(Multiple answer does not need the explanation, only the answer is fine.)

____ 16. Andy's Cookie Shop reported equipment at $60,000 and $12,000 accumulated amortization on its December 31, 2001, balance sheet. During 2002 the shop purchased equipment costing $10,000 and sold equipment costing $2,500 (net book value $1,800) for $500. On December 31, 2002, net equipment was $43,700. Using the indirect method, Andy's would report amortization expense on its cash flow statement for 2002 of

a. $23,800.

b. $13,600.

c. $11,800.

d. $12,500.

____ 17. Short-term liquidity ratios include the

a. profit margin ratio.

b. payout ratio.

c. debt to total assets ratio.

d. acid test ratio.

____ 18. Bluestem Paint reported sales of $300,000, total assets of $150,000, total owners' equity of $80,000, current assets of $50,000, current liabilities of $20,000, and cash of $15,000. In a common size balance sheet, cash would be shown as

a. 75%.

b. 10%.

c. 30%.

d. 5%.

____ 19. The use of common size financial statements is an example of

a. ratio analysis.

b. vertical analysis.

c. liquidity analysis.

d. horizontal analysis.

____ 20. The purchase of an office building by issuing long-term notes payable should be reported as a

a. cash outflow in the financing section of the cash flow statement.

b. cash outflow in the investing section of the cash flow statement.

c. cash outflow in the operating section of the cash flow statement.

d. noncash investing and financing activity.

____ 21. As an indicator of financial health, a low ratio is desirable for the

a. asset turnover ratio.

b. return on assets ratio.

c. acid test ratio.

d. debt to total assets ratio.

____ 22. Which of the following statements is true?

a. The price-earnings ratio is a long-term solvency ratio.

b. High asset turnover is a sign of efficient use of assets.

c. The payout ratio measures the profitability of the shareholders' investment.

d. The acid test ratio applies to manufacturing companies but not to service or retailing businesses.

____ 23. When using the direct method to calculate cash provided by operating activities,

a. income taxes paid may be ignored.

b. amortization expense is added to net income.

c. decreases in inventory are added to total operating expenses to calculate cash payments for operating expenses.

d. increases in accounts receivable are subtracted from total sales to calculate cash receipts from customers.

____ 24. Profitability ratios include the

a. interest coverage ratio.

b. inventory turnover ratio.

c. payout ratio.

d. acid test ratio.

____ 25. In the cash flow statement, the activities that affect cash flows are listed in the following order:

a. investing, financing, operating

b. operating, financing, investing

c. financing, operating, investing

d. operating, investing, financing

____ 26. A transaction involving a loss on the sale of equipment affects cash provided (used) by

a. operating activities and investing activities.

b. operating activities and financing activities.

c. financing activities and investing activities.

d. operating activities, financing activities, and investing activities.

____ 27. One major purpose of the cash flow statement is to provide information about

a. the firm's profitability.

b. the firm's cash receipts and payments during a period.

c. the firm's resources and claims against those resources.

d. changes in retained earnings.

Part 4) Communication /15

Answer each of the following questions.

1)Explain the differences between determinable and uncertain current liabilities and give a number of examples of each.

2)Explain the advantages for a corporation to obtain financing by issuing debt over equity.

3)Explain the differences between horizontal and vertical analysis of financial statements.