Exam 16: Basic Accounting Concepts, Techniques, and Conventions

The section in the statement of cash flows that lists the cash flow effects of lending and collecting on loans, and acquiring and selling long- term assets

is the major operating activity that decreases cash.

Alabama Company's beginning and ending inventory amounts were $80,000 and $120,000, respectively. Cost of goods sold was $520,000. Alabama Company purchased of inventory.

Short- term investments that a company can easily convert into cash with little delay

is not a current asset.

Research and development costs are expensed when incurred for financial statement purposes.

Physical items that a person can see and touch, such as property, plant, and equipment

Depreciation is used to:

Munster Company requires clients to pay in advance for legal services. One such client made a $4,000 payment on May 1, and Munster Company recorded this transaction in the appropriate liability account. As of May 20, the legal services which the client requested had been completed. The May 20 accounting entry will:

Limited liability means that:

Natural resource assets are depreciated.

Given the following balances for Garvey Company on December 31, 20X5, prepare a classified balance sheet. Accumulated depreciation \ 21,800 Accounts p ayable 11,200 Accounts receivable 9,800 Additional paid-in capital 24,000 C apital stock 6,000 Cash 7,400 Fixed ass ets 89,400 Interest p ayable 2,400 Inventory 13,600 Long-term note payable 28,000 Prep aid rent 2,500 Retained earnings 22,900 Wages payable 6,400 Answer: Garvey Company Balance Sheet December $31,20 \times 5$

An example of an operating activity on the statement of cash flows is federal taxes paid.

Rock Company reported cost of goods sold of $700,000, a decrease in inventory of $60,000, and an increase in accounts payable of $35,000. was paid to Rock Company's suppliers.

Which one of the following statements regarding the effect of depreciation when reconciling net income to net cash provided by operating activities is correct?

High Chaparral Company's capital stock is currently trading for $22 per share. The High Chaparral Company has the following accounts included within the owners' equity section of the balance sheet: Capital stock, \ 5.00 par value, 10,000 shares issued \5 0,000 Capital in excess of par value 110,000 Assuming that the only transaction affecting these accounts was the issue of the company's capital stock, the High Chaparral Company originally sold its capital stock for:

The method of preparing a statement of cash flows that reconciles net income to the net cash provided by operating activities

During a period of inflation, the LIFO method provides a larger cost of goods amount than does FIFO.

An inventory method that assigns the same unit cost to each unit available for sale

Stock that typically has some priority over other shares in the payment of dividends or the distribution of assets upon liquidation