The following data were extracted from the financial statements of a company for the year ended December 31.
Answer(s): A
Depreciation and amortization are noncash expenses and are added to profit A decrease in receivables indicates that cash collections exceed sales on an accrual basis, so it is added to profit. To account for the difference between cost of goods solda deduction from profit) and cash paid to suppliers, a two-step adjustment of profit is necessary. The difference between CGS and purchases is the change in inventory. The difference between purchases s and the amount paid to suppliers is the change in accounts payable. Accordingly, the conversion of .s to cash paid to suppliers requires deducting the inventory increase and adding the accounts payable increase. An increase in plant assets indicates an acquisition of plant assets, causing a decrease in cash, so it is deducted. An increase in share capital represents a cash inflow and is added to profit A decrease in short-term notes payable is deducted from profit because it reflects a cash outflow. Thus, cash increased by US $11.000$70, 000 profit + $14, 000 + $1.000 + $2, 000 - $9, 000 + $4.000 - $47.000 T $31.000 - $55, 000}.
A newly acquired plant asset is to be depreciated over its useful life. The rationale for this process is the
Answer(s): D
A basic feature of financial accounting is that the entity is assumed to be a going concern in the absence of evidence to the contrary. The going concern concept is based on the empirical observation that many entities have an indefinite life. The reporting entity is assumed to have a life long enough to fulfill its objectives and commitments and therefore to depreciate wasting assets over their useful lives.
Assuming all of the following involve material amounts, which is most likely to be classified as an extraordinary item in the income statement?
According to IAS 1, An entity shall not present any items of income and expense as extraordinary items, either on the face of the income statement or in the notes."
An extraordinary gain occurs in the second fiscal quarter. How should the gain be accounted for?
Gains and losses similar to those that would not be deferred at year-end should not be deferred to later interim periods of the same year. Hence, the extraordinary gain should not be prorated. However, no items of income or expense are presented as extraordinary on the income statement or in the notes
RLF Corporation had profit before taxes of US $60, 000 for the year. Included in this amount were depreciation of US $5, 000. a charge of US $6, 000 for the amortization of bond discounts, and US $4, 000 for interest expense. The estimated cash flow for the period is
To determine cash flow for the period, all noncash expenses should be added back to profit. Adding the US $5, 000 of depreciation and the US $6, 000 of discount amortization to the US $60, 000 of profit produces a cash flow of US $71, 000.
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