In an effort to concentrate its resources in more profitable areas, Southern Ste

Question

In an effort to concentrate its resources in more profitable areas, Southern Steel Corporation recently sold its family pizza restaurant segment The disposal constitutes: an extraordinary item a discontinued operation which should be treated as a prior period adjustment a discontinued operation which should be disclosed net-of-tax effects a portion of income from continuing operations None of these Assuming use of the direct approach for preparing a statement of cash flows, which of the following would be most likely reported as a line item in the "operating activity" section? Dividends paid to shareholders Cash paid for taxes Proceeds from issuing capital stock A reduction in inventory levels None of these Finished goods ending inventory of S 10,000 is erroneously determined to be $100,000. The effect of this error will be to: overstate assets by $90,000 overstate income by $90,000 understate income by $90,000 Both A and B None of these.

Explanation / Answer

1)correct option is "C" -A discontinued operations which should be disclosed net of tax effects.

A operation is said to be discontinued if the same is sold in either enteriety ot in piece meal

2)correct option is "B" -Cash paid for taxes

3) correct option is "D" -Both A and B

Inventory is an asset to be reported in balancesheet so it is overstated by 100000-10000=90000

and while calculating gross income ,ending inventory is substracted so by subtracting higher amount ,profit is lower .

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