Exam 4: Analyzing Investing Activities

Accounts receivable are usually not classified as a current asset.

The following information can be found in ABC Co.'s financial statements. Finished Goods \ 251,690 \ 195,360 Work in Process and purchased parts 245,123 17,377 Raw Materials 136,568 106,789 633,381 488,581 Less excess of current cost over stated LIFO value \ 570,430 \ 417,395 Retained earnings \3 ,526,000 \ 3,159,000 Assume a tax rate of 35%. Inventories valued using the LIFO method represented approximately 80% of consolidated inventories. -What will be the retained earnings for 2005 if ABC used FIFO valuation?

Software development costs are treated the same way as research and development costs under GAAP (Generally Accepted Accounting Principles).

A Corporation wants to increase its current ratio from its present level of 1.2 before it ends the fiscal year. The action having the desired effect is:

In a period of rising prices, using FIFO would produce a lower cost of goods sold than using LIFO.

If a LIFO liquidation occurs during a period of rising prices, which of the following statements about the effects on a firm's financial statements, all other things equal, is generally true? I. Cost of goods sold increases. II. Gross profit margin increases. III. Taxes decrease. IV. Net income increases.

One advantage of LIFO over FIFO under normal conditions is that:

The inventory costing method used by a company (LIFO, FIFO, etc.) will affect: Asset Turnover Debt/Equity Ratio A) Yes Yes B) Yes No C) No No D) No Yes

Which of the following is not considered an intangible asset?

Under GAAP, the choice of inventory costing method (LIFO, FIFO, etc.) must be determined by the physical flow of the goods.

You are comparing the financial statements of two companies, Ready PLC and Marlet Inc., which operate in the same industry but different countries. Ready, Inc. is a British company and prepares its financial statements using British accounting rules. Marlet is a U.S company and prepares its statements using U.S. GAAP. The following differences in accounting methods are noted: Ready Goodwill Goodwill is immediately written-off directly to stockholders' equity Inventory costing FIFO is used for financial reporting and tax purposes Research and Development costs Capitalized and amortized Marlet Goodwill is capitalized and amortized over 40 years LIFO allowed for tax and financial reporting purposes Expensed You want to restate the financial statements of Marlet in order to make them comparable with Ready PLC. Identify the adjustments you would make, and the effect on the financial statements.

If a company contracts to purchase goods or services in advance this is called a Purchase commitment, and if the contract is non-cancelable the company must recognize an asset and liability equal to the present value of the future cash payment at the time the contract is signed.

A firm has a current ratio greater than 1.0. If the firm's ending inventory is understated by $3,000 and beginning inventory is overstated by $5,000, the firm's net income (before taxes) and current ratio will be: Net Income Current Ratio A) understated by \ 2,000 too low B) overstated by \ 2,000 too low C) understated by \ 8,000 too low D) understated by \ 8,000 too high

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. gher retained earnings. IV. unchanged retained earnings.

Securitization through the use of a properly structured SPE may result in the following benefits to the company: I. Remove receivables from the balance sheet. II. Remove debt from the balance sheet. III. Lower financing costs. IV. Recognize gains on the sale of assets to the SPE.

Depreciation is based on the principle of:

The LIFO Conformity rule states that if a company uses LIFO for tax purposes it must also use it for financial reporting purposes.

Depreciation is a valuation exercise.

LIFO liquidation occurs when:

Which of the following is not a common characteristic of a company choosing to use LIFO rather than FIFO?