Marquette Décor Is a Merchandiser That Operates a Small Retail

question 107

Multiple Choice

Marquette Décor is a merchandiser that operates a small retail store. Comparative balance sheets for the years ending December 31, 2014 and 2013 and its income statement for 2014 follow:
$\begin{array}{lrr}&\text { December } 31\\\text { Assets }&2014&2013\\\text { Cash } & \$ 35,400 & \$ 45,300 \\\text { Accounts receivable } & 11,400 & 14,500 \\\text { Merchandise inventories } & 36,500 & 34,100 \\\text { Equipment } & 90,000 & 66,000 \\\text { Accumulated depreciation } & (28,600) & (31,400) \\\text { Total assets } & \$ 144,700 & \$ 128,500\\\\\text { Liabilities and Stockholders'Equity }\\\text { Accounts payable } & \$ 14,300 & \$ 12,500 \\\text { Income taxes payable } & 4,500 & 8,800 \\\text { Long-term notes payable } & 16,500 & 23,000 \\\text { Common stock, \$2 par } & 88,200 & 65,300 \\\text { Retained earnings } & 21,200 & 18,900 \\\text { Total liabilities and stockholders' equity } & \$ 144,700 & \$ 128,500\\\\\text { Sales } & \$ 224,000 \\\text { Cost of goods sold } & 123,000 \\\text { Depreciation expense } & 14,000 \\\text { Other expenses } & 56,000 \\\text { Gain on sale of equipment } & 3,400 \\\text { Income taxes } & 16,000 \\\text { Net income } & \$ 18,400\end{array}$
During the year, equipment with an original cost of $17,000, and accumulated depreciation totaling $16,800 was sold for $3,600. Dividends were declared and paid during the year. How much is the net increase or decrease in cash and cash equivalents during 2014?

• A) $63,700 increase
• B) $9,900 decrease
• C) $35,400 decrease
• D) $16,200 increase

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Definitions:

Direct Methods

A way to prepare the cash flow statement where actual cash flow information from the company’s operations is used, directly showing sources and uses of cash.

Operating Activities

Activities that constitute the primary or main activities of an organization, such as sales of goods or services, and are reported on the statement of cash flows.

Operating Expenses

Costs associated with the day-to-day functions of a business like rent, utilities, and salaries, excluding the cost of goods sold.

Depreciation Expense

The portion of an asset's cost allocated across its useful life, representing wear and tear, decay, or obsolescence.