SI Review: Chapters 5-9 1. Who are the internal users of the financial statements? External users? Internal: Managers, Board of Directors External: Creditors, Investors, Government 2. What three things are needed in order for someone to commit fraud? Incentive, Opportunity, Character 3. How did the SOX Act impact financial accounting? It called for more internal controls and greater penalties if caught. 4. Explain the difference between a 10K, 8K, and a 10Q. 10K: Annual Report 8K: Special events 10Q: Quarterly reports 5. What does IFRS stand for? What is it? IFRS: International Financial Reporting Standards Accounting rules that all other countries other than the US follow for financial reporting. 6. Explain the difference between comparability and consistency. Relevance vs. Reliability. Comparability: compare two different companies in the same time period Consistency: use the same company accounting procedures year after year Relevance: Information is timely and it has predictive value Reliability: Information is verifiable and unbiased 7. Give an example for the following types of businesses: service, merchandising, & manufacturing. Service: Geek Squad Merchandising: Best Buy Manufacturing: Dell 8. State examples of how companies manage internal controls. Segregation of duties, establish responsibilities, restrict access, document procedures 9. True or False: Cash equivalents are highly liquid investments with one year or less to maturity? 10. Calculate COGS if Beginning Inventory is $2394, Ending Inventory is $1087, and Purchases are $4570. COGS= $5877 11. Explain what happened when a physical count of inventory was $3234 but the Ending Inventory on the books was $3236. Theft, spoilage, breaks- shrinkage 12. Give the journal entries for the following items. Sold cooking merchandise on account on March 1 to Aunt B’s Bakery for $175 with terms 2/10, n/30. Accounts Receivable 175 Sales Revenue 175 Sold baking merchandise on account on March 7 to Page’s Bakery for $210 with terms 3/15, n/45. Accounts Receivable 210 Sales Revenue 210 Page’s Bakery paid the full amount owed on March 19. Cash 203.70 Sales Discount 6.30 Accounts Receivable 210 Aunt B’s Bakery returned $20 of items back on March 20. Sales Returns/Allowance 20 Accounts Receivable 20 Aunt B’s Bakery paid the full amount owed on March 25. Cash 155 Accounts Receivable 155 13. What is the difference between FOB Shipping and FOB Destination? FOB Shipping: Buyer pays for the transportation costs- Buyer retains ownership when the item leaves the factory FOB Destination: Seller pays for the transportation costs- Buyer retains ownership when the item gets to the destination 14. What is the primary objective of financial reporting? Provide useful information for investing and credit decisions, in assessing future cash flows, and about enterprise resources, claims to resources, and changes in them. 15. Find COGS using LIFO Jan 1. Jan. 30 March 14 May 1 Beg. Inventory Purchase Sale Purchase $2000 3000 1400 1700 4 units 5 units bought 7 units sold 10 units COGS = $4000 16. True or False: Auditors read all the financial material and make sure the accounting report is followed by US GAAP?