QUESTION: 1693

According to U.S. GAAP, the format of the income statement

must include footnotes which detail particular income statement sections.
must not vary across different industries.
must include an "operating expenses" section.
must be identical in the reporting of equity in earnings of affiliates.
is not specified.

Answer(s): E

Explanation:

F. S. GAAP do not specify the format of the income statement. Actual formats vary across firms, especially in the reporting of equity in earnings of affiliates, and nonoperating income and expense.

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QUESTION: 1694

If a firm's net income after dividends is greater than zero, then

its equity increases.
II. its retained earnings increase.
III. its liabilities decrease.
IV. its stock price increases.
I, II & IV
I & IV
I & II
II only

Answer(s): C

Explanation:

The income not paid out as dividends becomes part of retained earnings, which is a component of equity. A firm's market value is not determined solely by its current book value but expected future earnings. If the current period's income falls short of expectations, then the stock price will fall even if nothing else changes simply because the unrealized part of the income was factored into the original price. A further complication arises if the market interprets the fall in income as an unfavorable signal about future earnings. Thus, while book value of the stock increases, the market value could increase or decrease.

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QUESTION: 1695

The following information should be used according to the provisions of SFAS 95 (Statement of Cash flows) and using the following data.

Net Income $50,000
Provision for bad debts $2,000
Increase in Inventory $1,000
Increase in accounts payable $2,000
Purchase of new equipment $15,000
Sale of equipment for $10,000 gain $20,000
Depreciation expense $5,000
Repurchase of common stock $10,000
Payment of dividend $4,000
Interest payment $3,000

What is net cash flow from financing?

$6,000
($17,000)
$3,000
($14,000)

Answer(s): D

Explanation:

($14,000) = ($10,000) for repurchase of stock and ($4,000) for payment of dividend

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QUESTION: 1696

Which of the following could cause a firm's equity position to be weaker than is reflected in the balance sheet.

All of these answers.
Holding held-to-maturity securities in a portfolio with non-amortized discounts.
Holding available-for-sale securities in a portfolio that have unrealized losses.
None of these answers.
Holding trading securities in a portfolio with unrealized gains.

Answer(s): C

Explanation:

Evaluating available-for-sale securities in a portfolio can be challenging to the analyst. A firm might hold a variety of securities in a portfolio for which the unrealized gains of one or more securities offsets the unrealized losses of other securities. While these values offset each other, the security that has an unrealized loss might be a high-grade investment that is not subject to much fluctuation. On the contrary, the securities that have unrealized gains might be highly volatile securities that were at all time highs at the close of the firm's fiscal period but will these gains be sustainable? It is conceivable then that the firm's equity position might be a bit weaker that the balance sheet suggests.

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QUESTION: 1693

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QUESTION: 1694

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QUESTION: 1695

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QUESTION: 1696

Explanation: