ACC 450 Exam #2

What are the 3 sections of the Statement of Cash Flows?

Operating, Investing, Financing (OIF)

T/F, A decrease in accounts receivable indicates that cash received from customers is greater than sales revenue recognized for the year.

True

T/F, the purchase of treasury stock is an investing cash outflow.

False

When using the indirect method to determine cash flows from operating activities, which of the following adjustments would be added to net income?

Impairment Loss

Which of the following affects the amount reported for operating cash flows in the statement of cash flows?

The payment of Prepaid Insurance

When preparing the statement of cash flows using the indirect method for determining net cash flows from operating activities, depreciation is added to net income because:

it was deducted as an expense on the income statement but does not require cash.

Which of the following is reported as an investing activity in the statement of cash flows?

Sale of equipment

Which of the following is reported as a financing activity in the statement of cash flows?

The repayment of bonds issued at face value

Which of the following would not be a cash inflow from financing activities?

Cash received from selling the stock of another company

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

A change in inventory costing methods

The prospective approach usually is required for a:

change in estimate.

Prior years' financial statements are restated under the:

Retrospective approach.

Which of the following changes should be accounted for using the retrospective approach?

A change in the method of accounting for long-term construction contracts by recognizing revenue over time rather than when the contract is completed

Which of the following is a change in reporting entity?

Consolidating a subsidiary not previously included in consolidated financial statements

Goosen Company bought a copyright for $90,000 on January 1, 2024, at which time the copyright had an estimated useful life of 15 years. On January 5, 2027, the company determined that the copyright would expire at the end of 2032. How much should Goosen record retrospectively as the effect of change?

$0, This is a change in estimate, which is reported using the prospective approach.

Which of the following changes is not usually accounted for retrospectively?

Change from FIFO to LIFO

T/F, All changes reported using the retrospective approach require cumulative effect adjustments of the change.

True

What is listed under “Adjustments for Noncash Events” when it comes to Operating?

Depreciation, Amortization, and Gains (subtract) and Losses (add) (unrealized and realized)

What kind of relationship does “Change in Current Assets” have when it comes to cash?

OPPOSITE or INDIRECT

What is included when it comes to “Change in Current Assets”?

A/R, Inv., Prepaid (insurance, rent), Supplies, Interest Receivable, CURRENT Notes Receivable, DTA, Bond Discounts

What kind of relationship does “Change in Current Liabilities” have when it comes to cash?

SAME or DIRECT

What is included when it comes to “Change in Current Liabilities”?

A/P, Interest Payable, Salaries Payable, Warranties Payable, DTL, Deferred Rev., Bond Premium

What is included when it comes to “Investing”?

Equipment, Short-Term Investments, Land, Buildings, Intangibles (ex: patents)

What is included when it comes to “Financing”?

Debt (long-term liabilities) and Equity (Stock)

What is included under “Debt”?

Bonds, LT notes, Mortgage notes, leases

What is included under “Equity”?

Issue Stock (ANY kind), Buying Back (treasury stock), payment of cash dividends

What are “Noncash Investing and Financing” Activities?

Items that affect both investing and financing but do NOT affect Cash, ex: Purchase of Land by issuing a note

What kind of Gains and Losses aren’t recognized under “Adjustments” in the Operating Section?

Gains and Losses on Cash Equivalents

What are the 3 key Accounting Changes?

Change in Accounting Principle, Change in Estimate, and Change in Reporting Entity

Change in Accounting Principle

Change from one GAAP principle to another

What are some examples of “Changes in Accounting Principle”?

Adopting a new standard, changes in inventory costing method, change from cost to Equity Method or vice versa

What are the three approaches when it comes to reporting Accounting Changes and Error Corrections?

Retrospective, Modified Retrospective, and Prospective Approach

Retrospective Approach

Financial statements issued in previous yrs are revised to make it seem as if newly adopted accounting method had been applied all along or that error had never occurred, JE created to adjust all account balances affected

Modified Retrospective Approach

New standard applied only to the current period, Adjust RE balance at beg. of yr

Prospective Approach

Effects of a change are reflected in the financial statements of only the current and future years

How do most changes in accounting principle occur?

They occur and are reported retrospectively

Change in Accounting Estimate

Revise an estimate

What are some examples of “Changes in Accounting Estimate”?

Change in depr. methods, change in useful life of asset, change in residual value, change in estimate of period benefited by intangible assets

Change in Reporting Entity

Change from reporting as one type of entity to another type of entity

What are some examples of “Changes in Reporting Entity”?

Consolidate a subsidiary not previously included in the consolidated financial statements, Report consolidated financial statements in place of individual financial statements

What direction does BI and COGS move in?

Moves in the SAME direction as each other

What direction does EI and COGS move in?

Moves in the OPPOSITE direction as each other

If COGS is too high, what happens to NI and RE?

NI and RE will be too low

If COGS is too low, what happens to NI and RE?

NI and RE will be too high