Question 1

Investing activities include the cash effects of selling stocks and bonds to raise capital to purchase fixed assets.

Accepted Answer

A) True 
 B)False

Question 2

Liabilities are probable future economic benefits obtained or controlled by an entity as a result of past transactions or events.

Accepted Answer

A) True 
 B)False

Question 3

Selected data for Kris Corporation's comparative balance sheets for Year 1 and Year 2 are as follows:
$\begin{array}{lrr}\text { Assets } & \text { Year 1 } & \text { Year 2 }\
\hline \text { Cash } & \$ 100,000 & (\$ 50,000) \
\text { Accounts receivable (net) } & 50,000 & 100,000 \
\text { Inventory } & 100,000 & 250,000 \
\text { Equipment (net) } & \$ 300,000 & \underline{350,000} \
{\text { Total assets }} & \$ 550,000 & \$ 650,000\\\text { Liabilities and Equity }\
\text { Accounts payable } & \$ 150,000 & \$ 100,000 \
\text { Income taxes payable } & 80,000 & 30,000 \
\text { Bonds payable } & 100,000 & 80,000 \
\text { Common stock } & 100,000 & 200,000 \
\text { Retained earnings } & 120,000 & 240,000 \
\quad \text { Total liabilities and Equity } & \$ 550,000 & \$ 650,000\\\text { A brief income statement for Year } 2 \text { shows the }\\text { following: }\\text { Sales }&&\$900,000\\text { Cost of goods sold } & \$ 500,000 \
\text { Operating expenses } & 100,000 \
\text { Depreciation } & 50,000 \
\text { Income tax expense } & 100,000&750,000 \\text { Net Income }&&\$150,000
\end{array}$
-How much did Kris pay in income taxes to the government in Year 2?

Accepted Answer

A) $30,000 
B) $80,000 
C) $110,000 
D) $150,000

Question 4

The change in cash during a period is equal to the net income for the period.

Accepted Answer

A) True 
 B)False

Question 5

What indication for the following firm behavior can be found in the statement of cash flows?
a.Difficulties in cash collections
b.Decrease in investments in long term assets

Accepted Answer

The answer of What indication for the following firm behavior...

Question 6

The residual interest in the resources of an entity that remains after deducting its debts to third parties defines

Accepted Answer

A) assets. 
B) liabilities. 
C) equity. 
D) retained earnings.

Question 7

Events that occur after the financial statements are issued are referred to as subsequent events.

Accepted Answer

A) True 
 B)False

Question 8

The Barden Company provides the following information from its Year 3 and Year 4 balance sheets:
$\begin{array}{lrr}&\text { Year } 3&\text { Year } 4\
\text { Accounts receivable } & \$ 115,000 & \$ 97,500 \
\text { Inventory } & 120,000 & 130,000 \
\text { Prepaid insurance } & 7,500 & 1,500 \
\text { Prepaid rent } & 40,000 & 15,000 \
\text { Accounts payable } & 55,000 & 65,000
\end{array}$
The following information is available from the Year 4 income statement:
$$\begin{array} {| l r | } 
\hline \text { Sales } & \$ 425,000 \
\text { Cost of goods sold } & 225,000 \
\text { Insurance expense } & 12,000 \
\text { Rent expense } & 25,000\\hline
\end{array}$$
-Assuming that the information provided from the income statement represents all of the pre-tax income of Barden Company,what is the difference between the accrual-basis and cash-basis income in Year 4?

Accepted Answer

A) Accrual exceeds cash basis by $16,500. 
B) Cash exceeds accrual basis by $23,500. 
C) Accrual exceeds cash basis by $25,000. 
D) Cash exceeds accrual basis by $48,500.

Question 9

The change in a firm's cash position between successive balance sheet dates will not equal the reported income for that period for all of the following reasons except:

Accepted Answer

A) Reported net income usually will not equal cash flow from operating activities because noncash revenues and expenses are often recognized as part of accrual income. 
B) Reported net income usually will not equal cash flow from operating activities because certain operating cash inflows and outflows are not recorded as revenues or expenses under accrual accounting in the same period the cash flows occur. 
C) Changes in cash are also caused by nonoperating investing activities like the purchase of treasury stock. 
D) Additional changes in cash are caused by financing activities like the repayment of a bank loan.

Question 10

Current liabilities are reported on the balance sheet at

Accepted Answer

A) current market value. 
B) historical cost. 
C) discounted present value. 
D) future value.

Question 11

It is permissible for a firm that reports in accordance with IFRS to emphasize its liquidity by placing current assets and current liabilities in close proximity to one another on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 12

On a common-size balance sheet,each balance sheet account is expressed as a percentage of net assets.

Accepted Answer

A) True 
 B)False

Question 13

Inventories are reported on the balance sheet at historical cost.

Accepted Answer

A) True 
 B)False

Question 14

Selected data for Kris Corporation's comparative balance sheets for Year 1 and Year 2 are as follows:
$\begin{array}{lrr}\text { Assets } & \text { Year 1 } & \text { Year 2 }\
\hline \text { Cash } & \$ 100,000 & (\$ 50,000) \
\text { Accounts receivable (net) } & 50,000 & 100,000 \
\text { Inventory } & 100,000 & 250,000 \
\text { Equipment (net) } & \$ 300,000 & \underline{350,000} \
{\text { Total assets }} & \$ 550,000 & \$ 650,000\\\text { Liabilities and Equity }\
\text { Accounts payable } & \$ 150,000 & \$ 100,000 \
\text { Income taxes payable } & 80,000 & 30,000 \
\text { Bonds payable } & 100,000 & 80,000 \
\text { Common stock } & 100,000 & 200,000 \
\text { Retained earnings } & 120,000 & 240,000 \
\quad \text { Total liabilities and Equity } & \$ 550,000 & \$ 650,000\\\text { A brief income statement for Year } 2 \text { shows the }\\text { following: }\\text { Sales }&&\$900,000\\text { Cost of goods sold } & \$ 500,000 \
\text { Operating expenses } & 100,000 \
\text { Depreciation } & 50,000 \
\text { Income tax expense } & 100,000&750,000 \\text { Net Income }&&\$150,000
\end{array}$
-How much cash did Kris pay to suppliers for inventory during Year 2? Assume all purchases are on credit.

Accepted Answer

A) $150,000 
B) $400,000 
C) $500,000 
D) $700,000

Question 15

The unpaid amount of income taxes due to the government for a given year are found on the

Accepted Answer

A) balance sheet in the account Deferred Income Taxes. 
B) balance sheet in the account Income Taxes Payable. 
C) income statement in the account Income Tax Expense Current. 
D) income statement in the account Income Tax Expense DeferreD.

Question 16

An important decision in corporate finance is determining the proper mix of debt and equity financing.

Accepted Answer

A) True 
 B)False

Question 17

Harry's Clothing Inc.,used the following headings on the company's December 31,2014 balance sheet:
(A)Current assets
(B)Long-term investments
(C)Property and equipment
(D)Intangible assets
(E)Other assets
(F)Current liabilities
(G)Long-term debt
(H)Shareholders' equity
For each of the following items,indicate its normal balance sheet classification category.Use (NA)for items that would not appear on the face of the balance sheet,but would be discussed in the notes to the financial statements.
_____ 1.Accounts receivable
_____ 2.Accrued interest on notes payable (2015 maturity)
_____ 3.Accumulated depreciation
_____ 4.Goodwill
_____ 5.Preferred stock
_____ 6.Common stock
_____ 7.Customer deposits on products to be shipped in a few months
_____ 8.Depreciation methods and estimated lives of equipment
_____ 9.Prepaid insurance
_____ 10.Assets (surplus production equipment)held for sale

Accepted Answer

The answer of Harry's Clothing Inc.,used the following headings on...

Question 18

A related party transaction occurs when a company enters into a transaction with individuals or other companies that are connected in some way with it or its management.

Accepted Answer

A) True 
 B)False

Question 19

Under U.S.GAAP,cash interest from investments is reported on the statement of cash flows as part of investing activities whereas under IFRS,cash interest from investments is reported as part of financing activities.

Accepted Answer

A) True 
 B)False

Question 20

Probable future economic benefits obtained or controlled by an entity as a result of past transactions or events define

Accepted Answer

A) assets. 
B) liabilities. 
C) equity. 
D) retained earnings.

Exam 4: Structure of the Balance Sheet and Statement of Cash Flows

Investing activities include the cash effects of selling stocks and bonds to raise capital to purchase fixed assets.

Liabilities are probable future economic benefits obtained or controlled by an entity as a result of past transactions or events.

The change in cash during a period is equal to the net income for the period.

What indication for the following firm behavior can be found in the statement of cash flows? a.Difficulties in cash collections b.Decrease in investments in long term assets

The residual interest in the resources of an entity that remains after deducting its debts to third parties defines

Events that occur after the financial statements are issued are referred to as subsequent events.

The change in a firm's cash position between successive balance sheet dates will not equal the reported income for that period for all of the following reasons except:

Current liabilities are reported on the balance sheet at

It is permissible for a firm that reports in accordance with IFRS to emphasize its liquidity by placing current assets and current liabilities in close proximity to one another on the balance sheet.

On a common-size balance sheet,each balance sheet account is expressed as a percentage of net assets.

Inventories are reported on the balance sheet at historical cost.

The unpaid amount of income taxes due to the government for a given year are found on the

An important decision in corporate finance is determining the proper mix of debt and equity financing.

A related party transaction occurs when a company enters into a transaction with individuals or other companies that are connected in some way with it or its management.

Under U.S.GAAP,cash interest from investments is reported on the statement of cash flows as part of investing activities whereas under IFRS,cash interest from investments is reported as part of financing activities.

Probable future economic benefits obtained or controlled by an entity as a result of past transactions or events define