Financial Accounting Module 7 Practice

Which of the following items is an implicit transaction?

Recognizing impairment on an intangible asset

Luster Consulting Company purchased a new heating and cooling system for their office building in March, 2014. After installing and testing the equipment, it was put into service on April 1, 2014. The total cost to put the equipment into service was $45,000; it is expected to have a useful life of 10 years and a salvage value of $5,000. Assuming Luster Consulting Company uses straight-line depreciation, what will the accumulated depreciation be at the end of September, 2015?

$6,000

What is the company's net income for 2013?

$95,000

Blueridge Vet Clinic buys a diagnostic piece of equipment for $115,000. The machine will be depreciated on a straight-line basis for 10 years with a salvage value of $12,000. The company expects the machine to be able to generate after-tax cash flows of $44,000 in each of the 10 years, and then it will sell the machine for $12,000 at the end of 10 years. What are the cash flows related to this purchase for each of the next 10 years? Ignore taxes.

0 = -115,000 1 thru 9 = 44,000 10 = 56,000

What is the company's accounts receivable turnover ratio for 2013?

2.06

Which of the following is an example of a proper application of materiality?

A microfinance institution has been relying on government collateral subsidies to finance start-ups in rural areas. However, the government has cut the program recently. The company reports this situation in its financial statements as this might affect the decisions of stakeholders.

Dobby & Dumbledor's Candy Store (DDCS) receives 12 wall-mounted candy dispensers from Potter's Plastics to be installed for its grand opening on June 30. DDCS bought the dispensers for $2,000 each. DDCS is granted credit terms, which gives them 30 days to pay for the dispensers. What journal entry would be made at the time of the purchase?

Accounts Payable - Credit $24,000 PP&E - Debit $24,000

Based on this income statement for Company ZYX for the year ending December 31, 2014, what adjustment would need to be made to Net Income to account for Gain or Loss in calculating cash flow from Operating Activities using the indirect method?

Adjustment of (16,000) in the Operating Section

Dongfeng, an automobile manufacturer, purchased raw materials for $600,000 on credit on January 1st. Dongfeng promised to pay for the raw materials in three equal monthly installments beginning from February 1st. How will this purchase impact the accounting equation on the books of Dongfeng? Please enter the amounts in the boxes below.

Assets increase by $600,000 because the company now has raw materials it will use in the manufacturing process, and liabilities increase by $600,000 because the company now has an obligation to pay for these materials.

Identify which of the following items belong on a balance sheet and which belong on an income statement, and drag them to the correct section provided.

Balance Sheet: Prepaid Expense, Salaries Payable, Deferred Revenue Income Statement: Salaries Expense, Sales Revenue, Income Tax Expense

Operating Section of the statement of cash flows under US GAAP Cash flow from operating activities vs NOT a cash flow from operating activities

Cash flow from operating activities:- CASH RECEIVED FROM CUSTOMERS- RENT PAID IN ADVANCE- CASH PAID FOR INVENTORY- CASH PAID FOR OPERATING EXPENSES- WAGES PAID TO EMPLOYEES- INTEREST AND DIVIDENDS RECEIVED- CASH PAID TO SUPPLIERS- COLLECTIONS FROM CUSTOMERS- CASH PAID FOR TAXES- WAGES PAID TO EMPLOYEES- PAYMENT TO SUPPLIERS- SALE OF INVENTORY- CASH PAID FOR INTEREST- CASH PAID TO PURCHASE RAW MATERIALS- WAGES PAID TO MANUFACTURIN-G STAFF- INTEREST RECEIVED IN CASH- CASH PAID FOR WAREHOUSE RENTAL- CASH COLLECTED FOR SERVICE YET TO BE PROVIDED NOT a cash flow from operating activities - CASH LOAN PAYMENT (PRINCIPAL ONLY) - CASH PROCEEDS FROM A LOAN - LOAN MADE TO THIRD PARTY - SALE OF PLANT EQUIPMENT FOR CASH - CASH PAID FOR EQUIPMENT PURCHASE - CASH RECEIVED FROM OWNERS - CASH RECEIVED FROM LOANS RECEIVABLE - PAYMENTS TO REACQUIRE STOCK- PROCEEDS FROM SALE OF FIXED ASSETS- ACQUISITION OF EQUITY INVESTMENT- PRINCIPAL PAID ON DEBT- CASH RECEIVED IN SALE OF EQUIPMENT- CASH PAID TO BUY LAND- PAYMENT OF LONG TERM BONDS PAYABLE- REPURCHASE OF SHARES- CASH PAID FOR LONG TERM INVESTMENTCASH PAID TO PURCHASE A BUILDINGCASH DIVIDENDS PAID TO SHAREHOLDERSCASH CONTRIBUTED BY AN OWNERSALE PROCEEDS FROM EQUITY INVESTMENTSLOAN MADE TO THIRD PARTY

On January 1, 2016, Flathound Properties received $22,800 from a tenant as rent for all of 2016. What journal entry would Flathound Properties make at the end of January 2016 to show that one month of service had been provided?

Debit Deferred Revenue for $1,900 and credit Revenue for $1,900.

What adjustments would need to be made in the Operating Section of the statement of cash flows prepared under the indirect method to account for the changes in the Accounts Receivable and Inventory account balances for Google?

Decrease of $997 for Accounts Receivable and increase of $79 for Inventory Since Accounts Receivable increased during the year, it means that the cash collected was less than the revenue recognized, so the adjustment is to record a decrease related to Accounts Receivable. Since Inventory decreased it means that COGS expense was more than cash spent for purchasing inventory, so the adjustment is to record an increase related to Inventory.

Which of the following accounts is increased by a credit?

Deferred Revenue

It is early 2005 and Metropolis has the financial reports for the past three years for Pathology Lab A, a potential acquisition target. Metropolis has also discussed the forecasts for the next three years with owners of Pathology Lab A but Metropolis has adjusted them based on their own assessment. Use the following information to calculate EBIT for each of the actual and forecast years. Then calculate EBIAT assuming a 30% tax rate.

EBIT =B17+B16+B15 THEN =C17+C16+C15...ETC EBIAT =B40*0.7 THEN =C40*0.7...ETC

You have just reviewed the financial statements of Penelope's Candy Store (PCS). You have determined that PCS has a Profit Margin of 19%. How do you explain this to owner Penelope Hassey?

For every $100 in sales, $19 ended up in Net Income.

The following cash transactions occurred during the period. Fill in the statement of cash flows on the left following US GAAP. Use the direct method for calculating cash flow from Operating Activities.

Interest earned in cash is included in the Operating Section. Because this is a cash inflow, this is a source of cash. Purchase of equipment for cash is included in the Investing Section. Because this is a cash outflow, this is a use of cash. Distribution of cash dividend declared last year is included in the Financing Section. Because this is a cash outflow, this is a use of cash. Payment of wages to employees is included in the Operating Section. Because this is a cash outflow, this is a use of cash.

What adjustments would need to be made in the Operating Section of the statement of cash flows prepared under the indirect method to account for the changes in the Accounts Payable and Accrued Expenses account balances for Google?

Increase of $441 for Accounts Payable and increase of $670 for Accrued Expenses

Identify which of the following are permanent and which are temporary accounts and drag them to the correct section provided.

Permanent: Cash and cash equivalents, rent payable and inventory Temporary: COGS, Rent Expense, Sales Revenue

Company A has a Weighted Average Cost of Capital (WACC) of 12 percent. They are evaluating four different projects/investments with financial flows as described below. Available funds are limited, so they can only pursue one of the investment alternatives. Each project/investment involves an initial outflow of $1,000,000 and has an eight-year life. Which project should they select?

Project 4

Which of the following accounts is decreased by a debit? Select all that apply.

Sales Revenue, deferred revenue

Keep You in the Know (KYK) magazine received $120,000 cash in annual subscriptions in December 2013. KYK is a monthly publication and all of these subscriptions commence in January 2014. What entry should KYK make on January 31, 2014 related to the subscription services provided for one month?

The correct answer is to debit Deferred Revenue for $10,000 as the company no longer has the liability for one month's worth of subscription, and credit Revenue for $10,000 to recognize the revenue associated with one month's worth of services provided.

A summarized trial balance for Cardullo's as of September 28, 2013 is provided. Use the information to create an income statement in the space provided.

The income statement is built by starting with revenue less cost of goods sold, less operating expenses of selling expense, depreciation expense, rent expense, utilities expense, insurance expense, wages expense, general and administrative expense, and miscellaneous operating expenses. Then subtract interest expense to get to income before taxes. Finally subtract tax expense to get to net income. (see pic for more details)