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Exam 1 study guide

Exam 1 study guide - From Spring 07 Test-When a corporation...

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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 year’s 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
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- The Financial Accounting Foundation oversees the operations of the FASB - the following are publications of the FASB: Statements of Financial Accounting Concepts,  Technical Bulletins, & Interpretations -
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