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Homework Assignment #SAA 4 BUS 102:AA: Principles of Accounting II Student Name Part One - Multiple Choice: Answer All Twenty Questions

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Homework Assignment #SAA 4 BUS 102:AA: Principles of Accounting II Student Name Part One - Multiple Choice: Answer All Twenty Questions. Part Two: Short Essay Questions; and Part Three: Problems. This Homework is Due Sunday, May 09, 2021. 1. The following are items from the records of a publicly-held company involving its cash flow activities. Drawing on your understanding of the indirect method, identify the section of the statement of cash flow in which each item below falls and how they affect cash – whether they increase or decrease it .Increase Section (Decrease) a. Increase in Accounts Payable ______ _________ b. Gain on Sale of Equipment ______ _________ c. Purchase of Land ______ _________ d. Increase in Accounts Receivable ______ _________ e. Sale of Common Stock ______ _________ f. Decrease in Inventory ______ _________ 2. For financial analysis, one of the analytical tools that is used is the common-sized statement. What is common-sized statement and how is it used in financial analysis? 3. Another analytical tool for financial analysis that your text talks about is horizontal analysis. What is horizontal analysis, and how is it used? 4. Your book also talks about P/E Ratio. What is it and how is it used by analysts and potential investors? 5. The following are excerpts from last year’s financial statements of Janziber: Number of shares of common stock 6,000 Market price per share $40 Total dividends paid $12,000 Cash provided by operations $20,000 What is Janziber’s dividend yield? a. $0.75 b. 7.5%r c. 8% d. 20% e. None of the above. 1 6. What does the term “stock” mean? a. Inventory stock b. A unit of ownership of a company c. A dividend per share of a company d. A unit of stock beef e. None of the above. 7. In preparing the statement of cash flow, how would you record bad debt expense using indirect method and under what section? As: a. A decrease in cash flow from operating activities b. An increase in cash flow from operating activities c. An increase in cash flow from financing activities d. A decrease in cash flow from investing activities e. None of the above. 8. Also under what statement of cash flow section, would you classify payment of cash dividend? a. Cash Flow from Investing Activity b. Cash Flow from Operating Activity c. Cash Flow from Financing Activity d. Under Discontinuing Activity e. None of the above. 9. XYZ Industries sold its fixed assets for $45,000 representing a gain of $15,000. Using the indirect method, what value would you record in the operating activities for this transaction? a. $30,000 b. $15,000 c. $(30,000) d. $(15,000) e. None of the above. 10. What is Free Cash Flow and what does it measure? a. It measures a firm’s cash flow available after purchasing PP&E necessary for its operations b. It measures the productive capacity of a firm’s employees c. It measures the PP&E of a manufacturing firm d. It measures a firm’s cash on its balance sheet e. None of the above. 2 11. Hazel Eyes purchased 1,000 shares of Heston Industries common stock. The stock sold for $55 a share plus a brokerage fee of $325. What is the correct journal entry for this investment? a. Cash $55,000 Investments – Heston Industries b. Investments – Heston Industries Brokerage Fee Cash c. Investments – Heston Industries Cash d. Investments - Heston Industries Cash $55,000 $55,000 325 $55,325 $55,000 $55,000 $55,325 $55,325 12. Atlantis LLC purchased 600 shares of common stock, $27 par, for $28,500. Later Atlantis sold 150 shares for $52 per share. What is the gain or loss on the sale? a. $2,850 Gain b. $7,125 Gain c. $675 Loss d. $675 Gain e. None of the above 13. Open Skies purchased a portfolio of available-for-sale securities during the year. The cost and fair value of the portfolio is as follows: Name Number of Shares Total Cost Total Fair Value Eden Rock 300 $3,000 $4,800 Blue Creek 400 $6,500 $5,800 First Stone 450 $5,400 $6,750 Total $14,900 $17,350 a. Make the journal entry to record the adjustment of available-for-sale security portfolio to fair value on December 31; b. Where will the information be reported on the financial statements 3 14. The income statement of Osborne Company reported net income of $500,000 for the year ended December 31 before considering the following: • During the year, Osborne purchased trading securities; • At year-end, the fair value of the investment portfolio was $35,000 less than the cost; • The balance of Retained Earnings was $743,000 on January 1 ; • Osborne paid $46,000 in cash dividends during the year . Using the above data, calculate the balance of Retained Earnings on December 31. 15. Also, 3T Corporation reported on its income statement net income of $54,400 for the year ended December 31 before considering the following: a. During the year, the company purchased available-for-sale securities b. At year-end, the fair value of the investment portfolio was $5,200 more than cost c. The balance of Retained Earnings was $625,000; d. 3T corporation paid $12,500 in cash dividends during the year. Now, using the above data, also calculate the balance of Retained Earnings on December 31. 16. Sweetener Enterprises, has cash flows from operating activities of $539,000. Cash flows used for investments in property, Plant, and Equipment (PP&E) totaled $210,000 of which 75% of this investment was used to replace existing capacity. a. Determine the free cash flow for Sweetener Enterprises b. How might a lender use free cash to determine whether or not to give Sweetener Enterprise a loan? 4 17. Selfridges, an upscale London retailer, has a current ratio of 2.2. Which of the following transactions will cause the ratio to increase? a. When Selfridges declares a 20% dividend on its stock b. When it purchases merchandise c. When it pays off a creditor d. When it receives cash from a customer on account e. None of the above. 18. What is the numerator in calculating the accounts receivable turnover? a. Total assets b. Sales c. Accounts receivable at year-end d. Average accounts receivable e. None of the above. 19. How about the numerator in calculating inventory turnover? a. Accounts Receivable at year-end b. Cost of goods sold c. Average inventory d. Beginning inventory e. None of the above. 20. Diva’s price? a. b. c. d. e. P/E Ratio is 25. If its Earning Per Share (EPS) is $1.75, what is its market $25 $43.75 $26.75 $14.285 None of the above. 5 Part Two – Short Essay Questions. Answer All Four Questions 1. Sarbanes-Oxley Act of 2002 requires that management of publicly-held companies issue a report on the internal control along with their annual report. What is management required to state in that report? 2. Your text talks about three accounting methods for equity investments – cost method, equity method, and consolidation method. When is the equity method the appropriate accounting method to use? Briefly explain how it is used. 3. What is the major difference in the accounting for portfolio of trading securities and a portfolio of available-for-sale securities? . 4. a. How does the Return on Total Assets differ from the Return on Stockholders’ Equity? b. Which ratio is normally higher? Why? 6 Part Three: Problems - Answer All Four Questions 1. The following are selected items involving the cash flow activities section of the IKAM, Inc. for 2020: Net Income Payment of Dividends Ten-Year Bonds $28,000 Issued at face value Depreciation Expense Building was acquired at a cost Accounts Receivable Decreased by Accounts Payable Decreased by Equipment Acquired at a Cost of Inventories Increased by Beginning Cash Balance $41,000.00 $16,000.00 $28,000.00 $11,000.00 $40,000.00 $ 2,000.00 $ 4,000.00 $ 8,000.00 $ 7,000.00 $13,000.00 Required: a. Prepare the statement of cash flows of IKAM, Inc for 2020a comparative balance sheet 7 2. On December 31, Year , BEDA Co. had the following available-for-sale investment disclosure within the Current Assets section of the balance sheet: Available=for-sale investments (at cost) Plus valuation allowance for available-for-sale investments Available-for-sale investments (at fair value) $145,000 40,000 $185,000 There were no purchases or sales of available-for-sale investments during Year 2. On December 31, Year 2, the fair value of the available-for-sale investment portfolio was $200,000. The net income of BEDA was $210,000 for Year 2. Required: Compute the Comprehensive Income for BEDA for the year-ended December 31, Year 2. 8 3. The following data are taken from the financial statements of Sigmon Inc. Terms of all sales are 2/1, n/45. 20Y3 Accounts Receivable, end of year Sales on Account $ 725,000 $ 5,637,000 20Y2 $ 650,000 $4,687,500 20y1 $ 600,000 Required: a. For 20Y2 and 20Y3, determine 1. The accounts receivable turnover, and 2. The number of days’ sales in receivables b. What conclusions can you draw from these data concerning Sigmon’s accounts receivable and credit policies? 9 4. Below is the common-sized statement for the current calendar year for Linen and Such and household industry average. Household Linen and Such Industry Company Averages Sales Cost of Goods Sold Gross Profit Selling Expenses Administrative Expenses Total Operating Expenses Operating Income Other Revenue 100% 34.8 65.2% 13.7% 12.1 25.8% 39.4% 2.4 41.8% 1.5 40.3% 14.1 26.2% Other Expense Income Before Income Tax Income Tax Expense Net Income 100% 31.2 68.8% 13.9% 11.8 25.7% 43.1% 1.9 45.0% 1.1 43.9% 15.4 28.5% Required: Compare Linen and Such with the industry averages and identify strengths and weaknesses that Linen and Such has to the industry. Does it need any course correction? What does it need?