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Financial Accounting

Quiz 8

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Course: Financial Accounting

Section

FILL-IN-THE-BLANKPRINCIPLES AND TERMINOLOGY

INSTRUCTIONS: Complete each of the following statements by writing the appropriate words or amounts in the Answers column.

		For
	Answers	Scoring
0. The statement that reports a firms major cash inflows and outflows for a period is the ..................................................................................................	statement of cash flows	0. ____
1-2. What are the two alternative methods of reporting operating activities in the statement of cash flows?
1. .............................................................................................................................		1. ____
2. .............................................................................................................................		2. ____
3-8. Indicate the section of the statement of cash flows (indirect or direct method) in which each of the following would appear (answer operating activities, investing activities, or financing activities):	NOTE: THERE ARE 2 ANSWERS PER LINE
3. Amortization of bond discount ......................................................................		3. ____
4. Depreciation expense on equipment ..........................................................		4. ____
5. Sale of long-term investments .....................................................................		5. ____
6. Sale of equipment at book value..................................................................		6. ____
7. Redemption of bonds payable .....................................................................		7. ____
8. Sale of patents .................................................................................................		8. ____
9. Cash dividends of $50,000 were declared during the year. Cash dividends payable were $14,000 and $16,000 at the beginning and end of the year, respectively. The amount of cash flows for payment of dividends during the year is ..........................................................................		9. ____
10. The net income from operations was $80,000 and the only revenue or expense item not affecting cash was depreciation expense of $42,000. What amount of net cash flows from operating activities would appear in the statement of cash flows? ....................................................................		10. ____
11. A corporation purchased and retired 5,000 shares of its $15 par common stock, originally issued at par, for $35. Cash flows amounted to .........................................................................................................................		11. ____
12. If a loss of $2,000 is incurred in selling (for cash) a fixed asset having a book value of $25,000, the total amount reported as a cash flow is .		12. ____
13. The $97,000 net income for the year included a charge of $8,000 for the amortization of bond discount. Exclusive of the effect of other adjustments, the amount of net cash flows from operating activities is		13. ____
14. A corporation issued $2,000,000 of bonds payable at 104. Cash flow was ............................................................................................................		14. ____
15. 25,000 shares of $10 par common stock were issued at $16. The total amount reported in the cash flows from financing activities section of the statement of cash flows is ......................................................................		15. ____
16. Cash flow per share is normally reported on the statement of cash flows (answer true or false) ...........................................................................		16. ____
17. Free cash flow is a measure of profitability (answer true or false) .......		17. ____

NOTE: Each blank is worth one point.

PROBLEM 1STATEMENT OF CASH FLOWS

INSTRUCTIONS: Selected changes in various corporate accounts during a fiscal year are described below. By the use of xs, indicate the section of the statement of cash flows (indirect or direct method) in which the change is reported. If the item described is not reported, so indicate.

	Section of Statement of Cash Flows
	Operating	Investing	Financing	Not	For
	Activities	Activities	Activities	Reported	Scoring
0. Merchandise Inventorynet increase ....................................	X				0. ____
1. Retained Earningsdebit for stock dividends distributed ..					1. ____
2. Common Stockcredit for issuance at par for cash ...........					2. ____
3. Bonds Payabledebit for redemption of bonds ..................					3. ____
4. Office Suppliesnet decrease ................................................					4. ____
5. Accounts Receivablenet decrease ......................................					5. ____
6. Retained Earningsdebit for net loss ....................................					6. ____
7. Accounts Payablenet increase .............................................					7. ____
8. Bonds Payablecredit for issuance for cash .......................					8. ____
9. Retained Earningsdebit for cash dividends paid ..............					9. ____
10. Equipmentcredit for items sold ............................................					10. ____
11. Accumulated DepreciationEquipmentdebit for fully depreciated items discarded ....................................................					11. ____

NOTE: Each answer is worth one point.

PROBLEM 2CASH FLOWS FROM OPERATING ACTIVITIES SECTION OF STATEMENT OF CASH FLOWS

INSTRUCTIONS: Selected data from various accounts during a fiscal year are presented below. By the use of xs, indicate whether each of the items will be (1) added to or (2) deducted from net income in arriving at cash flows from operating activities as reported on the statement of cash flows using the indirect method. If the change is not reported in the determination of cash flows from operating activities, place an x in the Not Reported column.

	Cash Flows from Operating Activities
	Added	Deducted
	to Net	from Net	Not	For
	Income	Income	Reported	Scoring
0. Stock dividends declared ..........................................................			x	0. ____
1. Amortization of bond discount ..................................................				1. ____
2. Building and land purchased by issuing common stock .....				2. ____
3. Decrease in prepaid expenses ................................................				3. ____
4. Depreciation expense on equipment ......................................				4. ____
5. Decrease in dividends payable ................................................				5. ____
6. Common stock issued for cash ................................................				6. ____
7. Decrease in inventories .............................................................				7. ____
8. Decrease in accounts payable .................................................				8. ____
9. Gain on sale of land ...................................................................				9. ____
10. Amortization expense on patents ............................................				10. ____
11. Gain on sale of long-term investments ...................................				11. ____
12. Increase in accounts receivable ...............................................				12. ____

NOTE: each blank is worth one point.

FILL-IN-THE-BLANKPRINCIPLES AND TERMINOLOGYSTATEMENT ANALYSIS

INSTRUCTIONS: Complete each of the following statements by writing the appropriate words or amounts in the Answers column.

		For
	Answers	Scoring
0. The percent of current assets to total assets is an example of (type of analysis) .......................................................................................................	vertical analysis	0. ____
1. The net income was $25 per common share for 2007. At the beginning of 2008, the number of shares outstanding was increased because of a 4-for-1 stock split. The earnings per share for 2007, adjusted to place it on a comparable basis with 2008, is ........................		1. ____
2-3. A company with working capital of $500,000 and a current ratio of 2 pays a $80,000 short-term liability.
2. The amount of working capital immediately after the payment is ........		2. ____
3. The current ratio immediately after the payment is ..................................		3. ____
4. If the acid-test ratio is 0.9, the receipt of cash from the sale of marketable securities at their book value will cause the ratio to (increase, decrease, not be affected) .........................................................		4. ____
5-6. Three types of retail businesses are being compared: (a) jewelry store, (b) bookstore, and (c) grocery supermarket.
5. The type with the lowest inventory turnover is most likely to be .............		5. ____
6. The type with the highest rate of gross profit is most likely to be ...........		6. ____
7. A financial statement in which all items are in relative terms is called a .............................................................................................................................		7. ____
8. The ability of a business to pay its debts as they come due is referred to as the factor of .............................................................................................		8. ____
9. The sum of cash, receivables, and marketable securities is sometimes called .................................................................................................................		9. ____
10. The tendency of the rate earned on stockholders equity to vary disproportionately from the rate earned on total assets is sometimes referred to as ....................................................................................................		10. ____
11. The ratio of the sum of cash, receivables, and marketable securities to current liabilities is called ..............................................................................		11. ____
12. Working capital is the excess of current assets over ................................		12. ____
13. The current ratio is computed by dividing current assets by ...................		13. ____

NOTE: Each blank is worth one point.

PROBLEM 3STATEMENT ANALYSIS

Condensed data taken from the balance sheet at the end of the current year are as follows:

Assets

Cash ............................................................................................................................................................................ $ 200,000

Marketable securities ............................................................................................................................................... 80,000

Accounts receivable ................................................................................................................................................. 500,000

Merchandise inventory ............................................................................................................................................. 170,000

Prepaid expenses ..................................................................................................................................................... 20,000

Fixed assets (net) ...................................................................................................................................................... 1,700,000

Liabilities and Stockholders Equity

Accounts payable ...................................................................................................................................................... $ 300,000

Notes payable (short-term, non-interest-bearing) .............................................................................................. 100,000

Accrued liabilities ...................................................................................................................................................... 10,000

Bonds payable, 10%, due 2018 ............................................................................................................................. 600,000

Preferred 9% stock, $50 par ................................................................................................................................... 250,000

Common stock, $20 par .......................................................................................................................................... 740,000

Paid-in capital in excess of parcommon stock ................................................................................................ 190,000

Retained earnings ..................................................................................................................................................... 500,000

Selected data related to the 12 months of the current year indicate the following:

Average accounts receivable ................................................................................................................................. $ 275,000

Average common stockholders equity ............................................................................................................... 1,200,000

Average stockholders equity .................................................................................................................................. 1,450,000

Average total assets ................................................................................................................................................. 2,400,000

Cash dividends paid on common stock ............................................................................................................... 111,000

Income before income tax ...................................................................................................................................... 500,000

Interest expense ........................................................................................................................................................ 50,000

Net income ................................................................................................................................................................. 340,000

Net sales (on account) ............................................................................................................................................. 2,000,000

..... The common stock was selling for $60 per share at the end of the current year.

INSTRUCTIONS: Compute the analytical measures listed below, rounding to one decimal point, and insert answers in the Answers column.

		For
	Answers	Scoring
0. Ratio of fixed assets to long-term liabilities ...............................................	2.8	0. ____
1. Acid-test ratio ...................................................................................................		1. ____
2. Current ratio .....................................................................................................		2. ____
3. Working capital ...............................................................................................		3. ____
4. Accounts receivable turnover .......................................................................		4. ____
5. Rate earned on total assets ...........................................................................		5. ____
6. Rate earned on common stockholders equity ..........................................		6. ____
7. Number of times interest charges earned .................................................		7. ____
8. Earnings per share on common stock ........................................................	$	8. ____
9. Price-earnings ratio on common stock........................................................		9. ____
10. Dividend yield on common stock .................................................................		10. ____

NOTE: Each blank is worth one point.