1. Investing activities include activities that affect the long-term asset section of the balance sheet.

1. Investing activities include activities that affect the long-term asset section of the balance sheet. 

        True 

        False 

2. Peartree Company provides the following income statement for the year 2014:

Sales revenue$240,000  

Cost of goods sold110,000  

Gross profit$130,000 

Operating expenses 

Salary expense45,000  

Depreciation expense12,000  

Other operating expenses23,000  

Total operating expenses80,000 

Operating income50,000 

Gain on sale of plant assets5,000 

Interest expense(1,000)

Net income before income tax$54,000 

Income tax expense5,000 

Net income (loss)$49,000 

How much is the times-interest-earned ratio? 

        0.02

        49.0

        55.0    

        0.25

        None of these is correct

3. Avatar Company uses the indirect method to prepare the statement of cash flows. Please refer to the following section of the comparative balance sheet:

                              20142013       Increase/decrease

Accounts payable$ 4,000 $ 6,000 $(2,000)

Accrued liabilities   2,000 1,000               1,000 

Long-term notes payable84,000   90,000 (6,000)

Total liabilities$90,000          $97,000 $(7,000)

The change in accounts payable will be shown as a positive cash flow in the adjustments to Net income. 

        True 

        False 

4. The financing activities section of the statement of cash flows reflects the cash flows that affect current assets and liabilities. 

        True 

        False   

5. The financing activities section of the statement of cash flows includes paying dividends and paying off loans. 

        True 

        False 

6. The investing activities section of the statement of cash flows reflects the cash flows that increase or decrease long-term assets. 

        True 

        False 

7. Which of the following is NOT a true statement about the statement of cash flows? 

        It shows where cash came from and how it was spent.

        It reports why cash increased or decreased.

        It covers a specific span of time the same as the income statement.

        It shows how the profits or losses of the company were generated.

8. Which of the following ratios is used to determine how quickly and easily a company is able to sell its inventory? 

        Current ratio

        Inventory turnover

        Price/earnings ratio

        Return on net sales

9. Which of the following signifies that a company may be unable to pay its current liabilities if they suddenly come due? 

        Low current ratio

        High current ratio

        High earnings per share

        Low gross profit percentage

10. A company reported the following amounts of net income:

2011  $18,000

2012  $24,000

2013  $26,000

Which of the following is the percentage change in net income from 2012 to 2013?

        2.00%

        10.00%

        8.33%    

        7.69%

        None of these is correct