The classification guidelines of SFAS 95 have not created problems for analysts of the cash flow statement in the following area
Answer(s): C
The classification guidelines of SFAS 95 have created problems for analysts of the cash flow statement in cash flows involving property, plant, and equipment, interest and dividends received, interest paid, noncash transactions, and differences due to some accounting methods.
The GAAP require inventory to be valued using ________.
Answer(s): A
Inventory valuation is a balance sheet consideration and is distinct from the calculation of COGS, which is an income statement item. US GAAP requires that inventory valuation be carried out using the lower of cost or market. The "cost" is determined by the inventory costing method chosen, like LIFO or FIFO. If the market value of the inventory falls below that obtained under the inventory costing method, then the firm must take a charge against the current income and "write the inventory down." Under this scenario, the basic inventory equation, Ending inventory = Beginning inventory + Purchases - COGS no longer holds. If the market price rises in the subsequent period, the firm can only write-up to the original cost of the inventory under the costing method chosen. In all periods in which there is no write-up or write-down, the basic inventory equation holds true.
Which of the following best describes a statement of shareholders equity?
Answer(s): D
The statement of shareholders equity reports changes in component accounts that comprising equity of a firm.This statement is useful in identifying reasons for changes in shareholders' claims on the assets of a company.
New Gestalt, Inc., a software firm had a net income of 1.7 million last year. It has 200,000 common shares and 300,000 convertible bonds with face value of 100 outstanding. The convertible bonds carry a coupon of 4% and can be converted one-for-one. The average stock price last year was 39 and the maximum price was 57. The effective interest rate on the convertible debt is 8%. New Gestalt issued 100,000 preferred shares with face value 100 and a coupon of 5% on March 31st of last year. Assume the convertible bonds are dilutive and that New Gestalt faces a 30% tax rate. The number of shares used in Basic EPS equals ________.
Basic EPS considers only the weighted number of common stock outstanding. Therefore, number of shares used in Basic EPS = 200,000.
According to GAAP classification of cash flows, all of the following are financing cash flows except:
Answer(s): B
Interest payments and receipts are classified as operating cash flows.
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