A Firm Has Just Ended Its Calendar Year Making a Sale

question 96

Multiple Choice

A firm has just ended its calendar year making a sale in the amount of $150,000 of merchandise purchased during the year at a total cost of $112,500. Although the firm paid in full for the merchandise during the year, it has yet to collect at year end from the customer. The net profit and cash flow from this sale for the year are

• A) $0 and $150,000, respectively.
• B) $37,500 and -$150,000, respectively.
• C) $37,500 and -$112,500, respectively.
• D) $150,000 and $112,500, respectively.

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Definitions:

Loss on Bond Redemption

The financial loss realized when a bond is redeemed before its maturity date for a price higher than its face value.

Premium on Bonds Payable

The amount by which the bond's selling price exceeds its face value.

Carrying Value

The book value of assets and liabilities on a company's balance sheet, reflecting the historical cost of assets minus accumulated depreciation.

Convertible Bonds

Bonds that can be converted into a predetermined number of the issuing company's shares at certain times during its life, usually at the discretion of the bondholder.