Which of the following is/are true under accrual accounting?
Answer(s): B
With accrual accounting expenses are recognized when they are incurred, not when the cash is disbursed.
In January 1996, Weber Co. purchased a mineral mine for $2,640,000 with removable ore estimated at 1,200,000 tons. After it has extracted all the ore, Weber will be required by law to restore the land to its original condition at an estimated cost of $180,000. Weber believes it will be able to sell the property afterwards for $300,000. During 1996, Weber incurred $360,000 of development costs preparing the mine for production and removed and sold 60,000 tons of ore. In its 1996 income statement, what amount should Weber report as depletion?
Answer(s): E
The depletion base is the purchase price of the land ($2,640,000), minus the value of the land after restoration $120,000 ($300,000 -180,000), plus any costs necessary to prepare the property for the extraction of ore ($360,000). The depletion charge is $2.40 per ton ($2,640,000 -120,000 + 360,000) / 1,200,000 tons).Therefore, the firm should report $144,000 ($2.40 X 60,000 tons) as 1996 depletion expense.
If a firm's profit margin increases by 8%, the debt-to-equity ratio increases from 35% to 55% and its asset turnover falls by 20%, the effect on its ROE is ________.
Answer(s): C
ROE = net income/equity = (net income/sales)*(sales/assets)*(assets/equity) = (profit margin)*(asset turnover)* (1+debt/equity) The original assets/equity = 1 + 0.35 = 1.35 and the changed assets/equity = 1.55. Therefore, the change in ROE equals (1+8%)*(1-20%)*1.55/1.35 = 0.992. Thus, ROE falls by 0.8%.
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 operating activities is ________.
Answer(s): A
60,000 + 4000(depreciation) - 2,000 (receivables) + 1,000 (deferred taxes) +2,500 (dividends received)
Which of the following would not be reported as an extraordinary item?
An item must be both unusual and infrequent (and material in amount) to be classified as extraordinary.
Post your Comments and Discuss CFA CFA I exam prep with other Community members:
Our website is free, but we have to fight against AI bots and content theft. We're sorry for the inconvenience caused by these security measures. You can access the rest of the CFA I content, but please register or login to continue.