Question

1. At the end of a reporting period, ABC determines that its ending inventory has a cost of $300,000 and a net realizable value of $230,000. What would be the effect(s) of the adjustment to write down inventory to net realizable value?
   1. Decrease total assets.                                            B) Decrease net income.

C) Decrease total assets and net income.                  D) Increase retained earnings.

2. ABC buys widgets for $5 cash and sells them on account for $8. What is the benefit value of a receivable on the books of ABC?
   1. $5
   2. $3
   3. $8
   4. Impossible to determine from the given information

3. Issued common stock for cash.

Purchased equipment by signing a note payable. Paid rent for the current month.

Collected cash from customers on account.

How many of the abovr transactions increased the given company's total assets?

1. Three.                          B) Two.                            C) One.                            D) Four.

4. During 2018, ABC had the following cash flows: (1) received cash of $5,000 billed to a customer in 2017; (2) earned $20,000 of net income; (3) paid interest of $6,000 on a corporate bond issued;

(4) paid dividends of $8,000 to its stockholders; (5) borrowed $40,000 from a local bank; and (6) purchased its own shares of common stock for $10,000. What is ABC's net cash flows from financing activities for 2018?

A) $22,000.                      B) $30,000.                      C) $16,000.                      D) $40,000.

5. ABC buys widgets for $5 cash and sells them on account for $8. At the point of sale, what is the effect on the net income of ABC?
   1. Decrease $5                 B) Increase $3                  C) No effect                     D) Increase $8

Answer 1

1. C) Decrease in net income and total assets
Inventory forms part of COGS and Total assets, when the inventory decreases, it affects both total assets and net income.

2. Value of Receivable will be $8, i.e. the amount to be received from goods sold.

3. Answer is c) one
Purchasing equipment will lead to increase in total assets
Paid rent for the month, will decrease total assets
Collected cash from customers on accounts will have nil effect on total assets

4. Cash from Financing Activities
Dividend paid = (-) $8000
Borrowed funds = $40000
Paid interest on corporate bonds = (-)$6000
Purchased own shares = (-)$10000
Net cash from financing activities = $16000

Answer is C) $16000

5. B) Increase by $3
Sales - COGS