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COMPREHENSIVE EXAMINATION D
(Chapters 12 - 13)
Approximate
Problem Topic Points Minutes
D - I Multiple Choice ............................................. 24 20
D - II Statement of Cash Flows ............................ 36 30
D - III Comparative Analysis ................................... 10 10
D - IV Calculation of Ratios ................................... 30 20
100 80
Checking Work ............................................ 10
90
Test Bank for Accounting, Fifth Edition
D - 2
Problem D - I — Multiple Choice (24 points)
Circle the one best answer.
1. What does inventory turnover measure?
a. The number of times average inventory was sold during the year
b. The profitability of selling inventory items
c. The amount of cash tied up in inventory
d. The number of days of inventory on hand at the end of the accounting period
2. Which of the following is the best way to evaluate a series of financial statement data over
time?
a. Perform ratio analysis
b. Perform horizontal analysis
c. Perform a vertical analysis
d. Perform an industry average analysis
3. In performing a vertical analysis, what is the base for accounts payable?
a. Total current liabilities
b. Total assets
c. Total liabilities
d. Sales revenue
4. Hanson Brothers reported credit sales of $640,000 during 2014. The accounts receivable
balance increased during the year. Which statement is true?
a. Customers paid more cash than the amount of sales generated during the year.
b. Hanson sold more goods during the year than it had in previous years.
c. The cash collected was less than the amount of sales generated during the year.
d. Customers owe less at the end of the year compared to the amount they owed at the
beginning of the year.
5. In calculating net cash provided by operating activities using the indirect method, why is
there an adjustment to net income for the amount of depreciation expense?
a. Depreciation is a cash amount that will not be paid during the current year.
b. Depreciation is a cash outflow that reduces the amount of income.
c. Depreciation is not a cash amount and was deducted to determine net income, so it
must be added back to determine the net cash flows.
d. Depreciation is a cash expense that was deducted to determine net income, so it must
be added back to determine the net cash flows.
6. Broker Products reported cost of goods sold of $620,000 for the year ended December 31,
2014. During the year, inventories increased by $8,000, accounts payable decreased
$12,000, and sales increased by $23,000. How much cash did Broker Products pay to
suppliers in 2014?
a. $616,000
b. $624,000
c. $600,000
d. $640,000
Comprehensive Examination D
D - 3
7. Which one of the following transactions does not affect cash?
a. Retirement of bonds payable
b. Declaring cash dividends
c. Acquisition of treasury stock
d. Issuance of common stock
8. What information does the statement of cash flows not help investors and creditors
assess?
a. The entity’s ability to generate future cash flows
b. The entity’s ability to pay dividends
c. The reason that net income differs from cash provided or used by operating activities
d. The entity’s ability to generate future profits
9. What does the price-earnings ratio indicate?
a. Investors’ assessments of a company’s future earnings
b. The profit earned on each share of stock outstanding
c. The percentage of earnings distributed to shareholders
d. The profit generated out each sales dollar
10. Which of the following is considered to be a financial statement item that is viewed as part
of sustainable income?
a. Income from continuing operations
b. Extraordinary loss due to hurricane damage
c. Gross profit
d. Net income
11. What type of transaction is the acquisition of equipment by the issuance of a note payable?
a. A cash flow from financing activities
b. A cash flow from operating activities
c. A cash outflow from investing activities
d. A noncash investing and financing activity
12. Which of the following will be considered an “Other Comprehensive Income” item?
a. Realized loss on available-for-sale securities
b. Gain on disposal of discontinued operations
c. Extraordinary gain related to winning a lawsuit
d. Unrealized gain on available-for-sale securities
13. In performing a comparative analysis of a company, which one of the following is not one
of the three types of comparisons?
a. Intracompany basis
b. Industry averages
c. Trend basis
d. Intercompany basis
Test Bank for Accounting, Fifth Edition
D - 4
Problem D - II — Statement of Cash Flows (36 points)
The comparative balance sheets and the income statement for Ringer Equipment appear below:
Ringer Equipment
Comparative Balance Sheet
Dec. 31, 2014 Dec. 31, 2013
Assets
Cash .......................................................................................... $43,000 $39,400
Accounts receivable .................................................................... 7,300 12,000
Inventory ...................................................................................... 12,000 11,300
Prepaid expenses ........................................................................ 1,200 3,500
Equipment ................................................................................... 54,500 48,200
Accumulated depreciation—equipment ....................................... 21,000 22,600
Total assets ........................................................................... $97,000 $91,800
Liabilities and Stockholders' Equity
Accounts payable ........................................................................ $ 14,000 $12,600
Long-term note payable ............................................................... 18,800 26,000
Common stock ............................................................................. 28,000 22,500
Retained earnings ....................................................................... 36,200 30,700
Total liabilities and stockholders' equity ................................. $97,000 $91,800
Ringer Equipment
Income Statement
For the Year Ended December 31, 2014
Sales (all on credit) ...................................................................... $156,000
Expenses and losses
Cost of goods sold ................................................................. $98,000
Operating expenses, exclusive of depreciation ...................... 23,000
Depreciation expense ............................................................ 2,600
Interest expense .................................................................... 1,200
Loss on disposal of equipment .............................................. 1,100
Income tax expense ............................................................... 14,400
Total expenses and loss .................................................. 140,300
Net income .................................................................................. $ 15,700
Cash dividends of $10,200 were paid during the year. Equipment with an original cost of $5,500, a
book value of $1,300 was sold for cash at a loss. New equipment costing $11,800 was purchased
for a cash.
Instructions: Prepare a statement of cash flows for the year ended December 31, 2014, using the
indirect method.
OR
Instructions: Prepare a statement of cash flows for the year ended December 31, 2014, using the
direct method.
Comprehensive Examination D
D - 5
Problem D - III — Comparative Analysis (10 points)
Instructions: Using the following selected items from the comparative balance sheet of Spa
Products, illustrate horizontal and vertical analysis.
December 31, 2014 December 31, 2013
Current assets $ 122,400 $ 139,500
Long-term assets 180,000 130,200
Total assets 3,600,000 3,100,000
Problem D - IV — Calculation of Ratios (30 points)
The financial information below was taken from the annual financial statements of Whitlow Videos:
2014 2013
Current assets $118,800 $115,000
Current liabilities 44,000 58,000
Total liabilities 188,000 192,000
Total assets 525,000 540,000
Net sales 564,000 580,000
Net credit sales 555,000 570,000
Cost of goods sold 312,000 300,000
Inventory 55,000 51,000
Receivables (net) 32,000 28,000
Dividends 9,000 12,000
Capital expenditures 16,000 22,000
Net income 54,000 42,000
Net cash provided by operating activities 34,000 40,000
Instructions: Calculate the following ratios for Whitlow Videos for 2014.
1. Average collection period
Test Bank for Accounting, Fifth Edition
D - 6
2. Current ratio
3. Cash debt coverage
4. Debt to assets ratio
5. Current cash debt coverage
6. Return on assets
7. Profit margin
8. Asset turnover
9. Inventory turnover
10. Free cash flow
Comprehensive Examination D
D - 7
Solutions — Comprehensive Examination D
Problem D - I — Solution
Problem D - II — Solution Ringer Equipment
Test Bank for Accounting, Fifth Edition
D - 8
Problem D - II — Solution continued Ringer Equipment
Comprehensive Examination D
D - 9
Problem D - III — Solution
