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Exam 16: Basic Accounting Concepts, Techniques, and Conventions

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Question 1

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Captain Nemo Company has the following balances as of December 31, 20X5: $\begin{array}{ll}\text { Beginning retained earnings } & \$ 20,000 \\\text { Cost of goods sold } & 46,000 \\\text { Depreciation expens e } & 1,450 \\\text { Dividends } & 4,000\\\text { Income tax expense } & 5,000 \\\text { Interest expense } & 1,050 \\\text { Rent expense } & 1,700 \\\text { Sales } & 68,000 \\\text { Wage expense } & 6,800\end{array}$ Prepare a combined statement of income and retained earnings using the multiple- step method.

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The sum of all depreciation taken to date on a fixed asset

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Accumulated depreciation

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is not considered in the determination of the operating cycle.

If a company's sales were all for cash and it paid all expenses in cash as incurred, then the cash flows from operating activities would be identical to net income.

Retained earnings are sometimes called retained income.

Current assets less current liabilities

Assets such as notes receivable and short- term investments that are not cash equivalents

Given below is a list of events: 1. payment of employee wages 2) cash collections from customers 3) sale of capital stock 4) sale of land, at cost 5) payment of a cash dividend 6) borrow cash from creditors 7) purchase of equipment 8) cash sale of inventory 9) purchase inventory on account Which of the above events are inflows in the operating section of the statement of cash flows?

Stock that has no predetermined rate of dividends and is the last to obtain a share in the assets when the corporation is dissolved

Crosby Company reported sales on account of $250,000, an increase in inventory of $70,000, and a decrease in accounts receivable of $20,000. _ was received from Crosby Company's customers.

An example of a financing activity on the statement of cash flows is the conversion of debt to common stock.

The possibility that long- term debt holders can transfer their debt back to the company in exchange for the company's stock

The liabilities of Pocahontas Company are listed below: $\begin{array}{ll}\text { Accounts payable } & \$ 20,000 \\\text { First Mortgage bonds payable } & \$ 100,000 \\\text { Debentures payable } & \$ \$ 0,000\end{array}$ Pocahontas Company liquidated its assets, receiving $150,000 cash. The debenture holders will receive if the debentures are subordinated.

Preferred stockholders' potential participation in earnings is unlimited.

An example of an investing activity on the statement of cash flows is purchasing fixed assets by issuing debt.

An example of a financing activity on the statement of cash flows is payment of cash dividends.

Operating income is equal to the cash flow from operations on a cash flow statement.

Which one of the following statements is false?

Formal certificates of indebtedness that are accompanied by a promise to pay interest at a specified annual rate

A creditor claim that is junior to the other creditors in exercising claims against assets