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1. In Shannon Company, there was an increase in the land account during the year

ID: 2490782 • Letter: 1

Question

1.

In Shannon Company, there was an increase in the land account during the year of $48,000. Analysis reveals that the change resulted from a cash sale of land at a cost $110,000, and a cash purchase of land for $158,000. In the statement of cash flows, the change in the land account should be reported in the investment section:

                A.           

as a net purchase of land, $48,000.

                B.           

only as a purchase of land $158,000.

                C.           

only as a sale of land $110,000.

                D.           

as a purchase of land $158,000 and a sale of land $110,000.

2.

. DV’s Pest Control Products has the following information available:

Net Income                                             $15,000

Cash Provided by Operations                21,000

Cash Sales                                               65,000

Capital Expenditures                               11,000

Dividends Declared-unpaid                      3,000

Dividends paid                                            2,000

What is DV’s free cash flow?

                               

$1,000.

                               

$18,000

                               

$8,000

                               

$10,000

3.

Colaw Company is considering buying equipment for $60,000 with a useful life of five years and an estimated salvage value of $4,000. If annual expected income is $5,000, the denominator in computing the annual rate of return is

                               

$28,000.

                               

$30,000.

                               

$32,000.

                               

$60,000.  

Explanation / Answer

1.    Change in the land account should be reported in the investment section:

   Effect in Investing activity

A) net purchase of land $48000 Cash outflow (-$48000)

B)   only as a purchase of land $158,000 Cash outflow (-$158000)

C) only as a sale of land $110,000. Cash inflow $110000

D) a purchase of land $158,000 and a sale of land $110,000. cash inflow $110000, cash outflow(-$158000)

2. $ 1000

Note;-   DV’s free cash flow = EBIT(1-tax) - capital expenditure - change in working capital = 15000 - 11000 - 3000

= $1000

3. $32000

   Note:-   Annaul rate of return = net profit / average investment

and, average investment = (initial cost + scrap value) /2   

= $60000 + $4000 / 2

= 64000 /2

= $32000