A company had not prematurely booked revenue in prior periods. However,to inflate income, the company prematurely books revenue in the current period. Pick one of the choices below that describes the possible effects on the balance sheet at the end of the current period.a. Increase receivables or increase deferred revenuesb. Increase receivables or decrease deferred revenuesc. Decrease receivables or increase deferred revenuesd. Decrease receivables or decrease deferred revenuesWhich one of the following statements best describes the impact of classifying trading securities as available-for-sale securities?a. Allows a company to delay recognition of gains and losses on the income statement but does not allow the company to manipulate its total equityb. Allows a company to delay recognition of gains and losses on the income statement and also allows the company to manipulate its total equityc. Does not allow a company to delay recognition of gains and losses on the income statement but allows the company to manipulate its total equityd. Does not allow a company to delay recognition of gains and losses on the income statement and does not allow the company to manipulate its total equityWhich one of the following statements best describes the impact of classifying trading securities as held-to-maturity securities? Assume that the losses are NOT deemed as other than temporary.a. Allows a company to avoid booking unrealized gains and losses on the income statement but does not allow the company to manipulate its total equityb. Allows a company to avoid booking unrealized gains and losses on the income statement and also allows the company to manipulate its total equityc. Does not allow a company to avoid booking unrealized gains and losses on the income statement but allows the company to manipulate its total equityd. Does not allow a company to avoid booking unrealized gains and losses on the income statement and does not allow the company to manipulate its total equityACo owns 10% of the outstanding shares of BCo. ACo has no influence on BCo. BCo’s shares do not have readily available market values. Therefore, ACo should account for its investment using the cost method. BCo is profitable and has NOT declared all of its profits as dividends. If ACo had used the equity method instead of the cost method, what effect would it have on ACo’s financial statements? [Assume dividends received are treated as operating cash inflows.]a. The book value of ACo’s investment in BCo would have been lower and ACo would have shown lower retained earnings. ACo’s operating cash flow would have been lower.b. The book value of ACo’s investment in BCo would have been higher and ACo would have shown higher retained earnings. ACo’s operating cash flow would have been higher.c. The book value of ACo’s investment in BCo would have been higher and ACo would have shown higher retained earnings. However, ACo’s operating cash flow would NOT have been affected.d. None of the above.A company needs to buy inventory for $100. The suppliers allow the company 30 days to pay its bills. However, the company will take longer to sell the inventory and hence needs credit. Instead of borrowing money from a bank, the company negotiates longer credit terms from its suppliers. It shows the amounts due to its suppliers as part of accounts payable.a. This will lower the reported debt/equity ratio and temporarily improve operating cash flows compared to the scenario in which the company had borrowed cash from a bank to pay the suppliers.b. This will raise the reported debt/equity ratio and temporarily hurt operating cash flows compared to the scenario in which the company had borrowed cash from a bank to pay the suppliers.c. This will not change the reported debt/equity ratio compared to the scenario in which the company had borrowed cash from a bank to pay the suppliers. It will also not affect operating cash flows.d. Cannot answer based on the information given.Assume NO taxes. To inflate income in Y2, a company treats an operating payment of $100 in Y2 as a capital expenditure in Y2. It had not done so in prior periods. Assume that the payment was made at the beginning of Y2. The company states that the useful life of the PP&E acquired at the beginning of Y2 is four years. Which one of the following best describes the effect of this fraud on the indirect cash flow statement?a. Net income +100; Operating cash flow +100; Investing cash flow -100b. Net income +75; Operating cash flow +75; Investing cash flow -100c. Net income +75; Adjustment for depreciation +25; Operating cash flow +100; Investing cash flow -100d. Net income +100; Adjustment for depreciation +25; Operating cash flow +125; Investing cash flow -100At the end of Quarter 1, a company announces that its cash flows would improve in Quarter 2. To give an appearance of improved cash flows in Quarter 2, the company shifts receiving cash from its customers from Quarter 1 to Quarter 2 by delaying receipts from customers in Quarter 1. Pick one of the choices below that describes the possible effects of this action on the balance sheet at the end of Quarter 1. The company only manipulates cash flows; it does not manipulate reported income.a. Increase receivables or increase deferred revenuesb. Increase receivables or decrease deferred revenuesc. Decrease receivables or increase deferred revenuesd. Decrease receivables or decrease deferred revenuesAccountingBusinessFinancial AccountingACC 207
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