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Principles of Financial Accounting

Quiz 11

Quiz 10 Chapter 13 Principles of Financial Accounting

Time allowed: 35 + 2 + 5 minutes Total Marks:

Instructions:  The deadline for the quiz submission is Time and Date.  Please read all the instructions thoroughly and carefully.  This quiz comprises three sections, A, B, and C.  You are required to attempt all questions in all three sections.  You are required to answer questions from Sections A and B directly on LMS.  You are required to answer the questions from Section C in the excel solution template provided. Please ensure that you state your section, full name, and student ID in first tab of the excel solution template named “Name and ID. o Upload the excel solution template on LMS with in the quiz. For section C, you will be provided an option in your LMS quiz to upload excel files. o Please ensure that you read all the instructions provided in the excel solution template, thoroughly and carefully. You have been provided extra 2 minutes to read all the instructions on your excel solution template. o Please ensure that the solution template file is renamed after your student ID.  Make sure you upload your excel solution template in time to allow yourself to submit your quiz by the allocated deadline. You have been provided with extra 5 minutes to submit your quiz. In case of any connectivity issues, keep trying to submit for only 2 out of 5 minutes. If you are still not able to submit via LMS, immediately email your excel solution template to [email protected]. o Your quiz will not be reconsidered for grading if you fail to comply with the above instruction.

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Principles of Financial Accounting

Quiz 11

Section A – MCQs

Numerical MCQs 1. Accounts receivable decreased £8,000 during the year, inventory increased £3,000 during the year, and accounts payable increased £6,000 during the year. Under the indirect method, what is net cash provided by operating activities if the net income is £80,000? (a) £85,000 (b) £89,000 (c) £97,000 (d) £91,000

2. The following data are available for Unicorn Corporation: Sale of land Sale of equipment Issuance of ordinary shares Purchase of equipment Payment of cash dividends

£95,000 £54,000 £60,000 £28,000 £55,000

Net cash provided by investing activities is: (a) £130,000 (b) £121,000 (c) £126,000 (d) £66,000

3. The following data are available for Diamond Co. Decrease in accounts payable Increase in bonds payable Sale of investment Issuance of ordinary shares Payment of cash dividends Payments to retire debt

£15,000 £33,000 £50,000 £25,000 £20,000 £20,000

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Principles of Financial Accounting

Quiz 11

Net cash provided by financing activities is: (a) £35,000 (b) £18,000 (c) £58,000 (d) £123,000

4. A company made cash and credit sales of £55,000 and £80,000 during the period. The beginning balance the company’s accounts receivable is £24,000; the ending balance is £20,000. What are cash receipts from customers? (a) £51,000 (b) £139,000 (c) £84,000 (d) £59,000

5. Aqua Star Company issued common stock for proceeds of £250,000 during 2018. The company paid dividends of £40,000 and issued a long-term note payable for £150,000 in exchange for Machinery during the year. The company also purchased common stock that had a cost of £51,000. The financing section of the statement of cash flows will report net cash inflows of (a) £360,000 (b) £159,000 (c) £210,000 (d) £309,000

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Principles of Financial Accounting

Quiz 11

6. The following data are available for Allen Clapp Corporation. Net income Depreciation expense Dividends paid Loss on disposal of land Increase in accounts receivable Decrease in accounts payable

£100,000 £20,000 £10,000 £2,000 £15,000 £10,000

Net cash provided by operating activities is: (a) £87,000 (b) £147,000 (c) £97,000 (d) £107,000

7. The following figures are to be included in the calculation of net cash from operating activities: Depreciation charges Increase in inventories Decrease in receivables Increase in payables

980 130 100 80

What will be the net effect of these items on the cash flow statement? (a) 1,290 (b) 850 (c) 870 (d) 1,030

8. Accounts receivable increases £2,000 during the year, inventory decreased by £1,000 during the year, and accounts payable decreased £3,000 during the year. Under the indirect method, what is net cash provided by operating activities if the net income is £10,000? (a) £4,000 Page 4 of 32

Principles of Financial Accounting

Quiz 11

(b) £10,000 (c) £6,000 (d) £8,000

9. The following data are available for Acorn Corporation: Purchase of land Sale of equipment Issuance of ordinary shares Sale of equipment Payment of cash dividends

£105,000 £60,000 £100,000 £60,000 £50,000

Net cash provided by investing activities is: (a) £15,000 (b) £65,000 (c) £50,000 (d) £115,000

10. The following data are available for Hay’s Co. Increase in accounts payable Increase in bonds payable Purchase of common stock Issuance of ordinary shares Payment to retire debt Payments of cash dividends

£25,000 £40,000 £50,000 £25,000 £20,000 £60,000

Net cash flow from financing activities is: (a) £ -40,000 (b) £ -15,000 (c) £ -65,000 (d) £ -5,000 Page 5 of 32

Principles of Financial Accounting

Quiz 11

11. A company made sales worth £100,000 during the period. One-fourth of the sales are cash sales. The beginning balance the company’s accounts receivable is £30,000; the ending balance is £10,000. What are cash receipts from customers? (a) £25,000 (b) £45,000 (c) £95,000 (d) £120,000

12. Gold Star Inc. issued common stock for proceeds of £150,000 during 2019. The company paid dividends of £40,000 and issued a long-term note payable for £50,000. The company also acquired Milly’s Co. common stock worth £60,000 in exchange of their company’s common stock. The financing section of the statement of cash flows will report net cash inflows of (a) £120,000 (b) £170,000 (c) £160,000 (d) £260,000

13. Zara buys and sells jewellery for £250 each, costing £150 each. During her first month of trading in April, out of the 20 pieces of jewellery she had, 5 pieces remain in the inventory at the month end. Half of her sales were cash sales. Which of the following statements is true for April? (a) Zara made a gross profit of £1,500 and her cash balance increased by £750. (b) Zara made a gross profit of £1,500 and her cash balance increased by £1,500. (c) Zara made a gross profit of £750 and her cash balance increased by £750. (d) Zara made a gross profit of £750 and her cash balance increased by £1,500.

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Principles of Financial Accounting

Quiz 11

14. Mr Wilson sold watches worth £100 each, for £150 each. During his first month of trading in June, out of 100 watches he had, 10 watches remain in the inventory at the month end. Onefourth of his sales were cash sales. Which of the following statements is true for April? (a) Mr Wilson made a gross profit of £4,500 and his cash balance increased by £4,500. (b) Mr Wilson made a gross profit of £4,500 and has a remaining inventory of £1,000. (c) Mr Wilson made a gross profit of £4,500 and has a remaining inventory of £1,500. (d) Mr Wilson has a remaining inventory of £1,500 and his cash balance increased by £4,500.

15. The following figures are to be included in the calculation of net cash from operating activities: Cost of goods sold Increase in inventories Decrease in receivables Decrease in payables

120 50 80 40

What will be the net effect of these items on the cash flow statement? (a) 50 (b) 190 (c) 110 (d) 30

Theoretical MCQs 1. While calculating cash flows from operating activities, how will the following information affect the net income?

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Principles of Financial Accounting

Quiz 11

Increase in inventory Depreciation expense Increase in prepayments Gain on disposal of plant assets (a) Decrease; Increase; Decrease; No effect (b) Increase; Increase; Decrease; No effect (c) Decrease; Increase; Decrease; Increase (d) Decrease; Increase; Decrease; Decrease

2. Which one of the following would be categorised as a cash flow from investing activities? (a) Increase in inventory held (b) Proceeds of a loan issue (c) Proceeds from sale of equipment (d) Dividends paid

3. Free cash flow provides an indication of a company’s ability to: (a) Generate net income. (b) Sell its equipment. (c) Generate cash to invest in new capital expenditures. (d) Purchase treasury shares.

4. Which of the following is not a cash inflow? (a) Decrease in liabilities (b) Issue of shares (c) Decrease in credit customers

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Principles of Financial Accounting

Quiz 11

(d) Sale of fixed assets

5. Which of the following is not a cash outflow? (a) Increase in Prepaid expenses (b) Increase in account receivables (c) Decrease in account payable (d) Increase in sales

6. Which of the following will not be reported in the statement of cash flows? (a) The net change in plant assets during the year. (b) Cash payments for plant assets purchased during the year. (c) Cash receipts from sales of plant assets during the year. (d) Cash payments for dividends.

7. Which is an example of a cash flow from a financing activity? (a) Receipt of cash from the issuance of bonds payable. (b) Payment of cash for the purchase of equipment. (c) Receipt of cash from the sale of equipment. (d) Payment of cash to suppliers for inventory.

8. While calculating cash flows from operating activities, how will the following information affect the net income? Depreciation expense Decrease in inventory Decrease in prepayments Gain on disposal of plant assets

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Principles of Financial Accounting

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(a) Decrease; Increase; Increase; Increase; (b) Increase; Increase; Increase; Decrease (c) Increase; Increase; Increase; No effect (d) Increase; Decrease; Decrease; Decrease

9. Which one of the following would be categorised as a cash flow from financing activities? (a) Increase in inventory held (b) Purchase of land (c) Proceeds from sale of equipment (d) Dividends paid

10. Which of the following is a cash outflow? (a) Decrease in prepaid expenses (b) Decrease in account receivable (c) Increase in inventory (d) Sale of fixed assets

11. Which of the following is a cash inflow? (a) Depreciation expenses (b) Increase in supplies (c) Issuance of common stock (d) Repayment of debt

12. A statement of cash flows would not disclose the effects of which of the following transactions? Page 10 of 32

Principles of Financial Accounting

Quiz 11

(a) Purchase of treasury stock (b) Bonds payable exchanged for cash (c) Stock dividends declared (d) Capital stock issued

13. On the statement of cash flows, the cash flows from operating activities section would include: (a) Receipts from interest on short-term notes receivable (b) Receipts from the issuance of capital stock (c) Payments for the acquisition of investments (d) Payments for cash dividends

14. The indirect method of preparing the statement of cash flows begins with (a) Collections from customers (b) Cash sales (c) Net income (d) Beginning Cash Balance

15. Which of the following is not an operating activity? (a) Payment of taxes (b) Payment of interest (c) Payment of a cash dividend (d) Payment to suppliers

Section B – True/False Page 11 of 32

Principles of Financial Accounting

Quiz 11

1. A depreciation charge of £10,000 will add to the net income in cash from operating activities. T 2. A credit sale of £8,000 will add back to the net income in cash from operating activities. F 3. A cost of goods sold of £12,000 will be subtracted from the net income in cash from operating activities. F 4. An accrued salary of £3,000 will add back to the net income in cash from operating activities. T 5. Receipt of £6,000 from credit customers will add to the net income in cash from operating activities. T 6. A cash purchase of inventories worth £13,000 will be subtracted from the net income in cash from operating activities. T 7. Selling a non-current asset with a net book value of £5,000 for £3,000, net cash of the cash flow statement will decrease by £2,000. F 8. Selling a non-current asset with a net book value of £10,000 for £8,000, net cash of the cash flow statement will increase by £8,000. T 9. Selling a non-current asset with a net book value of £10,000 for £8,000, will subtract £2,000 from the net income in cash from operating activities. F 10. Selling a non-current asset with a net book value of £8,000 for £9,000, will subtract £1,000 from the net income in cash from operating activities. T 11. When preparing the cash flow statement, a company must convert net income from an accrual basis to a cash basis. T 12. Direct method of preparing the cash flow statement arrives at a slightly higher total amount than the indirect method. F 13. The purchase of non-current assets has no immediate impact on profit. On the other hand, purchasing a non-current asset will result in an immediate cash outflow for the business. T 14. Interest paid on the loans taken out will have a direct impact on profit. T 15. Credit sales are recorded as income earned and increase profit, despite not having an immediate impact on the cash coming into the business. T

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Principles of Financial Accounting

Quiz 11

Section C V1 Question 1 – Preparing a cash flow statement The following information relates to Azure Co.: 31-Mar-18

31-Mar-17

£’000

£’000

Building Cash

150 90

125 80

Trade receivables Trade payables

325 210

378 243

Inventories Prepayments

180 110

206 85

Share capital

100 Year to 31 March 2018

50

£’000 Profit before taxation Interest expense Depreciation expense - buildings Dividend

2,566 120 275 5

Notes: 1. 2. 3. 4.

A building costing £25,000 was purchased for cash. Azure Co issued ordinary shares for £50,000 cash. The interest expense was paid in full during the year. The company paid dividend in full.

Required: (a) Using indirect method, prepare Azure Co.’s Cash Flow Statement for the year to 31 March 2018 based upon the above information. [10]

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Question 2 The following information relates to the equipment sold by Acorn Enterprise: Book value

£10,000

Cost

£15,000

Accumulated depreciation Selling price

£5,000 £12,000

Required Prepare an entry to show the effect of the equipment sale on the cash flow statement. [4]

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V2

Question 1 – Preparing a cash flow statement The following information relates to Azure Co.:

Building Cash Trade receivables Trade payables Inventories Prepayments Share capital

Profit before taxation Interest expense Depreciation expense - buildings Dividend

31-Mar-18 £’000 160 103 321 202 170 120 105 Year to 31 March 2018 £’000 2,068 111 235 19

31-Mar-17 £’000 125 80 378 243 206 85 50

Notes: 1. 2. 3. 4.

A building costing £25,000 was purchased for cash. Azure Co issued ordinary shares for £50,000 cash. The interest expense was paid in full during the year. The company paid dividend in full.

Required: (a) Using indirect method, prepare Azure Co.’s Cash Flow Statement for the year to 31 March 2018 based upon the above information. [10]

Question 2 Page 15 of 32

Principles of Financial Accounting

Quiz 11

The following information relates to the equipment sold by Acorn Enterprise: Cost Selling price Accumulated depreciation Book value

£ £ £ £

12,015 10,213 4,511 7,504

Required Prepare an entry to show the effect of the equipment sale on the cash flow statement. [4]

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Principles of Financial Accounting

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V3

Question 1 – Preparing a cash flow statement The following information relates to Azure Co.: 31-Mar-18 £’000 Building Cash Trade receivables Trade payables Inventories Prepayments Share capital

Profit before taxation Interest expense Depreciation expense - buildings Dividend

31-Mar-17 £’000

154 97 325 207 176 114 101 Year to 31 March 2018 £’000 2,189 110 242 12

125 80 378 243 206 85 50

Notes: 5. 6. 7. 8.

A building costing £25,000 was purchased for cash. Azure Co issued ordinary shares for £50,000 cash. The interest expense was paid in full during the year. The company paid dividend in full.

Required: (a) Using indirect method, prepare Azure Co.’s Cash Flow Statement for the year to 31 March 2018 based upon the above information. [10]

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Principles of Financial Accounting

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Question 2 The following information relates to the equipment sold by Acorn Enterprise: £ Cost Selling price Accumulated depreciation Book value

12,758 10,208 4,258 8,500

Required Prepare an entry to show the effect of the equipment sale on the cash flow statement. [4]

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Principles of Financial Accounting

Quiz 11

V4

Question 1 – Preparing a cash flow statement The following information relates to Azure Co.:

Building Cash Trade receivables Trade payables Inventories Prepayments Share capital

Profit before taxation Interest expense Depreciation expense - buildings Dividend

31-Mar-18 £’000 168 112 316 195 162 128 111 Year to 31 March 2018 £’000 1,872 111 223 28

31-Mar-17 £’000 125 80 378 243 206 85 50

Notes: 1. 2. 3. 4.

A building costing £25,000 was purchased for cash. Azure Co issued ordinary shares for £50,000 cash. The interest expense was paid in full during the year. The company paid dividend in full.

Required: (a) Using indirect method, prepare Azure Co.’s Cash Flow Statement for the year to 31 March 2018 based upon the above information. [10]

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Principles of Financial Accounting

Quiz 11

Question 2 The following information relates to the equipment sold by Acorn Enterprise: £ Cost Selling price Accumulated depreciation Book value

10,825 9,203 4,071 6,754

Required Prepare an entry to show the effect of the equipment sale on the cash flow statement. [4]

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Principles of Financial Accounting

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V5

Question 1 – Preparing a cash flow statement The following information relates to Azure Co.:

Building Cash Trade receivables Trade payables Inventories Prepayments Share capital

Profit before taxation Interest expense Depreciation expense - buildings Dividend

31-Mar-18 £’000 170 114 312 192 160 130 114 Year to 31 March 2018 £’000 1,977 11...