1) An unexplained increase in fixed asset sales may indicate that management needs to
raise cash quickly.
2) According to the full disclosure principle, companies create a competitive advantage
when they report:
Details about the company’s strategies, plans and tactics.
Information about the company’s technological and managerial innovations.
Detailed information about the company’s operations.
3) The statement of cash flows is an important source of information when analyzing a
company’s credit risk.
4) To compute the amortization of the cumulative unrecognized gains and losses in a
pension plan, the corridor is computed as 10% of the higher of market-related value of
pension plan assets or the projected benefit obligation.
5) For a firm using the indirect method to prepare cash flows from operating activities,
a decrease in a company’s pension liability account should be deducted from net income
to arrive at cash flow from operating activities.
6) GAAP filters data needed for a complete and faithful picture in the financial reports.
7) When losses occur on long-term contracts using the completed contract method, they
are recognized at the completion of the contract.
8) GAAP requires that inventory costs should also include the costs of the purchasing
department and other general administrative costs associated with the acquisition and
distribution of inventory.
9) An estimate of the company’s future financial condition is indispensable to most
lending decisions.
10) Under the “cost recovery method,” after the cost of the merchandise sold on an
installment basis has been recovered, any cash collected in excess of this amount is
recorded as net income on the seller’s income statement.
11) Both the direct method and indirect method will arrive at the same amount for cash
flow from operating activities.