### Sales & Purchases – Cash Flows – Finance & Accounting

These chapters discuss Sales & Purchases – Cash Flows – Finance & Accounting

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 11-01-18 will include a(an)

\$240 debit to interest expense Correct

\$12,240 debit to cash

\$320 debit to interest expense

\$12,000 credit to short-term notes payable

\$12,320 credit to cash

Acme Company reported the following relating to its only inventory item:

Inventory on hand, January 1, 25 units costing \$32 per unit
Purchases, January 8, 30 units costing \$38 per unit
The Purchases, January 15, 20 units costing \$41 per unit
Purchases, January 26, 15 units costing \$45 per unit
Total cost of goods available for sale equaled 90 units costing \$3,435

Sales, January 5, 5 units
The Sales, January 16, 14 units
Sales, January 25, 31 units
Total sales equaled 50 units for sales revenues of \$3,500

Assuming Acme uses a FIFO costing method, what was Acme’s ending inventory and cost of goods sold, respectively?

\$1,685, \$1,750 Correct

\$1,370, \$2,065

\$1,850, \$1,585

\$1,815, \$1,620

\$1,750, \$1,685

Acme Company reported the following relating to its only inventory item:

Inventory on hand, January 1, 25 units costing \$16 per unit
Purchases, January 8, 30 units costing \$38 per unit
The Purchases, January 15, 20 units costing \$41 per unit
Purchases, January 26, 15 units costing \$45 per unit
Total cost of goods available for sale equaled 90 units costing \$3,035

Sales, January 5, 5 units
The Sales, January 16, 14 units
Sales, January 25, 31 units

Total sales equaled 50 units for sales revenues of \$3,500
Assuming Acme uses a perpetual LIFO costing method, what was Acme’s ending inventory and cost of goods sold, respectively?

\$970, \$2,065

\$1,185, \$2,315

\$1,850, \$1,650

##### \$1,185, \$1,850 – Correct

\$640, \$2,395

The formula used to calculate a company’s gross profit amount is:

Net sales minus operating expenses

Net sales revenues minus sales expense

Total Net sales minus the change in ending inventory

Net sales minus cost of goods sold Correct

Net sales minus cost of goods sold and administrative expenses

Which of the following events will appear in the cash flows from financing activities section of the statement of cash flows?

Cash received as repayment for funds loaned.

Total Cash purchases of equipment.

Cash purchase of treasury stock. Correct

Cash purchases of bonds issued by another company.

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 11-01-18 will include a(an)

\$240 debit to interest expense Correct

\$12,240 debit to cash

\$320 debit to interest expense

\$12,000 credit to short-term notes payable

\$12,320 credit to cash

Acme Company reported the following relating to its only inventory item:

Inventory on hand, January 1, 25 units costing \$32 per unit
Purchases, January 8, 30 units costing \$38 per unit
And Purchases, January 15, 20 units costing \$41 per unit
Purchases, January 26, 15 units costing \$45 per unit
Total cost of goods available for sale equaled 90 units costing \$3,435

Sales, January 5, 5 units
And Sales, January 16, 14 units
Sales, January 25, 31 units
Total sales equaled 50 units for sales revenues of \$3,500

Assuming Acme uses a FIFO costing method, what was Acme’s ending inventory and cost of goods sold, respectively?

\$1,685, \$1,750 Correct

\$1,370, \$2,065

\$1,850, \$1,585

\$1,815, \$1,620

\$1,750, \$1,685

Acme Company reported the following relating to its only inventory item:

Inventory on hand, January 1, 25 units costing \$16 per unit
Purchases, January 8, 30 units costing \$38 per unit
The Purchases, January 15, 20 units costing \$41 per unit
Purchases, January 26, 15 units costing \$45 per unit
Total cost of goods available for sale equaled 90 units costing \$3,035

Sales, January 5, 5 units
The Sales, January 16, 14 units
Sales, January 25, 31 units

Total sales equaled 50 units for sales revenues of \$3,500
Assuming Acme uses a perpetual LIFO costing method, what was Acme’s ending inventory and cost of goods sold, respectively?

\$970, \$2,065

\$1,185, \$2,315

\$1,850, \$1,650

\$1,185, \$1,850 Correct

\$640, \$2,395

The formula used to calculate a company’s gross profit amount is:

Net sales minus operating expenses

Net sales revenues minus sales expense

Total Net sales minus the change in ending inventory

##### Net sales minus cost of goods sold – Correct

Net sales minus cost of goods sold and administrative expenses

Which of the following events will appear in the cash flows from financing activities section of the statement of cash flows?

Cash received as repayment for funds loaned.

Total Cash purchases of equipment.

Cash purchase of treasury stock. Correct

Cash purchases of bonds issued by another company.

In preparing a statement of cash flows, cash flows from operating activities

can be calculated by appropriately adding to or deducting from net income those items in the income statement that do affect cash.

are calculated as the difference between revenues and expenses.

can be calculated by appropriately adding to or deducting from net income those items in the income statement that do not affect cash. Correct

are always equal to accrual accounting income.

Which inventory costing method most closely approximates recent costs for ending inventory and cost of goods sold, respectively?

FIFO, FIFO

HIFO

LIFO, FIFO

LIFO, LIFO

##### FIFO, LIFO – Correct

On 12-31-18, M Company accepted a three-year, zero-interest-bearing \$50,000 trade note receivable from R Inc. in exchange for some inventory that M sold to R on 12-31-18. M will collect the \$50,000 note on 12-31-21. On 12-31-18, the market interest rate for similar notes was 10%. What amount of interest income should M report for the year ending 12-31-19?

\$1,243

\$1,879

\$1,667

\$3,757 Correct

\$5,000

Assume Farb 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, Farb counts whatever is on the premises. Information relating to one of Farb’s inventory purchases follows:

Goods shipped to Farb by a vendor f.o.b. shipping point on December 29, 2019 were in transit on December 31, 2019. The goods cost Farb \$15,000. Farb recorded a credit purchase of \$15,000 on January 4, 2020, the day Farb received the goods.

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

##### under \$15,000, under \$15,000, \$0 impact, \$0 impact – Correct

\$0 impact, under \$15,000, under \$15,000, over \$15,000

under \$15,000, under \$15,000, under \$15,000, \$0 impact

\$0 impact, under \$15,000, over \$15,000, \$0 impact

over \$15,000, \$0 impact, under \$15,000, over \$15,000

On May 1, Rex factored \$100,000 of accounts receivable with Steady Finance on a with recourse basis. Steady assessed a finance charge of \$4,000 of the total accounts receivable and retained \$2,000 for possible sales returns. Rex estimated a \$5,000 recourse provision. Between May 1 and July 31, Rex’s customers returned merchandise on \$2,500 of credit sales within the pool of receivables factored. Steady collected \$90,000 of the \$100,000 of accounts receivable factored. On August 1, Rex and Steady settled up what Rex owes Steady OR what Steady owes Rex. As a result of both factoring its ARs and settling up with Steady, Rex increased its cash account by:

\$90,000

\$88,500

\$91,500

\$86,000 Correct

\$89,000

In preparing a statement of cash flows, which of the following transactions would be considered an investing activity?

Declaration of a cash dividend

Issuance of bonds payable at a discount

Sale of equipment at book value Correct

Sale of merchandise on credit

Harding Corporation reports the following information:

Harding should report cash provided by operating activities of

\$610000. Correct

\$330000.

\$730000.

\$450000.

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

Financing. Correct

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:

Trent’s free cash flow is

\$310,000

\$90,000 Correct

\$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? Correct

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. Correct

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

This 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 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 Correct

\$7,000 credit to unearned rent

In preparing a statement of cash flows, which of the following transactions would be considered an investing activity?

Declaration of a cash dividend

Issuance of bonds payable at a discount

##### Sale of equipment at book value – Correct

Sale of merchandise on credit

Harding Corporation reports the following information:

Harding should report cash provided by operating activities of

\$610000. Correct

\$330000.

\$730000.

\$450000.

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

Financing. Correct

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.

In a statement of cash flows, receipts from sales of property, plant, and equipment and other productive assets should generally be classified as cash inflows from

operating activities.

investing activities. Correct

selling activities.

financing activities.

In a statement of cash flows, interest payments to lenders and other creditors should be classified as cash outflows for

financing activities.

lending activities.

borrowing activities.

operating activities. Correct

In a statement of cash flows, proceeds from issuing equity instruments should be classified as cash inflows from

investing activities.

operating activities.

lending activities.

financing activities. Correct

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 Correct

\$17,895

\$15,560

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 Correct

\$875,000

\$878,000

\$882,000

##### Explanation

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

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.

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