Below is an example of an incorrectly prepared statement of cash flows. The descriptions of activities are correct.Cash from operating activities $60,000Net Income (4,000)Depreciation (2,000)Increase in accounts receivable (1,000)Increase in deferred tax liability $53,000Cash from investing activities ($48,000)Purchase of marketable securities 2,500Dividends received 1,500Dividends paid ($44,000)Cash from financing activities (500)Increase in Short-term debt (2,500)Increase in Long-term debt ($3,000)Increase in cash $6,000The correct Cash flows from investing activities is ________.
Answer(s): D
The dividends received is an operating activity and the dividend paid is a financing activity.
In 1994, Butler Inc. issued $10 par value common stock for $25 per share. No other common stock transactions occurred until March 31, 1996, when Butler acquired some of the issued shares for $20 per shareand retired them. Which of the following statements correctly states an effect of this acquisition and retirement?
Answer(s): B
When common shares are reacquired and retired, common stock par value is decreased by $10 per share and additional paid-in capital is decreased by $15 per share, cash is decreased by $20 per share, and $5 per share increases additional paid-in capital. Accounting rules do not allow a firm to record a gain or loss when it buys back treasury stock because the transaction is viewed as an equity transaction. Therefore, the effect is to decrease additional paid-in capital.
A liability can be recognized when
Answer(s): A
The amount need not be certain and some future payments such as wages to be paid in the future may not be reported as liabilities.
A firm had an operating cash flow of 4,500, financing cash flow of 1,200 and an investing cash flow of -900. The firm has announced common stock dividends of 45 and preferred stock dividends of 23. If the outlays for maintenance of current capacity is 310, the firm's free cash flow equals ________.
Answer(s): C
FCF = Cash from operations - outlays for maintenance of current capacity - dividends declared. In this case, FCF = 4,500 - 310 - 45 - 23 = 4,122.
A firm using LIFO accounting has a LIFO reserve of 500, with a LIFO ending inventory of 2,300. It is currently in the 35% tax bracket. If it switches to FIFO accounting, its ending inventory would be reported at ________.
LIFO Reserve = FIFO Ending inventory value - LIFO Ending inventory value Therefore, 500 = FIFO Ending inventory value - 2,300, giving the value of the ending inventory under FIFO = 2,800.
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