The following information should be used according to the provisions of SFAS 95 (Statement of Cash flows) and using the following data.Net Income $50,000Provision for bad debts $2,000Increase in Inventory $1,000Increase in accounts payable $2,000Purchase of new equipment $15,000Sale of equipment for $10,000 gain $20,000Depreciation expense $5,000Repurchase of common stock $10,000Payment of dividend $4,000Interest payment $3,000What is net cash flow from operations?
Answer(s): B
$50,000 + $2,000 - $1,000 + $5,000 + $2,000 - $10,000
In a period of rising prices, the inventory method that gives the highest possible value for ending inventory is:
The ending inventory under FIFO is priced at the most recent, and thus the highest prices (in a period of rising prices) than any of the other methods.
When a marketable security's classification is changed, which of the following apply?
Answer(s): C
When the classification of a marketable security is changed, the assignation of the security to the new account is carried out at the fair market value on the transfer date, with any gain or loss reflected separately on the income statement (in the case of trading and held-to-maturity securities) or as a separate component of shareholder equity (in the case of available-for-sale securities). The classification and reclassification of securities is largely based on management intent. This allows the firm to manipulate current income by timing the reclassifications. Consequently, any financial statement analysis must take into account the effects of such artificial effects on income.
Accounting rules differentiate research and development activities from activities not considered research and development. Which one of the following is not considered a research and development activity?
Answer(s): A
R&D costs must be expensed as incurred. Research is planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service or process or in bringing a significant improvement in an existing product or process. Development is the translation of research findings into a plan or design. Seasonal or other periodic design changes in existing products do not meet either of these definitions.
An asset is estimated to have a total life of 8 years. Its acquisition cost is 16,000 and a salvage value of 4,000. The firm follows the double declining method of depreciation. In the second year, the rate of depreciation for the firm's asset is closest to ________.
In DDM depreciation, depreciation expense = (2/n)*book value. Thus, depreciation rate = 2/n = 2/8 = 25%.Remember that in the later years, DDM has to switch to a different depreciation method to avoid depreciating below the salvage value.
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