08 Oct Assume the following sales data for a company:
Managerial Accounting
Assume the following sales data for a company:
2011 845,000
2010 650,000
If 2010 is the base year, what is the percentage increase in sales from 2010 to 2011?
23%
30%
77%
130%
Question 2Each of the following is a liquidity ratio except the
acid test ratio
current ratio
debt to total asset ratio
inventory turnover
Question 3Walker Clothing Store had a balance in the Accounts Receivable account of $390,000 at the beginning of the year and a balance of $410,000 at the end of the year. Net credit sales during the year amounted to $2,000,000. The average collection period of the receivables in terms of days was
30 days
365 days
146 days
73 days
Question 4Profit margin is calculated by dividing
sales by cost of goods sold
gross profit by net sales
net income by stockholders equity
net income by net sales
Question 5The current assets of Kile Company are $150,000. The current liabilities are $100,000. The current ratio expressed as a proportion is
150%
1.5:1
.67:1
$150,000/$100,000
Question 6A supplier to a company would be most interested in the company’s
asset turnover
profit margin
current ratio
earnings per share
Question 7The statement of cash flows
must be prepared on a daily basis
summarizes the operating, financing, and investing activities of an entity
is another name for the income statement
is a special section of the income statement.
Question 8The category that is generally considered to be the best measure of a company’s ability to continue as a going concern (stay operating as a business) is
cash flows from operating activities
cash flows from investing activities
cash flows from financing activities.
usually different from year to year
Question 9Indicate where the event common stock issued for cash would appear, if at all, on the indirect statement of cash flows
Operating activities section
Investing activities section
Financing activities section
Does not represent a cash flow
Question 10In calculating cash flows from operating activities using the indirect method, a gain on the sale of equipment is
added to net income
deducted from net income
ignored because it does not affect cash
not reported on a statement of cash flows
Question 11In calculating net cash provided by operating activities using the indirect method, an increase in prepaid expenses during a period is
deducted from net income
added to net income
ignored because it does not affect income
ignored because it does not affect expenses
Question 12Each of the following is added to net income in computing net cash provided by operating activities except
amortization expense
an increase in accrued expenses payable
a gain on sale of equipment
a decrease in inventory
Question 13Which of the following adjustments to convert net income to net cash provided by operating activities is correct?
Answers:
Add to Net Income Deduct from Net Income. Accounts Receivable increase decrease
Add to Net Income Deduct from Net Income
Prepaid Expenses increase decrease.
Add to Net Income Deduct from Net Income.
Inventory decrease increase
Add to Net Income Deduct from Net Income
Taxes Payable decrease increase.
Question 14Using the indirect method, if equipment is sold at a gain, the
sale proceeds received are deducted in the operating activities section.
sale proceeds received are added in the operating activities section.
amount of the gain is added in the operating activities section.
amount of the gain is deducted in the operating activities section
Question 15The first step in the capital budgeting evaluation process is to
request proposals for projects
screen proposals by a capital budgeting committee.
determine which projects are worthy of funding
approve the capital budget
Question 16Net annual cash flow can be estimated by
deducting credit sales from net income.
adding depreciation expense to net income.
deducting credit purchases from net income
adding advertising expense to net income
Question 17Which of the following ignores the time value of money?
Internal Rate of Return
Profitability Index
Net present value
Cash payback
Question 18A thorough evaluation of how well a project’s actual performance matches the projections made when the project was proposed is called a
pre audit
post audit
risk analysis
sensitivity analysis
Question 19Brady Corp. is considering the purchase of a piece of equipment that costs $23,000. Projected net annual cash flows over the project’s life are:
Year Net Annual Cash Flow
1 $ 3,000
2 8,000
3 15,000
4 9,000
The cash payback period is
2.63 years
2.8 years
2.20 years
2.37 years
Question 20If a project’s profitability index is equal to 1, then
its net present value is zero
its net present value is positive
it should be rejected.
its internal rate of return is greater than the discount rate
Question 21The primary capital budgeting method that uses discounted cash flow techniques is the
net present value method
cash payback technique
annual rate of return method
profitability index method
Question 22The annual rate of return is computed by dividing expected annual
cash inflows by average investment
net income by average investment
cash inflows by original investment
net income by original investment
Question 23Intangible benefits in capital budgeting would include all of the following except increased
product quality
employee loyalty
salvage value
product safety
Question 24The profitability index is computed by dividing the
total cash flows by the initial investment
present value of cash flows by the initial investment
initial investment by the total cash flows.
initial investment by the present value of cash flows.
Question 25Selma Inc. is comparing several alternative capital budgeting projects as shown below:
Projects
A B C
Initial investment $40,000 $60,000 $ 80,000
Present value of net cash flows 60,000 55,000 100,000
Using the profitability index, the projects rank as
A, C, B
A, B, C
C, A, B
C, B A
Question 26A company has a minimum required rate of return of 8%. It is considering investing in a project that costs $68,337 and is expected to generate cash inflows of $27,000 each year for three years. The approximate internal rate of return on this project is
8%
9%
10%
less than the required 8%
Question 27A comparative balance sheet for Mann Company appears below:
MANN COMPANY
Comparative Balance Sheet
Dec. 31, 2011 Dec. 31, 2010
Assets
Cash $ 27,000 $10,000
Accounts receivable 18,000 14,000
Inventory 25,000 18,000
Prepaid expenses 6,000 9,000
Long-term investments 0 18,000
Equipment 60,000 32,000
Accumulated depreciation—equipment (20,000) (14,000)
Total assets $116,000 $87,000
Liabilities and Stockholders’ Equity
Accounts payable $ 17,000 $ 7,000
Bonds payable 37,000 47,000
Common stock 40,000 23,000
Retained earnings 22,000 10,000
Total liabilities and stockholders’ equity $116,000 $87,000
Additional information:
1. Net income for the year ending December 31, 2011 was $27,000.
2. Cash dividends of $15,000 were declared and paid during the year.
3. Long-term investments that had a cost of $18,000 were sold for $14,000.
4. Sales for 2011 were $120,000.
Instructions: Prepare a statement of cash flows for the year ended December 31, 2011, using the indirect method. IF THE AFFECT ON THE CASH FLOW STATEMENT IS A DECREASE, PUT A NEGATIVE SIGN IN FRONT OF THE NUMBER OR USE PARENTHESES TO SHOW IT IS A NEGATIVE NUMBER.
For the operating section – show income statement items first, followed by changes in current assets and then changes in current liabilities.
For the investing section, show any sales first before any purchases.
For the investing section, show common stock, then bonds, then dividends.
Question 28Yappy Company is considering a capital investment of $320,000 in additional equipment.
The new equipment is expected to have a useful life of 8 years with no salvage value. Depreciation is computed by the straight-line method.
During the life of the investment, annual net income is expected to be 25,000 and cash inflows are expected to be $65,000.
Yappy requires a 10% return on all new investments.
Instructions: Using each of the methods below, show ALL your work for calculating the answer. Round to 2 decimal points when necessary. Number your responses below to correspond with the order in the question.
1. Cash payback period
2. Net present value
3. Profitability index
4. Internal rate of return
5. Annual rate of return
6. Based on the information computed above, should the investment be accepted? Why or why not?
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