Exam 4: Analyzing Investing Activities

Below is selected information taken from the balance sheet of LongLi Corporation as of 12/31/06. 12/31/05 12/31/06 Gross property, plant, and equipment \ 20,000 \ 25,000 Accumulated depreciation \ 10,000 \ 10,000 From the operating section of the statement of cash flows, you determine that the depreciation expense for the year was $2,000 and loss on sales of assets was $5,000. The investing section reveals that the company purchased equipment for $14,000 and sold equipment for $2,000. In the footnotes to the financial statements, the company states: At the beginning of 2006, we determined that the useful life of our assets was higher than originally believed. Accordingly we have increased the useful life from 10 years to 15 years in 2006. a. What was the gross book value of the equipment that was sold? b. What was the net book value of the equipment that was sold? c. With respect to the change in the useful lives of the assets: i. What is the effect on 2005's financial statements? ii. What is the effect on 2006's financial statements?

Below is selected information taken from the balance sheet of Huy Corporation as of 12/31/06. Land \ 100,000 \ 100,000 Machines Gross property, plant, \& equipment 180,000 170,000 Accumulated depreciation Net property, plant, \& equipment Depreciation expense \ 5,000 -The average total life span of Huy's depreciable assets as of 2006 is:

Under current US GAAP, goodwill is: I. amortized over a period not to exceed 40 years. II. tested annually for impairment. III. exclusive of separately identifiable intangible assets. IV. recorded only upon purchase of another entity.

An asset is considered to be liquid if:

Analysis of a company's assets will help evaluate its: I. liquidity. II. solvency. III. operational capacity. IV. financing ability.

The following information can be found in Manufacturer Company's financial statements. COGS \ 2,500,000 \ 2,000,000 Inventory \ 180,000 \ 140,000 Net income \ 125,000 \ 100,000 Retained earnings \ 500,000 \ 400,000 LIFO reserve \ 40,000 \ 30,000 Tax rate 40\% 40\% -If Manufacturer used FIFO, its net income for fiscal 2006 would be:

The use of LIFO rather than FIFO for inventory costing under normal economic conditions results in: I. lower net income. II. higher total assets. III. higher retained earnings. IV. unchanged retained earnings.