Ch 9 SB
When revenues are earned, how are the financial statement affected? More than one answer may be correct.
An increase to Sales or Service Revenues An increase to net income
Identify a subtotal that is reported in a multiple-step income statement.
Income before taxes
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
Net income attributable to noncontrolling interest:
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.
When a 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, the (realization/earned/measurable) criterion has been met.
realization
The amount of an expense is measured by:
the cash or other asset used up to obtain the economic benefit it represents.
Some of the key interpretations to be made from the statement of cash flows include the determination of:
whether net cash flows provided by operations are sufficient to pay adequate dividends to the company's shareholders. whether the company has generated positive net cash flows from operations. whether the relative totals of operating, investing, and financing cash flows were similar to those observed in the prior year.
Under the current accounting standard, how are extraordinary items to be reported?
As a separate component of income from continuing operations
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?
Ending inventory = $50,000 Gross profit = $80,000
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).
Ending inventory = $8,000 Cost of goods sold = $80,000 Gross profit = $20,000
Which activities are summarized in the statement of cash flow?
Financing activities Investments Operating activities
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. Multiple choice question.
$10,000 - $7,000 = $3,000
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
If Net sales = $12,000, Interest income = $500, Cost of goods sold = $8,000, Wages expense = $2,500, and Operating income = $1,000, calculate gross margin.
$12,000 - $8,000 = $4,000
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?
$125.00
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: Multiple choice question.
$2.50
If a firm's basic earnings per share was $3.00, net income for the year was $620,000, and the weighted-average number of common shares outstanding was 200,000, then the preferred dividend requirement for the year was: Multiple choice question.
$20,000
A retail store's cost for a particular toy is $15.00, and the store owners have a 25 percent desired gross profit ratio. What selling price should be established for this toy?
$20.00
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 - $120 - $20 - $15 - $10 = $35 = $35,000
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
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. Multiple choice question.
$899,700
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 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 x 3/12) + (130,000 x 6/12) + (150,000 x 3/12) = 127,500
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). Multiple choice question.
BI = $3,000 - $2,800 = $200 CGS = $3,000 - $500 = $2,500
Identify the reason for which indirect method is preferred to direct method for cash flow presentation by most firms.
Companies do not need any separate accounting procedures to accumulate cash flow data when the indirect method is used.
Identify the correct statements about a perpetual inventory system.
Cost is determined when the item is sold. Inventory counts are still required on a periodic basis. Much data processing is required, which gives management a great deal of information.
Under the cost of goods sold model, which of the following representations are correct?
Cost of goods available for sale - Ending inventory = Cost of goods sold Beginning inventory + Net purchases = Cost of goods available for sale Cost of goods sold + Ending inventory = Cost of goods available for sale
The entry typically recorded when revenues are earned is:
Dr. Cash (or Accounts Receivable) Cr. Sales (or Service Revenue)
The entry to record the recognition of cost of goods sold is:
Dr. Cost of Goods Sold Cr. Inventory
Concerning the direct method presentation of the statement of cash flows, which of the following statements are true?
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.
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 Blank______ of continuing operations. More than one answer may be correct.
Expenses Revenues
Identify the correct statements about the matching principle.
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.
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. Some expenses (administrative salaries, for example) are recognized in the period in which they are incurred. Expenses are measured by the cash or other asset used up to obtain the economic benefit they represent.
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 EI = $2,300 - $1,800 = $500
If Ending inventory = $600, Cost of goods sold = $1,400, and Net purchases = $1,500, calculate the Cost of goods available for sale (GAS) and the Beginning inventory (BI).
GAS = $600 + $1,400 = $2,000 BI = $2,000 - $1,500 = $500
The "other income and expense" category is normally reported after income from operations and includes which items? More than one answer may be correct.
Gains Interest expense
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 subtotals are commonly reported in multiple-step income statements? More than one answer may be correct.
Income from operations Gross profit
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
The "other income and expense" category is normally reported after income from operations and includes which items?
Losses Interest income
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.
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 = $3,600
Identify the correct statements about a perpetual inventory system.
Point-of-sale technologies such as standard bar code scanners are incorporated into this type of inventory system. The system can be programmed to reorder items automatically from suppliers. Cost is determined when the item is sold.
If Freight-in = $600, Purchase discounts = $300, Purchase returns and allowances = $200, and Net purchases = $5,000, calculate the Purchases.
Purchases = $5,000 + $200 + $300 - $600 = $4,900
What principal categories of other operating expenses are frequently reported on the income statement?
Research and development expenses Selling expenses General and administrative expenses
Starting with gross sales and arriving at net sales, which of the following statements are true?
Sales returns and allowances are subtracted. Sales discounts 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?
Statement of cash flows
A company's income statement is prepared to provide essential information to which groups of people? More than one answer may be correct.
Stockholders Potential investors Managers
Identify a true statement about extraordinary items.
The current accounting standard requires firms to report extraordinary items as a separate component from continuing operations.
Concerning the direct method presentation of the statement of cash flows, which of the following statements are true?
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. Each of the captions reported on the statement explains how much cash was received or paid during the year for that item.
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.
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 direct method involves listing each major class of cash receipts transactions and cash disbursements transactions for each side of three activity areas.
Regarding shipping terms, which of the following statements are true?
The seller incurs the freight cost for shipments made FOB destination. 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.
What are some common causes of inventory shrinkage? Multiple select question.
Theft Obsolescence Errors
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 primarily to the purchase and sale of noncurrent assets
Which of these are true, regarding financing activities in the statement of cash flows? More than one answer may be correct.
They relate primarily to changes during the year in nonoperating liabilities (such as bonds payable) and in stockholders' equity accounts other than net income or loss. They include the use of cash to pay dividends. They include the use of cash to retire bonds.
Which of these are true, in regard to investing activities in the statement of cash flows? More than one answer may be correct.
They relate primarily to the purchase and sale of noncurrent assets. They include the use of cash to acquire land, buildings, and equipment.
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
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
Regarding shipping terms, which of the following statements are true?
When a shipment arrives freight collect, the buyer pays the freight cost. FOB shipping point means that the buyer accepts ownership of the product at the seller's shipping location. The buyer incurs the cost of shipments made FOB shipping point. Ordinarily, items shipped FOB destination will have freight prepaid.
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 Whether the company's cash balance increased or decreased during the year
The financial statement effects of recognizing cost of goods sold include: Multiple select question.
a decrease to current assets. an increase to expenses. a decrease to net income.
When revenues are earned, the effects on the financial statements typically include:
an increase to current assets an increase to net income
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 or liability
Revenues generally are measured by the amount of (stock/inventory/cash) received or expected to be received from the transaction.
cash
When a segment, or major portion of a business, is disposed of, it is appropriate to disclose separately the impact that the (extraordinary/discontinued) operation has had on the current operations of the firm, as well as its impact on any previous year results that are shown for comparative purposes.
discontinued
Increases in an entity's net assets resulting from incidental transactions or nonoperating activities are referred to as (revenues/receivables/gains).
gains
Gains are (increases/decreases) in an entity's net assets resulting from incidental transactions or nonoperating activities.
increased
Most firms report the statement of cash flows using the indirect method because Blank______. Multiple choice question.
operating activities information reported under the direct method is not so readily determinable
Under the new model of revenue recognition (IASB 15), revenue is recognized based on the satisfaction of (service/performance/market) obligations.
performance
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 freight cost for products shipped as freight (prepaid/collect) is paid by the seller; when a shipment arrives as freight (prepaid/collect), the buyer pays the freight cost.
prepaid collect
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
present
When the outflow of cash related to the expense will not occur within a year, it is appropriate to recognize the (future/present/market) value of the future cash flow as the amount of the expense.
present
To be recognized, revenues must meet both the (realization/measurable/earned/materiaity) and (realization/measurable/earned/materiaity) criteria.
realization earned
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.
The (seller/buyer) incurs the freight cost for shipments made FOB destination; the (seller/buyer) incurs the cost of shipments made FOB shipping point.
seller buyer
The statement of cash flows Blank______. Multiple choice question.
shows why cash changed during a period by reporting net cash provided or used by operating, investing, and financing activities
Inventory (shortage/shrinkage/salvage) is the term used to describe inventory losses from obsolescence, errors, and theft and usually is included in cost of goods sold unless the amount involved is material.
shrinkage
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
