The next 4 questions are based on Panjim Trading company's cash T-Account
CASH T
Debit Side Credit Side
-Balance 1/1 225,000
-Collection
from Customers 60,000 44,000 Payments to suppliers
-Stock Issued 20,000 13,000 Purchase of machinery
-5yrBankLoan 75,000 100,000 Salaries paid
-SaleOfUsedVan 10,000 4,000 Dividends paid
5,000 Interest payment
1,000 Garage rental
_____________________________
Balance 12/31 223,000
1) Based on Panjim's 2005 cash T-account, which one of the following statements must be true?
A. Panjim did not record any tax expense for 2005
B. During 2005, Panjim's total merchandise sales were $60,000
C. During 2005, Panjim issued $75,000 of debt
D. During 2005, Panjim's total merchandise purchases were $44,000
My answer: C because out of all of the answers listed only the $75,000 worth of debt is mentioned in the Cash T-account (above) for 2005.
2)Panjim began 2005 with salaries payable balance of $75,000. It had 2005 salary expense of
$80,000. Its 2005 ending salaries payable balance must be:
A. $55,000
B. $105,000
C. $95,000
D. $155,000
My answer: A because Panjim began 2005 with a salaries payable balance of $75,000 and they added a salary expense of $80,000 for in the middle of 2005 so you would add those two number to yield a total of $155,000. The cash T account listed above states that $100k of salaries were paid in 2005 so your equation would be $155,000- $100,000 = $55,000. Is this correct?
3) Panjim's 2005 cash flow from operations is:
A. A net inflow of $85,000
B. A net outflow of $90,000
C. A net inflow of $90,000
D. A net outflow of $85,000
***My answer: D because Cash flow from operating = EBIT + Depreciation - Taxes
4) Panjim recorded an interest expense of $6,000 for 2005. Which one of the following line
items would be included in the operating section of the Panjim's 2005 indirect method
statement of cash flows?
A. Add increase in interest payable... $6,000
B. Add increase in interest payable... $1,000
C. Subtract increase in interest payable... ($1,000)
D. Subtract decrease in interest payable... ($5,000)
My answer: A because the interest expense will be adjusted to a cash amount through the changes to the working capital amounts, which are also reported as part of the operating activities. In addition, the actual amount of interest paid must be disclosed. It wouldn't be a subtraction of interest payable because you must add interest payable with the indirect method.
