Critical Thinking #1 - Use Critical Thinking in the Solution of Management Accou

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Critical Thinking #1 - Use Critical Thinking in the Solution of Management Accounting Problems Commonly Encountered in the Hospitality Industry Answer the following two questions based on the monthly cash flow data presented here: January February January February Operating Receipts 1,000,000 1,100,000 Non-Operating Receipts 500,000 100,000 Operating Expenditures 750,000 875,000 Non-Operating Expenditures 900,000 200,000 Net Operating Cash Flow 250,000 225,000 Net Non-Operating Cash Flow (400,000) (100,000) Net Total Cash flow (150,000) 125,000 Beginning Cash Balance 50,000 Cumulative Cash Balances (100,000) 25,000 1) The business needs to increase its cash flow in: a) January b) February 2) In which month does this business have an overdraft in the bank? a) January b) February c) Neither month 3 In April your hotel receives $1,000 to reserve a room in June. How would this appear on the May monthly cash flow statement? How would this affect the May income statement? a) Cash flow statement May Receipts: Customer advances No effect Income statement Room sales: No effect b) Cash flow statement May Receipts: Customer advances No effect Income statement Room sales: $1,000 c) Cash flow statement May Receipts: Customer advances $1,000 Income statement Room sales: No effect 4) In April your hotel receives $1,000 to reserve a room in June. How would this appear on the June monthly cash flow statement? How would this affect the June income statement? a) Cash flow statement June Receipts: Customer advances No effect Income statement Room sales: No effect b) Cash flow statement June Receipts: Customer advances No effect Income statement Room sales: $1,000 c) Cash flow statement June Receipts: Customer advances $1,000 Income statement Room sales: No effect 5) Your restaurant outsources cleaning services at a monthly cost of $500. Your contract starts on July 1, but you pay one month later. How would this appear on the July monthly cash flow statement? How would this affect the July income statement? a) Cash flow statement July Expenditures: Cleaning services No effect Income statement Cleaning Expense No effect b) Cash flow statement July Expenditures: Cleaning services No effect Income statement Cleaning Expense $1,000 c) Cash flow statement July Expenditures: Cleaning services $1,000 Income statement Cleaning Expense No effect 6) Below are presented the sales in dollars and covers, as well as the cost of sales for a restaurant. June May Sales $60,000 $57,000 Cost of sales 31,500 31,200 Gross profit $28,500 $25,800 Covers 15,000 13,000 In this restaurant what is responsible for the higher June gross profit? a) Decrease in price b) Increase in covers sold c) Decrease in unit cost 7) If a restaurant has increasing net income and decreasing operating cash flow, as indicated by the data shown below - July August Net income ($5,025) $8,295 Operating cash flow ($12,350) ($18,470) then this means that: a) The restaurant may be granting its customers credit terms that are too lenient b) The restaurant may be paying on a cash basis for the goods and services it purchases c) Both of the above d) None of the above 8) If a restaurant's operating cash flow is increasingly negative its cash flow situation would be improved by doing which of the following? a) Collect accounts receivable faster by granting prompt payment discounts b) Negotiate more extended credit terms with suppliers c) Borrow some funds d) Sell more stock or otherwise obtain more investment by the owners e) Sell some unused assets f) All of the above 9) Based on the following sub-section of the operating cash flow section of the Cash Flow Statement select the correct answer from the list below. Analysis of working capital accounts related to operations Increase in A/R (2,000) Decrease in Inventory 7,000 Increase in prepaid expenses 500 Increase in A/P 1,000 Increase in Taxes payable 700 Decrease in unearned revenue (7,000) a) The changes in these accounts indicate that this company's working capital related to operations is decreasing. b) The changes in these accounts indicate that this company's working capital related to operations is increasing. c) The above is insufficient information to determine whether or not this company's working capital is increasing or decreasing. 10) If you expect sales to decrease would you prefer that more of your expenses be variable or fixed? a) Variable b) Fixed c) Neither answer makes sense Critical Thinking #1 - Use Critical Thinking in the Solution of Management Accounting Problems Commonly Encountered in the Hospitality Industry Answer the following two questions based on the monthly cash flow data presented here: January February January February Operating Receipts 1,000,000 1,100,000 Non-Operating Receipts 500,000 100,000 Operating Expenditures 750,000 875,000 Non-Operating Expenditures 900,000 200,000 Net Operating Cash Flow 250,000 225,000 Net Non-Operating Cash Flow (400,000) (100,000) Net Total Cash flow (150,000) 125,000 Beginning Cash Balance 50,000 Cumulative Cash Balances (100,000) 25,000 1) The business needs to increase its cash flow in: a) January b) February 2) In which month does this business have an overdraft in the bank? a) January b) February c) Neither month 3 In April your hotel receives $1,000 to reserve a room in June. How would this appear on the May monthly cash flow statement? How would this affect the May income statement? a) Cash flow statement May Receipts: Customer advances No effect Income statement Room sales: No effect b) Cash flow statement May Receipts: Customer advances No effect Income statement Room sales: $1,000 c) Cash flow statement May Receipts: Customer advances $1,000 Income statement Room sales: No effect 4) In April your hotel receives $1,000 to reserve a room in June. How would this appear on the June monthly cash flow statement? How would this affect the June income statement? a) Cash flow statement June Receipts: Customer advances No effect Income statement Room sales: No effect b) Cash flow statement June Receipts: Customer advances No effect Income statement Room sales: $1,000 c) Cash flow statement June Receipts: Customer advances $1,000 Income statement Room sales: No effect 5) Your restaurant outsources cleaning services at a monthly cost of $500. Your contract starts on July 1, but you pay one month later. How would this appear on the July monthly cash flow statement? How would this affect the July income statement? a) Cash flow statement July Expenditures: Cleaning services No effect Income statement Cleaning Expense No effect b) Cash flow statement July Expenditures: Cleaning services No effect Income statement Cleaning Expense $1,000 c) Cash flow statement July Expenditures: Cleaning services $1,000 Income statement Cleaning Expense No effect 6) Below are presented the sales in dollars and covers, as well as the cost of sales for a restaurant. June May Sales $60,000 $57,000 Cost of sales 31,500 31,200 Gross profit $28,500 $25,800 Covers 15,000 13,000 In this restaurant what is responsible for the higher June gross profit? a) Decrease in price b) Increase in covers sold c) Decrease in unit cost 7) If a restaurant has increasing net income and decreasing operating cash flow, as indicated by the data shown below - July August Net income ($5,025) $8,295 Operating cash flow ($12,350) ($18,470) then this means that: a) The restaurant may be granting its customers credit terms that are too lenient b) The restaurant may be paying on a cash basis for the goods and services it purchases c) Both of the above d) None of the above 8) If a restaurant's operating cash flow is increasingly negative its cash flow situation would be improved by doing which of the following? a) Collect accounts receivable faster by granting prompt payment discounts b) Negotiate more extended credit terms with suppliers c) Borrow some funds d) Sell more stock or otherwise obtain more investment by the owners e) Sell some unused assets f) All of the above 9) Based on the following sub-section of the operating cash flow section of the Cash Flow Statement select the correct answer from the list below. Analysis of working capital accounts related to operations Increase in A/R (2,000) Decrease in Inventory 7,000 Increase in prepaid expenses 500 Increase in A/P 1,000 Increase in Taxes payable 700 Decrease in unearned revenue (7,000) a) The changes in these accounts indicate that this company's working capital related to operations is decreasing. b) The changes in these accounts indicate that this company's working capital related to operations is increasing. c) The above is insufficient information to determine whether or not this company's working capital is increasing or decreasing. 10) If you expect sales to decrease would you prefer that more of your expenses be variable or fixed? a) Variable b) Fixed c) Neither answer makes sense

Explanation / Answer

1.b

2.a

3.c

4.b

5.c

6.b

7.c

8.f

9.b

10.a

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