Q&A Hero

Q: Explain the difference in the calculation of return on assets and cash return on assets. How can cash-based ratios supplement the analysis of ratios based on income statement and balance sheet information?

Q: A $10,000 investment on the books of the company is sold for $11,000. How does this transaction affect operating, investing, and financing activities under the indirect method?

Q: Highland Park Homes reports net income of $300,000, and yet its net cash flow from operating activities is a negative $200,000 during the same period. Is this possible? Explain.

Q: Distinguish between the indirect method and the direct method for reporting net cash flows from operating activities. Which method is more common in practice? Which method provides a more logical presentation of cash flows?

Q: Identify and briefly describe the three categories of cash flows reported in the statement of cash flows.

Q: Portions of the financial statements for Horizon Telecom are provided below. Horizon Telecom Income Statement For the Year Ended December 31, 2015 Revenues $610,000 Expenses: Cost of goods sold 391,000 Operating expenses 120,000 Depreciation expense 32,000 Income tax expense 44,000 Total expenses 566,000 Net Income $44,000 Horizon Telecom Selected Balance Sheet Data December 31, 2015 Increase in accounts receivable $ 6,000 Increase in inventory 13,000 Decrease in prepaid rent 9,000 Increase in operating expenses payable 5,000 Decrease in accounts payable 8,000 Increase in income tax payable 20,000 Prepare the operating activities section of the statement of cash flows for Horizon Telecom using the direct method.

Q: Wilson Electric reports income tax expense of $150,000. Income tax payable at the beginning and end of the year are $20,000 and $25,000, respectively. What is the cash paid for income taxes during the year?

Q: Freedom Wireless reports operating expenses of $255,000. Operating expenses include both rent expense and salaries expense. Prepaid rent decreases during the year by $10,000 and salaries payable increases by $25,000. What is the cash paid for operating expenses during the year?

Q: Laser Solutions' inventory decreases during the year by $8 million and its accounts payable to suppliers increases by $6 million during the same period. What is the amount of cash paid to suppliers of merchandise during the reporting period if its cost of goods sold is $81 million?

Q: Discount Computers' accounts receivable increases during the year by $3 million. What is the amount of cash received from customers during the reporting period if its sales are $47 million?

Q: $155,000 $1,600,000 9.7% $1,600,000 ($890,000 + $950,000) / 2 1.7 times

Q: The balance sheet of Integrated Systems reports total assets of $890,000 and $950,000 at the beginning and end of the year, respectively. Sales revenues are $1.6 million, net income is $185,000, and net cash flows from operating activities are $155,000. Calculate the cash return on assets, cash flow to sales, and asset turnover for Integrated Systems.

Q: The balance sheet of Integrated Systems reports total assets of $890,000 and $950,000 at the beginning and end of the year, respectively. Sales revenues are $1.6 million, net income is $185,000, and net cash flows from operating activities are $155,000. Calculate the cash return on assets, cash flow to sales, and asset turnover for Integrated Systems.

Q: Company A $4,054 $47,220 8.6% Company B $5,125 $66,176 7.7% Company A $47,220 ($32,625 + $33,005) / 2 1.4 times Company B $66,176 ($41,164 + $40,877) / 2 1.6 times Company A has a better (higher) cash flow to sales ratio, while Company B has a better (higher) asset turnover.

Q: Company A $4,054 $47,220 8.6% Company B $5,125 $66,176 7.7%

Q: Two competitors in the construction supply industry report the following selected financial data: Company A Company B Sales $47,220 $66,176 Net income 1,783 2,620 Operating cash flows 4,054 5,125 Total assets, beginning 32,625 41,164 Total assets, ending 33,005 40,877 Calculate the cash return on assets, cash flow to sales ratio, and asset turnover ratio for each company. Which company has the better cash flow to sales ratio and which company has the better asset turnover ratio?

Q: Two competitors in the construction supply industry report the following selected financial data: Company A Company B Sales $47,220 $66,176 Net income 1,783 2,620 Operating cash flows 4,054 5,125 Total assets, beginning 32,625 41,164 Total assets, ending 33,005 40,877 Calculate the cash return on assets, cash flow to sales ratio, and asset turnover ratio for each company. Which company has the better cash flow to sales ratio and which company has the better asset turnover ratio?

Q: Nathan Herrmann has completed the basic format to be used in preparing the statement of cash flows (indirect method) for CEO Consultants. CEO Consultants Statement of Cash Flows For the Year Ended December 31, 2015 Cash Flows from Operating Activities Net income Adjustments to reconcile net income to net cash flows from operating activities: Net cash flows from operating activities Cash Flows from Investing Activities Net cash flows from investing activities Cash Flows from Financing Activities Net cash flows from financing activities Net increase (decrease) in cash (50,000) Cash at the beginning of the period 95,000 Cash at the end of the period $45,000 Listed below in random order are line items to be included in the statement of cash flows. Purchase of equipment $220,000 Increase in inventory 30,000 Increase in prepaid rent 10,000 Payment of dividends 40,000 Depreciation expense 20,000 Increase in accounts receivable 60,000 Increase in accounts payable 10,000 Loss on sale of land 7,000 Net income 70,000 Repayment of notes payable 50,000 Cash received from the sale of land 3,000 Issuance of common stock 250,000 Prepare the statement of cash flows for CEO Consultants using the indirect method.

Q: Mobile Video Systems sold land, investments, and issued their own common stock for $10 million, $15 million, and $20 million, respectively. Mobile Video also purchased treasury stock, equipment, and a patent for $2 million, $4 million, and $6 million, respectively. What amount should the company report as net cash flows from investing activities? What amount should the company report as net cash flows from financing activities?

Q: Portions of the financial statements for Horizon Telecom are provided below. Horizon Telecom Income Statement For the Year Ended December 31, 2015 Revenues $610,000 Expenses: Cost of goods sold 370,000 Operating expenses 120,000 Depreciation expense 32,000 Income tax expense 44,000 Total expenses 566,000 Net Income $44,000 Horizon Telecom Selected Balance Sheet Data December 31, 2015 Increase in accounts receivable $ 6,000 Increase in inventory 13,000 Decrease in prepaid rent 9,000 Increase in operating expenses payable 5,000 Decrease in accounts payable 8,000 Increase in income tax payable 20,000 Prepare the operating activities section of the statement of cash flows for Horizon Telecom using the indirect method.

Q: Alpha Computers reports net income of $44 million. Included in that number are depreciation expense of $7 million and a loss on the sale of land of $2 million. Records reveal decreases in Accounts Receivable, Inventory, and Accounts Payable of $4 million, $3 million, and $2 million, respectively. Calculate Alpha Computers' net cash flows from operating activities using the indirect method.

Q: Fidelity Systems reports net income of $80 million. Included in that number is depreciation expense of $8 million, and a gain on the sale of equipment of $1 million. Records reveal increases in Accounts Receivable, Inventory, and Accounts Payable of $4 million, $3 million, and $2 million, respectively. Calculate Fidelitys net cash flows from operating activities using the indirect method.

Q: Micro Manufacturing reports net income of $850,000. Depreciation Expense is $60,000, Accounts Receivable increases $30,000 and Accounts Payable decreases $10,000. Calculate net cash flows from operating activities using the indirect method.

Q: Electronic Wonders reports net income of $95,000. The accounting records reveal Depreciation Expense of $50,000 as well as increases in Prepaid Rent, Accounts Payable, and Income Tax Payable of $40,000, $23,000, and $20,000, respectively. Prepare the operating activities section of Electronic Wonders' statement of cash flows using the indirect method.

Q: Place the following items in the correct order as they would appear in the statement of cash flows: 1. Beginning cash balance 2. Ending cash balance 3. Investing activities 4. Financing activities 5. Net increase (decrease) in cash 6. Operating activities

Q: Operating activities.

Q: Analysis of an income statement, balance sheets, and additional information from the accounting records of Gaming Strategies reveal the following items: 1. Collection of notes receivable. 2. Purchase of equipment. 3. Exchange of long-term assets. 4. Decrease in accounts payable. 5. Payment of dividends. 6. Purchase of a patent. 7. Depreciation expense. 8. Decrease in accounts receivable. 9. Issuance of note payable. 10. Increase in inventory. Indicate in which section of the statement of cash flows each of these items would be reported: operating activities (indirect method), investing activities, financing activities, or noncash activities.

Q: Cash outflow, Investing activity.

Q: The following selected transactions occur during the first year of operations. Determine how each should be reported in the statement of cash flows. State whether it is a cash inflow or a cash outflow and whether it is an operating, investing, or financing activity. 1. Issued a million shares of common stock at $20 per share. 2. Purchased land and a building for $3 million. 3. Received $200,000 from a cash sale of merchandise to customers. 4. Paid a dividend of $1 per share to common stockholders. 5. Loaned $50,000 to an employee and accepted a note receivable.

Q: Investing Activity.

Q: Classify each of the following items as an operating, investing, or financing activity. 1. Payment of income taxes. 2. Sale of investments. 3. Receipt of interest. 4. Issuance of common stock. 5. Purchase of intangibles.

Q: Financing Activity.

Q: Classify each of the following items as an operating, investing, or financing activity. 1. Dividends paid. 2. Sale of goods or services for cash. 3. Sale of equipment. 4. Purchase of inventory. 5. Repayment of notes payable.

Q: Which of the following items is reported in the operating section of the statement of cash flows using the direct method? a. Depreciation expense. b. Gain on sale of an asset. c. Cash received from customers. d. Loss on sale of an asset.

Q: Which of the following items is not reported in the operating section of the statement of cash flows using the direct method? a. Depreciation expense. b. Cash paid to suppliers. c. Cash received from customers. d. Cash paid for income taxes.

Q: Schneider Inc. purchases its inventory from suppliers on account. During the year, its Inventory account increased by $10 million and its accounts payable to suppliers decreased by $3 million. Cost of goods sold was $440 million, its cash outflows to inventory suppliers totaled: a. $453 million. b. $447 million. c. $433 million. d. $427 million.

Q: Data Solutions reports income tax expense of $1,700,000. Income taxes payable at the beginning and end of the year are $250,000 and $370,000, respectively. What is the amount of cash paid for income taxes? a. $1,700,000. b. $1,820,000. c. $2,070,000. d. $1,580,000.

Q: Data Solutions reports operating expenses of $5 million. Operating expenses include rent expense. Prepaid rent at the beginning and end of the year are $120,000 and $80,000, respectively. All other operating expenses were paid in cash as incurred. What is the amount of cash paid for operating expenses? a. $5,000,000. b. $5,040,000. c. $4,960,000. d. $5,080,000.

Q: Data Solutions reports cost of goods sold of $75 million. Inventory at the beginning and end of the year are $8 million and $9 million, respectively. Accounts payable at the beginning and end of the year are $5 million and $3 million, respectively. What is the amount of cash paid to suppliers? a. $78 million. b. $72 million. c. $75 million. d. $76 million.

Q: Data Solutions reports sales of $100 million. Accounts receivable at the beginning and end of the year are $6 million and $9 million, respectively. What is the amount of cash received from customers? a. $100 million. b. $103 million. c. $97 million. d. $109 million.

Q: Wireless Technologies reports income tax expense of $800,000. Income tax payable at the beginning and end of the year are $50,000 and $70,000, respectively. What is the amount of cash paid for income taxes? a. $780,000. b. $800,000. c. $820,000. d. $870,000.

Q: Wireless Technologies reports operating expenses of $2 million. Operating expenses include rent expense. Prepaid rent at the beginning and end of the year are $20,000 and $70,000, respectively. All other operating expenses were paid in cash as incurred. What is the amount of cash paid for operating expenses? a. $2,000,000. b. $2,070,000. c. $1,950,000. d. $2,050,000.

Q: Wireless Technologies reports cost of goods sold of $40 million. Inventory at the beginning and end of the year are $4 million and $3 million, respectively. Accounts payable at the beginning and end of the year are $3 million and $6 million, respectively. What is the amount of cash paid to suppliers? a. $40 million. b. $36 million. c. $44 million. d. $42 million.

Q: Wireless Technologies reports sales of $50 million. Accounts receivable at the beginning and end of the year are $5 million and $7 million, respectively. What is the amount of cash received from customers? a. $50 million. b. $52 million. c. $48 million. d. $55 million.

Q: In 2015, Hope Company incurred sales on account of $100,000. The company also has the following information: December 31, 2014 December 31, 2015 Accounts Receivable $50,000 $20,000 Accounts Payable $65,000 $40,000 What is the amount of cash received from customers for Hope Company in 2015? a. $100,000. b. $45,000. c. $130,000. d. $70,000.

Q: The balance sheet of Storage Solutions reports total assets of $300,000 and $350,000 at the beginning and end of the year, respectively. The cash return on assets for the year is 10%. What is Storage Solutions net cash flows from operating activities for the year? a. $25,000. b. $30,000. c. $32,500. d. $35,000.

Q: Which of the following statements is not true relating to cash flow analysis? a. Cash return on assets indicates the amount of operating cash flow generated for each dollar invested in assets. b. To maximize cash flow from operations, a company strives to increase both cash flow per dollar of sales and sales per dollar of assets invested. c. Cash return on assets can be separated to examine two important business strategies: cash flow to sales and asset turnover. d. Positive cash flow from operations is not important to a companys survival in the long-run.

Q: We calculate cash return on assets as a. The change in cash divided by average total assets. b. Net cash flows from operating activities divided by average total assets. c. The change in cash divided by ending total assets. d. Net cash flows from operating activities divided by ending total assets.

Q: We can separate cash return on assets into: a. Cash flow to sales and return on assets. b. Cash flow to sales and asset turnover. c. Cash flow to sales and profit margin. d. Profit margin and asset turnover.

Q: The balance sheet of Tech Track reports total assets of $400,000 and $500,000 at the beginning and end of the year, respectively. Sales revenues are $1,080,000($800,000 in the previous year), net income is $40,000, and net cash flows from operating activities are $50,000. How does Tech Track's asset turnover compare to the industry average of 2.4 times? a. Better. b. Worse. c. Same as. d. Cannot be determined with the data provided.

Q: The balance sheet of Tech Track reports total assets of $400,000 and $500,000 at the beginning and end of the year, respectively. Sales revenues are $1,080,000($800,000 in the previous year), net income is $40,000, and net cash flows from operating activities are $50,000. How does Tech Track's asset turnover compare to the industry average of 2.4 times? a. Better. b. Worse. c. Same as. d. Cannot be determined with the data provided.

Q: The balance sheet of Tech Track reports total assets of $400,000 and $500,000 at the beginning and end of the year, respectively. Sales revenues are $1.1 million ($0.8 million in the previous year), net income is $40,000, and net cash flows from operating activities are $50,000. How does Tech Track's cash flow to sales ratio compare to the industry average of 5%? a. Better. b. Worse. c. Same as. d. Cannot be determined with the data provided.

Q: The balance sheet of Tech Track reports total assets of $400,000 and $500,000 at the beginning and end of the year, respectively. Sales revenues are $1.1 million ($0.8 million in the previous year), net income is $40,000, and net cash flows from operating activities are $50,000. How does Tech Track's cash return on assets compare to the industry average of 10%? a. Better. b. Worse. c. Same as. d. Cannot be determined with the data provided.

Q: The balance sheet of Tech Track reports total assets of $400,000 and $500,000 at the beginning and end of the year, respectively. Sales revenues are $1.1 million ($0.8 million in the previous year), net income is $40,000, and net cash flows from operating activities are $50,000. How does Tech Track's cash return on assets compare to the industry average of 10%? a. Better. b. Worse. c. Same as. d. Cannot be determined with the data provided.

Q: a. 0 times. b. 1.7 times. c. 0.5 times. d. 1.9 times.

Q: a. 0 times. b. 1.7 times. c. 0.5 times. d. 1.9 times.

Q: The balance sheet of Sound Designs reports total assets of $750,000 and $800,000 at the beginning and end of the year, respectively. Sales revenues are $1.5 million ($1.2 million in the previous year), net income is $150,000, and net cash flows from operating activities are $175,000. What is Sound Designs' asset turnover?

Q: a. 6%. b. 11.7%. c. 14.6%. d. 13.0%.

Q: The balance sheet of Sound Designs reports total assets of $750,000 and $800,000 at the beginning and end of the year, respectively. Sales revenues are $1.5 million ($1.2 million in the previous year), net income is $150,000, and net cash flows from operating activities are $175,000. What is Sound Designs' cash flow to sales?

Q: a. 4%. b. 21.9%. c. 22.6%. d. 18.8%.

Q: a. 4%. b. 21.9%. c. 22.6%. d. 18.8%.

Q: The balance sheet of Sound Designs reports total assets of $750,000 and $800,000 at the beginning and end of the year, respectively. Sales revenues are $1.5 million ($1.2 million in the previous year), net income is $150,000, and net cash flows from operating activities are $175,000. What is Sound Designs' cash return on assets?

Q: a. 0 times. b. 2.3 times. c. 0.5 times. d. 1.8 times.

Q: Explain the Taylor rule, including the formula for setting the federal funds rate target, and the components of the formula. If the Fed were to use this rule, how many goals would it use to set monetary policy?

Q: Explain and demonstrate graphically how targeting the federal funds rate can result in fluctuations in nonborrowed reserves.

Q: Explain and demonstrate graphically how targeting nonborrowed reserves can result in federal funds rate instability.

Q: Explain the complete formula for the M1 money supply, and explain how changes in required reserves, excess reserves, the currency ratio, the nonborrowed base, and borrowed reserves affect the money supply.

Q: During 2015, a company sells 200 units of inventory for $50 each. The company has the following inventory purchase transactions for 2015: Date Transaction Number of Units Unit Cost Total Cost Jan. 1 Beginning inventory 50 $39 $ 1,950 May 5 Purchase 100 38 3,800 Nov. 3 Purchase 80 37 2,960 230 $8,710 Actual sales by the company include its entire beginning inventory, 80 units of inventory from the May 5 purchase, and 70 units from the November 3 purchase. Calculate cost of goods sold and ending inventory for 2015 assuming the company uses specific identification.

Q: During 2015, a company sells 500 units of inventory for $90 each. The company has the following inventory purchase transactions for 2015: Date Transaction Number of Units Unit Cost Total Cost Jan. 1 Beginning inventory 80 $79 $ 6,320 May 5 Purchase 270 80 21,600 Nov. 3 Purchase 190 82 15,580 540 $43,500 Calculate cost of goods sold and ending inventory for 2015 assuming the company uses weighted-average cost with a periodic inventory system (round weighted-average unit cost to four decimals if necessary).

Q: During 2015, a company sells 300 units of inventory for $85 each. The company has the following inventory purchase transactions for 2015: Date Transaction Number of Units Unit Cost Total Cost Jan. 1 Beginning inventory 60 $71 $ 4,260 May 5 Purchase 170 72 12,240 Nov. 3 Purchase 180 74 13,320 410 $29,820 Calculate ending inventory and cost of goods sold for 2015 assuming the company uses FIFO with a periodic inventory system.

Q: During 2015, a company sells 20 units of inventory. The company has the following inventory purchase transactions for 2015: Date Transaction Number of Units Unit Cost Total Cost Jan. 1 Beginning inventory 15 $60 $ 900 Sep. 8 Purchase 10 62 620 25 $1,520 Calculate ending inventory and cost of goods sold for 2015 assuming the company uses weighted-average cost with a periodic inventory system.

Q: During 2015, a company sells 20 units of inventory. The company has the following inventory purchase transactions for 2015: Date Transaction Number of Units Unit Cost Total Cost Jan. 1 Beginning inventory 15 $60 $ 900 Sep. 8 Purchase 10 62 620 25 $1,520 Calculate ending inventory and cost of goods sold for 2015 assuming the company uses LIFO with a periodic inventory system.

Q: During 2015, a company sells 20 units of inventory. The company has the following inventory purchase transactions for 2015: Date Transaction Number of Units Unit Cost Total Cost Jan. 1 Beginning inventory 15 $60 $ 900 Sep. 8 Purchase 10 62 620 25 $1,520 Calculate ending inventory and cost of goods sold for 2015 assuming the company uses FIFO with a periodic inventory system.

Q: For each company, calculate the missing amount. Company Sales Cost of Goods Sold Gross Profit Operating Expenses Net Income Lennon $8,000 (a) $4,000 $3,000 $1,000 Harrison 9,000 3,000 (b) 2,000 4,000 McCartney 8,000 3,000 5,000 (c) 2,000 Starr 7,000 3,000 5,000 3,000 (d)

Q: If a company has ending inventory of $25,000, purchases during the year of $95,000, and beginning inventory of $30,000, cost of goods sold equals $90,000.

Q: A company has the following transactions during March: March 3 Purchases inventory on account for $3,500, terms 2/10, n/30. March 5 Pays freight costs of $200 on inventory purchased on March 3. March 6 Returns inventory with a cost of $500. March 12 Pays the full amount due on March 3 purchase. March 29 Sells all inventory purchased on March 3 (less those returned on March 6) for $5,000 on account. Record all transactions, including the month-end adjustment to cost of goods sold, assuming the company uses a periodic inventory system and has no beginning inventory.

Q: A company reports the following amounts at the end of the year: Sales revenue $300,000 Cost of goods sold 225,000 Net income 50,000 Compute the companys gross profit ratio.

Q: A company reports the following amounts for 2015: Calculate cost of goods sold, the inventory turnover ratio, and the average days in inventory for 2015.

Q: A company reports inventory using lower-of-cost-or-market. Below is information related to its year-end inventory: Calculate ending inventory under lower-of-cost-or-market and record any necessary adjustment to inventory.

Q: A company reports inventory using the lower-of-cost-or-market method. Below is information related to its year-end inventory: Calculate ending inventory under lower-of-cost-or-market and record any necessary adjustment to inventory.