Question 46

Draperies Unlimited, Inc. began operations in 20X5 and must choose an inventory cost flow assumption for its financial statements and income tax reporting. It will choose between the last in, first out (LIFO) method and the average cost method. Draperies Unlimited’s inventory transactions are summarized below:

• January 1 – Beginning inventory of 250 draperies at $1,600 each.

• July 17 – Purchased 150 draperies at $1,500 each.

• December 17 – Purchased 300 draperies at $1,400 each.

Assuming 500 units were sold during the year, Draperies Unlimited’s balance sheet inventory at the end of 20X5 would be closest to:

A)    $18,600 lower under LIFO than under average cost.

B)   $18,600 higher under LIFO than under average cost.

C)   $21,400 lower under LIFO than under average cost.

D)   $21,400 higher under LIFO than under average cost.

A firm issues discount bonds during a period of increasing interest rates. From an analyst's perspective, this firm's statement of cash flows will most likely:
   

A)    understate cash flows from financing.

B)   understate cash flows from operations.

C)   overstate cash flows from investing.

D)   not require adjustments to operating, investing, or financing cash flows.

Copper, Inc. had $4 million in bonds outstanding that were convertible into common stock at a conversion rate of 100 shares per $1,000 bond. In 20X1, all of the outstanding bonds were converted into common stock. Copper's average share price for 20X1 was $15. Copper's statement of cash flows for the year ended December 31, 20X1 should most likely include:

A)    cash flows from financing of +$4 million from issuance of common stock and -$4 million from retirement of bonds.

B)   a footnote describing the conversion of the bonds into common stock.

C)   cash flows from financing of +$6 million from issuance of common stock and -$4 million from retirement of bonds, and cash flows from investing of -$2 million for a loss on retirement of bonds.

D)   no reporting of the transaction.

Selected information from Able Company’s financial activities is as follows:

• Net Income was $720,000.

• 1,000,000 shares of common stock were outstanding on January 1.

• 1,000 shares of 8%, $1,000 par value preferred shares were outstanding on January 1.

• The tax rate was 40%.

• The average market price per share for the year was $20.

• 6,000 shares of 3%, $500 par value preferred shares, convertible into common shares at a rate of 40 common shares for each preferred share, were outstanding for the entire year.

Able’s basic and diluted earnings per share (EPS) are closest to:

       Basic EPS Diluted EPS

A)    $0.55        $0.52

B)   $0.55        $0.55

C)   $0.64        $0.64

D)   $0.64        $0.47

Which of the following is a change in an accounting principle?

A)    Recording a prior period adjustment.

B)   A change in the estimated service life of machinery.

C)   A change from first in, first out (FIFO) to last in, first out (LIFO).

D)   Recording depreciation expense for the first time on machinery purchased five years ago.

[此贴子已经被作者于2008-11-7 18:02:47编辑过]

答案和详解如下！

Question 46

Draperies Unlimited, Inc. began operations in 20X5 and must choose an inventory cost flow assumption for its financial statements and income tax reporting. It will choose between the last in, first out (LIFO) method and the average cost method. Draperies Unlimited’s inventory transactions are summarized below:

• January 1 – Beginning inventory of 250 draperies at $1,600 each.

• July 17 – Purchased 150 draperies at $1,500 each.

• December 17 – Purchased 300 draperies at $1,400 each.

Assuming 500 units were sold during the year, Draperies Unlimited’s balance sheet inventory at the end of 20X5 would be closest to:

A)    $18,600 lower under LIFO than under average cost.

B)   $18,600 higher under LIFO than under average cost.

C)   $21,400 lower under LIFO than under average cost.

D)   $21,400 higher under LIFO than under average cost.

The correct answer was D)

$21,400 higher under LIFO than under average cost.

Total units are 250 + 150 + 300 = 700, so units in inventory are 700 – 500 = 200. Under LIFO, ending inventory is valued at 200 × $1,600 = $320,000. The average cost of inventory items is (250 × $1,600 + 150 × $1,500 + 300 × $1,400) / 700 = $1,493. Using the average cost method, the 200 units of inventory are valued at 200 × $1,493 = $298,600. Inventory on the balance sheet is higher under LIFO by $320,000 - $298,600 = $21,400.

Tip: You can eliminate two answer choices if you notice that prices are decreasing and know this means LIFO will result in the highest inventory balance.

This question tested from Session 9, Reading 35, LOS a

Question 47

A firm issues discount bonds during a period of increasing interest rates. From an analyst's perspective, this firm's statement of cash flows will most likely:

A)    understate cash flows from financing.

B)   understate cash flows from operations.

C)   overstate cash flows from investing.

D)   not require adjustments to operating, investing, or financing cash flows.

The correct answer was A)

understate cash flows from financing.

If a firm issues discount bonds it will lead to an understatement of cash flows from financing, an overstatement of cash flows from operations, and have no effect on cash flows from investing.

Increasing interest rates have no bearing on whether operating and financing cash flows are overstated or understated. Instead they would simply decrease the market value of outstanding debt.

This question tested from Session 9, Reading 39, LOS b

Question 48

Copper, Inc. had $4 million in bonds outstanding that were convertible into common stock at a conversion rate of 100 shares per $1,000 bond. In 20X1, all of the outstanding bonds were converted into common stock. Copper's average share price for 20X1 was $15. Copper's statement of cash flows for the year ended December 31, 20X1 should most likely include:

A)    cash flows from financing of +$4 million from issuance of common stock and -$4 million from retirement of bonds.

B)   a footnote describing the conversion of the bonds into common stock.

C)   cash flows from financing of +$6 million from issuance of common stock and -$4 million from retirement of bonds, and cash flows from investing of -$2 million for a loss on retirement of bonds.

D)   no reporting of the transaction.

The correct answer was B)

a footnote describing the conversion of the bonds into common stock.

Conversion of bonds into common stock is a noncash transaction, but the conversion should be disclosed in a footnote to the statement of cash flows.

This question tested from Session 8, Reading 34, LOS f, (Part 1)

Question 49

Selected information from Able Company’s financial activities is as follows:

• Net Income was $720,000.

• 1,000,000 shares of common stock were outstanding on January 1.

• 1,000 shares of 8%, $1,000 par value preferred shares were outstanding on January 1.

• The tax rate was 40%.

• The average market price per share for the year was $20.

• 6,000 shares of 3%, $500 par value preferred shares, convertible into common shares at a rate of 40 common shares for each preferred share, were outstanding for the entire year.

Able’s basic and diluted earnings per share (EPS) are closest to:

       Basic EPS Diluted EPS

A)    $0.55        $0.52

B)   $0.55        $0.55

C)   $0.64        $0.64

D)   $0.64        $0.47

The correct answer was A) 

$0.55    $0.52

Able’s basic earnings per share (EPS) ((Net Income − Preferred Stock Dividends) / weighted average shares outstanding) for 2004 was (($720,000 − ($500 × 6,000 × 0.03) − ($1,000 × 1,000 × 0.08)) / 1,000,000 =) $0.55. If the convertible preferred were converted to common stock on January 1, (6,000 × 40 =) 240,000 additional shares would have been issued. Also, dividends on the convertible preferred would not have been paid.

So we have diluted EPS was ($720,000 − 80,000) / (1,000,000 + 240,000) = $0.52.

This question tested from Session 8, Reading 32, LOS i

Question 50

Which of the following is a change in an accounting principle?

A)    Recording a prior period adjustment.

B)   A change in the estimated service life of machinery.

C)   A change from first in, first out (FIFO) to last in, first out (LIFO).

D)   Recording depreciation expense for the first time on machinery purchased five years ago.

The correct answer was C)

A change from first in, first out (FIFO) to last in, first out (LIFO).

Changing the inventory accounting method is a change in accounting principle. The service life of an asset is an accounting estimate. Corrections of accounting errors and other prior-period adjustments are not changes in accounting principle.

This question tested from Session 8, Reading 32, LOS g

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