Problem I Multiple Choice Questions. (30 points)

1. Which of the following transactions would be considered a financing activity in preparing a statement of cash flows?

a. Amortizing a discount on bonds payable

b. Recording net income from operations

c. Selling common stock

d. Purchasing inventory

2. The net income for the year ended December 31, 2015, for Management Consultants Inc. was $990,000. Additional information is as follows:

Capital expenditures $1,200,000

Depreciation on plant assets 450,000

Cash dividends paid on common stock 180,000

Increase in noncurrent deferred tax liability 45,000

Amortization of patents 21,000

Based on the information given above, what should be the net cash provided by operating activities in the statement of cash flows for the year ended December 31, 2015?

a. $1,326,000.

b. $1,416,000.

c. $1,461,000.

d. $1,506,000.

3. Information concerning the debt of Cadmium Company is as follows:

Short-term borrowings:

Balance at December 31, 2014 $525,000

Proceeds from borrowings in 2015 325,000

Payments made in 2015 (450,000)

Balance at December 31, 2015 $400,000

Current portion of long-term debt:

Balance at December 31, 2014 $1,625,000

Transfers from caption "Long-Term Debt" 500,000

Payments made in 2015 (1,225,000)

Balance at December 31, 2015 $ 900,000

Long-term debt:

Balance at December 31, 2014 $9,000,000

Proceeds from borrowings in 2015 2,250,000

Transfers to caption "Current Portion of Long-Term Debt" (500,000)

Payments made in 2015 (1,500,000)

Balance at December 31, 2015 $9,250,000

In preparing a statement of cash flows for the year ended December 31, 2015, for Cadmium Company, cash flows from financing activities would reflect

Outflow

a. $2,000,000

b. $2,250,000

c. $2,575,000

d. $3,175,000

Problem I (continued)

4. In considering interim financial reporting, how did the Accounting Principles Board conclude that such reporting should be viewed?

a. As a "special" type of reporting that need not follow generally accepted accounting principles.

b. As useful only if activity is evenly spread throughout the year so that estimates are unnecessary.

c. As reporting for a basic accounting period.

d. As reporting for an integral part of an annual period.

5. Which of the following items represents a potential use of cash?

a. Patent amortization

b. Sale of plant assets at a loss

c. Net loss from operations

d. Declaration of a stock dividend

6. Wellington Company purchased a machine on January 1, 2012, for $6,400,000. At the date of acquisition, the machine had an estimated useful life of six years with no salvage. The machine is being depreciated on a straight-line basis. On January 1, 2015, Wellington determined, as a result of additional information, that the machine had an estimated useful life of eight years from the date of acquisition with no salvage. An accounting change was made to reflect this additional information. What amount of depreciation expense should be reported in Wellingtons income statement for the year ended December 31, 2015?

a. $1,066,667

b. $800,000

c. $640,000

d. $400,000

7. On January 7, 2013, Yellow Corporation acquired machinery at a cost of $2,100,000. Yellow adopted the sum-of-the-years-digits method of depreciation for this machine and had been recording depreciation over an estimated life of five years, with no residual value. At the beginning of 2015, a decision was made to change to the straight-line method of depreciation for this machine. Assuming a 30% tax rate, the cumulative effect of this accounting change, net of tax, is

a. $0

b. $280,000

c. $294,000

d. $420,000

Problem I (continued)

8. Information from Bowling Companys balance sheet is as follows:

Current assets:

Cash $ 12,000,000

Short-term investments 20,000,000

Accounts receivable 50,000,000

Inventories 66,000,000

Prepaid expenses 2,000,000

Total current assets $150,000,000

Current liabilities:

Notes payable $ 21,000,000

Accounts payable 18,000,000

Accrued expenses 13,000,000

Income taxes payable 3,000,000

Current portion of long-term debt 5,000,000

Total current liabilities $ 60,000,000

What is the acid-test (quick) ratio?

a. 1.03 to 1

b. 1.37 to 1

c. 1.40 to 1

d. 2.50 to 1

9. Bo Inc. disclosed the following information as of and for the year ended December 31, 2015:

Net cash sales 600,000

Net credit sales 960,000

Inventory at beginning 100,000

Inventory at end 150,000

Net income 30,000

Accounts receivable at beginning of year 110,000

Accounts receivable at end of year 130,000

Bos receivables turnover is

a. 7.4 to 1.

b. 8.0 to 1.

c. 12.0 to 1.

d. 13.0 to 1.

10. The calculation of the number of times interest is earned involves dividing

a. net income by annual interest expense.

b. net income plus income taxes by annual interest expense.

c. net income plus income taxes and interest expense by annual interest expense.

d. none of these answers are correct.