1)During 2015, Gillespie Corporation made a loan of $155,000 to a major customer
ID: 2447436 • Letter: 1
Question
1)During 2015, Gillespie Corporation made a loan of $155,000 to a major customer. By the end of 2015 the customer had paid back $60,000 of the loan plus interest of $12,000. In the statement of cash flows for 2015, Gillespie Corporation would report:
a.A net decrease in cash and cash equivalents of $72,000 for 2015.
b.$72,000 net cash used for investing activities.
c.$95,000 net cash used for investing activities, and $12,000 cash provided from operating activities.
d.$155,000 net cash used for investing activities, $60,000 net cash provided by financing activities, and $12,000 cash provided by operating activities.
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2)At the end of the first year of operations, the balance sheet of Midwood Medical Supply showed the following account balances: Accounts Receivable, $5,000; Accounts Payable, $6,000; Inventory, $3,000; and Unexpired Insurance, $2,000. The corporation reported net income of $79,000 for the year, including depreciation expense of $5,000, and uses the indirect method of computing net cash flow from operating activities. Solely on the basis of this information, net cash flow from operating activities is:
a.$78,000.
b.$82,000.
c.$77,000.
d.$80,000
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3)Which of the following sets of data is sufficient to compute the amount of cash paid for merchandise?
a.Cost of goods sold, increase or decrease in inventory, increase or decrease in accounts payable.
b.Increase or decrease in cash, increase or decrease in inventory, increase or decrease in accounts payable.
c.Cost of goods sold, increase or decrease in accounts payable.
d.Cost of goods sold.
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a.$275,000 net cash used for financing activities.
b.$440,000 net cash provided by financing activities.
c.Zero: cash inflows equal cash outflows from financing activities.
d.$285,000 net cash provided by financing activities.
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5)When equipment is purchased entirely through a loan:
a.The equipment is shown as an increase in the investing activities section.
b.The equipment is shown as a decrease in the investing activities section.
c.The loan is shown as an increase in the financing section.
d.Neither the loan nor the purchase of equipment is shown in the investing or the financing sections.
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6)
Rent expense in Marrin Company s 2015 income statement is $420,000. If Prepaid Rent was $70,000 at December 31, 2014, and is $95,000 at December 31, 2015, the cash paid for rent during 2015 is:
a.$420,000.
b.$445,000.
c.$395,000.
d.$480,000.
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7)
At the beginning of 2015, Baldwin Corporation bought an automobile for $36,000 by issuing a note payable. The automobile has a six-year life and is depreciated using the straight-line method. To determine net cash flow from operating activities for 2015 using the indirect method, net income should be:
a.Increased by $6,000.
b.Decreased by $6,000.
c.Increased by $42,000.
d.Neither increased nor decreased. No adjustments are necessary since no cash was received or paid.
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8)
In a statement of cash flows, cash transactions are classified into three major categories. Which of the following is not one of these three categories?
a.Managing activities.
b.Operating activities.
c.Financing activities.
d.Investing activities.
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9)
During the current year, Atkins, Inc. sold a parcel of land for $840,000 cash. The land had been purchased by Atkins several years ago for $410,000. Atkins, Inc. uses the indirect method to prepare its statement of cash flows. In order to reconcile net income to net cash flow from operating activities, net income must be:
a.Decreased by $410,000.
b.Decreased by $430,000.
c.Increased by $430,000.
d.Not adjusted because the sale of land is classified as an investing activity.
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10)
Which method will yield the higher cash flows from financing activities?
a.The indirect method.
b.The direct method.
c.Both direct and indirect methods will yield the same amount.
d.Depends upon the situation.
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11)
Generally speaking, which appears to be a desirable current ratio?
a. 20 to 1.
b. 1 to 20.
c. 2 to 1.
d. 1 to 2.
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12)
All of the following ratios are considered measures of profitability except:
a.Earnings per share.
b.Gross profit rate.
c.Price earnings ratio.
d.Return on assets.
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13)
The quick ratio:
a.Is computed by dividing current assets by current liabilities.
b.Is always higher than the current ratio.
c.Cannot be higher than the current ratio.
d.May be higher or lower than the current ratio.
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14)
Which of the following is a measure of short-term liquidity?
a.Quick ratio.
b.Return on assets.
c.Dividend yield.
d.Debt ratio.
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15)
In order for investors and creditors to decide whether to invest in a company or loan a company funds they may:
a.Only analyze financial statements.
b.Only focus on corporate governance.
c.Both analyze financial statements and focus on corporate governance.
d.Neither analyze financial statements nor focus on corporate governance.
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16)
Which American industry would tend to have the greatest debt ratio?
a.Auto.
b.Retail clothing.
c.Manufacturing.
d.Banking.
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17)
The measurement of the relative size of each item included in a total is called:
a.Money changes.
b.Trend percentages.
c.Component percentages.
d.Ratios.
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18)
The Plaza Company has working capital of $540,000 and a current ratio of 3 to 1. The amount of current assets is:
a.$405,000.
b.$540,000.
c.$810,000.
d.$270,000.
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19)
The financial ratio intended to measure the effectiveness with which management has utilized the resources of the business, regardless of how these resources are financed, is:
a.Gross profit rate.
b.Current ratio.
c.Return on assets.
d.Return on equity.
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20)
In calculating earnings per share, the denominator of the equation includes:
a.Only common stock outstanding.
b.Common stock plus preferred stock.
c.Common stock less preferred stock.
d.The total shares of authorized common stock.
Explanation / Answer
Net Income = 79,000
Add: Depreciation = 5,000
Add: Increase in Current Liabilities = 6,000
Less: Increase in Current Assets
Inventory = 3,000
Accounts Receivable = 5,000
Unexpired Insurance = 2,000 = (10,000)
Net Cash flow from Operations = 80,000
d. $80,000
3.a. Cost of goods sold, increase or decrease in inventory, increase or decrease in accounts payable.
Cash paid for merchandise = Opening Accounts Payable-Closing Accounts Payable+Purchases
Purchases = Opening Inventory-Closing Inventory+Cost of goods sold
4. Net Cash flow from Financing Activities:-
Proceeds from issuance of bonds payable = 635,000
Payment to pay off notes payable = (195,000)
Payment of dividend = (155,000)
Net Cash flow from Financing activities = 285,000
d. $285,000
5. a.The equipment is shown as an increase in the investing activities section.
6. Closing Prepaid Rent as on Dec.31, 2015 = 95,000
Less: Opening Prepaid Rent as on Jan.1, 2015 = (70,000)
Add: Rent amount in Expenditure statement = 420,000
Amount paid in cash for Rent = 445,000
7. a.Increased by $6,000.
8. a.Managing activities.
9.b.Decreased by $430,000.
$430,000 is the net profit from sale of land which is appearing in the net income as income from non-operating activities.
10. c.Both direct and indirect methods will yield the same amount.
11. c. 2 to 1.
12. c.Price earnings ratio.
13. c.Cannot be higher than the current ratio.
14. a.Quick ratio.
15. c.Both analyze financial statements and focus on corporate governance.
16.d.Banking.
17. c.Component percentages.
18. CA-CL = 540,000
2CL = 540,000
CL = 270,000
ÇA = 3CL = 810,000
c.$810,000.
19. c.Return on assets.
20. a.Only common stock outstanding.
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