Question 1

Why do accountants add Depreciation Expense to net income when determining net cash provided by operating activities?

Accepted Answer

A) because depreciation expense is a source of cash 
B) because depreciation expense requires the outflow of cash 
C) because depreciation expense is an investing activity that should be reported in the investing section of the cash flow statement 
D) because it cancels the earlier deduction when calculating net income

Question 2

In a period of inflation,LIFO results in a higher net income than FIFO.

Accepted Answer

A) True 
 B)False

Question 3

An example of an operating activity on the statement of cash flows is cash dividends received on investments.Assume the direct method is used.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following statements about par value is FALSE?

Accepted Answer

A) The par value per share is used to determine the dividends per share for common stock. 
B) The stated value of a stock is conceptually similar to the par value of a stock. 
C) It is generally illegal for a corporation to sell an original issue of common stock below the par value. 
D) The par value is the maximum legal liability of stockholders if the corporation cannot pay its debts.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

The major operating activity on the statement of cash flows that increases cash is ________.

Accepted Answer

A) sales on account 
B) proceeds from sale of common stock 
C) proceeds from issue of bonds payable 
D) collections from sales to customers

Question 7

FIFO uses the ________ costs to measure the cost of goods sold.

Accepted Answer

A) latest 
B) earliest 
C) average 
D) weighted-average

Question 8

The last line item on an income statement is earnings per share.

Accepted Answer

A) True 
 B)False

Question 9

Par value is the value that is printed on the face of the stock certificate.

Accepted Answer

A) True 
 B)False

Question 10

Current liabilities are debts due within the ________ year or within the normal operating cycle if ________.

Accepted Answer

A) past; longer than a year 
B) next; longer than a year 
C) past; shorter than a year 
D) next; shorter than a year

Question 11

During a period of inflation,the LIFO method reports a lower ending inventory amount than FIFO.

Accepted Answer

A) True 
 B)False

Question 12

The amortization of intangible assets applies to ________.

Accepted Answer

A) Research and Development Costs 
B) Goodwill 
C) intangible assets with definite lives 
D) intangible assets with indefinite lives

Question 13

Accounts receivable is a current asset.

Accepted Answer

A) True 
 B)False

Question 14

An example of an investing activity on the statement of cash flows is the purchase of equipment for cash.

Accepted Answer

A) True 
 B)False

Question 15

A company's operating cycle can be longer than one year.

Accepted Answer

A) True 
 B)False

Question 16

Peace Company's capital stock is currently trading for $22 per share.The following accounts appear on the balance sheet:  The only transaction affecting the accounts was the issue of the company's common stock.What was the original selling price of the common stock?

Accepted Answer

A) $6.00 per share 
B) $11.00 per share 
C) $17.00 per share 
D) $22.00 per share

Question 17

Freight and installation costs are added to the cost of equipment.

Accepted Answer

A) True 
 B)False

Question 18

The cash paid for employees' wages is included in the ________ section of the statement of cash flows.Assume the direct method is used.

Accepted Answer

A) operating 
B) financing 
C) investing 
D) noncash

Question 19

When reconciling net income to net cash provided by operating activities,a(n)________ is an addition to net income.

Accepted Answer

A) increase in inventories 
B) increase in accounts receivable 
C) increase in wages payable 
D) decrease in taxes payable

Question 20

Austin 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.How much cash was paid to suppliers?

Accepted Answer

A) $605,000 
B) $675,000 
C) $725,000 
D) $795,000

Exam 16: Understanding Corporate Annual Reports: Basic Financial Statements

Why do accountants add Depreciation Expense to net income when determining net cash provided by operating activities?

In a period of inflation,LIFO results in a higher net income than FIFO.

An example of an operating activity on the statement of cash flows is cash dividends received on investments.Assume the direct method is used.

Which of the following statements about par value is FALSE?

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

The major operating activity on the statement of cash flows that increases cash is ________.

FIFO uses the ________ costs to measure the cost of goods sold.

The last line item on an income statement is earnings per share.

Par value is the value that is printed on the face of the stock certificate.

Current liabilities are debts due within the year or within the normal operating cycle if .

During a period of inflation,the LIFO method reports a lower ending inventory amount than FIFO.

The amortization of intangible assets applies to ________.

Accounts receivable is a current asset.

An example of an investing activity on the statement of cash flows is the purchase of equipment for cash.

A company's operating cycle can be longer than one year.

Peace Company's capital stock is currently trading for $22 per share.The following accounts appear on the balance sheet: The only transaction affecting the accounts was the issue of the company's common stock.What was the original selling price of the common stock?

Freight and installation costs are added to the cost of equipment.

The cash paid for employees' wages is included in the ________ section of the statement of cash flows.Assume the direct method is used.

When reconciling net income to net cash provided by operating activities,a(n) ________ is an addition to net income.

Austin 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.How much cash was paid to suppliers?