Use the following selected data and additional information to set up T accounts and create a
statement of cash flows. Then answer Questions 1 through 10.
Selected Balance Sheet Data 2004 2003
Cash ? $113,525
Accounts Receivable $36,000 $42,000
Inventories $28,000 $25,000
Accounts Payable $31,000 $35,000
Salaries Payable $2,000 $1,000
Equipment $60,000 $40,000
Accumulated Depreciation $12,000 $16,000
Bonds Payable $50,000 $100,000
Common Stock $150,000 $100,000
Retained Earnings $38,000 $20,000
Income Statement Data 2004
Net Sales $420,000
Cost of Goods Sold $300,000
Salaries Expense $84,000
Net Income $30,000
Gain on Sale of Equipment
(included in net income above) $2,000
Additional information:
¡ Equipment with a cost of $15,000 and a book value of $3,000 was sold for $5,000
during 2004.
¡ Common stock was issued to retire bonds payable during 2004.
¡ The only items affecting retained earnings in 2004 were net income and dividends
declared and paid.
1. What amount of cash was collected from customers during 2004?
A. $384,000 C. $426,000
B. $420,000 D. $462,000
2. What amount was paid for purchases of merchandise during 2004?
A. $275,000 C. $303,000
B. $300,000 D. $307,000
3. What amount was paid for salaries expense during 2004?
A. $82,000 C. $84,000
B. $83,000 D. $85,000
4. What amount was paid to acquire equipment during 2004?
A. $0 C. $25,000
B. $20,000 D. $35,000
5. What amount was recorded as depreciation expense during 2004?
A. $0 C. $8,000
B. $4,000 D. $12,000
6. What amount was declared and paid for dividends during 2004?
A. $0 C. $12,000
B. $8,000 D. $30,000
7. What amount was paid to retire bonds payable during 2004?
A. $0 C. $100,000
B. $50,000 D. $150,000
8. How is the bond retirement reported on the statement of cash flows for 2004?
A. In the cash flows from operating activities section
B. In the cash flows from investing activities section
C. In the cash flows from financing activities section
D. In the supplemental schedule of cash flows
9. If the indirect method is used to prepare the statement of cash flows, how much net cash
was used for or provided by operating activities?
A. $6,000 provided by C. $36,000 provided by
B. $6,000 used for D. $36,000 used for
10. Whatfs the cash balance at December 31, 2004?
A. $57,525 C. $113,525
B. $107,525 D. $119,525
11. Which of the following generally indicates a positive change?
A. Earnings per share decreases.
B. The debt service coverage ratio decreases.
C. The acid-test ratio decreases.
D. The number of daysf sales in inventory decreases.
Use the following information to answer Questions 12 through 16:
2004 2003
Accounts Receivable $60,000 $38,000
Merchandise Inventory $12,000 $16,000
Total Assets $450,000 $380,000
Net Sales $380,000 $270,000
Cost of Goods Sold $160,000 $210,000
12. Which of the following would result from a horizontal analysis of the balance sheet?
A. Accounts Receivable increased $22,000, or 57.9%, during 2004.
B. Accounts Receivable is five times larger than Merchandise Inventory in 2004.
C. Accounts Receivable is 13.3% of Total Assets for 2004.
D. Merchandise Inventory is 2.7% of Total Assets for 2004.
13. Which of the following would result from a vertical analysis of the balance sheet?
A. Accounts Receivable increased $22,000, or 36.7%, during 2004.
B. Merchandise Inventory decreased $4,000, or 4.2%, during 2004.
C. Accounts Receivable is 13.3% of total assets for 2004.
D. Cost of Goods Sold decreased $50,000, or 23.8%, during 2004.
14. Which of the following would result from a horizontal analysis of the income statement?
A. Cost of Goods Sold is 42.1% of Net Sales for 2004.
B. Gross Profit is 42.1% of Net Sales for 2004.
C. Cost of Goods Sold decreased $50,000, or 23.8%, during 2004.
D. Accounts Receivable total 13.3% of Total Assets for 2004.
15. Which of the following would result from a vertical analysis of the income statement?
A. Accounts Receivable increased $22,000, or 57.9%, during 2004.
B. Gross Profit is 57.9% of Net Sales for 2004.
C. Cost of Goods Sold increased $50,000, or 23.8%, during 2004.
D. Net Sales increased $110,000, or 28.9%, during 2004.
16. Which of the following results would be found through a vertical analysis of the balance
sheet or the income statement?
A. Accounts Receivable increased $22,000 during 2004.
B. Total Assets increased $70,000 during 2004.
C. Cost of Goods Sold increased 35.7% during 2004.
D. Gross Profit is 57.9% of Net Sales for 2004.
17. Which of the following activities results in a cash outflow on the statement of cash flows?
A. Decreases in Noncash Current Assets
B. Decreases in Long-Term Assets
C. Increases in Long-Term Liabilities
D. Decreases in Retained Earnings
18. Calculate the cash flow adequacy ratio based on the following information:
Cash Flows from Operating Sctivities $261,000
Additions to Manufacturing Equipment $117,000
Proceeds from Disposals of Manufacturing Equipment $57,000
Total Payments Expected to Retire Long-Term Debt over the Next Five Years $150,000
A. 1.74 C. 6.70
B. 4.80 D. 8.70
Use the following selected financial statement data to answer Questions 19 through 21:
2004 2003
Cash $22,000 $14,000
Accounts Receivable $42,000 $16,000
Merchandise Inventory $22,000 $83,000
Prepaid Expenses $23,000 $18,000
Total Current Assets $109,000 $131,000
Total Current Liabilities $65,000 $72,000
Net Credit Sales $221,000 $326,000
Cost of Goods Sold $168,000 $299,000
Net Cash Flow from Operating
Activities $16,000 $29,000
19. The current ratio for 2004 is
A. 0.60 to 1. C. 1.34 to 1.
B. 0.99 to 1. D. 1.68 to 1.
20. The amount of working capital at the end of 2004 is
A. $36,000. C. $99,000.
B. $44,000. D. $245,000.
21. Competitors in the industry have an average inventory turnover of 20.8 times. The
companyfs inventory turnover for 2004
A. indicates that the company has too little inventory on hand at the end of 2004.
B. indicates that the company is pricing its products too low.
C. is equal to the number of daysf sales in the companyfs inventory.
D. indicates that the company may have a large amount of obsolete inventory or problems
in the sales department.
22. What effect does the declaration and payment of a cash dividend have on total liabilities
and the debt-to-equity ratio?
A. No effect on total liabilities, increase in debt-to-equity ratio
B. Increase in total liabilities, increase in debt-to-equity ratio
C. No effect on total liabilities, decrease in debt-to-equity ratio
D. Decrease in total liabilities, decrease in debt-to-equity ratio
Use the following information to complete Questions 23 and 24:
Current Inventory Acid-test
Ratio Turnover Ratio
Ratio
Huey
12/31/04 2.8 to 1 6.9 times 2.5 to 1
12/31/03 2.0 to 1 7.6 times 1.0 to 1
Louie
12/31/04 2.3 to 1 5.8 times 2.1 to 1
12/31/03 1.5 to 1 5.8 times 1.4 to 1
Dewey
12/31/04 1.8 to 1 8.0 times 0.5 to 1
12/31/03 2.2 to 1 9.6 times 1.2 to 1
Donald
12/31/04 1.7 to 1 7.6 times 1.5 to 1
12/31/03 1.5 to 1 7.9 times 1.3 to 1
23. Which company has the greatest percentage of inventory and prepaids?
A. Huey C. Dewey
B. Louie D. Donald
24. Which company appears to be the most liquid?
A. Huey C. Dewey
B. Louie D. Donald
25. A company reported the following amounts in its financial statements:
2004 2003 2002
Avg. merchandise inventory $200,000 $120,000 $90,000
Cost of goods sold $4,000,000 $3,000,000 $2,500,000
From 2003 to 2004, the companyfs management of inventory is
A. declining, because the number of daysf sales in inventory is getting larger.
B. increasing, because the number of daysf sales in inventory is getting larger.
C. declining, because the number of daysf sales in inventory is getting smaller.
D. increasing, because the number of daysf sales in inventory is getting smaller.
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