7 Cash provided by operating activities a may be larger than net income b equals
ID: 2601033 • Letter: 7
Question
7 Cash provided by operating activities a may be larger than net income b equals the change in cash for the year o. summarizes cash flows relating to the purchase and sale of long lived assets d decreases when long-term debt is repaid 8 Billy's Cookie Shop reported equipment at S 120 000 and $24,000 accumulated depreciation on its December 31, 1098, balance sheet During 1999 they purchased equipment costing 120,000 and sold equipment costing $5,000 (book value $3,600) for 1,000 On December 31, 1990, n equipment was $87,400 Using the indirect method. Billys would report depreciation expense on its statement of cash flows for 1999 of a $47,600 b $27,200 C. $23,600 d $25,000 _ Short-term liquidity ratios include the a profit margin ratio b payout ratio c debt to total assets ratio d acid-test ratio 9 10. Parker Paint reported sales of $300,000, total assets of $150,000, total owners' equity of $80,000, current assets of $50,000, current liabilities of $20,000, and cash of $12,000. In a common size balance sheet, cash would be shown as a 60%. b. 896. c. 24% 4%Explanation / Answer
Solution 7:
Cash provided by opearting activities may be larger than net income as net income may include non cash expense, further working capital changes are also adjusted in cash flow from operating activites. Therefore cash from operating activities can be higher or lesser than net income.
Therefore option a is absolutly correct.
Option c is incorrect as purchase and sale of assets is shown in cash flow from investing activites.
Option d is also incorrect payment of long term debt part of cash flow from financing activities.
Solution 8:
Opening book value of equipment = $120,000 - $24,000 = $96,000
Purchase of equipment during 1999 = $20,000
Book value of sold equipment = $3,600
Net equipment value at end of 1999 = $87,400
Therefore
$96,000 + $20,000 - $3,600 - Depreciation = $87,400
Depreciation for 1999 = $112,400 - $87,400 = $25,000
Solution 9:
Short term liquidity ratio are measured for the purpose of measuring liquidity of a firm.The scope to which there is quick convertibility of assets in to money, for the purpose of paying obligation of short-term nature can be termed as liquidity. the following Liquidity ratios are commonly used
Current ratio
Quick ratio or acid test ratio
Absolute liquidity ratio
Therefore choice d is correct.
Solution 10:
Cash to total assets = $12,000 / $150,000 * 100 = 8%
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