Question 1

Ralirali Corporation's financial statements included the following amounts for the current year:
  Based on this information,what is the amount of net cash flows from investing activities? 
A)$74,000 net inflow
B)$43,000 net inflow
C)$18,000 net outflow
D)$49,000 net outflow

Accepted Answer

A) True 
 B)False

Question 2

An increase in a accounts receivable,all other things being equal,serves to increase cash flows.

Accepted Answer

A) True 
 B)False

Question 3

Anzelmo Corporation invested in Jones Manufacturing by purchasing a 10% interest in the company.Anzelmo had no significant influence in Jones.Over time,Anzelmo acquired more shares in Jones,and in 2016,Anzelmo's president became a member of the board of directors when its ownership interest reached 30% of Jones.This change is ________.

Accepted Answer

A) an accounting principal change requiring retrospective adjustment 
B) an accounting principal change requiring prospective adjustment 
C) a correction of an error 
D) an estimate change

Question 4

Journal entry on January 1,2016 to effect the change in principle is:
  Retained Earnings-Prior Period Adj. 27,000

Accepted Answer

A) True 
 B)False

Question 5

Cash flows from investing activities should include ________.
A)the factoring of accounts receivable
B)the receipt of stock dividends
C)the issuance of common stock in exchange for land
D)the major repair of a fixed asset

Accepted Answer

A) True 
 B)False

Question 6

Under U.S.GAAP,bank overdrafts are typically considered to be liabilities.

Accepted Answer

A) True 
 B)False

Question 7

When using the indirect method to prepare the operating section of a statement of cash flows,which of the following is added to net income to compute cash flows from operating activities?

Accepted Answer

A) gain on sale of long-term asset 
B) decrease in deferred tax liability 
C) bond discount amortization 
D) All of the above.

Question 8

The bookkeeper for Phillips,Inc.mistakenly recorded a $300,000 three-year trade note receivable as long-term note receivable in 2015.Interest revenue was correctly recorded.The error was discovered in 2017 by the company's auditors.What is the proper way to correct the error?

Accepted Answer

A) Ignore the error because it is not material in amount. 
B) Correct the classification in 2017 retrospectively for comparative balance sheets. 
C) Use a footnote disclosure only because it does not change working capital. 
D) Correct the classification and adjust retained earnings for 2015 and 2016.

Question 9

Cash receipts for dividends are classified as operating activities.

Accepted Answer

A) True 
 B)False

Question 10

The lessor capitalizes initial direct costs associated with an operating lease and amortizes them over the life of the lease.

Accepted Answer

A) True 
 B)False

Question 11

Significant noncash transactions are not required to be disclosed either in the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 12

Refer to Superbyte Corporation.
What is the interest revenue that SuperByte will report on this lease in its current year income statement?
A)$1,626,340
B)$1,703,372
C)$1,887,983
D)$1,822,028

Accepted Answer

A) True 
 B)False

Question 13

Cash paid for merchandise is calculated as purchases plus increases in inventory minus decreases in accounts payable for inventory.

Accepted Answer

A) True 
 B)False

Question 14

In determining net cash flow from operating activities,a decrease in accounts payable during a period ________.
A)does not require an adjustment under the indirect method
B)does not require an adjustment under the direct method
C)requires a subtraction adjustment to net income under the indirect method
D)requires a subtraction adjustment to payments to suppliers under the direct method

Accepted Answer

The answer of In determining net cash flow from operating...

Question 15

The CFO must disclose the reason for the error correction,include a reconstruction of the income statements and balance sheets indicating the change in income before taxes,income taxes,net income,and earnings per share.Comparative income statements and balance sheets should be retrospectively adjusted to reflect the corrected data for each year presented.

Accepted Answer

A) True 
 B)False

Question 16

Increases in current liabilities cause operating cash flows to be lower than accrual-basis income.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following equations represent the relationship between the change in cash and cash equivalents (Cash)and the changes in other current assets (OCA),current liabilities (CL),Noncurrent Assets (NCA),noncurrent liabilities (NCL),capital stock (CS)and retained earnings (RE)?
A)ΔCash = ΔCL + ΔNCL − .ΔOCA −.ΔNCA + ΔCS + ΔRE
B)ΔCash = ΔOCA + ΔNCA −.ΔCL −.ΔNCL + ΔCS + ΔRE
C)ΔCash = ΔCL + ΔNCL − .ΔOCA −.ΔNCA - ΔCS - ΔRE
D)ΔCash = ΔOCA + ΔNCA −.ΔCL −.ΔNCL - ΔCS - ΔRE

Accepted Answer

A) True 
 B)False

Question 18

Anzelmo Corporation invested in Jones Manufacturing by purchasing a 10% interest in the company.Anzelmo had no significant influence in Jones.Over time,Anzelmo acquired more shares in Jones,and in 2016,Anzelmo's president became a member of the board of directors when its ownership interest reached 30% of Jones.The cost basis of their investment is $2,000,000.Under the equity method,the valuation of the investment would be $2,400,000.The fair value of the investment is $2,600,000.What is the proper journal entry to properly record the change in accounting principal,ignoring income taxes?

Accepted Answer

A) No entry needed. 
B)   
C)   
D)

Question 19

Explain how treatment of gains and losses on the sale of long-term assets differ between the indirect and direct methods.

Accepted Answer

A) True 
 B)False

Question 20

John Pickens writes mystery novels.His publisher pays him royalties for books sold each year.He is paid royalties for the first half of the year on September 30 and the second half of the year on March 31 of the following year.He received $42,000 in September,2016.The publisher estimated that his royalties for the second half of the year would be $53,000.On March 31,2017,he received $57,500.Assuming that he recorded $53,000 at December 31,2016,what kind of change does this represent?

Accepted Answer

A) not a change 
B) change in estimate 
C) prior period error correction 
D) change from accrual to cash method

Exam 22: Accounting Corrections and Error Analysis

Ralirali Corporation's financial statements included the following amounts for the current year: Based on this information,what is the amount of net cash flows from investing activities? A)$74,000 net inflow B)$43,000 net inflow C)$18,000 net outflow D)$49,000 net outflow

An increase in a accounts receivable,all other things being equal,serves to increase cash flows.

Journal entry on January 1,2016 to effect the change in principle is: Retained Earnings-Prior Period Adj. 27,000

Cash flows from investing activities should include ________. A)the factoring of accounts receivable B)the receipt of stock dividends C)the issuance of common stock in exchange for land D)the major repair of a fixed asset

Under U.S.GAAP,bank overdrafts are typically considered to be liabilities.

When using the indirect method to prepare the operating section of a statement of cash flows,which of the following is added to net income to compute cash flows from operating activities?

The bookkeeper for Phillips,Inc.mistakenly recorded a $300,000 three-year trade note receivable as long-term note receivable in 2015.Interest revenue was correctly recorded.The error was discovered in 2017 by the company's auditors.What is the proper way to correct the error?

Cash receipts for dividends are classified as operating activities.

The lessor capitalizes initial direct costs associated with an operating lease and amortizes them over the life of the lease.

Significant noncash transactions are not required to be disclosed either in the statement of cash flows.

Refer to Superbyte Corporation. What is the interest revenue that SuperByte will report on this lease in its current year income statement? A)$1,626,340 B)$1,703,372 C)$1,887,983 D)$1,822,028

Cash paid for merchandise is calculated as purchases plus increases in inventory minus decreases in accounts payable for inventory.

Increases in current liabilities cause operating cash flows to be lower than accrual-basis income.

Explain how treatment of gains and losses on the sale of long-term assets differ between the indirect and direct methods.