Southwestern ACCT111 Chapter 12-14 Test Latest 2021

ACCT111 Managerial Accounting

Chapter 12 - 14 Test

Question 1.  Assume the following sales data for a company:

2011                845,000

2010                650,000

If 2010 is the base year, what is the percentage increase in sales from 2010 to 2011?

23%

30%

77%

130%

Question 2Each of the following is a liquidity ratio except the

acid test ratio

current ratio

debt to total asset ratio

inventory turnover

Question 3Walker Clothing Store had a balance in the Accounts Receivable account of $390,000 at the beginning of the year and a balance of $410,000 at the end of the year. Net credit sales during the year amounted to $2,000,000. The average collection period of the receivables in terms of days was

30 days

365 days

146 days

73 days

Question 4Profit margin is calculated by dividing

sales by cost of goods sold

gross profit by net sales

net income by stockholders equity

net income by net sales

Question 5The current assets of Kile Company are $150,000. The current liabilities are $100,000. The current ratio expressed as a proportion is

150%

1.5:1

.67:1

$150,000/$100,000

Question 6A supplier to a company would be most interested in the company’s

asset turnover

profit margin

current ratio

earnings per share

Question 7The statement of cash flows

must be prepared on a daily basis

summarizes the operating, financing, and investing activities of an entity

is another name for the income statement

is a special section of the income statement.

Question 8The category that is generally considered to be the best measure of a company's ability to continue as a going concern (stay operating as a business) is

cash flows from operating activities

cash flows from investing activities

cash flows from financing activities.

usually different from year to year

Question 9Indicate where the event common stock issued for cash would appear, if at all, on the indirect statement of cash flows

Operating activities section

Investing activities section

Financing activities section

Does not represent a cash flow

Question 10In calculating cash flows from operating activities using the indirect method, a gain on the sale of equipment is

added to net income

deducted from net income

ignored because it does not affect cash

not reported on a statement of cash flows

Question 11In calculating net cash provided by operating activities using the indirect method, an increase in prepaid expenses during a period is

deducted from net income

added to net income

ignored because it does not affect income

ignored because it does not affect expenses

Question 12Each of the following is added to net income in computing net cash provided by operating activities except

amortization expense

an increase in accrued expenses payable

a gain on sale of equipment

a decrease in inventory

Question 13Which of the following adjustments to convert net income to net cash provided by operating activities is correct?

Answers:            

                                  Add to Net Income         Deduct from Net Income.   Accounts Receivable        increase                            decrease

                                                 Add to Net Income         Deduct from Net Income

                 Prepaid Expenses              increase                        decrease.

                                                  Add to Net Income         Deduct from Net Income.

                           Inventory                 decrease                      increase

                                                 Add to Net Income         Deduct from Net Income

          Taxes Payable                        decrease                            increase.

Question 14Using the indirect method, if equipment is sold at a gain, the

sale proceeds received are deducted in the operating activities section.

sale proceeds received are added in the operating activities section.

amount of the gain is added in the operating activities section.

amount of the gain is deducted in the operating activities section

Question 15The first step in the capital budgeting evaluation process is to

request proposals for projects

screen proposals by a capital budgeting committee.

determine which projects are worthy of funding

approve the capital budget

Question 16Net annual cash flow can be estimated by

deducting credit sales from net income.

adding depreciation expense to net income.

deducting credit purchases from net income

adding advertising expense to net income

Question 17Which of the following ignores the time value of money?

Internal Rate of Return

Profitability Index

Net present value

Cash payback

Question 18A thorough evaluation of how well a project's actual performance matches the projections made when the project was proposed is called a

pre audit

post audit

risk analysis

sensitivity analysis

Question 19Brady Corp. is considering the purchase of a piece of equipment that costs $23,000. Projected net annual cash flows over the project’s life are:

Year       Net Annual Cash Flow

           1                     $  3,000

           2                         8,000

           3                       15,000

           4                         9,000

The cash payback period is

2.63 years

2.8 years

2.20 years

2.37 years

Question 20If a project’s profitability index is equal to 1, then

its net present value is zero

its net present value is positive

it should be rejected.

its internal rate of return is greater than the discount rate

Question 21The primary capital budgeting method that uses discounted cash flow techniques is the

net present value method

cash payback technique

annual rate of return method

profitability index method

Question 22The annual rate of return is computed by dividing expected annual

cash inflows by average investment

net income by average investment

cash inflows by original investment

net income by original investment

Question 23Intangible benefits in capital budgeting would include all of the following except increased

product quality

employee loyalty

salvage value

product safety

Question 24The profitability index is computed by dividing the

total cash flows by the initial investment

present value of cash flows by the initial investment

initial investment by the total cash flows.

initial investment by the present value of cash flows.

Question 25Selma Inc. is comparing several alternative capital budgeting projects as shown below:

                                                                                                      Projects               

                                                                                         A               B                 C    

Initial investment                                       $40,000    $60,000   $  80,000

Present value of net cash flows                  60,000      55,000     100,000

            Using the profitability index, the projects rank as

A, C, B

A, B, C

C, A, B

C, B A

Question 26A company has a minimum required rate of return of 8%. It is considering investing in a project that costs $68,337 and is expected to generate cash inflows of $27,000 each year for three years. The approximate internal rate of return on this project is

8%

9%

10%

less than the required 8%

Question 27A comparative balance sheet for Mann Company appears below:

                                                       MANN COMPANY

                                               Comparative Balance Sheet

                                                                                                    Dec. 31, 2011                    Dec. 31, 2010

                                                          Assets

Cash                                                                                               $ 27,000                              $10,000

Accounts receivable                                                                           18,000                                 14,000

Inventory                                                                                           25,000                                  18,000

Prepaid expenses                                                                              6,000                                    9,000

Long-term investments                                                                           0                                     18,000

Equipment                                                                                         60,000                                 32,000

Accumulated depreciation—equipment                                               (20,000)                              (14,000)

Total assets                                                                                     $116,000                              $87,000

                                                                     Liabilities and Stockholders' Equity

 

Accounts payable                                                                         $ 17,000                                   $ 7,000

Bonds payable                                                                                37,000                                    47,000

Common stock                                                                                40,000                                   23,000

Retained earnings                                                                            22,000                                   10,000

Total liabilities and stockholders' equity                                           $116,000                                $87,000

Additional information:

1. Net income for the year ending December 31, 2011 was $27,000.

2. Cash dividends of $15,000 were declared and paid during the year.

3. Long-term investments that had a cost of $18,000 were sold for $14,000.

4. Sales for 2011 were $120,000.

Instructions: Prepare a statement of cash flows for the year ended December 31, 2011, using the indirect method. IF THE AFFECT ON THE CASH FLOW STATEMENT IS A DECREASE, PUT A NEGATIVE SIGN IN FRONT OF THE NUMBER OR USE PARENTHESES TO SHOW IT IS A NEGATIVE NUMBER. 

For the operating section - show income statement items first, followed by changes in current assets and then changes in current liabilities.

For the investing section, show any sales first before any purchases.

For the investing section, show common stock, then bonds, then dividends.

Question 28Yappy Company is considering a capital investment of $320,000 in additional equipment.

The new equipment is expected to have a useful life of 8 years with no salvage value.  Depreciation is computed by the straight-line method.

During the life of the investment, annual net income is expected to be 25,000 and cash inflows are expected to be $65,000.

Yappy requires a 10% return on all new investments.

Instructions: Using each of the methods below, show ALL your work for calculating the answer.  Round to 2 decimal points when necessary. Number your responses below to correspond with the order in the question.

1.  Cash payback period

2.  Net present value

3.  Profitability index

4. Internal rate of return

5. Annual rate of return

6.  Based on the information computed above, should the investment be accepted? Why or why not?