ACC 371 Week 3 Quiz 5

ACC 371 Week 3 Quiz 5 | Mercer University

Question 1

Which of the following activities would be included in the Investing section of the Statement of Cash Flows? 

1.            Nontrade loan to another entity

2.            Purchase of the net assets of another company in exchange for company stock

3.            Cash dividends received on investment in stocks

4.            Sale of equipment used in operations, for cash  

a and d 

a, b, and d 

a and c  

b and c  

All of the activities would be included in the investing section  

None of the activities would be included in the Investing section

Item b is incorrect; this is a non-cash activity.  Item c is incorrect; receipt of cash dividends on investments is an operating activity.

Question 2

Selected Information for Mackinac Industries — 2020

Average Accounts Receivable    $20,000

Average Inventory          $12,900

Average Accounts Payable          $6,000

Net Sales             $200,000

Cost of Goods sold          $120,000

What was Mackinac’s cash conversion cycle in 2020?  If the company decreased the accounts payable turnover rate, would the conversion cycle be shorter or longer?

57; longer  

94; shorter   

57; shorter 

94; longer

Question 3

0.25 / 0.25 pts

Ratios    Tito        Eddie

Quick ratio          0.32        0.78

Cash debt coverage        0.56        0.53

Current cash debt coverage        0.56        1.38

Current ratio      0.41        1.03

Financial leverage            1.79        2.07

Total-liabilities-to-equity              79%        107%

Profit margin      14.67%  18.27%

Return on assets              16.60%  25.00%

Return on equity              29.65%  51.80%

Eddie clearly has better profitability ratios.  What could Tito do in the next six months to improve its profitability ratios?

Buy back more of its own stock.  

Increase the allowance for doubtful accounts for accounts past due 120 days.  

Start purchasing inventory from a local supplier, eliminating shipping costs.

A and B  

B and C  

A and C  

A, B, and C

Question 4

                Dec. 31, 2019      Dec. 31, 2020

Cash      $15,400 $35,000

Accounts receivable       85,000   92,000

Allowance for doubtful accounts              7,100     9,900

Shoe inventory 100,000 75,000

Accounts payable, Styles Limited              50,000   45,000

Sales revenue                  1,000,000

Cost of Goods Sold                         600,000

Operating expenses                      282,000

How much will Baltic report as cash collected from customers in its 2020 Statement of Cash Flows?

$823,000 

$993,000 

$908,000  

$1,007,000

Cash collected = A/R beginning + Sales – A/R ending

= $993,000 (85,000+1,000,000-92,000)

Question 5

Which of the following statements is(are) true?  

Horizontal analysis is often referred to as trend analysis.  

A vertical analysis is most commonly used to evaluate operations over time.  

Significant categories of costs are highlighted in common size analysis.  

A and B 

B and C 

A and C  

A, B, and C

Question 6

Which of the following events would not improve (increase) a company’s return on equity?  (Assume all else remains the same.)

1.            Retirement of long-term debt with cash

2.            Sale of common stock for cash

3.            Reduction in operating expenses

a  

b  

c  

a and b 

a and c  

b and c

Question 7

1.            Which of the following would likely be perceived, by users, as a benefit of non-GAAP financial measures included in a company’s annual report?

1.            Non-GAAP financial measures provide additional information that could be used to evaluate the financial health of the company.

2.            Non-GAAP financial measures are more flexible and do not have to be calculated in a way comparable to other companies in the same industry using similar measures.

3.            Non-GAAP financial measures are regulated by the Securities Exchange Commission (SEC).

a    a and b  

b    b and c  

c    a and c  

d. None of the listed statements are accurate

Question 8

Which of the following amounts appear as separate line items on multiple financial statements?  

Dividends declared  

Net income

You Answered 

Retained earnings 

A and B  

B and C  

A and C 

A, B, and C

Question 9

Penn, Inc. has applied for an expansion loan from its bank. The loan officer has asked for the following historical data:

                2016       2017       2018       2019

Inventory turnover         10           9              8.5          6

Profit margin      11.5%    12.1%    12.3%    12.6

Current ratio      1.1          1.2          1.0          1.1

Quick Ratio         .8            .7            .7            .5

Total liabilities-to-equity               .5            .75          1.2          1.1

What tentative conclusions might a competent loan officer come to after reviewing the data?  

The profit margins are increasing but the steep decline in the quick ratio compared to the consistency of the current ratio is concerning.  This may indicate inflated inventory values.  

The profit margin and total liabilities-to-equity ratios are improving. Solvency, in particular, improved substantially in 2018.  

Although the quick ratio is decreasing, that may simply be the result of decreasing inventory levels as seen by decreasing inventory turnover ratios.  

It appears that Penn might have acquired a significant amount of debt in 2018.  

A and B  

A and D  

B and C

Question 10

                Dec. 31, 2019      Dec. 31, 2020

Cash      $15,400 $35,000

Accounts receivable, net              70,900   83,100

Inventory            126,000 149,000

Prepaid expenses            1,200     4,500

Equipment          545,000 595,000

Accumulated depreciation           216,000 236,000

Accounts payable            125,000 86,000

Salaries payable                12,500   15,600

Current portion of long-term debt           20,000   32,000

Long-term debt                250,000 283,000

Capital stock       50,000   75,000

Retained earnings           85,000   139,000

You have the following additional information:

•             Equipment with a net book value of $10,000 was sold for $12,000, cash during the year. The equipment originally cost $50,000.

•             During 2020, Inches paid $5,000 down on an equipment purchase and financed the balance. That was the only purchase of equipment made during the year.

•             The company issued common stock during the year, for cash.

•             No dividends were declared during the year.

•             Inches used the indirect method in its Statement of cash flows.

What was reported as net cash from operating activities in iWork’s Statement of cash flows for 2020?

$(23,200)  

$(22,400)  

$  (2,400)  

$ 37,600