QUESTION: 1773

Which of the following is used to calculate the actual adjustment for bad debt expense for the period?

percent of accounts receivable
percent of net sales
aging
all of these answers

Answer(s): B

Explanation:

The aging and percent of Accounts Receivable methods calculate what the balance of the allowance account should be, however, percent of net sales method calculates the actual expense for the period.

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MacDonald Inc. reported net income of $300,000 for 1996. Changes occurred in several balance sheet accounts as follows:

Equipment $25,000 increase
Accumulated depreciation $40,000 increase
Note payable $30,000 increase

Additional information:

During 1996, MacDonald sold equipment costing $25,000, with accumulated depreciation of $12,000, for a gain of $5,000.

In December 1996, MacDonald purchased equipment costing $50,000 with $20,000 cash and a 12% note payable of $30,000.

Depreciation expense for the year was $52,000.

In MacDonald's 1996 statement of cash flows, net cash provided by operating activities is ________.

$347,000
$357,000
$243,000
$340,000
$352,000

Answer(s): A

Explanation:

To calculate cash flows from operating activities, net income will be adjusted for noncash items and working capital. Depreciation of $52,000 is added back to net income of $300,000 and the gain on sale of equipment of $5,000 is subtracted from net income. Therefore, the net cash inflow from operating activities is $347,000.

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QUESTION: 1775

The following data are available for a firm for a given year:

Net Sales 21,896
Sales & marketing expenses 4,346
Administrative expenses 2,143
COGS 10,084
Depreciation 967
Interest expense 573
Tax rate 35%
Dividends paid 3,445
Preferred Dividends 897
Average total equit y37,432
Average common equity 26,782
Average total liabilities 18,583

In the above example, the firm's return on total equity equals ________.

8.31%
4.22%
6.57%
5.91%

Answer(s): C

Explanation:

Return on total equity = Net income/average total equity. In the above example, Net Income = Earnings after depreciation, interest expense and taxes = (21,896 - 4,346 - 2,143 - 10,084 - 967 - 573)*(1 - 0.35) = 2,459.
Therefore, Return on total equity = 2,459/37,432 = 6.57%.

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QUESTION: 1776

In the country of Merlenia, authorities require that tax reports and financial reports be identical. In Merlenia, there will be:

no recognition of deferred taxes.
a prevalence of LIFO accounting.
no advantage to capitalizing a lease.
no off-Balance-sheet financing.

Answer(s): A

Explanation:

Deferred taxes arise out of temporary differences between tax reports and financial statements. To account for such differences under accrual accounting, deferred tax assets or liabilities are generated in accordance with the Matching Principle.

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Free CFA-Level-I Exam Braindumps (page: 444)

QUESTION: 1773

Explanation:

QUESTION: 1774

Explanation:

QUESTION: 1775

Explanation:

QUESTION: 1776

Explanation: