Second attempt.... 4. Using the treasury stock method, the options would result in how many extra shares being recognized in the diluted EPS calculation: A) 500,000 B) 358,975 C) 333,333 D) 285,714 5. Hulk Company reports the following 2008 2009 Sales $300,000 $360,000 Cost of goods sold $75,000 $90,000 Based upon this information which of the following is most correct: A) Cost of goods sold is a permanent cost B) Cost of goods sold is a economic cost C) Cost of goods sold is a totally variable cost D) Cost of goods sold is a period expense 6. Which of the following combinations of accounting practices will lead to the highest reported earnings in an inflationary environment? Depreciation Method Inventory Method A) Straight-line LIFO B) Double-declining balance LIFO C) Straight-line FIFO D) Double-declining balance FIFO Use the following to answer questions 7 and 8: TMTOMH Company reported in its annual report software refinement expenses of $12M, $15M and $18M for fiscal years 2007, 2008 and 2009, respectively. At the end of fiscal 2009 it had total assets of $140M. Net income was $20M for fiscal 2009, and it had a marginal tax rate of 35%. 7. If software refinement had been capitalized each year and amortized over a three-year period beginning in the year the cost was incurred, total assets at the end of fiscal 2009 would have been: A) $185M B) $172M C) $158M D) $157M 8. If software refinement had been capitalized each year and amortized over a three year period beginning in the year the cost was incurred, net income for fiscal 2009 would have been: A) $31.7M B) $29.75M C) $21.95M D) $14.95M Use the following to answer questions 12-15: Below is an example of an incorrectly prepared statement of cash flows. The descriptions of the activities are correct. Cash from operating activities Net Income $ 60,000 Depreciation (4,000) Increase in accounts receivable (2,000) Increase in deferred tax liability (1,000) $ 53,000 Cash from investing activities Purchase of marketable securities $(48,000) Dividends paid 1,500 $(46,500) Cash from financing activities Increase in Short-term debt trade $ (500) Increase in Long-term debt bonds Payable (2,500) $ (3,000) Increase in cash $ 3,500 12. The correct cash flows from operating activities is: A) 65,500 B) 63,500 C) 53,500 D) none of the above 13. The correct cash flows from investing activities is: A) ($41,000) B) ($45,500) C) ($48,000) D) none of the above 14. The correct cash flows from financing activities is: A) ($4,500) B) $3,000 C) $1,000 D) none of the above 15. The correct change in cash for the year is: A) $4,000 B) $15,000 C) $16,500 D) none of the above 16. On a statement of cash flows that uses the indirect approach, calculation of cash flow from operations treats depreciation as an adjustment to reported net income because: A) depreciation is a direct source of cash B) depreciation is an outflow of cash to a reserve account for the replacement of assets C) depreciation reduces net income and involves an outflow of cash D) depreciation reduces net income but does not involve an outflow of cash 17. Err Company has a major lawsuit against them for unsafe products. It recognizes a huge liability in 2008 of $300M. The effect of this liability is to decrease stockholders' equity by 50%. In 2009, the effect of recognizing this lawsuit in 2008, all else being equal in 2009, is: A) Return on net operating assets will increase dramatically B) Return on net operating assets will decrease dramatically C) Return on equity will increase dramatically D) Return on equity will decrease dramatically