BUSI610 Financial Accounting Final Exam Questions and Correct Answers Latest Update 2024 (Already
Passed)
GAAP - Answers Generally Accepted Accounting Principles - a set of accounting principles, standards,
and procedures followed by US companies
Goal of GAAP - Answers To make sure the financial statements of US companies stated on a basis that is
complete, consistent, and comparable
GAAP is ___________ - Answers conservative (marked by moderation and caution)
Under GAAP, companies are more likely to ____________ assets and net income - Answers understate
A tech company owns land in San Jose, CA and purchased land for $1,000,000 on March 1, 2010. Real
estate prices in the San Jose area have risen significantly since 2010, and an appraisal of the land as of
Dec 31, 2023 values the land at $5,000,000. In preparing its balance sheet as of Dec 31, 2023, the
company should :
a) increase its land asset to $5,000,000
b) make no adjustment, and land remains recorded at $1,000,000 - Answers B) GAAP is conservative
Accounting Equation - Answers Assets = Liabilities + Stockholders' Equity
Sources of Assets - Answers 1) Funding from creditors (liabilities)
2) Funding from investors in the company (stockholders)
3) Funding from profitable operations (retained earnings)
What is the balance sheet? - Answers Financial statement that presents the financial position of the
company on a particular date
shows assets, liabilities, and stockholders' equity
Is the balance sheet for a particular date or over an interval of time? - Answers particular date
Another way to think about the accounting equation - Answers Resources (assets) = claims to resources
(liabilities + SE)
Companies create value and drive success with 3 types of assets - Answers financial, physical, and
intangible
Market value of a share of the companies typically significantly _________ than the book falue of the
share of stock per the company's balance sheet - Answers higher
What assets are recorded on the balance sheet? - Answers Ex:
,- cash
- investments in marketable securities
- accounts receivable
- inventories
- other assets like prepaid expenses
- notes receivable
- PP&E
- some intangible assets
What is valued at market value not book value on balance sheet? - Answers Intangibles
ex: brand name recognition, trademarks, copyrights, patent portfolios, assembled workforce, customer
lists/loyalty, supplier relationships, distribution networks, groth and profit outlook
Temporary accounts - Answers accounts which are closed out at the end of the of the accounting period
to retained earnings (no balances carry forward to the next year)
temporary accounts are found on the _________ - Answers income statement
Permanent accounts - Answers accounts whose ending balance from one year carries forward as the
beginning balance for the next year
Permanent accounts are found on the - Answers balance sheet
Statement of Stockholders' Equity - Answers summarizes the changes in stockholder's equity over an
interval of time
Equation for the statement of stockholders' equity - Answers Stockholders' equity = company book
value (common stock + retained earnings)
Dividends - Answers distribution of cash to the comapny's stockhoders that cannot be paid in an amount
that exceeds the balance in retained earnigns at the time of the dividend payment
Are dividends an expense? Do they impact on the income statement? - Answers - not an expense
- no income statement impact
Retained Earnings - Answers accumulating net income/loss from a business minus dividends paid
Smith Company had a benginning balance in retained earnings of $100,000 on Jan 1 2023. During the
year, the company earned net income of $250,000 and paid dividends of $25,000. What is Smith's
retained earnings balance as of Dec 1, 2023? - Answers Beginning RE = $100,000
, (+) Net Income = $250,000
(-) Dividends paid = ($25,000)
Ending RE = $325,000
Statement of Cash Flows - Answers measures activities involving cash receipts and cash payments over
an interval of time
3 types of cash flows - Answers Operating, investing, financing
Operating cash flows - Answers cash transactions involving revenue and expense activities
ex: cash inflows from sales to customers, cash outflows to purchase inventory, cash to pay operating
expenses
Investing cash flows - Answers Cash transactions for the purchase and sale of investments and long-term
assets
ex: inflow from sale of long-term assets/outflow to purchase long-term assets, loan of money under
note receivable/inflow for cash received for a note receivable
Financing cash flows - Answers cash transactions with lenders and stockholders
ex: inflow from sale of stock to investors, inflow from borrowings under note payable, outflow to pay
dividends, outflow to pay principal borrowed under a note payable
Matching concept - Answers cash basis accounting can distort the measurement of net income because
it sometimes fails to properly match revenues with expenses (cash is not always received or paid in the
period when revenue is earned or expense is incurred)
Accrual - Answers revenue or expense event that is recognized before cash is exchanged
deferral - Answers revenue or expense event that is recognized after cash has been exchanged
During the year ended, a company earned $500,00 of revenues by providing design services on account.
Under accrual accounting: - Answers Increase accounts receivable $500,000
Increase revenues $500,000
During the year ended, a company purchased $250,000 of merchandise on account. Under accrual
accounting: - Answers Increase Accounts Payable $250,000
Increase Inventory $250,000
During the year ended, employees of a company performed work and earned $500,000. As of the end of
the year, the company paid cash to its employees for their work for the yea of $450,000. Under accrual
accouting - Answers Record salaries payable $50,000
