Question

Answer the following questions:

1. Collections of cash from the sale of land would be reported in the following section of the statement of cash flows:
A. Investing activities
B. Operating activities
C. Financing activities
D. Noncash investing and financing activities

2. Which of the following is true about a cash flow statement using the indirect method of determining cash from operations?
A. Losses are added back to net income
B. Gains are subtracted from cash from investing events
C. Gains are added back to net income
D. Losses are subtracted from cash from financing events

3. On a statement of cash flows using the indirect format, depreciation is:
A. Ignored, since it is a noncash expenditure
B. Added to net income in the operating activities section
C. Included as an outflow in the financing activities section
D. Deducted from net income in the operating activities section

4. How should the changes in current accounts be treated in computing cash flows from operating activities using the indirect method?
A. Increases in all current accounts must be added to net income
B. Increases in all current accounts must be subtracted from net income
C. Increases in all current assets must be added to net income and increases in current liabilities subtracted
D. Increases in all current assets must be subtracted from net income and increases in current liabilities added

5. Salaries payable increased from 2007 to 2008. Using the indirect method (statement of cash flows), the increase should be:
A. Be subtracted from cash flow from operations
B. Be added to cash flow from operations
C. Have no adjustment made to cash flow from operations
D. Be added to the investing section of the statement of cash flows

6. A company's current ratio equals:
A. Current assets x current liabilities
B. Current liabilities/current assets
C. Current assets/current liabilities
D. Quick assets/quick liabilities

7. A measure of a corporation's profitability that is required to be reported as part of the income statement is:
A. Earnings per share
B. Cash flow per share
C. Times interest earned
D. Gross margin percentage
8. The total asset turnover ratio measures
A. How well a firm uses its assets to produce sales
B. The rate of return on a firm's investment in assets
C. The portion of assets that has been financed by investors
D. The portion of assets that has been financed by creditors

9. Which of the following would be most useful in deciding whether or not to purchase a firm's common stock?
A. Return on equity
B. Return on assets
C. Asset turnover
D. Current ratio

10. Which of the following would be least useful in assessing a firm's long-term debt-paying ability?
A. Long-term debt to equity
B. Times interest earned
C. Debt to equity
D. Current ratio

11 – 15. In 2013 the sales revenue was $100, cost of goods sold $60, depreciation $15, and net income $12. 1/1/13 balances on current accounts were Cash $7, Accounts Receivable $11, Inventory $16, and Accounts Payable $4. 12/31/13 balances on current accounts were Cash $9, Accounts Receivable $9, Inventory $20, and Accounts Payable $9. Determine the cash flow from operations. Show work for part credit.

16 – 20. In 2013 sales revenue was $120 and net income was $12. 1/1/13 balances were Current Assets $20, Long-Term Assets $70, Current Liabilities $8, Long-Term Liabilities $32, and Equity $50. 12/31/13 balances were Current Assets $24, Long-Term Assets $86, Current Liabilities $10, Long-Term Liabilities $40, and Equity $60. Compute the following ratios: current, debt-to-equity, return on sales, and asset turnover.

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1. The answer is option A. Investing activities
2. The answer is option A. Losses are added back to net income
3. The answer is option B. Added to net income in the operating activities section
4. The answer is option D. Increases in all current assets must be subtracted from net income and increases in current liabilities added
5. The answer is option B. Be added to cash flow from operations ...

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