Name: ______________________ Class: _________________ Date: _________ ID: A

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W01 211 Ex 2

Multiple ChoiceIdentify the letter of the choice that best completes the statement or answers the question.

____ 1. Which of the following is NOT a TRUE statement?a. operating income is another term for gross profitb. operating expense on an income statement is listed after cost of goods soldc. some revenues and expenses on the income statement may not directly relate to a

company's primary operationsd. income taxes are generally reported after other revenues and expenses on an income

statement____ 2. Operating expenses should be reported on the income statement after

a. cost of goods sold and before earnings per shareb. administrative expenses but before cost of goods soldc. sales revenue and before cost of goods soldd. earnings per share but before administrative expenses

____ 3. Which of the following must be known in order to determine the firm's total amount of working capital?

Current Assets Current Liabilities

a. Yes Yesb. Yes Noc. No Yesd. No No

____ 4. Which financial statements cover a period of time?a. Income Statement and Balance Sheetb. Balance Sheet and Statement of Cash Flowsc. Income Statement and Statement of Cash Flowsd. Statement of Cash Flows and Statement of Assets, Liabilities and Owners' Equity

____ 5. Differences between the direct format and indirect format of the statement of cash flows are found in which section(s) of the statement?a. operating activitiesb. financing activitiesc. investing activitiesd. all three sections (operating, financing, investing)

____ 6. The statement of cash flows is designed to reporta. how the previous period's income statement relates to the current period's income

statementb. the firm's profit or lossc. the cash from operating, financing and investing activities of the firm during the

current periodd. the effects of the current period's income statement on the current period's balance

sheet____ 7. Which of the following is an investing activity?

a. purchase of equipmentb. payment of cash dividendsc. payment of interestd. purchase of inventory

Name: ______________________ ID: A

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____ 8. Sales for the year totaled $75,000 with $60,000 of it sold on account. Beginning accounts receivable was $9,000 while ending accounts receivable totaled $12,000. What amounts of revenue and cash flow will be reported for the period as a result of these facts?

Revenue Cash Flow

a. $60,000 $72,000b. $75,000 $78,000c. $60,000 $78,000d. $75,000 $72,000

____ 9. Which of the following combinations represents adjustments that are made to net income to arrive at cash from operations?

Increases in current assets Increases in current liabilities

a. deducted from net income added to net incomeb. deducted from net income deducted from net incomec. added to net income added to net incomed. added to net income deducted from net income

____ 10. Which of the following is a TRUE statement?a. noncash expenses are deducted from net income to arrive at cash from operationsb. payment of a current note payable is a financing activity but payment of interest on

that note is an operating activityc. the direct format reconciles net income and cash flow from operating activitiesd. issuance of stock is a financing activity but payment of dividends on that stock is an

operating activity____ 11. Cash outflow for financing activities may indicate that

a. the company has a lot of good investing opportunitiesb. the company is performing well but does not have a lot of good investing

opportunitiesc. the company has no excess cashd. the company cannot create enough cash from its operations to meet ongoing needs

____ 12. The difference between the selling price of goods sold to customers during a period and the cost of the goods sold isa. gross profitb. net incomec. operating incomed. pretax income

____ 13. Chocolate Heaven, Inc., had a balance of $200,000 in stockholders' equity at December 31, 2001. During 2002, the company had a net income of $50,000, distributed dividends of $30,000, and borrowed $10,000. What was the company's stockholders' equity at December 31, 2002?a. $250,000b. $220,000c. $260,000d. $230,000

____ 14. The term "working capital" is used to describe thea. amount of equity (ownership) capital in the firmb. portion of capital actively employed in generating revenuesc. amount of debt (borrowed) capital in the firmd. cushion of current resources over current obligations

Name: ______________________ ID: A

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____ 15. Which of the following companies has the highest price-earnings ratio?a. Anheuser Buschb. Ciscoc. Cloroxd. Nordstrom

Problem

1. The following information reflects cash flow and other activities of Andy's Candies, Inc., for the month ended March 31, 2001:

Paid for equipment $20,000 Paid to owners $ 6,000Paid for income taxes 1,500 Paid to suppliers 20,000Paid for insurance 100 Depreciation expense 6,500Paid for interest 200 Received from customers 44,000Paid for utilities 400 Received from issuing long-term debt 12,000Paid for advertising 150 Received from sale of land 10,000

Paid to employees 9,000

Use this information to answer the following questions:

a. What was net cash flow from operating activities for the period?b. What was net cash flow from financing activities for the period?c. What was net cash flow from investing activities for the period?d. What was the net change in cash for the period?

2. Use the information provided in each of the following independent situations to answer the questions.

a. Cash paid to suppliers for merhcandise during a period was $20,000. Accounts Payable decreased during the period by $4,000. Inventory increased during the period by $2,500. What was the Cost of Goods Sold for the period?

b. Interest paid during a period was $6,000. Interest Payable decreased during the period by $2,500. What was the Interest Expense during the period?

c. Cash flow from operations for a period was $10,000. Current assets decreased during the period by $2,200. Current liabilities decreased during the period by $1,500. What was net income for the period?

d. Cash collected from customers for a fiscal period was $20,000. Accounts Receivable increased during the period by $5,000. What was Sales Revenue for the period?

Name: ______________________ ID: A

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3. Lumber Company has the following 2002 summarized income statement and comparative year-end balance sheets:

Summarized Income StatementNet sales $462Cost of goods sold 210Operating expenses (includes $30 depreciation expense) 126

Net income $126

Comparative Balance Sheets2002 2001 2001 2002

Cash $144 $102 Accounts payable $ 93 $ 66Accounts rec. 51 63 Utilities payable 87 120Inventory 129 147 Bonds payable, L-T 90 117Plant & equip. net 180 192 Common stock 90 90

$504 $504 Retained earnings 144 111$504 $504

Required:Determine the amount of each of the following. Show your work clearly and neatly.

a. Net cash flow from operating activities during 2002.b. Net cash provided by depreciation during 2002.c. Net cash flow from investing activities during 2002.d. Net cash flow from financing activities during 2002.

4. Information about Arkadelphia Corporation, which sells boats, is shown below:

Common shares outstanding 150,000Advertising expense $ 9,000Cost of goods sold 330,000Depreciation expense 13,500Income tax expense 15,000Income tax payable 7,500Interest expense 6,000Payments to owners 4,500Retained earnings 37,500Salaries expense 45,000Sales revenue 450,000

Required:Compute (a) gross profit, (b) income from operations, (c) net income and (d) earnings per share for the period.

Name: ______________________ ID: A

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5. At year end 2001, the Copy Service reports the following balance sheet account information. Each account has its expected type of balance.

Accumulated depreciation $ 40 Land $32Inventory 132 Cash 40Buildings 168 Office supplies 36Note payable (due 2004) 130 Accounts receivable 84Contributed capital 174 Accounts payable 74Wages payable 60 Equipment 72Retained earnings 86

Required:Determine the following:a. Total assetsb. Total long-term liabilitiesc. Total working capitald. Current ratio

ID: A

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W01 211 Ex 2Answer Section

MULTIPLE CHOICE

1. A 2. A 3. A 4. C 5. A 6. C 7. A 8. D 9. A 10. B 11. B 12. A 13. B 14. D 15. B

PROBLEM

1.

a. Net cash from from operating activitiesIncome taxes $ (1,500)Insurance (100)

Interest (200)Utilities (400)Advertising (150)Suppliers (20,000)Customers 44,000 Employees ( 9,000)

$ 12,650 b. Net cash flow from financing

Owners $ (6,000)Debt 12,000

$ 6,000 c. Net cash flow from investing

Equipment $(20,000)

Land 10,000 $(10,000)

d. Net change in cash: $12,650 + 6,000 - 10,000 = $8,650 2.

a. Cost of goods sold = $20,000 - 2,500 - 4,000 = $13,500.b. Interest expense = $6,000 - 2,500 = $3,500.c. Net income = $10,000 + 1,500 - 2,200 = $9,300.d. Sales revenue = $20,000 + 5,000 = $25,000.

ID: A

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3. a. $180 (Net income $126 + depreciation expense $30 + accounts rec. $12 +

inventory $18 + accounts payable $27 - utilities payable $33)b. $0 (Depreciation does not affect cash flow.)c. $(18) (Beginning plant and equipment $192 - $30 depreciation expense +

investment in new plant ? = $180 ending plant & equipment. Investment in new plant, therefore, equals $18.)

d. $(120) (Dividends of $93 + $27 buyback of bonds.) Dividends = $111 + $126 - $144 = $93

4. a. gross profit $120,000 = $450,000 - $330,000b. income from operations $52,500 = $120,000 - 9,000 - 13,500 - 45,000c. net income $31,500 = $52,500 - 6,000 - 15,000d. earnings per share for the period 0.21 = $31,500/150,000

5. a. $524

Cash $ 40 Accounts receivable 84 Inventory 132 Office supplies 36 Buildings 168 Equipment 72 Accumulated depreciation (40)Land 32

$524

b. $130 Note payable (due 2004)

c. $158 Current assets ($40 + $84 + $132 + $36) - Current liabilities ($60 + $74)

d. 2.18 to 1 Current assets ÷ Current liabilities = $292 ÷ 134 = 2.18 to 1