Question

Indirect Method Instruction

The following questions generally relate to the indirect method of preparing the statement of cash flows.

____ 30.   Refer to Indirect Method Instruction. A company sells land with a carrying value of $50,000 for $75,000. What adjustment is made to net income on the statement of cash flows?

a.	No adjustment this is part of investing activities
b.	Add $25,000
c.	Add $75,000
d.	Subtract $25,000

____ 31.   The rate earned on stockholders' equity (leverage formula) is ____.

a.	Net Income                               ´    Average Total Assets              Average Stockholders' Equity         Average Stockholders' Equity
b.	Net Income                               ´    Average Total Assets               Average Total Assets                      Average Stockholders' Equity
c.	Net Income                               ´    Average Total Assets               Average Stockholders' Equity         Net Income
d.	None of the above, stockholders' have no equity

____ 32.   One way to summarize the relationship between the rate earned on total assets is the product of a firm's profit margins and the efficiency by which it uses its assets. This is called ____.

a.	Return on capital
b.	Return on investment
c.	Dunlop formula
d.	DuPont formula

____ 33.   Which of the following inventory items would most likely have the highest inventory turnover?

a.	Diablo Lamborghini
b.	Scented bar soap
c.	Cheese and milk
d.	Spaghetti sauce

Answer 1

30

Subtract $25,000, Gain on sale is deducted under indirect method

Option D is correct

31

The rate earned on stockholders' equity (leverage formula) is :

Net Income                               ´    Average Total Assets

Average Total Assets                      Average Stockholders' Equity

Option B is correct

32

Return on investment is the product of a firm's profit margins and the efficiency by which it uses its assets.

Option B is correct

33

Cheese and milk would most likely have the highest inventory turnover

Option C is correct