QUESTION: 1685

Which of the following is/are FALSE?

Depreciation does not affect cash flows since it is a non-cash expense.
II. Depreciation does not affect the cash flow statement since it is an allocation of past investing expense.
III. Under US GAAP, companies can use different methods of depreciation for financial reporting and tax purposes.
III only
I & II
II & III
I, II & III

Answer(s): B

Explanation:

Depreciation does affect cash flows since it reduces the amount of income tax paid. Further, US firms have the latitude of choosing an accelerated method of depreciation for tax purposes and a different method (like straight-line method) for financial reporting. This flexibility has an important effect on the reported balance sheet, which has to recognize an explicit liability in the form of deferred taxes payable.

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QUESTION: 1686

In a period of falling prices, the inventory method that gives the lowest possible value for ending inventory is

FIFO
LIFO
gross profit
weighted average

Answer(s): A

Explanation:

The first-in-first-out (FIFO) method is based on the assumption that the costs of the first items acquired should be assigned to the first items sold, therefore ending inventory on hand is based on the most recent prices.

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QUESTION: 1687

The main purpose of the statement of financial position is to reflect

the market value of the firm's assets at some point in time.
the status of the firm's assets in case of forced liquidation of the firm.
items of value, debts and net worth.
none of these answers.
the firm's potential for growth in stock values in the stock market.

Answer(s): C

Explanation:

The Statement of Financial position or balance sheet presents 3 major elements: assets (items of value), liabilities (debts)), and shareholders' equity (net worth).

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QUESTION: 1688

The primary purpose of the statement of cash flows is to

provide information about a company's cash receipts and cash payments during the accounting period
measure the change in the company's assets
state the company's financial position at period-end
analyze net income during the accounting period

Answer(s): A

Explanation:

Other financial statements are used to analyze revenues, expenses, assets, liabilities, and stockholders' equity.
The statement of cash flows summarizes transactions affecting cash; it is the balance sheet that states the company's financial position at a point in time.

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QUESTION: 1685

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QUESTION: 1686

Explanation:

QUESTION: 1687

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QUESTION: 1688

Explanation: