Financial Acctg - Ch. 4

Selected information from the accounting records of Dunn's Auto Dealers is as follows: Cost of furniture purchased for cash$8,000Proceeds from bank loan 100,000Repayment of bank loan (includes interest of $4,000) 44,000Proceeds from sale of equipment 5,000Cash collected from customers 320,000Purchase of stock of another corporation as an investment 20,000Common stock issued for cash 200,000 In its statement of cash flows, Dunn's should report net cash inflows from financing activities of: a. $260,000 b. $265,000 c. $60,000 d. $256,000

a. $260,000

Consider the following items: (a) Decrease in accounts receivable (b) Issuance of common stock (c) Increase in interest receivable (d) Purchase of land (e) Decrease in accounts payable (f) Gain on the sale of equipment (g) Depreciation expense (h) Payment of dividends (i) Decrease in utilities payable (j) Increase in inventory How many of these items would be added to net income when using the indirect method to prepare the operating activities section of the statement of cash flows? a. 2 b. 4 c. 1 d. 3

a. 2

The Stibbe Construction Company switched from the completed contract method to the percentage-of-completion method of accounting for its long-term construction contracts. This is an example of: a. A change in accounting principle. b. A change in accounting estimate. c. An unusual item. d. A discontinued operation.

a. A change in accounting principle.

What are temporary earnings? a. Earnings from transactions that are not likely to occur again in the foreseeable future. b. Earnings from transactions that are likely to generate similar profits in the future. c. Earnings from transactions likely to have a different impact on income in the future. d. Both a and c.

a. Earnings from transactions that are not likely to occur again in the foreseeable future. c. Earnings from transactions likely to have a different impact on income in the future.

Which of the following is not an example of other comprehensive income? a. Income from sales. b. Unrealized loss on securities available for sale. c. Foreign currency translation adjustments. d. Deferred gains from derivatives.

a. Income from sales.

Which of the following describes the modified retrospective approach to implementing a change in accounting principle? a. The new standard is applied only to the current period and all future periods, and the cumulative effects of prior periods is shown as an adjustment to retained earnings. b. The new standard is applied to all periods presented in the financial statements. c. The new standard is applied only to current period and all future periods. d. The new standard is applied only to all future periods and not the current or previous periods.

a. The new standard is applied only to the current period and all future periods, and the cumulative effects of prior periods is shown as an adjustment to retained earnings.

Which of the following captions would more likely be found in a single-step income statement? a. Total revenues and gains. b. Gross profit. c. Operating income. d. All of these answers are incorrect.

a. Total revenues and gains.

Laser World's income statement reported total revenues of $850,000 and total expenses (including $40,000 depreciation) of $720,000. The balance sheet reported the following: Accounts Receivable—beginning balance, $50,000 and ending balance, $60,000; Accounts Payable—beginning balance, $22,000 and ending balance, $28,000. Therefore, based only on this information, the net cash flows from operating activities were: a. $126,000 b. $166,000 c. $174,000 d. $186,000

b. $166,000

Consider the following year-end information for a company: Cost of goods sold $420,000 Sales revenue 800,000 Nonoperating expenses 10,000 Operating expenses 170,000 Income tax expense 80,000 What amount will the company report for operating income? a. $200,000 b. $210,000 c. $380,000 d. $120,000

b. $210,000

The Cansela Baseball Bat Company reported income before taxes of $375,000. This amount included a $75,000 loss on discontinued operations. The amount reported as income from continuing operations, assuming a tax rate of 25%, is: a. $375,000. b. $337,500. c. $300,000. d. $225,000.

b. $337,500.

Kringle Pastries reported net income of $432,000 for its year ended December 31, 2021. Purchases of merchandise totaled $304,000. Accounts payable balances at the beginning and end of the year were $72,000 and $66,000, respectively. Beginning and ending inventory balances were $88,000 and $92,000, respectively. Assuming that all relevant information has been presented, Kringle Pastries would report operating cash flows of: a. $310,000. b. $442,000. don't need purchases for indirect method c. $422,000. d. $302,000.

b. $442,000. don't need purchases for indirect method

Which of the following represents a change in accounting principle? a. Using a journal entry to correct a misstatement in current-year financial statements. b. Changing inventory costing method from LIFO to average cost method. c. Modifying the amount of bad debt expense in accounts receivables as new information on customer insolvency is obtained. d. Correcting a material error in financial statements that have already been released to investors.

b. Changing inventory costing method from LIFO to average cost method.

Buffalo Manufacturing Company is restructuring and closing the platinum mining division. The mine will be closed and its assets sold off over the course of the next three years. When should the costs related to closing of the mine be recognized? a. In the year the restructuring plan is announced to the board of directors. b. In the year(s) the costs are actually incurred. c. In the year the restructuring is complete. d. All of these answers are incorrect.

b. In the year(s) the costs are actually incurred.

A multiple-step income statement and a single-step income statement would report the same subtotal for which of the following amounts? a. Gross profit. b. Income before taxes. c. Operating income. d. All of the other choices are incorrect.

b. Income before taxes.

On May 31, 20X1, the Arlene Corporation adopted a plan to sell its cosmetics line of business, considered a component of the entity. The assets of the component were sold on October 13, 20X1, for $1,200,000. The book value of those assets equaled $1,000,000 at the time of the sale. The component generated an operating loss of $300,000 from January 1, 20X1, through disposal. The company's tax rate is 25%. For what amount would the company report income from discontinued operations? a. Loss of $100,000. b. Loss of $75,000. c. Loss of $225,000. d. Loss of $25,000.

b. Loss of $75,000.

Which of the following items would not be included as a cash flow from operating activities in a statement of cash flows? a. Purchase of inventory. b. Purchase of machinery. c. Payment of income taxes. d. Collection of interest on a note.

b. Purchase of machinery.

An item typically included in the income from continuing operations section of the income statement is: a. Discontinued operations. b. Restructuring costs. c. Prior period adjustment. d. All of the other answer choices are incorrect.

b. Restructuring costs.

On October 1, 2021, American Medical Inc. adopted a plan to discontinue its generic drug division, which qualifies as a separate component of the business according to G A A P regarding discontinued operations. The disposal of the division was expected to be concluded by March 30, 2022. On December 31, 2021, the company's year-end, the following information relative to the discontinued division was accumulated: Operating loss for 2021 - $195 million Excess of book value over fair value, less costs to sell, at year-end - 25 million In its income statement for the year ended December 31, 2021, American would report a before-tax loss on discontinued operations of: a. $170 million. b. $195 million. c. $220 million. d. All of these answers are incorrect.

c. $220 million.

On May 31, 20X1, the Arlene Corporation adopted a plan to sell its cosmetics line of business, considered a component of the entity. By the end of the year, the assets have not been sold. The book value of those assets equals $850,000, and the company estimates their fair value to be $1,100,000. The component generated operating income of $450,000 for the year. In its income statement for the year ended December 31, 20X1, for what amount would the company report income from operations of a discontinued component (ignoring taxes). a. $300,000 b. $550,000 c. $450,000 d. $700,000

c. $450,000

Consider the following items: (a) Decrease in accounts receivable (b) Issuance of common stock (c) Increase in interest receivable (d) Purchase of land (e) Decrease in accounts payable (f) Gain on the sale of equipment (g) Depreciation expense (h) Payment of dividends (i) Decrease in utilities payable (j) Increase in inventory How many of these items would be subtracted from net income when using the indirect method to prepare the operating activities section of the statement of cash flows? a. 1 b. 4 c. 5 d. 2

c. 5

The Trident Corporation's results for the year ended December 31, 2021, include the following material items: Sales revenue - $8,200,000 Cost of goods sold - 4,800,000 Selling and administrative expenses - 2,000,000 Gain on sale of investments - 300,000 Loss on discontinued operations - 1,200,000 Restructuring costs - 280,000 Trident Corporation's income from continuing operations before income taxes for 2021 is: a. $1,120,000. b. $220,000. c. $1,700,000. d. $1,420,000.

d. $1,420,000.

On May 31, 20X1, the Arlene Corporation adopted a plan to sell its cosmetics line of business, considered a component of the entity. By the end of the year, the assets have not been sold. The book value of those assets equals $1,100,000, and the company estimates their fair value to be $850,000. The component generated operating income for the year of $450,000. In its income statement for the year ended December 31, 20X1, for what amount would the company report income from operations of a discontinued component (ignoring taxes). a. $300,000 b. $50,000 c. $450,000 d. $200,000

d. $200,000

Harrington's Pet Supplies begin the year with an inventory balance of $220,000. At year-end, the inventory balance was $185,000. Cost of goods sold for the year was $900,000. Calculate the inventory turnover ratio and average days in inventory (round to two decimals). a. 5.04, 72.42. b. 4.86, 75.10. c. 4.09, 89.24. d. 4.44, 82.21.

d. 4.44, 82.21.

Which of the following is true concerning the statement of cash flows? a. The statement of cash flows can provide information helpful in assessing future profitability, liquidity, and solvency. b. The statement of cash flows shows cash receipts and cash disbursements of an enterprise. c. The statement of cash flows is required to be presented for any period for which an income statement is presented. d. All of the answers above are true.

d. All of the answers above are true.

Comprehensive income equals: a. Net income for the period minus dividends distributed to shareholders. b. Income from continuing operations plus income from discontinued operations. c. The amount of profitability reported in the income statement plus paid-in capital. d. The change in equity from transactions with nonowners.

d. The change in equity from transactions with nonowners.

Nonoperating items

interest income, interest expense, gain on sale of investments

Operating Items in the Income Statement

sales rev, COGS, operating exp (selling, admin exp, research a nd development, restructuring costs)