Which of the following would affect both net income and cash flow from operations?
Answer(s): D
The sale of a marketable security falls under an investing activity. Interest payments fall under financing activities. Credit sale to a customer doesn't apply.
A firm has 400 preferred stocks outstanding. It started the year with 900 common stocks and over the year, had the following transactions:Feb 15 Issued 300 common shares.May 1 Redeemed 100 preferred shares.Aug 15 Repurchased 150 common shares.Nov. 30 Issued 400 common shares.In the calculation of EPS, the number in the denominator would be closest to:
Answer(s): B
The number of preferred stocks is not relevant in the calculation of the denominator of simple EPS. It had 900- 150 = 750 shares for 12 months, 150 shares for 7.5 months (repurchased in Aug), 300 shares for 10.5 months (issued in Feb) and 400 shares for 1 month (issued in Nov). Hence, weighted # of shares = 750 + (7.5/12*150) + (10.5/12*300) + (1/12*400) = 1,139.6
What should an analyst look for when evaluating a firm's cash and cash equivalent position that would cause the firm's cash position to be less liquid?
Companies may have restrictions place upon the disposition of the cash position. For example, a firm may maintain cash equivalents that are earmarked for plant expansion, sinking fund payments, or legally restricted compensation balance requirements. A careful review of the firm's operations must be undertaken to uncover any cash or cash equivalents that are restricted from use in the general operation of the business.
The correction of an error in the financial statements of a prior-period should be reported, net of applicable income taxes, in the current
Answer(s): E
Accounting rules require that prior-period adjustments due to a correction of an error cannot be reported on the current year income statement because they do not affect this year's operations. They are shown as an adjustment to the opening balance of retained earnings.
The deferred income tax account
The difference between income tax expense (based on accounting income) and the actual income taxes payable (based on taxable income) is reconciled in an account called deferred income taxes.
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