Operating Revenue & Financing Cash Flow – Finance Exam

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Operating Revenue & Financing Cash Flow – Finance Exam

These chapters discuss Operating Revenue & Financing Cash Flow – The Finance Exam is based on these chapters.


How should a material unusual or infrequent gain or loss be reported in the financial statements?

Reported as an operating revenue or an operating expense but not shown as a separate item.

Should be Reported as a separate item below net income or loss in the Income Statement.

Reported in the “Other revenues and gains” or “Other expenses and losses” section of the Income Statement and supplemented by a footnote.

Should be Reported in the “Discontinued operation” section of the Income Statement, not net of tax, and supplemented by a footnote.

Reported in the “Other revenues and gains” or “Other expenses and losses” section of the Income Statement, net of tax, and supplemented by a footnote.


On August 1, 2018 S issued a $24,000 short-term note that pays 4% interest. S will pay off the note principle in two equal installments with the first installment taking place on November 1, 2018 and the second installment taking place on February 1, 2019. S will pay interest when it makes a principle payment. Assume S only records adjusting journal entries every December 31 AND S does not prepare reversing entries.

The entry S will make on 12-31-18 will include a(an)

$40 credit to interest payable

$40 debit to interest expense

$160 debit to interest expense

$80 credit to cash

$80 credit to interest payable


On August 1, 2018 S issued a $24,000 short-term note that pays 4% interest. S will pay off the note principle in two equal installments with the first installment taking place on November 1, 2018 and the second installment taking place on February 1, 2019. S will pay interest when it makes a principle payment. Assume S only records adjusting journal entries every December 31 AND S does not prepare reversing entries.

The entry S will make on 02-01-19 will include a(an)

$12,120 credit to cash

$12,000 credit to short-term notes payable

$80 debit to interest expense

$12,160 credit to cash

$120 debit to interest expense


When a company uses the allowance method of recognizing uncollectible accounts expense, the two entries it makes at the time it collects an account it had previously written off will

increase the allowance for uncollectible accounts.

decrease the allowance for uncollectible accounts.

have no effect on the allowance for uncollectible accounts.

increase net income.

increase uncollectible account expense.


How should a material unusual or infrequent gain or loss be reported in the financial statements?

Reported as an operating revenue or an operating expense but not shown as a separate item.

Should be Reported as a separate item below net income or loss in the Income Statement.

Reported in the “Other revenues and gains” or “Other expenses and losses” section of the Income Statement and supplemented by a footnote.

Should be Reported in the “Discontinued operation” section of the Income Statement, not net of tax, and supplemented by a footnote.

Reported in the “Other revenues and gains” or “Other expenses and losses” section of the Income Statement, net of tax, and supplemented by a footnote.


On August 1, 2018 S issued a $24,000 short-term note that pays 4% interest. S will pay off the note principle in two equal installments with the first installment taking place on November 1, 2018 and the second installment taking place on February 1, 2019. S will pay interest when it makes a principle payment. Assume S only records adjusting journal entries every December 31 AND S does not prepare reversing entries.

The entry S will make on 12-31-18 will include a(an)

$40 credit to interest payable

$40 debit to interest expense

$160 debit to interest expense

$80 credit to cash

$80 credit to interest payable


On August 1, 2018 S issued a $24,000 short-term note that pays 4% interest. S will pay off the note principle in two equal installments with the first installment taking place on November 1, 2018 and the second installment taking place on February 1, 2019. S will pay interest when it makes a principle payment. Assume S only records adjusting journal entries every December 31 AND S does not prepare reversing entries.

The entry S will make on 02-01-19 will include a(an)

$12,120 credit to cash

$12,000 credit to short-term notes payable

$80 debit to interest expense

$12,160 credit to cash

$120 debit to interest expense


Assume Brad values the inventory reported on its balance sheet and the amount recorded as cost of goods sold on its income statement solely on the basis of its physical inventory count that took place on December 31, 2019. When performing its physical inventory count, Brad counts whatever is on the premises. Information relating to one of Brad’s inventory purchases follows:

Goods shipped to Brad by a vendor f.o.b. destination on December 29, 2019 were in transit on December 31, 2019. The goods cost Brad $5,000. Brad recorded a credit purchase of $5,000 on December 29, 2019, the day the goods were shipped.

What impact did Brad’s accounting for the aforementioned inventory purchase have on Brad’s ending inventory, accounts payable, cost of goods sold, and retained earnings, respectively?

under $5,000, $0 impact, under $5,000, over $5,000

$0 impact, $0 impact, $0 impact, $0 impact

under $5,000, under $5,000, under $5,000, $0 impact

$0 impact, over $5,000, over $5,000, under $5,000

$0 impact, under $5,000, over $5,000, over $5,000


Payment of dividends would come under which activity on the statement of cash flows?

Financing.

Operating.

Investing.

None of these answer choices are correct.

Explanation

Financing activities include obtaining resources from owners and providing them with a return on their investment (payment of dividends), and borrowing money from creditors and repaying the amounts borrowed.


Trent Co. reports the following information:

Net cash provided by operating activities$430,000
Average current liabilities300,000
Average long-term liabilities200,000
Dividends paid120,000
Capital expenditures220,000
Purchase of treasury stock22,000
Payments of debt70,000


Trent’s free cash flow is

$310,000.

$90,000.

$210,000.

$20,000.

Explanation

Net cash provided by operating activities, $430,000, less capital expenditures, $220,000, less dividends paid, $120,000 equals a free cash flow of $90,000.


The statement of cash flows provides answers to all of the following questions except

what was the change in the cash balance during the period?

what is the impact of inflation on the cash balance at the end of the year?

where did the cash come from during the period?

what was the cash used for during the period?


If common stock was issued to acquire an $8,000 machine, how would the transaction appear on the statement of cash flows?

It would not appear on the statement of cash flows but rather on a schedule of noncash investing and financing activities.

It would be a negative $8,000 in the financing section and a positive $8,000 in the investing section.

Instead It would depend on whether you are using the direct or the indirect method.

It would be a positive $8,000 in the financing section and a negative $8,000 in the investing section.


Assume Brad values the inventory reported on its balance sheet and the amount recorded as cost of goods sold on its income statement solely on the basis of its physical inventory count that took place on December 31, 2019. When performing its physical inventory count, Brad counts whatever is on the premises. Information relating to one of Brad’s inventory purchases follows:

Goods shipped to Brad by a vendor f.o.b. destination on December 29, 2019 were in transit on December 31, 2019. The goods cost Brad $5,000. Brad recorded a credit purchase of $5,000 on December 29, 2019, the day the goods were shipped.

What impact did Brad’s accounting for the aforementioned inventory purchase have on Brad’s ending inventory, accounts payable, cost of goods sold, and retained earnings, respectively?

under $5,000, $0 impact, under $5,000, over $5,000

$0 impact, $0 impact, $0 impact, $0 impact

under $5,000, under $5,000, under $5,000, $0 impact

$0 impact, over $5,000, over $5,000, under $5,000

$0 impact, under $5,000, over $5,000, over $5,000


Payment of dividends would come under which activity on the statement of cash flows?

Financing.

Operating.

Investing.

None of these answer choices are correct.

Explanation

Financing activities include obtaining resources from owners and providing them with a return on their investment (payment of dividends), and borrowing money from creditors and repaying the amounts borrowed.


Assume S Company only prepares AJEs as of December 31, the end of S’s accounting year. On August 1, S collected $12,000 of rent for 12 months in advance and recorded the receipt in a real account. The AJE S will make on December 31 will include a(an)

$7,000 debit to unearned rent

$5,000 debit to rent revenue

$7,000 credit to rent revenue

$5,000 credit to rent revenue

$7,000 credit to unearned rent


The following information was taken from the D Company’s balance sheets:

……………………………………………….12-31-18………..12-31-19
Prepaid advertising…………………….$30,000………….$60,000
Advertising fees receivable………….$40,000………….$20,000
Advertising payable…………………….$85,000………….$80,000
Unearned advertising income……….$35,000………….$75,000

For the year ended 12-31-19, D reported $340,000 of advertising expense.

How much cash did D pay during the year ended 12-31-19 related to advertising?

$305,000

$355,000

$310,000

$375,000

$365,000


Peterson Enterprises reports the following information:

Net income$5,000,000
Depreciation expense680,000
Loss on the sale of investments154,000
Increase in accounts receivable320,000


Peterson should report cash provided by operating activities of

$3,846,000.

$5,514,000.

$6,154,000.

$5,000,000.

Explanation

Net Income, $5,000,000 plus Depreciation Expense, $680,000 plus Loss on the sale of investments, $154,000 less Increase in accounts receivable, $320,000 equals $5,514,000, the cash provided by operating activities.


The financial statement which summarizes the operating, investing, and financing activities of an entity for a period of time is the

income statement.

retained earnings statement.

statement of financial position.

statement of cash flows.


Changes in all of E’s balance sheet accounts during the current year, EXCEPT the change in E’s retained earnings account, follow:

Cash increased $45,000
Fixed assets increased $25,000
Accumulated depreciation increased $10,000
Accounts payable increased $12,000
Unearned revenue decreased $20,000
Common stock increased $21,000
Additional paid-in-capital increased $22,000

What was E’s net income (or net loss) for the year assuming the only two entries E made to her retained earnings account during the year were for a cash dividend declared and paid of $5,000 and for her net income (or net loss) for the year.

$25,000 net loss

$50,000 net income

$27,000 net income

$30,000 net income

$24,000 net income


Ace Company reported the following items in the most recent year:

*Issuance of notes payable…………………….$90,000
*Purchase of fixed assets………………………$70,000
*Depreciation expense…………………………..$15,000
*Decrease in prepaid expenses………………$10,000
*Cash dividends paid……………………………. $25,000
*Net income………………………………………….$95,000
*Increase in unearned revenues……………..$17,000
*Increase in accounts receivable…………….$20,000

What was Ace’s net cash provided by operating activities and its net increase in cash, respectively?

$103,000, $112,000

$117,000, $122,000

$97,000, $122,000

$100,000, $152,000

$117,000, $112,000


Weaver Company sells magazine subscriptions for a 1-year, 2-year, or 3-year period. Cash receipts from subscribers are credited to magazine subscriptions collected in advance, and this account had a balance of $1,700,000 at December 31, year 1. Information for the year ended December 31, year 2, is as follows:

Cash receipts from subscribers$2,100,000
Magazine subscriptions revenue (credited at 12/31/Y2)1,500,000


In its December 31, year 2 balance sheet, what amount should Weaver report as the balance for magazine subscriptions collected in advance?

$1,400,000

$2,100,000

$1,900,000

$2,300,000

Explanation


As receipts are collected, the liability is credited to record the additional subscriptions owed to customers. In addition, the liability is decreased as revenue from the subscriptions is earned. Based upon the information given, Weaver should report $2,300,000 of subscriptions collected in advance at December 31, year 2.


Presented below are data for Antwerp Corp.

  2020 2021
Assets, January 1 $4200 $5040
Liabilities, January 1  2520  ?
Stockholders’ Equity, Jan. 1  ?  ?
Dividends  840  630
Common Stock  756  672
Stockholders’ Equity, Dec. 31  ?  ?
Net Income  840  672


Stockholders’ Equity at January 1, 2020 is

$1428.

$1680.

$1050.

$2436.


Assume S Company only prepares AJEs as of December 31, the end of S’s accounting year. On August 1, S collected $12,000 of rent for 12 months in advance and recorded the receipt in a real account. The AJE S will make on December 31 will include a(an)

$7,000 debit to unearned rent

$5,000 debit to rent revenue

$7,000 credit to rent revenue

$5,000 credit to rent revenue

$7,000 credit to unearned rent


The following information was taken from the D Company’s balance sheets:

……………………………………………….12-31-18………..12-31-19
Prepaid advertising…………………….$30,000………….$60,000
Advertising fees receivable………….$40,000………….$20,000
Advertising payable…………………….$85,000………….$80,000
Unearned advertising income……….$35,000………….$75,000

For the year ended 12-31-19, D reported $340,000 of advertising expense.

How much cash did D pay during the year ended 12-31-19 related to advertising?

$305,000

$355,000

$310,000

$375,000

$365,000


On 12-31-15, Shannon entered into an agreement that required Shannon to pay a supplier $5,000 every year on 12-31 until 2040. The agreement required Shannon to make the first annual payment on 12-31-20. Assume the market rate of interest for Shannon is 15%. As of 12-31-15 what was the present value of Shannon’s obligation?

$31,562

$31,297

$18,046

$17,895

$15,560


The following information was taken from the D Company’s income statement for the year ended 12-31-19:

Sales revenues of $950,000
A gain on the sale of a fixed asset of $30,000
Cost of goods sold of $320,000
Operating expenses of $200,000

What was D’s gross profit for the year ended 12-31-19?

$660,000

$600,000

$720,000

$430,000

$630,000


The premium on a 3-year insurance policy expiring on December 31, year 3, was paid in total on January 1, year 1. Assuming that the original payment was recorded as a prepaid asset, how would total assets and stockholders’ equity be affected during year 3?

Both total assets and stockholders’ equity would decrease.

Both total assets and stockholders’ equity would increase.

Neither total assets nor stockholders’ equity would change.

Total assets would decrease and stockholders’ equity would increase.


Mirr, Inc. was incorporated on January 1, year 1, with proceeds from the issuance of $750,000 in stock and borrowed funds of $110,000. During the first year of operations, revenues from sales and consulting amounted to $82,000, and operating costs and expenses totaled $64,000. On December 15, Mirr declared a $3,000 cash dividend, payable to stockholders on January 15, year 2. No additional activities affected owners’ equity in year 1. Mirr’s liabilities increased to $120,000 by December 31, year 1. On Mirr’s December 31, year 1 balance sheet, total assets should be reported at

$885,000

$875,000

$878,000

$882,000

Explanation

Mirr began operations on 1/1/Y1 with the following balance sheet elements:

Assets=Liabilities+Owners’ equity
$860,000=$110,000+$750,000


During year 1, liabilities increased to $120,000, and owners’ equity increased to $765,000 [$750,000 beginning balance + $18,000 net income ($82,000 revenues − $64,000 expenses) − $3,000 dividends declared]. Therefore, 12/31/Y1 assets must be $885,000.

Assets=Liabilities+Owners’ equity
Assets=$120,000+$765,000
Assets=$885,000

On 12-31-15, Shannon entered into an agreement that required Shannon to pay a supplier $5,000 every year on 12-31 until 2040. The agreement required Shannon to make the first annual payment on 12-31-20. Assume the market rate of interest for Shannon is 15%. As of 12-31-15 what was the present value of Shannon’s obligation?

$31,562

$31,297

$18,046

$17,895

$15,560


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