Question

1. Two of the events that recently took place at JKL Inc. were (1) The purchase of a new building for $250,000 and (2) the payment of dividends totaling $20,000. The combination of these two events caused net income to

a. increase

b. decrease

c. stay the same

2. At December 30, 2020 JKL Inc. had a current ratio of 2.1.  On December 31 the firm purchased $50,000 of inventory to stock the warehouse.  JKL was invoiced but won't pay the invoice until mid January of 2021.  This transaction

a. increased the current ratio

b. decreased the current ratio

c. caused no change in the current ratio

3. JKL Inc. purchased new equipment costing $80,000 and repurchased shares of its previously issued common stock for $80,000.  Identify the sections on the statement of cash flows that recorded a use of cash for the period.

a. operating activities only

b. investing activities only

c. financing activities only

d. operating and investing

e. investing and financing

Answer 1

1.

  Purchased new building for = $250,000

Dividends paid = $20,000

The combination of these two events caused net income to stay the same.

Correct option is (c)

Net income is affected by revenues and expenses. The given transactions do not involve revenues and expenses.

2.

Current ratio = 2:1

On December 31 the firm purchased $50,000 of inventory to stock the warehouse.  JKL was invoiced but won't pay the invoice until mid January of 2021.  This transaction decreased the current ratio

Correct option is (b)

Current ratio will decrease since due to purchase of inventory on account, both the current assets and current liabilities will increase by the same amount.

3.

Purchased equipment = $80,000 - It is a cash outflow in the investing activities.

Repurchased shares of its previously issued common stock = $80,000 - It is a cash outflow in the financing activities.

Correct option is (e)