Purchasing a manufacturing ANSWER: b one of the following is an operating activity of a business? Paying for purchases of inventory Issuing for cash Borrowing money from a bank Purchasing a manufacturing ANSWER: a Which of the following represents the correct sequence of the three business activities on the Statement of Cash Flows? Financing - Operating - Investing Investing - Operating - Financing Operating - Investing - Financing Financing - Investing - Operating ANSWER: c Business entities generally carry on: Operating, investing, and financing activities Operating activities, but only corporations engage in financing and investing activities Investing and operating activities, but only corporations engage in financing activities Either investing or financing activities, but not both ANSWER: a Although businesses engage in a wide variety of activities, all of these activities can be categorized into three types. Which of the following choices best reflects these three types of business activities? Operating, financing, reporting Investing, reporting, financing Operating, financing, investing Investing, reporting, operating ANSWER: c As used in accounting, the “Notes to the Financial Statements” should be: Listed with the liabilities on the balance sheet Omitted at the option of the company Included as an integral part of the financial statements Reported as expenses on the Income Statement ANSWER: c Which of the following items will be found in a corporate annual report?
Inventory 45,000 Prepaid insurance 1,000 Land 21,000 Building 80,000 Accounts payable 55,000 Salaries payable 2,000 Capital stock 100,000 Retained earnings 25,000 Determine Coglin’s current ratio and working capital. Beyond the information provided in your answers to “A,” what does the composition of Coglin’s current assets tell you about its liquidity. What information would one need to fully access Coglin’s liquidity? ANSWER: A) Current 1.44 to 1 ($23,000 Cash + $13,000 Accounts receivable + $45,000 Inventory + $1,000 Prepaid insurance) / ($55,000 Accounts payable + $2,000 Salaries payable) = 1.44 to 1 Working capital: $25,000 ($82,000 Total Current Assets – $57,000 Total Current Liabilities = $25,000) The closer an is to being converted to cash, the more liquid the asset is. Some assets, like inventory, take much longer to turn into cash because they must be sold before collection of the cash can be made. Prepaid insurance is not as liquid as accounts receivable since it will be consumed as time passes. Receivables are more liquid than inventory because a sale has already occurred The statement of cash flows would be helpful to determine the cash inflows and outflows that occurred during the year. The balance sheet represents only the ending balance of the cash account. The statement of cash flows also identifies the sources and uses of cash by business activity and the nature of each particular cash flow During 2014, Wimbrow Images reported $60,000 of net income and generated $80,000 of cash from operations. During the year, Wimbrow Images paid $15,000 to purchase a new delivery truck and also paid dividends in the amount of $30,000. Wimbrow Images borrowed $40,000 cash from the bank. At the beginning of the year, cash amounted to $50,000. Prepare a statement of cash flows for the year ended December 31, 2014. How much more cash does Wimbrow Images have available at the end of the year than at the beginning? Why is there a difference between net income and cash flows from operations? ANSWER: A) Wimbrow Images Statement of Cash Flows For the Year Ended December 31, 2014 Cash flows from operating activities $ 80,000
Identify whether the following investor questions are associated with (a) primary or (b) secondary financial reporting objectives. primary financial reporting objective secondary financial reporting objective How much has invested in research and development projects? ANSWER: b Based on the financial information, should I buy shares of Apple? ANSWER: a If I buy 50 shares of Apple, how much cash will I receive in dividends each year? ANSWER: b How much revenue will Apple generate during the time period in which I own the shares? ANSWER: b Based on the financial information, should I sell my shares of Apple next quarter? ANSWER: a Match the following characteristics with the statements about each qualitative characteristic’s importance. Consistency Materiality Conservatism Comparability Reliability Relevance Understandability Those willing to spend the time should be provided with comprehensible accounting information. ANSWER: g The accounting information must be information that affect a decision. ANSWER: f Accounting information should use the least optimistic estimate. ANSWER: c This quality allows to analyze two or more companies and look for similarities and differences. ANSWER: d Users must be able to compare accounting information of a firm with its prior year information. ANSWER: a Accounting information must be verifiable and faithfully represent actual transactions. ANSWER: e
This quality refers to an amount enough to affect a decision. ANSWER: b For each item listed, select the section of the balance in which the item would be reported. Current Assets Property. Plant, and Equipment Current Liabilities Long-term Liabilities Stockholders’ Equity Cash ANSWER: a Accounts payable ANSWER: c Retained earnings ANSWER: e Land ANSWER: b Capital stock ANSWER: e Accounts receivable ANSWER: a Equipment ANSWER: b Notes payable—due within one year ANSWER: c Interest payable ANSWER: c Bonds payable ANSWER: d Computer used within the business ANSWER: b Computer available for resale ANSWER: a Match the selected items from a classified balance sheet and multiple-step income statement to the section in which they would appear on the classified balance sheet or the income statement. Current Assets (balance sheet)
ANSWER: c Purchased inventory on account ANSWER: c Purchased land for cash ANSWER: b Borrowed cash using a long-term note ANSWER: a Borrowed cash using a six-month note ANSWER: c Collected an account receivable ANSWER: c From the following list, select the proper section from the statement of cash flows in which it would be classified. Operating Activities Investing Activities Financing Activities Purchased equipment for cash ANSWER: b Received cash from the sale of a building ANSWER: b Paid a cash dividend on capital stock ANSWER: c Received cash from bond issuance ANSWER: c Paid income taxes ANSWER: a Received cash from selling goods to customers ANSWER: a Sold equipment no longer used in the business ANSWER: b Paid suppliers cash for inventory purchased ANSWER: a In preparing financial statements, accountants should consider all of the following except: The objectives of financial reporting.