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(Points : 5)
a) Show the companys ability to meet its obligations, pay dividends, and any
needs for financing.
b) Show the companys cash flow prospects.
c) Show the cash payments and cash receipts for the period.
d) Show the operating, financing, and investing activities for the period.
Point 2:
The cash flows from purchase or sale of securities need to be reported under
Investing activities and NOT operating activities. Only the gain or loss from
sale of securities will come under operating activities as adjustment to net
income. So, as per the wording given, option d) is also a not true statement and
can be marked as an answer. But, till now, if I mark 2 answers, students come to
me saying that only one answer should be marked. So, I guess there is a printing
error in the options. Please check for printing errors as your query of option d)
answer is also right. There can be printing errors because even in question 3, as I
have mentioned below, the answer is $276,500 but the option has only $276,000.
So, kindly check.
3. (TCO F) Glitter Girl, Inc. recognized net income of $205,000 including $60,000 in
depreciation expense.
Additional changes from the balance sheet are as follows.
Accounts Receivable
$2,000
decrease
Prepaid Expenses
$15,500
decrease
Inventory
$36,000
increase
Accrued Liabilities
$10,000
decrease
Accounts Payable
$40,000
increase
Compute the net cash from operating activities based on the above information.
(Points : 5)
a) $156,000
b) $117,000
c) $276,000 (Answer is actually $276,500 as shown below)
d) $281,000
Please note: As per the figures given, the answer is $276,500 as
shown below. Please check if there are any printing errors in the
question figures or in the answer options.
Workings:
Net income
$205,000
$60,000
$2,000
$15,500
$40,000
($36,000)
($10,000)
$276,500
4. (TCO F) Pig Builder's, Inc. shows the following as of December 31, 2012.
- Acquired 50% of Wolf Corp's common stock for $160,000 cash, which was
borrowed from Granny's Bank.
- Issued 5,000 shares of its preferred stock for land having a fair value of
$320,000
- Issued 500 of its 11% debenture bonds, due 2017, for $392,000 cash
- Paid $120,000 toward bank loan.
- Purchased a patent for $220,000 cash
- Sold available for sales securities for $796,000
- Recognized $88,000 net increase in returnable long term customer deposits
Pig's net cash provided by investing activities for 2012 is (Points : 5)
a) $476,000.
b) $636,000.
c) $316,000.
d) $416,000.
Workings:
Purchase of 50% of Wolf Corps common stock
($160,000)
Purchase of Patent
($220,000)
$796,000
$416,000
5. (TCO F) Dasher Builder's, Inc. shows the following as of December 31, 2012.
- Sold available for sales securities for $650,000
- Acquired 50% of Elven Corp's common stock for $310000 cash which was
borrowed from Peppermint's Bank.
- Issued 2,000 shares of its preferred stock for land having a fair value of $50,000
- Purchased a patent for $170,000 cash
- Issued 1,000 of its 12% debenture bonds, due 2017, for $225,000 cash
- Paid $130,000 toward bank loan.
- Recognized $79,000 net increase in returnable long term customer deposits
Dasher's net cash provided by financing activities for 2012 is (Points : 5)
a) $614,000.
b) $535,000.
c) $484,000.
d) $405,000.
Workings:
Finance from Peppermint bank
$310,000
$225,000
($130,000)
$79,000
$484,000
6. (TCO F)
Cash flows from operating activities (indirect and direct methods).
Presented below is the income statement of Smiling Tiger, Inc.
Sales
$250,000
109,000
Gross profit
$141,000
Operating expenses
85,000
56,000
Income taxes
22,400
Net income
$33,600
Credit
Cash
$10,600
Accounts receivable
Inventories
2,400
$3,600
1,400
$14,700
$1,800
Required:
Prepare a schedule computing the net cash flow from operating activities that would
be shown on a statement of cash flows:
(a)
(b)
Solution:
(a) Indirect method
Net Income
Add: Depreciation expense
Add: Decrease in Accounts receivable
Add: Decrease in Inventories
Less: Decrease in Salaries payable
Add: Increase in accounts payable
Less: Decrease in Tax payable
Add: Increase in deferred tax liability
$33,600
$14,700
$48,300
$2,400
$3,600
($12,000)
$15,000
($1,400)
$1,800
$57,700
Direct method:
Cash receipts:
$252,400
($90,400)
($82,300)
($22,000)
$57,700