7) A high quality of earnings is indicated by: a. Earnings derived largely from

Question

7) A high quality of earnings is indicated by:

a. Earnings derived largely from newly introduced products.

b. Declaration of both cash and stock dividends.

c. Use of the FIFO method of inventory during sustained inflation.

d. A history of increasing earnings and conservative accounting methods.

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9) Net income differs from net cash flows from operations because of:

a. Non-cash expenses such as depreciation.

b. Timing differences between recognizing revenue and expenses and their cash flows.

c. Gains and losses included in net income but classified as investing or financing activities will all cause a difference between net income and cash flows.

d. All of the above.

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6) A cash dividend paid to shareholders is reported on the:

a. Financing activities section of the statement of cash flows.

b. Balance sheet.

c. Income statement.

d. Operating activities section of the statement of cash flows.

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18) A predetermined overhead application rate:

a. Expresses an expected relationship between overhead costs and an activity base.

b. Can be determined by dividing budgeted direct labor cost by the budgeted factory overhead costs.

c. Is computed at the end of the period once actual overhead costs are known.

d. Applies the same amount of overhead to each product or service.

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23) The computation of equivalent units is generally not necessary when:

a. Beginning work-in-process inventories are significantly larger than ending work-in-process inventories.

b. Beginning and ending work in process inventories differ only slightly.

c.The number of units in ending work-in-process exceeds the number of units completed and transferred to finished goods during the period.

d. Per-unit costs become distorted as a result of not computing equivalent units of production.

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Explanation / Answer

7)

D - A history of increasing earnings and conservative accounting methods.

Earnings quality, in accounting, refers to the ability of reported earnings (income) to predict a company's future earnings.

9) a. Non-cash expenses such as depreciation.

depreciation is added back but it is charged in P&L

6)

a. Financing activities section of the statement of cash flows.

dividends liability arisses because of third party financing, thus the dividend paid is part of financing activity

18)

a. Expresses an expected relationship between overhead costs and an activity base.

Predetermined overhead rate is used to apply manufacturing overhead to products or job orders and is usually computed at the beginning of each period by dividing the estimated manufacturing overhead costby an allocation base (also known as activity base or activity driver).

23)

c.The number of units in ending work-in-process exceeds the number of units completed and transferred to finished goods during the period.

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