1) An increase in accounts payable of $6,000 for the year increases cash flow from
operating activities by $6,000.
2) The sale of fixed assets represents an investing activity.
3) A corporation that incurs a net operating loss must carry the loss back to earlier years
before it can carry the loss forward.
4) When calculating ROA, analysts always use average assets as reported, and when
calculating average assets prefer to have more than just beginning and end of year asset
measures.
5) Since 2002, stock options have become a smaller component of long-term incentive
pay due to a fundamental change in the tax treatment that options receive.
6) Although IFRS allows two different models for accounting for long-lived tangible
assets, most firms chose to use the cost method.
7) Financial covenants establish minimum financial tests with which a borrower must
comply.
8) Issuing common stock in exchange for a patent will neither be reported within the
cash flow statement nor disclosed.
9) The process of reporting transitory income items net of tax on the income statement
is known as intraperiod income tax allocation.
10) The gain or loss on the early retirement of a bond is the difference between the
amount paid to retire the bond and the bond’s carrying value at the date of retirement.
11) Historically, periodic systems were used when inventory volumes were high and
per-unit costs were low. However, the advent of widely used computerized optical
scanning equipment has led to the adoption of perpetual systems in high volume
settings where such systems were previously not cost-effective.
12) Companies that spend more cash on operating activities than they generate must
find ways to finance these operating cash shortfalls.
13) Generally accepted accounting principles leave ample room for managers to
manipulate earnings to their satisfaction.
14) A cash purchase discount that is lost because of a late payment should be recorded
as interest expense rather than as a cost of acquiring inventory.
15) Liabilities are probable future economic benefits obtained or controlled by an entity
as a result of past transactions or events.