21
47) Siskiyou, Inc. has total current assets of $1,200,000; total current liabilities of $500,000; and long-term
assets of $800,000. How much is the firm’s Total Liabilities & Equity?
A) $2,500,000
B) $1,300,000
C) $2,000,000
D) $1,800,000
Keywords: Balance Sheet, Total Liabilities & Equity
Learning Obj.: L.O. 3.2
AACSB: Analytical Thinking
48) Siskiyou, Inc. has total current assets of $1,200,000; total current liabilities of $500,000; long-term assets
of $800,000; and long-term debt of $600,000. How much is the firm‘s total equity?
A) $1,200,000
B) $800,000
C) $900,000
D) $2,000,000
Keywords: Balance Sheet, Equity
Learning Obj.: L.O. 3.2
AACSB: Analytical Thinking
22
49) Prepare a balance sheet using the information given below. Make sure to identify current assets, net
fixed assets, total assets, current liabilities, long-term debt, total equity, and total liabilities and equity.
Gross fixed assets
$40,000
Cash
$18,000
Other assets
$5,000
Accumulated depreciation
$30,000
Common stock
$43,000
Short-term notes payable
$12,000
Accounts payable
$35,000
Inventories
$122,000
Retained earnings
$100,000
Accounts receivable
$60,000
Long-term notes payable
$10,000
Long-term bonds payable
$15,000
Sales
$300,000
Cost of goods sold
$150,000
Depreciation expense
$3,000
Cash
$18,000
Accounts payable
$35,000
Accounts receivable
60,000
Short-term notes payable
12,000
Inventories
122,000
Current liabilities
47,000
Current assets
200,000
Long-term notes payable
10,000
Gross fixed assets
40,000
Long-term bonds payable
15,000
Less: Accumulated
Depreciation
(30,000)
Long-term debt
25,000
Net fixed assets
10,000
Common stock
43,000
Other assets
5,000
Retained earnings
100,000
Total Equity
143,000
Total Assets
$215,000
Total Liabilities & Equity
$215,000
Diff: 2 Page Ref: 66
Keywords: Balance Sheet, Current Assets, Current Liabilities, Long-term Debt, Net Fixed Assets, Total Assets, Total
Equity, Total Liabilities & Equity
Learning Obj.: L.O. 3.2
AACSB: Analytical Thinking
23
50) What are a firm’s two principal sources of financing? Of what do these sources consist?
Keywords: Financial Structure
Learning Obj.: L.O. 3.2
AACSB: Reflective Thinking
Learning Objective 3.3
1) Generally accepted accounting principles (GAAP) require finance statements prepared on a cash basis
because these statements are most useful for investors and managers.
Keywords: Cash Basis, Accrual Basis, GAAP
Learning Obj.: L.O. 3.3
AACSB: Reflective Thinking
2) A company with negative net income will also have negative operating cash flow.
Keywords: Operating Cash Flow, Net Income
Learning Obj.: L.O. 3.3
AACSB: Reflective Thinking
3) According to accrual accounting, revenues are recognized when earned and expenses are recognized
when incurred.
Keywords: Accrual Accounting
Learning Obj.: L.O. 3.3
AACSB: Reflective Thinking
4) In order to be conservative, accrual accounting requires that expenses be recorded when incurred, but
revenues are recorded only after the cash has been received.
Keywords: Accrual Accounting, Revenues, Expenses
Learning Obj.: L.O. 3.3
AACSB: Reflective Thinking
24
5) The statement of cash flow explains the changes that took place in the firm’s cash balance over the
period of interest.
Keywords: Statement of Cash Flows
Learning Obj.: L.O. 3.3
AACSB: Reflective Thinking
6) On an accrual basis income statement, revenues equal cash receipts and expenses equal cash
expenditures.
Keywords: Accrual Basis, Income Statement, Revenues, Expenses
Learning Obj.: L.O. 3.3
AACSB: Reflective Thinking
7) What financial statement explains the changes that took place in the firm‘s cash balance over a period?
A) statement of cash flow
B) balance sheet
C) income statement
D) reconciliation of free cash flow
Keywords: Financial Statements, Statement of Cash Flow
Learning Obj.: L.O. 3.3
AACSB: Reflective Thinking
25
Please refer to Table 3-1 for the following questions.
Table 3-1
Jones Company
Financial Information
December 2009
December 2010
Net Income
$2,000
$4,000
Accounts receivable
750
950
Accumulated depreciation
1,000
1,500
Common stock
4,500
5000
Paid-in capital
7,500
8500
Retained earnings
1,500
3,500
Accounts payable
750
750
8) Based on the information in Table 3-1, calculate the after-tax cash flow from operations for 2008 (no
assets were disposed of during the year, and there was no change in interest payable or taxes payable).
A) $4,300
B) $1,450
C) $5,500
D) $6,250
Keywords: After-tax Cash Flow from Operations
Learning Obj.: L.O. 3.3
AACSB: Analytical Thinking
9) Based on the information in Table 3-1, the change in cash for 2010 is
A) $4,000.
B) $4,950.
C) $5,800.
D) $5,500.
Keywords: Statement of Cash Flows
Learning Obj.: L.O. 3.3
AACSB: Analytical Thinking
26
10) A company borrows $2,000,000 and uses the money to purchase high technology machinery for its
operations. These are examples of
A) cash flow from financing and cash flow from operations.
B) cash flow from investing and cash flow from operations.
C) cash flow from financing and cash flow from investing.
D) cash flow from investing and cash flow from financing.
Keywords: Statement of Cash Flows
Learning Obj.: L.O. 3.3
AACSB: Analytical Thinking
11) The Colorado Jet Boat Company had a cash balance of $3 million at the beginning of 2010. During
2010, Sales were $8 million and expenses were $7 million. Therefore,
A) the cash balance at the end of 2010 is $4 million.
B) the cash balance at the end of 2010 must be greater than $3 million.
C) the cash balance at the end of 2010 must be less than $11 million.
D) the cash balance at the end of 2010 cannot be determined from the information given.
Keywords: Cash Flow, Accrual Accounting vs. Cash Accounting
Learning Obj.: L.O. 3.3
AACSB: Analytical Thinking
12) Use the following information to calculate the change in the company‘s cash balance for the year.
Credit Sales
$800,000
Cash Sales
$500,000
Operating Expenses on Credit
$200,000
Cash Operating Expenses
$700,000
Accounts Receivable (Beg. of Year)
$50,000
Accounts Receivable (End of Year)
$80,000
Accounts Payable (Beg. of Year)
$50,000
Accounts Payable (End of Year)
$100,000
Income Taxes Paid
$160,000
A) $145,000
B) $180,000
C) $260,000
D) $365,000
Keywords: Cash, Cash Flow
Learning Obj.: L.O. 3.3
AACSB: Analytical Thinking
27
13) Given the following financial statements for ARGON Corporation, what is the company’s after-tax
cash flow from operations?
Income Statement
Balance Sheet
Year Ended 12/31/10
12/31/2010
12/31/2009
Sales
$1,300,000
Current Assets
$50,000
$45,000
Cost of Goods Sold
750,000
Fixed Assets
430,000
350,000
Operating Expenses
200,000
Total Assets
$480,000
$395,000
Depreciation
100,000
EBIT
250,000
Current Liabilities
$35,000
$50,000
Interest Expense
50,000
Long-term Debt
330,000
270,000
EBT
200,000
Common Stock
5,000
5,000
Taxes
80,000
Retained Earnings
110,000
70,000
Net Income
$120,000
Total Liabilities & Equity
$480,000
$395,000
A) $10,000
B) $270,000
C) $120,000
D) $295,000
Keywords: After-tax Cash Flow from Operations
Learning Obj.: L.O. 3.3
AACSB: Analytical Thinking
28
14) Given the following financial statements for ARGON Corporation, and assuming that ARGON paid a
common dividend of $80,000 in 2010, what is the company‘s financing cash flow for 2010?
Income Statement
Balance Sheet
Year Ended 12/31/10
12/31/2010
12/31/2009
Sales
$1,300,000
Current Assets
$50,000
$45,000
Cost of Goods Sold
750,000
Gross Fixed Assets
880,000
650,000
Operating Expenses
200,000
Less Accumulated Depreciation
450,000
350,000
Depreciation Expense
100,000
Fixed Assets
430,000
350,000
EBIT
250,000
Total Assets
$480,000
$395,000
Interest Expense
50,000
EBT
200,000
Current Liabilities
$35,000
$50,000
Taxes
80,000
Long-term Debt
330,000
270,000
Net Income
$120,000
Common Stock
5,000
5,000
Retained Earnings
110,000
70,000
Total Liabilities & Equity
$480,000
$395,000
A) -$10,000
B) -$15,000
C) -$65,000
D) -$70,000
Keywords: Financing Cash Flow
Learning Obj.: L.O. 3.3
AACSB: Analytical Thinking
15) Racing Horse Corporation reported net income for 2010 of $200,000, sales of $540,000, expenses
(excluding depreciation) of $180,000, and depreciation expense of $60,000. The company‘s accounts
receivable balance increased by $40,000 during the year and its accounts payable balance remained the
same. The company‘s change in cash for the year is estimated to be
A) $100,000.
B) $160,000.
C) $220,000.
D) $380,000.
Keywords: Cash Flow, Net Income, Depreciation Expense
Learning Obj.: L.O. 3.3
AACSB: Analytical Thinking
29
16) Examples of uses of cash include
A) paying cash dividends to stockholders.
B) borrowing an additional amount using a secured loan.
C) selling machinery.
D) all of the above
Keywords: Uses of Cash
Learning Obj.: L.O. 3.3
AACSB: Reflective Thinking
17) What information does a firm’s statement of cash flows provide to the viewing public?
A) a report of investments made and their cost for a specific period of time
B) a report documenting a firm’s cash inflows and cash outflows from operating, financing, and investing
activities for a defined period of time
C) a report of revenues and expenses for a defined period of time
D) an itemization of all of a firm’s assets, liabilities, and equity for a defined period of time
Keywords: Statement of Cash Flows
Learning Obj.: L.O. 3.3
AACSB: Reflective Thinking
18) Which of the following best describes cash flow from financing activities?
A) Interest income, plus dividend income, minus taxes
B) Interest expense, minus dividends paid
C) Interest paid, plus dividends paid, plus increase (or minus decrease) in stock, plus increase (or minus
decrease) in debt
D) Increase (or minus decrease) in stock, plus increase (or minus decrease) in debt, minus interest paid,
minus dividends paid
Keywords: Financial Statements, Statement of Cash Flow
Learning Obj.: L.O. 3.3
AACSB: Reflective Thinking
30
Please refer to Table 3-2 for the following questions.
Table 3-2
Enigma has the following financial information:
Net Income
$70,000
Taxable Income (EBT)
$100,000
Interest Expense
$20,000
Depreciation Expense
$15,000
Tax Expense
$30,000
Increase in Current Assets
$20,000
Increase in A/P and Accruals
$10,000
Decrease in Gross Fixed Assets
$100,000
No changes were made in interest payable or taxes payable.
19) Based on the information in Table 3-2, what is Enigma’s cash flow from operations?
A) $85,000
B) $100,000
C) $105,000
D) $75,000
Keywords: After-tax Cash Flow from Operations
Learning Obj.: L.O. 3.3
AACSB: Analytical Thinking
20) A firm has after-tax cash flow from operations equal to $100,000. Operating working capital increased
by $20,000, and the firm purchased $30,000 of fixed assets. The firm’s free cash flow was
A) $50,000.
B) $90,000.
C) $110,000.
D) $150,000.
Keywords: Free Cash Flow
Learning Obj.: L.O. 3.3
AACSB: Analytical Thinking