Question

17.The statement of cash flows shows the effects on cash of a company's:

	a.	Operating, investing, and financing activities.
	b.	Sales, purchases and investing activities.
	c.	Management, marketing and IT activities.
	d.	Only Operating Activities

19. Which of the following is NOT an uncertainty factor when determine the nature of a liability:

	a.	Uncertainty in whom to pay
	b.	Uncertainty in how much to pay
	c.	Uncertainty in which accounting period liability occurred
	d.	Uncertainty in how much to pay

20.A corporation sold 14,000 shares of its SR 10 par value common stock at a cash price of SR 13 per share. The entry to record this transaction would include:

	a.	A credit to Common Stock for 140,000
	b.	.A credit to Common Stock for 182,000
	c.	. A debit to Cash for 140,000
	d.	A debit to Contributed Capital in Excess of Par Value, Common Stock for SR 42,000

21. On June 30^th, 2012 ABC Ltd. sold a machine that originally cost SR 235,000 for SR 165,400. The machine was purchased on January 1^st, 2010. The company use straight line method to charge depreciation expense. The economic life of the machine is estimated to be 5 years with a salvage value of SR 25,000. The book value and gain/loss on disposal will be?

.	Book Value 85,000 & Gain on Disposal 65,500
	b.	Book Value 290,000 & Loss on Disposal 25,000
	c.	Book Value 185,000 & Loss on Disposal 55,500
	d.	Book Value 130,000 & Gain on Disposal 35,400

Answer 1

Solution

Q17. Statement of cash flows shows the effects on cash of a company’s –

Answer – a. Operating, investing and financing activities.

Explanation:

The statement of cash flows aims to show the effect on the cash position of a company resulting from various transactions categorized as operating, investing and financing activities.

The transactions relating to operating activities mainly include the transactions the company undertakes in its due course of business such as sales, purchases, expenses.

The transactions relating to investing include the purchase and sale of fixed assets, long-term investments.

The financing transactions include the transactions aimed to raise the equity or funding, such as issuance of stock, long-term debts as well as relating expenses such as dividends.

Q19. Which of the following is NOT an uncertainty factor when determining the nature of a liability –

Answer – c. uncertainty in which accounting period liability occurred.

Q20. The entry to record this transaction would include:

Answer – option a. A credit to common stock for 140,000

Explanation – the common stock would be credited with par value of stock sold, 14,000 shares x 10 = 140,000

The SR 3 per share would be credited to the Paid-In Capital in Excess of Par account; SR 3 x 14,000 = 42,000

The cash account would be debited with 182,000

Q21. The book value on gain or disposal would be:

Answer – option d. Book value 130,000 and Gain on Disposal 35,400

Computations:

Date of purchase – Jan 1, 2010

Date of sale – June 30, 2012

The asset was held for 2.5 years

The annual depreciation = depreciable base x 1/estimated life

Depreciable base = cost – salvage value

= 235,000 – 25,000 = 210,000

Life = 5 years

Annual depreciation = 210,000 x 1/5 = $42,000

Accumulated depreciation for 2.5 years = 42,000 x 2.5 = 105,000

Book value on date of sale = cost – accumulated depreciation

= 235,000 – 105,000 = 130,000

Gain on sale = sale proceeds – book value

= 165,400 – 130,000 = 35,400