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FIN516/FIN 516 QUIZ 6 100% CORRECT

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FIN 516 QUIZ 6 1. (TCO F) What is the primary purpose of the statement of cash flows? (Points : 5) a) Show the company’s ability to meet its obligations, pay dividends, and any needs for financing. b) Show the company’s cash flow prospects. c) Show the cash payments and cash receipts for the period. d) Show the operating, financing, and investing activities for the period. 2. (TCO F) Which of the following is not true? (Points : 5) a) Companies classify some cash transactions relating to investing or financing activities as operating activities. b) Net income is not usually the same as net cash flow from operating activities under the accrual basis of accounting. c) The FASB encourages the use of the indirect method over the direct method for the statement of cash flows. d) Companies report cash flows from purchases and sales of securities as operating activities. 3. (TCO F) Glitter Girl, Inc. recognized net income of $205,000 including $60,000 in depreciation expense. Additional changes from the balance sheet are as follows. Accounts Receivable $2,000 decrease Prepaid Expenses $15,500 decrease Inventory $36,000 increase Accrued Liabilities $10,000 decrease Accounts Payable $40,000 increase Compute the net cash from operating activities based on the above information. (Points : 5) a) $156,000 b) $117,000 c) $276,000 (Answer is actually $276,500 as shown below) d) $281,000 Please note: As per the figures given, the answer is $276,500 as shown below. Please check if there are any printing errors in the question figures or in the answer options. 4. (TCO F) Pig Builder’s, Inc. shows the following as of December 31, 2012. – Acquired 50% of Wolf Corp’s common stock for $160,000 cash, which was borrowed from Granny’s Bank. – Issued 5,000 shares of its preferred stock for land having a fair value of $320,000 – Issued 500 of its 11% debenture bonds, due 2017, for $392,000 cash – Paid $120,000 toward bank loan. – Purchased a patent for $220,000 cash – Sold available for sales securities for $796,000 – Recognized $88,000 net increase in returnable long term customer deposits Pig’s net cash provided by investing activities for 2012 is (Points : 5) a) $476,000. b) $636,000. c) $316,000. d) $416,000. 5. (TCO F) Dasher Builder’s, Inc. shows the following as of December 31, 2012. – Sold available for sales securities for $650,000 – Acquired 50% of Elven Corp’s common stock for $310000 cash which was borrowed from Peppermint’s Bank. – Issued 2,000 shares of its preferred stock for land having a fair value of $50,000 – Purchased a patent for $170,000 cash – Issued 1,000 of its 12% debenture bonds, due 2017, for $225,000 cash – Paid $130,000 toward bank loan. – Recognized $79,000 net increase in returnable long term customer deposits Dasher’s net cash provided by financing activities for 2012 is (Points : 5) a) $614,000. b) $535,000. c) $484,000. d) $405,000. 6. (TCO F) Cash flows from operating activities (indirect and direct methods). Presented below is the income statement of Smiling Tiger, Inc. Sales $250,000 Cost of goods sold 109,000 Gross profit $141,000 Operating expenses 85,000 Income before income taxes 56,000 Income taxes 22,400 Net income $33,600 In addition, the following information related to net changes in working capital is presented. Debit Credit Cash $10,600 Accounts receivable 2,400 Inventories $3,600 Salaries payable (operating expenses) 12,000 Accounts payable 15,000 Income taxes payable 1,400 Depreciation expense for the year was $14,700 Deferred tax liability account increased $1,800 Required: Prepare a schedule computing the net cash flow from operating activities that would be shown on a statement of cash flows: (a) using the indirect method (b) using the direct method. (Points : 15)

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