Chapter 16 1. Common uses of the statement of cash flows include all but which of the following? A) Management prediction of future cash flows for decision making B) Investor assessment of cash flows before buying and selling stock. C) Creditor evaluation of a company's ability to generate cash to cover debt D) Government assessment of whether the company paid the correct amount of taxes. E) Management determination of the specific sources and uses of cash 2 The statement of cash flows helps analysts evaluate all but which of the following? A) Ability of the company to generate profit B) Source of cash used for plant expansion C) Differences between net income and net operating cash flow. D) Source of cash used to finance investing activities. E) Source of cash used for debt repayments 3. The statement of cash flows cannot help address questions such as: A) How is the increase in investments financed? B) What is the source of cash for new plant assets? C) How much cash is generated from or used in operations? D) How much of the company's revenues have been retained as profit? E) Why is cash flow from operations different from income? 4. The cash flow on total assets ratio: A) Is the same as return on assets. B) is the same as profit margin. c) Can measure a company's ability to meet its obligations D) Is highly affected by accounting principles of income recognition and measurement. E) Is average net assets divided by cash flows from operations 5. The cash flow on total assets ratio is calculated by: A) Dividing cash flows from operations by average total assets B) Dividing total cash flows by average total assets. C) Dividing average total assets by cash flows from financing activities. D) Dividing average total assets by total cash flows. E) Total cash flows divided by average total assets times 365 6. A company had net cash flows from operations of $341,000, net income of $286,000 and average total assets of $1,850,000. The cash flow on total assets ratio equals: A) 83.9% B) 542.5% C) 15.5% D) 18.4% E) 646.9% Net income Gain on the sale of equipment Proceeds from the sale of equipment Depreciation expense equipment Payment of bonds at maturity Purchase of land Issuance of common stock Increase in merchandise inventory Decrease in accounts receivable Increase in accounts payable Payment of cash dividends $ 182,000 12,300 92,300 50,000 100,000 200,000 300,000 35,400 28,800 23,700 32,000 A) $332,200 B) $236,800 C) $261,400 D) $186,800. E) $189,400 27. For each of the following items, indicate whether it would be classified as an (O) operating activity, an (1) investing activity, a (F) financing activity, or a significant (N) noncash financing and investing activity (1) Received interest from investments in trading securities. (2) Collected accounts receivable from customers (3) Issued bonds payable for cash. (4) Paid wages to employees (5) Issued stock for cash (6) Sold equipment for cash (7) Purchased land in exchange for a note payable. (8) Paid cash dividends (9) Received dividends from stock investments (10) Purchases of land for cash 28. Based on the following income statement and balance sheet for Bankowski Corporation, determine the cash flows from operating activities using the indirect method Bankowski Corporation Income Statement For Year Ended December 31, Year 2 Sales Cost of goods sold $327,600 $504,000 Chapter 17 30. Identify the financial analysis building block most appropriately associated with each ratio listed below by placing the letter of the building block a through d beside each ratio 1 through 10. Each building block may be used more than once. A Liquidity and Efficiency B. Solvency C. Profitability D. Market Prospects (1) Price Earnings Ratio (2) Dividend Yield (3) Accounts Receivable Turnover (4) Days' Sales in Inventory (5) Return on Total Assets (6) Equity Ratio (7) Debt Ratio (8) Inventory Turnover (9) Basic Earnings per Share (10) Times Interest Earned 31. Refer to the following selected financial information from Gomez Electronics Compute 33. Match each of the following terms with the appropriate formulas. A Days' sales in inventory B. Dividend yield C. Total asset turnover D. Inventory turnover E Return on common stockholders' equity F. Gross margin ratio G Days' sales uncollected H. Profit margin ratio I Times interest earned J. Debt ratio Net income - Preferred dividends (1) Average common stockholders' equity Accounts receivable, net (2) 365 Net sales Total liabilities Total assets Income before interest expense and income taxes (4) Interest expense Annual cash dividends per share Market price per share Net sales - Cost of goods sold Net sales Cost of goods sold (7) Average inventory Net sales Average total assets Net income Net sales Ending inventory (10) Cost of goods sold (5) 365