Week 15 Quiz

In Year 2, the bicycle shop (illustrative) pays its owners a $7,000 cash dividend. In which section of its statement of cash flows does that payment appear?

Select one.

• Operating activities, as a cost of running the shop
• Investing activities, as a long-lived asset
• Financing activities, as a payment to the owners
• Nowhere, because dividends never involve cash

The bicycle shop (illustrative) reports Year 2 net income of $69,000 and depreciation expense of $12,000. Why does the indirect method add the $12,000 back to net income?

Select one.

• Recording depreciation brings $12,000 of new cash into the shop
• It was subtracted to reach net income, but no cash left the shop for it
• The equipment's market value rose by $12,000 during Year 2
• The shop set aside $12,000 of cash to replace its equipment

In Year 2, the bicycle shop (illustrative) sells old equipment for $7,000 cash at a $2,000 gain. How does the operating section prepared by the indirect method treat the $2,000 gain?

Select one.

• It adds the gain to net income, because the shop received cash
• It reports the gain as a financing activity
• It leaves the gain inside net income with no adjustment
• It subtracts the gain, because the whole $7,000 appears in investing activities

For Year 2, the bicycle shop (illustrative) reports net income of $69,000, depreciation expense of $12,000, a $2,000 gain on sale of equipment, a $3,000 increase in accounts receivable, a $5,000 increase in inventory, a $1,000 decrease in prepaid expenses, and a $2,000 increase in accounts payable. What is its net cash provided by operating activities?

Select one.

• $78,000
• $69,000
• $74,000
• $84,000

For Year 2, the bicycle shop (illustrative) reports net cash provided by operating activities of $74,000, net cash used by investing activities of $33,000, and net cash provided by financing activities of $8,000. Its cash at the beginning of Year 2 was $22,000. What is its cash at the end of Year 2?

Select one.

• $71,000
• $49,000
• $137,000
• $55,000

A public company's net income, read from its Form 10‑K on the SEC's EDGAR website, is a figure this course keys on its quizzes.

True or false.

• True
• False

At the end of Year 2, the bicycle shop (illustrative) has current assets of $100,000 and current liabilities of $40,000. What is its current ratio?

Select one.

• 0.4
• 2.5
• 1.7
• 0.5

At the end of Year 2, the bicycle shop (illustrative) has current liabilities of $40,000, a long-term note of $20,000, and stockholders' equity of $140,000. Total assets equal liabilities plus stockholders' equity. What is its debt to total assets?

Select one.

• 20 percent
• About 43 percent
• 70 percent
• 30 percent

In Year 2, the bicycle shop (illustrative) has net sales of $690,000, gross profit of $276,000, and net income of $69,000. What is its gross margin?

Select one.

• 40 percent
• 10 percent
• 50 percent
• 60 percent

Which of these statements about the illustrative bicycle shop's running case are true? Select all that apply.

Select every option that applies.

• In Month 1 it earned net income of $1,400 while its operations used $400 of cash
• Its Year 2 statement of cash flows ends at $71,000, the cash on its end-of-Year-2 balance sheet
• Its end-of-Year-2 total assets of $200,000 equal liabilities of $60,000 plus stockholders' equity of $140,000
• Its Month 1 current ratio of about 12.9 shows it was in better shape than in Year 2
• Its Year 2 net income of $69,000 equals its Year 2 increase in cash