Financial Reporting And Analysis - Financial Reporting And Analysis Section 2

Avatto>>CFA Level 1>>PRACTICE QUESTIONS>>Financial Reporting And Analysis>>Financial Reporting And Analysis Section 2

6. An analyst collects the following information for Baking Butter Corporation:

Net revenue $200,000
Gross profit $50,000
Increase in inventory $8,000
Increase in accounts payable $12,000

  • Option : A
  • Explanation : Cash paid to suppliers = Cost of goods sold + increase in inventory - increase in payables. Cash paid to suppliers = 200,000 - 50,000 + 8,000 - 12,000 = $146,000.
Cancel reply
Cancel reply

10. The balance sheet extract for Jackal Labs Ltd. shows the machinery and accumulated depreciation balances for the years 2011 and 2012.

 2011 2012
Machinery$80 million$91 million
Accumulated depreciation $25 million$31 million

Further information provided is as follows:

Gain on sale of machinery $1.5 million
Depreciation expense for 2012$7 million
Capital expenditure on machinery $14 million
How much did the company receive in cash from the sale of machinery?

  • Option : C
  • Explanation : Gain = Selling Price - Book Value

    Historical cost:
    Beginning value of machinery + machinery bought – machinery sold = Ending value of machinery 80 million + 14 million – 91 million = 3 million
    Machinery sold = 3 million

    Accumulated depreciation:
    Beginning value of depreciation + depreciation expense – machinery depreciation = Ending value of depreciation 25 million + 7 million – 31 million = 1 million
    Machinery depreciation = 1 million

    Book value:
    Book value = Historical cost – accumulated depreciation
    Book value = 3 - 1 = 2 million
    Selling price:
    Selling price = Gain + Book Value
    Selling price = 1.5 million + 2 million = 3.5 million.
Cancel reply
Cancel reply