At January 1, Year 1, a sole proprietorship's assets totaled U`? $710, 900, and its liabilities amounted to US $120, 000_ During Year 1, owner investments amounted to US $72, 000, and owner withdrawals totaled US $75, 000. At December 31, Year 1, assets totaled US $270, 000 and liabilities amounted to US $171, 000. The amount of profit for Year 1 was
Answer(s): D
Profit or loss may be d +ivy )1 using the basis a canting equationassets = liabilities + equity). Equity at 1/1/Yr 1 was US $90, 000$210, 000 of liabilities). Equity at 12/31/Yr 1 was US $99, 000$270, 000 $171, 000). Because owner transactions decreased assets by US $3, 000$72, 000 Investment- $75, 000 withdrawals), profit must have been US $12, 000 [$99, 000 -$90, 000 - $3, 000)].
An entity has a 50% gross margin, general and administrative expenses of US $50, interest expense of US $20, and profit of US $10 for the year just ended_ If the corporate tax rate is 50%, the level of sales for the year just ended was
Profit equals sales minus cost of sales, GSA expenses, interest, and tax. Given a 50% tax rate, profit before tax must have been US $20 [$10 profit -1_0 - 5 tax rate)]. Accordingly, profit before interest and tax must have been US $40$20 profit before tax + $20 interest), and the gross marginsales - cost of sales) must have been US $90$40 profit before interest and tax + $50 G&A expenses). If the gross margin is 50% of sales, sales equals US $180$90 gross margin - .5).
Which combination below explains the impact of credit card interest incurred and paid during the period on1) equity on the balance sheet and2) the statement of cash flows?
Answer(s): B
Interest incurred is classified as interest expense on the income statement, which in turn reduces equity on the balance sheet by reducing retained earnings. Cash payments for interest made by an entity that is not a financial institution may be classified on the statement of cash flows as an outflow of cash from operating or financing activities.
A reader of a statement of cash flows wishes to analyze the major classes of gross cash receipts and gross cash payments from operating activities. Which methods of reporting cash flows from operating activities will supply that information?
The statement of cash flows may report cash flows from operating activities in either an indirect or a direct format. The direct format reports the major classes of operating cash receipts and cash payments as gross amounts. The indirect presentation adjusts profit or loss to the same amount of net cash from operating activities that would be determined in accordance with the direct method. To arrive at this amount, the indirect method adjusts profit or loss for the effects of noncash transactions, deferrals or accruals of past or future operating cash flows, and income or expense related to financing or investing activities.
In the statement of cash flows, the payment of cash dividends appears in the <List A} activities section as a <List B- of cash.
Dividends paid may be treated as a cash outflow from financing activities because they are a cost of obtaining resources from owners. However, they may also be treated as operating items to help determine the entity's ability to pay dividends from operating cash flows.
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