Question

1.

The advantages of a corporation compared to a sole proprietorship or partnership include:

2.

Preferred stock is called preferred because it usually has two preferences over common stock. These preferences relate to:

3.

When a company issues 34,000 shares of $5 par value common stock for $50 per share, the journal entry for this issuance would include:

4.

Environmental Designs issues 5,000 shares of its $1 par value common stock at $10 per share. (1) Record the issuance of the stock. (2) Record the issuance of the stock assuming it is no-par value stock. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

a. Record the issuance of the stock.

b. Record the issuance of the stock assuming it is no-par value stock.

5.

The issuance of a note payable is classified in the statement of cash flows as a(n):

6.

The sale of an intangible asset for cash is classified in the statement

7.

The net cash flows from operating, investing, and financing activities will equal:

8.

Depreciation expense is added to net income in the statement of cash flows under the indirect method because:

9.

Kela Corporation reports net income of $530,000 that includes depreciation expense of $82,000. Also, cash of $47,000 was borrowed on a 6-year note payable. Based on this data, total cash inflows from operating activities are:

10.

Lense Laboratories' net income was $280,000. Given the account information below, what is the net cash flows from operating activities for Lense Laboratories?

Increase in Accounts Receivable	$	67,000
Increase in Salaries Payable	$	53,500
Decrease in Inventory	$	34,000
Depreciation Expense	$	47,500
Increase in Prepaid Insurance	$	3,800

Answer 1

1) (I) Perpetual succession : Corporation is an ongoing organization. It doesn't closed with the death, insolvency or any incapacity of the sole proprietor or partners.

(II) Limited liability of the share holders : In corporation share holders have limited liability to the extent of uncalled portion of partly paid up share capital, but in sole proprietorship or in partnership, owners have unlimited liabilities.

2) (I) Preference shareholders get their dividends before equity dividends. Preference shareholders have the preference in getting dividends over equity share holders.

(II) During liquidation preference shareholder's claim first to be settled and then after equity shareholders can get their claims back if remaining assets available.

3)

Accounts and description	Debit	Credit
Cash [ 34,000 X $ 50]	$ 1,700,000
Common stock [ $ 34,000 X $ 5]		$ 170,000
Additional paid in capital [ 34,000 X $ 45]		$ 1,530,000

4)

(a)

Accounts and description	Debit	Credit
Cash [ 5,000 X $ 10]	$ 50,000
Common stock [5,000 X $ 1]		$ 5,000
Additional paid in capital [ 5,000 X $ 9]		$ 45,000

(b)

Accounts and description	Debit	Credit
Cash [ 5,000 X $ 10]	$ 50,000
Common stock		$ 50,000

5) Financing activity : Inflow of cash by issuance of note payable

6) Investment activity : Inflow of cash by sale of intangible assets

7) Net cash from operating ,investing and financing activities will equal to the difference between closing cash and cash equivalents and opening cash and cash equivalents.

8) Because depreciation is a non cash expenditure

9) Total cash inflow from operating activities = net income + depreciation

But here depreciation already included in net income. So, net cash inflows from operating activities = $ 530,000 . Cash received from issuance of 6 year note not been considered in cash flows from operating activities.( It is related to financing activities)

10) Calculation for net cash flow from operating activities :

Net income		$ 280,000
Add: depreciation expense		$ 47,500
Operating profit before working capital changes		$ 327,500
Add:
Decrease in inventory	$ 34,000
Increase in salaries payable	$ 53,500
		$ 87,500
Less: Increase in account receivables	$ 67,000
Increase in prepaid insurance	$ 3,800
		$ ( 70,800)
Net cash flow from operating activities		$ 344,200