AC 211 Lecture Notes - Lecture 5: Retained Earnings, Income Statement, Accrual

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15 Feb 2017

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Operating activities are the day-to-day functions involved in running a business include buying goods and services from suppliers and employees and selling goods and services to customers and collecting cash from them. Operating activities are the primary source of revenues and expenses. Can determine whether a company earns a profit (or incurs a loss) Summarizes the financial impact of operating activities undertaken by the company during the accounting period. Revenues: increases in assets or settlements of liabilities arising from ongoing operations reported when the company transfers control of a good or service to a customer, regardless of when the company is paid by the customer. Expenses: decreases in assets or increases in liabilities from ongoing operations, incurred to generate revenues during the current period. Whenever a business uses up its resources to generate revenues during the period, it reports an expense, regardless of when the company pays for the resources. Recorded in the body of the i/s.

Related Questions

16. Mendes Charters reported the following information atDecember 31, 2015:

Preferred stock, $100 par, 500 shares authorized, andoutstanding;

cumulative; nonparticipating; callable at par value $50,000

Common stock, $12 par, 50,000shares authorized and outstanding 600,000

Additional paid-incapital--Common 25,000

Retained earnings825,000

Mendesâ total contributed capitalis

a. $ 650,000 b. $ 675,000 c. $1,500,000 d. $ 625,000

17. Which of the following should be considered when a companydecides to declare a cash dividend on common stock?

a. The retained earnings balance only

b. The amount of authorized shares of common stock

c. The book value of the company's stock

d. The cash available and the retained earnings balance

18. The primary reason for a stock split is to

a. distribute cash to the investor.

b. decrease the market value of the stock.

c. decrease the number of shares outstanding.

d. increase the contributed capital of the corporation.

19. Nordic Exports Inc. reported net income of $150,000 for2015, but its cash balance decreased $40,000. Which financialstatement should Nordic Exportsâ management refer to for anexplanation of this situation? a

. Balance Sheet

b. Income Statement

c. Statement of Retained Earnings

d. Statement of Cash Flows

20. The primary purpose of the statement of cash flows is toprovide information about

a. the financial position of the company.

b. the profitability of the company.

c. the investing and financing activities of the company.

d. the cash inflows and outflows of the company.

21. Cash flows from acquiring and disposing of long-term assetsare classified as

a. operating activities.

b. investing activities

. c. financing activities.

d. purchasing activities.

22. Cash flows from borrowing and paying off a 90-day bank loanare classified as

a. operating activities. b. investing activities. c. financingactivities. d. purchasing activities.

23. Cash flows from issuing and repurchasing stock or issuingand repaying (retiring) debt are classified as

a. operating activities. b. investing activities. c. financingactivities. d. borrowing activities.

24. Cash flows from acquiring and selling products areclassified as

a. operating activities. b. investing activities. c. financingactivities. d. distribution activities.

25. Presented below is the operating activities section of thestatement of cash flows for Golden Consulting for 2016:

Operating activities:

Net income $ 92,000

Add: Depreciation 20,000

Decrease in accounts receivable 8,000

__________

$120,000

Deduct: Decrease in accounts payable (6,000)

Net cash inflow from operating activities $114,000

Which method of preparing the operating activities section hasGolden Consulting used?

a. The direct method b. The indirect method c. Either method d.Cannot be determined without further information

redcaribou302

Question 11

The Kerchin Company purchased $60,000 worth of stock in theXeronics company in 2006. In 2012 the stock was sold for $78,000.On the statement of cash flows prepared using the indirect methodthe company will report:

	A.	a subtraction of $60,000 in the investing section.
	B.	an addition to net income of $18,000 in the operatingsection.
	C.	a subtraction from net income of $18,000 in the operatingsection.
	D.	an addition of $18,000 in the investing section.

2 points

Question 12

When preparing the operating section of a statement of cashflows using the indirect method, various adjustments are needed.Which of the following adjustments is incorrectly stated?

	A.	Add gains on sale of equipment.
	B.	Add to net income any increases in current liabilities.
	C.	Add to net income depreciation and amortization expense.
	D.	Deduct any increases in inventories from net income.

2 points

Question 13

In 2011 Armstrong Company sold for $76,000 cash, an asset whichhad an original cost of $204,000 and accumulated depreciation of$98,000. On the statement of cash flows prepared using the indirectmethod the company should report:

	A.	an addition to net income in the operating section of$30,000.
	B.	a subtraction from net income of $30,000 in the operatingsection.
	C.	a subtraction of $106,000 in the investing section.
	D.	an addition of $76,000 in the investing section.
	E.	Both A and D are correct.

2 points

Question 14

In 2011 Covington Company sold an asset which had an originalcost of $54,000 and accumulated depreciation of $28,000 for $15,000in cash. On the statement of cash flows prepared using the indirectmethod the company should report:

	A.	an addition to net income in the operating section of$11,000.
	B.	a subtraction from net income in the operating section of$11,000.
	C.	a source of cash of $15,000 in the investing section.
	D.	a use of cash in the investing section of $39,000.
	E.	Both a and c are correct.

2 points

Question 15

Henry Company's statement of cash flows indicated a $52,000decrease in cash during the year. The statement also indicated that$63,000 was provided by operating activities and $71,000 was usedby investing activities. How much are net cash used by financingactivities?

	A.	$86,000
	B.	($44,000)
	C.	$42,000
	D.	$40,000

2 points

Question 16

Which of the following would be an example of a cashequivalent?

	A.	Notes receivable.
	B.	Accounts receivable.
	C.	Money market funds.
	D.	Investment in GMC stock.

2 points

Question 17

Carte Company reported cost of goods sold for $100,000 anddepreciation expense totaling $7,000. On January 1, Carte hadinventory and accounts payable of $21,000 and $24,000,respectively. On December 31, inventory and accounts payable were$28,000 and $20,000, respectively. Net income is $60,000. Beginningaccounts receivable was $13,000 and ending was $12,000. How muchare the cash flows from operating activities using the indirectmethod?

	A.	$57,000
	B.	$50,000
	C.	$65,000
	D.	$77,000

2 points

Question 18

The statement of cash flows is typically used to determine if acompany can:

	A.	generate enough cash to pay cash dividends to stockholders.
	B.	generate enough cash to pay an increase in employees wages.
	C.	generate enough cash to acquire another company.
	D.	generate enough cash to buy equipment.

2 points

Question 19

Cash flows related to buying and selling long-term assets areclassified as:

	A.	financing activities.
	B.	investing activities.
	C.	non-cash activities.
	D.	operating activities.

2 points

Question 20

Given the following information, what amount of cash wascollected from customers during 2012? All sales are on account.

	2011	2012
Accounts receivable	$ 800,000	$ 580,000
Sales	3,100,000	3,250,000

	A.	$2,880,000
	B.	$3,620,000
	C.	$2,670,000
	D.	$3,470,000

2 points

crimsonshark725

Which of the following characteristics may result in theclassification of a liability being changed from current tononcurrent:

a) violation of a subjective acceleration clause

b) violation of a objective acceleration clause

c) a demand provision for payment

d) refiancing after the balance sheet date

Pending litigation would generally be considered:

a) nonmonetary liabilty

b) contingent liability

c) estimated liability

d) current liability

Barrons Co. current ratio is 2:1. Which of the followingtransactions would normally increase Barney's current ratio?

a) purchasing inventory on account

b) borring money by signing a long-term note

c) collecting an account receivable

d) purchasing land for cash

On multiple step income statement, gains or losses on sale ofequipment would be shown

a) before gross profit on sales

b) after gross profit on sales but before income from conitnuingoperations

c) after income from continuing operations but before incomefrom extraordinary items

d) after income before extraordinary items but before netincome

A single step income statement is a format that

a) compares the current years income with last year's income

b) recongnizes subtotals at intermediate stages such as grossmargin

c) combines revenues and gains and subtracts from them expensesand losses, resulting in income from operations

d) reports sales revenue, cost of goods sold, gross margin, andall other expenses

In contrast with a multiple-step income statement, a single stepincome statement does NOT show the amount of

a) income taxes on continuing operations

b) cost of goods sold

c) gross profit

d) earnings per share

The amount of income reported for tax purposes

a) is nomally greater than the net income reported tostockholders

b) must be computed according to GAAP

c) is used to compute earnings per share

d) may differ from the amount of income detemined for financialreporting purposes

Under the general rule of revenue recognition, revenue isrecognized when

a) marketability and market price are assured

b) a contractual agreement exists, and cash collection isassured

c) the earnings process is complete, and a valid promise ofpayment has been received

d) all related expenses have been incurred

Seaworth Company's gross sales in 2014 were 3930000. Assumingsales returns and allowances were 74000 sales discounts were 35000and freight-out was 28000 what were Seaworthy's net sales in2014?

a) 3792000

b) 3821000

c)3856000

d) 3930000

On June 30, 2014 Sonata COmpanys operating facilities inNebraska were detroyed by a flood. The loss of $700000 was notcovered by insurance. Sonata's tax rate for 2014 is 40 percent. InSonatas income statement for the year ended sept 30 2014 this eventshould be reported as an extraordinary loss of

a) 0

b) 280000

c) 420000

d) 700000

In a statement of cash flows, payments to acquire debtinstruments of other entities would typically be classified as cashoutflows for

a) financing activities

b) equity activities

c) operating activities

d) investing activities

A gain on the sale of a plan asset in the ordinary course ofbusiness should be presented in a staement of cash flows preparedusing the indirect method as

a) a cash inflow from investing activities

b) a cash inflow from financing activities

c) a deduction from net income

d) a addition to net income

In a statement of cash flows, proceeds from issuing equityinstruments should be classified as cash inflows from

a) brokerage activities

b) financing activities

c) investing activites

d) operating activities

When preparing a statement of cash flows using the indirectmethod, the amortization of trademarks should be reported as a

a) increase in cash flows from investing activities

b) reduction in cash flows from investing activities

c) increase in cash flows from operating activities

d) reduction in cash flows from operating activites

A loss in the sale of machinery in the ordinary course ofbusiness should be presented in a statement of cash flows( indirectmethod) as

a) an addition to net income

b) a deduction from net income

c) an inflow and outflow of cash

d) an outflow of cash

In preparing a statement of cash flows, which of the followingtransactions would be considered an investing activity?

a) sale of a business segment

b) Issuance of bonds payable at a discount

c) purchase of treasury stock

d) sale of capital stock

In a statement of cash flows (indirect method), depreciation istreated as an adjustment to reported net income becausedepreciation

a) is an inflow of cash to reserve account for assetreplacement

b) reduces the reported net income and involves an inflow ofcash

c) reduces the reported net inome but does not involve anoutflow of cash

d) usually represents a significant portion of operatingexpense

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AC 211 Lecture Notes - Lecture 5: Retained Earnings, Income Statement, Accrual

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