Which of the following is/are true about straight-line depreciation?
Answer(s): D
With accelerated depreciation methods, the depreciation expense gets lower than that in the case of straight line depreciation, leading to higher taxes in the later years. One of the mathematical facts about straight-line and accelerated depreciation methods is that even when the pre-depreciation income stays constant, the rate of return steadily increases over time purely because of the decrease in asset value.
Which of the following statements reflects the basic purposes of financial reporting?
Answer(s): E
Although investment and credit decisions reflect investors' and creditors' expectations about future enterprise performance, those expectations are commonly based, at least in part, on evaluations of past enterprise performance.
Metals Inc. had the following liabilities at December 31, 1996:Accounts payable $55,000Unsecured notes, 8%, due 7/1/97 $400,000Accrued expenses $35,000Contingent liability $450,000Deferred income tax liability $25,000Senior bonds, 7%, due 3/31/97 $1,000,000The contingent liability is an accrual for possible losses on a $1,000,000 lawsuit filed against Metals Inc. Metals' legal counsel expects the suit to be settled in 1998 and has estimated that Metals will be liable for damages in the range of $450,000 to $750,000. The deferred income tax liability is not related to an asset for financial reporting and is expected to reverse in 1998. What amount should Metals report in its December 31, 1996 balance sheet for current liabilities?
Answer(s): B
A current liability is an obligation that will be liquidated within 1 year. Therefore, we need to include accounts payable, unsecured notes, accrued expenses, and the senior debt which total all together $1,490,000.
The accrual basis of accounting
Accrual accounting principles are the decision rules that state when to recognize the revenue and expense consequences of cash flows and other events.
The primary purpose of the statement of cash flows is to
Answer(s): C
Other financial statements are used to analyze revenues, expenses, assets, liabilities, and stockholders' equity.The statement of cash flows summarizes transactions affecting cash; it is the balance sheet that states the company's financial position at a point in time.
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