1. In Shannon Company, there was an increase in the land account during the year
ID: 2490782 • Letter: 1
Question
1.
In Shannon Company, there was an increase in the land account during the year of $48,000. Analysis reveals that the change resulted from a cash sale of land at a cost $110,000, and a cash purchase of land for $158,000. In the statement of cash flows, the change in the land account should be reported in the investment section:
A.
as a net purchase of land, $48,000.
B.
only as a purchase of land $158,000.
C.
only as a sale of land $110,000.
D.
as a purchase of land $158,000 and a sale of land $110,000.
2.
. DV’s Pest Control Products has the following information available:
Net Income $15,000
Cash Provided by Operations 21,000
Cash Sales 65,000
Capital Expenditures 11,000
Dividends Declared-unpaid 3,000
Dividends paid 2,000
What is DV’s free cash flow?
$1,000.
$18,000
$8,000
$10,000
3.
Colaw Company is considering buying equipment for $60,000 with a useful life of five years and an estimated salvage value of $4,000. If annual expected income is $5,000, the denominator in computing the annual rate of return is
$28,000.
$30,000.
$32,000.
$60,000.
Explanation / Answer
1. Change in the land account should be reported in the investment section:
Effect in Investing activity
A) net purchase of land $48000 Cash outflow (-$48000)
B) only as a purchase of land $158,000 Cash outflow (-$158000)
C) only as a sale of land $110,000. Cash inflow $110000
D) a purchase of land $158,000 and a sale of land $110,000. cash inflow $110000, cash outflow(-$158000)
2. $ 1000
Note;- DV’s free cash flow = EBIT(1-tax) - capital expenditure - change in working capital = 15000 - 11000 - 3000
= $1000
3. $32000
Note:- Annaul rate of return = net profit / average investment
and, average investment = (initial cost + scrap value) /2
= $60000 + $4000 / 2
= 64000 /2
= $32000
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