Deck 9: The Income Statement and the Statement of Cash Flows

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Question
Which of the following is an accurate statement regarding a statement of cash flows?

A) Only cash items that affect the income statement are included.
B) Only material cash items that affect the income statement are included.
C) All material operating, investing, and financing activities are included.
D) Immaterial financing activities that affect cash do not need to be included.
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Question
The concept of matching revenue and expense refers to the fact that:

A) expenses for a period equal the revenues for the period.
B) all costs incurred in the process of earning revenues during a period are recorded as expenses in that period.
C) all cash disbursements during a period are subtracted from all cash receipts during the period.
D) costs incurred in the process of earning revenues during a period are deferred and expensed in a future period.
Question
Most entities satisfy the accounting criteria for recognizing an expense when:

A) a commitment is made to purchase a product or service.
B) cash is paid to a supplier.
C) a cost is incurred in the revenue generating process.
D) a dividend is paid to stockholders.
Question
Most entities satisfy the accounting criteria for recognizing revenue when:

A) an order is received from a customer.
B) cash is received from a customer.
C) an unearned revenue account is credited.
D) a product is delivered or a service is provided.
Question
Under most circumstances, in order to recognize revenue:

A) cash must have been received.
B) the entity must expect to receive cash in the future.
C) the entity must have paid for all expenses incurred in generating the revenue.
D) the revenue must be realized or realizable, and earned.
Question
An item that cost $90 is sold for $120. The gross profit ratio for this item is:

A) 20%.
B) 25%.
C) 33.3%.
D) 60%.
Question
The major difference between the indirect and the direct method of a statement of cash flows appears in which the following activities section(s)?

A) The investing activities and financing activities sections.
B) The investing activities section only.
C) The operating activities and financing activities sections.
D) The operating activities section only.
Question
Income from operations is:

A) sometimes called the "bottom line."
B) sometimes used in the ROI calculation.
C) usually used in the ROE calculation.
D) usually calculated after income tax expense.
Question
The first caption in most income statements in annual reports is:

A) gross sales.
B) net sales.
C) earned revenues.
D) sales, less sales returns and allowances.
Question
Gains differ from revenues because gains:

A) are not a result of the entity's ongoing, central operations.
B) do not have to be realized.
C) are reported as income from operating activities.
D) do not involve any offsetting costs or expenses.
Question
Recognition of revenue in accrual accounting requires:

A) that cash be received.
B) only that the amount of cash to be received from the sale of a product or service be known.
C) only that a product be delivered or a service be performed.
D) that the revenue be realized or realizable, and earned.
Question
The earnings per share of common stock calculation:

A) is made by dividing net income by the number of shares of common stock outstanding at the end of the year.
B) is complicated by the declaration of cash dividends during the year.
C) includes gains or losses from treasury stock transactions.
D) is complicated by the presence of preferred stock in the capital structure.
Question
The term, "realization," in revenue recognition refers to which of the following?

A) The entity has completed, or substantially completed, the activities it must perform to be entitled to the revenue benefits.
B) The product or service has been exchanged for cash, claims to cash, or an asset that is readily convertible to a known amount of cash or claims to cash.
C) The entity has received an irrevocable order for goods or services.
D) Cash has been received with an irrevocable order for goods or services.
E) None of these.
Question
Revenue may be recognized:

A) from the sale of a company's own common stock.
B) if a company trades inventory at its usual selling price for newspaper advertising.
C) if management believes the market value of land held for future development has increased during the year.
D) in 2013 from the sale of subscriptions of a magazine to be published in 2014.
Question
In the statement of cash flows, an increase in the accounts receivable balance from the beginning of the period to the end of the period would:

A) be added to net income because this represents earned revenues that have not been collected.
B) be subtracted from net income because this represents earned revenue provided by operating earnings.
C) be added to net income because this means that revenues were less than cash collected.
D) be subtracted from net income because this means that revenues were more than cash collected.
Question
An item that cost $240 is to be sold for a price that will yield a gross profit ratio of 20%. The selling price should be:

A) $192.
B) 288.
C) 300.
D) 1200.
Question
The gross profit ratio is useful to the manager for each of the following purposes except that:

A) it can be used to determine the selling price to set for an item.
B) it can be used to estimate the amount of inventory lost in a fire.
C) it can be used to determine the amount available from a given amount of revenue to cover operating expenses.
D) it can be used to estimate the amount of operating expenses for a period.
Question
Which of the following accounts/captions are not ever included in the calculation for Gross Profit?

A) Revenues.
B) Cost of Goods Sold.
C) Net Sales.
D) General and Selling Expenses.
Question
When the periodic inventory system is used:

A) operating profit from the sale of an item from inventory is known when the item is sold.
B) gross profit from the sale of an item from inventory is known when the item is sold.
C) cost of goods sold can be calculated by subtracting the ending inventory amount from the sum of beginning inventory and net purchases.
D) a physical inventory must be taken in order to estimate the cost of goods sold.
Question
In the statement of cash flows, depreciation and amortization expense is added back to net income because:

A) these expenses do not affect cash, but were subtracted in the determination of net income.
B) these expenses affect investing activities, not operating activities.
C) the cash disbursements for these accrued expenses will be made in a future period.
D) these expenses are recognized for accounting purposes, but they do not represent economic costs.
Question
Presented below is a partially completed balance sheet for Baldin, Inc., at December 31, 2014, together with comparative data for the year ended December 31, 2013. From the Statement of Cash Flows for the year ended December 31, 2014, you determine that:
• Net income for the year ended December 31, 2014, was $106,000.
• Dividends paid during the year ended December 31, 2014, were $42,000.
• Accounts receivable increased $14,000 during the year ended December 31, 2014.
• The cost of new buildings acquired during 2014, was $85,000.
• No buildings were disposed of during 2014.
• The land account was not affected by any transactions during the year, but the fair value of the land at December 31, 2014, is $210,000. Presented below is a partially completed balance sheet for Baldin, Inc., at December 31, 2014, together with comparative data for the year ended December 31, 2013. From the Statement of Cash Flows for the year ended December 31, 2014, you determine that: • Net income for the year ended December 31, 2014, was $106,000. • Dividends paid during the year ended December 31, 2014, were $42,000. • Accounts receivable increased $14,000 during the year ended December 31, 2014. • The cost of new buildings acquired during 2014, was $85,000. • No buildings were disposed of during 2014. • The land account was not affected by any transactions during the year, but the fair value of the land at December 31, 2014, is $210,000.   Required: (a.) Complete the December 31, 2014, balance sheet. (b.) Prepare a statement of cash flows for the year ended December 31, 2014.<div style=padding-top: 35px> Required:
(a.) Complete the December 31, 2014, balance sheet.
(b.) Prepare a statement of cash flows for the year ended December 31, 2014.
Question
Use the appropriate information from the data provided below to calculate operating income for the year ended December 31, 2014. Use the appropriate information from the data provided below to calculate operating income for the year ended December 31, 2014.  <div style=padding-top: 35px>
Question
Gwinnett Park Co. reported net income of $506,600 for its fiscal year ended September 30, 2014. At the beginning of that year, 150,000 shares of common stock were outstanding. On February 1, 2014, an additional 30,000 shares were issues. On September 1, 2014, 12,000 shares were purchased as treasury stock. During the year, the company paid the annual dividend on 14,000 shares of its 8%, $60 par value preferred stock that were outstanding during the entire fiscal year. Calculate the basic earnings per share of common stock for the year ended September 30, 2014.
Question
Use the appropriate information from the data provided below to calculate operating income for the year ended December 31, 2014. Use the appropriate information from the data provided below to calculate operating income for the year ended December 31, 2014.  <div style=padding-top: 35px>
Question
Norman's Cabinet, Inc., had net income of $424,800 for its fiscal year ended October 31, 2014. During the year, the company had outstanding 53,000 shares of 9%, $60 par value preferred stock, and 36,960 shares of common stock. Calculate the basic earnings per share of common stock for the 2014 fiscal year.
Question
The term, "earned," in revenue recognition refers to which of the following?

A) The entity has completed, or substantially completed, the activities it must perform to be entitled to the revenue benefits.
B) The product or service has been exchanged for cash, claims to cash, or an asset that is readily convertible to a known amount of cash or claims to cash.
C) The entity has received an irrevocable order for goods or services.
D) Cash has been received with an irrevocable order for goods or services.
Question
Sparkle Cleaners, Inc., had net income of $516,050 for its fiscal year ended September 30, 2014. During the year, the company had outstanding 24,000 shares of 8%, $50 par value preferred stock, and 135,500 shares of common stock. Calculate the basic earnings per share of common stock for the 2014 fiscal year.
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Deck 9: The Income Statement and the Statement of Cash Flows
1
Which of the following is an accurate statement regarding a statement of cash flows?

A) Only cash items that affect the income statement are included.
B) Only material cash items that affect the income statement are included.
C) All material operating, investing, and financing activities are included.
D) Immaterial financing activities that affect cash do not need to be included.
C
2
The concept of matching revenue and expense refers to the fact that:

A) expenses for a period equal the revenues for the period.
B) all costs incurred in the process of earning revenues during a period are recorded as expenses in that period.
C) all cash disbursements during a period are subtracted from all cash receipts during the period.
D) costs incurred in the process of earning revenues during a period are deferred and expensed in a future period.
B
3
Most entities satisfy the accounting criteria for recognizing an expense when:

A) a commitment is made to purchase a product or service.
B) cash is paid to a supplier.
C) a cost is incurred in the revenue generating process.
D) a dividend is paid to stockholders.
C
4
Most entities satisfy the accounting criteria for recognizing revenue when:

A) an order is received from a customer.
B) cash is received from a customer.
C) an unearned revenue account is credited.
D) a product is delivered or a service is provided.
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k this deck
5
Under most circumstances, in order to recognize revenue:

A) cash must have been received.
B) the entity must expect to receive cash in the future.
C) the entity must have paid for all expenses incurred in generating the revenue.
D) the revenue must be realized or realizable, and earned.
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6
An item that cost $90 is sold for $120. The gross profit ratio for this item is:

A) 20%.
B) 25%.
C) 33.3%.
D) 60%.
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Unlock for access to all 27 flashcards in this deck.
Unlock Deck
k this deck
7
The major difference between the indirect and the direct method of a statement of cash flows appears in which the following activities section(s)?

A) The investing activities and financing activities sections.
B) The investing activities section only.
C) The operating activities and financing activities sections.
D) The operating activities section only.
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Unlock for access to all 27 flashcards in this deck.
Unlock Deck
k this deck
8
Income from operations is:

A) sometimes called the "bottom line."
B) sometimes used in the ROI calculation.
C) usually used in the ROE calculation.
D) usually calculated after income tax expense.
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Unlock for access to all 27 flashcards in this deck.
Unlock Deck
k this deck
9
The first caption in most income statements in annual reports is:

A) gross sales.
B) net sales.
C) earned revenues.
D) sales, less sales returns and allowances.
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Unlock for access to all 27 flashcards in this deck.
Unlock Deck
k this deck
10
Gains differ from revenues because gains:

A) are not a result of the entity's ongoing, central operations.
B) do not have to be realized.
C) are reported as income from operating activities.
D) do not involve any offsetting costs or expenses.
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Unlock for access to all 27 flashcards in this deck.
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k this deck
11
Recognition of revenue in accrual accounting requires:

A) that cash be received.
B) only that the amount of cash to be received from the sale of a product or service be known.
C) only that a product be delivered or a service be performed.
D) that the revenue be realized or realizable, and earned.
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Unlock for access to all 27 flashcards in this deck.
Unlock Deck
k this deck
12
The earnings per share of common stock calculation:

A) is made by dividing net income by the number of shares of common stock outstanding at the end of the year.
B) is complicated by the declaration of cash dividends during the year.
C) includes gains or losses from treasury stock transactions.
D) is complicated by the presence of preferred stock in the capital structure.
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Unlock for access to all 27 flashcards in this deck.
Unlock Deck
k this deck
13
The term, "realization," in revenue recognition refers to which of the following?

A) The entity has completed, or substantially completed, the activities it must perform to be entitled to the revenue benefits.
B) The product or service has been exchanged for cash, claims to cash, or an asset that is readily convertible to a known amount of cash or claims to cash.
C) The entity has received an irrevocable order for goods or services.
D) Cash has been received with an irrevocable order for goods or services.
E) None of these.
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Unlock for access to all 27 flashcards in this deck.
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k this deck
14
Revenue may be recognized:

A) from the sale of a company's own common stock.
B) if a company trades inventory at its usual selling price for newspaper advertising.
C) if management believes the market value of land held for future development has increased during the year.
D) in 2013 from the sale of subscriptions of a magazine to be published in 2014.
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Unlock for access to all 27 flashcards in this deck.
Unlock Deck
k this deck
15
In the statement of cash flows, an increase in the accounts receivable balance from the beginning of the period to the end of the period would:

A) be added to net income because this represents earned revenues that have not been collected.
B) be subtracted from net income because this represents earned revenue provided by operating earnings.
C) be added to net income because this means that revenues were less than cash collected.
D) be subtracted from net income because this means that revenues were more than cash collected.
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Unlock for access to all 27 flashcards in this deck.
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k this deck
16
An item that cost $240 is to be sold for a price that will yield a gross profit ratio of 20%. The selling price should be:

A) $192.
B) 288.
C) 300.
D) 1200.
Unlock Deck
Unlock for access to all 27 flashcards in this deck.
Unlock Deck
k this deck
17
The gross profit ratio is useful to the manager for each of the following purposes except that:

A) it can be used to determine the selling price to set for an item.
B) it can be used to estimate the amount of inventory lost in a fire.
C) it can be used to determine the amount available from a given amount of revenue to cover operating expenses.
D) it can be used to estimate the amount of operating expenses for a period.
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Unlock for access to all 27 flashcards in this deck.
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k this deck
18
Which of the following accounts/captions are not ever included in the calculation for Gross Profit?

A) Revenues.
B) Cost of Goods Sold.
C) Net Sales.
D) General and Selling Expenses.
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Unlock for access to all 27 flashcards in this deck.
Unlock Deck
k this deck
19
When the periodic inventory system is used:

A) operating profit from the sale of an item from inventory is known when the item is sold.
B) gross profit from the sale of an item from inventory is known when the item is sold.
C) cost of goods sold can be calculated by subtracting the ending inventory amount from the sum of beginning inventory and net purchases.
D) a physical inventory must be taken in order to estimate the cost of goods sold.
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Unlock Deck
k this deck
20
In the statement of cash flows, depreciation and amortization expense is added back to net income because:

A) these expenses do not affect cash, but were subtracted in the determination of net income.
B) these expenses affect investing activities, not operating activities.
C) the cash disbursements for these accrued expenses will be made in a future period.
D) these expenses are recognized for accounting purposes, but they do not represent economic costs.
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Unlock for access to all 27 flashcards in this deck.
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k this deck
21
Presented below is a partially completed balance sheet for Baldin, Inc., at December 31, 2014, together with comparative data for the year ended December 31, 2013. From the Statement of Cash Flows for the year ended December 31, 2014, you determine that:
• Net income for the year ended December 31, 2014, was $106,000.
• Dividends paid during the year ended December 31, 2014, were $42,000.
• Accounts receivable increased $14,000 during the year ended December 31, 2014.
• The cost of new buildings acquired during 2014, was $85,000.
• No buildings were disposed of during 2014.
• The land account was not affected by any transactions during the year, but the fair value of the land at December 31, 2014, is $210,000. Presented below is a partially completed balance sheet for Baldin, Inc., at December 31, 2014, together with comparative data for the year ended December 31, 2013. From the Statement of Cash Flows for the year ended December 31, 2014, you determine that: • Net income for the year ended December 31, 2014, was $106,000. • Dividends paid during the year ended December 31, 2014, were $42,000. • Accounts receivable increased $14,000 during the year ended December 31, 2014. • The cost of new buildings acquired during 2014, was $85,000. • No buildings were disposed of during 2014. • The land account was not affected by any transactions during the year, but the fair value of the land at December 31, 2014, is $210,000.   Required: (a.) Complete the December 31, 2014, balance sheet. (b.) Prepare a statement of cash flows for the year ended December 31, 2014. Required:
(a.) Complete the December 31, 2014, balance sheet.
(b.) Prepare a statement of cash flows for the year ended December 31, 2014.
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22
Use the appropriate information from the data provided below to calculate operating income for the year ended December 31, 2014. Use the appropriate information from the data provided below to calculate operating income for the year ended December 31, 2014.
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23
Gwinnett Park Co. reported net income of $506,600 for its fiscal year ended September 30, 2014. At the beginning of that year, 150,000 shares of common stock were outstanding. On February 1, 2014, an additional 30,000 shares were issues. On September 1, 2014, 12,000 shares were purchased as treasury stock. During the year, the company paid the annual dividend on 14,000 shares of its 8%, $60 par value preferred stock that were outstanding during the entire fiscal year. Calculate the basic earnings per share of common stock for the year ended September 30, 2014.
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24
Use the appropriate information from the data provided below to calculate operating income for the year ended December 31, 2014. Use the appropriate information from the data provided below to calculate operating income for the year ended December 31, 2014.
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25
Norman's Cabinet, Inc., had net income of $424,800 for its fiscal year ended October 31, 2014. During the year, the company had outstanding 53,000 shares of 9%, $60 par value preferred stock, and 36,960 shares of common stock. Calculate the basic earnings per share of common stock for the 2014 fiscal year.
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26
The term, "earned," in revenue recognition refers to which of the following?

A) The entity has completed, or substantially completed, the activities it must perform to be entitled to the revenue benefits.
B) The product or service has been exchanged for cash, claims to cash, or an asset that is readily convertible to a known amount of cash or claims to cash.
C) The entity has received an irrevocable order for goods or services.
D) Cash has been received with an irrevocable order for goods or services.
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Unlock for access to all 27 flashcards in this deck.
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27
Sparkle Cleaners, Inc., had net income of $516,050 for its fiscal year ended September 30, 2014. During the year, the company had outstanding 24,000 shares of 8%, $50 par value preferred stock, and 135,500 shares of common stock. Calculate the basic earnings per share of common stock for the 2014 fiscal year.
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