Exam 1 Sample B Answer Key

Exam 1 Sample B - 1 On the statement of cash flows a company reports depreciation on purchased equipment as cash inflow under operations because a

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1) On the statement of cash flows, a company reports depreciation on purchased equipment as cash inflow under operations because a) Depreciation cash inflows are triggered by production of a good or service. b) Depreciation is treated as an expense on the income statement, but there are no actual cash outflows. c) Depreciation cash inflows are generated when inventory turns into revenue. d) It depends entirely on whether or not the company paid for the purchase entirely in cash. e) None of the above. Depreciation payments are included in the income statement, the bottom line of which goes to cash flow under investments. 2) On the statement of cash flows, a company reports an increase in accounts receivable as a) Cash inflow under operations. b) A negative adjustment to cash flow under operations. c) Cash outflow under investing. d) It depends on when the customers intend to settle their accounts. e) None of the above. Cash has not actually changed hands when an accounts receivable is created. 3) A firm’s long-term debt/equity ratio is equal to 2.5. Which of the following statements is not true? a) The firm’s long-term debt is two and one-half times the size of its shareholders’ equity. b) For each $1.00 in shareholder equity the firm has $2.50 in long-term debt. c) The firm’s degree of financial leverage is greater than 1x. d) For each $1.00 in shareholder equity the firm has at least $3.50 in assets. e) All of the above statements are true. Start Questions Dealing with Talented TAs (partnership) David, Scott, Jenna, Joe, and Marcela started a business selling a new product - a "read- only" MP3 player (an MP3 player with music burned into memory). The user could only listen to the music that was on the player. The initial product configuration contained forty Grateful Dead concerts - almost 160 hours of music. The business was started as an internet business requiring a very small initial investment. Indeed, the partners pooled all their cash and came up with $12,000. On the day the cash was raised, March 1, 2005 the company started business as a partnership with the name Talented TAs (TTA). In the first month TTA acquired a server and an initial stock of players. The server was purchased for $2,800 cash and had an expected useful life of two years. At the end of the two years the server could be sold for $400. The initial 100 players were purchased from a supplier for $6,000 of which $3,000 was paid on delivery and the balance was due in 60 days. Rent and utilities were $1,000 per month, prepaid at the beginning of the month. The selling price of the product was established at $90.
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4) Suppose that as of March 31, 2005 TTA had sold the 100 players from the initial purchase. Assume that the next order from TTA's supplier was not due to arrive until April 1st and the only non-current asset held by TTA was the server. If the player supplier is not paid early, what is the total book value of TTA's Liabilities plus Shareholders’ Equity on March 31, 2005?
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This note was uploaded on 04/07/2008 for the course SM 299 taught by Professor Dixon during the Spring '08 term at BU.

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Exam 1 Sample B - 1 On the statement of cash flows a company reports depreciation on purchased equipment as cash inflow under operations because a

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