Question : 101. A firm sold an investment in securities available for sale : 1245794

 

 

101. A firm sold an investment in securities available for sale originally costing $30,000, for $28,000. At the beginning of the year, the investment had a valuation allowance of $3,000, debit. What is the correct disclosure for these events in the statement of cash flows prepared under the direct method, assuming this is the only investment in securities available for sale? 
A. $28,000 investing cash inflow; add $33,000 in the reconciliation of earnings and net operating cash flow
B. $28,000 investing cash inflow; add $2,000 in the reconciliation of earnings and net operating cash inflow
C. $28,000 investing cash inflow; add $5,000 in the reconciliation of earnings and net operating cash inflow
D. Add $5,000 in the reconciliation of earnings and net operating cash flow.
E. None of these answers is correct.

 

102. At the beginning of the year, a firm leased equipment on a capital lease, capitalizing $60,000 in its lease receivable account. The contract calls for December 31 payments of $15,000. The lessor’s annual reporting period ends December 31 and the contract reflects 10% interest. The lessee made the first payment as required. The direct method statement of cash flows for the lessor should reflect which of the following in the first year of the lease contract (ignore noncash disclosures)? 
A. $6,000 operating cash flow; $9,000 investing cash flow
B. $15,000 operating cash flow
C. $6,000 operating cash flow; $9,000 addition reconciling adjustment
D. $9,000 investing cash flow
E. None of these answers is correct.

 

103. Under the direct method, cash paid to suppliers can be computed as cost of goods sold for the period 
A. plus an increase in inventory and minus an increase in accounts payable.
B. plus a decrease in inventory and minus an increase in accounts payable.
C. minus an increase in inventory and plus an increase in accounts payable.
D. minus a decrease in inventory and plus an increase in accounts payable.
E. None of these answer choices is correct.

 

104. During Year 3, investors in bonds of Kline Corporation exercised their option to convert their debt securities into shares of common stock. The entry made in the accounting records to record the conversion is as follows:

Bonds Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000
             Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000
             Additional Paid-in Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . .2,000

The transaction requires 
A. inclusion in the statement of cash flows as an operating activity, only.
B. inclusion in the statement of cash flows as an investing activity, only.
C. inclusion in the statement of cash flows as a financing activity, only.
D. disclosure in a supplementary schedule or notes to the financial statements.
E. disclosure in managements’ discussion and analysis.

 

105. The extent to which a firm adjusts net income for changes in noncurrent assets and noncurrent liabilities in deriving cash flow from operations depends on the nature of its operations. _____ will usually show additions or subtractions for losses and gains on the disposal of assets.  
A. Firms that have decreased earnings
B. Firms that increase in size
C. Firms that decrease in size
D. Firms that have increased earnings
E. Service firms

 

106. The adjustment for changes in operating working capital accounts depends in part on a firm’s rate of growth. _____ firms usually experience significant increases in accounts receivable and inventories.   
A. Introduction phase
B. Late maturity
C. Declining
D. Mature
E. Rapidly growing

 

107. The extent to which a firm adjusts net income for changes in noncurrent assets and noncurrent liabilities in deriving cash flow from operations depends on the nature of its operations.  Some firms use _____ to finance the working capital needs.  
A. suppliers
B. equity financing
C. short-term borrowing
D. long-term borrowing
E. all of the above

 

108. The product life-cycle concept from microeconomics and marketing provides useful insights into the relations among cash flows from operating, investing, and financing activities. During the _____ cash outflow exceeds cash inflow from operations because operations are not yet earning profits while the firm must invest in accounts receivable and inventories. Investing activities result in a net cash outflow to build productive capacity. Firms must rely on external financing during this phase to overcome the negative cash flow from operations and investing.  
A. introduction phase
B. growth phase
C. mature phase
D. late maturity phase
E. decline phase

 

109. The product life-cycle concept from microeconomics and marketing provides useful insights into the relations among cash flows from operating, investing, and financing activities. The _____ phase reflects sales of successful products, and net income turns positive. The firm makes more sales, but it also needs to acquire more goods to sell. Because it usually must pay for the goods it acquires before it collects for the goods it sells, the firm finds itself often short of cash from operations. The faster it grows (even though profitable), the more cash it needs. Banks do not like to lend for such needs. They view such needs (even though for current assets) as a permanent part of the firm’s financing needs. Thus, banks want firms to use shareholders’ equity or long-term debt to finance growth in nonseasonal inventories and receivables.  
A. introduction
B. growth
C. mature
D. late maturity
E. decline

 

110. The product life-cycle concept from microeconomics and marketing provides useful insights into the relations among cash flows from operating, investing, and financing activities. During the _____, net income usually reaches a peak, and working capital stops growing. Operations generate positive cash flow, enough to finance expenditures on property, plant, and equipment. Capital expenditures usually maintain, rather than increase, productive capacity. Firms use the excess cash flow to repay borrowing from the introduction and growth phases and to begin paying dividends to shareholders.  
A. introduction phase
B. growth phase
C. mature phase
D. late maturity phase
E. decline phase

 

 

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