Which of the following is/are true about expenses?
Answer(s): B
Difficulties in measuring the current value of assets being generated by R&D prevent a reliable application of the accrual principles, which require allocation of expenses in proportion to the current benefits generated.Hence, US GAAP takes the easiest solution and dictates that all R&D costs must be expensed immediately (unless they generate tangible or intangible assets which have alternative future uses which are measurable).On the other hand, software development costs which are similar to R&D costs are capitalized after feasibility of the product is determined. In extractive industries, firms are allowed to use either the full-cost method, in which all search and development costs can be capitalized, or the successful-efforts method, where all such costs are expensed unless they result in revenue-generating assets, in which case, they are capitalized.
In periods of rising prices, which inventory costing method results in the highest net income?
Answer(s): A
FIFO assigns the lowest dollar value amounts to COGS when purchase prices are rising, thus resulting in higher net income.
Which of the following is/are true about an auditor's opinion?
Answer(s): C
If an auditor finds that the audit is insufficient in scope to render an opinion, he will issue a Disclaimer of opinion.
Which of the following is NOT a financing cash flow?
Answer(s): D
You should read the question carefully. It asks for the cash flow that is not a financing cash flow. Cash used for share repurchase and cash received from debt issue are both financing cash flows while cash received from asset sales is an investing cash flow.
The following data pertain to Cosmotron Company's financial state as of Dec 31, 1994:Net Income $400Increase in inventory $120Decrease in accounts receivable $45Increase in payables $165Depreciatio n$100Dividends paid$85Tax rate 30%What was Cosmotron's operating cash flow in 1994?
In this case, OCF = 400 - 120 + 45 + 165 + 100 = $590. Dividends paid are investing cash flows and not part of OCF. Note that tax rate is not relevant in the indirect method since it has already been factored into in the net income figure.
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