Question

Which of the following are now reported at fair market value on the balance sheet and changes in such values are included in earnings (net income)?

		Trading securities
		Available for sale securities
		Securities held to maturity
		Both trading and available for sale securities

Cash paid for inventory is computed under the direct method on the statement of cash flows by

		adding an increase in inventory to cost of goods sale
		deducting an increase in inventory to cost of goods sold
		adding an increase in inventory and an increase in accounts payable to cost of goods sold
		adding an increase in inventory and deducting an increase in accounts payable to cost of goods sold

Answer 1

Requirement 1:

Answer: Both trading and available for sale securities

Explanation:

1. Trading securities and available for sale securities are reported at fair value irrespective of their holding where as remaining securities are recognized at their original cost

2. any gain or loss from trading securities are reported under income statement and similarly available for sale securities are reported under other comprehensive income

Requirement 2:

Answer: adding an increase in inventory and an increase in accounts payable to cost of goods sold

Explanation:

1. cash paid for inventory results in increase in inventory which is shown as addition in cost of goods sold in the cash flow statement

2. cash paid to inventory also results in increase in accounts payable which also added to cost of goods sold

2. above adjustments made under direct method of computation of cash flow it is shown under head payment to suppliers