1. Using risk assessment and control, which of the following risks would be most likely to require the creation of an internal control?
Probability of Amount of Occurrence Potential Loss
A. Low Low
B. Low High
C. High Low
D. High High
Use the following information to prepare a statement of cash flows (direct method) and answer questions 2 through 6:
Payment of taxes? $18,000
Interest payment on debt? $17,000
Cash from the sale of machinery? $115,000
Contributions from owners? $125,000
Cash from sales to customers? $140,000
The receipt of loan payments? $15,000
Purchases of merchandise for sale? $130,000
Common stock was issued to purchase land valued at $50,000
2. What is the amount of net cash provided by or used by operating activities?
A. $25,000 used by C. $130,000 provided by
B. $75,000 used by D. $180,000 used by
3. What is the amount of net cash provided by or used by investing activities?
A. $115,000 provided by C. $130,000 provided by
B. $125,000 used by D. $180,000 used by
4. What is the amount of net cash provided by or used by financing activities?
A. $75,000 used by C. $130,000 provided by
B. $125,000 provided by D. $175,000 used by
5. How is the land purchase reported on the statement of cash flows?
A. In the cash flows from operating activities section
B. In the cash flows from investing activities section
C. In the cash flows from financing activities section
D. In the supplemental schedule of cash flows
6. If the beginning cash balance is $155,500, what is the ending cash balance?
A. $155,500 C. $385,500
B. $280,000 D. $435,500
7. In looking at your company's financial statements, you discover that current assets exceed current liabilities. You've just written a check to pay a short-term creditor. What will this payment do to your company's current ratio?
A. Decrease both the numerator and the denominator of the current ratio
B. Decrease the numerator of the current ratio and increase the denominator
C. Increase both the numerator and the denominator of the current ratio
D. Increase the numerator of the current ratio and decrease the denominator
Use the following information to calculate the inventory turnover ratio and answer question 8:
Cost of goods sold?$105,000
Gross profit margin?$50,000
Beginning of the year inventory balance?$58,000
End of the year inventory balance?$70,000
8. If competitors in the industry have an average inventory turnover of 20.8 times, the inventory turnover for this company
A. indicates the company has too little inventory on hand at the end of the year.
B. indicates the company is pricing its products too low.
C. is equal to the number of days' sales in the company's inventory.
D. indicates the company may have a large amount of obsolete inventory or
problems in the sales department.
Use the following information to answer question 9:
Cash sales? $125,000
Credit sales? $120,000
Accounts receivable, beginning? $145,000
Accounts receivable, ending? $135,000
9. What amount of sales revenue was shown on the income statement?
A. $120,000 C. $245,000
B. $125,000 D. $255,000
Use the following information to answer questions 10 and 11:
Sales revenue? $350,000
Cost of goods sold? $250,000
Operating assets at the beginning of the year? $40,000
Operating assets at the end of the year? $44,000
10. What is the return on investment (ROI)? (Round your answer to two decimals.)
A. 2.38 C. 8.33
B. 5.00 D. 41.67
11. Which of the following would increase the company's ROI?
A. Increasing sales price or volume
B. Decreasing sales price or volume
C. Increasing operating expenses
D. Increasing investment in operating assets
This solution provides answers to various questions regarding auditing.