Net Cash Flow and Retained Earnings in Financial Statements

Understanding Net Cash Flow and Net Income

1. A company’s net cash flow will equal its net income …

A) Almost always

B) Rarely

C) Occasionally

D) Only when the company has no investing cash flow for the period

E) Only when the company has no investing or financing cash flow for the period

2. The Goodyear Tire & Rubber Company’s December 31, 2016 financial statements reported the following (in millions):

What did Goodyear report for retained earnings at December 31, 2016?

A) $5,907 million

B) $5,752 million

C) $5,916 million

D) $5,834 million

E) There is not enough information to determine the answer.

3.  As inventory and property plant and equipment on the balance sheet are consumed, they are reflected:

A) As a revenue on the income statement

B) As an expense on the income statement

C) As a use of cash on the statement of cash flows

D) On the balance sheet because assets are never consumed

E) Both B and C because the financial statements articulate

4. Pfizer Inc., a pharmaceutical company, reported net income for fiscal 2016 of $7,215 million, retained earnings at the start of the year of $71,993 million and dividends of $7,448 million, and other transactions with shareholders that increased retained earnings during the year by $14 million.

If there were no additional transactions during the year that affected retained earnings, what was the balance of retained earnings at the end of the year?

A) $ 71,774 million

B) $ 38,748 million

C) $ 124,926 million

D) $ 47,729 million

E) There is not enough information to calculate the amount.

5.  During its first three months of operations, Cari’s Bakery, Inc. purchased supplies such as plates, napkins, bags, and cutlery for $9,000 and recorded this as supplies inventory. Supplies on hand at the end of the first quarter, amount to $5,600.

To prepare financial statement for the first quarter, the company must record which of the following accounting adjustments?

A) Increase Supplies expense by $5,600 and decrease Supplies inventory by $5,600

B) Increase Supplies expense by $3,400 and decrease Supplies inventory by $3,400

C) Increase Supplies inventory by $5,600 and decrease Supplies expense by $5,600

D) Increase Supplies inventory by $3,400 and decrease Supplies expense by $3,400

E) None of the above

6.  During the month of March 2017, Weimar World, a tax-preparation service, had the following transactions.

Analyzing Retained Earnings in Financial Statements

· Billed $496,000 in revenues on credit

· Received $164,000 from customers’ accounts receivable

· Incurred expenses of $194,000 but only paid $87,700 cash for these expenses

· Prepaid $32,220 for computer services to be used next month

What was the company’s accrual basis net income for the month?

A) $ 302,000

B) $ 264,080

C) $ 41,860

D) $408,300

E) None of the above

7.  The 2016 financial statements of The New York Times Company reveal average shareholders’ equity attributable to controlling interest of $837,283 thousand, net operating profit after tax of $48,032 thousand, net income attributable to The New York Times Company of $29,068 thousand, and average net operating assets of $354,414 thousand.

The company’s return on net operating assets (RNOA) for the year is:

A)   3.5%

B)   6.9%

C) 13.6%

D) 18.7%

E) There is not enough information to calculate the ratio.

8.  The fiscal 2016 balance sheet for Whole Foods Market reports the following data (in millions). What is the company’s quick ratio?

A) 0.69

B) 1.38

C) 0.72

D) 1.47

E) None of the above

9.   Ticketmaster contracts with the producer of Blue Man Group to sell tickets online. Ticketmaster charges each customer a fee of $9 per ticket and receives $22 per ticket from the producer. Ticketmaster does not take control of the ticket inventory. Average ticket price for the event is $105.

How much revenue should Ticketmaster recognize for each Blue Man Group ticket sold?

A) $9 because the $22 from the producer is similar to a negative cost of goods sold

B) $105 because the $83 is cost of goods sold paid to the Blue Man Group producer

C)  $31 because both the fee from the customer and the Blue Man Group producer are earned

D)   $114 because the $83 is cost of goods sold paid to the Blue Man Group producer

E) None of the above

10.  On its 2016 income statement, Abbott Laboratories reported research and development expense of $1,422,000,000.  

Which of the following statements must be true?

A) Abbott Laboratories spent $1,422,000,000 in cash to develop new products and improve old products.

B) Research and development expense reduced Abbott Laboratories 2016 net income by $1,422,000,000.

C) Abbott Laboratories capitalized at least $1,422,000,000 of research and development costs in 2016.

D) The $1,422,000,000 included amortized research and development costs from prior years that were not previously expensed, because Abbott Laboratories incurs such expenses each year.

E) None of the above