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    Chapter 5: The Cash Flow Statement

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    Lysss Epssss
    The document contains sample questions and answers related to calculating financial ratios from an income statement and balance sheet. It provides the calculations to determine a company's current ratio, quick ratio, return on assets, return on equity, debt ratio, and debt to equity ratio. The current ratio is calculated as 1.5 and quick ratio as 0.75. Return on assets is 21.4% and return on equity is 27.3%. Debt ratio is 21.4% and debt to equity ratio is 27.3%.

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    Chapter 5: The Cash Flow Statement

    Uploaded by

    Lysss Epssss
    139 views3 pages
    The document contains sample questions and answers related to calculating financial ratios from an income statement and balance sheet. It provides the calculations to determine a company's current ratio, quick ratio, return on assets, return on equity, debt ratio, and debt to equity ratio. The current ratio is calculated as 1.5 and quick ratio as 0.75. Return on assets is 21.4% and return on equity is 27.3%. Debt ratio is 21.4% and debt to equity ratio is 27.3%.

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    Question 3-2

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    The document contains sample questions and answers related to calculating financial ratios from an income statement and balance sheet. It provides the calculations to determine a company's current ratio, quick ratio, return on assets, return on equity, debt ratio, and debt to equity ratio. The current ratio is calculated as 1.5 and quick ratio as 0.75. Return on assets is 21.4% and return on equity is 27.3%. Debt ratio is 21.4% and debt to equity ratio is 27.3%.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    139 views3 pages

    Chapter 5: The Cash Flow Statement

    Uploaded by

    Lysss Epssss
    The document contains sample questions and answers related to calculating financial ratios from an income statement and balance sheet. It provides the calculations to determine a company's current ratio, quick ratio, return on assets, return on equity, debt ratio, and debt to equity ratio. The current ratio is calculated as 1.5 and quick ratio as 0.75. Return on assets is 21.4% and return on equity is 27.3%. Debt ratio is 21.4% and debt to equity ratio is 27.3%.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    Question 3: 

    Using the following information, calculate how much was paid out in
    dividends during the year:

     Beginning Retained Earnings: $40,000


     Net Income: $15,000
     Ending Retained Earnings: $30,000
    Answer to Question 1: $11,000

    Answer to Question 2: $22,000 (Remember, dividends are not an expense! They are a
    distribution of net income rather than a reduction of net income.)

    Answer to Question 3: $25,000

    Chapter 5: The Cash Flow Statement


    Question 1: Calculate cash flow from operating activities using the following information:

     Cash sales: $10,000


     Credit sales: $15,000
     Cash received from prior credit sales: $8,000
     Rent paid: $3,000
     Inventory purchased: $6,000
     Wages paid:$5,000
    Question 2: Categorize the following cash flows as to whether they are operating,
    investing, or financing activities:

     Taxes paid
     Dividends paid to shareholders
     Interest paid on loans
     Dividends received on investments
     Cash sales
     Purchase of new office furniture
    Answer to Question 1: Net cash inflow of $4,000. (Remember not to include the $15,000
    of credit sales when calculating cash flow.)

    Answer to Question 2:

     Taxes paid: Operating Activities


     Dividends paid to shareholders: Financing Activities
     Interest paid on loans: Operating Activities (Note: Principal paid on loans is a
    financing activity.)
     Dividends received on investments: Operating Activities
     Cash sales: Operating Activities
     Purchase of new office furniture: Investing Activities
    Chapter 6: Financial Ratios
    Questions 1-3: Use the following income statement and balance sheet to answer the
    following questions.

    Income Statement
    Sales 130,000
    Cost of Goods Sold 26,000
    Profit Margin 104,000
    Salaries and Wages 15,000
    Rent Expense 5,000
    Licensing Expenses 20,000
    Advertising Expense 4,000
    Total Expenses 44,000
    Net Income 60,000
    Balance Sheet
    Assets
    Cash 10,000
    Inventory 15,000
    Property, Plant, and Equipment 250,000
    Accounts Receivable 5,000
    Total Assets 280,000
    Liabilities
    Accounts Payable 20,000
    Notes Payable 40,000
    Total Liabilities 60,000
    Owners’ Equity
    Common Stock 120,000
    Retained Earnings 100,000
    Total Owners’ Equity 220,000
    Question 1: Calculate the company’s current ratio and quick ratio.
    Question 2: Calculate the company’s return on assets and return on equity.

    Question 3: Calculate the company’s debt ratio and debt to equity ratio.

    Answer to Question 1: Current ratio = 1.5 (30,000 current assets ÷ 20,000 current
    liabilities). Quick ratio = 0.75 (15,000 non-inventory current assets ÷ 20,000 current
    liabilities).

    Answer to Question 2: Return on assets = 21.4% (60,000 net income ÷ 280,000 total
    assets). Return on equity = 27.3% (60,000 net income ÷ 220,000 shareholders’ equity)

    Answer to Question 3: Debt ratio = 21.4% (60,000 liabilities ÷ 280,000 assets). Debt to
    equity ratio = 27.3% (60,000 liabilities ÷ 220,000 shareholders’ equity).

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