Question 1

Use the table for the question(s)below. 
-Consider the above statement of cash flows. If all amounts shown above are in millions of dollars, how much money did AOS Industries raise by issuing debt in 2018?
A)$4.6 million
B)$1.4 million
C)$3.2 million
D)$5.2 million

Accepted Answer

The answer of Use the table for the question(s)below. 
-Consider...

Question 2

One way Enron manipulated its financial statements was to sell assets at inflated prices to other firms, while promising to buy back those assets at a later date. The incoming cash was recorded as revenue, but the promise to buy back the assets was not disclosed. Which of the following is one of the ways that such a transaction is deceptive?
A)The cash raised should have been recorded as short-term loans.
B)The assets should have been listed on the balance sheet as long-term assets.
C)Cash raised by selling assets should not be recorded as revenue.
D)The off-balance sheet promises to repurchase assets should have been disclosed in management discussion and analysis (MD&A)or notes to the financial statement.

Accepted Answer

Off-balance sheet promises to repurchase assets should have been disclosed in management discussion and analysis (MD&A) or notes to the financial statement. This would have given investors a clearer picture of the company's financial situation and potential future obligations. Recording the incoming cash as revenue without disclosing the promise to buy back the assets is deceptive because it artificially inflates the company's revenue and does not accurately represent its financial health.

Question 3

Use of the A-IFRS and auditors has not eliminated the danger of inadvertent or deliberate fraud in financial statements.

Accepted Answer

While A-IFRS and auditors may help to detect and prevent fraud, they cannot completely eliminate the possibility of it occurring. Fraud can still be committed intentionally or unintentionally despite the use of these measures.

Question 4

Use the table for the question(s)below. 
-Consider the above statement of cash flows. If all amounts shown above are in millions of dollars, what was AOS Industries' retained earnings figure for 2018?
A)$2.1 million
B)$1.7 million
C)$1.3 million
D)$5.4 million

Accepted Answer

The ending balance for retained earnings in 2018 can be calculated by taking the beginning balance ($3.4 million) and adding the net income for the year ($2.2 million) and then subtracting the dividends paid ($0.9 million): 
$3.4 million + $2.2 million - $0.9 million = $4.7 million 
Therefore, choice B ($1.7 million) is the closest to this calculated figure.

Question 5

Use the table for the question(s)below. 
-Consider the above statement of cash flows. In 2018, AOS Industries had contemplated buying a new warehouse for $2 million, the cost of which would be depreciated over 10 years. If AOS Industries has a tax rate of 25%, what would be the impact for the amount of cash held by AOS at the end of 2018?
A)It would have $150 000 less cash at the end of 2018.
B)It would have $2 000 000 less cash at the end of 2018.
C)It would have $1 950 000 less cash at the end of 2018.
D)It would have an additional $50 000 in cash at the end of 2018.

Accepted Answer

If AOS Industries were to buy the new warehouse for $2 million, it would have to depreciate its value over 10 years. This means that the annual depreciation expense would be $200,000 ($2 million divided by 10 years). Since AOS has a tax rate of 25%, it would be able to reduce its taxable income by $200,000 and save $50,000 in taxes ($200,000 multiplied by 25%). Therefore, the impact on the amount of cash held by AOS at the end of 2018 would be $1,950,000 less.

Question 6

Allen Company bought a new copy machine to be depreciated straight line for three years. Where would this purchase be reflected on the Statement of Cash Flows?
A)It would be an addition to property, plant and equipment, so it would be an investing activity.
B)It would be an addition to cash, so would be reflected in the change in cash.
C)It would be an expense on the income statement, so it would be reflected in operating cash flows.
D)None of the above options is correct.

Accepted Answer

Purchasing a new copy machine is an investment in property, plant, and equipment, which falls under investing activities on the Statement of Cash Flows.

Question 7

A firm whose primary business is in a line of regional grocery stores would be most likely to have to include which of the following facts, if true, in the firm's management discussion and analysis (MD&A)?
A)that a large number of funds were allocated to advertising to increase awareness of the firm's brand in new areas it had expanded into this year
B)that some senior members of the management team have retired in this financial year
C)that the firm has plans to expand into the organic food business in the next financial year by purchasing
Several small organic food retailers
D)that the company has lost a class action suit brought against the firm by its employees and is expected to have to pay a large amount of damages

Accepted Answer

The MD&A section should include significant events that could impact the company's financial condition, such as losing a class action suit and the associated financial liabilities.

Question 8

What is the need for the notes to the financial statements when the firm's operations are already documented in the financial statements?

Accepted Answer

The answer of What is the need for the notes...

Question 9

Which of the following is NOT a reason that the income statement does not accurately indicate how much cash a firm has earned?
A)It includes cash inflows from services rendered.
B)It does not include entries for expenditures on inventory.
C)It does not include entries for collection of money from account receivables.
D)It includes entries for the depreciation of assets.

Accepted Answer

The income statement includes cash inflows from services rendered, so this is not a reason why it does not accurately indicate how much cash a firm has earned. The other options are all reasons why the income statement may not be an accurate reflection of a firm's cash position. The expenditures on inventory are not reflected on the income statement as they are considered an asset until sold, and only then appear as a cost of goods sold. Account receivables collections are not reflected as cash earned until they are actually received. Depreciation of assets is included on the income statement as an expense, but it does not involve any actual cash outflows.

Question 10

How can we cross-check the statement of cash flows?

Accepted Answer

The answer of How can we cross-check the statement of...

Question 11

The managements of public companies are not legally required to disclose any off-balance sheet transactions.

Accepted Answer

The managements of public companies are legally required to disclose any off-balance sheet transactions that may have a material impact on their finances or operations. This requirement is mandated by the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB) to ensure transparency and accountability in financial reporting. Failure to disclose such transactions can result in legal and financial consequences for the company and its executives.

Question 12

The notes to the financial statements would be LEAST likely to be used for which of the following purposes?
A)to show how the value of assets listed in the financial statements were arrived at
B)to provide information regarding the context in which these financial numbers were generated
C)to disclose the financial implications of any off-balance sheet transactions
D)to explain the method of accounting that was used in the preparation of the financial statements

Accepted Answer

The answer of The notes to the financial statements would...

Question 13

Which of the following is a way that the Operating Activity section of the statement of cash flows adjusts Net Income from the balance sheet?
A)It adds the cash that flows from investors to the firm.
B)It adds all non-cash entries related to the firm's operating activities.
C)It removes the cash used for investment purposes.
D)It subtracts all expenses and costs related to the firm's operating activities.

Accepted Answer

The Operating Activity section of the statement of cash flows adjusts Net Income by adding all non-cash entries related to the firm's operating activities. This includes items such as depreciation, amortization, and changes in accounts receivable and payable. It does not add cash from investors, remove cash used for investment purposes, or subtract all expenses and costs related to operating activities.

Question 14

A printing company prints a brochure for a client, and then bills them for this service. At the time the printing company's financial disclosure statements are prepared, the client has not yet paid the bill for this service. How will this transaction be recorded?
A)The sale will be added to Net Income on the income statement and retained in Net Income on the statement of cash flows.
B)The sale will be added to Net Income on the income statement but deducted from Net Income on the statement of cash flows.
C)The sale will neither be added to Net Income on the income statement nor used to adjust Net Income on the statement of cash flows.
D)The sale will not be added to Net Income on the income statement but added to Net Income on the statement of cash flows.

Accepted Answer

The sale will be added to Net Income on the income statement because the service has been provided and the revenue has been earned, even though the payment has not been received yet. However, the sale will be deducted from Net Income on the statement of cash flows because the cash has not been received yet and therefore cannot be counted as cash inflow. This is called an accounts receivable, which will be recorded in the balance sheet until the payment is received.

Question 15

Which of the following is likely to have contributed to the failure of HIH Insurance?
A)unsupervised delegated authority
B)rapid expansion
C)fraudulent reporting
D)All of the above contributed to the failure of HIH.

Accepted Answer

All of the listed factors contributed to the failure of HIH Insurance. Unsatisfactory practices of delegated authority were not adequately supervised, leading to poor decision-making and excessive risk-taking. Rapid expansion led to a lack of control over operations and inadequate management of resources. Fraudulent reporting facilitated the concealment of the company's poor financial state, leading to investors' and customers' loss of confidence in the institution.

Question 16

Together, CLERP 9 and the ASX Good Governance Principles have clarified
A)board composition, director remuneration, and auditor remuneration.
B)the role of auditor, auditor rotation, and auditor remuneration.
C)risk disclosure, insider trading, and board composition.
D)directors' share trading, auditor rotation, and board composition.

Accepted Answer

The answer of Together, CLERP 9 and the ASX Good...

Question 17

A software company acquires a smaller company in order to acquire the patents that it holds. The cost of this acquisition will be recorded on the statement of cash flows as an outflow under Investment Activities.

Accepted Answer

When a company acquires another company, any cash paid in the acquisition is classified as an outflow under Investment Activities on the statement of cash flows.

Question 18

A manufacturer of plastic bottles for the medical trade purchases a new compression blow moulder for its bottle production plant. How will the cost to the company of this piece of equipment be recorded?
A)It will be depreciated over time on the income statement and subtracted as a capital expenditure on the statement of cash flows.
B)It will be depreciated over time on the income statement and therefore not be recorded separately on the statement of cash flows.
C)It will be depreciated over time on the income statement and subtracted as Inventory on the statement of cash flows.
D)It will be subtracted from Gross Profit on the income statement and therefore not be recorded separately on the statement of cash flows.

Accepted Answer

The cost of the new compression blow moulder will be recorded as a capital expenditure and depreciated over time on the income statement. It will be subtracted as a capital expenditure on the statement of cash flows. This is the generally accepted accounting treatment for plant and equipment purchases.

Question 19

What will be the effect on the statement of cash flows if a firm buys a new processing plant through a new loan?

Accepted Answer

The answer of What will be the effect on the...

Question 20

Use the table for the question(s)below. 
-Consider the above statement of cash flows. Which of the following is true of AOS Industries' operating cash flows?
A)It charged more on its accounts payable than it paid back.
B)It sold more inventory than it bought.
C)It collected more cash from its customers than they charged.
D)All of the above are true.

Accepted Answer

All the options provided are indicators of positive operating cash flow. Charging more on accounts payable than paying back, selling more inventory than buying, and collecting more cash from customers than charged, all contribute to an increase in operating cash flow.

Quiz 2: Introduction to Financial Statement Analysis

Use the table for the question(s) below. -Consider the above statement of cash flows. If all amounts shown above are in millions of dollars, how much money did AOS Industries raise by issuing debt in 2018?

Use of the A-IFRS and auditors has not eliminated the danger of inadvertent or deliberate fraud in financial statements.

Use the table for the question(s) below. -Consider the above statement of cash flows. If all amounts shown above are in millions of dollars, what was AOS Industries' retained earnings figure for 2018?

Allen Company bought a new copy machine to be depreciated straight line for three years. Where would this purchase be reflected on the Statement of Cash Flows?

A firm whose primary business is in a line of regional grocery stores would be most likely to have to include which of the following facts, if true, in the firm's management discussion and analysis (MD&A) ?

What is the need for the notes to the financial statements when the firm's operations are already documented in the financial statements?

Which of the following is NOT a reason that the income statement does not accurately indicate how much cash a firm has earned?

How can we cross-check the statement of cash flows?

The managements of public companies are not legally required to disclose any off-balance sheet transactions.

The notes to the financial statements would be LEAST likely to be used for which of the following purposes?

Which of the following is a way that the Operating Activity section of the statement of cash flows adjusts Net Income from the balance sheet?

A printing company prints a brochure for a client, and then bills them for this service. At the time the printing company's financial disclosure statements are prepared, the client has not yet paid the bill for this service. How will this transaction be recorded?

Which of the following is likely to have contributed to the failure of HIH Insurance?

Together, CLERP 9 and the ASX Good Governance Principles have clarified

A software company acquires a smaller company in order to acquire the patents that it holds. The cost of this acquisition will be recorded on the statement of cash flows as an outflow under Investment Activities.

A manufacturer of plastic bottles for the medical trade purchases a new compression blow moulder for its bottle production plant. How will the cost to the company of this piece of equipment be recorded?

What will be the effect on the statement of cash flows if a firm buys a new processing plant through a new loan?

Use the table for the question(s) below. -Consider the above statement of cash flows. Which of the following is true of AOS Industries' operating cash flows?