Test bank for Additional Consolidation Reporting Issues

Test bank for Additional Consolidation Reporting Issues Additional Consolidation Reporting Issues Multiple Choice Questions 1. Which sections of the cash flow statement are affected by the difference in the direct and indirect approaches of presenting a cash flow statement? I. Operating activities section II. Investing activities section III. Financing activities section A. I B. II C. III D. I, II, and III 2. Which of the following observations concerning the comparisons between the direct and indirect approaches of presenting a cash flow statement is true? A. The final number of cash flows from operating activities is different under the two approaches. B. The direct approach provides a clearer picture of cash flows related to operations. C. Authoritative bodies have generally expressed a preference for the indirect method. D. A separate reconciliation of operating cash flows and net income is required under the indirect approach. Sigma Company develops and markets organic food products to natural foods retailers. The following information is available for the company for the year 2008: 10-2 3. Based on the preceding information, what amount will be reported by the company as cash received from customers during the year? A. $455,000 B. $475,000 C. $450,000 D. $425,000 4. Based on the preceding information, what amount will be reported by the company as cash payments to suppliers for 2008? A. $292,000 B. $305,000 C. $262,000 D. $258,000 5. Based on the preceding information, what amount will be reported by the company as cash flows from operating activities for 2008? A. $175,000 B. $133,000 C. $167,000 D. $207,000 10-3 Tower Corporation's controller has just finished preparing a consolidated balance sheet, income statement, and statement of changes in retained earnings for the year ended December 31, 2009. Tower owns 80 percent of Network Corporation's stock, which it acquired at underlying book value on November 1, 2006. At that date, the fair value of the noncontrolling interest was equal to 20 percent of Network Corporation's book value. The following information is available: Consolidated net income for 2009 was $160,000. Network reported net income of $50,000 for 2009. Tower paid dividends of $30,000 in 2009. Network paid dividends of $10,000 in 2009. Tower issued common stock on February, 18, 2009, for a total of $100,000. Consolidated wages payable decreased by $6,000 in 2009. Consolidated depreciation expense for the year was $15,000. Consolidated accounts receivable decreased by $20,000 in 2009. Bonds payable of Tower with a book value of $102,000 were retired for $100,000 on December 31, 2009. Consolidated amortization expense on patents was $10,000 for 2009. Tower sold land that it had purchased for $75,000 to a nonaffiliate for $80,000 on June 10, 2009. Consolidated accounts payable decreased by $7,000 during 2009. Total purchases of equipment by Tower and Network during 2009 were $180,000. Consolidated inventory increased by $36,000 during 2009. There were no intercompany transfers between Tower and Network in 2009 or prior years except for Network's payment of dividends. Tower uses the indirect method in preparing its cash flow statement. 10-4 6. Based on the preceding information, what amount will be reported in the consolidated cash flow statement as net cash provided by operating activities for 2009? A. $207,000 B. $163,000 C. $180,000 D. $149,000 7. Based on the preceding information, what amount will be reported in the consolidated cash flow statement as net cash used in investing activities for 2009? A. $180,000 B. $100,000 C. $255,000 D. $110,000 8. Based on the preceding information, what amount will be reported in the consolidated cash flow statement as net cash used in financing activities for 2009? A. $32,000 B. $38,000 C. $42,000 D. $70,000 9. Based on the preceding information, what was the change in cash balance for the consolidated entity for 2009? A. Increase of $49,000 B. Decrease of $66,000 C. Increase of $17,000 D. Increase of $32,000 10-5 On July 1, 2008, Fair Logic Corporation acquires 75 percent of Integrated Systems Inc. common stock for its underlying book value. At the time of acquisition, the fair value of the noncontrolling interest is equal to its proportionate share of book value of Integrated Systems. On January 1, 2008 Integrated reported common stock of $100,000 and retained earnings of $130,000. For the year 2008, Integrated reports the following items: Fair Logic uses the equity method in accounting for this investment.