Use the Following Selected Data and Additional Information to Set up T Accounts and Create

Use the following selected data and additional information to set up T accounts and create a statement of cash flows. Then answer Question 1 thru 10.
Selected Balance Sheet Data 20082007
Cash ?;$113,525
Accounts Receivable&nbs p;$36,000 ;$42,000
Inventories $28,000 &nbs p;$25,000
Accounts Payable$31,000&n bsp; $35,000
Salaries Payable$2,000&nb sp;$1,000
Equipment $60,000$40,000
Accumulated Depreciation $12,000 &nb sp; $16,000
Bonds Paya ble& nbsp;$50,000 $100,000
Common Stock&n bsp;$150,000 $100,000
Retained Earnings$38,000& nbsp;$20,000
Income Statement Data 2008
Net Sales$420,000
Cost of goods$300,000
Salaries Expense$84,000
Net Income $30,000
Gain on Sale of Equipment
(included in net income above)$2,000
Additional information:
•Equipment with a cost of $15,000 and a book value of $3,000 was sold for $5,000 during 2008.
•Common stock was issued to retire bonds payable during 2008.
•The only items affecting retained earnings in 2008 were net income and dividends declared and paid.
1. What amount of cash was collected from customers during 2008?
A. $384,000B. $420,000C. $426,000D. $462,000

Cash Collected from Customers = Beginning Accounts Receivable + Net Sales –Ending Accounts Receivable = $42,000 + $420,000 - $36,000 = $426,000

2. What amount was paid for purchases of merchandise during 2008?
A. $275,000B. $300,000C. $303,000D. 307,000

Amount Paid for Purchases = Ending Inventory – Beginning Inventory + Cost of Goods Sold

= $28,000 - $25,000 + $300,000

= $303,000

3. What amount was paid for salaries expense during 2008?
A. $82,000B. $83,000C. $84,000D. $85,000

Amount Paid for Salaries = Beginning Salaries Payable + Salaries Expense – Ending Salaries Payable

= $1,000 + $84,000 - $2,000

= $83,000

4. What amount was paid to acquire equipment during 2008?
A. $0B. $20,000C. $25,000D. 35,000

Amount Paid to Acquire Equipment = Ending Equipment + Disposal of Old Equipment – Beginning Equipment

= $60,000 + $15,000 - $40,000

= $35,000

5.What amount was recorded as depreciation expense during 2008?
A. $0B. $4,000C. $8,000D. $12,000

Depreciation Expense = Accumulated Depreciation on Equipment Sold + Ending Accumulated Depreciation – Beginning Accumulated Depreciation

= $12,000 + $12,000 - $16,000

= $8,000

6. What amount was declared and paid for dividends during 2008?
A. $0B. $8,000C. $12,000D. $30,000

Amount Paid for Dividends = Net Income – Increase in Retained Earnings

= $30,000 - $18,000

= $12,000

7. What amount was paid to retire bonds payable during 2008?
A. $0B. $50,000C. $100,000D. $150,000

$0

This is because the problem states:

Common stock was issued to retire bonds payable during 2004, since the change in bonds payable is a decrease of $50,000, and the increase in Common Stock is an increase of $50,000, therefore $0 was paid to retire bonds.

8. How is the bond retirement reported on the statement of cash flows for 2008?
A. In the cash flows from operating activities section
B. In the cash flows from investing activities section
C. In the cash flows from financing activities section
D. In the supplemental schedule of cash flows

9. If the indirect method is used to prepare the statement of cash flows, how much net cash was used for or provided by operating activities?
A. $6,000 provided byB. $6,000 used forC. $36,000 provided byD. $36,000 used for

10. What was the cash balance at December 31, 2008?
A. $57,525B. $107,525C. $113,525D. $119,525

$119,525

Please see the attached excel sheet
11. Which one of the following generally indicates a positive change?
A. Earnings per share decreases
B. The debt service coverage ratio decreases
C. The acid-test ratio decreases
D. The number of days’ sales in inventory decreases

Use the following information to answer Questions 12 thru 16:
2008 2007
Accounts receivable $60,000;$38,000
Merchandise Inventory $12,000$16,000
Total Assets$450,000&n bsp;$380,000
Net Sales$380,000&nb sp;$270,000
Cost of Goods Sold$160,000$210 ,000
12. Which of the following would result from a horizontal analysis of the balance sheet?
A. Accounts Receivable increased $22,000, or 57.9%, during 2008
B. Accounts Receivable is five times larger than Merchandise Inventory in 2008
C. Accounts Receivable is 13.3% of Total Assets for 2008
D. Merchandise Inventory is 2.7% of Total Assets for 2008

13. Which of the following would result from a vertical analysis of the balance sheet?
A. Accounts Receivable increased $22,000, or 36.7% during 2008
B. Merchandise Inventory decreased $4,000, or 4.2 % during 2008
C. Accounts Receivable is 13.3% of total assets for 2008
D. Cost of Goods Sold decreased $50,000, or 23.8 % during 2008
14. Which of the following would result from a horizontal analysis of the income statement?
A. Cost of Goods Sold is 42.1 % of Net Sales for 2008
B. Gross Profit is 42.1 % of Net Sales for 2008
C. Cost of Goods Sold decreased from $50,000, or 23.8 % during 2008
D. Accounts Receivable total 13.3 % of Total Assets for 2008
15. Which of the following would result from a vertical analysis of the income statement?
A. Accounts Receivable increased $22,000, or 57.9 % during 2008
B. Gross Profit is 57.9 % of Net Sales for 2008
C. Cost of Goods Sold increased $50,000 or 23.8 % during 2008
D. Net Sales increased $110,000 or 28.9 % during 2008
16. Which of the following results would be found through a vertical analysis of the balance sheet or the income statement?
A. Accounts Receivable increased $22,000 during 2008
B. Total Assets increased $70,000 during 2008
C. Cost of Goods Sold increased 35.7 % during 2008
D. Gross Profit is 57.9 % of Net Sales for 2008
17. Which of the following activities results in a cash outflow on the statement of cash flows?
A. Decreases in Noncash Current Assets
B. Decreases in Long-Tern Assets
C. Increases in Long-Term Liabilities
D. Decreases in Retained Earnings
18. Calculate the cash flow adequacy ratio based on the following information:
Cash Flows from Operating Activities$261,000
Additions to Manufacturing Equipment $117,000
Proceeds from Disposals of Manufacturing Equipment$57,000
Total Payments Expected to Retire Long-Term
Debt over the Next Five Years$150,000
A. 1.74B. 4.8C. 6.7D. 8.7

cash flow adequacy = (cash flow from operating activities - capital expenditures) / (average amount of debt maturing / 5 years)

= ($261,000 - $117,000) / ($150,000 / 5)

= 4.8
Use the following selected financial statement data to answer Question 19 thru 21:
20082007
Cash; $22,000;$14,000
Accounts Receivable$42,000$16,000
Merchandise Inventory$22,000$83,000
Prepaid Expenses$23,000$18,000
Total Current Assets$109,000&n bsp;$131,000
Total Current Liabilities$65,000$72,000
Net Credit Sales$221,000&nb sp; $326,000
Cost of Goods Sold$168,000&nbs p;$299,000
Net Cash Flow from Operating
Activities ;$16,000$29,000
19. The current ratio for 2008 is
A. 0.60 to 1B. 0.99 to 1C. 1.34 to 1D.1.68 to 1

= Current Assets / Current Liabilities

= $109,000 / $65,000

= 1.68
20. The amount of working capital at the end of 2008 is
A. $36,000B. $44,000C. $99,000D. $245,000

= Current Assets – Current Liabilities

= $109,000 - $65,000

= $44,000
21. Competitors in the industry have an average inventory turnover of 20.8 times.
The company’s inventory turnover for 2008
A. indicates that the company has too little on hand at the end of 2008
B. indicates that the company is pricing its products too low
C. is equal to the number of days’ sales in the company’s inventory
D. indicates that the company may have a large amount of obsolete inventory or problems
in the sales department
22. What effect does the declaration and payment of a cash dividend have on total liabilities and the debt-to-equity ratio?
A. No effect on total liabilities, increase in debt-to equity ratio
B. Increase in total liabilities, increase in debt-to equity ratio
C. No effect on total liabilities, decrease in debt-to equity ratio
D. Decrease in total liabilities, decrease in debt-to equity ratio
Use the following information to complete questions 23 and 24
CurrentInv entoryAcid-Test
Ratio;TurnoverRatio
&nbs p;Ratio
Huey
12/31/08 2.8 to 16.9 times2.5 to 1
12/31/072.0 to 17.6 times1.0 to 1
Louie
12/31/08 2.3 to 15.8 times2.1 to 1
12/31/071.5 to 15.8 times1.4 to 1
Dewey
12/31/08 1.8 to 18.0 times0.5 to 1
12/31/072.2 to 19.6 times1.2 to 1
Donald
12/31/08 1.7 to 17.6 times1.5 to 1
12/31/071.5 to 17.9 times1.3 to 1
23. Which company has the greatest percentage of inventory and prepaids?
A. HueyB. LouieC. DewyC. Donald
24. Which company appears to be the most liquid?
A. HueyB. LouieC. DewyC. Donald
25. A company reported the following amounts in its financial statements:
&nbs p;200820072006
Avg. merchandise inventory$200,000$120,000$90,000
Cost of Goods Sold$4,000,000$3 ,000,000 $2,500,000
From 2007 to 2008 the company’s management of inventory is
A. declining, because the number of days’ sales in inventory is getting larger
B. increasing, because the number of days’ sales in inventory is getting larger
C. declining, because the number of days’ sales in inventory is getting smaller
D. increasing, because the number of days’ sales in inventory is getting smaller