MC EXAM 5
Using measures to assess a business's ability to pay its current liabilities is called current position analysis. True False
True
Which of the following is used to evaluate a company's ability to pay its current liabilities? a. quick ratio b. working capital c. current ratio d. all of these choices
d
When using the spreadsheet (work sheet) method to analyze noncash accounts, it is best to start with a. retained earnings b. net income C. revenue d. cash
A
If a gain of $11,000 is realized in selling (for cash) office equipment having a book value of $55,000, the total amount reported in the investing activities section of the statement of cash flows is a. $44,000 b. $66,000 c. $11,000 d. $55,000
Cash Received = Book Value + Gain on Sale = $55,000 + $11,000 = $66,000
Zenith Corporation sells some of its used store fixtures. The acquisition cost of the fixtures is $13,254, and the accumulated depreciation on these fixtures is $6,123 at the time of sale. The fixtures are sold for $3,601. The value of this transaction in the investing activities section of the statement of cash flows is a. $7,131 b. $3,601 C. $3,530 d. $13,254
B.
A company's ability to make interest payments and repay debt at maturity is referred to as a. profitability b. leverage c. solvency d. liquidity
C
Land costing $98,924 was sold for $71,023 cash. The loss on the sale was reported on the income statement as "Other expense." On the statement of cash flows, what amount should be reported as an investing activity from the sale of land? a. $98,924 b. $169,947 c. $27,901 d. $71,023
D
Cash paid for preferred stock dividends should be shown on the statement of cash flows as a(n) a. investing activity b. operating activity c. noncash investing and financing activity d. financing activity
D
The ratio of fixed assets to long-term liabilities provides a measure of a firm's ability to pay dividends. True False
False
horizontal analysis, the current year is normally used as the base year. True False
False
A building with a book value of $54,000 is sold for $63,000 cash. Using the indirect method, this transaction should be shown on the statement of cash flows as an increase of a. $54,000 in the investing activities section b. $54,000 in the investing activities section and an addition of $9,000 to net income in the operating activities section C. $9,000 in the investing activities section d. $63,000 in the investing activities section and a deduction of $9,000 from net income in the operating activities section
Gain on Sale of Building = $63,000 - $54,000 = $9,000
Which of the following should be added to net income in determining the net cash flows from operating activities using the indirect method? a. an increase in inventory b. a decrease in accounts payable c. preferred dividends declared and paid d. a decrease in accounts receivable
D
Assets Cash and short-term investments $30,000 Accounts receivable (net) 20,000 Inventory 15,000 Property, plant, and equipment 185,000 Total assets $250,000 Liabilities and Stockholders' Equity Current liabilities $45,000 Long-term liabilities 70,000 Common stock 80,000 Retained earnings 55,000 Total liabilities and stockholders' $250,000 equity Income Statement Sales $85,000 Cost of goods sold (45,000) Gross profit $40,000 Operating expenses (15,000) Interest expense (5,000) Net income $20,000 Number of shares of common stock outstanding 6,000 Market price per share of common stock $20 Total dividends paid $9,000 Cash provided by operations $30,000 What is the dividend yield for Diane Company? a. 0.75% b. 7.5% c. 1.3% d. 13.3%
Dividend Yield = Dividends per Share of Common Stock ÷ Market Price per Share of Common Stock = ($9,000 ÷ 6,000) ÷ $20 = $1.50 ÷ $20 = 7.5%
If two companies have the same current ratio, their ability to pay short-term debt is the same. True False
False
The ratio of the sum of cash, receivables, and marketable securities to current liabilities is referred to as the current ratio. True False
False
A corporation uses the indirect method for preparing the statement of cash flows. A fixed asset has been sold for $25,000, representing a gain of $4,500. The value reported in the operating activities section regarding this event would be a. $(4,500) b. $25,000 C. $4,500 d. $29,500
B
Cash dividends of $50,000 were declared during Cash dividends payable were $10,000 and $5,000 at the beginning and end of the year, respectively. The amount of cash paid for dividends during the year was a. $60,000 b. $55,000 C. $65,000 d. $50,000
B
Cash flow per share is a. required to be reported on the statement of cash flows b. not required to be reported on any statement c. required to be reported on the income statement d. required to be reported on the balance sheet
B
Factors that reflect the ability of a business to pay its debts and earn a reasonable amount of income are referred to as solvency, profitability, and liquidity. True False
True
The days' sales in receivables is one means of expressing the relationship between average daily sales and accounts receivable. True False
True
Horizontal analysis is a technique for evaluating financial statement data a. on a certain date b. over a period of time c. for one period of time d. as it may appear in the future
B
Land costing $140,000 was sold for $173,000 cash. The gain on the sale was reported on the income statement as "Other revenue." On the statement of cash flows, what amount should be reported as an investing activity from the sale of land? a. $313,000 b. $173,000 C. $33,000 d. $140,000
B
The acquisition of treasury stock would appear on the statement of cash flows as an a. outflow of cash in the operating activities section b. outflow of cash in the financing activities section C. item listed in a separate schedule of noncash investing and financing activities d. outflow of cash in the investing activities section
B
The last item on the statement of cash flows prior to the schedule of noncash investing and financing activities reports the a. net change in cash for the period b. cash balance at the end of the period C. net cash flows from investing activities d. net cash flows from financing activities
B
Baxter Company reported a net loss of $13,000 for the year ended December 31. During the year, accounts receivable decreased by $5,000, inventory increased by $8,000, accounts payable increased by $10,000, and depreciation expense of $4,000 was recorded. During the year, operating activities a. provided net cash of $8,000 b. used net cash of $2,000 c. uprovided net cash of $2,000 d. used net cash of $8,000
Cash flows from (used for) operating activities: Net income $(13,000) Adjustments to reconcile net income to net cash flows from (used for) operating activities: Depreciation expense 4,000 Changes in current operating assets and liabilities: Decrease in accounts receivable 5,000 Increase in inventory (8,000) Increase in accounts payable 10,000 Net cash flows used for operating activities $(2,000)
In a common-sized income statement, 100% is the a. net income b. gross profit C. net cost of goods sold d. sales
D
On the statement of cash flows, the financing activities section would include all of the following except a. cash paid for dividends b. cash received from the sale of bonds payable c. cash paid for the purchase of treasury stock d. cash paid for interest on bonds payable
D
The current ratio is a. computed by dividing current liabilities by current assets b. a solvency measure that indicates the margin of safety for bondholders c. computed by subtracting current liabilities from current assets d. used to evaluate a company's liquidity and short-term debt-paying ability
D
Based on the following data for the current year, what is the days' sales in receivables? Sales on account during year $584,000 Cost of goods sold during year 300,000 Accounts receivable, beginning of year 45,000 Accounts receivable, end of year 35,000 Inventory, beginning of year 90,000 Inventory, end of year 110,000 a. 7.3 b. 25.0 c. 2.5 d. 14.6
Days' Sales in Receivables = Average Accounts Receivable ÷ Average Daily Sales [($45,000 + $35,000) ÷ 2] ÷ ($584,000 ÷ 365 days) = 25.0 days
A 15% change in sales will result in a 15% change in net income. True False
False
A company can compare its financial data to the data of other companies and industry averages to evaluate its position. True False
False
Accounts receivable from sales to customers amounted to $40,000 and $32,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $110,000. Exclusive of the effect of other adjustments, the net cash flows from operating activities to be reported on the statement of cash flows using the indirect method is a. $110,000 b. $(118,000) C. $150,000 d. $118,000
Net Cash Flows from Operating Activities = Net Income + Decrease in Accounts Receivable = $110,000 + ($40,000 - $32,000) = $118,000
Assume the following sales data for a company: Current year $1,025,000 Preceding year 820,000 What is the percentage increase in sales from the preceding year to the current year? a. 125% b. 100% c. 25% d. 75%
Percentage Increase in Sales in the Current Year = (Current Year Sales - Preceding Year Sales) ÷ Preceding Year Sales ($1,025,000 - $820,000) ÷ $820,000 = $205,000 ÷ $820,000 = 25%
Assume the following sales data for a company: Current year $865,592 Preceding year 647,511 What is the percentage increase in sales from the preceding year to the current year? a. 25.19% b. 74.81% C. 33.68% d. 133.68%
Percentage Increase in Sales in the Current Year = (Current Year Sales Preceding Year Sales) ÷ Preceding Year Sales ($865,592 - $647,511) ÷ $647,511 $218,081 ÷ $647,511 = 33.68%
In computing the asset turnover ratio, long-term investments are excluded from average total assets. True False
True
The relationship of each asset item as a percent of total assets is an example of vertical analysis. True False
True
A business issues 20-year bonds payable in exchange for preferred stock. This transaction would be reported on the statement of cash flows in a. a separate schedule b. the operating activities section C. the investing activities section d. the financing activities section
A
Cash paid to purchase long-term investments would be reported in a. the investing activities section of the statement of cash flows b. a separate schedule of noncash investing and financing activities C. the financing activities section of the statement of cash flows d. the operating activities section of the statement of cash flows
A
Zenith Corporation sells some of its used store fixtures. The acquisition cost of the fixtures is $12,348, and the accumulated depreciation on these fixtures is $6,192 at the time of sale. The fixtures are sold for $4,551. The value of this transaction in the investing activities section of the statement of cash flows is a. $1,605 b. $12,348 C. $4,551 d. $6,156
A
The purchase of stock of another company as an investment would appear on the statement of cash flows as an a. outflow of cash in the financing activities section b. outflow of cash in the investing activities section c. outflow of cash in the operating activities section d. item listed in a separate schedule of noncash investing and financing activities
B
Which of the following is a noncash investing and financing activity? a. payment of a cash dividend b. issuance of common stock to acquire land C. payment of a 6-month note payable d. purchase of inventory on account
B
An analysis of a company's ability to pay its current liabilities is called a. horizontal analysis b. vertical analysis c. current position analysis d. profitability analysis
C
The following items appeared on the financial statements of Washington Company. Accounts receivable, January 1 $15,344 Accounts receivable, December 31 6,780 Accounts payable, January 1 4,342 Accounts payable, December 31 9,261 Inventory, January 1 6,387 Inventory, December 31 16,102 Sales 60,457 Cost of goods sold 36,540 Washington Company uses the direct method to report cash flows from (used for) operating activities. Assume that all accounts payable are owed to merchandise suppliers. Cash payments for merchandise were a. $40,185 b. $41,336 C. $36,540 d. $35,389
Cash Payments for Merchandise = Cost of Goods Sold + Increase in Inventory - Increase in Accounts Payable = $36,540 + ($16,102 - $6,387) - ($9,261 - $4,342) = $41,336
An acceleration in the collection of receivables will tend to cause the accounts receivable turnover to a. either increase or decrease b. decrease C. remain the same d. increase
D
Year 2 Year 1 Total current assets $600,000 $560,000 Total investments 60,000 40,000 Total property, plant, and equipment 900,000 700,000 Total current liabilities 125,000 65,000 Total long-term liabilities 350,000 250,000 Preferred 9% stock, $100 par 100,000 100,000 Common stock, $10 par 600,000 600,000 Paid-in capital in excess of par-common stock 75,000 75,000 Retained earnings 310,000 210,000 Using the balance sheets for Kellman Company, if net income is $250,000 and interest expense is $30,000 for Year 2, what are the earnings per share on common stock for Year 2? a. $4.32 b. $2.49 C. $4.02 d. $4.16
Earnings per Share (EPS) on Common Stock for Year 2 = (Net Income ? Preferred Dividends) ÷ Shares of Common Stock Outstanding = [$250,000 - ($100,000 x 9%)] ÷ ($600,000 ÷ $10) = $241,000 ÷ 60,000 = $4.02
If a company has issued only one class of stock, the earnings per share are determined by dividing net income plus interest expense by the number of shares outstanding. True False
False
Accounts payable $40,000 Accounts receivable 65,000 Accrued liabilities 7,000 Cash 30,000 Intangible assets 40,000 Inventory 72,000 Long-term investments 110,000 Long-term liabilities 75,000 Marketable securities 36,000 Notes payable (short-term) 30,000 Prepaid expenses 2,000 Property, plant, and equipment 625,000 Based on the data for Harding Company, what is the quick ratio? a. 2.6 b. 1.7 c. 0.9 d. 2.7
Quick Ratio = Quick Assets ÷ Current Liabilities = (Accounts Receivable + Cash + Marketable Securities) ÷ (Accounts Payable + Accrued Liabilities + Notes Payable) = ($65,000 + $30,000 + $36,000) ÷ ($40,000 + $7,000 + $30,000) = $131,000 ÷ $77,000 = 1.7
Accounts payable $ 30,000 Accounts receivable 35,000 Accrued liabilities 7,000 Cash 25,000 Intangible assets 40,000 Inventory 72,000 Long-term investments 100,000 Long-term liabilities 75,000 Marketable securities 36,000 Notes payable (short-term) 20,000 Prepaid expenses 2,000 Property, plant, and equipment 400,000 Based on the data for Privett Company, what is the quick ratio? a. 2.9 b. 1.7 C. 1.1 d. 1.0
Quick Ratio = Quick Assets ÷ Current Liabilities = (Accounts Receivable + Cash + Marketable Securities) ÷ (Accounts Payable + Accrued Liabilities + Notes Payable) = ($35,000 + $25,000 + $36,000) ÷ ($30,000 + $7,000 + $20,000): = $96,000 7 $57,000 = 1.7
A business issues 20-year bonds payable in exchange for preferred stock. This transaction would be reported on the statement of cash flows in a. the investing activities section b. the financing activities section c. the operating activities section d. a separate schedule
D
Cash paid for equipment would be reported on the statement of cash flows in a. the operating activities section b. the investing activities section C. a separate schedule of noncash investing and financing activities d. the financing activities section
B
An analysis of a company's ability to pay its current liabilities is called a. vertical analysis b. horizontal analysis C. current position analysis d. profitability analysis
C
If a gain of $11,000 is realized in selling (for cash) office equipment having a book value of $55,000, the total amount reported in the investing activities section of the statement of cash flows is a. $44,000 b. $11,000 C. $66,000 D. $55,000
C
On the statement of cash flows, the investing activities section would include a, cash paid for dividends cash received from issuing common stock c. cash received from the sale of equipment d. cash paid to retire bonds payable
C
The following items appeared on the financial statements of Washington Company. Accounts receivable, January 1 $13,000 Accounts receivable, December 31 9,000 Accounts payable, January 1 4,000 Accounts payable, December 31 7,000 Inventory, January 1 10,000 Inventory, December 31 15,000 Sales 56,000 Cost of goods sold 31,000 Washington Company uses the direct method to report cash flows from (used for) operating activities. Assume that all accounts payable are owed to merchandise suppliers. Cash received from customers during the year is a. $60,000 b. $45,000 C. $52,000 d. $56,000
Cash Received from Customers = Sales + Decrease in Accounts Receivable = $56,000 + ($13,000 - $9,000) = $60,000
Rogers Company reported net income of $35,000 for the year. During the year, accounts receivable increased by $7,000, accounts payable decreased by $3,000, and depreciation expense of $8,000 was recorded. Net cash flows from operating activities for the year is a. $37,000 b. $47,000 C. $33,000 d. $53,000
Cash flows from (used for) operating activities: Net income $35,000 Adjustments to reconcile net income to net cash flows from (used for) operating activities: Depreciation expense 8,000 Changes in current operating assets and liabilities: Increase in accounts receivable (7,000) Decrease in accounts payable (3,000) Net cash flows from operating activities $33,000
Accounts receivable from sales to customers amounted to $40,000 and $32,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $110,000. Exclusive of the effect of other adjustments, the net cash flows from operating activities to be reported on the statement of cash flows using the indirect method is a. $118,000 b. $150,000 C. $110,000 d. $(118,000)
Net Cash Flows from Operating Activities = Net Income + Decrease in Accounts Receivable = $110,000 + ($40,000 - $32,000) = $118,000
Baxter Company reported a net loss of $13,000 for the year ended December 31. During the year, accounts receivable decreased by $5,000, inventory increased by $8,000, accounts payable increased by $10,000, and depreciation expense of $4,000 was recorded. During the year, operating activities a. uprovided net cash of $2,000 b. provided net cash of $8,000 C. used net cash of $8,000 d. used net cash of $2,000
Cash flows from (used for) operating activities: Net income $(13,000) Adjustments to reconcile net income to net cash flows from (used for) operating activities: Depreciation expense 4,000 Changes in current operating assets and liabilities: Decrease in accounts receivable 5,000 Increase in inventory (8,000) Increase in accounts payable 10,000 Net cash flows used for operating activities $(2,000)
A company had net income of $255,290 and depreciation expense of $25,012. During the year, accounts receivable and inventory increased by $16,750 and $28,400, respectively. Prepaid expenses and accounts payable decreased by $1,553 and $4,862, respectively. There was also a loss on the sale of equipment of $7,555. How much was the net cash flows from operating activities on the statement of cash flows using the indirect method? a. $287,857 b. $279,516 C. $239,398 d. $224,288
Cash flows from (used for) operating activities: Net income $255,290 Adjustments to reconcile net income to net cash flows from (used for) operating activities: Depreciation expense 25,012 Loss on sale of equipment 7,555 Changes in current operating assets and liabilities: Increase in accounts receivable (16,750) Increase in inventory (28,400) Decrease in prepaid expenses 1,553 Decrease in accounts payable (4,862) Net cash flows from in operating activities $239,398
Which of the following increases cash? a, acquisition of treasury stock b. the declaration of a cash dividend C. depreciation expense d. borrowing money by issuing a 6-month note
D
Accounts receivable from sales transactions were $46,200 at the beginning of the year and $69,767 at the end of the year. Net income reported on the income statement for the year was $109,905. Exclusive of the effect of other adjustments, the net cash flows from operating activities to be reported on the statement of cash flows prepared by the indirect method is a. $86,338 b. $109,905 C. $23,567 d. $133,472
Net Cash Flows from Operating Activities: Net Income - Increase in Accounts Receivable = $109,905 - ($69,767- $46,200) = $86,338