To be recorded as a liability, an item must meet three specific conditions. Two of them are: it must involve probable future sacrifice of economic resources by the entity, and it must be a present obligation that arose as a result of a past transaction. Which one of the following is the third condition?

The item must reduce the market value of the recording entity

It must involve a transfer of resources to another entity

It must involve the expenditure of cash now or in the future

It must not cause total liabilities to exceed total assets
16) The next 9 questions are based on Patnode Inc.’s balance sheets at year end 2004 and 2005.
During 2005, Patnode announced and paid dividends of $1,000, the only dividend-related activity during the year. What was its 2005 net income?




Cannot be estimated
During 2005, Patnode had a cash outflow of $15,000 for investing activities and a cash inflow of $7,000 from financing activities. Its 2005 cash flow from operations was:

Outflow of $15,000

Inflow of $15,000

Outflow of $8,000

Inflow of $8,000
Patnode’s 2005 statement of cash flows contains four items in the financing section. Three of them are: Short-term debt issued, $15,000; Short-term debt paid, ($10,000) and Dividends paid, ($1,000). What is the fourth item in the financing section?

Retained earnings, $4,600

Common stock issued, $3,000

Long-term debt paid, ($3,000)

Cash from financing, $3,000
How much total depreciation and amortization expense did Patnode record during 2005?




During 2005, Patnode recorded sales of $17,000. How much cash did it collect from its customers?




Cannot be estimated
Which one of the following items will not appear in the operating section of Patnode’s 2005 indirect method cash flow statement?

Deduct: increase in accounts receivable $3,000

Add: decrease in accounts payable $1,000

Add: increase in taxes payable $2,400

Add: decrease inventories $6,000

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