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Multiple Choice 1. In which section of the cash flow statement would cash flows received from accounts receivable be listed? a. Operating Activities b. Investing Activities c. Investigating Activities d. Financing Activities a In which section of the cash flow statement would cash flows from the sale of stock be listed? a. Operating Activities b. Investing Activities c. Investigating Activities d. Financing Activities d In which section of the cash flow statement would cash flows from the sale of machinery (long-term asset) be listed? a. Operating Activities b. Investing Activities c. Investigating Activities d. Financing Activities b Prevo Company had beginning Accounts Receivable of Rs.1,300. During the year, Prevo earned revenues on account in the amount of Rs.2,700. At the end of the year, Prevo had Rs.1,600 in Accounts Receivable. How much cash was collected from customers during the year? a. Rs.2,700 b. Rs.2,400 c. Rs.1,600 d. Rs.1,300 b Helms Company began the year with Salaries Payable in the amount of Rs.2,400. During the year, the company recognized Salaries Expense in the amount of Rs.6,500. At the end of the year, Helms has Salaries Payable in the amount of Rs.2,100. How much cash did the company pay out during the year for salaries? a. Rs.6,800 b. Rs.6,500 c. Rs.4,400 d. Rs.4,100 a

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A company retiring long-term bonds payable with cash would be classified as a(n) a. operating activity b. investing activity c. financing activity d. does not affect the cash flow statement c C Enterprises begins the year with Income Taxes Payable in the amount of Rs.800. During the year, C recognizes Income Tax Expense in the amount of Rs.1,400. At the end of the year, C has Income Taxes Payable in the amount of Rs.500. How much cash has C spent during the year on income taxes? a. Rs. 600 b. Rs. 900 c. Rs.1,400 d. Rs.1,700 d Cash flows from financing activities would involve all of the following except a. issuing bonds b. retiring debt c. paying dividends to shareholders d. purchasing long-term investments d

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Which method of preparing the statement of cash flows begins with net income and adjusts from there? a. Direct Method b. Indirect Method c. GAAP Method d. Comprehensive Income Method b When using the indirect method to prepare the statement of cash flows, all of the following items will be considered in adjusting net income except a. increases in accounts receivable b. decreases in accounts payable c. increases in bonds payable d. depreciation expenses c Land that was purchased for Rs.95,000 several years ago was sold for Rs.120,000. The gain on the sale was reported on the income statement as non-operating income. On the statement of cash flows, what amount should be reported for this transaction as an investing activity from the sale of this land? a. Rs.35,000 b. Rs.95,000 c. Rs.120,000 d. Rs.155,000 c

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Which of the following terms does not appear in the statement of cash flows under the direct method? a. Cash paid to vendors b. Cash paid for rent c. Depreciation expense d. Net cash from operating activities c Which of the following is not a step in preparing the statement of cash flows using the indirect method? a. Subtracting a loss on the sale of machinery b. Adding back depreciation expense c. Adding an increase in accounts payable d. Subtracting an increase in prepaid rent a Steelman Corporation reports income tax expense in the amount of Rs.93,000. There has been a Rs.12,000 decrease in federal income taxes payable and a Rs.4,000 increase in state income taxes payable during the year. Assuming that Steelman uses the direct method, what is its cash payment for income taxes for the year? a. Rs.101,000 b. Rs. 93,000 c. Rs. 85,000 d. Rs. 77,000 a Which of the following would not be deducted from net income in computing net cash flow from operations using the indirect method? a. Depreciation expense b. Gain on sale of fixed assets c. Increase in accounts receivable d. Decrease in salaries payable a During a particular year, taxes payable decreased by Rs.4,000. Using the direct method of reporting cash flows from operating activities, what would the cash paid to cover taxes be if tax expense amounts to Rs.163,000 for the year? a. Rs. 159,000 b. Rs. 161,000 c. Rs. 163,000 d. Rs. 167,000 d When calculating cash from operating activities using the indirect method, a loss from the sale of machinery is a. added to net income b. deducted from net income c. ignored because it does not affect cash from operating activities d. not reported on the statement of cash flows a

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When calculating net cash provided by operating activities using the indirect method, an increase in prepaid rent during the year a. is added to net income b. is ignored because it does affect net income c. is deducted from net income d. does not affect the cash flow statement c The purchase of fixed assets is shown as a cash outflow on the statement of cash flows in the a. operating activities section b. investing activities section c. financing activities section d. balance sheet section b

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Cash receipts from customers are greater than sales revenue when there is a(n) a. increase in accounts receivable b. decrease in accounts receivable c. increase in cost of goods sold d. decrease in cost of goods sold b

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Which one of the following affects cash during a reporting period? a. Recording depreciation expense b. Declaring a cash dividend c. Exchanging stock for equipment d. Payment of a bond issue d

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Which of the following transactions does not affect cash during a reporting period? a. Collection of accounts receivable b. Write-off of obsolete inventory c. Sale of treasury stock d. Issuance of common stock to shareholders b

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A company sold a piece of equipment for Rs.30,000. The equipment was purchased for Rs.95,000, and had accumulated depreciation of Rs.60,000. Assuming that the company uses the indirect method, what type of adjustment, if any, will this sale require when the company prepares its operating activities section of the cash flow statement? a. Subtracting Rs.95,000 from net income b. Adding Rs.95,000 to net income c. Subtracting Rs.5,000 from net income d. Adding Rs.5,000 to net income d

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Which of the following would not be an inappropriate misclassification of cash flows on the cash flow statement? a. Classifying annual repairs as capital expenditures in the investing activities section b. Reporting payment of dividends as a financing activity c. Deducting interest expense as a financing activity d. Reporting substantial increases in inventory as cash outflows for investing activities b A business that uses more cash than it generates is known as a a. cash cow b. consolidated entity c. cash burner d. ponzi scheme c A company has current assets in the amount of Rs.8,392, and current liabilities in the amount of Rs.5,923. What is the companys working capital? a. Rs.14,315 b. Rs.13,685 c. Rs. 3,099 d. Rs. 2,469 d (Working Capital = Current Assets- Current Liabilities)

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A company has net sales in the amount of Rs.10,535 and cost of goods sold in the amount of Rs.7,643. What is the companys gross profit ratio? a. 27.45% b. 37.84% c. 72.55% d. 137.84% a The ratios used to measure a companys ability to pay its short-term obligations are known as a. market indicators b. profitability ratios c. solvency ratios d. liquidity ratios d A company that frequently collects cash from customers on its accounts would have a a. high gross profit ratio b. low earnings per share c. low accounts receivable turnover ratio d. high accounts receivable turnover ratio d

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Gibson Company had the following information on its 2006 income statement: Net Sales Cost of Goods Sold Operating Expenses Interest Expense Rs.838,000 Rs.376,000 Rs.194,000 Rs. 37,500

What is Gibson Companys times interest earned (interest coverage) ratio? a. 22.35 times b. 17.17 times c. 12.32 times d. 7.15 times d 31. A company that is leveraged is one that has a. high earnings per share b. high equity financing c. high debt financing d. a high dividend yield ratio c A company that builds airliners for major passenger airline companies would most likely have a a. high current ratio b. high inventory turnover ratio c. low inventory turnover ratio d. low debt to equity ratio c Which of the following current assets is excluded from the numerator when calculating the quick ratio? a. Net accounts receivable b. Short-term investments c. Cash d. Inventory d The relationship between credit sales and accounts receivable is known as a. working capital b. cash flow adequacy ratio c. accounts receivable turnover ratio d. profit margin ratio c The relationship between cost of goods sold and inventory is known as a. return on assets b. inventory turnover ratio c. working capital d. profit margin ratio b

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If Hatch Companys net sales are Rs.675,000, its gross profit is Rs.495,000, and its average inventory is Rs.45,000, what is Hatchs inventory turnover ratio for the period? a. 4 b. 11 c. 15 d. 26 a 37. If Morris Companys total assets are Rs.764,000, and its total liabilities are Rs.394,000, what is Morris Companys debt to equity ratio? a. 0.516 b. 0.939 c. 1.065 d. 1.939 c 38. The Blake Company has a gross profit ratio of 38%, a net margin ratio of 4.5%, and net income of Rs.12,600. What is Blake Companys cost of goods sold? a. Rs.106,400 b. Rs.173,600 c. Rs.272,175 d. Rs.280,000 b 39. The Graham Company has a gross profit ratio of 29%, a net margin ratio of 3.9%, and net income of Rs.18,525. What is Graham Companys net sales? a. Rs.137,750 b. Rs.337,250 c. Rs.456,475 d. Rs.475,000 d 40. Hampton Company had net sales in the amount of Rs.1,845,000 and a gross profit margin of 42%. If Hamptons inventory turnover ratio is 4.5, what is the companys average inventory? a. Rs.172,200 b. Rs.237,800 c. Rs.410,000 d. Rs.1,607,200 41. b The accounts receivable turnover ratio is computed by dividing a. cash by net accounts receivable b. net accounts receivable by net income c. net accounts receivable by net sales d. net credit sales by average accounts receivable d

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Warner Company has current assets in the amount of Rs.1,248,000, and working capital in the amount of Rs.554,667. What is Warner Companys current ratio? a. 0.44 b. 0.56 c. 1.80 d. 2.25 c Assuming that cost of goods sold is 57% of sales, and sales are Rs.185,000, how much is gross profit? a. Rs.107,300 b. Rs.105,450 c. Rs.79,550 d. Rs.77,700 c
In preparing a common size income statement, we divide each amount on the income statement by:

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net income. gross margin. net sales. sales.

A common measure of long-term solvency is: a. b. c. d. c the current ratio. asset turnover. the debt to equity ratio. earnings per share.

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Which of the following would NOT be represented in the financing section of the statement of cash flows? a. b. c. d. d long-term bonds payable issued issuing of equity securities purchase of treasury stock make a loan to a supplier

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Wilguess Company began the current year with an accounts receivable balance of Rs.15,000. During the year, Wilguess had credit sales of Rs.110,000. At the end of the year the balance in the accounts receivable account was Rs.5,000. How much cash did Wilguess generate from collections from customers? a. Rs.120,000

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Rs.115,000 Rs.110,000 Rs.100,000

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Which of the following items would be added to net income to compute cash provided by (used in) operations under the indirect method? a. increase in merchandise inventory b. increase in accrued expenses payable c. decrease in accounts payable d. increase in bonds payable b When preparing a statement of cash flows, the difference between the direct and indirect method occurs in which of the following section(s)? a. b. c. d. b financing activities operating activities investing activities all of the above

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The wages payable account had a beginning balance of Rs.5,000 and an ending balance of Rs.7,000. Wage expense for the period was Rs.79,000. How much cash was paid for wages during the period? a. b. c. d. Rs.77,000 Rs.79,000 Rs.81,000 Rs.86,000