Conceptual Framework - Part 3

Question 1

Reported Net Cash provided by Operating Activities

Answer 1

Net Income
+Adjustments
(Increase in Accounts Receivable)
Increase in Accounts Payable
= Net Cash provided by Operating Activities

Question 2

Methods to measure inventory

Answer 2

Lower of historical cost or market replacement cost;
Net Realizable Value or
Net Realizable Value - Normal Profit Margin

Question 3

Comprehensive Income Computation

Answer 3

Sales Revenue
   (COGS)
=  Gross Profit
   (Operating Expenses)
=  Net Income
   (Unrealized Holding Gain)
=  Comprehensive Income

Question 4

Statement of Earnings and Comprehensive Income

Answer 4

together indicate the extent to which and the ways in which the equity of the entity increased or decreased from all sources other than transactions with owners during the period. They provide information about the causes of changes in assets and liabilities, including the results of ongoing major or central operations, the results of incidental or peripheral transactions and the effects of other events and circumstances stemming from the environment.

Question 5

GAAP costs that are expensed:

Answer 5

Outflow from delivering or producing product or service.
Examples:
Research and Development
Laboratory Operations
General and Administrative 
Depreciation

Question 6

Investing Activities -

Answer 6

Investing Activities is one of the three categories of cash flows in the statement of cash flows.
Investing Activity includes all transactiosn related to making or collecting of loans and the acquiring and disposing of debt, equity instruments, property, plant and and equipment or a business unit.

Question 7

IFRS and GAAP statement of Comprehensive income

Answer 7

Both GAAP and IFRS allow either a separate statement of comprehensive income or a combined statement of net income and comprehensive income. Also, operating activities would include interest and dividends under IFRS.

Question 8

Direct Method of Statement of Cash Flows

Answer 8

Direct Method presents gross cash receipts and payments from operating activities; cash amounts may be derived from accrual based records by adjusting income statement items for changes in the related balance sheet, such as cash collected from customers is found by adjusting sales for the change in accounts receivable during the period.

Question 9

Direct Method major classes of cash flow:

Answer 9

cash collected from customers
interest and dividends received
interest paid
cash paid to employees and suppliers
income taxes paid
and other payments.

Question 10

If Direct Method is Used

Answer 10

Reconciliation of net income to net cash provided by operating activities must be presented as a supplemental disclosure. This reconciliation must present all major classes of adjustments: accruals of expected future operating cash receipts and payments, deferrals of past cash receipts and payments, non-cash income/expenses and gains and losses from transactions classified as investing or financing activities

Question 11

Indirect Method and amortization of bond discount

Answer 11

Amortization of the bond discount is classified as interest expense and has been deducted in arriving at net income. This amortization must be added to net income to compute net cash provided by operating activities.

Question 12

Operating Activities

Answer 12

All transactions and other events that are not investing or financing; generally include transactions that enter into the determination of net income. These include production and delivery of goods and services, interest and dividends received and payment of interest.

Question 13

Financing Activities

Answer 13

All transactions related to obtaining resources from owners and providing them with a return on and a return of their investment and to obtaining and repaying debt.

Question 14

Other Comprehensive Income

Answer 14

Includes revenues, expenses, gains and losses that in accordance with GAAP are included in comprehensive income but excluded from net income.

Question 15

Comprehensive Income Definition

Answer 15

Is the change in equity of a business during the period from transactions and other events and circumstances from non-owner sources.