Act Chap 16 and 17

Module Exam III Chapters 16 and 17

True / False Questions????

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1. The primary purpose of the statement of cash flows is to report all major cash receipts (inflows) and cash payments (outflows) during a period.????

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2. The statement of cash flows reports and proves the net change in cash for a reporting period.????

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3. To be classified as a cash equivalent, the only criterion an item must meet is that it must be readily convertible to a known amount of cash.??

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4. The statement of cash flows explains the difference between the beginning and ending balances of cash and cash equivalents.????

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5. Internal users of the statement of cash flows often use cash flow information to plan day-to-day operating activities and make long-term investment and financing decisions.????

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6. A cash equivalent must be readily convertible to a known amount of cash, and must be sufficiently close to its maturity so its market value is unaffected by interest rate changes.????

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7. Business activities that generate or use cash are classified as operating, investing, or financing activities on the statement of cash flows.

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8. Financing activities include (a) the purchase and sale of long-term assets, (b) the purchase and sale of short-term investments, and (c) lending and collecting on loans. ??

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9. Cash paid for merchandise is an operating activity.????

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10. The purchase of stock in another company is classified as a financing activity.????

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11. Use the following income statement and information about selected current assets and current liabilities to calculate the net cash provided or used by operating activities using the direct method.

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Peters Company

Income Statement

For Year Ended December 31, 2011

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?????????????????????????????????????????????????????????? Sales…………………………….????????????????????????????????????????????????????????$180,000

?????????????????????????????????????????????????????????????? Cost of goods sold………????????????????????????????????????????????????????????????????104,000

?????????????????????????????????????????????????????????????? Gross Profit from sales….??????????????????????????????????????????????????????$??????76,000

???????????????????????????????????????????????????????? Operating expenses:

???????????????????????????????????????????????????????? Salaries and wages expense????$25,000

???????????????????????????????????????????????????????? Depreciation expense………….??????5,000

???????????????????????????????????????????? ????????????Rent expense………………………????7,200

???????????????????????????????????????????????????????? Interest expense…………………..????1,900???????????????????????? ??????39,100

???????????????????????????????????????????????????????? Income from operations…………???????? ????????????????????????????????????????$36,900

???????????????? ????????????????????????????????????????Gain on sale of land ……………..?????????????? ??????????????????????????????????????????2,000

???????????????????????????????????????????????????????? Net Income……………………………?????? ??????????????????????????????????????????$38,900

Selected beginning and ending balances of current asset and current liability accounts, all of which relate to operating activities, are as follows:

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????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????Dec. 31, 2011??????Dec 31, 2010

Accounts Receivable………………………..?????????????????????????????????? ????$27,600????????????$24,000

Merchandise inventory………………………?????????????????????????????????????? ??18,200??????????????20,000

Prepaid rent……………………………………???????????????????????????????????????????????????? 550????????????????????????400

Accounts payable……………………………???????????????????????????????????????????? 27,100????????????????31,000

Salaries and wages payable………………?????????????????????????????????????????? ??10,400????????????????????9,000

Interest payable……………………………..?????????????????????????????????????????????????????????? 300????????????????????????250

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12. Based on the following income statement and balance sheet for Rashid Corporation, determine the cash flows from operating activities using the indirect method.

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Rashid Corporation
Income Statement
For the Year Ended December 31, 2010

?????????????????????????????????????????????????????????????????????????????????????????????????????????? Sales???????????????????????????????????????????????????????????????????????? $ 504,000
?????????????????????????????????????????????????????????????????????????????????????????????????????????? Cost of goods sold $…………………… 327,600
???????????????????????????????????????????????????????????????????????????????????????????????????????? ??Depreciation????????????????????????????????????.???. 42,000
?????????????????????????????????????????????????????????????????????????????????????????????????????????? Other Operating expenses???????????????.. 125,500?????? (495,100)
?????????????????????????????????????????????????????????????????????????????????????????????????????????? Other gains (losses):
?????????????????????????????????????????????????????????????????? ????????????????????????????????????????Gain on sale of equipment?????????????????????????????????????????????????????????????????????????????????? 7,200
?????????????????????????????????????????????????????????????????????????????????????????????????????????? Income before taxes?????????????????????????????????????????????????????????????????????????????????????????????????? $ 16,100
???????????????????????????????????????????????????????? ??????????????????????????????????????????????????Income tax expense???????????????????????????????????????????????????????????????????????????????????????????????????????? (4,800)
???????????????????????????????????????????????????????????????????????????????????????????????????????? Net income?????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????? $ 11,300

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Rashid Corporation
Balance Sheets
At December 31
?????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????? 2010???????????????????????????? 2009

?????????????????????????????????????????????????????????????????? Assets
?????????????????????????????????????????????????????????????????? Cash?????????????????????????????????????????????????????????????????????????????????????? ??????????????????????????????????????$ 64,650???? $ 55,800
?????????????????????????????????????????????????????????????????? Accounts receivable?????????????????????????????????????????????????????????????????????????? 21,000???????????? 29,000
?????????????????????????????????????????????????????????????????? Inventory???????????????????????????????????????????????????????????????????????????????????????????????????????????????? 58,000???????????? 52,100
?????????????????????????????????????????????????????????????????? Equipment???????????????????????????????????????????????????????????????????????????????????????????????????????? 240,000???????????? 222,000
?????????????????????????????????????????????????????????????????? Accumulated Depreciation???????????????????????????????????????????? (106,000)???????? (96,000)
?????????????????????????????????????????????????????????????????? Total assets???????????????????????????????????????????????????????????????????????????????????????????????????? $277,650???? $262,900
?????????????????????????????????????????????????????????????????? Liabilities
?????????????????????????????????????????????????????????????????? Accounts payable???????????????????????????????????????????????????????????????????????????????? ??$ 28,400?????? $ 23,700
?????????????????????????????????????????????????????????????????? Income taxes payable???????????????????????????????????????????????????????????????????????????? 1,050???????????????? 1,200
?????????????????????????????????????????????????????????????????? Total liabilities???????????????????????????????????????????????????????????????????????????????????????????? $ 29,450???????????? $ 24,900
?????????????????????????????????????????????????????????????????? Equity
?????????????????????????????????????????????????????????????????? Common stock???????????????????????????????????????????????????????????????????????????????????????? $ 106,000???????? $ 106,000
?????????????????????????????????????????????????????????????????? Contributed capital in excess of par value?????? 18,000?????????????? ??18,000
?????????????????????????????????????????????????????????????????? Retained earnings?????????????????????????????????????????????????????????????????????????????????????? 124,200?????????????? 114,000
?????????????????????????????????????????????????????????????????? Total equity?????????????????????????????????????????????????????????????????????????????????????????????????????? $ 248,200???????? $ 238,000
???????? ??????????????????????????????????????????????????????????Total liabilities and equity?????????????????????????????????????????????????????? $ 277,650?????? $ 262,900

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13. Financial statement analysis is the application of analytical tools to general-purpose financial statements and related data for making business decisions.??

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14. Financial statement analysis lessens the need for expert judgment.????????

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15. Financial statement analysis may be used for personal investment decisions.??

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16. The evaluation of company performance and financial condition includes evaluation of (1) past and current performance, (2) current financial position, and (3) future performance and risk.??

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17. External users of accounting information make the strategic and operating decisions of a company.????

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18. One purpose of financial statement analysis for internal users is to provide information helpful in improving the company’s efficiency and effectiveness in providing products and services.??

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19. Evaluation of company performance does not include analysis of (1) past and current performance, (2) current financial position, and (3) future performance and risk.

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20. A company’s board of directors analyzes financial statements to assess future company prospects for making operating decisions. ??

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21. Financial analysis only refers to the communication of relevant financial information to decision makers.?? ??

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22. Profitability is the ability to generate future revenues and meet long-term obligations.??

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23. Comparative statements for Kool Corporation are shown below:

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KOOL CORPORATION
Comparative Income Statement
For the Years Ended December 31

?????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????? 2012???????? 2011???????? 2010
Sales?????????????????????????????????????????? ??????????????????????????????????????????????????????????????????????????????????$14,800 $13,229 $13,994
Cost of goods sold?????????????????????????????????????????????????????????????????????????????????????????? 8,225???? 8,661???????? 8,375
Gross profit???????????????????????????????????????????????????????????????????????????????????????????????????????????????? 6,575???? 4,568?????? 5,619
Operating expenses???????????????????????????????????????????????????????????????????????????????????????? 3,664???? 3,576?????? 3,487
Operating income???????????????????????????????????????????????????????????????????????????????????????? $ 2,911???? $ 992???? $ 2,132

Calculate trend percentages for all income statement amounts shown and comment on the results. Use 2010 as the base year.

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24. Calculate the percent increases for each of the following selected balance sheet items.

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?????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????? 2012?????????????????????????? 2011

Cash?????????????????????????????????????????????????????????????????????????????????????????????????????????????? 569???????????????????????????????? 448

Account receivable???????????????????????????????????????????????? ?????? 2,234?????????????????????????????? 2,337

Merchandise Inventory???????????????????????? ??????????????1,062?????????????????????????????? 1,071

Plant assets?????????????????????????????????????????????????????????????????????????????? ?????? 2,432???????????????????????????????? 2,138

Bonds payable?????????????????????????????????????????????????????????????????? ?????? 1,164???????????????????????????????? 1,666

Equity???????????????????????????????????????????????????????????????????????????????????????????????????? 2,777?????????????????????????????????????????? 2,894

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25. The comparative balance sheet for Golden Co. is shown below. Express the balance sheet in common-size percents

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Golden Company

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Comparative Balance Sheets (in $000)

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December 31, 2010-2012

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2012

2011

2010

Cash

$49.6

$34.2

$35.7

Accounts receivable

74.4

85.5

76.5

Merchandise Inventory

148.8

125.4

91.8

Plant assets (net)

347.2

324.9

306

Total assets

$620

$570

$510

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Accounts payable

$117.8

$51.3

$76.5

Bonds payable

130.2

159.6

107.1

Common stock

266.6

279.3

265.2

Retained earnings

105.4

79.8

61.2

Total liabilities and equity

$620

$570

$510

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