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Unformatted text preview: From Spring 07 Test-When a corporation pays a note payable and interest, they will debit notes payable and interest expense.- Stockholders equity is affected by: dividends, revenues, & expenses (not cash receipts)- Salary Expense is a nominal (temporary) account- Certain costs of doing business capitalized when incurred and then depreciated or amortized over subsequent accounting cycles to match the costs of production with revenues as earned- Mune Company recorded journal entries for the payment of $50,000 of dividends, the $32,000 increase in accounts receivable for services rendered, and the purchase of equipment for $21,000. What net effect do these entries have on owners equity? Decrease of $18,000- Pappy Corporation received cash of $13,500 on September 1, 2007 for one years rent in advance and recorded the transaction with a credit to Unearned Rent. The December 31, 2007 adjusting entry is debit Unearned Rent and credit Rent Revenue, $4,500-Big-Mouth Frog Corporation had revenues of $200,000, expenses of $120,000, and dividends of $30,000. When Income Summary is closed to Retained Earnings, the amount of the debit or credit to Retained Earnings is a debit of $80,000- objective of financial reporting:- Provide information that is useful in investment and credit decisions- Provide information about enterprise resources, claims to those resources, and changes to them- Provide information that is useful in assessing cash flow prospects- SEC has the power to prescribe the accounting practices and standards to be employed by companies that fall under its jurisdiction- the "due process" system used by the FASB in the evolution of a typical FASB Statement of Financial Accounting Standards: 1. Discussion Memorandum, 2. Exposure Draft, 3. Statement of Financial Accounting Standards- The underlying theme of the conceptual framework is decision usefulness- Accounting information is considered to be relevant when it is capable of making a difference in a decision- verifiability is an ingredient of the primary quality of reliability- classified as an extraordinary item:- Losses from a major casualty- Losses from an expropriation of assets- Gain on a sale of the only security investment a company has ever owned NOT: Losses from exchange or translation of foreign currencies- Earnings per share from both continuing operations and net income should be disclosed on the face of the income statement is a required disclosure in the income statement when reporting the disposal of a component of the business From Chpt. 1&2 Quiz- Accounting standards are now more likely to require the recording or disclosure of fair value information due to its inherent subjectivity- FASB Technical Bulletins are less authoritative than FASB Standards and Interpretations- The Financial Accounting Foundation oversees the operations of the FASB- the following are publications of the FASB: Statements of Financial Accounting Concepts,...
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