Question

1.A contingent liability that is probable and can be reasonably estimated will immediately result in:

Multiple Choice

• an increase in both liabilities and stockholders’ equity.

• an increase in liabilities and a decrease in net income.

• an increase in liabilities without any need for financial statement disclosure.

• an increase in liabilities and a decrease in assets.

2.Which of the following statements is not true regarding the cash flow statement?

Multiple Choice

• The cash flow statement provides information about changes in all the balance sheet accounts.

• The change in cash is classified into cash flow from three categories: operating activities, investing activities and financing activities.

• The cash flow statement generally shows that cash flows and accrual earnings are substantially the same.

• The cash flow statement explains the causes for year-to-year changes in cash and cash equivalents.

3.Joe Carie, head accountant, is using the indirect method and the account balance from the balance sheet and income statement to prepare a statement of cash flows. An increase in the Computer Equipment account would:

Multiple Choice

• decrease cash flow from financing activities.

• decrease cash flow from investing activities.

• increase cash flow from operating activities.

• increase cash flow from investing activities.

4.Cash interest from investments is recorded as _______ in statements of cash flows for U.S. GAAP, but can be recorded as ________ when using IFRS.

Multiple Choice

• cash flows from investing activities / cash flows from financing activities

• cash flows from financing activities / cash flows from operating activities

• cash flows from operating activities / cash flows from financing activities

• cash flows from operating activities / cash flows from investing activities

Answer 1

1.an increase in liabilities and a decrease in net income

because with conditions of probable and can be reasonably estimated, contingent liability needs to be recorded with debiting the loss

2.The cash flow statement generally shows that cash flows and accrual earnings are substantially the same.

Cash flows are prepared to provide change in cash utilization from year to year and it doesnot deal with any accrual earnings( no accrual method of accouting following in cash flow statement)

3.decrease cash flow from investing activities.

purchase of Computer Equipment comes under investing activities

As cash goes out for purchses,they will be decrease in cash flow from investing activity

4.cash flows from operating activities / cash flows from investing activities