Question

21-25

The major advantages of the indirect method of reporting cash flows from operating activities is that it focuses on the differences between net income and cashflows from operating activities, and the data needed are generally more readily available and less costly to obtain than is the case for the direct method.

True

False

On the first day of the fiscal year, a company issues a $2,000,000, 8%, 5 year bond that pays seminnual interest of $80,000; receiving cash of $1,920,873. The bond issuance entry would be:

		Debit cash 2,000,000; debit discount on bonds payable 79,127; and credit bonds payable 2,079,127.
		Debit cash 1,920,873; debit discount on bonds payable 79,127; and credit bonds payable 2,000,000.
		Debit cash 2,000,000; and credit bonds payable 2,000,000.
		Debit cash 1,920,873; and credit bonds payable 1,920,873.

Current liabilities are expected to be paid within one year or the operating cycle, whichever is longer.

True

False

Sherry Corporation's accumulated depreciation of furniture account increased fy $7,500, while $2,750 of patent amortization was recognized between balance sheet dates. There were no purchase or sales of depreciable or intangile assets during the year. In addition, the income statement showed a loss of $4,000 from the sale of land. The net income is $107,500. What is the net cash flow from operating activities?

		$121,750
		$175,000
		$168,250
		$258,940

The cumulative effect of the declaration and payment of a cash dividend on a company's financial statements is to

		decrease total liabilities and stockholders' equity.
		increase total expenses and total liabilities.
		increase total assets and stockholders' equity.
		decrease total assets and stockholders' equity.

Answer 1

1) The major advantages of the indirect method of reporting cash flows from operating activities is that it focuses on the differences between net income and cashflows from operating activities, and the data needed are generally more readily available and less costly to obtain than is the case for the direct method.

Yes above statement is true

2) On the first day of the fiscal year, a company issues a $2,000,000, 8%, 5 year bond that pays seminnual interest of $80,000; receiving cash of $1,920,873. The bond issuance entry would be:

Journal entry :

Date	account and explanation	debit	credit
	Cash	1920873
	Discount on bonds payable	79127
	Bonds payable		2000000

So answer is b) Debit cash 1,920,873; debit discount on bonds payable 79,127; and credit bonds payable 2,000,000.

3) Current liabilities are expected to be paid within one year or the operating cycle, whichever is longer.

Above statement is true

4) What is the net cash flow from operating activities?

Cash flow from operating activities = 107500+4000+7500+2750 = 121750

So answer is a) $121750

5) The cumulative effect of the declaration and payment of a cash dividend on a company's financial statements is to

So anser is d) decrease total assets and stockholders' equity.