Financial Statements
A company reports net income of $240,000. During the year, accounts receivable increased $30,000 and accounts payable increased $20,000. Using the indirect method and ignoring all other adjustments, what is cash flow from operating activities?
$230,000
$240,000 - $30,000 + $20,000 = $230,000
Inventory costs $90,000 and has a net realizable value of $82,000. Assuming the applicable measurement is lower of cost and NRV, at what amount should inventory be reported?
$82,000
A company receives $24,000 cash on December 1 for services it will provide evenly over the next 12 months. How much revenue should it recognize by December 31?
$2,000
One month has been earned: $24,000 ÷ 12.
A corporation has 100,000 shares issued, including 15,000 treasury shares. How many shares are outstanding?
85,000
A nongovernmental not-for-profit organization prepares its financial statements using what basis of accounting?
Accrual basis
A company sells equipment for $70,000. The equipment originally cost $100,000 and has accumulated depreciation of $40,000. How much gain or loss is recognized?
$10,000 gain
Book value = $100,000 − $40,000 = $60,000.
They got $70,000, so $10,000 gain.
Equipment costs $120,000, has a $20,000 residual value, and a 5-year useful life. Using straight-line depreciation, what is annual depreciation expense?
$20,000
($120,000 − $20,000) ÷ 5 = $20,000
A company issues a $100,000 bond with a stated interest rate of 6%. If interest is paid annually, how much cash interest does the company pay each year?
$6,000
A company issues 10,000 shares of $5-par common stock for $12 per share. How much is credited to additional paid-in capital?
$70,000
Cash = $120,000
Common stock = $50,000
APIC = $70,000
For a nongovernmental NFP, which financial statement is most comparable to a for-profit company's income statement?
Statement of activities
A company reports net income of $500,000. Depreciation expense is $60,000, accounts receivable decreased $25,000, inventory increased $40,000, and accounts payable decreased $15,000. What is operating cash flow using the indirect method?
$530,000
$500,000 + $60,000 + $25,000 − $40,000 − $15,000 = $530,000
A company purchases land for $400,000. It also pays $20,000 in legal fees related to the purchase, $15,000 to demolish an old building on the property, and receives $5,000 from selling salvaged materials. What amount should be capitalized as the cost of the land?
$430,000
$400,000 + $20,000 + $15,000 − $5,000 = $430,000
A bond's stated interest rate is 6%, but the market rate at issuance is 8%. Will the bond generally issue at par, a premium, or a discount?
Discount
Investors can get 8% elsewhere, while this bond only promises 6%, so they won't pay full face value.
Beginning retained earnings is $300,000. Net income is $120,000 and cash dividends declared are $50,000. What is ending retained earnings?
$370,000
A donor gives an NFP $100,000 but specifies that the money may only be used for scholarships. At the time of contribution, how should the NFP classify the contribution?
Revenue with donor restrictions
A company discovers in Year 3 that it failed to record $50,000 of depreciation expense in Year 2. Assume the error is material. How should the company generally report the correction?
As a prior-period adjustment by retrospectively correcting the financial statements.
Accept: “Retrospective adjustment,” “restatement,” or substantially equivalent wording.
A company has beginning inventory of $40,000, purchases of $210,000, and ending inventory of $55,000. What is cost of goods sold?
$195,000
$40,000 + $210,000 − $55,000 = $195,000
A company has a probable lawsuit loss. Its attorney estimates the loss will fall between $200,000 and $300,000, and no amount within that range is more likely than another. What amount should generally be accrued under U.S. GAAP?
$200,000
When a loss is probable and reasonably estimable but no amount in the range is a better estimate, accrue the minimum amount in the range and disclose the potential additional loss.
A company has 50,000 common shares outstanding all year and reports net income of $300,000. Preferred dividends are $50,000. What is basic EPS?
$5.00 per share
($300,000 − $50,000) ÷ 50,000 = $5
A governmental fund purchases equipment for $200,000. Under governmental-fund accounting, is the purchase generally reported as an asset that is depreciated or as an expenditure?
An expenditure
Don't let him say “depreciate it” for the governmental fund.
A company has $800,000 of income from continuing operations before tax and a $120,000 loss from a discontinued component. Assume a 25% tax rate applies to both. What amounts should be reported for income from continuing operations and the discontinued-operation loss, net of tax?
Continuing operations: $600,000
Discontinued-operation loss: $90,000
$800,000 × 75% = $600,000
$120,000 × 75% = $90,000
A company purchases equipment for $500,000. At the end of its first year, accumulated depreciation is $50,000. The equipment's carrying amount is determined to be impaired, and its new carrying amount should be $380,000. What impairment loss should be recognized?
$70,000
Current carrying amount = $500,000 − $50,000 = $450,000.
$450,000 − $380,000 = $70,000 loss.
A bond has a carrying amount of $480,000 at the beginning of the year, a face amount of $500,000, a stated rate of 6%, and an effective rate of 8%. Interest is paid annually. Under the effective-interest method, what are interest expense and discount amortization for the year?
Interest expense: $38,400
Discount amortization: $8,400
Expense = $480,000 × 8% = $38,400
Cash paid = $500,000 × 6% = $30,000
Difference = $8,400
A company begins the year with 100,000 common shares outstanding. On April 1 it issues 40,000 additional shares. On October 1 it repurchases 20,000 shares as treasury stock. What weighted-average number of shares should be used for basic EPS?
125,000 shares
100,000 all year = 100,000
40,000 × 9/12 = 30,000
20,000 × 3/12 = −5,000
Total = 125,000
A city collects $500,000 specifically to finance construction of a new fire station. Which governmental fund would generally account for the construction resources?
Capital projects fund