Identify each of the following items as operating (O), investing (I), or financing (F)
activities on the statement of cash flows(assuming the indirect method). If an item is not
on the statement, please mark it as none of these (N). If the item is an inflow, please
indicate by a (+), (e.g. O+, I+ or F+). If the item is an outflow, please indicate by
brackets, (e.g., <O> for operating outflow, <I> for investing outflow, and <F> for
financing outflow: (a) Paid an account payable for inventory purchased in the previous
accounting period.
(b) Amortization of debt issuance costs
(c) Paid a dividend to stockholders.
(d) Paid the interest on a note payable to National Street Bank.
(e) Paid the principal amount due on the note payable to National Street Bank.
(f) Transferred cash from a checking account into a money market fund.
(g) Purchased equipment for cash.
Exeter Corporation purchased a piece of equipment with a price of $80,000 on March 1,
2015. The amounts below are related to the equipment purchase. Match the items below
and explain why each revenue expenditure is not capitalized.
a. This item should be included as part of the cost of the equipment.
b. This item should be considered a revenue expenditure.
It was necessary for an architect to redesign the work space to accommodate the new
equipment. A fee of $6,000 was paid.
Given a current ratio of 5 to 3, what is the effect of paying a supplier within 30 days of
the purchase?
a. The current ratio would increase.
b. The current ratio would decrease.
c. The current ratio would remain the same.
d. Unable to determine.
From the list of accounts below, determine whether the account would be a nominal
account or a real account.
a. nominal account
b. real account
Depreciation Expense
The amortization of bond discount increases the effective interest expense incurred each
period for the issuer while amortization of bond premium decreases it.
a. True
b. False
When are consolidated financial statements prepared?
a. At the option of an investee company
b. At the option of an investor company
c. If one company owns more than 50% of another company
d. Only if one company owns 100% of another company
Choose from the following list of account titles the one that most accurately fits the des
cription of that account or is an example of that account.An account title may be used m
ore than once or not at all.
a. Cash
b. Prepaid Asset
c. Investments
d. Taxes Payable
e. Preferred Stock
f. Accounts Receivable
g. Land
h. Accounts Payable
i. Retained Earnings
j. Notes Receivable
k. Buildings
l. Notes Payable
m. Common Stock
A checking account at a bank
Dividends to preferred stockholders are deducted from net income when calculating the
return on common stockholders’ equity ratio because
a. dividends are not an expense on the income statement.
b. the ratio is an indicator of the return on “common” stockholders’ equity, not the return
on preferred stock.
c. dividends are only available for distribution to common stockholders.
d. conservatism indicates that shareholders prefer a smaller numerator.
Which of the following measures can be used to evaluate a company’s ability to meet
future debt obligations after paying income taxes and interest and making capital
expenditures?
a. Earnings per share
b. Net income
c. Cash flow adequacy ratio
d. Net increase or decrease in cash and cash equivalents
According to the text, the income statement is in fact a subset of the balance sheet,
because information from the income statement columns flows into the balance sheet
columns.
a. True
b. False
Which one of the following procedures is not part of preparing a bank reconciliation of
a checking account
a. Tracing deposits listed on the bank statement to the books to identify deposits in
transit
b. Arranging canceled checks in numerical order and tracing them to the books to
identify outstanding checks
c. Identifying items added on the bank statement which have not been recorded as cash
receipts by the company
d. Preparing adjustments to reverse the transactions recorded for checks that are still
outstanding
Assuming the indirect method for preparing the statement of cash flows is used,
indicate whether these items should be added to net income (A), deducted from net
income (D), or not be reported in the operating section of the statement under the
indirect method (NR).
a. Added (A)
b. Deducted (D)
c. Not reported (NR)
Purchase of new factory equipment
Use the information below for Shorter Inc. for 2015 and 2016 to answer the following
question.
During 2016, Shorter Inc. sold equipment with a cost of $30,000 and accumulated
depreciation of $25,000. A gain of $3,000 was recognized on the sale of the equipment
This was the only equipment sale during the year. Assume that all purchases of
equipment were paid with cash. How much cash was paid by Shorter for the purchase
of equipment during 2016?
a. $ 7,000
b. $30,000
c. $37,000
d. $72,000
Under LIFO, the units in the ending inventory represent the most recent purchase(s).
a. True
b. False
Assume the following independent situations: 1> Company A has total stockholders’
equity at yearÂend of $600,000 and has 10,000 shares of stock. 2> Company B has
total stockholders’ equity at yearÂend of $600,000 and has 10,000 shares of stock. The
company also has 60,000 shares of preferred stock, which has a $1 par value and a
liquidation value of $3 per share.
Assume that you know the total dollar amount of a loan and the amount of the monthly
payments. How can you determine the interest rate as a percentage of the loan?
What makes the analysis of a service company different from the analysis of a
merchandising company?
At December 31, 2015, North Company and South Company have identical amounts of
common stock and retained earnings as follows: Common Stock, $10 par, 50,000 shares
authorized, 9,000 issued, 9,000 outstanding Retained Earnings, $500,000 At December
31, 2015, North Company declares and issues a 100% stock dividend, while South
Company declares and issues a 2-for-1 stock split. REQUIRED: Determine for each
company the following amounts as of January 1, 2016:
Number of shares of common stock outstanding
Par value per share of the common stock
Total amount reported in Common Stock account
Retained earnings
Under the, a company reports its major classes of gross cash receipts and cash payments
in the operating activities section of the statement of cash flows.
Columbus Company prepays the rent on various office facilities. The beginning balance
in Prepaid Rent was $9,500, and the ending balance was $7,200. The income statement
reports Rent Expense of $45,800. REQUIRED:
Under the direct method, what amount would appear for cash paid in rent in the
Operating Activities section of the statement of cash flows? Show your work.
Explain where to find the information needed to determine a company’s cash flow
adequacy.
The difference between accrual-based revenue and accrual-based expenses is called
_________________________.
Select the best answer from the list below to complete statements 131-141 that follow.
Assuming no preferred stock exists, total stockholders’ equity divided by the number of
shares of common stock outstanding is equal to
________________________________________.