Question 1

Paris Company reported the following items in its December 31, 2013, year-end adjusted trial balance:  Paris is subject to a 40% income tax rate.
Required:
Prepare the December 31, 2013, income statement for Paris Company starting with income from continuing operations before income taxes.

Accepted Answer

The answer of Paris Company reported the following items in...

Question 2

Arrow Printers paid $2,000 interest on short-term notes payable, $10,000 interest on long-term bonds, and $6,000 in dividends on its common stock. Arrow would report cash outflows from activities, as follows:
A)Operating, $2,000; financing, $16,000.
B)Operating, $0; financing, $18,000.
C)Operating, $12,000; financing, $6,000.
D)Operating, $18,000; financing, $0.

Accepted Answer

Interest expenses and dividend payments are typically classified as financing activities in the statement of cash flows. Therefore, the $2,000 interest on short-term notes payable and the $10,000 interest on long-term bonds would be reported as financing outflows, totaling $12,000. And the $6,000 payment in dividends on common stock would also be reported as a financing outflow. Therefore, the total cash outflows reported in the financing section of the statement of cash flows would be $18,000. There would be no cash outflows reported in the operating section since these expenses are non-cash and non-operating.

Question 3

Scenario 1: Assume that Jacob sold the division's assets on December 31, 2013, for $24 million. The book value of the division's assets was $19 million at that date. Under these assumptions, what would Jacob report in its 2013 income statement regarding the office equipment division? Explain where this information would be presented.

Accepted Answer

The answer of Scenario 1: Assume that Jacob sold the...

Question 4

Expenses in an income statement prepared under International Financial Reporting Standards:
A)Must be classified by function.
B)Must be classified by natural description.
C)Can be classified either by function or by natural description.
D)None of the above is correct.

Accepted Answer

Under IFRS, expenses can be classified either by function (e.g., cost of sales, administrative expenses) or by natural description (e.g., salaries, depreciation).

Question 5

Scenario 2: Assume that Jacob had not yet sold the division's assets by the end of 2013. Further, assume that the fair value less costs to sell of the division's assets at December 31, 2013, was $24 million and was expected to remain the same when the assets are sold in 2014. The book value of the division's assets was $19 million at the end of the year. Under these assumptions, what would Jacob report in its 2013 income statement regarding the office equipment division? Explain where this information would be presented.

Accepted Answer

The answer of Scenario 2: Assume that Jacob had not...

Question 6

Required:
Prepare a single-step income statement with basic earnings per share disclosure.

Accepted Answer

The answer of Required:
Prepare a single-step income statement with basic...

Question 7

Shady Lane's income tax payable account decreased from $14 million to $12 million during 2013. If its income tax expense was $80 million, what was shown as an operating cash flow under the direct method?
A)A cash outflow of $12 million.
B)A cash outflow of $78 million.
C)A cash outflow of $80 million.
D)A cash outflow of $82 million.

Accepted Answer

The decrease in income tax payable account implies that the company paid taxes during the year. Therefore, the operating cash flow would be income tax expense ($80 million) plus the decrease in income tax payable ($12 million), which equals $92 million. However, since the question asks for cash outflow, the answer would be $82 million (subtracting $10 million from $92 million). Therefore, the correct choice is D.

Question 8

Rowdy's would report net cash inflows (outflows) from investing activities in the amount of:
A)$(4,000).
B)$100.
C)$(3,900).
D)$(1,900).

Accepted Answer

The net cash inflows from investing activities are calculated by subtracting the cash outflows from the cash inflows. In this case, Rowdy's has cash outflows of $4,000 for the purchase of equipment and cash inflows of $100 from the sale of the land. Therefore, the net cash inflows from investing activities would be ($4,000 - $100) = $3,900.

Question 9

Hong Kong Clothiers reported revenue of $5,000,000 for its year ended December 31, 2013. Accounts receivable at December 31, 2012 and 2013, were $320,000 and $355,000, respectively. Using the direct method for reporting cash flows from operating activities, Hong Kong Clothiers would report cash collected from customers of:
A)$4,965,000.
B)$5,000,000.
C)$5,035,000.
D)$5,045,000.

Accepted Answer

The cash collected from customers is calculated by adjusting the revenue for the change in accounts receivable. The increase in accounts receivable ($355,000 - $320,000 = $35,000) indicates that not all revenue was collected in cash. Therefore, cash collected = $5,000,000 - $35,000 = $4,965,000.

Question 10

Bird Brain Co. reported net income of $45,000 for the year ended December 31, 2013. January 1 balances in accounts receivable and accounts payable were $23,000 and $26,000 respectively. Year-end balances in these accounts were $22,000 and $28,000, respectively. Assuming that all relevant information has been presented, Bird Brain's cash flows from operating activities would be:
A)$48,000.
B)$44,000.
C)$46,000.
D)$45,000.

Accepted Answer

The cash flows from operating activities are calculated by adjusting net income for changes in working capital. The decrease in accounts receivable ($23,000 - $22,000 = $1,000) indicates an increase in cash flow, while the increase in accounts payable ($28,000 - $26,000 = $2,000) also indicates an increase in cash flow. Therefore, the cash flow from operating activities is $45,000 (net income) + $1,000 (decrease in accounts receivable) + $2,000 (increase in accounts payable) = $48,000.

Question 11

Shively Mfg. Co. sold for $18,000 equipment that cost $40,000 and had a book value of $30,000. Shively would report:
A)Operating cash inflows of $18,000.
B)Operating cash inflows of $8,000.
C)Financing cash inflows of $18,000.
D)Investing cash inflows of $18,000.

Accepted Answer

The sale of equipment is considered an investing activity, so Shively would report investing cash inflows of $18,000.

Question 12

Nevada Boot Co. reported net income of $216,000 for its year ended December 31, 2013. Purchases totaled $152,000. Accounts payable balances at the beginning and end of the year were $36,000 and $33,000, respectively. Beginning and ending inventory balances were $44,000 and $46,000, respectively. Assuming that all relevant information has been presented, Nevada Boot would report operating cash flows of:
A)$155,000.
B)$221,000.
C)$211,000.
D)$151,000.

Accepted Answer

To calculate operating cash flows using the indirect method, we start with net income and make adjustments for non-cash expenses (i.e. depreciation) and changes in current assets and liabilities. 
Operating cash flows = net income + depreciation - increase in accounts payable + increase in inventory
Operating cash flows = $216,000 + $0 - ($33,000 - $36,000) + ($46,000 - $44,000)
Operating cash flows = $211,000

Question 13

Jacobsen Corporation prepares its financial statement applying International Financial Reporting Standards. During its 2013 fiscal year, the company reported before-tax income of $620,000. This amount does not include the following two items, both of which are considered to be material in amount:  The company's income tax rate is 40%. In its 2013 income statement, Jacobsen would report income from continuing operations of:
A)$312,000.
B)$372,000.
C)$492,000.
D)$620,000.

Accepted Answer

The answer of Jacobsen Corporation prepares its financial statement applying...

Question 14

Rowdy's would report net cash inflows (outflows) from operating activities in the amount of:
A)$(80).
B)$120.
C)$200.
D)$420.

Accepted Answer

The answer of Rowdy's would report net cash inflows (outflows)...

Question 15

Scenario 3: Assume that Jacob had not yet sold the office furniture division by the end of 2013. Further, assume that the fair value less costs to sell of the division's assets at December 31, 2013, was $12 million and was expected to remain the same when the assets are sold in 2014. The book value of the division's assets was $19 million at the end of the year. Under these assumptions, what would Jacob report in its 2013 income statement regarding the office equipment division? Explain where this information would be presented.

Accepted Answer

The answer of Scenario 3: Assume that Jacob had not...

Question 16

Lucia Ltd. reported net income of $135,000 for the year ended December 31, 2013. January 1 balances in accounts receivable and accounts payable were $29,000 and $26,000, respectively. Year-end balances in these accounts were $30,000 and $24,000, respectively. Assuming that all relevant information has been presented, Lucia's cash flows from operating activities would be:
A)$132,000.
B)$134,000.
C)$136,000.
D)$138,000.

Accepted Answer

The answer of Lucia Ltd. reported net income of $135,000...

Question 17

In a statement of cash flows prepared under International Financial Reporting Standards, each of the following items is typically classified as a financing cash flow except:
A)Interest paid.
B)Dividends paid.
C)Proceeds from the issuance of long-term debt.
D)Dividends received.

Accepted Answer

Dividends received is typically classified as an operating cash flow, while interest paid, dividends paid, and proceeds from the issuance of long-term debt are classified as financing cash flows.

Question 18

Jacobsen Corporation prepares its financial statement applying U.S. GAAP. During its 2013 fiscal year, the company reported before-tax income of $620,000. This amount does not include the following two items, both of which are considered to be material in amount:  The company's income tax rate is 40%. In its 2013 income statement, Jacobsen would report income from continuing operations of:
A)$312,000.
B)$372,000.
C)$492,000.
D)$620,000.

Accepted Answer

The two material items need to be added back to before-tax income to arrive at income from continuing operations. Therefore, income from continuing operations will be:
Before-tax income: $620,000
Addback of material items: $80,000
Total income from continuing operations: $700,000
Income tax at 40%: $280,000
Income from continuing operations after tax: $420,000
Therefore, the correct answer is $372,000, which is income from continuing operations after tax.

Question 19

Rowdy's would report net cash inflows (outflows) from financing activities in the amount of:
A)$1,100.
B)$(1,100).
C)$820.
D)$900.

Accepted Answer

The answer of Rowdy's would report net cash inflows (outflows)...

Question 20

Canton Corporation reported the following items in its adjusted trial balance for the year ended December 31, 2013:  Canton is subject to a 30% tax rate.
Required:
Prepare the December 31, 2013, income statement for Canton Corporation, starting with income from continuing operations before income taxes.

Accepted Answer

The answer of Canton Corporation reported the following items in...

Quiz 4: The Income Statement, Comprehensive Income, and the Statement of Cash Flows

Paris Company reported the following items in its December 31, 2013, year-end adjusted trial balance: Paris is subject to a 40% income tax rate. Required: Prepare the December 31, 2013, income statement for Paris Company starting with income from continuing operations before income taxes.

Arrow Printers paid $2,000 interest on short-term notes payable, $10,000 interest on long-term bonds, and $6,000 in dividends on its common stock. Arrow would report cash outflows from activities, as follows:

Expenses in an income statement prepared under International Financial Reporting Standards:

Required: Prepare a single-step income statement with basic earnings per share disclosure.

Shady Lane's income tax payable account decreased from $14 million to $12 million during 2013. If its income tax expense was $80 million, what was shown as an operating cash flow under the direct method?

Rowdy's would report net cash inflows (outflows) from investing activities in the amount of:

Shively Mfg. Co. sold for $18,000 equipment that cost $40,000 and had a book value of $30,000. Shively would report:

Rowdy's would report net cash inflows (outflows) from operating activities in the amount of:

In a statement of cash flows prepared under International Financial Reporting Standards, each of the following items is typically classified as a financing cash flow except:

Rowdy's would report net cash inflows (outflows) from financing activities in the amount of: