Question 1

We can separate cash return on assets into:

Accepted Answer

Cash flow to sales measures the percentage of sales that result in cash inflows, while asset turnover measures how efficiently the assets are used to generate sales. Therefore, the combination of these two measures accurately reflects the cash return on assets. Profit margin is not directly related to cash flows and does not consider the efficiency of asset usage.

Question 2

The balance sheet of Technology World reports total assets of $800,000 and $900,000 at the beginning and end of the year,respectively.The cash return on assets for the year is 20%.What is Technology World's net operating cash flows for the year?

Accepted Answer

The cash return on assets is calculated as:
Cash return on assets = Net operating cash flows / Average total assets
0.2 = Net operating cash flows / [(800,000 + 900,000)/2]
0.2 = Net operating cash flows / 850,000
Net operating cash flows = 0.2 x 850,000 = $170,000. Therefore, the correct choice is B.

Question 3

The balance sheet of Sound Designs reports total assets of $750,000 and $800,000 at the beginning and end of the year,respectively.Sales revenues are $1.5 million ($1.2 million in the previous year),net income is $150,000,and net cash flows from operating activities are $175,000.What is Sound Designs' asset turnover?

Accepted Answer

The answer of The balance sheet of Sound Designs reports...

Question 4

At the beginning of the period,Accounts Receivable equals $1,700.At the end of the period,Accounts Receivable equals $2,200.If Service Revenue for the period equals $15,400,what was the cash received from customers for the period?

Accepted Answer

We can use the formula:
Cash Received from Customers = Service Revenue + Beginning Accounts Receivable - Ending Accounts Receivable
Cash Received from Customers = $15,400 + $1,700 - $2,200
Cash Received from Customers = $14,900
Therefore, the correct answer is C.

Question 5

Wireless Technologies reports income tax expense of $800,000.Income tax payable at the beginning and end of the year are $50,000 and $70,000,respectively.What is the amount of cash paid for income taxes?

Accepted Answer

The cash paid for income taxes is calculated as the income tax expense minus the increase in income tax payable. The increase in income tax payable is $70,000 - $50,000 = $20,000. Therefore, cash paid = $800,000 - $20,000 = $780,000.

Question 6

Wireless Technologies reports operating expenses of $2 million.Operating expenses include rent expense.Prepaid rent at the beginning and end of the year are $20,000 and $70,000,respectively.All other operating expenses were paid in cash as incurred.What is the amount of cash paid for operating expenses?

Accepted Answer

Operating expenses reported in the income statement are the expenses incurred during the period. However, some of these expenses may have been paid for in advance or not yet paid for at the end of the period. To determine the amount of cash paid for operating expenses, we need to adjust for these changes in prepaid expenses.

The prepaid rent at the beginning of the year is not an operating expense for the current period, so we need to add it back. The prepaid rent at the end of the year is for future periods and therefore needs to be subtracted.

Adjusted operating expenses = operating expenses + prepaid rent at the beginning of the year - prepaid rent at the end of the year
Adjusted operating expenses = $2,000,000 + $20,000 - $70,000 
Adjusted operating expenses = $1,950,000

Therefore, the amount of cash paid for operating expenses is $1,950,000. The correct answer is D.

Question 7

Which of the following statements is not true relating to cash flow analysis?

Accepted Answer

Positive cash flow from operations is crucial to a company's survival in the long-run.

Question 8

At the beginning of the period,Utilities Payable equals $500.At the end of the period,Utilities Payable equals $700.If Utilities Expense for the period equals $1,500,what was the cash paid for utilities for the period?

Accepted Answer

The change in Utilities Payable ($700 - $500 = $200) represents the amount of Utilities Expense that was accrued during the period but not yet paid in cash. To calculate the cash paid for utilities, we need to subtract this amount from the total Utilities Expense for the period: $1,500 - $200 = $1,300 (Choice C).

Question 9

The balance sheet of Sound Designs reports total assets of $750,000 and $800,000 at the beginning and end of the year,respectively.Sales revenues are $1.5 million ($1.2 million in the previous year),net income is $150,000,and net cash flows from operating activities are $175,000.What is Sound Designs' cash flow to sales?

Accepted Answer

Cash flow to sales is calculated by dividing net cash flows from operating activities by sales revenues. For Sound Designs, this is $175,000 / $1,500,000 = 0.1167, or 11.7%.

Question 10

The balance sheet of Tech Track reports total assets of $400,000 and $500,000 at the beginning and end of the year,respectively.Sales revenues are $1.1 million ($0.8 million in the previous year),net income is $40,000,and net cash flows from operating activities are $50,000.How does Tech Track's cash flow to sales ratio compare to the industry average of 5%?

Accepted Answer

Tech Track's cash flow to sales ratio is $50,000 / $1,100,000 = 4.55%, which is worse than the industry average of 5%.

Question 11

Data Solutions reports sales of $100 million.Accounts receivable at the beginning and end of the year are $6 million and $9 million,respectively.What is the amount of cash received from customers?

Accepted Answer

The cash received from customers is calculated by adjusting sales for the change in accounts receivable. The increase in accounts receivable ($9 million - $6 million = $3 million) indicates that not all sales were collected in cash. Therefore, cash received is $100 million - $3 million = $97 million.

Question 12

Some cash flow ratios are derived by substituting net cash flows from operating activities in place of:

Accepted Answer

Cash flow ratios reflect a company's ability to generate cash flows from its operating activities. Therefore, it is more relevant to use net cash flows from operating activities as a substitute for net income when calculating cash flow ratios. Average total assets and average stockholders' equity are used to calculate asset turnover and return on equity ratios, respectively.

Question 13

Wireless Technologies reports cost of goods sold of $40 million.Inventory at the beginning and end of the year are $4 million and $3 million,respectively.Accounts payable at the beginning and end of the year are $3 million and $6 million,respectively.What is the amount of cash paid to suppliers?

Accepted Answer

To calculate cash paid to suppliers, we need to use the following formula:
Cash paid to suppliers = Cost of goods sold + increase in accounts payable - decrease in inventory
Cash paid to suppliers = $40 million + ($6 million - $3 million) - ($4 million - $3 million)
Cash paid to suppliers = $36 million
Therefore, the correct answer is B.

Question 14

The balance sheet of Orion Medical Equipment reports total assets of $450,000 and $550,000 at the beginning and end of the year,respectively.The cash return on assets for the year is 10%.What is Orion's net operating cash flows for the year?

Accepted Answer

The cash return on assets is calculated as net operating cash flows divided by average total assets. We are given the beginning and ending total assets, but we do not have information about the changes in assets during the year. Therefore, we cannot calculate the average total assets for the year. Instead, we can use the information given to estimate net operating cash flows:

Beginning assets = $450,000
Ending assets = $550,000
Change in assets = $550,000 - $450,000 = $100,000
Average assets = ($450,000 + $550,000) / 2 = $500,000
Cash return on assets = 10%

10% = net operating cash flows / $500,000
Net operating cash flows = 0.1 * $500,000 = $50,000

Therefore, the best choice is D, with the explanation that we cannot directly calculate net operating cash flows, but we can estimate it using the cash return on assets and average total assets.

Question 15

Wireless Technologies reports sales of $50 million.Accounts receivable at the beginning and end of the year are $5 million and $7 million,respectively.What is the amount of cash received from customers?

Accepted Answer

The cash received from customers is calculated as sales minus the increase in accounts receivable: $50 million - ($7 million - $5 million) = $48 million.

Question 16

The balance sheet of Tech Track reports total assets of $400,000 and $500,000 at the beginning and end of the year,respectively.Sales revenues are $1,080,000($800,000 in the previous year),net income is $40,000,and net cash flows from operating activities are $50,000.How does Tech Track's asset turnover compare to the industry average of 2.4 times?

Accepted Answer

The answer of The balance sheet of Tech Track reports...

Question 17

We calculate cash return on assets as

Accepted Answer

Cash return on assets is calculated by dividing the net cash flows from operating activities by average total assets. This metric helps to evaluate how efficiently a company generates cash from its assets. Choice A is incorrect as it calculates the change in cash, which may not be a reliable indicator of a company's ability to generate cash. Choice C is also incorrect as it divides the change in cash by only the ending total assets, which does not provide a comprehensive view of the company's performance over a period of time.

Question 18

The balance sheet of Tech Track reports total assets of $400,000 and $500,000 at the beginning and end of the year,respectively.Sales revenues are $1.1 million ($0.8 million in the previous year),net income is $40,000,and net cash flows from operating activities are $50,000.How does Tech Track's cash return on assets compare to the industry average of 10%?

Accepted Answer

Tech Track's cash return on assets (CROA) is calculated by dividing net cash flows from operating activities by average total assets. The average total assets for the year = ($400,000 + $500,000) / 2 = $450,000. CROA = $50,000 / $450,000 = 11.11%, which is better than the industry average of 10%.

Question 19

In 2018,Hope Company incurred sales on account of $100,000.The company also has the following information: What is the amount of cash received from customers for Hope Company in 2018?
$$\begin{array} { | l | r | r | } 
\hline & \mathbf { December ~31, } & \mathbf { December ~31, } \
& \mathbf { 2 0 1 8 } & \mathbf { 2 0 1 7 } \
\hline \text { Accounts } & \$ 20,000 & \$ 50,000 \
\text { Receivable } & & \
\hline \text { Accounts } & \$ 40,000 & \$ 65,000 \
 \text { Payable } & & \
\hline
\end{array}$$

Accepted Answer

To find the cash received from customers, we start with sales on account ($100,000) and adjust for the change in accounts receivable. The accounts receivable decreased from $50,000 at the beginning of the year to $20,000 at the end, indicating that $30,000 more was collected than was credited to sales on account. Therefore, cash received is sales on account ($100,000) plus the decrease in accounts receivable ($30,000), totaling $130,000.

Question 20

The balance sheet of Storage Solutions reports total assets of $300,000 and $350,000 at the beginning and end of the year,respectively.The cash return on assets for the year is 10%.What is Storage Solutions' net cash flows from operating activities for the year?

Accepted Answer

The cash return on assets can be calculated as:
Cash return on assets = (Net cash flow from operating activities / Average total assets) x 100%
10% = (Net cash flow from operating activities / (300,000 + 350,000) / 2) x 100%
10% = (Net cash flow from operating activities / 325,000) x 100%
Net cash flow from operating activities = 0.1 x 325,000 = $32,500. Therefore, the correct answer is choice C.

Quiz 11: Statement of Cash Flows