23 correct answer b the interest paid on the bank

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23. Correct answer b. The interest paid on the bank loan ($250,000) should be included as an operating activity on Carlson’s cash flow statement. The dividend payment is a financing activity and the equipment purchase is an investment activity. 24. Correct answer c. The Financing Section of Barber’s Cash Flow Statement should include the dividend payment and the repurchase of Barber’s stock for a total of $600,000. 25. Correct answer b. Kristina’s cash flow from financing activities should be $720,000 ($800,000 inflow from the issuance of common stock less the $80,000 payment of dividends).
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117 26. Correct answer c. Kristina’s cash flow from investing activities should be $1,300,000 ($2,800,000 from the sale of receivables less the $1,500,000 land acquisition). 27. Correct answer c. Doran’s net cash flow from operating activities is $1,018,000 as shown below. Net income $ 920,000 Depreciation expense + 110,000 Increase in payables + 45,000 Increase in receivables - 73,000 Increase in tax liability + 16,000 Cash flow $1,018,000 28. Correct answer d. James should include the total value of the sale ($150,000) in the Investing Activities Section of the Cash Flow Statement. 29. Correct answer c. Madden’s net cash flow from operating activities is $83,000 as shown below. Net income $82,000 Decrease in receivables + 6,000 Increase in inventory -12,000 Depreciation expense +20,000 Decrease in payables - 3,000 Gain on equipment sale -10,000 Cash flow $83,000 30. Correct answer a. Kristina’s net cash flow from operating activities is $1,700,000. Net income $2,000,000 Increase in receivables - 300,000 Decrease in inventory + 100,000 Increase in payables + 200,000 Depreciation expense + 400,000 Gain on securities sale - 700,000 Cash flow $1,700,000 31. Correct answer d. A change in estimate for bad debts should be treated as affecting on the period of the change. Changes in estimates are viewed as normal recurring corrections and retrospective treatment is prohibited. 32. Correct answer b. Finer Foods’ change in inventory method should be presented on a retrospective basis to maintain consistency and comparability. Section B: Planning, Budgeting and Forecasting 33. Correct answer b. Cerawell has no control over the actions of its competitors; it can only respond to these actions, e.g., increase the company’s research and development efforts. Cerawell has some control over the other alternatives presented.
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118 34. Correct answer d. Budget preparation forces management planning, can provide performance criteria, and promotes communication and coordination within an organization. However, a budget cannot control unauthorized expenditures – these are usually caused by weak internal controls. 35. Correct answer d. Participation in budget preparation at all levels promotes acceptance of budgets and allows those who have to implement plans to participate in the planning process. 36. Correct answer d. Those closest to operations should participate in budget development as they are most knowledgeable and can supply reliable information on which to base the budget.
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