QUESTION: 1757

Which of the following transactions will impact a company's balance sheet?

The payment of principal on a long-term loan
The sale of new common stock
Net income earned by a company
All of these answers
The purchase of equipment for cash

Answer(s): D

Explanation:

All of these answers are correct. Net income earned by a company and the sale of common stock will affect the equity of a company; the purchase of equipment for cash will affect two assets accounts (cash and long-term assets); the payment of principal of a long-term loan will affect the liabilities of a company.

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QUESTION: 1758

When preparing a statement of cash flow, one of the relationships between balance sheet changes and cash flows can be summarized as

decreases in liabilities represent net cash inflows.
increases in liabilities represent net cash outflows.
increases in assets represent net cash outflows.
decreases in assets represent net cash outflows.

Answer(s): C

Explanation:

Increases (decreases) in assets represent net cash outflows (inflows). If an asset increases, the firm must have paid cash in exchange. On the other hand, when a liability increases, the firm must have received cash in exchange.

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QUESTION: 1759

Which of the following is/are true about Goodwill?

It represents the amount paid for an acquired firm that cannot be identified with tangible assets.
II. US GAAP prohibits capitalization of Goodwill.
III. IRS does not allow amortization of Goodwill for tax purposes.
I & II
II only
I, II & III
I & III

Answer(s): D

Explanation:

Under US GAAP, Goodwill generated during acquisitions are capitalized; it does not allow capitalization of internally generated Goodwill.

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QUESTION: 1760

Each of the following are conditions that must be met if revenue is going to be recognized at the time of sale except

seller has no significant obligations for future performance to directly effect resale of product.
product return periods are less than or equal to 30 days from the time of sale.
price is substantially fixed or determinable at the sale date.
buyer pays the seller or is obligated to pay the seller (not contingent on resale).

Answer(s): B

Explanation:

Revenue can be recognized at the time of sale as long as the product returns are reasonably estimated as well as several other conditions existing. There is no definitive number of days that make the recognition possible.

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QUESTION: 1757

Explanation:

QUESTION: 1758

Explanation:

QUESTION: 1759

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QUESTION: 1760

Explanation: