Unit 4 ch 12, 13

The issuance of common stock and declaration and payment of cash dividends will result in the following:

Increase in financing activities for the issuance and a decrease in financing activities for the dividends.

A loss from the sale of an investment would be (added/subtracted) to (from) net income when computing cash flows from operations, using the indirect method.

added

The format of a statement of cash flows includes reporting cash flows from three activities including:

financing operating investing

General-purpose financial statements include all of the following except:

general ledger accounts

The three-step process to determine cash provided or used by financing activities includes all of the following steps except:

identify an increase or decrease in cash.

The three-step analysis to determine cash provided or used by financing activities includes:

identifying changes in financing-related accounts reporting the cash flow effects determine the cash effects using T-accounts and reconstructed entries

Lakeview, Inc.'s statement of cash flows reports financing activities with payments that exceed receipts. This means that Lakeview had a net cash (inflow/outflow) from financing activities.

outflow

Each of the following are classified as a financing activity except:

purchase of long-term investments

(Solvency/efficiency) refers to a company's ability to meet long-term obligations and generate future revenues.

solvency

This building block reveals a company's ability to generate future revenues and meet long-term obligations.

solvency

Analysts typically use computation of dollar changes and percent changes because:

sometimes dollar changes are small, but percents are large

When interpreting measures from financial statement analysis, we need (or benchmarks) for comparisons.

standards

A gain from the sale of a building would be (added/subtracted) to (from) net income when computing cash flows from operations, using the indirect method.

subtracted

A gain from the sale of equipment would be (added/subtracted) to (from) net income, when computing cash flows from operations using the indirect method.

subtracted

In preparing a cash flows from operating activities using the indirect method, an increase in accounts receivable would be (added/subtracted) to (from) net income.

subtracted

Each of the following are classified as an investing activity except:

receipt of interest revenue

A machine with a cost of $100,000 and accumulated depreciation of $98,000 is sold for $70,000 cash. The amount that should be reported as a source of cash under cash flows from investing activities is _____.

Cash flows from investing activities should include the proceeds of the sale of the machine of $70,000.

Which of the following transactions would not be reported under investing activities in the statement of cash flows?

Cash paid for interest on long-term notes

Which of the following transactions would be reported under investing activities in the statement of cash flows?

Cash paid to purchase investments in securities Cash paid to purchase plant assets

Which of the following items would not be adjusted to net income when computing cash flows from operating activities, using the indirect method?

Cash received from sale of building

Which of the following would not be reported under financing activities on the statement of cash flows?

Cash received from sale of plant assets

It is important to analyze the sources and uses of cash because:

Creditors use this information to assist them in deciding whether to loan funds to them. Investors use this information to decide if they will purchase their stock.

A certain company has an acid test ratio of 0.97. This implies which of the following.

Current liabilities are greater than the quick assets of the company. The acid-test ratio is calculated by dividing quick assets by current liabilities. In this case, the quick assets are only 97% (or 0.97) of the current liabilities which means that the current liabilities are greater than the quick assets.

Compute the dollar change for accounts payable using the following information. Use year 1 as the base year. Accounts Payable balance on Year 1 is $75,000 and on Year 2 is $65,000.

$(10,000)

Retrospective application means:

Applying a different accounting principle to prior periods.

Compute the percent change for accounts payable using the following information. Use year 1 as the base year. Accounts Payable balance on Year 1 is $75,000 and on Year 2 is $65,000.

-13.33% Percent Change = (Analysis period amount Year 2 $65,000 − Base period amount Year 1 $75,000) / Base period amount Year 1 $75,000 × 100 = −13.33%

At the end of the year, assets for Jordan company are $120,000 and liabilities are $40,000. The debt-to-equity ratio is:

0.5 Reason: Equity=120,000-40,000=$80,000. 40,000/80,000=.5

A company's market price is $60.00 per common share, book value is $10.00 per share, and the earnings is $5.00 per share. Compute price-earnings ratio.

12.0 Reason: $60 / 5 = $12.0

A company has Total Assets of $34,000 including $3,000 in Accounts Receivable, and Net Sales of $40,000. Days' sales uncollected is ____ days.

27.4 Reason: ($3,000/$40,000) x 365 = 27.4

A company has Total Assets of $135,000 including $29,000 in Accounts Receivable, and Net Sales of $380,000. Days' sales uncollected is ____ days.

27.9 Reason: (29,000/380,000)x365=27.9

Net sales are $525,000, beginning accounts receivable are $15,000 and ending accounts receivable are $20,000. The accounts receivable turnover is _____ times.

30 Accounts receivable turnover = Net sales $525,000 divided by average accounts receivable. Average accounts receivable = ($15,000 + $20,000) / 2 = $17,500. Accounts receivable turnover = $525,000 / 17,500 = 30 times.

A company's net sales in year 1 were $300,000 and were $400,000 in year 5. The company's total assets were $350,000 in year 1 and were $370,000 in year 5. What is the percent change in net sales and total assets over this period?

33.33% and 5.71% Net sales: ($400,000 − $300,000) / $300,000 = 33.33% Total assets: ($370,000 − $350,000) / $350,000 = 5.71%

At the beginning of the period, a company reported $100,000 of common stock, $10 par; and $50,000 paid-in capital in excess of par. At the end of the period, this company reported $110,000 of common stock, $10 par; and $90,000 paid-in capital in excess of par. Cash received from the sale of common stock during the year is $.

50000

Whisper Co. had Beginning Inventory of $20,000 and Ending Inventory of $26,000. Cost of goods sold for the period was $130,000. Days' sales in inventory is days.

73

Marsh Co. had beginning inventory of $10,000 and ending inventory of $13,000. Cost of goods sold for the period was $65,000. Days' sales in inventory is _______ days.

73 Reason: ($13,000/65,000)x365=73

Which of the following items would be correct adjustments to net income to arrive at cash flows from operating activities, using the indirect method?

Add increase in accounts payable Subtract increase in inventory

________ refers to a company's makeup of equity and debt financing.

Capital structure

Blue, Incorporated, reported net cash flows from operating activities of $120,000, cash flows from investing activities of $300,000, cash flows from financing activities of $80,000, and average total assets of $2,500,000. The company's cash flow on total assets ratio (stated as a percentage rounded to one decimal point) is _____.

Cash Flow on Total Assets = Cash Flow from Operations of $120,000 ÷ Average Total Assets of $2,500,000 = 0.048 = 4.8%.

Which of the following transactions would not be classified as an operating activity on the statement of cash flows?

Cash dividends paid to shareholders

Which of the following items would be reported under financing activities on the statement of cash flows?

Cash dividends paid to shareholders Cash paid to repay debt Cash received from issuing notes payable

A company reported that its bonds with a par value of $40,000 and a carrying value of $52,000 are retired for $60,000 cash, resulting in a loss of $8,000. The amount to be reported under cash flows from financing activities is _____.

Cash flows from financing activities should include the cash paid to retire the bonds of $60,000.

_______ balance sheets consist of balance sheet amounts from two or more balance sheet dates, arranged side by side.

Comparative

Which of the following items would be subtracted from net income when reporting cash flows from operating activities, using the indirect method?

Decrease in wages payable Decrease in taxes payable

(Internal/External) users of accounting information rely on financial statement analysis to make more informed decisions when pursuing their goals.

External

Small dollar changes can yield large percent changes consistent with their importance.

False

Accountants can use a three-step process to determine cash provided (or used) by investing activities. Which of the following steps is not part of this process?

Identify adjustments to net income.

activities include those transactions and events that affect net income.

Operating

______ measures a company's ability to use its assets to generate sales and is an important indication of operating efficiency. It is computed by taking net sales divided by average total assets.

Total asset turnover

_____ analysis is a form of horizontal analysis that can reveal patterns in data across periods. It is computed by taking the (analysis period amount/base period amount) x 100.

Trend

________ analysis is a form of horizontal analysis that can reveal patterns in data across periods by comparing period amounts by base period amounts.

Trend

A tool used to evaluate individual financial statement items or a group of items is called:

Vertical analysis

Comparison of a company's financial condition and performance to a base amount is an example of what type of analysis?

Vertical analysis

Which of the following questions could not be answered from the statement of cash flows?

What are the earnings-per-share of common stock?

Carol Co. prepares a statement of cash flows starting with net income and then adjusting for items that do not affect cash. Carol Co. is using the (direct/indirect) method of reporting the statement of cash flows.

indirect

A potential investor in Denzel Co. would like to measure how frequently Denzel converts its account receivables into cash. The investor takes Denzel's net sales divided by average accounts receivable to determine this information, known as the accounts turnover ratio.

receivable

Under the indirect method of preparing the statement of cash flows, decreases in noncash current operating assets should be:

Added to net income

Under the indirect method of preparing the statement of cash flows, depreciation and amortization should be:

Added to net income

Vertical analysis is also called - analysis.

Blank 1: common Blank 2: size

Under the indirect method of preparing the statement of cash flows, decreases in current liabilities should be:

Deducted from net income

Under the indirect method of preparing the statement of cash flows, increases in current assets should be:

Deducted from net income

Each of the following are classifications in the statement of cash flows except:

Income

______ refers to a company's ability to generate an adequate return.

Profitability

Net cash provided by operating activities was $12,000. Net cash provided by investing activities was $2,000. Net cash used in financing activities was $7,000. The cash balance at the beginning of the year was $4,000. The cash balance at the end of the year is:

$11,000 Reason: $12,000+2,000-7,000=$7,000. $7,000+4,000=$11,000.

Net cash used in operating activities was $10,000. Net cash provided by investing activities was $2,000. Net cash provided by financing activities was $5,000. The cash balance at the end of the year was $12,000. The cash balance at the beginning of the year was $.

15000

Total Assets for a company are $700,000; Accounts Payable is $75,000; Bonds Payable is $225,000; Common Stock is $300,000 and Retained Earnings is $100,000. The common-size percent for Accounts Payable is:

10.7% Accounts Payable $75,000 / Base Amount Total Assets $700,000 × 100 = 10.7% Common-size percent.

A company reported Net Income for 2018 of $12,000 and for 2017 of $14,000. It reported Total Assets at the end of 2018 of $120,000 and at the end of 2017 of $100,000. Compute return on total assets for 2018.

10.9% Reason: 12,000/[(120,000+100,000/2)]=.109=10.9%

A company's sales in year 1 were $300,000, year 2 were $351,000, and year 3 were $400,000. Using year 2 as a base year, the sales percent for year 3 is ___.

113.96% Analysis period amount for year 3 of $400,000 / $351,000 Base period amount × 100 = Trend percent of 113.96

A company reported Net Income for 2018 of $1,500 and for 2017 of $1,000. It reported Total Assets at the end of 2018 of $13,000 and at the end of 2017 of $11,000. Compute return on total assets for 2018.

12.5% Reason: Average total assets = ($13,000+$11,000)/2=$12,000. 1,500/12,000=.125 = 12.5%

A company's market price is $40.00 per common share, book value is $10.00 per share, and the earnings is $3.00 per share. Compute price-earnings ratio.

13.3 Reason: $40 / 3 = $13.3

Most users rely on general-purpose financial statements, which include which of the following?

Balance sheet Statement of stockholders' equity Income statement Statement of cash flows Notes to financial statements

The statement of cash flows explains the difference between beginning and ending balances of cash and cash equivalents. A cash equivalent must satisfy which of the following criteria?

Be close to maturity Be readily convertible to a known amount of cash

At the end of the first year, assets for a company are $60,000 and liabilities are $40,000. The debt-to-equity ratio is .

Blank 1: 2.0

- financial statements express each item as a percent of a base amount. The base amount is assigned a value of 100%.

Blank 1: Common Blank 2: Size

is used to compare the dividend-paying performance of different companies. It is computed by taking annual cash dividends per share divided by market price per share.

Blank 1: Dividend Blank 2: Yield

turnover measures a company's ability to use its assets to generate sales and is an important indication of operating efficiency. It is computed by taking net sales divided by average total assets.

Blank 1: Total Blank 2: Asset

Working capital can be computed by taking current minus current .

Blank 1: assets or asset Blank 2: liabilities or liability

Management's and begins with an overview, followed by critical accounting policies, and a discussion of operating results and financial condition. It is an excellent starting point in understanding a company's business activities.

Blank 1: discussion Blank 2: analysis

Most users rely on financial statements, which include the (1) income statement, (2) balance sheet, (3) statement of stockholders' equity, (4) statement of cash flows, and (5) notes to these statements.

Blank 1: general Blank 2: purpose

The measure of how long a company holds inventory before selling it is called the .

Blank 1: inventory or merchandise Blank 2: turnover

Vertical analysis is a tool to evaluate individual financial statement items or a group of items. When analyzing income statement accounts, the base is usually (revenue/expenses/net income) and for balance sheet accounts, the base is usually total (assets/liabilities/equity) .

Blank 1: revenue Blank 2: assets

The amount of income before deductions for interest expense and income taxes is the amount available to pay interest. The ratio takes this income divided by interest expense to determine the risk for creditors.

Blank 1: times Blank 2: interest Blank 3: earned

The amount of current assets minus current liabilities is called .

Blank 1: working Blank 2: capital

Cash flows from financing activities identifies cash receipts and cash payments related to which of the following types of accounts?

Bonds Payable Common Stock

income statements include amounts for two or more periods, placed side by side.

Comparative

Which of the following is not one of the five important steps to preparing a statement of cash flows?

Compute the net income

Users especially rely on this information to predict future operations. Many users view this section as the most important:

Continuing operations

______ is used to compare the dividend-paying performance of different companies. It is computed by taking annual cash dividends per share divided by market price per share.

Dividend yield

Information about cash flows can influence decision makers in important ways. Which of the following questions could be answered by the statement of cash flows?

Does the company have the resources to pursue opportunities? Can the company pay its debts? How does a company spend its cash?

The correct order of the three-step analysis of determining cash provided or used by investing activities is:

Identify changes in investing accounts, determine the cash effects, report the cash flow effects.

Which of the following items would be added to net income when reporting cash flows from operating activities, using the indirect method?

Increase in unearned fees Increase in accounts payable

To compute cash flows from financing activities, accountants normally analyze changes in all of the following accounts except:

Interest Payable

Apple Company compares its first quarter sales revenue for the current year with its previous year's first quarter sales revenue. This is an example of what type of comparison?

Intracompany

______ refers to the availability of resources to pay short-term cash requirements. Analysis is aimed at a company's funding requirements.

Liquidity

Which of the following items would be adjusted to net income when computing cash flows from operating activities, using the indirect method?

Loss on sale of investment Gain on sale of building Depreciation expense

Identify which of the following items is a noncash investing and financing activity that must be reported in a note to the statement of cash flows.

Retirement of debt by issuing stock Lease of an asset in a long-term lease transaction

Which of the following statements about the statement of cash flows are correct?

The purpose is to report cash receipts and cash payments during a period. It details the sources and uses of cash.

margin measures a company's ability to earn net income from sales. It is measured by expressing net income as a percent of net sales.

Profit

______ reflects a company's ability to earn net income from sales. It is measured by expressing net income as a percent of net sales.

Profit margin

Rose Company reported net income of $24,000, net sales of $400,000, and average assets of $600,000. What is the profit margin ratio?

Profit margin = Net income of $24,000 ÷ Net sales of $400,000 = 6%

refers to a company's ability to generate an adequate return.

Profitability

Which of the following items are classified as noncash investing and financing activities?

Retirement of debt by issuing stock Lease of assets in a long-term lease transaction Conversion of preferred stock to common stock

______ measures the amount of net income earned for its owners. It is computed by taking net income divided by average total equity.

Return on equity

Which of the following items would not be a correct adjustment to net income to arrive at cash flows from operating activities, using the indirect method?

Subtract increase in taxes payable

A company has earnings per share of $10 and the market price per common share is $50. What is this company's price-earnings ratio?

The price-earnings ratio is computed by dividing the market price per common share by the earnings per share. Earnings per share = $50 / $10 = 5.

Information on the statement of cash flows helps users answer all of the following questions except:

Why did the company invest in long-term assets?

The statement of cash flows reports noncash investing and financing transactions in

a note or separate schedule

The ratio that measures how frequently a company converts its account receivables into cash by taking net sales divided by average accounts receivable is known as:

accounts receivable turnover

The _______ ratio takes the sum of cash, short-term investments, and current receivables and divides the total by current liabilities. It helps determine immediate short-term debt-paying ability.

acid-test

An increase in wages payable would be (added/subtracted) to (from) net income, when computing cash flows from operations using the indirect method.

added

Red Co.'s beginning Common Stock balance was $110,000 and their ending Common Stock balance was $125,000. This will be reported as _____ in the statement of cash flows.

an increase of $15,000 in the financing activities section

Starfish Shells had a beginning balance in Notes Payable of $35,000 and an ending balance of $40,000. This will be reported as _____ on the statement of cash flows.

an increase of $5,000 in the cash flows from financing activities section

To prepare common-size financial statements, each line item needs to be calculated to a common-size percent. The formula for common-size percent is (_________) x 100.

analysis amount/base amount

Financial statement analysis applies _____ tools to financial statements for decision-making.

analytical

A company repaid a long-term debt during the year. They will report this as a(n) (increase/decrease) in the activities section on the statement of cash flows.

decrease, financing

Investors assess cash flows before

buying and selling stock

Comparative financial statements show:

changes in relative importance of each financial statement item.

Management's Discussion and Analysis includes all of the following sections:

critical accounting policies and estimates financial condition discussion of risks overview

The _______ ratio, or current assets divided by current liabilities, is used to evaluate a company's ability to pay its short-term obligations.

current

The ratio, or current assets divided by current liabilities, is used to evaluate a company's ability to pay its short-term obligations.

current

The acid-test ratio takes the sum of cash, short-term investments, and ________ and divides the total by current liabilities. It helps determine immediate short-term debt-paying ability.

current receivables

A pie chart graphic of a common-size income statement will show:

each cost as a component of net sales.

Profitability measures a company's ability to:

earn an adequate return

Financial statement analysis provides information to internal users to improve:

efficiency and effectiveness

A cash must satisfy two criteria: (1) be readily convertible to a known amount of cash and (2) be sufficiently close to maturity so its market value is unaffected by interest rate changes.

equivalent

Return on equity measures the amount of ______ earned for its owners. It is computed by taking net income divided by average total equity.

income

The _______ method of reporting adjusts net income to get the net cash provided or used by operating activities.

indirect

The _______ method of reporting the statement of cash flows reports net income and then adjusts it for items that do not affect cash.

indirect

A net cash (inflow/outflow) occurs when the receipts in a category exceed the payments.

inflow

The purpose of financial statement analysis for (internal/external) users is to provide information to improve efficiency and effectiveness.

internal

All of the following are standards used in financial statement analysis for comparisons:

intracompany industry competitor

The length of time that a company holds inventory prior to selling it is called the

inventory turnover

An analysis of a comparative balance sheet focuses on _____ and percent changes.

large dollar

Horizontal analysis is the review of financial statement data across time and the term horizontal comes from the _____ movement of our eyes as we review comparative financial statements:

left-to-right

An investor in Able Inc. would like to understand Able's availability of resources to pay its short-term cash requirements. This type of analysis is known as a(n) (efficiency/liquidity) measure.

liquidity

All of the following are one of the building blocks of financial statement analysis except:

marketing prospects

A(n) _______ occurs when the receipts in a category exceed the payments.

net cash inflow

A(n) _____________ activity includes those transactions and events that affect net income, including the purchase of goods and services, cash sales to customers, and payment of operating expenses.

operating

The purchase of goods and services, the sale of goods and services to customers, and costs to operate the business are all reported on the statement of cash flows under activities.

operating

A net cash ______ occurs when the payments in a category exceed the receipts.

outflow

Each of the following are classified as an operating activity except:

purchase of short-term investments

Each of the following are classified as a noncash investing or financing activity except:

reissuing treasury stock

The three-step analysis to determine cash provided or used by investing activities includes:

reporting the cash flow effects identifying changes in investing-related accounts determining the cash effects using T-accounts and reconstructed entries

The statement of cash flows does not report the following transactions

transactions between cash and cash equivalents

The amount of income before deductions for interest expense and income tax expense is the amount available to pay interest. The ________ ratio takes income before interest expense and income tax expense divided by interest expense to determine the risk for creditors.

times interest earned