Financial Accounting 4th Edition by Robert Libby, Patricia Libby , Daniel G Short -Test Bank

Financial Accounting 4th Edition by Robert Libby, Patricia Libby , Daniel G Short -Test Bank

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Sample Questions Are Posted Below

ch05
Student: ___________________________________________________________________________
1. The income statement, balance sheet and cash flow statement all are prepared on the accrual basis.
True False
2. The balance sheet and the cash flow statement both report on the causes of the changes in the cash of the
business.
True False
3. The net cash inflow or outflow for the year is the same amount as the increase or decrease in cash and
cash equivalents for the year.
True False
4. The cash flow statement is dated exactly like the income statement but unlike the balance sheet.
True False
5. Short-term investments in marketable equity securities are considered the equivalent of cash (i.e., they are
combined with cash) in preparing the cash flow statement.
True False
6. Cash equivalents are highly liquid investments with original maturities of less than six months.
True False
7. When the cash flow statement is prepared in conformity with GAAP there is only one acceptable way to
measure and report cash flows from operating activities.
True False
8. The net cash inflow (or outflow) from operating activities is computed by adjusting the reported accrual
net income for noncash revenue and noncash expense items.
True False
9. If there is a change in cash, there will be a change in one or more noncash accounts.
True False
10. When a cash dividend is paid, the cash outflow is classified as an operating activity.
True False
11. Cash equivalents are defined as short-term, highly liquid investments that are readily convertible into
known amounts of cash and are so near their maturity that there is insignificant risk of changes in their
value due to interest rate changes.
True False
12. The cash flow statement is the only financial statement prepared on the cash basis of accounting rather
than on the accrual basis of accounting.
True False
13. Only investments with original maturities of less than three months at the date of purchase qualify as cash
equivalents.
True False
14. Cash collected from customers is a cash flow from a financing activity.
True False
15. The amortization of a patent is treated in a similar manner to depreciation of a building when preparing
the operating activities section of the cash flow statement using the indirect method.
True False
16. The payment to shareholders for repurchase of treasury shares is a cash flow from a financing
activity.
True False
17. The payment of interest on a note payable is a cash flow from an operating activity.
True False
18. Dividends collected from a long-term investment are cash flows from investing activities.
True False
19. Collection of principal on a note receivable is a cash flow from investing activities.
True False
20. Loans to other companies (notes receivable) are cash flows from investing activities.
True False
21. The date in the heading of a cash flow statement should say, “At December 31, 20A,” rather than “For the
Year Ended December 31, 20A.”
True False
22. Very few companies use the direct method for disclosing their cash flows from operating activities.
True False
23. The net increase (or decrease) in cash that is reported on the cash flow statement should be the same as
the change in the balance of the cash account for the two most recent years on the comparative balance
sheets.
True False
24. The sales revenue reported on the income statement for 20A totaled $96,000, of which one third was on
credit. The 20A beginning balance of accounts receivable was zero and the 20A ending balance reported
on the balance sheet was $10,000; therefore, the 20A cash inflow from customer sales was $86,000.
True False
25. Expenses reported on the income statement for 20A (the first year of operations), totaled $60,000, which
included depreciation expense of $8,000, and wages payable increased to $3,000 by the end of 20A.
Therefore, the 20A cash outflow for expenses was $71,000.
True False
26. Amortization expense does not cause a cash outflow for the current period; therefore, it should never be
shown on the cash flow statement.
True False
27. In order to prepare the cash flow statement, the accountant must analyze current asset and current liability
balances.
True False
28. The indirect method for reporting cash flows from operating activities presents a conversion of profit to
net cash flow from operating activities.
True False
29. Amortization expense has the immediate effect of increasing the cash account.
True False
30. Increases in current liabilities are added to net income while decreases in current liabilities are subtracted
from net income to derive the net cash flows.
True False
31. The quality of earnings ratio (Cash Flow from Operating Activities ¸ Profit) measures the portion of profit
that was generated in cash.
True False
32. Investing activities include cash proceeds from the sale of property, plant, and equipment, and short- and
long-term investments.
True False
33. A higher quality of income ratio indicates that it is less likely that the company is using aggressive
revenue recognition policies to increase profit.
True False
34. Investing activities reported on the statement of cash flows include cash payments to acquire property,
plant, and equipment, and short- and long-term investments.
True False
35. The capital acquisitions ratio (Cash Flow from Operating Activities ¸ Cash Paid for Property, Plant, and
Equipment) reflects the portion of purchases of property, plant, and equipment financed from operating
activities without the need for outside debt or equity financing or the sale of other investments or other
long-term assets.
True False
36. A low capital acquisitions ratio indicates a higher need to obtain outside financing to expand property,
plant, and equipment assets.
True False
37. Cash payments associated with interest relate to operating activities.
True False
38. Non-cash investing and financing activities are disclosed only as supplemental disclosures to the
statement of cash flows in either narrative or schedule form.
True False
39. Wish Corporation acquired a computer for $15,000 and paid for it in full by issuing 1,000 shares of its
own common shares, par $10 (current market price $15 share). This transaction should not be reported on
the cash flow statement because cash was neither paid out nor received.
True False
40. A transaction that does not cause an inflow or outflow of cash should be reported on the cash flow
statement only if it is an adjustment to convert accrual income to the cash basis.
True False
41. Direct exchanges of bonds payable for preferred shares must be reported on the cash flow statement.
True False
42. Billton Company purchased a machine in the current year for $18,000. Payment included cash, $5,000;
a one-year note payable, $5,000; and a 2-year, $8,000 note payable. This decreases cash by $5,000 in the
current year.
True False
43. When using the indirect method, a loss on the sale of equipment should be added to net income to derive
cash flows from operating activities.
True False
44. Which one of the following items is not generally used in preparing a cash flow statement?
A. Comparative balance sheets
B. Current statement of earnings
C. Additional information
D. Adjusted trial balance
45. Which of the following transactions would not create a cash flow?
A. The company purchased some of its own shares from a shareholder.
B. Amortization of patent for the period.
C. Payment of a cash dividend.
D. Sale of equipment at book value (i.e. no gain or loss).
46. Which of the following transactions is not a direct source of cash?
A. Disposal of inventory for cash.
B. Borrowing cash.
C. Sale and issuance of shares for cash.
D. Sale of services on credit.
47. Which of the following transactions is not a direct use of cash?
A. Acquisition of inventory for cash.
B. Purchase of treasury shares with cash.
C. Exchanges of bonds payable for land.
D. Cash dividend paid.
48. How should the cash flow statement be dated?
A. December 31, 20X.
B. At Year-End December 31, 20X.
C. For the Year Ended December 31, 20X.
D. At December 31, 20X.
49. The category that is generally considered to be the best measure of a company’s ability to continue as a
going concern is
A. cash flows from investing activities.
B. cash flows from financing activities.
C. cash flows from operating activities.
D. usually different from year to year.
50. Which of the following transactions is not a typical use of cash?
A. Payment of short-term debt with cash.
B. Purchase of treasury shares for cash.
C. Acquisition of a building for cash.
D. Sale of equipment for less than book value.
51. Which of the following would not be a cash flow from investing activities?
A. Purchase of long-term investments.
B. Sale of a patent.
C. Collection of principal of a note receivable.
D. Collection of interest revenue on a long-term note.
52. Which of the following would not be a cash flow from financing activities?
A. Issuance of common shares.
B. Borrowing on a long-term note payable.
C. Repayment of principal on a long-term note payable.
D. Collection of a cash dividend.
53. Which of the following is a cash flow from operating activities?
A. Purchase of merchandise for resale.
B. Sale of a piece of land no longer used in operations.
C. Sale of long-term investments in common shares.
D. Payment of a note payable.
54. Which of the following would not be a cash equivalent?
A. A $10,000, 30 day certificate of deposit.
B. 500 shares of RIM shares.
C. A three-month Treasury bill.
D. A ten-year Treasury note purchased two months before maturity.
55. Which of the following is a cash inflow from financing activities?
A. proceeds from selling investments in equity securities of another company.
B. proceeds from selling equipment.
C. proceeds from issuance of bonds payable.
D. receipt of interest payments.
56. For an investment to qualify as a cash equivalent, it must be readily convertible to a known amount of
cash and which of the following?
A. it must be identified as a cash equivalent on the income statement.
B. it must mature within 4 months.
C. the investment must have a known foreign exchange rate.
D. must be sufficiently close to its maturity date so that its market value is relatively insensitive to interest
rate changes.
57. A cash inflow from operating activities includes which of the following?
A. collection of the principal of a loan.
B. collection of sales price of equipment used in operations of the business.
C. proceeds from issuance of notes payable.
D. receipt of interest on an investment.
58. Which of the following statements about the cash flow statement is correct?
A. A company with a net loss on the income statement will always have a net cash outflow from
operating activities.
B. A purchase of equipment is classified as a cash inflow from investing activities.
C. Cash dividends received on equity investments are classified as cash flows from operating activities.
D. Cash dividends paid are classified as cash flows from operating activities.
59. Which of the following items about the cash flow statement is correct?
A
.
Noncash expenses such as amortization are deducted from net income with the indirect method in
computing cash flows from operating activities.
B. Cash equivalents are highly liquid investments with maturities at the date of purchase of less than three
months.
C. The acquisition of land by issuing bonds payable would not appear on the cash flow statement.
D. Cash paid for interest would be classified as a financing cash flow.
60. Which of the following statements about the cash flow statement is correct?
A
.
The sale of an investment in bonds for less than the carrying value of the investment would be reported
as cash outflow from financing activities.
B. The sale and issuance of common shares for cash would be reported as a cash inflow from financing
activities.
C.The retirement of bonds payable by the issuance of common shares would be reported as a cash inflow
from investing activities.
D. Collecting cash interest revenue on a note receivable would be reported as a cash inflow from
investing activities.
61. Toga Corporation reported net earnings of $50,000 for the year. During the year, accounts receivable
increased by $8,000, accounts payable decreased by $4,000 and depreciation expense of $6,000 was
recorded. Net cash provided by operating activities for the year, using the indirect method, is
A. $54,000.
B. $44,000.
C. $56,000.
D. $50,000.
62. Winn Company’s 20B income statement reported total revenues, $110,000, and total expenses (including
$10,000 amortization), $70,000 (i.e., a net income of $40,000). The 20B balance sheet reported the
following: accounts receivable–beginning balance, $16,000 and ending balance, $14,000; wages payable-
-beginning balance, $2,000 and ending balance, $1,500. Therefore, based only on this information, the
20B net cash inflow from operating activities was which of the following?
A. $48,500.
B. $50,000.
C. $51,500.
D. $59,500.
63. Jackson Company gathered the following data to prepare its 20B cash flow
statement:
Based only on the above data, the net cash inflow from operating activities during 20B was which of the
following?
A. $43,000.
B. $45,000.
C. $51,000.
D. $53,000.
64. Matlock Company reported total sales revenue of $55,000 and total expenses amounting to $45,000
(i.e., net income $10,000) on its income statement for the year ended December 31, 20B. During 20B,
accounts receivable decreased by $4,000, merchandise inventory decreased by $6,000, accounts payable
increased by $2,000 and amortization of $8,000 was recorded. Therefore, based only on this information,
the net cash flow from operating activities for 20B was which of the following?
A. $10,000.
B. $18,000.
C. $19,000.
D. $30,000.
65. Allen Company reported total sales revenue of $150,000 and total expenses of $152,000 (i.e., a net loss
of $2,000) for the year ended December 31, 20D. During 20D, accounts receivable decreased by $1,000,
trade payables increased by $5,000, wages payable increased by $3,000, and $18,000 in amortization
expense was recorded. Assuming no other adjustments are needed, what was the “net cash flow from
operating activities” for 20D (parentheses indicate net cash outflow)?
A. ($1,000).
B. $23,000.
C. $25,000.
D. $29,000.
66. Assume the 20D income statement reported total sales revenue of $160,000. The 20C-20D, comparative
balance sheets showed that accounts receivable increased by $10,000. What was the “cash inflow from
customers” for 20D?
A. $140,000.
B. $150,000.
C. $160,000.
D. $170,000.
67. Restless Company’s 20B income statement reported total sales revenue of $100,000. The 20A-20B,
comparative balance sheets showed that accounts receivable decreased by $10,000. What were the
20B “cash receipts from customers”?
A. $ 80,000.
B. $ 90,000.
C. $100,000.
D. $110,000.
68. WT Company reported sales revenue of $100,000 and total expenses of $90,000 (including amortization)
for the year ended December 31, 20A. During 20A, accounts receivable decreased by $4,000,
merchandise inventory increased by $3,000, accounts payable increased by $2,000, and amortization
expense of $6,000 was recorded. Assuming no other data are needed, what was the net cash inflow from
operating activities for 20A?
A. $19,000.
B. $20,000.
C. $21,000.
D. $24,000.
69. Accounts receivable arising from sales to customers amounted to $35,000 and $40,000 at the beginning
and end of the year, respectively. Earnings reported on the statement of earnings for the year were
$120,000. Exclusive of the effect of other adjustments, the cash flows from operating activities, prepared
using the indirect method, is
A. $120,000.
B. $155,000.
C. $115,000.
D. $125,000.
70. ABC Company reported total sales revenue of $80,000 and total expenses of $72,000 (i.e., net income
$8,000) for the year ended December 31, 20X. During 20X, accounts receivable increased by $3,000,
merchandise inventory decreased by $2,000, accounts payable increased by $1,000, and $5,000 in
amortization expense was recorded. Assuming no other adjustments to net income are needed, what was
the net cash inflow from operating activities?
A. $10,000.
B. $11,000.
C. $13,000.
D. $19,000.
71. The cash flow statement (indirect method) reports amortization expense as an addition to net income
because amortization does which of the following?
A. causes an inflow of funds for the replacement of assets.
B. reduces reported net income of the period but does not involve an outflow of cash for that period.
C. is a direct use of cash.
D. reduces reported net income and causes an inflow of cash.
72. To prepare a cash flow statement (indirect method), which of the following items should be added back to
net income to derive “cash flow from operating activities”?
A. Amortization expense.
B. Increase in accounts receivable.
C. Gain on a sale of equipment.
D. Decrease in accounts payable
73. Travis Company reported net income for 20B of $20,000, building amortization expense of $6,000,
and amortization expense (patent) of $5,000. Also, accounts payable increased by $7,000 and inventory
decreased by $2,000. What was the amount of “cash flows from operating activities” for 20B?
A. $34,000.
B. $35,000.
C. $36,000.
D. $40,000.
74. The 20B income statement of Dunn Company reported total sales revenue of $106,000 and total
expenses of $108,000 (i.e., net loss, $2,000). Expenses were: building amortization, $10,000 and patent
amortization, $5,000. There was an increase in inventory of $1,000. What was cash flow from operating
activities during 20B (parentheses indicate outflow)?
A. ($3,000).
B. $ 7,000.
C. $12,000.
D. $14,000.
75. Which of the following is not true of the direct method of preparing a cash flow statement?
A. it gives the user a sense of the magnitude of gross dollars flowing in and out of the company.
B. it has the same cash flows from investing and financing activities as the indirect method.
C. it has a different net cash inflow (outflow) from operating activities than the indirect method.
D. it reports the same net increase or decrease in cash as the indirect method.
76. The financial statements for Ozzie Company show the
following:
How much cash was paid for merchandise?
A. $117,000.
B. $119,000.
C. $121,000.
D. $124,000.
77. The 20B income statement for Ryan Corporation showed the
following:
What was the cash flow from operating activities?
A. $66,000.
B. $70,000.
C. $82,000.
D. $86,000.
78. Which statement regarding the indirect method is false?
A. Amortization expense is added back to net income.
B. An increase in accounts receivable is added to net income.
C. An increase in accounts payable is added to net income.
D. An increase in merchandise inventory is subtracted from net income.
79. The financial statements of Juliet Company show the
following:
How much cash was collected from customers?
A. $148,000.
B. $150,000.
C. $154,000.
D. $160,000.
80. Which of the following statements about cash flows from operating activities, in a cash flow statement
prepared under the indirect method, is correct?
A. An increase in accounts receivable would be subtracted from net income.
B. An increase in salaries payable would be subtracted from net income.
C. An increase in inventory would be added to net income.
D. Depreciation expense would be subtracted from net income.
81. Which of the following statements about the quality of income ratio is true?
A. When sales are growing, receivables and inventory normally increase faster than accounts payable so
the ratio increases.
B. Seasonal variations in sales have no impact on the quality of income ratio.
C. Failure to accrue appropriate expenses will inflate net income and reduce the quality of income ratio.
D. Failure to accrue appropriate expenses will inflate net income and increase the quality of income ratio.
82. Which of the following statements about the quality of income ratio is false?
A. An increase in operating assets and a decrease in liabilities will reduce operating cash flows, thereby
reducing the ratio.
B. Seasonal variations in sales and purchases of inventory can cause wide deviations in the quality of
income ratio.
C
.
When sales are growing, receivables and inventory normally increase at a faster rate than accounts
payable often causing operating cash flows to be less than income.
D. Seasonal variations in sales have no impact on the quality of income ratio.
83. In 2010, The W D Company reported net income of $1.3 billion and cash flow from operations of $5.6
billion. In 2009, their net income was $1.9 billion and cash flow from operations was $5.1 billion. What
were their quality of income ratios for 2010 and 2009 respectively?
A. .23 and .37
B. .91 and 1.46
C. 1.10 and .68
D. 4.31 and 2.68
84. In 2010, C Co. reported a quality of income ratio of 1.60. In 2009 and 2008 the ratio was .97 and .98
respectively. Which of the following was the most likely cause of the large increase in the ratio?
A. An increase in current assets such as receivables and inventory.
B. An increase in accounts payables and accrued liabilities.
C. An increase in sales revenue while income remained the same.
D. None of these is a likely cause.
85. If a loss of $20,000 is incurred in selling (for cash) office equipment that cost $90,000 and had
accumulated depreciation of $22,500, the total amount reported in the investing activities section of the
cash flow statement is
A. $70,000.
B. $67,500.
C. $47,500.
D. $87,500.
86. Typical financing activities do NOT include the following:
A. Proceeds from issuance of short- and long-term borrowings.
B. Principal payments on short- and long-term borrowings.
C. Purchase of short- or long-term investments for cash.
D. Purchase of shares for retirement.
87. In 2010, C Co. disclosed cash paid for property, plant and equipment of $1,069 million and cash flow
from operations of $3,883 million. Their average property, plant and equipment from the comparative
balance sheet was $3,968 million. Compute C Co.’s capital acquisitions ratio for 2010.
A. .28
B. .77
C. .98
D. 3.63
88. In the years 2003-2006, B Co.’s capital acquisitions ratio was 2.74 and from 2007-2010, it was 1.24.
From 2007-2010, R Co.’s ratio was .30. Which of the following statements about B Co.’s capital
acquisitions ratio is correct?
A
.
B Co.’s capital acquisitions ratio is relatively low and indicates inability to finance property, plant and
equipment with cash flow from operations.
B. It appears that R Co. is more aggressive about investing in additional property, plant and equipment
than is B Co.
C. B Co.’s ratio has improved in the period 2007-2010.
D. It appears that B Co. is more aggressive about investing in additional property, plant and equipment
than is R Co.
89. Randy, Inc., issued $50,000 of bonds, paid cash dividends of $8,000, sold long-term investments for
$12,000, received $5,000 of dividend revenue, purchased treasury shares for $15,000, and purchased new
equipment for $19,000. What is the net cash flow from financing activities?
A. ($20,000).
B. $27,000.
C. $70,000.
D. $80,000.
90. A company acquired some land (independently appraised at $12,000) and paid for it by issuing 1,000
shares of its common shares (par $10 per share; no market price was quoted). How should this be
reported on the cash flow statement?
A. Report $12,000 as inflow and outflow of cash.
B. Report $12,000 as an inflow of cash.
C. Should not be reported on the cash flow statement.
D. Report on a schedule of significant noncash transactions if it is material.
91. Lori Company sold an operational asset, a machine, for cash. It originally cost $20,000. The accumulated
amortization at the date of disposal was $15,000. A gain on the disposal of $2,000 was reported. What
was the cash inflow from this transaction?
A. $3,000.
B. $4,000.
C. $5,000.
D. $7,000.
92. Nelson Company collected the following data in its accounting records in
20B:
No new equipment was purchased during the year. What was the cash inflow from the sale of equipment
in 20B?
A. $ 600.
B. $ 900.
C. $1,000.
D. $3,900.
93. For each of the following items, indicate whether they would appear in the operating, investing,
or financing activities section of the cash flow statement. Place a check mark in the appropriate
column for each transaction. If neither an operating, investing, or financing activity is
appropriate, place a check mark in the “none” column. Assume the indirect method is used for
reporting.
94. Using the indirect method, calculate the amount of cash flows from operating activities from the
following data:
95. The comparative balance sheets for Hirj Inc. appear
below:
Additional information:
1. Net earnings for the year ending December 31, 2010 were $27,000.
2. Cash dividends of $13,000 were declared and paid during the year ended December 31, 2010.
3. Long-term investments that had a carrying amount of $23,000 were sold for $18,000 in 2010.
Required: Prepare a cash flow statement for the year ended December 31, 2010, using
the indirect method.
96. Use the following information to prepare a cash flow statement (direct method) for Yoyo Corporation for
the year ended December 31, 20B.
97. Morgan Company is preparing a cash flow statement using the indirect method. The following data are
available:
98. Reba Company reported net income of $10,000 for 20A. Additional 20A information is as
follows:
99. McIntire Company reported net income of $40,000 which included amortization expense and
depletion expense of $21,000 and $18,000, respectively. The following changes also occurred during
20C
100.Complete the following cash flow statement using the indirect
method:
101.
The following changes were noted from the balance sheet: accounts receivable increased $8,000;
inventory increased $4,000; accounts payable increased $6,000; prepaid expense decreased $2,000;
accrued liability decreased $5,000; and interest payable increased $1,000
Required: Prepare the operating activities section of the cash flow statement using the indirect
method.
102.The following information was reported from the cash flow statement
for The W D Company for the years 2008 through 2010 in millions of
dollars:
A. Calculate the quality of income ratio for the years 2008 through
2010.
B. Interpret the quality of income ratio for The W D Company for the three year period.
103.C Co. reported the following information from their cash flow statement in millions of
dollars:
(A) Calculate the quality of income ratio for C Co for the three
years:
(B) In 2009, P Co. reported a quality of income ratio of 1.61. Compare C Co.’s quality of income ratio for
that year to their competitor’s ratio.
104.The following information was available from the financial statements
of C Co. Company for the years 2009 and 2010 in millions of
dollars:
A. Calculate the capital acquisitions ratio for C Co. for the two
years:
B. Comment on the sufficiency of the capital acquisitions ratio for the two years.
105.The following information is provided from the cash flow statement
for Toys 4 U for the years 2006 through 2010 in millions of
dollars:
(A) Calculate the capital acquisitions ratio for Toys 4 U for the five year period from 2006 to
2010.
(B) Comment on the capital acquisitions ratio for Toys 4 U for the five years.
106.While preparing a cash flow statement, you encountered the following transaction:
February 1, 20A: Zorro Corporation acquired a small office building in exchange for 5,000 shares of its
own common shares; par value $10 per share; market value $15 per share.
(a) Should this transaction be included in the calculations on the cash flow statement or shown in the
notes?
(b) Explain your answer.
107.Match each activity below with the proper classification by inserting the proper capital letter in the space
to the left.
1. Sales of operational assets (used in the business) Operating ____
2. Borrowing cash from the bank Financing ____
3. Collection of interest on a note receivable Investing ____
4. Payment of cash dividends Financing ____
5. Purchase of operational assets for cash Financing ____
6. Issuance of shares for cash Financing ____
7. Payment of debt principal with cash Investing ____
8. Collections of dividends on long-term investments Operating ____
108.Indicate the proper classification for each of the transactions by inserting the proper letter in the space to
the left.
1. Declared a cash dividend Not included in the cash
flow statement
__
__
2. Purchased land for cash Financing Activities __
__
3. Paid interest on a note payable Schedule of non-cash
transactions
__
__
4. Issued shares for a new machine Financing Activities __
__
5. Purchased treasury shares and gave a
long-term note payable
Financing Activities __
__
6. Purchased land with a short-term note
payable
Financing Activities __
__
7. Purchased shares in another company Operating Activities __
__
8. Purchased treasury shares for cash Schedule of non-cash
transactions
__
__
9. Borrowed cash on a short-term note Schedule of non-cash
transactions
__
__
10. Borrowed cash on a long-term note Investing Activities __
__
11. Paid a previously declared cash
dividend
Investing Activities __
__
ch05 Key
1. FALSE
2. FALSE
3. TRUE
4. TRUE
5. FALSE
6. FALSE
7. FALSE
8. TRUE
9. TRUE
10. FALSE
11. TRUE
12. TRUE
13. TRUE
14. FALSE
15. TRUE
16. TRUE
17. TRUE
18. FALSE
19. TRUE
20. TRUE
21. FALSE
22. TRUE
23. TRUE
24. TRUE
25. FALSE
26. FALSE
27. TRUE
28. TRUE
29. FALSE
30. TRUE
31. TRUE
32. TRUE
33. TRUE
34. TRUE
35. TRUE
36. TRUE
37. TRUE
38. TRUE
39. TRUE
40. FALSE
41. TRUE
42. TRUE
43. TRUE
44. D
45. B
46. D
47. C
48. C
49. C
50. D
51. D
52. D
53. A
54. B
55. C
56. D
57. D
58. C
59. B
60. B
61. B
62. C
63. C
64. D
65. C
66. B
67. D
68. A
69. C
70. C
71. B
72. A
73. D
74. C
75. C
76. B
77. D
78. B
79. D
80. A
81. C
82. D
83. D
84. B
85. C
86. C
87. D
88. B
89. B
90. D
91. D
92. B
93.
94.
95.
The company sold equipment and accepted a note for $10,000.
Schedule of Noncash Investing and Financing Activities:
96.
97. $30,000 + $18,000 – $5,000 – $10,000 + $10,000 – $7,000 = $36,000
98. $10,000 + $2,000 + $400 + $200 + $100 + $300 = $13,000
99. $40,000 + $21,000 + $18,000 + $10,000 + $5,000 + $7,000 – $10,000 = $91,000
100.
101.
(B) The W D Company had a strong quality of income ratio for all three years. They were able to generate positive cash flow from a low of $2.59
for every dollar in net income earned to a high of $4.30 of cash for every dollar of net income. The ratio took a big jump in 2010 primarily caused
by an increase in cash flow from operations and a decrease in net income of over a half billion dollars. The change in net income was the major
influence on the increase in the quality of income ratio.
102. (A) (1) 4.30, (2) 2.76, (3) 2.59.
(B) In 2009, C Co.’s quality of income ratio was .97 compared to P Co’s ratio of 1.61. C Co.’s ratio was much lower but it was still close to a ratio
of one, so overall its ratio was adequate. P Co.’s ratio showed their ability to generate better cash flow from their earnings than did C Co.; however,
by 2010, it appears as if C Co.’s ratio has improved and is in line with P Co’s 2009 ratio.
103. (A) (1) 1.60, (2) .97, (3) .98.
(B) The ratio appears to be sufficient in both years. C Co. is generating $3.63 of cash flow from operations for every $1 they are investing in new
plant and equipment as of 2010. This indicates they do not need to borrow or issue shares to secure external financing for their expansion of plant
and equipment assets.
104. (A) (1) 3.63, (2) 3.98.
105. (A) (1) 2.58, (2) 1.03, (3) 1.79, (4) .53, (5) 1.01. (B) The capital acquisitions ratio for Toys 4 U has been erratic over the five years ranging
from a low of .53 to a high of 2.58. During the five years from 2006 to 2010, the company had been investing between $586 million to $373
million in property, plant and equipment. However, their cash flow from operations was very erratic ranging from a high of $964 million in 2010
to a low of $250 million in 2007. The ratio has been affected not only by the level of investments in these long-lived assets, but by the erratic
inflow of cash from operations. In 2010, the ratio was at its highest point at 2.58 caused by a decrease in the level of investment, $373 million,
while cash inflow was at its peak of $964 million.
(b) Because it is a direct exchange, it is reported on the cash flow statement in the Schedule of Noncash Investing and Financing Transactions
as “Office building, acquired for 5,000 shares of Zorro’s common shares, $75,000.
106. (a) Notes
107. Collection of interest on a note receivable :: Operating and Payment of debt principal with cash :: Financing and Sales
of operational assets (used in the business) :: Investing and Payment of cash dividends :: Financing and Issuance of shares for
cash :: Financing and Borrowing cash from the bank :: Financing and Purchase of operational assets for cash :: Investing and Collections of
dividends on long-term investments :: Operating
108. Declared a cash dividend :: Not included in the cash flow statement and Paid a previously declared cash dividend :: Financing
Activities and Issued shares for a new machine :: Schedule of non-cash transactions and Borrowed cash on a short-term note :: Financing
Activities and Borrowed cash on a long-term note :: Financing Activities and Purchased treasury shares for cash :: Financing
Activities and Paid interest on a note payable :: Operating Activities and Purchased treasury shares and gave a long-term
note payable :: Schedule of non-cash transactions and Purchased land with a short-term note payable :: Schedule of non-cash
transactions and Purchased shares in another company :: Investing Activities and Purchased land for cash :: Investing Activities
ch05 Summary
Category # of Questions
Difficulty: Easy 20
Difficulty: Hard 11
Difficulty: Medium 77
Learning Objective: 1 51
Learning Objective: 2 28
Learning Objective: 3 8
Learning Objective: 4 8
Learning Objective: 5 6
Learning Objective: 6 2
Learning Objective: 7 6
Libby – Chapter 05 108