Name: ______________________ Class: _________________ Date: _________

ID: A

W01 211 Ex 2
Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
____ 1. Which of the following is NOT a TRUE statement?
a. operating income is another term for gross profit
b. operating expense on an income statement is listed after cost of goods sold
c. some revenues and expenses on the income statement may not directly relate to a
company's primary operations
d. income taxes are generally reported after other revenues and expenses on an income
statement
____ 2. Operating expenses should be reported on the income statement after
a. cost of goods sold and before earnings per share
b. administrative expenses but before cost of goods sold
c. sales revenue and before cost of goods sold
d. earnings per share but before administrative expenses
____ 3. Which of the following must be known in order to determine the firm's total amount of working
capital?
Current Assets

____ 4.

____ 5.

____ 6.

____ 7.

Current Liabilities

a.
Yes
Yes
b.
Yes
No
c.
No
Yes
d.
No
No
Which financial statements cover a period of time?
a. Income Statement and Balance Sheet
b. Balance Sheet and Statement of Cash Flows
c. Income Statement and Statement of Cash Flows
d. Statement of Cash Flows and Statement of Assets, Liabilities and Owners' Equity
Differences between the direct format and indirect format of the statement of cash flows are found in
which section(s) of the statement?
a. operating activities
b. financing activities
c. investing activities
d. all three sections (operating, financing, investing)
The statement of cash flows is designed to report
a. how the previous period's income statement relates to the current period's income
statement
b. the firm's profit or loss
c. the cash from operating, financing and investing activities of the firm during the
current period
d. the effects of the current period's income statement on the current period's balance
sheet
Which of the following is an investing activity?
a. purchase of equipment
b. payment of cash dividends
c. payment of interest
d. purchase of inventory

Name: ______________________

ID: A

____ 8. Sales for the year totaled $75,000 with $60,000 of it sold on account. Beginning accounts receivable
was $9,000 while ending accounts receivable totaled $12,000. What amounts of revenue and cash
flow will be reported for the period as a result of these facts?
Revenue

Cash Flow

a.
$60,000
$72,000
b.
$75,000
$78,000
c.
$60,000
$78,000
d.
$75,000
$72,000
____ 9. Which of the following combinations represents adjustments that are made to net income to arrive at
cash from operations?
Increases in current assets

____ 10.

____ 11.

____ 12.

____ 13.

____ 14.

Increases in current liabilities

a. deducted from net income

added to net income
b. deducted from net income
deducted from net income
c. added to net income
added to net income
d. added to net income
deducted from net income
Which of the following is a TRUE statement?
a. noncash expenses are deducted from net income to arrive at cash from operations
b. payment of a current note payable is a financing activity but payment of interest on
that note is an operating activity
c. the direct format reconciles net income and cash flow from operating activities
d. issuance of stock is a financing activity but payment of dividends on that stock is an
operating activity
Cash outflow for financing activities may indicate that
a. the company has a lot of good investing opportunities
b. the company is performing well but does not have a lot of good investing
opportunities
c. the company has no excess cash
d. the company cannot create enough cash from its operations to meet ongoing needs
The difference between the selling price of goods sold to customers during a period and the cost of the
goods sold is
a. gross profit
b. net income
c. operating income
d. pretax income
Chocolate Heaven, Inc., had a balance of $200,000 in stockholders' equity at December 31, 2001.
During 2002, the company had a net income of $50,000, distributed dividends of $30,000, and
borrowed $10,000. What was the company's stockholders' equity at December 31, 2002?
a. $250,000
b. $220,000
c. $260,000
d. $230,000
The term "working capital" is used to describe the
a. amount of equity (ownership) capital in the firm
b. portion of capital actively employed in generating revenues
c. amount of debt (borrowed) capital in the firm
d. cushion of current resources over current obligations

Name: ______________________

ID: A

____ 15. Which of the following companies has the highest price-earnings ratio?
a. Anheuser Busch
b. Cisco
c. Clorox
d. Nordstrom
Problem
1. The following information reflects cash flow and other activities of Andy's Candies, Inc., for the
month ended March 31, 2001:
Paid for equipment
Paid for income taxes
Paid for insurance
Paid for interest
Paid for utilities
Paid for advertising

$20,000
1,500
100
200
400
150

Paid to owners
Paid to suppliers
Depreciation expense
Received from customers
Received from issuing long-term debt
Received from sale of land
Paid to employees

$ 6,000
20,000
6,500
44,000
12,000
10,000
9,000

Use this information to answer the following questions:

a.
b.
c.
d.

What was net cash flow from operating activities for the period?
What was net cash flow from financing activities for the period?
What was net cash flow from investing activities for the period?
What was the net change in cash for the period?

2. Use the information provided in each of the following independent situations to answer the questions.
a. Cash paid to suppliers for merhcandise during a period was $20,000. Accounts
Payable decreased during the period by $4,000. Inventory increased during the
period by $2,500. What was the Cost of Goods Sold for the period?
b. Interest paid during a period was $6,000. Interest Payable decreased during the
period by $2,500. What was the Interest Expense during the period?
c. Cash flow from operations for a period was $10,000. Current assets decreased
during the period by $2,200. Current liabilities decreased during the period by
$1,500. What was net income for the period?
d. Cash collected from customers for a fiscal period was $20,000. Accounts
Receivable increased during the period by $5,000. What was Sales Revenue for
the period?

Name: ______________________

ID: A

3. Lumber Company has the following 2002 summarized income statement and comparative year-end
balance sheets:
Summarized Income Statement
Net sales
Cost of goods sold
Operating expenses (includes $30 depreciation expense)

$462
210
126

Net income

$126

2002
Cash
Accounts rec.
Inventory
Plant & equip. net

$144
51
129
180
$504

Comparative Balance Sheets

2001
$102
Accounts payable
63
Utilities payable
147
Bonds payable, L-T
192
Common stock
$504
Retained earnings

2001

2002

$ 93
87
90
90
144
$504

$ 66
120
117
90
111
$504

Required:
Determine the amount of each of the following. Show your work clearly and neatly.
a.
b.
c.
d.

Net cash flow from operating activities during 2002.

Net cash provided by depreciation during 2002.
Net cash flow from investing activities during 2002.
Net cash flow from financing activities during 2002.

4. Information about Arkadelphia Corporation, which sells boats, is shown below:

Common shares outstanding
Advertising expense
Cost of goods sold
Depreciation expense
Income tax expense
Income tax payable
Interest expense
Payments to owners
Retained earnings
Salaries expense
Sales revenue

150,000
9,000
330,000
13,500
15,000
7,500
6,000
4,500
37,500
45,000
450,000

Required:
Compute (a) gross profit, (b) income from operations, (c) net income and (d) earnings per share for
the period.

Name: ______________________

ID: A

5. At year end 2001, the Copy Service reports the following balance sheet account information. Each
account has its expected type of balance.
Accumulated depreciation
Inventory
Buildings
Note payable (due 2004)
Contributed capital
Wages payable
Retained earnings

$ 40
132
168
130
174
60
86

Land
Cash
Office supplies
Accounts receivable
Accounts payable
Equipment

Required:
Determine the following:
a. Total assets
b. Total long-term liabilities
c. Total working capital
d. Current ratio

$32
40
36
84
74
72

ID: A

W01 211 Ex 2
Answer Section
MULTIPLE CHOICE
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.

A
A
A
C
A
C
A
D
A
B
B
A
B
D
B

PROBLEM
1.
a.

b.

c.

Net cash from from operating activities

Income taxes
Insurance
Interest
Utilities
Advertising
Suppliers
Customers
Employees

$ (1,500)
(100)
(200)
(400)
(150)
(20,000)
44,000
( 9,000)
$ 12,650

Net cash flow from financing

Owners
Debt

$ (6,000)
12,000
$ 6,000

Net cash flow from investing

Equipment
Land

$(20,000)
10,000
$(10,000)

d.

Net change in cash: $12,650 + 6,000 - 10,000 = $8,650

a.
b.
c.
d.

Cost of goods sold = $20,000 - 2,500 - 4,000 = $13,500.

Interest expense = $6,000 - 2,500 = $3,500.
Net income = $10,000 + 1,500 - 2,200 = $9,300.
Sales revenue = $20,000 + 5,000 = $25,000.

2.

ID: A
3.
a.

$180

(Net income $126 + depreciation expense $30 + accounts rec. $12 +

inventory $18 + accounts payable $27 - utilities payable $33)
(Depreciation does not affect cash flow.)
(Beginning plant and equipment $192 - $30 depreciation expense +
investment in new plant ? = $180 ending plant & equipment. Investment
in new plant, therefore, equals $18.)
(Dividends of $93 + $27 buyback of bonds.)
Dividends = $111 + $126 - $144 = $93

b.
c.

$0
$(18)

d.

$(120)

a.
b.
c.
d.

gross profit
income from operations
net income
earnings per share for the period

4.
$120,000 = $450,000 - $330,000
$52,500 = $120,000 - 9,000 - 13,500 - 45,000
$31,500 = $52,500 - 6,000 - 15,000
0.21 = $31,500/150,000

5.
a. $524
Cash
Accounts receivable
Inventory
Office supplies
Buildings
Equipment
Accumulated depreciation
Land

$ 40
84
132
36
168
72
(40)
32
$524

b. $130

Note payable (due 2004)

c. $158

Current assets ($40 + $84 + $132 + $36) - Current liabilities ($60 + $74)

d. 2.18 to 1 Current assets Current liabilities = $292 134 = 2.18 to 1