Uscthefollowing information toanswer this question.
Themostrecent
balance sheetand income statement ofTeramoto Corporation appear below:
Assets:
ComparativeBalanceSheet Ending Beginning
Balance Balance
Cashandcashequivalents
$43
$35
Accountsreceivable
53 59
Inventory
73 69
Plantandequipment
582 490
Lessaccumulateddepreciation
301 286
Totalassets
Liabilities andstockholders’equity
=$450
=367
Accountspayable
$57 $4S
Wagespayable
21 18
Taxespayable
15
13
Bondspayable
21 20
Deferredtaxes
20 21
Commonstock
55 50
Retained earnings
261 197
Totalliabilities andstockholders’ equity
=S450
=$-3=6=7
IncomeStatement
Sales
Costof
good
sold
Grossmargin
Selling andadministrative expense
Netoperatingincome
Incometaxes
Netincome
$893
587
306
189
117
35
=$82
1.Thenetcashprovided by(usedby)investing activities fortheyearwas
A.$77.B.$92.C.($77).
D.($92).
2.Cridwell Company’s selling and administrative expenses for last year totaled $210,000. During theyear,the company’s prepaid expense account balance increased by $18,000, and accrued liabilities increased by
$12,000. Depreciation charges for the year were $24,000. Based on this information, selling and
administrative would be
expenses
adjusted
toacash basis
under the direct method
on the statement
ofcash flows
A.$228,000.B.$192,000.
C.$180,000.
O.$240,000.
3.Degner [ncohassome material thatoriginally cost$19,500. Thematerial hasascrapvalue of$13,300 asis,butifreworked atacostof$2,100, itcouldbesoldfor$14,000. Whatwould betheincremental effectonthecompany’s overall profitofreworking andsellingthematerial ratherthanselling itasisasscrap?
A.-$1,400
B.$11,900
C.-$7,600
O.-$20,900
4.Whichofthefollowing would
beclassified asafinancing activity onthestatement ofcashflows?
A.Interestreceivedoninvestmentsinanothercompany’sbonds
B.Dividendspaidtoshareholdersofthe companyonthecompany’scommonstock
C.Dividends receivedoninvestmentsinanothercompany’scommonstock
O.Interest paidonbondsissuedbythereportingcompany
Usethe following
information
toanswer
this question.
The1110st recent balance sheetandincome statement ofTeramoto Corporation appear below:
ComparativeBalanceSheet
Ending
Balance
Beginning
Balance
Assets:
Cashandcashequivalents
$43
$35
Accountsreceivable
53
59
Inventory
73
69
Plant
andequipment
582
490
Less
accumulateddepreciation
301
286
Totalassets
$450
ll[Z
Liabilities and
stockholders’ equity
Accountspayable
$57
$48
Wages
payable
21
18
Taxes
payable
15
13
Bondspayable
21
20
Deferredtaxes
20
21
Commonstock
55
50
Retained earnings
261
197
Total liabilities andstockholders’ equity
$450 lliZ
IncomeStatement
Sales
Costofgoodsold
Grossmargin
Selling andadministrative expense
Netoperatingincome
Incometaxes
Netincome
$893
587
306
IR9
117
35
$82
5.Thenetcash provided by(used by)operations fortheyearwas
A.$52.B.$112. C$II7.D.530.
6.Kava
Inc.manufactures industrial components. Oneofitsproducts, which isusedintheconstruction ofindustrial airconditioners, isknown asK65.Dataconcerning thisproduct aregivenbelow:
PerUnit
Selling price
$180
Direct
materials
$29
Directlabor
$5
Variable manufacturing
overhead
$4
Fixed manufacturing overhead
$21
Variable selling
expense
$2
fixedselling
andadministrative
expense
$17
Theabove perunitdataarebased onannual production of4,000 unitsofthecomponent. Direct labor canbeconsidered tobeavariable cost..(Source: CMA, adapted)
Thecompany hasreceived aspecial, one-time-only order for500unitsofcomponent K65.There wouldbe novariable sellingexpense onthisspecial order,andthetotalfixedmanufacturing overhead andfixed selling andadministrative expenses ofthecompany wouldn’t beaffected bytheorder.Assuming that Kavahasexcess capacity andeanfilltheorderwithout cuttingbackontheproduction ofanyproduct, what is
theminimum priceperunitonthespecial orderbelow
which
thecompany shouldn’t go?
A.$78
B.$59
C $38
n.$180
7.Whichofthefollowing would beconsidered a”use”ofcashforthepurpose ofconstructing astatement ofcashflows?
A.Amortizing apatent
B.Sellingthecompany’sowncommonstocktoinvestors
C.Purchasing equipment
D.Issuing long-termdebt
Usethe following
information
toanswer this question.
Themostrecent balance sheetand income statement ofTeramoto
Corporation appear below:
ComparativeBalanceSheet
Ending
Balance
Beginning
Balance
Assets:
Cashandcashequivalents
$43
$35
Accountsreceivable
53
59
Inventory
73
69
Plantandequipment
582
490
Lessaccumulateddepreciation
301
286
Totalassets
$450
$367
Liabilities andstockholders’
equity
Accounts
payable
$57
$48
Wagespayable
21
18
Taxespayable
15
13
Bondspayable
21
20
Deferredtaxes
20
21
Commonstock
55
50
Retained earnings
261
197
“”””””‘”
Totalliabilities andstockholders’ equity
£450
$367
“””””‘=
IncomeStatement
Sales
Costofgoodsold
Grussmargin
Selling andadministrative expense
Netoperatingincome
Incometaxes
Netincome
$893
587
306
189
117
35
$82
Cashdividends were $18.
8.Thenetcashprovided by(usedby)financing activities fortheyearwas
A.($12).B.$5.C.($18).D.$1.
9.TheClemson Company reported thefollowing results lastyearforthemanufacture andsaleofoneoritsproducts known asaTam.
Variable
costof
sales
390,000
Variabledistribution costs
65,000
Fixed
advertising expense
275,000
Salary
ofproduct
linemanager
25,000
Fixedmanufacturing overhead
145,000
Net
operatingloss
$(55,000)
Sales(6,500Tams at$130each)
$845,000
Clemson Company istrying todetermine whether todiscontinue themanufacture andsaleofTams. The
operating resultsreported
above forlastyear areexpected tocontinue
intheforeseeable future iftheproduct isn’tdropped. Thefixedmanufacturing overhead represents thecostsofproduction facilities andequipment thattheTam product shares with otherproducts produced byClemson. IftheTam product weredropped, therewould benochange inthefixedmanufacturing costsofthecompany.
Assume thatdiscontinuing themanufacture
andsaleofTamswillhave noeffectonthesaleofother
productlines.]f
thecompany discontinues theTamproduct line,thechange inannual operating income (or loss)shouldbea
1.$55,000
decrease.B.$90,000 decrease.
C.
$65.000 decrease.D.$70,000
increase.
10.Products A,B,andCareproduced fromasinglerawmaterial input.Therawmaterial costs $90,000,trornwhich 5,000 unitsofA, 10,000unitsofB,and 15,000unitsofCcanbeproduced each
period. ProductAcanbesoldatthesplit-off point for$2perunit,orit canbeprocessed further atacostof
$12,500 andthen
soldfor$5perunit.
Product Ashould be
1.processed further,sincethiswillincreaseprofitsby$12,500
eachperiod.
B.soldatthesplit-offpoint,sincefurtherprocessingwillresultinalossof$2,500eachperiod.
C.processedfurther,sincethiswillincreaseprofitsby$2,500
eachperiod.
D.
soldatthesplit-offpoint,sincefurtherprocessingwouldresultinalossof$0.50perunit.
Uscthe following information
toanswer this
question.
Financial statements forLarkins
Company appear below:LarkinsCompany
Statement ofFinancial Position
December 31,Year 2andYear t
(dollars inthousands)
Currentassets:
CashandmarketahlesecuritiesAccountsreceivable,net Inventory
Prepaidexpenses
Totalcurrent
assets
Noncurrcntassets:
Plant&equipment,net
Totalassets
Year 2 Year
I
$180 $180
210 IgO
130 120
50 50
570 530
1]540 1,480
S2,IIO $2,010
Current liabilities:AccountspayableAccrued liabilities
Notespayable, shortterm Totalcurrent liabilitiesNoncurrentliabilities:
Bondspayable
Total liabilities
$100 $130
60 60
90 120
250 310
480 500
710 RIO
Stockholders’equity:
Preferredstock,$20par,10%Commonstock,$10par
Additional paid-incapital–commonstock
Retainedcamings
Totalstockholders’equity
Totalliabilities &stockholders’equity
120 120
180 180
240 240
840 660
°
1,3RO 1,200
S2,II $2,010
LarkinsCompany
IncomeStatement
FortheYearEndedDecember31,Year2 (dollarsinthousands)
Sales(allonaccount)Costofgoodssold Grussmargin
Sellingandadministrative expense
Netoperatingincome
Interestexpense
Netincomebeforetaxes
Incometaxes(30%)Netincome
$2,760
1,930
830
330
SOOSO
4S0
13S
$315
Dividends during Year 2totaled $135thousand, ofwhich $12thousand werepreferred dividends. Themarket price ofashare ofcommon stoek onDecember 31,Year2was$150.
11.Larkins Company’s return oncommon stockholders’
equity
forYear 2wasclosestto:
A.26.9%.B.2S.9%.C.24.4%.D.23.S%.
12.Aprojectprofitability
indexgreater than
zeroforaprojectindicates that
A.therehasbeenacalculationerror.
B.thecompanyshouldreevaluateitsdiscountrate.
C.theprojectisunattractiveandshouldn’tbepursued.
D.thediscountrateislessthantheinternalrateof return.
13.(Ignore incometaxesinthisproblem.) TheKeego Company isplanning a$200,000 equipment
investment that
hasanestimated five-year lifewithnoestimated salvage value. Thecompany hasprojected thefollowingannualcashflowsfortheinvestment:
Year
CashInflows
$120,000
2
60,000
3
40,000
4
40,000
5
40,000
Total $300,000
Assuming thatthecashinflows occur evenly overtheyear,thepayback period fortheinvestment isyears.
—
A.4.91
B.2.50
C.0.75
D.1.67
Usethefollowing information toanswer this question.
Financial statements forLarkins Company appear below:Larkins Company
Statement ofFinancial Position
December 31,Year 2andYear 1(dollars inthousands)
Currentassets:
CashandmarketablesecuritiesAccountsreceivable,netInventory
Prepaidexpenses
Tutalcurrentassets
Noncurrentassets:
Plant&equipment,net
Totalassets
Year2 YearI
$180 $180
210
180
130
120
50 50
570 530
1,540 1,480
$2,110 $2,010
Current liabilities:
Accountspayable
$100
$130
Accruedliabilities
60
60
Notespayable,short
term
90
120
Total current liabilities
250
310
Noncurrent liabilities:
Bondspayable
480
500
Total liabilities
730
810
Stockholders’equity:
Preferredstock,$20par,
10%
120
120
Commonstock,$10par
lXO
lXO
Additionalpaid-incapital–commonstock
Retained earnings
Totalstockholders’equity
Tutal liabilities &stockholders’ equity
240 240
H40 660
°
1,380 1,200
$2,11 $2,010
LarkinsCompany
IncomeStatement
FortheYearEndedDecember31,Year2(dollarsinthousands)
Sales (allonaccount)CostofgoodssoldGrossmargin
Selling andadministrative expense
Netoperatingincome
Interestexpense
Netincomebeforetaxes
Incometaxes(30%)Netincome
$2,760
1,930
830
330
500
50
450
135
$315
Dividends during Year 2totaled $135thousand, ofwhich$12thousand werepreferred dividends. The marketpriceofashare ofcommon stock onDecember 31,Year2was$150.
14.Larkins Company’s dividend payout ratio forYear2wasclosestto:
A.24.6%B.42.9%C.40.6%D.14.8%
15.FonicsCorporation isconsidering thefollowing threecompeting investment proposals:
Aye
Bee
Cee
Initialinvestment required
$62,000
$74,000
$95,000
Net
presentvalue
$10,000
$8,000
$12,000
Internal rateofreturn
15%
17%
18%
Usingtheproject profitability index, howwould theaboveinvestments beranked(highest tolowest)?
A. Aye,Cee,BeeB.Bee,Ccc,AyeC.Aye,Bee,CeeD.Ccc,Bee,Aye
16.PartN19isused byMalouf Corporation tomake oneofitsproducts. Atotalof7,000 unitsofthispart areproduced andusedevery year.Thecompany’s Accounting Department reports thefollowing costs ofproducing thepartatthislevelofactivity:
Direct materials
Directlabor
Variablemanufacturing overhead
Supervisor’ssalary
Depreciation ofspecialequipment
Allocatedgeneraloverhead
PcrUnit
$2.20
$8.50
$1.30
$5.RO
$7.20
$4.60
Anoutside supplier hasoffered tomakethepartandsellittothecompany for$24.50 each. ifthisoffer isaccepted, thesupervisor’s salary andallofthevariable costs, including thedirectlabor,canbeavoided.
Thespecial equipment usedtomake thepartwaspurchased many years agoandhasnosalvage valueorotherusc.Theallocated general overhead represents fixedcosts
oftheentirecompany, noneofwhichwouldbeavoided ifthepartwerepurchased instead ofproduced internally. Inaddition, thespace usedto
makepartN19could beused tomake moreofoneofthecompany’s otherproducts, generating
an
additional segment margin of$25,000
peryearforthatproduct. What
would betheimpact onthecompany’s overall netoperating income ofbuyingpartN19fromtheoutside supplier?
A.Netoperatingincomewoulddeclineby$10,700peryear.R.Netoperatingincomewouldincreaseby$25,000peryear.C.Netoperatingincomewould declineby$21,900peryear. D.Netoperatingincomewoulddeclineby$60,700peryear.
17.VlM Company purchased $100,000 ininventory fromitssuppliers
oncreditterms.
The company’sacid-test ratiowould
most likely
A.decrease.
B.beunchanged.C.increase.
D.beimpossible todeterminewithoutmoreinformation.
18.Acompany’s current ratioandacid-test ratiosarebothgreater than 1.Ifobsolete inventory iswritten
off, thiswould
A.decreasethecurrentratio.R. increasetheacid-testratio.e.increasenetworkingcapital.D. decreasetheacid-testratio.
19.
Aweakness oftheinternalrateofreturnmethod forscreening investment projects isthatit
A.implicitly assumesthatthecompanyisabletoreinvestcashflowsfrom
theprojectatthecompany’sdiscount rate.B.doesn’tconsiderthetimevalueofmoney.
C.implicitly assumesthatthe companyisabletoreinvest cashflowsli’OITItheprojectattheinternalrateofreturn.D.doesn’ttakeintoaccountallofthecashflowsfromaproject.
20.Centerville Company’s debt-to-equity
ratiois0.60Total assets are$320,000, current assets are
$170,000, andworking capital is$80,000. Centerville’s long-term liabilitiesmustbe
A.S30,000.B.S90,000.C.$80,000.
D.$120.000.
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