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Exam 5: Communicating and Interpreting Accounting Information

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Question 1

True/False

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Cash payments associated with interest relate to operating activities.

A) True
B) False

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Question 2

Multiple Choice

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In the years 2005-2008,B Co.'s capital acquisitions ratio was 2.74 and from 2009-2012,it was 1.24.From 2009-2012,R Co.'s ratio was .30.Which of the following statements about B Co.'s capital acquisitions ratio is correct?

A) B Co.'s capital acquisitions ratio is relatively low and indicates inability to finance property,plant and equipment with cash flow from operations.
B) It appears that R Co.is more aggressive about investing in additional property,plant and equipment than is B Co.
C) B Co.'s ratio has improved in the period 2009-2012.
D) It appears that B Co.is more aggressive about investing in additional property,plant and equipment than is R Co.

E) A) and D)
F) All of the above

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B

Question 3

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The following changes were noted from the statement of financial position: trade receivables increased $8,000; inventory increased $4,000; trade payables increased $6,000; prepaid expense decreased $2,000; accrued liability decreased $5,000; and interest payable increased $1,000 Required: Prepare the operating activities section of the statement of cash flows using the indirect method.

WT Company reported sales revenue of $100,000 and total expenses of $90,000 (including depreciation) for the year ended December 31,20A.During 20A,trade receivables decreased by $4,000,merchandise inventory increased by $3,000,trade payables increased by $2,000,and depreciation expense of $6,000 was recorded.Assuming no other data are needed,what was the net cash inflow from operating activities for 20A?

Complete the following statement of cash flows using the indirect method:

The payment of interest on a note payable is a cash flow from an operating activity.

A low capital acquisitions ratio indicates a higher need to obtain outside financing to expand property,plant,and equipment assets.

The following information was reported from the statement of cash flows for The W D Company for the years 2010 through 2012 in millions of dollars: A.Calculate the quality of income ratio for the years 2010 through 2012. B.Interpret the quality of earnings ratio for The W D Company for the three year period.

If a loss of $20,000 is incurred in selling (for cash) office equipment that cost $90,000 and had accumulated depreciation of $22,500,the total amount reported in the investing activities section of the statement of cash flows is

The statement of cash flows is dated exactly like the income statement but unlike the statement of financial position.

Which of the following statements about cash flows from operating activities,in a statement of cash flows prepared under the indirect method,is correct?

A company acquired some land (independently appraised at $12,000) and paid for it by issuing 1,000 shares of its common shares (par $10 per share; no market price was quoted) .How should this be reported on the statement of cash flows?

Match each activity below with the proper classification by inserting the proper capital letter in the space to the left. Classification of Activity I.Investing F.Financing O.Operating Activity ____ 1.Collection of interest on a note receivable. ____ 2.Payment of debt principal with cash. ____ 3.Sales of operational assets (used in the business). ____ 4.Payment of cash dividends. ____ 5.Issuance of shares for cash. ____ 6.Borrowing cash from the bank. ____ 7.Purchase of operational assets for cash. ____ 8.Collections of dividends on long-term investments.

A higher quality of earnings ratio indicates that it is less likely that the company is using aggressive revenue recognition policies to increase profit.

Toga Corporation reported profit of $50,000 for the year.During the year,trade receivables increased by $8,000,trade payables decreased by $4,000 and depreciation expense of $6,000 was recorded.Net cash provided by operating activities for the year,using the indirect method,is

The statement of cash flows is the only financial statement prepared on the cash basis of accounting rather than on the accrual basis of accounting.

Dividends collected from a long-term investment are cash flows from investing activities.

Which of the following statements about the quality of earnings ratio is false?

The following information was available from the financial statements of C Co.Company for the years 2011 and 2012 in millions of dollars: A.Calculate the capital acquisitions ratio for C Co.for the two years: B.Comment on the sufficiency of the capital acquisitions ratio for the two years.

A transaction that does not cause an inflow or outflow of cash should be reported on the statement of cash flows only if it is an adjustment to convert accrual profit to the cash basis.