CPA Financial Accounting and Reporting (FAR) › CPA Financial Accounting and Reporting (FAR)
Barr Company had the following account balances at the end of Year 1: sales of $250,000; cost of goods sold of $90,000; salaries and wages of $30,000; rent expense of $15,000; advertising costs of $25,000; fixed assets purchased $50,000. What was Barr's net income for Year 1?
$115,000
$90,000
$65,000
$160,000
Net income is calculated by taking sales of $250K - COGS of $90K - salaries of $30K - rent of $15K - advertising of $25K.
Of the following, which are listed on the Statement of Comprehensive Income?
Net income
Other Comprehensive Income
Both
Neither
Both of these items are listed and broken out on the Statement of Comprehensive Income. Net income are more regular and standard income items where as OCI items are less frequent and do not reflect normal operations.
A building is bought on August 1, Year 1, for $400,000 and is depreciated using the straight-line method over a life of 20 years with an expected residual value of $40,000. The half-year convention is elected. On April 1, Year 3, the building is sold for a loss of $30,000. What appears on the company's year 3 statement of cash flows?
Operating activities cash inflow of $325,000
Investing activities cash inflow of $334,000
Operating activities cash inflow of $364,000
Investing activities cash inflow of $370,000
Purchases and sales of long-term assets belong in the investing activities section of the statement of cash flows.To calculate the amount of cash received in the sale, determine the net book value of the asset at the time of the sale. ($400K purchase price - $40K residual value) / 12 years x 2 years = $36K in depreciation. $400K - $36K = NBV of $364K, meaning cash of $334 was received for the building.
Of the following, which would be classified as a decrease in cash flow from investing activities?
The purchase of fixed assets
The purchase of direct materials
Salaries Expenses
Payment of Dividends
Purchasing long term investments or long term assets is an investing activity which reduces the cash account, this resulting in a decrease in cash flow.
Which of the following items would not be included in other comprehensive income?
Unrealized holding gains or losses on investments classified as trading securities
Pension prior service costs or credits
Foreign currency translation gains or losses
Unrealized holding gains or losses on investments classified as available for sale
Unrealized holding gains/losses are included in net income.
Working capital is defined as:
Current assets divided by current liabilities
Cash plus net receivables plus marketable securities divided by current liabilities
Current assets minus current liabilities
Total assets minus current liabilities
Working capital represents net short term assets.
Fairway Company began Year 3 with owner's equity of $60,000 and ended Year 3 with owner's equity of $94,000. During the Year, Fairway issued 1,000 shares of new stock at a par value of $10 per share when the market value was $15 per share. Fairway also paid out a cash dividend of $2 per share to 20,000 shareholders during the year. What was net income for the year?
$104,000
$84,000
$64,000
$59,000
Ending owner's equity equals beginning owner's equity of $60K, plus cash received for the new shares of $10K, plus the missing net income amount, minus dividends paid of $40K. Thus, we can back into net income. Net income equals $94K - $60 - $10K + $40K = $64K.$104,000
ABC Company recorded goods in transit purchased FOB shipping point at year end as purchases. The goods were excluded from ending inventory. What effect does the omission have on ABC's assets and retained earnings at year end?
Assets understated
Retained earnings understated
Both assets and retained earnings understated
No effect
Because the goods are in transit, the buyer should have included them in inventory. By not including them, inventory and assets are understated.
Which of the following transactions would be initially recorded in the prepaid expense account?
A company pre-pays annual real estate taxes at the beginning of the fiscal year
A retail company makes significant sales of gift certificates shortly before the holiday season, the majority of which it doesn't expect will be spent until after the new year
A company pre-pays a year-long subscription to a local newspaper, the cost of which it considers small
A company orders office supplies which it expects to use within the current month
Annual real estate taxes paid at the beginning of the year would be entered into prepaid taxes and then amortized to expenses throughout the year. Unearned revenue, immaterial prepaid subscriptions, and office supplies for the current period would not go to prepaid expenses.
Which terms indicate that a contingent liability likely should be recognized?
Probable
Estimable
Both
Neither
Both of these terms indicate that a contingent liability must be recognized. Estimable indicates a number available for disclosure and probable indicates that the event will likely occur.