Question : 61. In preparing the statement of cash flows for Year 4, : 1245810

61. In preparing the statement of cash flows for Year 4, internal records indicate that depreciation on manufacturing facilities totaled $800. The firm included this amount in cost of goods sold in the income statement for Year 4. None of the of depreciation required an operating cash flow during Year 4. The T-account work sheet entry adds back the $800 of depreciation on manufacturing facilities. Accountants treat depreciation charges on manufacturing facilities as 
A. a period expense.
B. an opportunity cost.
C. a product cost.
D. a cost of capital.
E. a marginal cost.

62. Notes to the Year 2 financial statements of Care Corporation indicate that income tax expense of $3,000 comprises $2,000 currently payable taxes and $1,000 deferred to future periods. Care Corporation made the following entry during Year 2 to recognize income tax expense:

Income Tax Expense . . . . . . . . . . . . . . 3,000
          Income Tax Payable . . . . . . . . . . . . . . . . . . . . . . . . 2,000
          Deferred Income Taxes Payable . . . . . . . . . . . . . . . 1,000

The $1,000 of deferred income taxes reduced net income but did not require a cash outflow during Year 2. To explain the change in the Deferred Income Taxes account, the T-account work sheet must. 
A. subtract deferred income taxes from net income to derive cash flow from operations.
B. add back deferred income taxes to net income to derive cash flow from operations.
C. add back deferred income taxes to net income to derive cash flow from financing.
D. subtract deferred income taxes from net income to derive cash flow from financing.
E. add back deferred income taxes to net income to derive cash flow from investing. 

63. Bonds Payable on the balance sheet of Michael LLC includes one series of bonds initially issued at a premium. The entry made in the accounting records for interest expense during the period was as follows:

Interest Expense . . . . . . . . . . . . . . . . .4,500
Premium on Bonds Payable . . . . . . . . . . 500
         Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000

The firm spent $5,000 of cash even though it subtracted only $4,500 of interest expense in computing net income. In preparing the statement of cash flows using the T-account work sheet 
A. subtract an additional $5,000 from net income to derive cash flow from operations.
B. subtract an additional $4,500 from net income to derive cash flow from operations.
C. subtract an additional $500 from net income to derive cash flow from operations.
D. add an additional $500 from net income to derive cash flow from operations.
E. add an additional $4,500 from net income to derive cash flow from operations.

64. Dominick Inc.

The accounting records of Dominick Inc. indicate that the firm sold for $1,800 during Year 2 a machine originally costing $6,000, with accumulated depreciation of $4,600. The journal entry made to record this sale was as follows:

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,800
Accumulated Depreciation. . . . . . . . . . . . . . . . . . . . . . .4,600
     Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000
     Gain on Disposal of Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . 400

(Use the information about Dominick Inc. to answer this question.) In preparing the statement of cash flows using the T-account worksheet, the accountant 
A. subtracts the $400 gain from net income in computing cash flow investment activities.
B. adds the $400 gain to net income in computing cash flow from investment activities.
C. subtracts the $400 gain from net income in computing cash flow from operations.
D. adds the $400 gain to net income in computing cash flow from operations.
E. adds the $400 gain to retained earnings in computing cash flow investment activities.

65. Dominick Inc.

The accounting records of Dominick Inc. indicate that the firm sold for $1,800 during Year 2 a machine originally costing $6,000, with accumulated depreciation of $4,600. The journal entry made to record this sale was as follows:

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,800
Accumulated Depreciation. . . . . . . . . . . . . . . . . . . . . . .4,600
     Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000
     Gain on Disposal of Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . 400

(Use the information about Dominick Inc. to answer this question.) In preparing the Statement of cash flows, all the cash proceeds of $1,800 appear as an increase in cash from 
A. a financing activity.
B. an investing activity.
C. an operating activity.
D. an exchange activity.
E. none of the above

66. The balance sheet indicates that Paul Corporation owns 40 percent of the common stock of Sun Company. During Year 2, Sun Company earned $12,000 and paid $4,000 of dividends. Paul Corporation made the following entries on its books during the year.

Investment in Company B . . . . . . . . . . . . . . . . . . . . .  4,800
      Equity in Earnings of Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . 4,800

Net income of Paul Corporation includes $4,800 of equity income. It received only $1,600 of cash.

The T-account work sheet for preparing the statement of cash flows
 
A. adds $3,200 to net income in deriving cash from operations.
B. subtracts $1,600 from net income in deriving cash from operations.
C. adds $1,600 to net income in deriving cash from operations.
D. subtracts $3,200 from net income in deriving cash from operations.
E. adds $3,200 to retained earnings in deriving cash from investing.

67. The accounting records of Calli Inc. indicate that the firm sold for $1,800 during Year 2 a machine originally costing $6,000, with accumulated depreciation of $4,600. The journal entry made to record this sale was as follows:

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1,800
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . 4,600
Loss on Disposal of Equipment . . . . . . . . . . . . . . . . . . . .   400
     Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000

In preparing the statement of cash flows using the work sheet, the accountant. 
A. adds the $400 loss to net income in computing cash flow from operations.
B. subtracts the $400 loss from net income in computing cash flow from operations.
C. adds the $400 loss to net income in computing cash flow from investing activities.
D. subtracts the $400 loss from net income in computing cash flow investing activities.
E. subtracts the $400 loss from retained earnings in computing cash flow investing activities.

68. Prepayments for Julianna Company decreased by $2,000 during Year 3, the firm expensed less cash during Year 3 for new prepayments than it expensed prepayments of earlier years. Assume that all prepayments relate to selling and administrative activities. The journal entries that Julianna Corporation made in the accounting records during the year had the following combined effect:

Selling and Administrative Expenses . . . . . . . . . . . . . . 35,500
       Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  33,500
       Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000

To explain the change in the statement of cash flows T-account work sheet for Prepayments 
A. add back $33,050 to net income.
B. add back $2,000 to net income.
C. subtract $2,000 from net income.
D. subtract $33,500 from net income.
E. subtract $2,000 from retained earnings.

69. During Year 6, Delta Company had a net $4,000 increase in customer advances. The T-account work sheet for preparing the statement of cash flows 
A. subtracts this excess from net income in deriving cash flow from operating activities.
B. adds this excess to net income in deriving cash flow from financing activities.
C. adds this excess to net income in deriving cash flow from operating activities.
D. subtracts this excess from net income in deriving cash flow from financing activities.
E. subtracts this excess from retained earnings in deriving cash flow from operating activities.

70. On a statement of cash flows prepared using the direct method, cash paid for income taxes would be income tax expense minus 
A. an increase in income taxes payable.
B. a decrease in income taxes payable.
C. beginning income taxes payable.
D. ending income taxes payable.
E. None of these answers is correct.