University of Wales External Program
ACF 102 Assignment
Instructions: Answer the Multiple choice questions on the answer sheet provided
and the Essay questions on A4 size papers.
Write your English and Pinyin names clearly with your class.
Section A: Multiple Choice Questions
1. Cash payments to suppliers would appear on a statement of cash
flows using the direct method as a(n):
a. financing activity
b. operating activity
c. investing activity
d. debt activity
e. equity activity
L.O.: 2
2. The
a.
b.
c.
d.
e.
Type: Moderate
Solution:b
issuance of stock for cash would be classified as a(n):
investing activity on the statement of cash flows
equity activity on the statement of cash flows
operating activity on the statement of cash flows
would not appear on the statement of cash flows
financing activity on the statement of cash flows
L.O.: 2
Type: Moderate
Solution:e
3. All of the following would be included in a company's
operating activities except:
a. dividend payments
b. collections from customers
c. cash payments to suppliers
d. income tax payments
e. interest and dividends collected
L.O.: 2
4.
Type: Easy
Solution:a
All of the following activities would be included in a
company's operating activities except:
a. payments to employees
b. payment to a local government for property taxes
c. payment to suppliers
d. payment to the bank to reduce loan balance
e. payment to landlord for rent
L.O.: 2
Type: Moderate
Solution:d
Table 5-1
Stratton Company
Balance Sheet
December 31, 20X4 and 20X3
Current Assets:
Cash
Accounts Receivable
Inventory
Supplies
Prepaid Insurance
Total Current Assets
Long-term Assets:
Fixed Assets
Accumulated Depreciation
Patent
Total Long-term Assets
Total Assets
Current Liabilities:
Accounts Payable
Wages Payable
Interest Payable
Taxes Payable
Total Current Liabilities
Long-term Liabilities: Bonds Payable
Total Liabilities
Stockholders' Equity:
Common Stock
Retained Earnings
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
12/31/X4
12/31/X3
$
$
4,600
9,600
17,500
1,200
1,400
34,300
3,100
7,900
18,600
2,100
1,000
32,700
71,000
(30,400)
6,000
46,600
$ 80,900
58,000
(26,500)
7,100
38,600
$ 71,300
$
$
6,100
2,200
800
2,300
11,400
20,300
31,700
22,700
26,500
49,200
$ 80,900
4,900
2,600
1,000
1,600
10,100
24,000
34,100
20,000
17,200
37,200
$ 71,300
Stratton Company
Income Statement
For the Year Ended December 31, 20X4
Sales
Cost of Goods Sold
Gross Profit
Less Operating Expenses:
Wage Expense
Supply Expense
Insurance Expense
Depreciation Expense
Amortization Expense
Rent Expense
Operating Income
Interest Expense
Income before Taxes
Income Tax Expense
Net Income
$147,600
(63,800)
83,800
$40,100
3,600
3,000
3,900
1,100
5,400
57,100
26,700
(2,600)
24,100
(10,800)
$ 13,300
5.
Referring to Table 5-1, what was the cash collected from
customers by Stratton Company in 20X4?
a. $138,000
b. $145,900
c. $147,600
d. $149,200
e. $157,200
L.O.: 5
6.
Solution:e
Type: Difficult
Solution:b
Referring to Table 5-1, what was the cash paid to employees
by Stratton Company in 20X4?
a. $40,500
b. $39,700
c. $40,100
d. $38,000
e. $42,300
L.O.: 5
9.
Type: Difficult
Referring to Table 5-1, what was the cash paid to suppliers
of inventory by Stratton Company in 20X4?
a. $63,800
b. $61,500
c. $63,700
d. $63,900
e. $66,100
L.O.: 5
8.
Solution:b
Referring to Table 5-1, how much inventory did Stratton
Company purchase in 20X4?
a. $81,300
b. $63,800
c. $64,900
d. $46,300
e. $62,700
L.O.: 5
7.
Type: Moderate
Type: Moderate
Solution:a
Referring to Table 5-1, what was the cash paid for supplies
by Stratton Company in 20X4 (Assume all purchases of supplies
were for cash)?
a. $3,600
b. $4,500
c. $2,400
d. $2,700
e. $4,800
L.O.: 5
d
Type: Moderate
Solution:
10. Referring to Table 5-1, what was the cash paid for income
taxes by Stratton Company in 20X4?
a. $7,100
b. $11,700
c. $10,100
d. $10,900
e. $8,600
L.O.: 5
Type: Moderate
Solution:c
11. Referring to Table 5-1, what was the cash flow from
operations for Stratton Company in 20X4?
a. $18,300
b. $19,500
c. $8,200
d. $14,500
e. $13,000
L.O.: 5
Type: Difficult
Solution:b
12. Referring to Table 5-1, what was the cash (paid or received)
from the purchase and/or sale of fixed assets by Stratton
Company in 20X4?
a. $(13,000)
b. $(9,100)
c. $(16,900)
d. $9,100
e. Cannot be determined from the information given
L.O.: 4
Type: Difficult
Solution:a
13. Referring to Table 5-1, what was the cash flow from investing
activities for Stratton Company in 20X4?
c. $(9,100)
d. $9,100
a. $(13,000)
b. $(12,000)
e. $2,000
L.O.: 4
Type: Difficult
Solution:c
14. Referring to Table 5-1, what were the dividends paid by
Stratton Company in 20X4?
a. $11,900
b. $0
c. $22,600
d. $4,000
e. $9,300
L.O.: 3
Type: Difficult
Solution:d
15. Which of the following items will not appear in the cash flow
from operations section when using the direct method?
a. collections from customers
b. depreciation expense
c. cash paid for income taxes
d. payments to employees
e. payments to suppliers
L.O.: 5
Type: Moderate
Solution:b
16. The indirect method:
a. is seldom used by companies because of the extra effort
required to gather cash flow information
b. calculates only the cash effect of each operating activity
c. is the method preferred by the FASB
d. begins with net income; adds back non cash expenses; and
adjusts for changes in the current asset and current
liability accounts
e. can be used to determine cash flows from operating,
investing, and financing activities
L.O.: 6
Type: Moderate
Solution:d
17. When preparing the statement of cash flows under the indirect
method, an appropriate procedure would be to:
a. add a loss from the sale of a fixed asset
b. add an increase in accounts receivable
c. subtract depreciation expense
d. subtract an increase in accounts payable
e. determine cash received from customers
L.O.: 6
Type: Moderate
Solution:a
18. Which of the following transactions decrease cash?
1. reduce prepaid expenses
2. increase treasury stock
3. make a loan
4. recognize cost of goods sold
5. reduce long-term or short-term debt
a. 1 and 4
b. 3 and 5
c. 1, 3, and 5
d. 2, 3, and 5
e. 1, 2, 3, 4, and 5
L.O.: 6
19.
Type: Moderate
Solution:d
An increase in stockholders' equity can be calculated as:
a.
b.
c.
d.
e.
new issuance of stock plus net income plus cash dividends
new issuance of stock plus net income less cash dividends
new issuance of stock less net income less cash dividends
new issuance of stock less net income plus cash dividends
cannot be determined from the information provided
L.O.: 8
Type: Moderate
Solution:b
20. Which of the following statements is incorrect, regarding the
effect of depreciation on a statement of cash flows using the
indirect method?
a. Depreciation expense is not an outflow of cash.
b. Ignoring income tax effects, increasing depreciation
expense will increase cash flows from operations.
c. Depreciation expense is added in the cash flow from
operations section.
d. Depreciation expense is not a source of cash.
e. Depreciation expense will reduce the net income used in
determining cash flows from operations.
L.O.: 7
Type: Moderate
Solution:b
21. A written promise to repay a loan principal plus interest at
a specific future date is:
a. a promissory note
b. a line of credit
c. commercial paper
d. a product warranty
e. a returnable deposit
L.O.: 1
Type: Easy
Solution:a
22. A debt contract issued by prominent companies that allow the
companies to borrow directly from investors is:
a. a promissory note
b. a line of credit
c. commercial paper
d. product warranties
e. returnable deposits
L.O.: 1
Type: Easy
Solution:c
23. On January 1, 20X3, Davis Company issued $200,000 in longterm bonds at par. The bonds pay interest of 12% on January 1,
and the principal will be paid in $25,000 annual increments,
beginning on December 31, 20X7, and continuing every year
thereafter for 8 years. What journal entry is necessary on
December 31, 20X6?
a.
No journal entry is necessary.
b.
Cash
25,000
Long-Term Bond Payable
25,000
c.
Long-Term Bond Payable
25,000
Cash
25,000
d.
Long-Term Bond Payable
25,000
Current Portion of Long-Term Bond Payable
25,000
e.
Prepaid Long-Term Bond Payable
25,000
Cash
25,000
L.O.: 1
Type: Difficult
Solution:d
24. Unearned revenues:
a. are considered to be a type of revenue
b. are revenues that are collected before services or goods
are delivered
c. normally has a debit balance
d. is credited when the sales revenue is finally earned
e. include cash donations made to universities from wealthy
alumni
L.O.: 1
Type: Moderate
Solution:b
25. Shelly Corp. publishes the Uptown Herald. In April, they
collected $600 in advance for one-year subscriptions. The
journal entry to record the delivery of the newspapers in May
would be:
a.
Cash
50.00
Subscription Revenue
50.00
b.
Prepaid Subscriptions
50.00
Subscription Revenue
50.00
c.
Prepaid Subscriptions
50.00
Cash
50.00
d.
Cash
50.00
Prepaid Subscriptions
50.00
e.
Unearned Subscription Revenue
50.00
Subscription Revenue
50.00
L.O.: 1
Type: Moderate
Solution:e
26. ________________ are subject to redemption before maturity at
the option of the issuer.
a. Debentures
b. Mortgage bonds
c. Callable bonds
d. Sinking fund bonds
e. Convertible bonds
L.O.: 2
Type: Moderate
Solution:c
27. Notes and bonds are often called ___________ financial
instruments or securities because they can be transferred
from one lender to another.
a. private placements
b. negotiable
c. current liabilities
d. long term liabilities
e. sinking fund
L.O.: 2
Type: Easy
Solution:b
28. Bonds are typically sold through
a. board of directors
b. underwriters
c. corporations
d. commercial insurance companies
e. none of the above
L.O.: 2
Type: Easy
Solution:b
29. The interest rate that determines the amount of cash paid for
interest to the bondholder is referred to as the:
a. effective rate
b. market rate
c. coupon rate
d. daily rate
e. imputed rate
L.O.: 2
Type: Easy
Solution:c
30. The cash proceeds received from issuing a bond are less than
the face value of the bond. It is apparent that the bond was
issued at:
a. face value
b. a premium
c. a discount
d. par value
e. nominal value
L.O.: 2
Type: Moderate
Solution:c
31. The amount earned by an investor expressed as a percentage of
the amount invested is called:
a. discount rate
b. rate of return
c. present value
d. future value
e. expected past rate
L.O.: 2
Type: Easy
Solution:b
32. When the market interest rate is 7% and the coupon rate is
10%, a bond sells at:
a. a discount
b. a premium
c. at par
d. liquidation value
e. cannot be determined without more information
L.O.: 2
Type: Moderate
Solution:b
33. What is the present value of $2,000 with 16% interest, to be
received in 18 years?
a. $161.61
b. $150.30
c. $155.83
d. $148.48
e. $138.20
L.O.: 8
Type: Moderate
Solution:e
34. If Tome deposits $9,000 in an account that pays 10% yearly
interest, compounded annually, how much will he have in the
account at the end of three years?
a. $8,990
b. $9,750
c. $10,909
d. $11,979
e. $12,500
L.O.: 8
Type: Moderate
Solution:d
Section B: Essay Problem Questions
1. Table 1-1
Greenwood Company
Income Statement
For the Year Ended December 31, 20X4
Sales
Less Expenses:
Cost of Goods Sold
Wage Expense
Depreciation Expense
Rent Expense
Income Tax Expense
Net Income
$624,000
$332,000
211,000
20,000
18,000
16,000
597,000
$ 27,000
Greenwood Company
Balance Sheet
December 31, 20X3 and 20X4
12/31/X4 12/31/X3
12/31/X3
Current Assets:
Cash
$ 8,100 $ 10,600
$ 59,900
Accts. Rec.
66,100
53,400
11,300
Inventory
27,700
35,900
8,200
Prepaid Rent
3,000
4,500
79,400
104,900
104,400
Long-term Assets:
74,000
Fixed Assets
165,500
147,700
43,500
Acc. Depre.
(68,800) (55,200)
117,500
96,700
92,500
Total Assets
$201,600 $196,900
$196,900
A.
12/31/X4
Current Liabilities:
Accounts Payable
$ 57,200
Wages Payable
17,500
Taxes Payable
7,100
81,800
Owners' Equity:
Common Stock
75,000
Retained Earnings
44,800
119,800
Total Liabilities
& Owners' Equity
$201,600
Refer to Table 1-1. Determine the cash flows from operations
for Greenwood Company, assuming the company uses the direct
method.
L.O.: 5
Type: Difficult
Solution:
Sales
Less: increase in accounts rec.
Cash received from customers
$624,000
(12,700)
$611,300
Cost of goods sold
Less: decrease in inventory
$ 332,000
(8,200)
B.
Add: decrease in accounts payable
Cash paid to suppliers
2,700
$(326,500)
Wage expense
Less: increase in wages payable
Cash paid for wages
$ 211,000
(6,200)
$(204,800)
Rent expense
Less: decrease in prepaid rent
Cash paid for rent
$ 18,000
(1,500)
$(16,500)
Income tax expense
Add: decrease in taxes payable
Cash paid for taxes
$ 16,000
1,100
$(17,100)
Net cash provided by operations
$ 46,400
Refer to Table 1-1. Determine the cash flows from operations
for Greenwood Company, assuming the company uses the indirect
method.
L.O.: 6
Type: Moderate
Net Income
Add: depreciation expense
Less: increase in accounts receivable
Add: decrease in inventory
Add: decrease in prepaid rent
Less: decrease in accounts payable
Add: increase in wages payable
Less: decrease in taxes payable
Net cash provided by operations
Solution:
$27,000
20,000
(12,700)
8,200
1,500
(2,700)
6,200
(1,100)
$46,400
2. Orchard Company has the following selected balance sheet and
income statement information:
Income Statement Accounts
For The Year Ended
December 31, 20X4
$ 15,000
164,000
523,000
88,000
Income Tax Expense
Cost of Goods Sold
Sales
Wage Expense
Balance Sheet Accounts
20X3
Accounts Payable
Cash
Income Taxes Payable
Accounts Receivable
Inventory
Wages Payable
At December 31, 20X4
$19,000
19,000
21,000
41,000
12,000
5,000
At December 31,
$17,000
12,000
9,000
36,000
23,000
12,000
Determine the following items for the Orchard Company for the
year ended December 31, 20X4:
a. Cash received from customers
b. Cash paid to suppliers
c. Cash paid for wages
d. Cash paid for income taxes
L.O.: 5
Type: Moderate
Solution:
a. Sales
Less: increase in A/R
Cash received from customers
$523,000
(5,000)
$518,000
b. Cost of goods sold
Less: decrease in Inventory
Less: increase in A/P
Cash paid to suppliers
$164,000
(11,000)
( 2,000)
$151,000
c. Wage expense
Add: decrease in wages payable
Cash paid for wages
$88,000
7,000
$95,000
d. Income tax expense
Less: increase in taxes payable
Cash paid for taxes
$15,000
(12,000)
$ 3,000
3. Watson Company had a 6-year, 8%, $375,000 bonds ready to be
sold on January 1, 20X4. The bonds will pay interest every
June 30 and December 31. However, due to market conditions,
the company did not sell the bonds until March 1, 20X4, at
which time the bonds was issued at par.
Given the information presented above, prepare the
appropriate journal entry for Watson Company for each of the
following dates:
a. January 1, 20X4
b. March 1, 20X4
c. June 30, 20X4
d. December 31, 20X4
L.O.: 3
Type: Moderate
a. No journal entry is necessary.
b. Cash
380,000
Interest Payable
Bonds Payable
c. Interest Payable
5,000
Interest Expense
10,000
Cash
d. Interest Expense
15,000
Cash
Solution:
5,000
375,000
15,000
15,000
4. Blue Inc issued $1,000,000 of 6.5%, 8-year bonds dated June 1,
20X5, with semiannual interest payments on June 1 and
December 1.
3/8.
The bonds were issued on June 1, 20X5, at 103
a. Were the bonds issued at a premium, a discount, or at face
value?
b. Was the market rate of interest higher, lower, or the same
as the coupon rate of interest?
c. How much cash was received by Blue Inc upon issuance of
the bonds?
L.O.: 3
Type: Moderate
Solution:
a. The bonds were issued at a premium.
b. The market rate of interest was lower than 6.5% since the
bonds were issued above face value.
c. $1,000,000 X 1.03375 = $1,033,750
5. Croy Enterprises issued 9-year, 8%, $750,000 bonds on January
1, 20X5. The bonds pay interest every June 30 and December 31,
with the principal to be paid in 9 years. The effective interest
rate on the bonds is 10%, and the company uses the effectiveinterest method of amortization.
a. Compute the initial selling price of the bonds on January
1, 20X5.
b. Prepare the entry needed on June 30, 20X5.
L.O.: 3
Type: Difficult
Solution:
a. The initial selling price of the bond:
$750,000 x .4155 = $311,625
$ 30,000 x 11.6896 = 350,688
(n=18,i=5)
$662,313
b. Interest Expense
33,116
Cash
Discount on Bonds Payable
30,000
3,116