The Following Accounts Are Up-To-Date and Need No Adjustment at the End

question 38

Multiple Choice

The following accounts are up-to-date and need no adjustment at the end of the period:

• A) cash, common stock and prepaid rent.
• B) prepaid rent, supplies and unearned rent.
• C) cash, dividends and common stock.
• D) cash, dividends and unearned rent.

Ability to differentiate between the direct and indirect methods of reporting cash flows from operating activities and their implications.

Comprehend the adjustments needed to convert net income to net cash provided by operating activities using the indirect method.

Identify and adjust the effects of changes in working capital accounts on cash flows using the direct method.

Assess how changes in balance sheet accounts impact the cash flow statement.

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Definitions:

Estimated Ending Inventory

A projection of the value of inventory on hand at the end of an accounting period, often calculated using inventory methods such as FIFO or LIFO.

Gross Profit Rate

The ratio of gross profit (sales minus cost of goods sold) to sales revenue, expressed as a percentage.

Balance Sheet

A financial statement that summarizes a company’s assets, liabilities, and shareholders’ equity at a specific point in time.

Gross Profit Method

An estimating technique used to determine the cost of goods sold and ending inventory, based on the gross profit margin.