Question

36-40

The cost of merchandise sold reported on the income statement was $770,000. The A/P balance decreased $44,000, and the inventory balance decreased by $66,000 over the year. What is the amount of cash paid for merchandise?

		$660,000
		$792,000
		$770,000
		$748,000

A coal company invests $16 million in a mine estimated to have 20 million tons of coal and no salvage value. It is expected that the mine will be in operation for 5 years. In the first year, 1,000,000 tons of coal are extracted and sold. What is the depletion expense for the first year?

		$800,000
		$320,000
		$80,000
		Cannot be determined from the information provided

A company purchased land for $90,000 cash. Real estate brokers' commission was $5,000 and $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Under the cost principle, the cost of land would be recorded at

		$97,000
		$90,000
		$95,000
		$102,000

The indirect method of reporting cash flows from operating activities uses the logic that a change in any balance sheet account can be analyzed in terms of changes in the other balance sheet accounts.

True

False

If you asked your broker to purchase for you a 12% bond when the market interest rate for such bonds was 11%, you would expect to pay less than the face amount for the bond.

True

False

Answer 1

Question 36

Answer- $748,000

Calculation

Cash paid to Suppliers
cost of merchandise sold	$    770,000.00
Less: Decrease in Inventory	$    (66,000.00)
Net Purchases	$    704,000.00
Add - Decrease in accounts Payable	$      44,000.00
Cash paid for merchandise	$    748,000.00

Question 37

Answer--$800,000

Units of Usage Method
A	Cost	$         16,000,000.00
B	Residual Value	$                                 -
C=A - B	Depreciable base	$         16,000,000.00
D	Usage in units(in ton of coal)	20000000
E	Depreciation per ton	0.80

Year	Book Value	Usage	Depreciation expense	Ending Book Value	Accumulated Depreciation
2015	$    16,000,000.00	1000000	$   800,000.00	$          15,200,000.00	$   800,000.00

Question 38

Answer-$102,000

Explanation

Cost of land includes broker commission and cost of demolishing old building because it was necessary to make land useful for use.

Question 39

Answer—True

Indirect method of cash flow provides a reconciliation of operating cash with net income by showing changes in values of current assets and liabilities as adjustments. Direct method straightaway shows sources and uses of cash to calculate operating cash flows.

Question 40

Answer---False

If Coupon rate of bond is more than market rate then bond is sold at premium(more than face value), which means more cash needs to be paid to compensate difference in interest rate of market and actual payout rate of interest on bond.

When bond rate is less than market rate then only buyer can expect to pay less than the face value of bond