QUESTION: 1897

According to GAAP classification of cash flows, all of the following are investing cash flows except:

purchase of an office building.
gains on asset sales.
dividends received from investments in stocks.
takeovers financed partly with cash.

Answer(s): C

Explanation:

Dividends received from stock investments are considered operating cash flows while dividends paid on equity are considered financing cash flows.

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QUESTION: 1898

Stock splits have the following effects on the financial statements except:

the account title for common stock changes to reflect the change in the par value of stock
contributed capital and retained earnings are unchanged
disclosures about the stock on the balance sheet are changed to reflect the additional outstanding shares and the revised par value per share
the shareholder's percentage interest in the corporation is changed by the percentage change in the market value of the stock

Answer(s): D

Explanation:

The shareholder's percentage interest in the corporation is unchanged.

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Hupta Corporation reports cost of goods sold for the year ended December 31, 1998 of $3,500. Other information as of December 31 is as follows:

1997 1998

Accounts Receivable $500 $550
Inventory $400 $380
Accounts Payable $250 $290

Cash paid to suppliers for year ended December 31, 1998 is ________.

$3,520
$3,480
$3,440
$3,560

Answer(s): C

Explanation:

An increase in accounts payable shows that $40 less than the $3,480 of purchases ($3,500 COGS + (20) change in inventory) was paid: $3,480 - $40 = $3,440.

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QUESTION: 1900

A firm using LIFO accounting has a LIFO reserve of 600, with a LIFO ending inventory of 4,900. It is currently in the 40% tax bracket. If it switches to FIFO accounting, it's equity ________.

decreases by 240
decreases by 360
increases by 360
increases by 240

Answer(s): C

Explanation:

The presence of a LIFO reserve implies that by following LIFO, the firm has been able to deduct higher COGS from gross income than under FIFO (remember that LIFO reserve equals inventory value under FIFO minus inventory value under LIFO and this will be positive when the COGS under FIFO is lower than that under LIFO).
thus, the retained earnings (and hence equity) is understated by LIFO Reserve*(1 - tax rate). Therefore, when the firm switches from LIFO to FIFO, the equity is increased by 600*(1 - 0.4) = 360.

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QUESTION: 1897

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QUESTION: 1898

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QUESTION: 1899

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QUESTION: 1900

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