In the direct method statement of cash flows, the primary component of investing cash flow is typically
Answer(s): C
Capital expenditures for long-term assets such as plant and machinery are usually the primary component of investing cash flow.
Items reported as prior-period adjustments
Prior-period adjustments are made for the correction of errors. All the effects of errors on prior-period financial statements are reported as adjustments to beginning retained earnings for the earliest period presented in the retained earnings statement.
Which of the following is/are true about computation of Basic EPS?
Answer(s): A
Weighted average shares used in EPS computations are calculated using the following rules:1. Reacquired shares are excluded from the date of acquisition.2. Shares issued in the purchase of assets are included from the date of issuance.3. Shares issued in mergers are assumed to have been outstanding for all periods for which EPS numbers are presented.
At December 31, 1996, Davis Inc. awaits judgment on a lawsuit for a competitor's infringement of Davis' patent. Legal counsel believes it is probable that Davis will win the suit and indicated the most likely award together with a range of possible awards. How should the lawsuit be reported in Davis' 1996 financial statements?
A loss contingency is recognized but not a gain contingency following the principle of conservatism. A gain contingency is only disclosed in the notes until the settlement is realized.
A firm is purchased for more than the fair market value of its assets. The excess is:
Answer(s): B
Goodwill is defined as the price paid in excess of the fair market value of the assets of the target firm.
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