Practice Exam 1gdfgdf

8/13/2019 Practice Exam 1gdfgdf

1/49

Practice Exam #1

Part 1 of 2(Quizzes 1, 2, and 3 and

Enhancement Days 1, 2, and 3)

Accounting 21

1. This practice exam is in the same multiple-choice format as is the actual exam.2. This practice exam contains many more questions than does the actual exam; the

actual exam has only 25 questions.

3! E"ery toic co"ered in a $uestion on the actua% exam is addressed in one or

more $uestions on the ractice exam!

4. Some of the questions on the actual exam will be more difficult than these practiceexam questions; some of the questions will be less difficult.

5. f course! no question on the actual exam will be exactly li"e any question on thispractice exam.

#. $ few of the questions are similar to questions that were on the %lac"board qui&&es.

'. The best way to use the practice exam is to allow it to (uide your study of thematerial you need to "now to do well on the actual exam. )ou should do thefollowin(.

*omplete the practice exam questions +,TT pee"in( at the answers.

nly in this way will you be able to ma"e an accurate assessment ofwhether you understand the question material.

/o bac" to the underlyin( material 0 either nhancement ay material or

%lac"board qui& material 0 to study the topics that you don3t understand onthe practice exam.

on3t (et the mista"en impression that if you memori&e eery question on

the practice exam you will nail the actual exam. +e are familiar with all ofthe questions on the practice exam! and we intentionally ma"e the actualexam questions different. ur intent is to reward students who are not rotememori&ers but who instead attempt to understand the concepts and thetechniques of settin( up problems.


2/49

1. +hich of the followin( describes mana(erial accountin( reports and does T describefinancial accountin( reports.

a. They are used primarily by creditors and inestors.b. They are based on (enerally accepted accountin( principles.c. They are standardi&ed across companies.d. They measure performance and isolate differences between bud(eted and actual results.

2. *onsider the followin( transaction.

&o%d merchandise costing ', for '2,! f the '2,, '*,+ as recei"ed in cash and the

remainder as on account!

+hich of the followin( is necessary to record this transaction6

a. %,T to S$7S for 28!888b. %,T to S$7S for 9!888c. %,T to *ST : / S7 for 28!888d. %,T to $**TS *,une 1. This ?1!288 was recorded as @repaid ent.

+hich of the followin( will be included in the $>ST,/ T) necessary on ecember=16

a. %,T to @@$, T for '88b. %,T to *$S for '88c. %,T to T A@S for '88

d. *,T to @@$, T for 588e. *,T to *$S for 588f. *,T to T A@S for 588

4. n ctober 1! the company receied ?2!488 in adance for 12 months of serice to be proided! withthe serice period be(innin( on ctober 1. This ?2!488 was recorded as nearned Serice eenue.The serice is proided eenly throu(hout the year. $s of the end of the year! no entry has yet beenmade to adBust the amount initially recorded.

+hich of the followin( will be included in the $>ST,/ T) necessary on ecember=16

a. %,T to $ S


3/49

5. +hich of the followin( is a correct description of the ,$S%6

a. as le(al authority to establish financial accountin( standards in the nited Statesb. ,s a subcommittee of the $merican ,nstitute of *ertified @ublic $ccountants D$,*@$Ec. +or"s under the direction of the S*d. ,s a priate or(ani&ation that establishes international accountin( standards

#. +hich of the followin( is part of the Bournal entry when recordin( the sale of a buildin( for cash6

a. debit to %uildin(b. debit to $ccumulated epreciationc. debit to /aind. debit to *ost of /oods Sold

'. +hich of the followin( is T a reason that an external auditor has to perform an accurate andreliable audit6

a. The audit firm wants to maintain its (ood reputation.

b. The audit firm wants to reduce the possibility of a shareholder lawsuit.c. The audit firm wants to increase the number of seats it has on the board of directors.

C. urin( )ear 1! Fni(ht *ompany recorded the followin( information on its ,ncome StatementG

Sales reenue ?588!888,nterest expense 18!888,nterest income 15!888/ross @rofit 288!888Sellin( and administratie expenses '5!888,ncome tax expense 12!888

+hat is Fni(ht *ompany3s cost of (oods sold for )ear 16

a. ? 1CC!888b. ? 228!888c. ? =88!888d. ? 155!888e. ? 4=8!888

9. n $pril 1! Tara&i *ompany receied ?=!#88 cash in adance for serices to be rendered for one yearstartin( on $pril 1. Tara&i debited *ash and credited Serice eenue for ?=!#88. n ecember =1 ofthe same year! the necessary adBustin( entry includes

a. credit to Serice eenue of ?2!'88b. debit to nearned Serice eenue of ?2!'88c. debit to Serice eenue of ?988d. debit to nearned Serice eenue of ?988


4/49

18. Thomson *ompany started business on >anuary 1 of )ear 1. n ecember =1 of )ear 1! Thomson hadthe followin( account balancesG

$ccounts receiableG 145!888?

Sales reenuesG 991!888?

,ncome taxes payableG 29!888?

7oan payableG #8!888?

*ost of (oods soldG #2'!888?

*ashG C8!888?

,nentoryG ==!888?

peratin( expensesG 2=5!888?

,ncome tax expenseG =8!888?

$ccounts payableG #8!888?

@roperty! @lant! and quipmentG 1##!888?

@repaid ;entG #8!888?

%onds @ayableG 158!888?

*apital Stoc"G C#!888?

/ien these data! what is the total amount of Thomson3s Stoc"holders3 quity as of ecember =1 of )ear16

a. ? C#!888b. ? 99!888c. ?1C5!888d. ?299!888e. ?4C4!888

11. n September 1! Hora *ompany paid ?#!888 for two years3 rent and recorded the entire amount as adebit to prepaid rent. The adBustin( entry on ecember =1 of that same year would include aG

a. *redit to ent xpense of ?2!888b. *redit to @repaid ent of ?2!888c. ebit to ent xpense of ?=!888d. ebit to ent xpense of ?1!888

12. +hich of the followin( accounts will be *,T when ma"in( closin( entries6

a. Sales eenueb. iidendsc. *ashd. $ccounts @ayablee. @aid-in *apital


5/49

1=. *alculate +H! ,nc.Is $)S @*$SS , $**TS @$)$%7 in 28x4 (ien the followin(information for the years ended 12J=1Jx= and 12J=1Jx4. ound to the nearest whole day.

12-13-x3 12-31-x.

*ash ?24!52C ?2'!5#4$ccounts eceiable 54!''' '8!92=,nentory 189!C#1 1#5!225$ccounts @ayable 4#!C5C 58!22CSales eenues #98!2=# C85!21=*ost of /oods Sold 48=!2C4 588!=C5

a. 42 daysb. 98 daysc. =2 daysd. =5 days

14. 7ily *ompany reported the followin( balance sheet information as of ecember =1! 28x4.

*urrent $ssets ?5!8887on(-term $ssets 15!888*urrent 7iabilities 2!8887on(-term 7iabilities '!888*ommon Stoc" 4!888etained arnin(s Dendin(E '!888

*ompute 7ily *ompany3s %T-T-K,T) $T, as of ecember =1! 28x4.

a. 8.C2b. 2.22c. 1.22d. 8.55

e. 8.45

15. :or the year 28x4! 7orien *ompany reported net income of ?158!888. 7orien has not proided youwith all of the detailed reenues and expenses that went into the calculation of this ?158!888 netincome. oweer! you do "now that sales for the year were ?988!888! depreciation expense was?#8!888! interest expense was ?45!888! and income tax expense was ?'5!888. sin( these data!compute 7orien *ompany3s T,HS ,TST $ $T, for the year 28x4.

a. 5.88b. 4.==

c. C.5'd. #.88e. C.58


6/49

1#. :or the year 28x4! @ecos )o *ompany computed the followin( ratios related to the u@ont:ramewor".

7eera(e =.#8@rofitability 8.11fficiency 8.95

,n addition! @ecos )o reported a current ratio of 1.55 as of the end of the year! and an earnin(s per shareD@SE of ?2.92.

@ecos )o3s T K,T) for the year 28x4 is

a. 8.='#b. 8.5C=c. 1.899d. 1.'8=e. 8.185

1'. The followin( items hae been extracted from the financial statements of 7orien *ompany for the year

28A1.

Total liabilities...........................................................................?'88nearned reenue..........................................................................58etainin( earnin(s Das of >anuary 1! 28A1E.................................488peratin( expenses......................................................................228Sales..........................................................................................1!888@repaid insurance.........................................................................1#8,nterest expense..............................................................................48*ost of (oods sold........................................................................#88

+hat is the alue of 7orien *ompany3s T,HS ,TST $ ratio for 28A16

a. 4.5b. 25.8c. 18.8d. 5.5e. =.5f. 5.C(. 1.Ch. 1.=


7/49

1C. The followin( information is for )osef *ompanyG28A2 28A1

Sales ?2#8!888 ?=28!888$ccounts @ayable 18!888 28!888etained arnin(s 125!888 'C!888,nentory 48!888 58!888$ccounts eceiable 25!888 28!888*ost of /oods Sold 1C8!888 288!888

:or 2/2! compute the aera(e number of days that elapse from the time )osef sells inentory untilthe time )osef collects the cash from the sale of that inentory.

a. 122.9 daysb. 59.' daysc. 11#.2 daysd. =1.# dayse. =2.2 daysf. 114.' days(. 94.C days

19. @ortland *ompany sold equipment with a boo" alue of ?#88. The company recorded a (ain on thesale of ?458. The ori(inal cost of the equipment was ?2!888. ,n the Bournal entry to record the saleof the equipment for cash! which of the followin( items would appear6

a. ebit to $ccumulated epreciation for ?#88b. ebit to $ccumulated epreciation for ?2!888c. ebit to /ain on Sale of quipment for ?458d. ebit to quipment for ?2!888e. *redit to quipment for ?#88f. ebit to quipment for ?1!488(. ebit to *ash for ?#88h. ebit to *ash for ?1!858


8/49

28. n ecember =1! 28A1! Thomson *ompany had the followin( account balancesG

$ccounts receiable....................................................................................?15!888Sales reenues............................................................................................C45!888etained earnin(s D0eginningof year! anuary 1, 2/1E........................128!888,ncome taxes payable...................................................................................25!8887oan payable................................................................................................45!888*ost of (oods sold......................................................................................#58!888*ash..............................................................................................................#5!888,nentory.......................................................................................................28!888*ommon stoc"..............................................................................................41!888peratin( expenses.....................................................................................19#!888,ncome tax expense......................................................................................25!888nearned reenue.........................................................................................55!888@roperty! plant! and equipment...................................................................145!888@repaid rent...................................................................................................58!888%onds payable..............................................................................................=5!888

/ien these data! what is Thomson3s $SST T


9/49

22. )ou are a financial analyst tryin( to estimate the appropriate price of a share of Famila *ompany stoc".)ou hae collected the information below. This information relates to companies in Famila3s industry.

i(h @J ratio 45.8$era(e @J ratio 28.87ow @J ratio 18.8

i(h @J% ratio 5.8$era(e @J% ratio 1.#7ow @J% ratio 8.'

Famila *ompany is expected to hae hi(h earnin(s (rowth of 15L per year oer the next four to fie years.oweer! in the past the company has had only aera(e ! aera(in( Bust 12L per year for the past threeyears. Famila *ompany3s most recent @S was ?1.58 per share. Famila *ompany3s boo" alue per share is?48.88. stimate the mar"et price of a share of Famila *ompany3s stoc".

a. ?15.88b. ?=8.88c. ?'.58

d. ?48.88e. ?C8.88f. ?1C8.88(. ?#5.88


10/49

2=. The accountant for arry %aby *ompany has assembled the followin( preliminary data andbac"(round information at the end of 2882G

@reliminary ata Dendin( balances except where indicatedE

*ash ?188$ccounts eceiable 1!8887essG $llowance for %ad ebtsM 28%uildin( 18!8887essG $ccumulated epreciation Dbe(innin( balanceE 8

nironmental *leanup bli(ationMM 5C8@aid-in *apital =!588etained arnin(s Dbe(innin( balanceE 4!888Total eenue =!888

M The ?28 allowance for bad debts amount reflects the be(innin( balance less amounts written off durin(the year.

MM The ?5C8 enironmental cleanup obli(ation amount reflects the be(innin( balance less amountsactually spent durin( the year. o amount has been added to reflect additional enironmental dama(e

created durin( the year.

%ac"(round ,nformation1. arry %aby estimates bad debt expense usin( a percenta(e of the endin( balance in accounts

receiable. istorically! the percenta(e has ran(ed from #L of endin( accounts receiable to 1CL ofendin( accounts receiable.

2. arry %aby uses strai(ht-line depreciation. $s of the be(innin( of the year! the buildin( was new.ther companies in arry %aby3s industry use depreciation lies ran(in( from 18 years to 25 years forsimilar buildin(s.

=. er the past fie years! arry %aby has added between ?=88 and ?988 per year to the estimatedenironmental cleanup obli(ation.

omute the 4E&5 net income that 6arry 7a0y can reort 0ut sti%% remain in the acceta0%e

range of estimates!

a. 7owest net income! ?928b. 7owest net income! ?948c. 7owest net income! ?1!C48d. 7owest net income! ?1!528e. 7owest net income! ?1!548f. 7owest net income! ?2!2#8(. 7owest net income! ?2!2C8


11/49

24. 7ily *ompany had the followin( account totals as of ecember =1! 28A2.

*ost of (oods sold.......................................................................? 58!888$ccounts receiable.....................................................................188!888+a(es payable...............................................................................18!888$ccounts payable...........................................................................25!888Sales.............................................................................................288!888,nentory......................................................................................158!888%an" 7oan @ayable Dto be repaid in # yearsE.................................25!888*ash................................................................................................1C!888etained earnin(s D0eginningof year! >anuary 1! 28A2E..............C8!888@aid-in capital................................................................................=C!888quipment......................................................................................#8!888

+hat is 7ily *ompany3s A8D95E&5 :A586 oteG The acid-test ratio is also called the Nquic" ratio.O

a. =.='b. '.##c. 4.'2

d. 1.9'e. =.11f. 2.9'(. 1.8=(. 4.4#

25. n September 1! 28A1! HaScare *ompany paid ?4!C88 for an insurance policy on some equipmentthat will be in effect for the 12 months from September 1! 28A1 throu(h $u(ust =1! 28A2. HaScarerecorded this payment on September 1 by debitin( ,nsurance xpense. The necessary ad;usting entryon ecember =1! 28A1includes a

a. ebit to ,nsurance xpense of ?1!#88b. *redit to ,nsurance xpense of ?1!#88c. ebit to ,nsurance xpense of ?=!288d. *redit to ,nsurance xpense of ?=!288e. ebit to ,nsurance xpense of ?1!288f. *redit to ,nsurance xpense of ?1!288(. ebit to ,nsurance xpense of ?=!#88h. *redit to ,nsurance xpense of ?=!#88

2#. +hich of the followin( statements is T6

a. The purpose of financial reportin( is to increase the cost of capital.

b. The purpose of financial reportin( is to increase information ris".c. :or an auditor! si(nin( an audit opinion is a calculated ris".d. :inancial analysts do T hae an incentie to bias their analysis of a company because the

analysts are paid by the S*.e. $ccordin( to .S. law! auditors cannot be sued by shareholders of ban"rupt companies for which

the auditor audited the financial statements before the ban"ruptcy.f. @reparation of financial statements does T require the ma"in( of any assumptions! estimates!

or Bud(ements.


12/49

2'. %elow are summaries of the balance sheets of fie companies. The amounts are all stated as apercenta(e of total assets.

A 7 D E

:ecei"a0%es 1 *<


13/49

2C. %elow are data for *ompany : for )ear 1! )ear 2! and )ear =.

>ear 3 >ear 2 >ear 1

,ncome from *ontinuin( perations 25!888 28!888 1#!888PJ- ,ncome D7ossE from iscontinued perations D12!888E =8!888 1C!888PJ- xtraordinary /ain D7ossE #5!888 1C!888 8Q et ,ncome 'C!888 #C!888 =4!888

PJ- nreali&ed /ains D7ossesE not included in et ,ncome 2=!888 D11!888 E 42!888Q *omprehensie ,ncome 181!888 5'!888 '#!888

sin( these data! compute the 0estprediction of *ompany :3s T ,*H for )ear 4.

*hoose the 0estresponse from the list below.

a. ?28!888b. ?=1!258c. ?#8!888

d. ?'C!888e. ?CC!888

29. )ou are a ban"er. )ou hae receied cash flow data from *ompanies $! %! *! and . $ll companiesare the same si&e in terms of total assets.

omany A omany 7 omany omany D

*ash :low from peratin( $ctiities ?58!888 ?288!888 ?1C8!888 ?128!888

*ash :low from ,nestin( $ctiities =5!888 D988!888E D188!888E D288!888E

*ash :low from :inancin( $ctiities 128!888 '58!888 '8!888 D1'8!888 E

et *han(e in *ash ?285!888 ?58!888 ?158!888 D?258!888E

5o hich of these four comanies ou%d you refer to gi"e a %oan6 $ssume that all of the loans areof the same amount and that the interest rate char(ed is the same for all of the loans.

a. *ompany $b. *ompany %c. *ompany *d. *ompany


14/49

=8. The numbers below are for Iffy Company and Model Company.

,ffy HodelTotal $ssets 5!888 22!888

Total 7iabilities =!888 11!888

Total quity 2!888 11!888

Sales 28!888 44!888

et ,ncome 1!888 5!588

+hich of the followin( pairs of ratio alues is correct6

a. ,ffy3s is 28.8L; Hodel3s $sset Turnoer is 4.88.b. ,ffy3s @rofit Har(in is 5.8L; Hodel3s is 58.8L.c ,ffy3s $sset Turnoer is 8.25; Hodel3s @rofit Har(in is 25.8L.

31. The numbers below are for Utah Company and BYU Company. BYU Company is the standard in

the industry.

Utah BYU

Cash 50 1,000

Accounts Receivable 700 4,000

Inventory 500 8,000

Plant and Equipment 1,000 15,000

Sales 10,000 100,000

Net Income 200 5,000

Which ONE of the following statements is TRUE with respect to Utah Company?

a. *ash mana(ement is a problem for tah *ompany.b. $ccounts eceiable mana(ement is a problem for tah *ompany.c ,nentory mana(ement is a problem for tah *ompany.d @lant and quipment mana(ement is a problem for tah *ompany.

32. With respect to the comparison between Wal-Mart and KMart in 1999, which ONE of the

following statements is TRUE?

a. The numbers offer strong evidence that Wal-Mart was more efficient at managing its inventory in

1999 than was KMart.

b. The numbers offer strong evidence that Wal-Mart was able to buy its inventory at much lower

prices in 1999 than was KMart.

c. The numbers offer strong evidence that Wal-Mart was able to control its overhead expenses in

1999 much better than was KMart.

d. The numbers offer strong evidence that Wal-Mart had much lower interest expense in 1999 than

did KMart.


15/49

33. Which ONE of the following statements is FALSE?

a. Har"et prices summari&e a lar(e amount of information.b. +e can discern new information by obserin( the behaior of others in mar"ets -- especially by

obserin( the behaior of sophisticated mar"et participants.c. There are

nopredictable relationships between accountin( data Dsuch as earnin(s or stoc"holders3

equityE and company mar"et alues.

=4. *ompany $ is expected to hae low earnin(s (rowth of 2L per year oer the next four to fie years.oweer! in the past the company has had ery hi(h ! aera(in( oer 25L per year for the pastthree years. *ompany $3s most recent @S was ?1.58 per share. *ompany $3s boo" alue per share is?5.88. stimate the mar"et price of a share of *ompany $3s stoc".

The followin( data hae been (athered for companies in *ompany $3s industry.

i(h @J% ratio 5.8$era(e @J% ratio 2.87ow @J% ratio 8.5

+hich of the followin( is the best estimate of *ompany $3s stoc" price6

a. ?8.'5 per shareb. ?2.58 per sharec. ?=.88 per shared. ?5.88 per sharee. ?'.58 per sharef. ?18.88 per share(. ?25.88 per share


16/49

&o%utions

1! 5he anser is D! ?inancia% accounting reorts are used rimari%y 0y creditors and in"estors and

are 0ased on genera%%y acceted accounting rinci%es that are standardized across comanies!

?inancia% accounting reorts do @5 inc%ude 0udget information this tye of information is

Bet interna% to the comany and is reorted in manageria% accounting reorts!

2! 5he anser is E! 5he correct ;ourna% entries are as fo%%os!

ash *,+

Accounts :ecei"a0%e 12,+

&a%es 2,

ost of Coods &o%d ,

8n"entory ,

3! 5he anser is ! 5he correct ;ourna% entry is as fo%%os!

:ent Exense *

Preaid :ent *

Exense ('1,2 12 months) F * months G '*

.! 5he anser is ?! 5he correct ;ourna% entry is as fo%%os!

Hnearned &er"ice :e"enue =

&er"ice :e"enue =

Exense ('2,. 12 months) F 3 months G '=

+! 5he anser is D!

=! 5he anser is 7

orrect ourna% Entries

ash xxx

Accumu%ated Dereciation xxx

7ui%ding xxx

ash xxx


Cain on sa%e xxx

7ui%ding xxx

ash xxx


oss on sa%e xxx

7ui%ding xxx

.


17/49

*! 5he anser is !

7y definition, gross rofit is the amount of sa%es re"enue %eft, after taBing out the cost of goods so%d,

to co"er other exenses!

5herefore, Cross Profit G &a%es :e"enue I ost of Coods &o%d7y using a%ge0ra, ost of Coods &o%d G &a%es :e"enue I Cross Profit

8n this ro0%em, ost of Coods &o%d G '+, I '2, G '3,

@one of the other accounts ere re%e"ant in determining this anser!

! &o%ution c!

5arazi recei"ed '3,= for a yearJs orth of ser"ices! Assuming the ser"ices ere erformed e$ua%%y

each month, this '3,= ayment co"ers '3 of ser"ices each month! 8f 5arazi had recei"ed this

reayment on anuary 1, then no ad;usting entry ou%d 0e necessary 0ecause a%% of the ser"ices

ou%d ha"e 0een erformed and the recognition of '3,= of re"enue ou%d 0e ;ustified! 6oe"er, at

the end of the year, 5arazi sti%% has an o0%igation to erform 3 months (or ') of ser"ices! 5hus,

5arazi can on%y recognize the ortion of &a%es :e"enue that has actua%%y 0een earned for the year

hich is months (or '2,*) of ser"ices! According%y, the fo%%oing entries ere made

Aug! 1 ash ('3 K 12) 3,=

&er"ice :e"enue 3,=

To recognize receipt of $3,600 for 12 months of services

Dec! 31 &er"ice :e"enue

Hnearned &er"ice :e"enue

To adjust for 3 months of services not yet performed


18/49

1! &o%ution c!

Assets

*ash C8!888?

$ccounts receiable 145!888?

,nentory ==!888?@repaid ;ent #8!888?

@roperty! @lant! and quipment 1##!888?

4C4!888?

3ia0i%ities

$ccounts payable #8!888?

,ncome taxes payable 29!888?

7oan payable #8!888?

%onds payable 158!888?

299!888?

&tocBho%dersL E$uity

*apital Stoc" C#!888?

Sales reenues 991!888?

*ost of (oods sold D#2'!888E?

peratin( expenses D2=5!888E?

,ncome tax expense D=8!888E?

1C5!888?

:e"enue, exense, and di"idend accounts are su0categories of retained earnings! 5hese accounts are

c%osed to retained earnings at the end of the year! 8n this exam%e, 0ecause this is the comanyJs firstyear of 0usiness, the 0eginning 0a%ance in retained earnings is zero!

Assets I ia0i%ities G &tocBho%dersJ E$uity

'.


19/49

12! so%ution 7

n%y re"enue, exense, and di"idend accounts are c%osed! @o 0a%ance sheet accounts are c%osed!

&a%es re"enue is c%osed ith a de0it! Di"idends is c%osed ith a credit!

13! &o%ution c

5he num0er of daysJ urchases in accounts aya0%e re"ea%s the a"erage %ength of time that e%ases

0eteen the urchase of in"entory on account and the cash ayment for that in"entory!

@um0er of DaysJ Purchases G N 3=+ Days N

8n Accounts Paya0%e Purchases-A"erage Accounts Paya0%e

A"erage Accounts Paya0%e (A-P)G OKA-P (ending 0a%ance) I A-P (0eginning 0a%ance)

Amount of 8n"entory Purchased during the >ear G ost of Coods &o%d for the year R the change in

8n"entory (ending 0a%ance I 0eginning 0a%ance) for the year

A"erage Accounts Paya0%e G ('.=,


20/49

1+! &o%ution d!

5imes interest earned is the ratio of the income that is a"ai%a0%e for interest ayments to the annua%

interest exense! 5his ratio ser"es as an indication of the 0orroing comanyJs a0i%ity to meet the

re$uired interest ayments!

5imes interest earned G 8ncome 0efore interest and taxes (oerating rofit) Annua% interest exense

8ncome 0efore interest and taxes G @et income R 8nterest exense R 8ncome tax exense

8ncome 0efore interest and taxes is often ca%%ed E785 (earnings 0efore interest and taxes)!

(et )ncome 150,000Sales Re*enue 900,000+ereciation !ense .0,000)nterest !ense 45,000

)ncome Ta !ense 75,000

)ncome be/ore )nterest an Taes 270,000)nterest !ense 45,000Times Interest Earned 6.00

1=! &o%ution a!

5he DuPont frameorB ro"ides a systematic aroach for 0reaBing don return on e$uity into

three ratios rofit margin (rofita0i%ity), asset turno"er (efficiency), and assets9to9e$uity ratio

(%e"erage)

:eturn on e$uity G Profita0i%ity K Efficiency K e"erage

Le*erage .0ro/itabilit' 011!//icienc' 095Current Ratio 155!S 292

Return on Equity 0.376

1*! &o%ution a

E785 G Earnings 0efore interest and taxes G erating income

E785 G &a%es 9 ost of Coods &o%d I erating Exenses

E785 G '1, 9 '= 9 '22 G '1


21/49

1

31!= days G (('2+, R '2,)-2)-('2=,-3=+)

1! &o%ution h

ash 1,+Accumu%ated Dereciation 1,.

Cain on &a%e of E$uiment .+

E$uiment 2,

2! so%ution g

Assets

Accounts recei"a0%e!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1+,

ash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!=+,

8n"entory!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!2,

Proerty, %ant, and e$uiment!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1.+,

Preaid rent!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!+,

55A!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!2+,

Asset 5urno"er :atio &a%es - 5ota% Assets G

Proerty, P%ant, and E$uiment 3, 3!S 1.,. 2.!S

5ota% Assets +, 3,

5ota% ia0i%ities 3, 1


22/49

22! &o%ution g

An estimate of Tami%a omanys rice er share using earnings is as fo%%os

Price er share G EP& of '1!+ F 6igh P-E :atio of .+

G '=*!+

An estimate of Tami%a omanyJs rice er share using 0ooB "a%ue is as fo%%os

Price er share G 7ooB "a%ue er share of '.! F A"erage P-7 :atio of 1!=

G '=.!

4ith these estimates, e ou%d guess that Tami%a omanyJs stocB rice shou%d 0e somehere 0eteen

'=.! er share and '=*!+ er share!

23! so%ution 0

4E&5 @E5 8@ME G 68C6E&5 E/PE@&E

ash 1

Accounts :ecei"a0%e 1,

ess A%%oance for 7ad De0ts ('1, F !1


23/49

2+! so%ution d

Preaid 8nsurance is the amount :EMA8@8@C!

'.,

PE:A58@&!

8ncome from continuing oerations has increased 2+S in each of the ast to years!

Another 2+S increase ou%d yie%d >ear . net income of '31,2+!

2! so%ution c

5he Bey num0er is cash f%o from oerating acti"ities!

5he Bey re%ationshi is the re%ationshi 0eteen the amount of oerating cash f%o and the

amount of in"esting cash f%o!

n%y omany has an excess of oerating cash f%o o"er in"esting cash f%o needs (excet foromany A hich is a strange comany 0ecause it has ositi"e cash from in"esting acti"ities)!


24/49

3! so%ution 0

8ffyJs Profit Margin G '1, - '2, G +!S

Mode%Js :E G '+,+ - '11, G +!S

31! so%ution 0

Accounts :ecei"a0%e is *!S of sa%es for Htah 0ut ;ust .!S of sa%es for 7>H!

32! so%ution c

As i%%ustrated in c%ass!

33! so%ution c

7oth the P-E ratio and the P-7 ratio i%%ustrate that there are redicta0%e re%ationshis 0eteen

accounting data and comany marBet "a%ues!

3.! so%ution g

6igh ast :E means that omany A i%% ha"e a high P-7 ratio!

7ooB "a%ue er share of '+! F +! 6igh P-7 ratio G '2+!


25/49

Practice Exam #1

Part 2 of 2(Quizzes ., +, and = and

Enhancement Day .)

Accounting 21

1. This practice exam is in the same multiple-choice format as is the actual exam.2. This practice exam contains many more questions than does the actual exam; the

actual exam has only 25 questions.

3! E"ery toic co"ered in a $uestion on the actua% exam is addressed in one or

more $uestions on the ractice exam!

4. Some of the questions on the actual exam will be more difficult than these practiceexam questions; some of the questions will be less difficult.

5. f course! no question on the actual exam will be exactly li"e any question on thispractice exam.

#. $ few of the questions are similar to questions that were on the %lac"board qui&&es.

'. The best way to use the practice exam is to allow it to (uide your study of thematerial you need to "now to do well on the actual exam. )ou should do thefollowin(.

*omplete the practice exam questions +,TT pee"in( at the answers.

nly in this way will you be able to ma"e an accurate assessment ofwhether you understand the question material.

/o bac" to the underlyin( material 0 either nhancement ay material or

%lac"board qui& material 0 to study the topics that you don3t understand onthe practice exam.

on3t (et the mista"en impression that if you memori&e eery question on

the practice exam you will nail the actual exam. +e are familiar with all ofthe questions on the practice exam! and we intentionally ma"e the actualexam questions different. ur intent is to reward students who are not rotememori&ers but who instead attempt to understand the concepts and thetechniques of settin( up problems.


26/49

1. *onsider the followin( three cash flows.

*ash paid to repurchase shares of a company3s stoc"

*ash paid for wa(es

*ash paid for interest

+hich of the followin( sequences represents the **T cate(ori&ation of these three cash flows6

a. epurchase 0 financin(; wa(es 0 inestin(; interest 0 operatin(b. epurchase 0 financin(; wa(es 0 operatin(; interest 0 operatin(c. epurchase 0 financin(; wa(es 0 inestin(; interest 0 inestin(d. epurchase 0 inestin(; wa(es 0 inestin(; interest 0 operatin(e. epurchase 0 inestin(; wa(es 0 operatin(; interest 0 operatin(f. epurchase 0 inestin(; wa(es 0 operatin(; interest 0 financin(

2. urin( 28x4! ancy *ompany had total *ost of /oods Sold of ?588!888 and total Sales of?#88!888. The be(innin( and endin( balances in the accounts PA>A7Eaccount are respectiely?#8!888 and ?188!888. The be(innin( and endin( balances in the in"entoryaccount are ?128!888

and ?1=5!888! respectiely. The be(innin( and endin( balances in the accounts :EE8VA7Eaccount are respectiely ?188!888 and ?''!888. *ompute the amount of cash aid for inentorydurin( 28x4.

a. ?525!888b. ?4'5!888c. ?555!888d. ?5''!888

=. Sabo *ompanyIs financial statements show a net income of ?24=!888. The followin( items alsoappear on Sabo3s financial statements.

epreciation expenseG ?55!888

$ccounts receiable decreaseG ?#8!888

@repaid rent increaseG ?48!888

$ccounts payable decreaseG ?45!888

+hat is Sabo3s net cash flow from oeratingactiities6

a. ?2==!888b. ?=5=!888c. ?2'=!888d. ?24=!888e. ?=#=!888


27/49

4. ee$nn *ompanyIs financial statements show the followin(.

SalesG ?=88!888

+a(e xpenseG ?128!888

$ccounts receiable decreaseG ?54!888

@repaid rent increaseG ?==!888

ent xpenseG ?'5!888 +a(es payable decreaseG ?=9!888

epreciation expenseG ?='!588

ee$nn has no other reenues or expenses. +hat is ee$nn3s net cash flow from oeratingactiities6

a. ?#'!588b. ?189!588c. ?1=C!888d. ?C'!888e. ?1#5!888

5. )o"um *ompany had the followin( transactions for 2881.

*ollections on accounts receiable 0 ?2=#!258

@ayments on inentory 0 ?1#C!'58

@ayments for wa(es and salaries 0 ?'C!'58

@ayments of diidends 0 ?11!258

epreciation expense 0 ?22!588

,ncome taxes paid - ?2'!888

@roceeds receied from sale of equipment 0 ?225!888

tilities paid 0 ?#!'58

,nterest paid on note to local ban" 0 ?5!#25

@roceeds from issuance of common stoc" - ?5#!258

sin( the transactions aboe! compute the net cash flow from oeratingactiities.

a. ?52=!125b. D?52=!125Ec. ?58!#25d. D?58!#25Ee. ?225!888f. D?225!888E


28/49

#. @ortland *ompany sold equipment with a boo" alue Dhistorical cost 0 accumulated depreciationE of?1!288 for ?1!188 cash. Total depreciation expense for the year was ?C88. The be(innin( andendin( balances in the $ccumulated epreciation account are ?2!888 and ?1!488! respectiely. Thebe(innin( and endin( balances in the @roperty! @lant! and quipment account are ?'!888 and ?'!488respectiely. ow much e$uimentdid @ortland *ompany urchasedurin( the year6

a. ?488b. ?1!C88c. ?2!#88d. ?=!888e. ?1!#88

'. The followin( information relates to quipment and related accounts of l Shei"h*orporation.

quipment! be(innin( balance......................................................................?'8!888quipment! endin( balance...........................................................................188!888

quipment sold durin( the yearG

ri(inal cost..........................................................................................9!888

%oo" alue............................................................................................2!888

:ully depreciated equipment disposed of durin( the yearG ri(inal cost.........=!888$ccumulated epreciation! be(innin( balance..............................................58!888$ccumulated epreciation! endin( balance...................................................42!888

$ssumin( that all equipment purchases are for cash! how much cash was used to

purchase equipment durin( the year6a. ?44!888b. ?==!888c. ?42!888d. ?48!888


29/49

C. The followin( financial information is aailable for 7i(utti *ompany as of the end of 28A=.

28A= 28A2*ash ?12!888 ?15!888$ccounts receiable 25!888 22!888%uildin(s 9'!888 42!888$ccumulated depreciation D25!888E D28!888E7and =5!888 28!888

?144!888 ?'9!888

$ccounts payable ? 25!888 ?28!8887on(-term notes payable 48!888 15!888*ommon stoc" 58!888 =8!888etained earnin(s 29!888 14!888

?144!888 ?'9!888

$dditional informationGR iidends paid durin( 28A= totaled ?15!888.R et income for 28A= was ?=8!888.

R o buildin(s were sold durin( 28A=.

ote that the end-of-year information is in the 7:T column

+hat was the net cash proided by Dused inE inestin( actiities durin( 28A=6a. D?55!888Eb. D?'8!888Ec. ?55!888d. ?'8!888

9. *hen *orporation had the followin( cash flows durin( 28A=.

*ash receipt from the issuance of stoc".....................................................?48!888*ash receied from customers......................................................................28!888,nterest receied on lon(-term inestments..................................................18!888*ash paid for wa(es......................................................................................12!888*ash paid for insurance..................................................................................1!888*ash paid for diidends..................................................................................#!888*ash paid to purchase buildin(.....................................................................#8!888*ash paid to purchase land...........................................................................28!888

/ien this information! net cash inflow DoutflowE from inestin( actiities isG

a. D?28!888Eb. D?#8!888Ec. D?C8!888Ed. D?C#!888E


30/49

18. +hich of the followin( would be reported as an in"esting acti"ityon a statement of cashflows6

a. $mount collected on accounts receiableb. $mount receied as new inestment from stoc"holdersc. $mount borrowedd. $mount paid as cash diidendse. $mount paid to repurchase shares of stoc"f. $mount collected from the sale of a buildin(

11. urin( 28x4! ancy *ompany had total expenses of ?428!888 and total reenues of ?#98!888. Thebe(innin( and endin( balances in the common stocBaccount are respectiely ?128!888 and?248!888. The be(innin( and endin( balances in the cashaccount are ?158!888 and ?1'5!888!respectiely. The be(innin( and endin( balances in the retained earningsaccount are respectiely?258!888 and ?215!888. *ompute the amount of cash aid for D8V8DE@D&durin( 28x4.

a. ?=85!888b. ?245!888c. ?158!888

d. ?2=5!888e. ?=98!888

12. *alculate Tara&i *ompany3s cash flow from :,$*,/ $*T,


31/49

14. *hen *orporation had the followin( cash flows durin( 28A=.

*ash receipt from the issuance of stoc"........................?=8!888*ash receied from customers.........................................15!888,nterest receied on lon(-term inestments.......................'!588*ash paid for wa(es...........................................................9!888*ash paid for insurance........................................................'58*ash paid for diidends.....................................................4!588*ash paid to purchase buildin(........................................45!888*ash paid to purchase land..............................................15!888

/ien this information! net cash inflow DoutflowE from financin( actiities isGa. ?=8!888b. ?25!588c. D?4!588Ed. D?19!588E

15. The followin( financial information is aailable for 7i(utti *ompany.

28A5 28A4*ash ? 2'!888 ?22!588$ccounts receiable ='!588 ==!888%uildin(s 1#2!888 #'!588$ccumulated depreciation D=8!888E D24!888E7and 45!888 =8!888

?241!588 ?129!888

$ccounts payable ? =9!888 ?==!8887on(-term notes payable '5!888 =8!888*ommon stoc" '5!888 45!888

etained earnin(s 52!588 21!888?241!588 ?129!888

$dditional informationGR et income for 28A5 was ?48!888.R o buildin(s were sold durin( 28A5.

$ll buildin( purchases made durin( 28A5 were made with cash.

oteG The end-of-year data are in the 7:T column.

+hat was the net cash proided by Dused inE financin( actiities6

a. ?=8!888b. ?#1!588c. ?##!588d. ?'5!888


32/49

1#. errald *ompanyIs financial statements show the followin( items.

,nsurance expense................................................................? =2!888*ost of (oods sold...................................................................C8!888,nentory decrease..................................................................=#!888/ain on sale of equipment......................................................1=!888@repaid insurance decrease.....................................................22!888,nterest reenue.......................................................................58!888Sales......................................................................................288!888iidends Ddeclared and paidE................................................48!888$ccounts payable decrease.....................................................1C!888,nterest receiable increase.....................................................2#!888epreciation expense..............................................................25!888

errald has no other reenues or expenses. +hat is errald3s net cash flow from oerating acti"ities6

a. ?152!888b. ?1'C!888c. ?112!888d. ?1=C!888

e. ?182!888f. ?12C!888(. ?18C!888h. ?#C!888


33/49

Hse the fo%%oing information in ansering $uestions 1* through 2.!

%elow are balance sheet and income statement data for )u Simon *ompany. @ote ?or the0a%ance sheet data, the end9of9year information is in the %eft co%umn.

%alance Sheet ata28A2 28A1

$ccounts @ayable........................................................................................................'8.................C5$ccounts eceiable................................................................................................158...............128$ccumulated epreciation.......................................................................................=88...............248*ash ....................................................................................................................128.................C8*ommon Stoc".........................................................................................................458...............418quipment.................................................................................................................'88...............C88,nentory...................................................................................................................188...............1457on(-term ebt............................................................................................................8...............=55@repaid ,nsurance........................................................................................................48...................8etained arnin(s Dendin( balance! after closin(E...................................................298.................55

,ncome Statement ata Dfor 28A2E

Sales .......................................................................................................................................=!888/ain on Sale of quipment..............................................................................................................=5*ost of /oods Sold................................................................................................2!888,nsurance xpense....................................................................................................#55epreciation xpense...............................................................................................188

Total xpenses 2!'55et ,ncome.....................................................................................................................................2C8

$dditional ,nformationGa. quipment with a boo" alue of ?=88 was sold durin( 28A2.b. $ll accounts payable relate to inentory purchases.

1'. *ompute the amount of *ash @aid for ,nentory @urchases in 28A2.

a. ?2!8=8b. ?2!8#8c. ?1!948d. ?1!9'8e. ?2!888f. ?2!845(. ?1!955h. ?2!815

1C. *ompute the amount of *ash *ollected from *ustomers durin( 28A2.

a. ?2!9'8b. ?=!8=8c. ?=!815d. ?2!9C5e. ?=!8=5f. ?2!9#5


34/49

19. *ompute the amount of *ash @aid for ,nsurance durin( 28A2.

a. ?#55b. ?#'8c. ?#48d. ?#25e. ?#C5f. ?#15(. ?#95

28. *ompute the tota%*$S :H PE:A58@C$*T,


35/49

24. *ompute the tota%*$S :H ?8@A@8@C$*T,


36/49

27. The financial statement data below are for *ompany .

8ncome &tatement

Sales ?'88*ost of (oods sold D458Eepreciation expense D188 E

et income ?158

7a%ance &heet

ndin( %e(innin($ccounts receiable '8 188,nentory 158 228$ccounts payable 25 18

*ompute *ompany $3s @$T,/ *$S :7+ for the year.

a. ?258 inflow

b. ?=#5 inflowc. ?225 inflowd. ?==5 inflowe. ?=85 inflowf. ?295 inflow(. ?=58 inflow

2C. The followin( computation of cash flow from operatin( actiities is for *ompany ). oteG*ompany ) pays for all of its inentory purchases in cash meanin( that the company has noaccounts payable.

8ncome &tatement Ad;ustments &tatement of ash

?%os

&a%es '. 9. R3=

ost of Coods &o%d (2+) 9+ (3)

4age Exense (1) R1+ (


37/49

29. *ompany A reported the followin( information for the year.

*ash from operatin( actiities 1!288 inflowet income C88*ash from financin( actiities 1!888 inflowTotal assets 5!888

*ash from inestin( actiities 2!888 outflow

*ompute *ompany A3s : *$S :7+ for the year.

a. ?1!288 inflowb. ?1!888 inflowc. ?2!288 inflowd. ?2!888 outflowe. ?1!888 outflowf. ?C88 outflow(. ?288 inflow

=8. *ompany + reported its operatin( cash flow computation usin( the indirect method! asfollows.

et income C88epreciation 1!888*han(e in inentory D5!888E*han(e in accounts receiable '!888*ash flow from operatin( actiities =!C88

+hich of the followin( statements is T re(ardin( *ompany +6

a. *ompany + (enerated ?'!888 in cash by allowin( its accounts receiable to ,*$S.b. *ompany + used ?5!888 in cash by allowin( its inentory to ,*$S.c. *ompany + (enerated ?1!888 in cash throu(h depreciation.


38/49

&o%utions

1! so%ution 7

2! so%ution 7

ne ay to get the correct anser

ost of goods so%d (+,)

8ncrease in in"entory (1+,)

8ncrease in accounts aya0%e .,

ash aid for in"entory (.*+,)

Another ay to get the correct anser

7eginning in"entory 12,

R Purchases WWW

9 Ending in"entory (13+,)

ost of goods so%d +,

Purchases must 0e +1+,

7eginning accounts aya0%e =,

9 ash ayments WWW

R @e urchases +1+,

Ending accounts aya0%e 1,

ash ayments must ha"e 0een .*+,

3! so%ution

et income 24=!888

P epreciation expense 55!888

P $ccounts receiable decrease #8!888

- @repaid rent increase D48!888E

- $ccounts payable decrease D45!888E

*ash flow from operations 2'=!888


39/49

.! so%ution D

5his easiest ay to do this one is to first comute net income and then to comute oerating cash

f%o using the indirect method

Sales =88!888

+a(e xpense D128!888E;ent xpense D'5!888E

epreciation expense D='!588E

et income #'!588

*omputation of operatin( cash flowG

et income #'!588

@lus depreciation expense ='!588

@lus accounts receiable decrease 54!888

7ess prepaid rent increase D==!888E

7ess wa(es payable decrease D=9!888E

*ash flow from operations C'!888

+! so%ution D

*ollections on accounts receiable 2=#!258

@ayments on inentory D1#C!'58E

@ayments for wa(es and salaries D'C!'58E

,ncome taxes paid D2'!888E

.tilities paid D#!'58E

,nterest paid on note to local ban" D5!#25E*ash from operatin( actiities D58!#25E

Dereciation exense of '22,+ is a non9cash exense and is ignored hen comuting oerating cash

f%o using the direct method!

5he items 0e%o are @5 oerating items

@ayments of diidends 11!258

@roceeds receied from sale of equipment 225!888

@roceeds from issuance of common stoc" 5#!258


40/49

=! &o%ution D

Entries on the de0it side of the accumu%ated dereciation account are associated ith e$uiment that

has 0een so%d! Entries to the credit side are associated ith dereciation exense for the eriod!

7ecause e Bno dereciation exense for the eriod and e Bno the 0eginning and ending

0a%ances in the account, e can infer the accumu%ated dereciation associated ith the e$uiment

that as so%d!

2,0003 eginning alance

00 +ereciation !ense

Sale o/ !&uiment6 1,4001,4003 !ning alance

631,400 32,000 8 00 - 1,400

Accumulate +ereciation

&ince e Bno the 0ooB "a%ue of the e$uiment so%d, e can 0acB into the historica% cost of the

e$uiment so%d! 5he sa%e of e$uiment decreases the PPUE account! 7ecause e Bno the ending

and 0eginning 0a%ances and e Bno the historica% cost of the e$uiment so%d, the urchases of

e$uiment 0ecomes the %ug figure for the 59account to 0a%ance! (Purchases of e$uiment increase

PPUE!)

eginning alance 7,00032,.00 Sale o/ !&uiment6

urc$ases66 ,0003!ning alance 7,4003

632,.00 31,200 book *alue 8 1,400 accumulate ereciation

663,000 37,400 - 7,000 8 2,.00

roert', lant, !&uiment

5he fo%%oing ;ourna% entry ou%d ha"e 0een made to record the sa%e of the e$uiment

ash 1,1

Accumu%ated Dereciation 1,.

oss on &a%e of E$uiment 1

Proerty, P%ant, U E$uiment 2,=


41/49

*! &o%ution

5he 0est ay to so%"e for urchases is to create the 59accounts for Accumu%ated Dereciation and for

Proerty, P%ant U E$uiment! (As a side note, the fact that accumu%ated dereciation ending

0a%ance and PPUE urchases are e$ua% is coincidenceXthis i%% not a%ays 0e the caseY)

50,0003 eginning alance2,000 +ereciation !ense

Sale o/ !&uiment6 7,000

Sale o/ !&uiment66 ,00042,0003 !ning alance

6 7,000 9,000 $istorical cost - 2,000 book *alue

66 ,000 ,000 $istorical cost - 0 book *alue "/ull' ereciate#

"(ote: T$e ebits to accumulate ereciation coul be nette to 310,000#

Accumulate +ereciation

8n this ro0%em, dereciation exense is not gi"en, 0ut you can comute it using the other data gi"en!

6oe"er, you donJt need to comute dereciation exense to do the ro0%em!

eginning alance 70,0003 9,000 Sale o/ !&uiment6

,000 Sale o/ !&uiment6

urc$ases66 42,0003!ning alance 100,0003

6T$is number coul be nette to 312,000

6642,000 100,000 - 70,000 8 9,000 8 ,000

roert', lant, !&uiment

5he 0est ay to see here the so%ution comes from is 0y using 59accounts! f a%% the accounts %isted,

on%y 7ui%dings and and imact the net cash ro"ided 0y in"esting acti"ities!

42,000

urc$ases6 55,000 0 uilings Sol

97,000

655,000 97,000 - 42,000

Buildings

20,000

urc$ases6 15,000

5,000

615,000 5,000 - 20,000

and

ash from 8n"esting Acti"ities

ash outf%o to Purchase 7ui%dings ('++,)

ash outf%o to Purchase and (1+,)

5ota% ash for 8n"esting Acti"ities ('*,)


42/49

! so%ution

5he first thing to do is c%assify the "arious cash receits and ayments as oerating, financing, or

in"esting cash f%os!

!as" re#ei$t or !as" %ayment &mount !lassi'i#ation

Cas$ receit /rom t$e issuance o/ stock, 40,0003 ;inancingCas$ recei*e /rom customers, 20,000


43/49

12! so%ution

7eginning retained earnings '=.,3.

R @et income R 12+,

9 Di"idends 9 WWW

G Ending retained earnings '+,+=1

ash from financing acti"ities

ash recei"ed from issuance of ne shares ('+1,+ 9 '3,=


44/49

1+! so%ution

7eginning retained earnings '21,

R @et income R .,

9 Di"idends 9 WWW

G Ending retained earnings '+2,+

21,0003 eg al

40,000 (et )ncome

+i*iens ai6 8,/0052,5003 !n al

8,/00 1 40,000 2,000 - /2,/00

Retained Earnings

ash from financing acti"ities

ash recei"ed from issuance of ne shares ('*+, 9 '.+,) '3,

ash recei"ed from ne %ong9term %oans ('*+, 9 '3,) .+,

ash aid for di"idends (see comutations a0o"e) (


45/49


46/49

1

&a%es 3,

8ncrease in accounts recei"a0%e (3)

5ota% 2,*

1! so%ution C

8nsurance exense (=++)

8ncrease in reaid insurance (.)

5ota% (=+)

2! so%ution

8ncome &tatement Ad;ustments &tatement of

ash ?%os

&a%es ' 3, (3) 2,*

Cain on &a%e of

E$uiment

3+ (3+)

ost of Coods &o%d (2,) R.+

(1+)

(1,*)

8nsurance Exense (=++) (.) (=+)

Dereciation

Exense

(1) R1

@et 8ncome ' 2


47/49

22! so%ution 6

ash PA8D to urchase ne roerty, %ant, and e$uiment

ost must ha"e 0een '3.!

7ooB "a%ue G '3 G ost I Accumu%ated Dereciation

'3 G ost 9 'ost G '3.

Proerty, P%ant, and E$uiment Accumu%ated Dereciation

999999999999999999999999999999999999999999999999 9999999999999999999999999999999999999999999999999

7egin


48/49

2+! so%ution

5here are on%y fi"e otentia% financia% acti"ities

1! Amount recei"ed through ne 0orroing!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1+

2! Amount aid to reaid o%d %oans!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!(32)

3! Amount recei"ed from ne stocBho%der in"estment!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1

.! Amount aid for cash di"idends!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!(=+)+! Amount aid to reurchase shares of stocB!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!WWWWW

5ota% cash from financing acti"ities!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!()

Amount aid to reurchase shares of stocB G (1


49/49

2*! so%ution 7

8ncome &tatement Ad;ustments &tatement of ash

?%os

&a%es '* R3 R*3

ost of Coods &o%d (.+) R*R1+

(3=+)

Dereciation Exense (1) R1

@et 8ncome '1+ R3=+

2

An accounts recei"a0%e DE:EA&E ou%d create an increase in cash f%o! 5he matrix shos 9.!

An in"entory DE:EA&E ou%d create an increase in cash f%o! 5he matrix shos 9+!

A ages aya0%e 8@:EA&E ou%d create an increase in cash f%o! 5he matrix shos R1+, so this is

correct!

2! so%ution ?

?:EE A&6 ?4 G erating cash f%o %us in"esting cash f%o

'1,2 inf%o R '2, outf%o G '

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