108) Garret Company has provided the following selected information for the year ended
December 31, 2019:
Cash collected from customers was $783,000.
Cash received from stockholders in exchange for common stock totaled $91,000.
Cash paid to suppliers was $361,000.
Cash paid to employees was $204,000.
Cash to stockholders for dividends was $33,000.
Cash received from sale of a building was $250,000.
Cash paid for store rent was $39,000.
Cash received for interest and dividends was $7,000.
Cash paid for income taxes was $55,000.
Based on the selected information provided, how much was Garret’s cash flow from operating
activities?
A) $131,000.
B) $98,000.
C) $381,000.
D) $222,000.
109) Which of the following transactions will not decrease the net profit margin ratio?
A) Accruing interest expense at year-end.
B) The recording of depreciation expense.
C) Using cash to pay for previously accrued wages.
D) Accruing utilities expense at year-end.
110) Which of the following statements regarding the net profit margin ratio is false?
A) The numerator is net income.
B) The denominator is net sales or operating revenues.
C) It measures how much of every sales dollar is gross profit.
D) Financial analysts expect well-run businesses to maintain or improve their profit margin over
time.
111) What is the operating cycle? Describe a business entity with an operating cycle of less than
six months and a business with an operating cycle of more than one year.
112) Describe the difference between operating items and other items reported on the income
statement while providing examples of each.
113) Describe earnings per share, including how it’s computed and how earnings per share is
used to evaluate a company.
114) Describe the difference(s) with respect to the cash basis of accounting and the accrual basis
of accounting.
115) Why might managers be tempted to violate the revenue recognition principle and the
expense recognition principle when preparing an income statement?
116) Describe the debit and credit logic pertaining to items reported on the income statement.
117) Complete the chart below for Monticello Corporation by placing an X in the appropriate
boxes to indicate how the transaction should be recorded.
Transaction
Assets
Liabilities
Stockholders’
Equity
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
A.
Paid employees who worked this
month.
B.
Employees worked this month but
have not yet been paid.
C.
Paid rent in advance for next month.
D.
Used supplies that were purchased
and paid for last month.
E.
Declared a dividend to be paid next
month.
F.
Received cash in advance of
providing service to a customer.
G.
Provided services but will collect the
money next month.
Liabilities
Dr.
Dr.
Dr.
A.
Paid employees who worked this
month.
B.
Employees worked this month but
have not yet been paid.
X
X
C.
month.
X
X
D.
Used supplies that were purchased
and paid for last month.
X
X
E.
Declared a dividend to be paid next
month.
X
X
F.
Received cash in advance of
providing service to a customer.
X
X
G.
Provided services but will collect
the money next month.
X
X
66
118) Part A. Perform transaction analysis for Blake Company regarding the following
transactions for the month of March. Indicate the account affected by the transaction as well as
the increase (+) or decrease (-) to the components of the accounting equation and the amount.
Part B. Determine whether the transactions A-F above affected cash flows during March. If so,
determine the type of activity as an operating activity, an investing activity, or a financing
activity. If cash is not affected use “no effect.” Place an X under the appropriate column for each
transaction.
Type of Activity
Transaction
Operating
Investing
Financing
No effect
A.
B.
C.
D.
E.
F.
68
119) The following accounts for Carthage Enterprises, Inc. are listed randomly. Enter the number
associated with each transaction to identify the accounts that would be used in the journal entry
for each transaction given below.
1.
Accounts payable
9.
Income taxes payable
2.
Accounts receivable
10.
Prepaid expenses
3.
Supplies
11.
Operating expenses
4.
Building
12.
Prepaid insurance
5.
Cash
13.
Retained earnings
6.
Common stock
14.
Service revenue
7.
Dividends
15.
Unearned revenue
8.
Income tax expense
Transaction
Journal Entry
Debit
Credit
Ex.
Service revenue earned and cash collected in full.
5
14
A.
Collected cash from a customer for services to be provided in
the future.
B.
Provided service to a customer on credit.
C.
Paid current operating expenses.
D.
Recorded income tax expense for the period; all of it will be
paid next year.
E.
Paid insurance premiums for next year.
F.
Used supplies previously purchased.
G.
Provided services to customers pertaining to transaction A.
H.
Paid cash for income tax owed from last year.
I.
Received payment for transaction B above.
J.
Declared and paid dividends to stockholders.
120) World Coffee, Inc. has provided the following information pertaining to the store’s month
ended October 31, 2019:
Sales revenue
$100,000
Supplies expense
$1,500
Interest
expense
6,900
Rent expense
4,000
Cost of goods
sold
60,000
Wages expense
9,500
Dividends
paid
5,000
Utilities expense
1,100
Advertising
expense
4,500
Loss on sale of
coffee equipment
3,200
Dividends
declared
7,100
Income tax expense
3,800
Unearned
revenues
6,100
Prepare an income statement through operating income for the month ended October 31, 2019.
Sales Revenues
$100,000
Operating income
$16,200
121) The following information has been provided by Flatiron Company for the year ended
December 31, 2019:
Net income was $71,000;
Income tax expense was $47,000;
Dividends declared and paid totaled $7,500;
Interest expense was $8,700;
Loss on sale of plant assets was $15,000;
Operating expenses for rent, wages, and insurance totaled $91,000;
Cash collected from customers was $220,000.
Calculate Flatiron’s operating income.
72
122) On December 31, 2019, Pack-and-Deliver Company completed its first year of operations.
The following information has been provided for the year:
a. Sold packing supplies for $30,000 and provided $280,000 of delivery services.
b. All packing supplies sales were for cash.
c. Collected $212,000 of delivery service revenue.
d. Paid $15,000 cash to rent packing equipment, with $10,000 for rental in 2019 and the
remaining amount for rental in 2020.
e. Spent $4,000 cash to repair delivery equipment during the year.
f. Bought packing supplies at a total cost of $46,000 and paid for $25,000 of these supplies.
There were $20,000 of these supplies that have not yet been sold or used.
g. Paid employees $80,000 during the year.
h. Paid $16,000 for advertising for the year.
i. Used $14,000 in fuel for the delivery equipment.
j. Sold investments for $8,000 that had been purchased earlier in the year for $7,000.
k. Ordered $500 in spare parts and supplies.
l. Income tax expense for the year is $18,000.
Prepare an income statement for Pack-and-Deliver Company for the year ended December 31,
2019.
123) Describe the transaction that created the following journal entries (amounts omitted).
1.
Cash
xxx
Unearned revenue
xxx
2.
Utilities expense
xxx
Utilities payable
xxx
3.
Accounts receivable
xxx
Sales Revenue
xxx
4.
Wages expense
xxx
Cash
xxx
5.
Unearned Revenue
xxx
Sales revenue
xxx
124) Explain why the net income reported on the income statement is usually not equal to net
cash flows from operating activities on the statement of cash flows.
125) Describe the operating activities section of the cash flow statement and provide three
examples of operating activities cash flows.
126) Colby Company has provided the following selected information for the year ended
December 31, 2019:
Cash collected from customers was $392,000.
Cash received from stockholders in exchange for stock totaled $46,000.
Cash paid to suppliers was $183,000.
Cash paid to employees was $102,000.
Cash received from a long-term bank loan was $75,000.
Cash paid to stockholders for dividends was $17,000.
Cash received from sale of a building was $125,000.
Cash paid for rent was $19,000.
Cash received for interest and dividends was $4,000.
Cash paid for income taxes was $28,000.
Based on the selected information provided, calculate Colby’s cash flow from operating
activities.
127) Toy Shop Inc. has provided the following income statements:
2020
2019
2018
Net revenues
$3,787.2
$4,232.2
$3,304.5
Cost of goods sold
1,674.0
$1,698.2
1,366.1
Gross profit
2,113.2
2,534.0
1,938.4
Operating expenses
2,217.5
2,206.5
1,613.5
Income (loss) from operations
(104.3)
327.5
324.9
Nonoperating income (loss)
(121.7)
(53.7)
(21.4)
Income (loss) before taxes
(226.0)
273.8
303.5
Income tax (expense)/benefit
81.4
(84.9)
(97.1)
Net income (loss)
(144.6)
188.9
206.4
(1) Compute net profit margin for each year.
(2) Discuss some of the events that could have caused the changes to the net profit margin based
on the income statement information above.
128) The following income statement was reported for Bauer Inc. for the first year of operations
ending December 31, 2019 reported (in thousands of dollars):
Sales revenue
$24,500
Expenses:
Cost of sales
$12,100
`
Wages
5,300
`
Rent
900
`
Utilities
500
Miscellaneous
600
Total expenses
19,400
Income before taxes
5,100
Income tax expense
1,785
Net income
$3,315
A. Calculate net profit margin.
B. Calculate earnings per share if there are 200,000 weighted average shares of common stock
outstanding.