Hi Can any one help me out here to make sure i am doing it correct. I really appreciate it for any positive response.

Kyle.


1 MDC Ltd’s December 31, 20X7 balance sheet showed the following:

20X7 20X6
Capital assets $610,000 $675,000
Accumulated Amortization 423,000 340,000

Capital assets of $120,000 were purchased for cash. A capital asset was sold at a gain of $40,000. Amortization expense was $138,000. What amount would appear on the Cash Flow Statement as "Sale of Capital Asset?"

a) $40,000
b) $130,000
c) $170,000
d) $225,000

Answer: A

2 Which of the following ratios best provides an indication of the immediate liquidity of a company?
a) Accounts receivable turnover
b) Acid test ratio
c) Current ratio
d) Defensive-interval ratio

Answer: B. because this ratio don’t have inventory or prepaid and only liquid assets are consider for immediate liquidation.

3 A firm is reviewing its pricing strategy and wishes to become a high markup, low volume producer, relying on the high markup to generate profit. Which of the following is true?
a) The success of the strategy will partly depend on whether there are barriers to entry,
so that competitors cannot duplicate the firm’s product.
b) It is unlikely that the firm will have the potential to operate at high return levels using
this strategy.
c) The firm’s product has to be undifferentiated compared to its competitors’ products to
make this strategy work.
d) It is necessary to make significant investment in high-volume production equipment
to make this strategy work.

Answer: A.

4. A company prepares the cash flow statement using the indirect method in the operating activities section. Which of the following will a financial statement analyst not find on this cash flow statement?

a) The level of spending on capital assets
b) A comparison of the cash flow from operations in relation to the level of net income
c) A comparison of the cash flow from operations in relation to required investment in
capital assets
d) The level of stock dividends issued

Answer: D. because A,B & C are on the cash flow statement.

5 Why does ratio analysis have importance even in a semi-strong efficient market?
a) The semi-strong efficient market is not proven.
b) Ratios provide information on risk.
c) Only past price information is reflected in stock market price; ratios provide
information about future trends.
d) Ratio analysis can be used to find stocks that are undervalued by the market and thus
identify investment targets.

Answer : b

6 A firm has an inventory turnover of 6. How could this ratio be increased?
a) Keeping inventory the same and decreasing cost of goods sold
b) Doubling average inventory and at the same time doubling the cost of goods sold
c) Increasing inventory and decreasing cost of goods sold
d) Reducing inventory while cost of goods sold increases by 20%

Answer : D.

CaptainForest

I agree with your answers in question 2, 4, 6

For question 1:
The answer is D

Beginning CA 675
Plus Purchase 120
Less Sale
Ending 610

Therefore, Sale was for 185 at book value, but you know it was sold at 40 above BV, therefore, it was sols at 185+40 = $225,000

For 3 and 5, I don’t know.

acca_123

Thanks fOR THE REPLY ... For Question 1 The J/Entry to record the sale of capital asset is

Dr Cash 170000
Dr Accumulated Depreciation 55000 340000+138000-423000=55000
Cr Gain On sale of Asset 40000
Cr Capital Asset 185000

My Question is why we don't consider A or C since cash flow statement involves only cash transaction and gain will be less from net income in operating activities.

Acutally my concept to preprae cash flow statement is not clear so thats why i am asking this question again..... clarify about cash and gain

Kyle.