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Accounting terminology

Listed below are technical accounting terms introduced in this chapter: Cash Dividend Comprehensive Income Extraordinary Item P/E Ratio Unusual or Infrequent Item Stock Dividend Additional Paid-In Capital Treasury Stock Discontinued Operations Consistency Rule Prior Period Adjustment Stock Split Basic Earnings Per Share Income from Continuing Operations Revenue Recognition Principle Each of the following statements may (or may not) describe one of these technical terms. In the space provided beside each statement, indicate the accounting term described, or answer "None" if the statement does not correctly describe any of the terms. 1.1. A financial statement showing the revenue, expenses, and net earnings of a corporation during the current accounting period = ____________________________ 1.2. A distribution of cash to stockholders = __________________________ 1.3. A distribution to stockholders of additional shares of stock, accompanied by a proportionate reduction in the par value per share = ____________________ 1.4. The market price of a share of preferred stock, divided by the net income of the corporation = _______________________ 1.5. A correction in the amount of net income reported in an earlier accounting period = ______________ 1.6. An event that is material in dollar amount, unusual in nature, and not expected to recur in the foreseeable future = _______________________ 1.7. A subtotal sometimes included in an income statement to assist investors in forecasting the income of future accounting periods =__________________

2.1. Explain why you would use a statement of cash flows

Classification of cash flows

Indicate how each of the following events should be classified in a statement of cash flows for the current calendar year. Use the following code: O = operating activities, I = investing activities, and F = financing activities Assume use of the direct method. If the event does not involve a cash flow that should be included in the statement of cash flows, use an X. 3.1. Paid an account payable for inventory purchased in a prior accounting period = __________ 3.2. On December 28, made a large credit sale; terms, 2/10, n/30 = ___________ 3.3. Received a dividend from an investment in IBM common stock = ___________ 3.4. Paid a dividend to stockholders = _____________ 3.5. Paid the interest on a note payable to First Bank = ____________ 3.6. Paid the principal amount due on the note payable to First Bank = ______________ 3.7. Transferred cash from a checking account into a money market fund = ______________ 3.8. Made an adjusting entry to record accrued wages payable at the end of the period = ___________ 3.9. Recorded depreciation expense for the current year = ____________ 3.10. Purchased plant assets for cash = _________

Selected information from the financial statements of Cake Co. appears below:

	2015	2014
Net Sales	$ 1,692,000	$1,600,000
Total Expenses	$1,470,000	$1,520,000
Net Income	$222,000	$80,000

Compute the percentage change in each of the above items from 2014 to 2015. Use a + or - to indicate increase or decrease. (Show all calculations

	Percentage change from 2014-2015
Net Sales	%
Total Expenses	%
Net Income	%

. Compute net income as a percentage of net sales in each year. (Round to the nearest one-tenth of 1%) (Show all calculations)

net income as a percentage of net sales for 2014 = ____________________________ %

net income as a percentage of net sales for 2015 = ____________________________ %

Shown below is a recent income statement for Heidis Hairdressing.

Heidis Hairdressing Income statement

For the year ended January 31, 2020

Net Sales $ 7,500,000

Less- Cost of Goods Sold $ 4,100,000

Gross Profit $ 3,400,000

Less- Operating expense $ 1,975,000

Operating Income $ 1,425,000

Less- Non operating Expenses:

Interest Expense $ 175,000

Income Tax Expense $ 280,000 $ 455,000

Net Income $ 970,000

Assume that comparative balance sheets for Heidis Hairdressing indicate average total assets for the year of $2,500,000, and average total equity of $2,050,000. Define each term and Compute the following (Show all calculations):

Gross Profit Rate	%
Return on Assets	%
Return on Equity	%

In general terms, what do all "ROI" ratios measure? Why are such computations useful?

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