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 Type: Moderate Solution:b

2. The issuance of stock for cash would be classified as a(n):

a. investing activity on the statement of cash flows
b. equity activity on the statement of cash flows
c. operating activity on the statement of cash flows
d. would not appear on the statement of cash flows
e. 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 Type: Easy Solution:a

4. 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

12/31/X4 12/31/X3
Current Assets:
Cash $ 4,600 $ 3,100
Accounts Receivable 9,600 7,900
Inventory 17,500 18,600
Supplies 1,200 2,100
Prepaid Insurance 1,400 1,000
Total Current Assets 34,300 32,700
Long-term Assets:
Fixed Assets 71,000 58,000
Accumulated Depreciation (30,400) (26,500)
Patent 6,000 7,100
Total Long-term Assets 46,600 38,600
Total Assets $ 80,900 $ 71,300

Current Liabilities:
Accounts Payable $ 6,100 $ 4,900
Wages Payable 2,200 2,600
Interest Payable 800 1,000
Taxes Payable 2,300 1,600
Total Current Liabilities 11,400 10,100
Long-term Liabilities: Bonds Payable 20,300 24,000
Total Liabilities 31,700 34,100
Stockholders' Equity:
Common Stock 22,700 20,000
Retained Earnings 26,500 17,200
Total Stockholders' Equity 49,200 37,200
Total Liabilities and Stockholders' Equity $ 80,900 $ 71,300

Stratton Company
Income Statement
For the Year Ended December 31, 20X4

Sales $147,600
Cost of Goods Sold (63,800)
Gross Profit 83,800
Less Operating Expenses:
Wage Expense $40,100
Supply Expense 3,600
Insurance Expense 3,000
Depreciation Expense 3,900
Amortization Expense 1,100
Rent Expense 5,400 57,100
Operating Income 26,700
Interest Expense (2,600)
Income before Taxes 24,100
Income Tax Expense (10,800)
Net Income $ 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 Type: Moderate Solution:b

6. 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 Type: Difficult Solution:e

7. 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 Type: Difficult Solution:b

8. 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 Type: Moderate Solution:a

9. 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 Type: Moderate Solution:

d
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 Type: Moderate Solution:d

19. An increase in stockholders' equity can be calculated as:

 a. new issuance of stock plus net income plus cash dividends
b. new issuance of stock plus net income less cash dividends
c. new issuance of stock less net income less cash dividends
d. new issuance of stock less net income plus cash dividends
e. 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 long-

term 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 $624,000
Less Expenses:
Cost of Goods Sold $332,000
Wage Expense 211,000
Depreciation Expense 20,000
Rent Expense 18,000
Income Tax Expense 16,000 597,000
Net Income $ 27,000

Greenwood Company
Balance Sheet
December 31, 20X3 and 20X4
12/31/X4 12/31/X3 12/31/X4
12/31/X3
Current Assets: Current Liabilities:
Cash $ 8,100 $ 10,600 Accounts Payable $ 57,200
$ 59,900
Accts. Rec. 66,100 53,400 Wages Payable 17,500
11,300
Inventory 27,700 35,900 Taxes Payable 7,100
8,200
Prepaid Rent 3,000 4,500 81,800
79,400
104,900 104,400 Owners' Equity:
Long-term Assets: Common Stock 75,000
74,000
Fixed Assets 165,500 147,700 Retained Earnings 44,800
43,500
Acc. Depre. (68,800) (55,200) 119,800
117,500
96,700 92,500 Total Liabilities
Total Assets $201,600 $196,900 & Owners' Equity $201,600
$196,900

A. 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 $624,000
Less: increase in accounts rec. (12,700)
Cash received from customers $611,300

Cost of goods sold $ 332,000

Less: decrease in inventory (8,200)
 Add: decrease in accounts payable 2,700
Cash paid to suppliers $(326,500)
Wage expense $ 211,000
Less: increase in wages payable (6,200)
Cash paid for wages $(204,800)
Rent expense $ 18,000
Less: decrease in prepaid rent (1,500)
Cash paid for rent $(16,500)
Income tax expense $ 16,000
Add: decrease in taxes payable 1,100
Cash paid for taxes $(17,100)
Net cash provided by operations $ 46,400

B. 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 Solution:

Net Income $27,000

Add: depreciation expense 20,000
Less: increase in accounts receivable (12,700)
Add: decrease in inventory 8,200
Add: decrease in prepaid rent 1,500
Less: decrease in accounts payable (2,700)
Add: increase in wages payable 6,200
Less: decrease in taxes payable (1,100)
Net cash provided by operations $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
Income Tax Expense $ 15,000
Cost of Goods Sold 164,000
Sales 523,000
Wage Expense 88,000

Balance Sheet Accounts At December 31, 20X4 At December 31,

20X3
Accounts Payable $19,000 $17,000
Cash 19,000 12,000
Income Taxes Payable 21,000 9,000
Accounts Receivable 41,000 36,000
Inventory 12,000 23,000
Wages Payable 5,000 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 $523,000
Less: increase in A/R (5,000)
Cash received from customers $518,000

b. Cost of goods sold $164,000

Less: decrease in Inventory (11,000)
Less: increase in A/P ( 2,000)
Cash paid to suppliers $151,000

c. Wage expense $88,000

Add: decrease in wages payable 7,000
Cash paid for wages $95,000

d. Income tax expense $15,000

Less: increase in taxes payable (12,000)
Cash paid for taxes $ 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 Solution:

a. No journal entry is necessary.

b. Cash 380,000
Interest Payable 5,000
Bonds Payable 375,000
c. Interest Payable 5,000
Interest Expense 10,000
Cash 15,000
d. Interest Expense 15,000
Cash 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. The bonds were issued on June 1, 20X5, at 103
3/8.

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 effective-
interest 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 30,000
Discount on Bonds Payable 3,116