Question

Financial statements of Rukavina Corporation follow:

Comparative Balance Sheet
	Ending Balance			Beginning Balance
Assets:
Cash and cash equivalents	$	43		$	40
Accounts receivable		104			91
Inventory		63			50
Property, plant, and equipment		813			670
Less accumulated depreciation		368			318
Total assets	$	655		$	533
Liabilities and stockholders' equity:
Accounts payable	$	83		$	90
Bonds payable		190			300
Common stock		115			91
Retained earnings		267			52
Total liabilities and stockholders' equity	$	655		$	533

Income Statement
Sales	$	800
Cost of goods sold		312
Gross margin		488
Selling and administrative expense		103
Net operating income		385
Income taxes		137
Net income	$	248

Cash dividends were $33. The company did not dispose of any property, plant, and equipment. It did not issue any bonds payable or repurchase any of its own common stock. The following questions pertain to the company's statement of cash flows.

The net cash provided by (used in) investing activities for the year was:

Multiple Choice

A. $(143)

B. $143

C. $(33)

D. $33

Krech Corporation's comparative balance sheet appears below:

Comparative Balance Sheet
	Ending Balance			Beginning Balance
Assets:
Current assets:
Cash and cash equivalents	$	31,000		$	28,000
Accounts receivable		18,000			20,000
Inventory		58,000			56,000
Prepaid expenses		12,000			10,000
Total current assets		119,000			114,000
Property, plant, and equipment		374,000			354,000
Less accumulated depreciation		190,000			165,000
Net property, plant, and equipment		184,000			189,000
Total assets	$	303,000		$	303,000
Liabilities and stockholders' equity:
Current liabilities:
Accounts payable	$	13,000		$	9,000
Accrued liabilities		52,000			53,000
Income taxes payable		67,000			69,000
Total current liabilities		132,000			131,000
Bonds payable		76,000			73,000
Total liabilities		208,000			204,000
Stockholders’ equity:
Common stock		28,000			26,000
Retained earnings		67,000			73,000
Total stockholders’ equity		95,000			99,000
Total liabilities and stockholders' equity	$	303,000		$	303,000

The company's net income (loss) for the year was ($3,000) and its cash dividends were $3,000. It did not sell or retire any property, plant, and equipment during the year. The company uses the indirect method to determine the net cash provided by operating activities.

Which of the following is correct regarding the operating activities section of the statement of cash flows?

Multiple Choice

A. The change in Accounts Payable will be added to net income; The change in Accrued Liabilities will be subtracted from net income

B. The change in Accounts Payable will be subtracted from net income; The change in Accrued Liabilities will be added to net income

C. The change in Accounts Payable will be subtracted from net income; The change in Accrued Liabilities will be subtracted from net income

D. The change in Accounts Payable will be added to net income; The change in Accrued Liabilities will be added to net income

Kesterson Corporation has provided the following information:

	Cost per Unit		Cost per Period
Direct materials	$	7.10
Direct labor	$	4.10
Variable manufacturing overhead	$	1.50
Fixed manufacturing overhead			$	16,900
Sales commissions	$	2.00
Variable administrative expense	$	0.30
Fixed selling and administrative expense			$	3,900

If 6,500 units are produced, the total amount of indirect manufacturing cost incurred is closest to:

Multiple Choice

A. $9,750

B. $28,600

C. $26,650

D. $16,900

Pedregon Corporation has provided the following information:

	Cost per Unit			Cost per Period
Direct materials	$	6.60
Direct labor	$	3.60
Variable manufacturing overhead	$	1.40
Fixed manufacturing overhead				$	23,400
Sales commissions	$	0.60
Variable administrative expense	$	0.65
Fixed selling and administrative expense				$	3,000

If the selling price is $20.60 per unit, the contribution margin per unit sold is closest to:

Multiple Choice

A. $4.15

B. $5.40

C. $7.75

D. $10.40

Answer 1

1) The items included in the investing activity lines of cash flow statements are

• Purchase of fixed asset (cash outflow)
• Sale of fixed asset (cash inflow)
• Purchase of investing instruments (Cash outflow)
• Sale of investment instrument (Cash inflow)
• Lending money (Cash outflow)
• collection of loans (Cash inflow)

In the given statement the property, plant and equipment beginning balance 670 and ending balance 813. The company purchased fixed asset. So there is cash outflow

= 670-813 = (143)

2) The operating activities of the cash flow consist of two parts:

• Calculating operating profit before changes in working capital
• The effect of changes in working capital

The changes in current assets and current liabilities are coming under the effects of changes in working capital.

Increase in current asset	Decrease in cashflow
Decrease in current asset	Increase in cashflow
Increase in Current Liability	Decrease in cashflow
Decrease in current liability	Increase in cashflow

Operating profit before net working capital

Add: Net decrease in current asset

Net increase in current liabilities

Less: Net increase in current asset

Net decrease in current liabilities

The answer is A. The change in Accounts Payable will be added to net income; The change in Accrued Liabilities will be subtracted from net income

3) Direct material and direct labour are considered as direct costs. Sales commissions are part of direct cost that occur when product is sold and fixed selling and administrative expenses are selling expenses and reported on the income statement as part of operating expenses.

Since indirect cost inludes:

Variable manufacturing overhead = 1.5*6500 = 9750

Fixed manufacturing overhead = 16900

Variable administrative expense = 0.30*6500 = 1950

Indirect Cost = 28600

4) Contribution margin per unit = Selling price per unit - Variable cost per unit

= 20.6 - (6.6+3.6+1.4+0.60+0.65)

= 7.75