Question 1

The Whyne Company had credit sales of $900,000. The beginning accounts receivable balance was $90,000 and the ending accounts receivable balance was $120,000. Cash collections from customers were:&#10;A) $1,020,000.&#10;B) $930,000.&#10;C) $900,000.&#10;D) $870,000.

Accepted Answer

Cash collections from customers can be calculated using the formula: Cash Collections = Beginning Accounts Receivable + Credit Sales - Ending Accounts Receivable. Plugging in the given values: $90,000 + $900,000 - $120,000 = $870,000.

Question 2

Which one of the following transactions does not affect cash?&#10;A) Acquisition and retirement of bonds payable.&#10;B) Write-off of an uncollectible accounts receivable.&#10;C) Acquisition of treasury stock.&#10;D) Payment of cash dividend.

Accepted Answer

The write-off of an uncollectible accounts receivable is a non-cash transaction that affects only the accounts receivable and allowance for doubtful accounts on the balance sheet, not the cash account.

Question 3

Lator Company reported net income of $120,000 for the year ended December 31, 2012. During the year, inventories decreased by $18,000, accounts payable decreased by $27,000, depreciation expense was $30,000 and a loss on disposal of equipment of $13,500 was recorded. Net cash provided by operations in 2012 using the indirect method was:

A) $208,500.
B) $127,500.
C) $115,500.
D) $154,500.

D

Accepted Answer

To calculate net cash provided by operations using the indirect method, start with net income and adjust for non-cash expenses and changes in working capital. Here, add back depreciation expense ($30,000) and the loss on disposal of equipment ($13,500) to net income ($120,000). Then, adjust for the decrease in inventories (an increase in cash, +$18,000) and the decrease in accounts payable (a decrease in cash, -$27,000). The calculation is $120,000 + $30,000 + $13,500 + $18,000 - $27,000 = $154,500.

Question 4

The best way to study the relationship of the components of financial statements is to prepare:&#10;A) common size statements.&#10;B) a trend analysis.&#10;C) profitability analysis.&#10;D) ratio analysis.

Accepted Answer

Ratio analysis allows for a comparison of the different components of financial statements, highlighting their relationships and trends. Common size statements and trend analysis are helpful in identifying patterns and changes, but do not directly examine relationships between components. Profitability analysis focuses on a specific aspect of financial performance rather than the overall relationships between components.

Question 5

Grower Company reported cost of goods sold of $700,000 for the year ended December 31, 2012. During the year, inventories decreased $12,000 and accounts payable decreased $18,000. The cash payments to suppliers in 2012, using the direct method was:

A) $730,000.
B) $694,000.
C) $670,000.
D) $706,000.

Accepted Answer

The cash payments to suppliers can be calculated by adjusting the cost of goods sold for the changes in inventory and accounts payable. The formula is: Cash Payments to Suppliers = Cost of Goods Sold + Decrease in Inventory + Decrease in Accounts Payable. Plugging in the given values: $700,000 + $12,000 + $18,000 = $730,000. However, since accounts payable decreased, it means the company paid more to suppliers than the purchases recorded, so the correct adjustment is: $700,000 - $12,000 (decrease in inventory, meaning less was spent on inventory than recorded in COGS) + $18,000 (decrease in accounts payable, meaning cash payments were higher) = $706,000.

Question 6

Which of the following would be considered an &#34;Other Comprehensive Income&#34; item?&#10;A) Net income.&#10;B) Gain on disposal of discontinued operations.&#10;C) Extraordinary loss related to flood.&#10;D) Unrealized loss on available-for-sale securities.

Accepted Answer

Other Comprehensive Income items include items that do not affect net income but still impact the company's equity. Unrealized gains or losses on available-for-sale securities are one such example. Choices A, B, and C are all items that directly impact net income.

Question 7

Spanzer Clothing Store had a balance in the Accounts Receivable account of $780,000 at the beginning of the year and a balance of $820,000 at the end of the year. Net credit sales during the year amounted to $5,440,000. The receivable turnover ratio was:

A) 6.6 times.
B) 6.8 times.
C) 7.2 times.
D) 7 times.

Accepted Answer

The receivable turnover ratio is calculated as Net Credit Sales / Average Accounts Receivable. Average Accounts Receivable = ($780,000 + $820,000) / 2 = $800,000. Receivable Turnover Ratio = $5,440,000 / $800,000 = 6.8 times.

Question 8

In performing a vertical analysis, the base for prepaid expenses is:&#10;A) total current assets.&#10;B) total assets.&#10;C) total liabilities.&#10;D) prepaid expenses in a previous year.

Accepted Answer

In vertical analysis, each item on the financial statement is expressed as a percentage of a base amount, which is usually total assets. Therefore, the base for prepaid expenses would also be total assets.

Question 9

The inventory turnover ratio is computed by dividing the average inventories into:&#10;A) net sales.&#10;B) total assets.&#10;C) cost of goods sold.&#10;D) stockholders' equity.

Accepted Answer

The inventory turnover ratio is calculated by dividing the cost of goods sold by the average inventories. This reflects how many times a company has sold and replaced its inventories during a period. Therefore, the correct choice is C, cost of goods sold.

Question 10

The purchase of office equipment for $15,000 cash:&#10;A) is a cash outflow from financing activities.&#10;B) is a cash outflow from operating activities.&#10;C) is a cash outflow from investing activities.&#10;D) does not affect cash flows.

Accepted Answer

The purchase of office equipment is considered a capital expense and is therefore a cash outflow from investing activities. This is because it is an investment in long-term assets that will be used to generate revenue over time, rather than a day-to-day operating expense.

Question 11

Which of the following income statement figures would probably be the best indicatory of a company's future performance?&#10;A) Total revenues.&#10;B) Income from operations.&#10;C) Net income.&#10;D) Comprehensive income.

Accepted Answer

The answer of Which of the following income statement figures...

Question 12

If year one equals $800, year two equals $840, and year three equals $896, the percentage to be assigned for year three in a trend analysis, assuming that year 1 is the base year, is:&#10;A) 112%.&#10;B) 89%.&#10;C) 105%.&#10;D) 100%.

Accepted Answer

The answer of If year one equals $800, year two...

Deck 10: Reporting and Analyzing Liabilities