Question

!- The income statement should not be relied upon to accurately measure a firm's operating cash generation because:

1. It is based on cash accounting.

2. It does not take into account the borrowings and repayments of debt.

3. The income statement can be relied upon to accurately measure a firm's operating cash generation.

4. it is based on accrual accounting

2- Which one of the following is NOT considered a working capital account?

1. notes payable

2. accounts receivable

3. accrued liabilities

4. accounts payable

3- The firm takes a charge to write down some obsolete inventory. The firm's net working capital and its quick ratio will:

1. Networking capital will remain unchanged and the quick ratio will increase.

2. Networking capital will increase and the quick ratio will remain unchanged.

3. Networking capital will remain unchanged and the quick ratio will remain decrease.

4. Networking capital will decrease and the quick ratio will remain unchanged.

4- If a firm had beginning retained earnings of $200,000, net income of $60,000, sales of $150,000, total assets of $500,000, ending retained earnings of $175,000, share repurchases of $35,000, and total liabilities of $250,000, how much did the company payout in dividends, if any?

1. 25,000

2. 35,000

3. 50,000

4. 0

Answer 1

Answer-

1] Option c] is correct, Income statement can be relied to accuratly measure cash generation from Operation,

Some of the adjustment is made in the net income to arrive at cashflow from operating Actitvites.

2] Option a] is correct, Notes payable can't be said as working capital account,

generally notes payables are issued to finance.Hence it is not considered as Working capital Accounts,

3] Option d] is correct, The obseletion in inventory would have reduced net working capital and the quick ratio is likely to remain unchanged.

4] Option c], 50000 is correct,

Payout in dividend is calculated as follw-

Opening Retained Earnings $200000

Add: Net Income $ 60000

Less: Share Repurchase $ 35000

Less: Closing Retained Earnings $175000

Dividend Paid $ 50,000

Please comment for any explanation,

Thanks,