selling price of a bond. • Based on interest rates, determine if a bond would be sold at a premium (above face value) or a discount (below face value). • Prepare journal entries to record bond transactions. Chapter 11: • Interpret the corporate characteristic of limited liability. Limited Liability of Stockholders Limited to their investment. • Understand the journal entry to record the issuance of common stock and calculate total shares issued. • Calculate preferred stock dividends. • Identify the declaration date, record date, or payment date associated with dividends. • Identify the journal entry to record the declaration of a dividend. • Define or calculate various components of stockholders’ equity. In the stockholders' equity section of the balance sheet, companies report paid-in capital, retained earnings, accumulated other comprehensive income, and treasury stock. Within paid-in capital, two classifications are recognized: • 1.Capital stock, which consists of preferred and common stock. Companies show preferred stock before common stock because of its preferential rights. They report information about the par value, shares authorized, shares issued, and shares outstanding for each class of stock. • 2.Additional paid-in capital, which includes the excess of amounts paid in over par or stated value. In excess of par value- common stock Common Stock + Preferred Stock +In excess of stated value- common stock Capital stock Additional Paid in Capital Chapter 12: • Identify the purpose of the Statement of Cash Flows. • Distinguish among operating, investing, and financing activities. • Identify the relationship between cash flows and life cycle phases. • Using the indirect method, calculate net cash provided (used) by operating activities. Operating activities include the cash effects of transactions that create revenues and expenses. They thus enter into the determination of net income Operating activities—Income statement items Cash inflows: From sale of goods or services. From interest received and dividends received. Cash outflows: To suppliers for inventory. To employees for wages. To government for taxes. To lenders for interest. To others for expenses. • Calculate net cash provided (used) by investing activities. Investing activities include (a) cash transactions that involve the purchase or disposal of investments and property, plant, and equipment, and (b) lending money and collecting the loans Investing activities—Changes in investments and long-term assets Cash inflows: From sale of property, plant, and equipment. From sale of investments in debt or equity securities of other entities. From collection of principal on loans to other entities. Cash outflows: To purchase property, plant, and equipment. To purchase investments in debt or equity securities of other entities. To make loans to other entities. • Calculate net cash provided (used) by financing activities. Financing activities include (a) obtaining cash from issuing debt and repaying the amounts borrowed, and (b) obtaining cash from stockholders, repurchasing shares, and paying dividends. Financing activities—Changes in long-term liabilities and stockholders' equity Cash inflows: From sale of common stock. From issuance of debt (bonds and notes). Cash outflows: To stockholders as dividends. To redeem long-term debt or reacquire capital stock (treasury stock). • Calculate free cash flow.