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Werner Company-dividends, cash for purchases, net income etc

1. The retained earnings balance of Werner Company was $46,800 on January 1, 2005. Net income for 2005 was $26,480. If retained earnings had a credit balance of $21,000 after closing entries were posted on December 31, 2005, and if additional stock of $13,000 was issued during the year, dividends paid during 2005 were:

a. $38,800.
b. $52,280.
c. $65,280.
d. none of the above.

2. If net purchases are $200,000 and beginning and ending accounts payable balances are $25,000 and $20,000, respectively, cash paid for purchases is:

a. $195,000.
b. $200,000.
c. $205,000.
d. $210,000.

3. Using the information in the table below, compute:
a. Total assets
b. Total Liabilities
c. Total Owners' Equity
Equipment . . . . . . . . . . . . . . . $10,000
Accounts payable . . . . . . . . . 900
Capital stock . . . . . . . . . . . . . 1,500
Cash . . . . . . . . . . . . . . . . . . . 800
Loan payable . . . . . . . . . . . . . 9,000
Wages payable . . . . . . . . . . . 500
Accounts receivable . . . . . . . 1,000
Retained earnings . . . . . . . . . 3,400
Inventory . . . . . . . . . . . . . . . . 3,500

4. Computation of Net Income
For the following four cases, compute net income (or net loss). Caution: Not all of the items listed should be included in the computation of net income.

Case A Case B Case C Case D
Cost of goods sold $60,000 $30,000 $60,000 $110,000
Interest expense 18,000 47,000 25,000 31,000
Cash 3,000 4,500 2,100 6,000
Retained earnings 50,000 15,000 31,000 70,000
Sales 100,000 150,000 70,000 200,000
Accounts payable 2,000 20,000 5,000 38,000
Rent revenue 5,000 1,000 12,000 10,000
Machinery 175,000 60,000 50,000 185,000

5. Using the information in the table below, compute:

a. Cash flow from operating activities.
b. Cash flow from investing activities.
c. Cash flow from financing activities.

Cash Inflow (Outflow)
a. Cash received from sale of a building $ 5,600
b. Cash paid for interest (450)
c. Cash paid to repay a loan (1,000)
d. Cash collected from customers 10,000
e. Cash paid for dividends (780)
f. Cash paid for income taxes (1,320)
g. Cash received upon the issuance of new shares of stock 3,000
h. Cash received from tenants renting part of a building 600
i. Cash paid to purchase land (12,000)

6. Indicate for each of the following items whether it would appear on:
- A balance sheet (BS) or an income statement (IS).
- If a balance sheet item, is it an asset (A), a liability (L), or an owners' equity item (OE)?

a. Accounts Payable
b. Sales Revenue
c. Accounts Receivable
d. Advertising Expense
e. Cash
f. Supplies
g. Consulting Revenue
h. Land
i. Capital Stock
j. Rent Expense
k. Equipment
l. Interest Receivable
m. Mortgage Payable
n. Notes Payable
o. Buildings
p. Salaries & Wages Expense
q. Retained Earnings
r. Utilities Expense

7. Using the information in the table below, compute:

d. Debt Ratio
e. Current ratio.
f. Return on sales.
g. Asset turnover.
h. Return on equity.
i. Price-earnings ratio.

Accounts Payable $ 2,400
Accounts Receivable 6,750
Building 65,000
Cash 2,100
Capital Stock 26,150
Inventory 4,100
Land 14,000
Long-Term Notes Payable 32,000
Market Value of Equity 103,000
Net Income 9,000
Retained Earnings(ending) 24,000
Sales 86,000
Short-Term Notes Payable 5,700
Stockholders' Equity 50,150
Unearned Revenue 1,700

Solution Summary

The solution computes Werner Company: dividends, cash for purchases, net income, cash flow, ratios; classify transaction under cash flow statement headings; computes net income with given information; indicate accounts if a balance sheet item, is it an asset (A), a liability (L), or an owners' equity item (OE); and also computes Debt Ratio,
Current ratio, Return on sales, Asset turnover, Return on equity, Price-earnings ratio.

$2.19