Managerial Accounting - Chapter 12 & 13

The section in the statement of cash flows for reporting the purchase of equipment for cash is: a. operating activities b. financing activities c. investing activities d. schedule of noncash investing or financing activity e. this is not reported on the statement of cash flows

c. investing activities

Powers Company reported net sales of $1,370,000, average Accounts Receivable, net of $61,500, and net income of $58,250. The accounts receivable turnover ratio is: a. 0.45 times. b. 21.3 times. c. 42.6 times. d. 22.3 times. e. 23.3 times.

d. 22.3 times. Explanation $1,370,000/$61,500 = 22.3 times

Clairmont Industries reported net income of $282,828, average total assets of $637,000, and comprehensive income of $354,172. The return on total assets is: a. 55.6%. b. 78.9%. c. 61.5%. d. 44.4%. e. 125.1%.

d. 44.4%. Explanation $282,828/$637,000 = 44.4%

Which of the following is not a purpose of financial statement analysis: a. Providing information to improve efficiency and effectiveness. b. Providing information for managing and operating the company. c. Helping external users make investing and lending decisions. d. Helping the board of directors monitor management's performance. e. Assuring that the company will avoid an IRS audit.

e. Assuring that the company will avoid an IRS audit.

Ram Corporation paid cash dividends totaling $55,000 during its most recent fiscal year. How should this information be reported on Ram's statement of cash flows? a. In operating activities as a source of funds. b. In investing activities as a source of funds. c. In investing activities as a use of funds. d. In financing activities as a source of funds. e. In financing activities as a use of funds.

e. In financing activities as a use of funds

The comparison of a company's financial condition and performance to a base amount is known as: a. Financial reporting. b. Horizontal ratios. c. Liquidation analysis. d. Sensitivity analysis. e. Vertical analysis.

e. Vertical analysis.

Martinez Corporation reported net sales of $778,000, net income of $129,000, and total assets of $7,764,165. The profit margin is: a. 603.0%. b. 6.03%. c. 83.42%. d. 1.66%. e. 16.58%.

e. 16.58%. Explanation $129,000/$778,000 = 16.58%.

A company reported that its bonds with a par value of $50,000 and a carrying value of $59,000 are retired for $62,400 cash, resulting in a loss of $3,400. The amount to be reported under cash flows from financing activities is: a. $(62,400). b. $(9,000). c. $9,000. d. $(59,000). e. $(3,400).

a. $(62,400).

Jones Corporation reported current assets of $191,800, current liabilities of $137,000, and total liabilities of $275,714 on its most recent balance sheet. The current ratio is: a. 1.4 : 1. b. 0.7 : 1. c. 0.3 : 1. d. 1 : 1. e. 0.5 : 1.

a. 1.4 : 1. Explanation $191,800/$137,000 = 1.4

Refer to the following selected financial information from Helpful Hardware. Compute the company's days' sales in inventory for Year 2. (Use 365 days a year.) Merchandise inventory Year 2 - 327,600 Year 1 - 253,500 Cost of goods sold Year 2 - 585,000 Year 1 - 433,100 a. 204.4. b. 276.1. c. 179.5. d. 215.1. e. 213.6.

a. 204.4.

Jacobs Company reported net sales of $1,200,000, accounts receivable, net of $72,000, and net income of $51,025. The days' sales uncollected is: a. 21.9 days. b. 15.4 days. c. 4.0 days. d. 562.5 days. e. 48.3 days.

a. 21.9 days Explanation ($72,000/$1,200,000) × 365 = 21.9 days

If a company is using the indirect method to prepare the statement of cash flows, a decrease in the inventory account should be reported as: a. An increase in cash flows from operating activities. b. An increase in cash flows from investing activities. c. A decrease in cash flows from operating activities. d. A decrease in cash flows from investing activities. e. An increase in cash flows from financing activities.

a. An increase in cash flows from operating activities.

Intracompany standards for financial statement analysis: a. Are based on a company's prior performance and its relations between financial items. b. Are often set by competitors. c. Are set by the company's industry through published statistics. d. Are based on rules of thumb. e. Are published by analyst services such as Standard & Poor's.

a. Are based on a company's prior performance and its relations between financial items.

When using the indirect method to calculate and report net cash provided or used by operating activities, which of the following is subtracted from net income? a. Decrease in income taxes payable. b. Depreciation expense. c. Loss on sale of plant assets. d. Decrease in accounts receivable. e. Decrease in merchandise inventory.

a. Decrease in income taxes payable.

The comparison of a company's financial condition and performance across time is known as: a. Horizontal analysis. b. Vertical analysis. c. Political analysis. d. Fair value reporting. e. Liquidation analysis.

a. Horizontal analysis.

The building blocks of financial statement analysis do not include: a. Industry analysis. b. Solvency. c. Profitability. d. Market prospects. e. Liquidity and efficiency.

a. Industry analysis.

The ability to meet short-term obligations and efficiently generate revenues is called: a. Liquidity and efficiency. b. Solvency. c. Profitability. d. Market prospects. e. Creditworthiness.

a. Liquidity and efficiency.

When analyzing the changes on a spreadsheet used to prepare a statement of cash flows, the cash flows from operating activities generally are affected by: a. Net income, current assets, and current liabilities. b. Noncurrent assets. c. Noncurrent liability and equity accounts. d. Both noncurrent assets and noncurrent liabilities. e. Equity accounts only.

a. Net income, current assets, and current liabilities.

To compute trend percentages the analyst should: a. Select a base period, divide analysis period amount by the base period amount and multiply that amount by 100. b. Subtract the analysis period number from the base period number. c. Subtract the base period amount from the analysis period amount, divide the result by the analysis period amount, then multiply that amount by 100. d. Compare amounts across industries. e. Compare amounts to a competitor.

a. Select a base period, divide analysis period amount by the base period amount and multiply that amount by 100.

Common-size financial statements: a. Show changes in the relative importance of each financial statement item. b. Do not emphasize the relative importance of each item. c. Show financial amounts in side-by-side columns on a single statement. d. Show the dollar amount of change for financial statement items over time. e. Is also known as horizontal analysis.

a. Show changes in the relative importance of each financial statement item.

The statement of cash flows helps analysts evaluate all but which of the following? a. The amount of debt relative to equity. b. Source of cash used for plant expansion. c. Differences between net income and net operating cash flow. d. Source of cash used to finance investing activities. e. Source of cash used for debt repayments.

a. The amount of debt relative to equity.

The section in the statement of cash flows for reporting the receipt of cash from dividend revenue is: a. operating activities b. financing activities c. investing activities d. schedule of noncash inventory or financing activity e. this is not reported on the statement of cash flows

a. operating activities

Jones Corporation reported current assets of $187,000 and current liabilities of $132,000 on its most recent balance sheet. The current assets consisted of $63,200 Cash; $44,800 Accounts Receivable; and $79,000 of Inventory. The acid-test (quick) ratio is: a. 1.4 : 1. b. 0.82 : 1. c. 0.58 : 1. d. 1 : 1. e. 0.60 : 1.

b. 0.82 : 1. Explanation Quick Assets = Cash $63,200 + Accounts Receivable $44,800 = $108,000$108,000/$132,000 = 0.82

Refer to the following selected financial information from Sammy Company Compute the company's current ratio. Current Assets 340,800 Plant assets 388,000 Current Liabilities 120,000 Net sales 676,000 Net Income 75,000 a. 5.63. b. 2.84. c. 6.07. d. 3.60. e. 3.23.

b. 2.84. Explanation Year 2: $340,800/$120,000 = 2.84

Carducci Corporation reported net sales of $3,597,000, average total assets of $1,100,000, and net income of $847,000. The total asset turnover ratio is: a. 0.31 times. b. 3.27 times. c. 4.30 times. d. 2.27 times. e. 0.77 times.

b. 3.27 times. Explanation $3,597,000/$1,100,000 = 3.27 times

Refer to the following selected financial information from Weekend Getaways Incorporated Compute the company's days' sales uncollected for Year 2. (Use 365 days a year.) Accounts receivable, net Year 2 - 98,760 Year 1 - 86,600 Net sales Year 2 823,000 Year 1 793,000 a. 39.9. b. 43.8. c. 45.5. d. 38.4. e. 42.7.

b. 43.8. Explanation Year 2: $98,760/$823,000 × 365 = 43.8

Internal users of accounting information: a. Are not directly involved in operating a company. b. Are those individuals involved in managing and operating the company. c. Include shareholders and lenders. d. Include directors and customers. e. Include suppliers, regulators, and the press.

b. Are those individuals involved in managing and operating the company.

The ability to meet long-term obligations and generate future revenues is referred to as: a. Liquidity and efficiency. b. Solvency. c. Profitability. d. Market prospects. e. Creditworthiness.

b. Solvency.

Financial reporting refers to: a. The application of analytical tools to general-purpose financial statements. b. The communication of financial information useful for making investment, credit, and other business decisions. c. General-purpose financial statements only. d. Ratio analysis only. e. Profitability.

b. The communication of financial information useful for making investment, credit, and other business decisions.

The section in the statement of cash flows for reporting the issuance of common stock for cash is: a. operating activities b. financing activities c. investing activities d. schedule of noncash investing or financing activity e. this is not reported on the statement of cash flows

b. financing activities

Which of the following items is reported on the statement of cash flows under financing activities? a. purchase of equipment for cash b. payment of a cash dividend c. payment for merchandise d. purchase of an investment e. sale of merchandise

b. payment of a cash dividend

Which of the following is not a cash flow from investing activities? a. payments to purchase plant assets b. proceeds from collecting accounts receivable that arise from customer sales c. payments to buy intangible assets d. payments to inquire investments e. proceeds from the sale of equipment

b. proceeds from collecting accounts receivable that arise from customer sales

In preparing Tywin Company's statement of cash flows for the most recent year, the following information is available: Purchase of equipment $260,000 Proceeds from the sale of equipment 87,000 Purchase of land 91,000 Net cash flows from investing activities for the year were: a. $438,000 of net cash used. b. $438,000 of net cash provided. c. $264,000 of net cash used. d. $351,000 of net cash used. e. $264,000 of net cash provided.

c. $264,000 of net cash used. Explanation Purchase of equipment $(260,000) Purchase of land (91,000) Proceeds from sale of equipment 87,000 Net cash used by investing activities $(264,000)

Use the following information and the indirect method to calculate the net cash provided or used by operating activities: Net income $ 85,700 Depreciation expense 12,400 Gain on sale of land 7,900 Increase in merchandise inventory 2,450 Increase in accounts payable 6,550 a. $29,200. b. $13,100. c. $94,300. d. $37,100. e. $14,100.

c. $94,300. Explanation Net income $85,700 Depreciation expense 12,400 Gain on sale of land (7,900) Increase in merchandise inventory (2,450) Increase in accounts payable 6,550 Net cash used by operations $94,300

Zhang Company reported cost of goods sold of $835,000, average inventory of $41,750, and net sales of $2,338,000. The inventory turnover ratio is: a. 0.5 times. b. 418 times. c. 20 times. d. 56 times. e. 19 times.

c. 20 times. Explanation ($835,000/$41,750) = 20 times

External users of accounting information: a. Are those individuals involved in managing and operating the company. b. Include internal auditors and managers. c. Are not directly involved in operating the company. d. Make strategic decisions for a company. e. Make operating decisions for a company.

c. Are not directly involved in operating the company.

Industry standards for financial statement analysis: a. Are based on a single competitor's financial performance. b. Are set by the government. c. Are used to compare a company's performance to industry performance. d. Are based on rules of thumb. e. Compare a company's income with its prior year's income.

c. Are used to compare a company's performance to industry performance.

A statement of cash flows explains the difference between the beginning and ending balances of: a. Net income. b. Equity. c. Cash and cash equivalents. d. Working capital. e. Cash and intangible assets

c. Cash and cash equivalents.

Three common tools of financial analysis are: a. Financial reporting, sensitivity analysis, transactional analysis. b. Fair presentation, variance analysis, financial reporting. c. Horizontal analysis, vertical analysis, ratio analysis. d. Relativity analysis, financial reporting, fair value analysis. e. Liquidation analysis, political analysis, fair value analysis.

c. Horizontal analysis, vertical analysis, ratio analysis.

When preparing a statement of cash flows using the indirect method, which of the following should not be classified as an operating cash flow? a. An increase in accounts receivable. b. A decrease in accounts payable. c. Proceeds from the disposal of a long-term asset with no gain or loss. d. An increase in prepaid expenses. e. A decrease in accrued expenses payable.

c. Proceeds from the disposal of a long-term asset with no gain or loss.

The ability to provide financial rewards to attract and retain financing is called: a. Liquidity and efficiency. b. Solvency. c. Profitability. d. Market prospects. e. Creditworthiness.

c. Profitability.

The indirect method for the preparation of the operating activities section of the statement of cash flows: a. Separately lists each major item of operating cash receipts. b. Separately lists each major item of operating cash payments. c. Reports net income and then adjusts it for items that do not affect cash. d. Is required if the company is a merchandiser. e. Results in a different net cash amount provided by operating activities than the direct method.

c. Reports net income and then adjusts it for items that do not affect cash.

The statement of cash flows reports: a. assets, liabilities, and equity b. revenues, gains, expenses, and losses c. cash receipts (inflows) and cash payments (outflows) for an accounting period d. equity, net income, and dividends e. changes in equity

c. cash receipts (inflows) and cash payments (outflows) for an accounting period

Which of the following statements regarding the statement of cash flows is false? a. operating activities include transactions and events that affect net income b. financing activities include transactions and events that affect long-term liabilities and equity c. investing activities include transactions and events that affect issuance of common stock d. investing activities include transactions and events that come from the purchase and sale of long-term assets e. noncash activities are investing and financing activities that do not affect cash flows

c. investing activities include transactions and events that affect issuance of common stock

Transactions and events that affect net income such as the production and purchase of inventory, the sale of goods and services to customers, and the expenditures to run a business are classified as: a. financing activities b. investing activities c. operating activities d. direct activities e. indirect activities

c. operating activities

Which of the following is not an example of noncash financing and investing? a. retirement of debt by issuing equity stock b. purchase of equipment by issuing a note payable c. purchase of inventory using cash d. purchase of a building by issuing equity stock e. conversion of preferred stock to common stock

c. purchase of inventory using cash

A company's income statement showed the following: net income, $142,000 and depreciation expense, $35,400. The company's current assets and current liabilities showed the following changes: accounts receivable decreased $11,200; merchandise inventory increased $21,600; and accounts payable increased $5,200. Calculate the net cash provided or used by operating activities. a. $136,000. b. $182,600. c. $139,400. d. $172,200. e. $205,000.

d. $172,200. Explanation Net income $142,000 Depreciation expense $35,400 Decrease in accounts receivable $11,200 Increase in merchandise inventory ($21,600) Increase in accounts payable $5,200 Net cash provided by operating activities $172,200

The accountant for TI Company is preparing the company's statement of cash flows for the fiscal year that just ended. The following information is available: Retained earnings balance at the beginning of the year $157,000 Cash dividends declared for the year $48,400 Net income for the year $95,000 What is the ending balance for retained earnings? a. $273,000. b. $13,600. c. $252,000. d. $203,600. e. $108,600.

d. $203,600. Explanation Beginning balance $157,000 Net income for the year 95,000 Cash dividends declared (48,400) Ending balance $203,600

A machine with a cost of $134,000 and accumulated depreciation of $89,000 is sold for $52,000 cash. The amount that should be reported as a source of cash under cash flows from investing activities is: a. Zero. This is a financing activity. b. $45,000. c. Zero. This is an operating activity. d. $52,000. e. $7,000.

d. $52,000.

Stark Company's most recent balance sheet reported total assets of $2,020,000, total liabilities of $740,000, and total equity of $1,280,000. Its debt-to-equity ratio is: a. 0.37 b. 0.63 e. 1.73 d. 0.58 e. 1.00

d. 0.58 Explanation $740,000/$1,280,000 = 0.58

A company's sales in Year 1 were $350,000 and in Year 2 were $387,500. Using Year 1 as the base year, the percent change for Year 2 compared to the base year is: a. 90%. b. 100%. c. 111%. d. 11%. e. 10%.

d. 11%. [($387,500 − $350,000)/$350,000] × 100 = 11%

Financial statements with data for two or more successive accounting periods placed in columns side by side, sometimes with changes shown in both dollar amounts and percentages, are referred to as: a. Period-to-period statements. b. Controlling statements. c. Successive statements. d. Comparative statements. e. Serial statements.

d. Comparative statements.

Standards for comparisons in financial statement analysis do not include: a. Intracompany standards. b. Competitor standards. c. Industry standards. d. Management standards. e. Guidelines (rules of thumb).

d. Management standards.

The first line item in the operating activities section of a spreadsheet for a statement of cash flows prepared using the indirect method is: a. Cash paid to suppliers. b. Cash received from customers. c. Increase (decrease) in accounts receivable. d. Net income (loss). e. Adjustments to net income

d. Net income (loss).

The measurement of key relations between financial statement items is known as: a. Financial reporting. b. Horizontal analysis. c. Investment analysis. d. Ratio analysis. e. Risk analysis.

d. Ratio analysis.

The appropriate section in the statement of cash flows for reporting the purchase of land in exchange for common stock is: a. operating activities b. financing activities c. investing activities d. in a note to the statement or in a separate schedule e. reconciliation of cash balance

d. in a note to the statement or in a separate schedule

Stormer Company reports the following amounts on its statement of cash flow: Net cash provided by operating activities of $39,000; net cash used in investing activities of $14,400 and net cash used in financing activities of $18,600. If the beginning cash balance is $7,200, what is the ending cash balance? a. $79,200. b. $64,800. c. $42,000. d. $6,000. e. $13,200.

e. $13,200. Explanation Provided by operating activities $39,000 Used in investing activities $(14,400) Used in financing activities $(18,600) Net increase in cash $6,000 Plus Beginning Cash $7,200 Ending Cash $13,200

A machine with a cost of $154,000, accumulated depreciation of $97,000, and current year depreciation expense of $23,000 is sold for $49,600 cash. The amount that should be reported as a source of cash under cash flows from investing activities is: a. $47,400. b. $7,400. c. $23,000. d. $24,400. e. $49,600.

e. $49,600.

Refer to the following selected financial information from WorkFit Corporation. Compute the company's acid-test ratio. Cash $42,250 Short-term investments 59,180 Accounts receivable, net 79,500 Merchandise inventory 115,000 Prepaid expenses 9,700 Current liabilities 111,000 a. 2.76. b. 2.67. c. 0.91. d. 1.10. e. 1.63.

e. 1.63. Explanation ($42,250 + $59,180 + $79,500)/$111,000 = 1.63