Understanding Income Tax, Cash Flow, and Financial Statements

Determining Income Tax Expense

The formula to determine income tax expense is: Income before income tax expense (from the income statement) multiplied by the income tax rate.

Southern Corporation has a pretax accounting income of $575,000 and a taxable income of $560,000. The company's income tax rate is 35%. Income tax expense for the firm is: Income Tax Expense $201,250.

Discontinued Operations

The discontinued operations section of the income statement refers to the: disposal of a segment of a business.

Statement of Stockholders' Equity

The financial statement that reports the changes in all categories of equity during the period is called the: statement of stockholders' equity.

Comprehensive Income

Comprehensive income is not used to determine net income or earnings per share.

Income from Continuing Operations

Which of the following is NOT used in determining the income from continuing operations?

• Current market value of the company

Statement of Cash Flows

Financing Activities

In which section of the statement of cash flows would "payment of dividends" be reported?

• Financing activities

Investing Activities

Purchases of long-term assets are reported in which section of the statement of cash flows?

• Investing activities

Operating Activities

When using the indirect method, what should be subtracted from net income in determining net cash flow from operating activities?

• Gain on sale of long-term assets
• Decrease in accounts payable

Depletion Expense

Which of the following does not have an effect on cash?

• Recording depletion expense

Cash Proceeds from Sale of Asset

The MNO corporation purchased a large machine 6 years ago at a total cost of $300,000. The accumulated depreciation on this machine is $180,000. The corporation sold the machine at a $30,000 loss. What amount would be reported as cash proceeds from this sale?

• $90,000

Cash Collected from Customers

The Webster Company had $800,000 of sales revenue. During the same accounting period, the beginning and ending accounts receivable balance was $37,000 and $39,000, respectively. What amount of cash was collected from the customers during this period?

• $798,000

Cash Payments from Financing Activities

Which of the following items are not included in determining the cash payments (outflows) from financing activities?

• Acquisition of plant assets

Cash Receipts from Investing Activities

Which of the following is included in the calculation of cash receipts from investing activities?

• Proceeds from the sale of long-term investments

Rule for Financing Activities

The rule is: Cash received/paid for activities related to Long-Term Liabilities or Equity transactions are recorded as Financing activities. Payment of dividend is an outflow to the stockholders who financed the company. It is related to Equity so is classified as Financing.