QUESTION: 1781

Tracy company reports the following in its statement of cash flows:

Net Income $1,000
Depreciation and Amortization 350
Decrease (Increase) in Accounts receivable (10)
Decrease (increase) in inventory 200
Decrease (increase) in prepaid expenses 80
Increase (decrease) in trade payables (300)

Increase (decrease) in taxes payable 75
Cash Flow from operations 1,395

If Tracy shows cost of goods sold of $2,050 on its income statement, cash paid to suppliers is

$2,650
$1,550
$1,950
$2,150

Answer(s): D

Explanation:

$2,050 - $200 (purchased $200 less than used) + 300 (paid more to suppliers.

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QUESTION: 1782

Which of the following statements about the cash flow statement is/are true?

The cash flow statement provides information on the liquidity of the firm.
II. The income statement is more susceptible to management manipulation than the cash flow statement.
III. The cash flow statement serves as a check on the inherent assumptions of the income statement.
IV. The cash flow statement is based on actual events while the income statement is based on the allocation of the effects of these events over time.
I & III
I, II, III & IV
I, II & III
II & IV

Answer(s): B

Explanation:

The cash flow statement cannot be manipulated as easily as the income statement since it is based on actual cash flows while income statement has to follow the accrual principle, which allocates non-cash expenses and revenues to the current and future periods, leaving open the avenue for earnings manipulation. For this reason, the cash flow statement acts as a check on the income statement.

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QUESTION: 1783

On Jan. 1, DataCom prepays $3,000 rent for Mar. 1, June 1, and Sept.

1. Under accrual basis accounting, what is the impact on the Feb. financial statements?

$3,000 expense
$1,000 decrease in net income
no impact
an increase to current assets of $1,000

Answer(s): B

Explanation:

In order to match expenses with revenues for the period, the cost of prepaid insurance should be allocated to each accounting period. The asset value is decreased (credit), and an expense is recognized (debit), thus decreasing net income.

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QUESTION: 1784

Stockholders' Equity is

all of these answers
the financial obligations of the company
the rights to the assets of the business once the liabilities have been met
assets plus liabilities

Answer(s): C

Explanation:

The accounting equation shows us that the Assets (Own) are equal to the Liabilities (obligations) plus the Stockholders' Equity.

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