Acct 5312 McGraw Ch9

If a firm's net income for the year was $60,000, the weighted-average number of common shares outstanding was 20,000, authorized shares were 100,000, and the preferred dividend requirement for the year was $10,000, then basic earnings per share was: $3.50 $3.00 $0.50 $2.50

$2.50 = $60,000 - $10,000/$20,000

The new contract-based model of revenue recognition (IASB 15) employs an (asset/gain/liability/loss) and (asset/gain/liability/loss) approach rather than using the old realization and earned criteria.

asset liability

The income or loss from discontinued operations is reported (before/after) income taxes and shown separately after a subtotal amount labeled income from (continuing/extraordinary) operations.

after continuing

Based on the following information (amounts in thousands), calculate income from operations: Cost of goods sold = $120 Marketing and selling expenses = $20 Gain on sale of land = $30 Administrative expenses = $15 Net sales = $200 Interest expense = $5 Research and development expenses = $10 $200 + $30 - $120 - $20 - $15 - $10 - $5 = $60 = $65,000 $200 - $120 - $20 - $15 = $45 = $45,000 $200 - $120 - $20 - $15 - $10 = $35 = $35,000 $200 + $30 - $120 - $20 - $15 - $10 = $65 = $65,000

$200 - $120 - $20 - $15 - $10 = $35 = $35,000 Income from Op= Net sales - COGs sold - M&S Expenses -Admin Expenses -R&D Expense

If a firm's net income for the year was $180,000, the weighted-average number of common shares outstanding was 50,000, treasury shares were 10,000, and the preferred dividend requirement for the year was $30,000, then basic earnings per share was: $3.00 $4.20 $3.60 $3.75

$3.00 = ($180,000 - $30,000) / 50,000

A shoe store's cost for a particular pair of boots is $50.00, and the store owners have a 60 percent desired gross profit ratio. What selling price should be established for a pair of these boots? ​​ $110.00 $150.00 $125.00 $80.00

$50.00 / (1 - 60%) = $125

The following accounting data is obtained from the financial statements of Synergy Company for the year ended December 31, Year 1: Net income $560,000 Depreciation and amortization expense 340,000 Income tax expense 150,000 Loss on sale of machinery 1,200 Increase in accounts receivable 14,000 Decrease in inventories 9,000 Increase in accounts payable 3,500 Proceeds from sale of land 40,000. Using the indirect method of cash flow presentation, calculate the net cash flow provided by (used in) operations for Synergy Company for the year ended December 31, Year 1. $1,078,100 $899,700 $1,052,300 $927,700

($560,000 + $340,000 + $1,200 - $14,000 + $9,000 + $3,500) = $899,700 Net cash flow provided by operations = (Net income + Depreciation and amortization expense + Loss on sale of machinery - Increase in accounts receivable + Decrease in inventories + Increase in accounts payable

If cash is not expected to be received within a year, revenue usually is measured by the (present/future/market) value of the amount expected to be received

Present

If Interest expense = $800, Cost of goods sold = $7,000, Depreciation expense = $1,200, Net sales = $10,000, and Operating income = $600, calculate gross margin. $10,000 - $7,000 - $500 - $1,200 = $1,300 $600 + $1,200 = $1,800 $10,000 - $7,000 = $3,000 $10,000 - $7,000 - $500 = $2,500

$10,000 - $7,000 = $3,000 Gross Margin = Net sales - COGs Sold

Based on the following information (amounts in thousands), calculate income from operations: Income tax expense = $10 General and administrative expenses = $30 Loss on sale of equipment = $5 Selling expenses = $20 Gross profit = $110 Interest expense = $15 $110 - $20 - $30 = $60 = $60,000 $110 - $20 - $30 - $5 = $55 = $55,000 $110 - $20 - $30 -$15 - $10 = $35 = $35,000 $110 - $20 - $30 - $15 = $45 = $45,000

$110 - $20 - $30 = $60 = $60,000 Gross Profit - Selling Expenses - G&A Expenses = (in the thousands)

If Net sales = $12,000, Interest income = $500, Cost of goods sold = $9,000, Wages expense = $1,000, and Operating income = $2,000, calculate the gross margin ratio. $12,000 - $9,000 = $3,000 / $12,000 = 25% $12,000 - $9,000 - $1,000 = $2,000 / $12,000 = 16.7% $12,000 - $9,000 = $3,000 / $12,500 = 24% $12,000 + 500 - $9,000 = $3,500 / $12,500 = 28%

$12,000 - $9,000 = $3,000 / $12,000 = 25% Gross Margin Ratio = Net sales - COGs Sold/ Net sales

Selling, general, and administrative expenses were $80,000; net sales were $390,000; interest expense was $16,000; research and development expenses were $34,000; net cash provided by operating activities was $42,000; income tax expense was $10,000; cost of goods sold was $220,000. Gross profit for the period was: $170,000. $90,000. $390,000. $56,000.

$170,000. Reason: Gross profit = Net sales - Cost of goods sold Gross profit = $390,000 - $220,000 = $170,000 = 390,000 - 220,000 = $170,000

A company's income statement is prepared to provide essential information to which groups of people? More than one answer may be correct. Potential investors Stockholders Managers Suppliers

- potential investors - stockholders - managers

Net sales for the year were $325,000 and cost of goods sold was $240,500 for the company's existing products. A new product is presently under development and has an expected selling price of $40 per unit in order to remain competitive with similar products in the marketplace. What is the maximum cost per unit that can be incurred to manufacture the new product such that the product can be priced at $40 per unit and will not result in a reduction to the company's gross profit ratio? $10.40 $40.00 $20.00 $29.60

=$29.60. $240,500 / $325,000 = 74% cost of goods sold ratio × $40 = $29.60.

Which of the following is an accurate statement regarding a statement of cash flows? A. Only cash items that affect the income statement are included. B. Only material cash items that affect the income statement are included. C. All material operating, investing, and financing activities are included. D. Immaterial financing activities that affect cash do not need to be included.

All material operating, investing, and financing activities are included.

Under the current accounting standard, how are extraordinary items to be reported? Only in the notes to accounts As a component of paid-in capital On the face of the balance sheet As a separate component of income from continuing operations

As a separate component of income from continuing operations U.S. GAAP states that extraordinary items should not be shown as a separate category for financial reporting purposes.

If Ending inventory = $500, Net purchases = $2,800, and the Cost of goods available for sale = $3,000, calculate the Beginning inventory (BI) and the Cost of goods sold (CGS). BI = $3,000 + $2,800 = $5,800 CGS = $3,000 - $500 = $2,500 BI = $2,800 - $500 = $2,300 CGS = $3,000 - $500 = $2,500 BI = $3,000 - $500 = $2,500 CGS = $3,000 - $500 = $2,500 BI = $3,000 - $2,800 = $200 CGS = $3,000 - $500 = $2,500

BI = $3,000 - $2,800 = $200 Beginning Inventory = COGs for Sale -Net Purchases COGs Sold = $3,000 - $500 = $2,500 COGs Sold = COGs for Sale - Ending Inventory

If Beginning inventory = $300, Cost of goods sold = $1,800, and Net purchases = $2,000, calculate the Cost of goods available for sale (GAS) and the Ending inventory (EI). GAS = $300 + $2,000 = $2,300 Ending inventory is indeterminable. GAS = $300 + $2,000 = $2,300 EI = $2,300 - $1,800 = $500 GAS = $300 + $1,800 = $2,100 EI = $2,100 - $1,800 = $300 GAS = $300 + $2,000 = $2,300 EI = $2,300 - $300 = $1,800

COGs for Sale = $300 + $2,000 = $2,300 COGs for Sale= Beginning Inventory + Net Purchases Ending Inventory = $2,300 - $1,800 = $500 Ending Inventory = COGs for Sale- COGs Sold

Effects: a decrease to net income. an increase to expenses. a decrease to current assets.

Cost of Goods Sold

Entry: Dr. Cost of Goods Sold Cr. Inventory

Cost of Goods Sold

Which of the following is not a principal category of "Other operating expenses" frequently reported on the income statement? Multiple Choice Selling expenses Cost of goods sold General and administrative expenses Research and development expenses

Cost of goods sold

A firm has a 20 percent gross profit ratio, Net sales = $100,000, and Cost of goods available for sale = $88,000. Based on this information, which of the following statements are correct? (Check all that apply). Cost of goods sold = $80,000 Net purchases = $70,000 Gross profit = $20,000 Ending inventory = $8,000

Cost of goods sold = $80,000 Gross profit = $20,000 Ending inventory = $8,000

What questions are answered by the income statement? More than one answer may be correct. How much profit or loss did the firm have? Are sales increasing relative to cost of goods sold and other operating expenses? What were the financial results of the firm's operations for the fiscal period? What will total revenues be in the next fiscal period?

How much profit or loss did the firm have? Are sales increasing relative to cost of goods sold and other operating expenses? What were the financial results of the firm's operations for the fiscal period?

Which of these are true, in regard to investing activities in the statement of cash flows? More than one answer may be correct. They include the use of cash to acquire land, buildings, and equipment. They relate to changes during the year in nonoperating liabilities (such as bonds payable) and stockholders' equity accounts other than net income or loss. They are a reconciliation of net income and net cash provided (used) by investing activities. They relate primarily to the purchase and sale of noncurrent assets.

They include the use of cash to acquire land, buildings, and equipment. They relate primarily to the purchase and sale of noncurrent assets.

Regarding shipping terms, which of the following statements are true? More than one answer may be correct. Title to merchandise shipped FOB destination passes from seller to buyer when the merchandise is received by the buyer. Ordinarily, items shipped FOB shipping point will be shipped freight prepaid. The seller incurs the freight cost for shipments made FOB destination. FOB mean fare on board. The freight cost for products shipped freight prepaid is paid by the seller.

Title to merchandise shipped FOB destination passes from seller to buyer when the merchandise is received by the buyer. The seller incurs the freight cost for shipments made FOB destination. The freight cost for products shipped freight prepaid is paid by the seller.

Most entities satisfy the accounting criteria for recognizing an expense when: A. a commitment is made to purchase a product or service. B. cash is paid to a supplier. C. a cost is incurred in the revenue generating process. D. a dividend is paid to stockholders.

a cost is incurred in the revenue generating process.

Most entities satisfy the accounting criteria for recognizing revenue when: A. an order is received from a customer. B. cash is received from a customer. C. an unearned revenue account is credited. D. a product is delivered or a service is provided.

a product is delivered or a service is provided.

Increases in an entity's net assets resulting from incidental transactions or nonoperating activities are referred to as (revenues/receivables/gains).

gains

By reporting discontinued operations on the income statement as a separate item, net of taxes, all the effects of the discontinued business segment are excluded from the ____ of continuing operations. More than one answer may be correct. Liabilities Gains Expenses Dividends Losses Revenues

gains expenses revenues losses

Revenue may be recognized: A. from the sale of a company's own common stock. B. if a company trades inventory at its usual selling price for newspaper advertising. C. if management believes the market value of land held for future development has increased during the year. D. in 2013 from the sale of subscriptions of a magazine to be published in 2014.

if a company trades inventory at its usual selling price for newspaper advertising.

Gains are reported as other (assets/income/equity) after the firm's operating expenses have been shown and income from operations has been reported.

income

The first caption in most income statements in annual reports is: A. gross sales. B. net sales. C. earned revenues. D. sales, less sales returns and allowances.

net sales.

Most firms report the statement of cash flows using the indirect method because Blank______. it explains how much cash is received from the collection of accounts receivable during a fiscal year operating activities information reported under the direct method is not so readily determinable each of the captions reported on the statement explains how much cash is paid during the year for that item operating activities information reported under the direct method lacks mathematical accuracy

operating activities information reported under the direct method is not so readily determinable

Model of revenue recognition (IASB 15): revenue is recognized based on the satisfaction of (service/performance/market) obligations.

performance

The statement of cash flows Blank______. primarily aims at assessing a company's profitability reports net income or net loss of a company at a particular point in time accurately predicts a company's future cash flows from operating, investing, and financing activities shows why cash changed during a period by reporting net cash provided or used by operating, investing, and financing activities

shows why cash changed during a period by reporting net cash provided or used by operating, investing, and financing activities

Income from operations is: A. sometimes called the "bottom line." B. sometimes used in the ROI calculation. C. usually used in the ROE calculation. D. usually calculated after income tax expense.

sometimes used in the ROI calculation.

Starting with gross sales, the sales returns and allowances and sales discounts are (added/subtracted) to arrive at (net/total) sales for reporting purposes.

subtracted Net

Recognition of revenue in accrual accounting requires: A. that cash be received. B. only that the amount of cash to be received from the sale of a product or service be known. C. only that a product be delivered or a service be performed. D. that the revenue be realized or realizable, and earned.

that the revenue be realized or realizable, and earned.

The following accounting data is obtained from the financial statements of Excellent Company: Net income $560,000 Depreciation expense 340,000 Cash dividends paid 409,000 Gain on sale of machinery 1,200 Decrease in accounts receivable 14,000 Increase in inventories 9,000 Decrease in accounts payable 3,500 Proceeds from sale of land 40,000. Using the indirect method of cash flow presentation, calculate the net cash flow provided (used) by operations for Excellent Company for the period. Net cash provided by operating activities amounts to $900,300. Net cash used by operating activities amounts to $927,700. Net cash used by operating activities amounts to $900,300. Net cash provided by operating activities amounts to $927,700.

($560,000 + $340,000 - $1,200 + $14,000 - $9,000 - $3,500) = $900,300. Net cash provided by operating activities amounts to $900,300. Net cash flow provided by operations = (Net income + Depreciation expense - Gain on sale of machinery + Decrease in accounts receivable - Increase in inventories - Decrease in accounts payable=

On January 1, the beginning of its fiscal year, Wiggins Inc. had 100,000 shares of common stock outstanding. On April 1, 30,000 additional shares were issued for cash. On October 1, 20,000 shares of common stock were acquired as treasury stock (and are no longer outstanding). Calculate the weighted average number of shares outstanding for the year. (100,000 + 30,000 - 20,000) = 110,000, based on the number of shares outstanding at year end (100,000 + 110,000) / 2 = 105,000, based on the weighted average (beginning and ending) number of shares outstanding. (100,000 x 3/12) + (130,000 x 6/12) + (110,000 x 3/12) = 117,500 (100,000 x 2/12) + (130,000 x 7/12) + (110,000 x 3/12) = 120,000

(100,000 x 3/12) + (130,000 x 6/12) + (110,000 x 3/12) = 117,500

On January 1, the beginning of its fiscal year, Wiggins Inc. had 100,000 shares of common stock outstanding. On April 1, 30,000 additional shares were issued for cash. On October 1, 20,000 additional shares were issued. Calculate the weighted average number of shares outstanding for the year. (100,000 + 150,000) / 2 = 125,000, based on the weighted average (beginning and ending) number of shares outstanding (100,000 x 3/12) + (130,000 x 6/12) + (150,000 x 3/12) = 127,500 (100,000 + 30,000 + 20,000) = 150,000, based on the number of shares outstanding at year end (100,000 x 3/12) + (130,000 x 5/12) + (150,000 x 4/12) = 129,167

(100,000 x 3/12) + (130,000 x 6/12) + (150,000 x 3/12) = 127,500

Identify the reason for which indirect method is preferred to direct method for cash flow presentation by most firms. FASB encourages enterprises to use the indirect method of cash flow presentation. Each operating activity item under the indirect method conveys independent meaning unlike operating activity items shown under the direct method. Companies do not need any separate accounting procedures to accumulate cash flow data when the indirect method is used. The adjustments in the operating activities section under the indirect method explain how much cash was actually paid or received during the period.

Companies do not need any separate accounting procedures to accumulate cash flow data when the indirect method is used.

Concerning the direct method presentation of the statement of cash flows, which of the following statements are true? More than one answer may be correct. Each of the captions reported on the statement explains how much cash was received or paid during the year for that item. The direct method lists each major class of cash receipts and cash disbursements transactions for each of the three activity areas. The operating activity transactions include cash received from customers and cash paid to suppliers. The operating activities section is a reconciliation of net income and the net cash provided (used) by operating activities.

Each of the captions reported on the statement explains how much cash was received or paid during the year for that item. The direct method lists each major class of cash receipts and cash disbursements transactions for each of the three activity areas. The operating activity transactions include cash received from customers and cash paid to suppliers.

A firm has a 40 percent gross profit ratio, Net sales = $200,000, and Cost of goods available for sale = $170,000. Based on this information, which of the following statements are correct? Beginning inventory = $370,000 Ending inventory = $50,000 Cost of goods sold = $102,000 Gross profit = $80,000

Ending inventory = $50,000 Reason: $170,000 - $120,000 = $50,000 Gross profit = $80,000 Reason: $200,000 x 40% = $80,000

Identify the correct statements about the matching principle. More than one answer may be correct. Expenses such as administrative salaries are recognized in the period in which they are incurred, because the benefit of the expense is used up simultaneously or soon after incurrence. Expenses are matched to revenues so long as there are sufficient revenues to absorb the expenses and the company reports a net income. Some expenses (depreciation, for example) are an allocation of the cost of an asset to the periods expected to benefit from its use. Some expenses (cost of goods sold, for example) are recognized concurrently with the revenues to which they relate.

Expenses such as administrative salaries are recognized in the period in which they are incurred, because the benefit of the expense is used up simultaneously or soon after incurrence. Some expenses (depreciation, for example) are an allocation of the cost of an asset to the periods expected to benefit from its use. Some expenses (cost of goods sold, for example) are recognized concurrently with the revenues to which they relate.

Identify the correct statements about the matching principle. More than one answer may be correct. Expenses such as depreciation result from an allocation of the cost of an asset to the periods that are expected to benefit from its use. Expenses are measured by the cash or other asset used up to obtain the economic benefit they represent. Revenues are matched to expenses in the period during which the expenses were incurred. Some expenses (administrative salaries, for example) are recognized in the period in which they are incurred.

Expenses such as depreciation result from an allocation of the cost of an asset to the periods that are expected to benefit from its use. Expenses are measured by the cash or other asset used up to obtain the economic benefit they represent. Some expenses (administrative salaries, for example) are recognized in the period in which they are incurred.

Which of the following accounts/captions are not ever included in the calculation for Gross Profit? A. Revenues. B. Cost of Goods Sold. C. Net Sales. D. General and Selling Expenses.

General and Selling Expenses.

Identify a subtotal that is reported in a multiple-step income statement. Provision for income taxes Net sales Income before taxes Other income, net

Income before taxes

What subtotals are commonly reported in multiple-step income statements? More than one answer may be correct. More than one answer may be correct. Income from operations Cost of goods sold Gross profit Net income

Income from operations Gross profit

Income from operations normally excludes the effects of which transactions? More than one answer may be correct. Administrative expenses Interest income Income taxes Losses Research and development expenses Interest expense Gains

Interest income Interest expense Income taxes Losses Gains

Identify the correct statements about a perpetual inventory system. More than one answer may be correct. Inventory counts are still required on a periodic basis. The Purchase Returns and Allowances and Freight-In accounts are used. Cost is determined when the item is sold. Much data processing is required, which gives management a great deal of information.

Inventory counts are still required on a periodic basis. Cost is determined when the item is sold. Much data processing is required, which gives management a great deal of information.

Identify the correct statements about a periodic inventory system. More than one answer may be correct. More data processing is required than in a perpetual inventory system. Inventory on hand is typically counted at the end of each fiscal year. Inventory on hand must be counted physically to determine cost of goods sold. The cost of inventory on hand is determined after a physical inventory is completed. Inventory on hand is counted physically at specific intervals, often at the end of each fiscal year. The cost of ending inventory is subtracted from the cost of beginning inventory and net purchases.

Inventory on hand is typically counted at the end of each fiscal year. Inventory on hand must be counted physically to determine cost of goods sold. The cost of inventory on hand is determined after a physical inventory is completed. Inventory on hand is counted physically at specific intervals, often at the end of each fiscal year. The cost of ending inventory is subtracted from the cost of beginning inventory and net purchases.

Which of these would be included as investing activities in the statement of cash flows? More than one answer may be correct. Lending of money and collection of loans Purchase and sale of long-term investments in debt and equity securities of other companies Payment of cash for the purchase of land, buildings, and equipment Nonoperating liabilities and stockholders' equity accounts

Lending of money and collection of loans Purchase and sale of long-term investments in debt and equity securities of other companies Payment of cash for the purchase of land, buildings, and equipment

The "other income and expense" category is normally reported after income from operations and includes which items? More than one answer may be correct. Utility expense Income tax expense Losses Interest income Interest expense Gains

Losses Interest income Interest expense Gains

If Purchases = $3,500, Freight-in = $400, Purchase discounts = $100, and Purchase returns and allowances = $200, calculate the Net purchases. Net purchases = $3,500 + $400 + $100 - $200 = $3,800 Net purchases = $3,500 + $400 - $100 - $200 = $3,600 Net purchases = $3,500 + $400 - $100 + $200 = $4,000 Net purchases = $3,500 - $400 - $100 - $200 = $2,800

Net purchases = $3,500 + $400 - $100 - $200 = $3,600 Net Purchases = Purchases + Freight-in - Purchase discount - Purchase R&A

Advertising expenditures and research and development (R&D) costs are recorded as expenses in the period incurred under U.S. GAAP. What concepts justify this approach? Full disclosure and conservatism Going concern and full disclosure Consistency and materiality Objectivity and conservatism

Objectivity and conservatism

What are some common causes of inventory shrinkage? More than one answer may be correct. Obsolescence Errors Theft Gifts

Obsolescence Errors Theft

Which activities are summarized in the statement of cash flow? More than one answer may be correct. Operating activities Public relations Investments Financing activities

Operating activities Investments Financing activities

If Freight-in = $600, Purchase discounts = $300, Purchase returns and allowances = $200, and Net purchases = $5,000, calculate the Purchases. Purchases = $600 - $300 - $200 = $100 Purchases = $5,000 - $200 - $300 + $600 = $5,100 Purchases = $5,000 + $200 + $300 - $600 = $4,900 Purchases = $600 - $300 - $200 - $5,000 = ($4,900)

Purchases = $5,000 + $200 + $300 - $600 = $4,900 Purchases = Net purchases + Purchase R&A + Purchases discounts - Freight-in.

To be recognized, revenues must meet both the (realization/measurable/earned/materiaity) and (realization/measurable/earned/materiaity) criteria.

Realization Earned

What principal categories of other operating expenses are frequently reported on the income statement? More than one answer may be correct. Interest and income tax expenses Depreciation and amortization expenses Research and development expenses Selling expenses General and administrative expenses

Research and development expenses Selling expenses General and administrative expenses

Entry: -Dr. Cash (or Accounts Receivable) Cr. Sales (or Service Revenue)

Revenues are Earned

Starting with gross sales and arriving at net sales: which is truth: More than one answer may be correct. Gross profit is added. Sales discounts are subtracted. Sales returns and allowances are subtracted. Cost of goods sold is subtracted. Freight-in is added.

Sales discounts are subtracted. Sales returns and allowances are subtracted.

What document explains the change in the firm's cash from the beginning to the end of the fiscal period by summarizing the cash effects of the firm's operating, investing, and financing activities during the period? Multiple choice question. Statement of cost of goods manufactured Income statement Balance sheet Statement of cash flows

Statement of cash flows

The major difference between the indirect and the direct method of a statement of cash flows appears in which the following activities section(s)? A. The investing activities and financing activities sections. B. The investing activities section only. C. The operating activities and financing activities sections. D. The operating activities section only.

The operating activities section only.

Concerning the direct method presentation of the statement of cash flows, which of the following statements are true? More than one answer may be correct. More than one answer may be correct. The direct method involves listing each major class of cash receipts transactions and cash disbursements transactions for each side of three activity areas. The operating activity transactions include cash received from customers and cash paid to suppliers. The operating activity transactions include cash paid to employees, cash payments of interest, and cash payments for taxes. The operating activities section starts with net income and adds back depreciation expense. The FASB encourages companies to use the direct method.

The direct method involves listing each major class of cash receipts transactions and cash disbursements transactions for each side of three activity areas. The operating activity transactions include cash received from customers and cash paid to suppliers. The operating activity transactions include cash paid to employees, cash payments of interest, and cash payments for taxes. The FASB encourages companies to use the direct method.

The term, "earned," in revenue recognition refers to which of the following? A. The entity has completed, or substantially completed, the activities it must perform to be entitled to the revenue benefits. B. The product or service has been exchanged for cash, claims to cash, or an asset that is readily convertible to a known amount of cash or claims to cash. C. The entity has received an irrevocable order for goods or services. D. Cash has been received with an irrevocable order for goods or services.

The entity has completed, or substantially completed, the activities it must perform to be entitled to the revenue benefits.

The term, "realization," in revenue recognition refers to which of the following? A. The entity has completed, or substantially completed, the activities it must perform to be entitled to the revenue benefits. B. The product or service has been exchanged for cash, claims to cash, or an asset that is readily convertible to a known amount of cash or claims to cash. C. The entity has received an irrevocable order for goods or services. D. Cash has been received with an irrevocable order for goods or services. E. None of these.

The product or service has been exchanged for cash, claims to cash, or an asset that is readily convertible to a known amount of cash or claims to cash.

True or false: The principal categories of other operating expenses frequently reported on the income statement can be combined in a variety of ways for financial reporting purposes, such as, "Marketing and selling expenses," "Administrative expenses," and "Research and development expenses."

True

True or false: Net income attributable to noncontrolling interests is reported separately from net income (or net earnings) attributable to the reporting entity; the latter amount is reported in total and on a per share of outstanding common stock basis.

True

Regarding shipping terms, which of the following statements are true? More than one answer may be correct. When a shipment arrives freight collect, the buyer pays the freight cost. Ordinarily, items shipped FOB destination will have freight prepaid. The buyer incurs the cost of shipments made FOB shipping point. FOB shipping point means that the buyer accepts ownership of the product at the seller's shipping location. When an item is shipped FOB shipping point, the seller owns the product until it is accepted by the buyer at the buyer's designated location.

When a shipment arrives freight collect, the buyer pays the freight cost. Ordinarily, items shipped FOB destination will have freight prepaid. The buyer incurs the cost of shipments made FOB shipping point. FOB shipping point means that the buyer accepts ownership of the product at the seller's shipping location.

What key interpretations are typically made from the statement of cash flows? More than one answer may be correct. Whether net cash flows provided by operations exceed the company's cash used for investing activities How operating, investing, and financing activities affected the company's cash balance during the year Whether the company's cash balance increased or decreased during the year How much cash was generated by the depreciation process during the year

Whether net cash flows provided by operations exceed the company's cash used for investing activities Whether the company's cash balance increased or decreased during the year

The concept of matching revenue and expense refers to the fact that: A. expenses for a period equal the revenues for the period. B. all costs incurred in the process of earning revenues during a period are recorded as expenses in that period. C. all cash disbursements during a period are subtracted from all cash receipts during the period. D. costs incurred in the process of earning revenues during a period are deferred and expensed in a future period.

all costs incurred in the process of earning revenues during a period are recorded as expenses in that period.

When revenues are earned, the effects on the financial statements typically include: More than one answer may be correct. an increase to current assets an increase to total paid-in capital an increase to net income a decrease to total assets an increase to Sales or Service Revenues

an increase to current assets an increase to net income an increase to Sales or Service Revenues

Gains differ from revenues because gains: A. are not a result of the entity's ongoing, central operations. B. do not have to be realized. C. are reported as income from operating activities. D. do not involve any offsetting costs or expenses.

are not a result of the entity's ongoing, central operations.

Advertising expenditures and research and development costs are recorded: as assets in the period incurred and then allocated to expenses in the periods benefited. as losses in the periods incurred. as expenses in the period incurred. as expenses in the period incurred if immaterial in amount and as assets if material in amount.

as expenses in the period incurred.

In the statement of cash flows, an increase in the accounts receivable balance from the beginning of the period to the end of the period would: A. be added to net income because this represents earned revenues that have not been collected. B. be subtracted from net income because this represents earned revenue provided by operating earnings. C. be added to net income because this means that revenues were less than cash collected. D. be subtracted from net income because this means that revenues were more than cash collected.

be subtracted from net income because this means that revenues were more than cash collected.

A firm may be required to report (basic/diluted) earnings per share if it is possible that the conversion of its long-term debt (bonds) or preferred stock into common stock could reduce (basic/diluted) earnings per share of common stock outstanding.

diluted basic

Revenues generally are measured by the amount of (stock/inventory/cash) received or expected to be received from the transaction.

cash

In calculating diluted earnings per share, adjustments may need to be made to basic earnings per share with respect to: More than one answer may be correct. convertible preferred stock. convertible bonds. stock options. convertible common stock. callable common stock.

convertible preferred stock. convertible bonds. stock options.

When the periodic inventory system is used: A. operating profit from the sale of an item from inventory is known when the item is sold. B. gross profit from the sale of an item from inventory is known when the item is sold. C. cost of goods sold can be calculated by subtracting the ending inventory amount from the sum of beginning inventory and net purchases. D. a physical inventory must be taken in order to estimate the cost of goods sold.

cost of goods sold can be calculated by subtracting the ending inventory amount from the sum of beginning inventory and net purchases.

Ordinarily, items shipped FOB (shipping point/destination) will have freight prepaid, and items shipped FOB (shipping point/destination) will be shipped freight collect.

destination shipping point

Investing activities in the statement of cash flows:

include the purchase and sale of long-term investments in debt and equity securities of other companies. include the receipt of cash from the sale of land, buildings, and equipment. include the use of cash to acquire land, buildings, and equipment. relate primarily to the purchase and sale of noncurrent assets.

Financing activities in the statement of cash flows: More than one answer may be correct. include the purchase and sale of treasury stock. include the issuance of bonds and common stock. are a reconciliation of net income and net cash provided (used) by financing activities. include the use of cash to pay dividends. include the use of cash to retire bonds. relate primarily to changes during the year in nonoperating liabilities and stockholders' equity accounts.

include the purchase and sale of treasury stock. include the issuance of bonds and common stock. relate primarily to changes during the year in nonoperating liabilities and stockholders' equity accounts. include the use of cash to pay dividends. include the use of cash to retire bonds.

The earnings per share of common stock calculation: A. is made by dividing net income by the number of shares of common stock outstanding at the end of the year. B. is complicated by the declaration of cash dividends during the year. C. includes gains or losses from treasury stock transactions. D. is complicated by the presence of preferred stock in the capital structure.

is complicated by the presence of preferred stock in the capital structure.

Net income attributable to noncontrolling interest: More than one answer may be correct. must be presented on a per share basis and disclosed in the notes. is normally subtracted from net income to arrive at net income attributable to the parent company. must be clearly identified and presented on the face of the income statement. is presented for subsidiaries but is not included in the parent company's financial statements.

is normally subtracted from net income to arrive at net income attributable to the parent company. must be clearly identified and presented on the face of the income statement.

The gross profit ratio is useful to the manager for each of the following purposes except that: A. it can be used to determine the selling price to set for an item. B. it can be used to estimate the amount of inventory lost in a fire. C. it can be used to determine the amount available from a given amount of revenue to cover operating expenses. D. it can be used to estimate the amount of operating expenses for a period.

it can be used to estimate the amount of operating expenses for a period.

Advances in point-of-sale technologies (such as standard bar code scanners used by retail stores) have allowed even small merchandising firms to achieve (periodic/perpetual) inventories.

perpetual

Some (periodic/perpetual) inventory systems are even tied in with the firms' suppliers so that when inventory falls to a certain level, a reorder is automatically placed.

perpetual

The primary purpose of the statement of cash flows is to Blank______. measure a company's revenues, expenses, gains, or losses at a single point in time provide relevant information about the cash receipts and cash payments of an enterprise during a period predict the future cash flows from nonoperating activities show the market value of a company's assets and liabilities

provide relevant information about the cash receipts and cash payments of an enterprise during a period

Financing activities in the statement of cash flows:

relate primarily to changes during the year in nonoperating liabilities and stockholders' equity accounts. include the issuance of bonds and common stock. include the purchase and sale of treasury stock. include the use of cash to retire bonds.include the use of cash to pay dividends.

The amount of an expense is measured by: the amount by which assets are increased or decreased as a result of the transaction. the future cash flow that the company expects to receive from the transaction. the cash or other asset obtained in the transaction. the cash or other asset used up to obtain the economic benefit it represents.

the cash or other asset used up to obtain the economic benefit it represents.

Under most circumstances, in order to recognize revenue: A. cash must have been received. B. the entity must expect to receive cash in the future. C. the entity must have paid for all expenses incurred in generating the revenue. D. the revenue must be realized or realizable, and earned.

the revenue must be realized or realizable, and earned.

In the statement of cash flows, depreciation and amortization expense is added back to net income because: A. these expenses do not affect cash, but were subtracted in the determination of net income. B. these expenses affect investing activities, not operating activities. C. the cash disbursements for these accrued expenses will be made in a future period. D. these expenses are recognized for accounting purposes, but they do not represent economic costs.

these expenses do not affect cash, but were subtracted in the determination of net income.

Some of the key interpretations to be made from the statement of cash flows include the determination of: More than one answer may be correct. whether net cash flows provided by operations are sufficient to pay adequate dividends to the company's shareholders. whether the relative totals of operating, investing, and financing cash flows were similar to those observed in the prior year. whether the company has generated positive net cash flows from operations. how significantly the interest receivable and wages payable account balances changed during the year.

whether net cash flows provided by operations are sufficient to pay adequate dividends to the company's shareholders. whether the relative totals of operating, investing, and financing cash flows were similar to those observed in the prior year. whether the company has generated positive net cash flows from operations.