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Question
Current GAAP requires firms to use the direct method when preparing the operating activities section of the statement of cash flows because it is more informative and transparent.
Answer
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Related questions
Q:
Briefly explain the forces behind the rise of IFRS.
Q:
A tremendous amount of time, money, and effort are spent on the compilation of quarterly and yearly financial reports. Correspondingly, they attract a lot of attention and scrutiny. Explain the role and importance of financial reports in capital markets.
Q:
Stock markets are common in many countries and economies. Explain the need for and use of a stock market in an economy.
Q:
IFRS frequently
A. upon issue are automatically approved for any foreign listed company.
B. permit only one accounting treatment for similar business transactions and events to promote comparability.
C. allow firms less latitude when compared to U.S. GAAP.
D. follow a more generalized overview approach than do U.S. GAAP counterpart standards.
Q:
When a financial statement contains omissions or misstatements that would alter the judgment of a reasonable person, it violates
A. neutrality.
B. consistency.
C. conservatism.
D. materiality.
Q:
When financial information is measured and reported in a similar manner across different companies in the same industry it is
A. consistent.
B. comparable.
C. neutral.
D. faithfully represented.
Q:
Which one of the following types of disclosure costs is the cost of disclosing the company's pricing strategies?
A. Political cost
B. Litigation cost
C. Competitive disadvantage cost
D. Information collection, processing, and dissemination cost
Q:
The amount reported as net cash provided by financing activities is
A. $25,000.
B. $30,000.
C. $150,000.
D. $200,000.
Q:
The amount reported as net cash provided by investing activities is
A. $25,000.
B. $50,000.
C. $275,000.
D. $300,000.
Q:
An increase in inventory of $7,000 for the year
A. decreases cash flow from operating activities by $7,000.
B. increases cash from operating activities by $7,000.
C. decreases cash flow from operating activities by $14,000.
D. increases cash flow from operating activities by $14,000.
Q:
Analysts prefer the indirect method for the preparation of the cash flow statement because the size and direction of the items reconciling net income to net cash flow from operating activities provide a yardstick for measuring the
A. current ratio.
B. return on assets.
C. quality of earnings.
D. rate of dividends.
Q:
The direct method and the indirect method are alternative presentations for presenting cash flows from
A. investing activities.
B. operating activities.
C. financing activities.
D. research activities.
Q:
Cash flows arising from the payment of dividends are cash flows from
A. investing activities.
B. operating activities.
C. financing activities.
D. research activities.
Q:
The Black Corporation has provided the following information:
Net income: $560,000
Increase in prepaid expenses: $14,000
Amortization of discount on bonds payable: $10,000
Decrease in accounts payable: $20,000
Increase in inventory: $21,000
Dividends declared: $39,000
Dividends paid: $36,000
Increase in accounts receivable: $30,000
Increase in wages payable: $16,000
Increase in deferred tax liability: $41,000
Required: Determine the cash flow from operating activities.
Q:
Which of the following correctly describes U.S. GAAP accounting for convertible bonds and the implication of that requirement?
A. separation of debt and equity components; interest expense is overstated.
B. no separation of debt and equity components; interest expense is understated.
C. no separation of debt and equity components; interest expense is overstated.
D. separation of debt and equity components; interest expense is understated.
Q:
Call provisions on convertible bonds protect the
A. investor against extreme stock price increases.
B. company against extreme stock price increases.
C. bank against extreme stock price decreases.
D. company against extreme stock price decreases.
Q:
A bond with a carrying value of $790,000 was converted into 100,000 shares of $5 per share par value common stock at a time when the market value per share was $9.00 per share. Which of the following statements does not accurately describe the financial accounting for the conversion?
A. A loss of $110,000 will be recognized if the market value method of recording the conversion is used.
B. Total owners' equity increases $790,000 if the market value method of recording the conversion is used.
C. Total owners' equity increases $790,000 if the book value method of recording the conversion is used.
D. Total owners' equity increases $900,000 if the market value method of recording the conversion is used.
Q:
Over the vesting period for employee stock options, current GAAP requires that the entire compensation expense be recognized
A. in the first year of the vesting period.
B. in the last year of the vesting period.
C. equally in each year of the vesting period.
D. only if the options are exercised.
Q:
How much compensation expense will be recorded for the year ending December 31, 2013 using the fair value approach?
A. $75,000
B. $175,000
C. $50,000
D. $25,000
Q:
The following information has been provided to you by the Smith Corporation for the year ending December 31, 2011:
The numerator used in the calculation of basic earnings per share was $797,000.
Cash dividends were paid to the common shareholders.
8% convertible bonds with a par value of $1,000,000 were issued on July 1, 2011.
The corporation's marginal income tax rate is 40%.
6% convertible preferred stock with a par value of $800,000 were outstanding during the entire year.
Assuming that both the bonds and preferred stock are dilutive, what is the numerator that should be used in the calculation of diluted earnings per share?
A. $893,000
B. $869,000
C. $773,000
D. $821,000
Q:
The following information has been obtained from the Mastic Corporation:
550,000 shares of common stock were outstanding on January 1, 2011.
Bonds convertible into 50,000 shares of common stock were issued on July 1, 2011; the bonds have been determined to be dilutive.
36,000 shares of common stock were issued on November 1, 2011.
24,000 shares of common stock were purchased on December 1, 2011.
What is the weighted average number of shares to be used in the calculation of diluted earnings per share for 2011?
A. 612,000
B. 587,000
C. 604,000
D. 579,000
Q:
A company that has earnings in Year 2 equal to the earnings of Year 1 can improve its Year 2 reported earnings per share by
A. selling additional common stock.
B. selling additional preferred stock.
C. selling shares of treasury stock at a price exceeding what was paid for the treasury stock.
D. purchasing shares of treasury stock.
Q:
Which of the following statements is correct when a company has a complex capital structure?
A. Diluted earnings per share must be shown on the income statement.
B. Diluted earnings per share and basic earnings per share must both be shown on the income statement.
C. The company might have convertible bonds outstanding.
D. The company must have participating preferred stock outstanding.
Q:
Which of the following is not indicative of a complex capital structure?
A. Outstanding convertible bonds.
B. Outstanding convertible preferred stock.
C. Outstanding cumulative preferred stock.
D. Outstanding stock options.
Q:
Assuming that the preferred stock is cumulative, and that there are no dividends in arrears, what is the maximum dividend that may be distributed to common shareholders at December 31, 2012?
A. $9,500,000
B. $7,000,000
C. $7,500,000
D. $2,000,000
Q:
What is the owners' equity balance on December 31, 2012?
A. $8,663,350
B. $8,738,350
C. $8,865,850
D. $8,934,300
Q:
What is the retained earnings balance on December 31, 2012?
A. $1,994,050
B. $2,219,050
C. $2,214,300
D. $2,246,550
Q:
Which of the following does not accurately describe the proprietary view of the firm?
A. Its focus is on the firm's net assets.
B. It is the prevailing view of GAAP.
C. Its focus is on owners' equity.
D. Whether creditors or shareholders provided the firm's assets is irrelevant.
Q:
By using the book value method to record the conversion of convertible bonds, managers are able to protect themselves from recording conversion losses.
Q:
SFAS No. 123 required companies to use the fair value approach when determining compensation expense pertaining to stock options.