Cash Flow Statement Questions! Trivia Quiz

The statement of cash flows is a financial statement that provides information about the cash inflows and outflows of a company. It categorizes these cash flows into three main activities: operating activities, investing activities, and financing activities. Operating activities include cash flows from the company's core business operations, such as revenue from sales and payments to suppliers. Investing activities involve cash flows related to the acquisition or sale of long-term assets, such as property or equipment. Financing activities include cash flows from activities that affect the company's capital structure, such as issuing or repurchasing stock or taking out loans. Marketing activities, on the other hand, do not directly involve the inflow or outflow of cash and therefore are not reported on the statement of cash flows.

Apple's investment in less than 2% of Ford's stock, which they plan to hold for three years and then sell, is classified as an available-for-sale investment. This type of investment refers to securities that are not intended to be held for the long term and are expected to be sold in the future. The investment is recorded at fair value on the balance sheet, and any changes in value are reported as unrealized gains or losses in the comprehensive income statement until the investment is sold.

A business would select an accelerated method of depreciation for tax purposes because it allows them to generate higher depreciation expense immediately, which in turn lowers their tax payments in the early years of the asset's life. This can be beneficial for businesses as it helps to reduce their taxable income and increase their cash flow in the initial years. By taking advantage of accelerated depreciation, businesses can effectively manage their tax liabilities and allocate funds for other operational needs.

All of the options listed in the question (copyright, patent, trademark, goodwill) are examples of intangible assets. Intangible assets are non-physical assets that have value and are not easily converted into cash. They include things like intellectual property rights, brand names, and reputation. Therefore, all of the options listed in the question are intangible assets and there is no item among them that is not an intangible asset.

When Insight consolidates its British subsidiaries, it should translate the subsidiary's assets into dollars at the current exchange rate. This means that the value of the assets will be converted into dollars based on the exchange rate at the time of consolidation. This is because the current exchange rate reflects the most up-to-date value of the currency and provides the most accurate representation of the subsidiary's assets in dollars.

Jacques Corporation purchased 1,500 shares of Home Central stock for $24 per share, resulting in an initial investment of $36,000. On the next balance-sheet date, the stock is quoted at $27 per share. Since the stock price has increased, Jacques Corporation has an unrealized gain on their investment. The unrealized gain is calculated by subtracting the initial investment from the current market value, which is $27 per share multiplied by 1,500 shares, equaling $40,500. Therefore, Jacques' balance sheet should report investments of $40,500.

The cost of the land is $1,140,000. This is because the appraised value of the land is given as $1,380,000, which means that the land is worth $1,380,000. Since the company purchased the land along with the office building and equipment for a total cost of $1,900,000, we can subtract the value of the building and equipment from the total cost to find the cost of the land. Therefore, $1,900,000 - ($575,000 + $345,000) = $1,140,000.

Other comprehensive income includes unrealized gains and losses on available-for-sale investments. This means that when the value of these investments changes, whether it increases or decreases, it is recorded as part of other comprehensive income. This is different from realized gains and losses, which would affect the income statement. Other comprehensive income has no effect on income tax and does not directly impact earnings per share. It may also include extraordinary gains and losses, but this is not the main focus of other comprehensive income.

The cash collected from customers during the year can be calculated by subtracting the decrease in accounts receivable from the credit sales. In this case, the decrease in accounts receivable is $60,000 - $50,000 = $10,000. So, the cash collected from customers is $700,000 - $10,000 = $690,000. Therefore, the correct answer is $690,000.

A 2-for-1 stock split doubles the number of shares outstanding, effectively reducing the stock price by half. Similarly, a 100% stock dividend also doubles the number of shares outstanding, resulting in the same effect of reducing the stock price by half. Therefore, both a 2-for-1 stock split and a 100% stock dividend have the same effect on the number of shares being issued.

Financing activities refer to the actions taken by a company to raise funds for its operations and growth. These activities include obtaining loans, issuing stocks or bonds, and repurchasing company shares. By engaging in financing activities, a company can secure the necessary cash to launch and sustain its operations. This may involve seeking external funding from banks or investors, as well as utilizing internal sources such as retained earnings. Overall, financing activities play a crucial role in providing the financial resources required for a company's establishment and ongoing activities.

The gain (loss) from the sale of the equipment can be calculated by subtracting the book value of the equipment on the sale date from the selling price. The book value can be calculated by subtracting the accumulated depreciation from the original cost of the equipment. Since the straight-line method of depreciation is used, the annual depreciation expense would be ($45,000 - $5,000) / 10 = $4,000. From July 1, 2010, to July 1, 2014, the accumulated depreciation would be $4,000 x 4 = $16,000. Therefore, the book value on the sale date would be $45,000 - $16,000 = $29,000. The gain (loss) from the sale would be $36,500 - $29,000 = $7,500.

Goodwill is not subject to a decreasing book value through depreciation, depletion, or amortization. Goodwill represents the value of a company's reputation, customer relationships, and other intangible assets. Unlike tangible assets such as land improvements, intangibles, and natural resources, goodwill does not have a physical form or a limited useful life. Therefore, it is not subject to the same depreciation or amortization processes that reduce the book value of other assets over time.

The correct answer is "gives investors assurance that the company's financial statements conform to GAAP." This is because an auditor report by independent accountants is a formal statement that provides assurance to investors that the company's financial statements have been prepared in accordance with Generally Accepted Accounting Principles (GAAP). It confirms that the financial information presented by the company is accurate, reliable, and meets the required standards, thus giving investors confidence in the company's financial health and performance.

When a cash dividend is declared by a company, it becomes a legal liability on the date of declaration. This means that the company is legally obligated to pay the dividend to its shareholders. The declaration of a dividend is a formal announcement by the company's board of directors, indicating their intention to distribute a portion of the company's profits to shareholders. Once the dividend is declared, it becomes a binding obligation for the company to make the payment to the shareholders on a specified date.

The Discount on Bonds Payable account is a contra account to Bond Payable because it is used to reduce the carrying value of the bond. When a bond is issued at a discount, the Discount on Bonds Payable account is created to offset the difference between the face value of the bond and the amount received from investors. This account is gradually amortized over the life of the bond and reduces the bond's carrying value. At maturity, the balance in the Discount on Bonds Payable account is fully amortized, resulting in a net carrying value of the bond equal to its face value.

The carrying value of Bonds Payable equals Bonds Payable minus the Discount on Bonds Payable. This is because the Discount on Bonds Payable represents the amount by which the bonds were issued at a discount to their face value. Therefore, to calculate the carrying value, the discount is subtracted from the Bonds Payable.

Depreciation is a process of allocating the cost of a plant asset over its useful life. It is based on the matching principle because it matches the cost of the asset with the revenue generated over the asset's useful life. The cost of a plant asset minus accumulated depreciation equals the asset's book value. However, depreciation does not create a fund to replace the asset at the end of its useful life. Instead, it is a method of spreading the cost of the asset over its useful life for accounting purposes.

The rate of return on common equity is calculated by dividing the net income by the common equity. Preferred dividends are not included in this calculation because they are paid to preferred shareholders and not common shareholders. Therefore, to accurately compute the rate of return on common equity, the net income should be adjusted by subtracting the preferred dividends.

The exchange of stock for land is considered a noncash transaction because it does not involve the use of cash. Instead, it involves the exchange of one asset (stock) for another asset (land). Noncash investing and financing activities are reported separately from cash flows in the statement of cash flows to provide information about significant noncash transactions that impact the company's financial position. Therefore, the exchange of stock for land would be reported as noncash investing and financing activities.

A tune-up of a company vehicle is not a capital expenditure because it is considered a routine maintenance expense rather than a long-term investment in an asset. Capital expenditures typically involve significant costs and are intended to improve or expand the productive capacity of a business, such as adding a building wing or replacing equipment. A tune-up, on the other hand, is a regular service to ensure the vehicle's proper functioning and does not add any significant value or extend its useful life.

A contingent liability should be recorded in the accounts if the accounts can be reasonably estimated and if the related future event will probably occur. This means that if the liability can be reasonably estimated and there is a high likelihood that the future event will occur, it should be recorded in the accounts. This ensures that the financial statements accurately reflect the potential obligations and liabilities of the company.

A debenture bond is a type of unsecured bond. Unlike a mortgage bond or a registered bond, a debenture bond does not have any specific collateral backing it. Instead, it is supported by the issuer's creditworthiness and reputation. This means that if the issuer defaults on the bond, the bondholders do not have a specific asset to claim as repayment. On the other hand, a term bond is a bond that matures on a specific date, while a serial bond is a bond that matures in installments over a period of time. However, neither of these terms specifically refers to the security or lack thereof of the bond.

The total cash payment for interest for each 12-month period is $38,500. This can be calculated by multiplying the face value of the bonds ($550,000) by the stated interest rate (7%) and then dividing by the number of interest payment periods in a year (2). This gives an annual interest payment of $19,250. Since there are two interest payment periods in a year, the total cash payment for interest for each 12-month period is $38,500.

Investing activities refer to the buying, selling, and acquiring of long-term assets such as property, equipment, and investments. These activities involve the use of cash or other resources to generate future income or enhance the company's operations. Financing activities, on the other hand, involve obtaining funds from investors or creditors to finance the company's operations. Marketing activities focus on promoting and selling products or services, while operating activities involve the day-to-day operations of the business. Therefore, the correct answer is investing activities as it specifically relates to the acquisition and disposal of long-term assets.

The stockholders' equity section of a corporation's balance sheet reports the Discount on Bonds Payable as NO because it is considered a contra-liability account and is subtracted from the Bonds Payable account. On the other hand, Treasury Stock is reported as YES because it represents the corporation's own stock that has been repurchased and is subtracted from the total stockholders' equity.

The quality of earnings suggests that income from continuing operations is better than income from one-time transactions. This is because income from continuing operations represents the ongoing profitability of a company's core business activities, which is more sustainable and reliable. On the other hand, income from one-time transactions may be sporadic and not indicative of the company's long-term performance. Therefore, focusing on income from continuing operations provides a more accurate measure of the results of a company's operations.

Discontinued operations are a separate category on the income statement. This means that when a company decides to discontinue a segment of its business, the financial results of that segment are reported separately from the continuing operations. This allows investors and stakeholders to easily identify and analyze the performance and impact of the discontinued operations on the overall financial statements. Extraordinary items, on the other hand, are rare and significant events or transactions that are not expected to occur regularly. These items are also reported separately on the income statement, but they are not necessarily part of discontinued operations. Therefore, the correct statement is that discontinued operations are a separate category on the income statement.

Stock dividends have no effect on total shareholders' equity because they represent a distribution of additional shares to existing shareholders rather than a cash payment. When a company issues stock dividends, it transfers a portion of retained earnings to the paid-in capital account. This transfer does not change the overall value of shareholders' equity, as it simply shifts the allocation of equity between retained earnings and paid-in capital. Therefore, stock dividends do not impact the total shareholders' equity of a corporation.

The correct answer is "Allowance for bad debts" because it is not an estimated liability. An allowance for bad debts is an estimated amount that a company sets aside to cover potential losses from customers who may not pay their debts. It is a contra-asset account that reduces the accounts receivable on the balance sheet. On the other hand, product warranties, vacation pay, and income taxes are all examples of estimated liabilities as they represent obligations that a company expects to incur in the future and can be reasonably estimated.

If Stafford Corporation earned $5.12 per share of its common stock and you capitalize its income at 4%, it means you are willing to pay a price that is equivalent to 25 times the annual earnings per share. Therefore, if you multiply $5.12 by 25, you get $128.00. This is the amount you are willing to pay for a share of Stafford stock.

Mochado has issued 120,000 shares of common stock. This can be determined by dividing the total amount of cash ($111,000) by the par value per share ($5). Dividing $111,000 by $5 gives us 22,200 shares. However, since there is an additional $60,000 in paid-in capital in excess of par, we add this amount to the total number of shares. Therefore, Mochado has issued 22,200 shares (from the cash) + 12,000 shares (from the excess paid-in capital) = 120,000 shares of common stock.

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The correct answer is a credit to Common Stock for $500,000. This is because when Lurvey issued 20,000 shares at $45 per share, the total value of the shares issued would be $900,000. However, the par value of the common stock is $25 per share, so the portion of the total value that represents the par value would be $25 multiplied by 20,000 shares, which equals $500,000. Therefore, the journal entry should include a credit to Common Stock for $500,000 to record the par value of the shares issued.

Coleman County purchased earth-moving equipment from a Canadian company for $1,600,000 Canadian. Since the Canadian dollar was quoted at $0.90 at the time of the purchase, the cost in US dollars would be $1,600,000 x $0.90 = $1,440,000. A month later, when Coleman County paid its debt, the Canadian dollar was quoted at $0.92. However, this information is not relevant to calculating the cost of the equipment. Therefore, the correct answer is $1,440,000.

The purchase of treasury stock involves a company buying back its own stock from shareholders. This transaction reduces the company's total assets because cash is used to buy the stock. Additionally, since treasury stock is considered a contra equity account, the purchase decreases the company's total stockholders' equity. Therefore, the correct answer is that the purchase of treasury stock decreases both total assets and total stockholders' equity.

The net cash provided by (used for) financing activities would be $ (13,000) because there is a payment of dividends of $1,000 and a payment of long-term debt of $16,000, which are both cash outflows. Additionally, there is a decrease in inventories of $3,000, which indicates a decrease in cash. On the other hand, there are no cash inflows from financing activities mentioned in the given information. Therefore, the net cash provided by (used for) financing activities is negative, resulting in a cash outflow of $13,000.

The question states that historically, approximately 1% of all sales prove to be defective. In March, $450,000 worth of sales were made, so the estimated warranty expense would be 1% of $450,000, which is $4,500. Therefore, Crank the Volume must debit Warranty Expense and credit Estimated Warranty Payable for $4,500 to record the warranty expense at the end of March.

Companies need to report their accounting changes to the public because it is important to compare the results of operations between different periods. By disclosing these changes, investors and stakeholders can assess the financial performance and trends of the company over time. This information allows them to make informed decisions regarding investments, potential risks, and future prospects. Comparing the results of operations also helps in evaluating the effectiveness of management strategies and identifying any inconsistencies or irregularities in financial reporting. Overall, transparency and disclosure of accounting changes promote trust and confidence in the company's financial statements.

Deferred Tax Liability is a long-term account that is reported on the balance sheet. This liability arises when there is a difference between the tax expense recognized on the income statement and the taxes payable to the tax authorities. It represents the amount of income tax that will be payable in future periods due to temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and their tax bases. As it is a long-term liability, it is reported on the balance sheet, which provides a snapshot of a company's financial position at a specific point in time.

The total paid-in capital can be calculated by adding the Preferred Stock, Common Stock, and Paid-in Capital in Excess of Par-Common. In this case, the Preferred Stock is $375,000, the Common Stock is $600,000, and the Paid-in Capital in Excess of Par-Common is $60,000. Adding these amounts together gives a total paid-in capital of $1,035,000. However, since the question asks for the total paid-in capital at August 31, 2010, we need to consider the Retained Earnings as well. The Retained Earnings is $325,000, so adding this amount to the total paid-in capital gives a final answer of $1,360,000.

The double-declining-balance method is a depreciation method that results in higher depreciation expense in earlier years and lower depreciation expense in later years. To calculate the annual depreciation expense, we divide the initial cost of the machine by its useful life and then multiply it by 2. In this case, the annual depreciation expense would be ($24,000 - $4,000) / 5 = $4,000. For the end of year 2, the accumulated depreciation would be 2 x $4,000 = $8,000. However, since the machine has a residual value of $4,000, the accumulated depreciation at the end of year 2 would be $8,000 + $8,000 = $15,360.

The depletion expense should be recorded as $30,000. Depletion expense is calculated by dividing the cost of the oil well by the estimated number of barrels it contains. In this case, the cost of the oil well is $270,000 and the estimated number of barrels is 90,000. Therefore, the depletion expense per barrel is $3 ($270,000 / 90,000). Since 10,000 barrels were extracted and sold in the first year, the depletion expense would be $30,000 ($3 x 10,000).

The recording of estimated warranty expense in the current year best follows the matching principle. The matching principle states that expenses should be recognized in the same period as the revenues they help generate. By recording estimated warranty expense in the current year, the company is matching the expense with the revenue it is expected to generate from the sale of the product. This ensures that the financial statements accurately reflect the expenses incurred in generating the revenue, leading to a more accurate representation of the company's financial performance.

Based on the information given, the cost of land must have been $55,000. This can be determined by looking at the "Proceeds from Sale of Land" which is $40,000 and the "Loss on Sale of Land" which is $15,000. The loss on the sale of land indicates that the land was sold for less than its original cost. Therefore, the original cost of the land must have been higher than the proceeds from the sale plus the loss, which is $40,000 + $15,000 = $55,000.

To calculate the cash paid for inventory, we need to consider the change in inventory and the change in accounts payable. Since the inventory decreased by $10,000, it means that the company sold $10,000 worth of inventory. However, the accounts payable decreased by $12,000, which means that the company paid $12,000 less in cash for the inventory. Therefore, the cash paid for inventory during the year would be the cost of goods sold ($410,000) minus the decrease in accounts payable ($12,000), which equals $412,000.

During the vacation, the dollar rose against the euro. This can be inferred from the fact that initially, $1.50 was needed to buy euros, but on the return, only $1.20 was received for the unused euros. This indicates that the value of the dollar increased in comparison to the euro, resulting in a higher exchange rate.

The straight-line method of depreciation evenly distributes the cost of an asset over its useful life. In this case, the equipment was purchased for $45,000 and has a useful life of 10 years. Therefore, the annual depreciation expense is $4,000 ($45,000 - $5,000 residual value divided by 10 years). At the end of 2011, which is 2 years after the purchase, the accumulated depreciation would be $8,000 ($4,000 x 2). To find the book value, we subtract the accumulated depreciation from the original cost, which gives us $37,000 ($45,000 - $8,000).

The net cash provided by (used for) investing activities would be $10,000. This is calculated by adding the proceeds from the sale of land ($40,000) and subtracting the acquisition of equipment ($35,000) and the loss on the sale of land ($15,000). The increase in accounts payable, depreciation expense, payment of dividends, sales of treasury stock, increase in accounts receivable, payment of long-term debt, collections of long-term notes receivable, and decrease in inventories are not relevant to calculating the net cash provided by (used for) investing activities.

Expedition Camera Co. sold 900 units in the first month, and the engineering estimates indicate that 4% of the units will be defective. Therefore, the expected number of defective units is 900 * 0.04 = 36 units. Each defective unit requires an average repair cost of $25. So, the total liability for product warranties at month-end should be 36 * $25 = $900. However, only 15 defective units were replaced by the end of the month. Therefore, the actual liability for product warranties at month-end is 15 * $25 = $375. Hence, the correct answer is $375.