Reference: 14-01
Financial Statements for Larned Company Appear Below:
Larned

question 8

Multiple Choice

Reference: 14-01
Financial statements for Larned Company appear below:
Larned Company
Balance Sheet
December 31, 20X6 and 20X5 (dollars in thousands) $$\begin{array} { | c | l | l | } \hline & 20 X 6 & 20 X 5 \\\hline \text { Current assets: } & & \\\hline \text { Cash and marketable securities } & \$ 130 & \$ 100 \\\hline \text { Accounts receivable, net } & 150 & 130 \\\hline \text { Inventory } & 100 & 100 \\\hline \text { Prepaid expenses } & 20 & 20 \\\hline \text { Total current assets } & 400 & 350 \\\hline \text { Noncurrent assets: } & & \\\hline \text { Plant \& equipment, net } & { 1,640 }& { 1,600 } \\\hline \text { Total assets } & \$ 2,040 & \$ 1,950 \\\hline & & \\\hline \text { Current liabilities: } & & \\\hline \text { Accounts payable } & \$ 290 & \$ 280 \\\hline \text { Accrued liabilities } & \underline { 110 } & 80 \\\hline \text { Total current liabilities } & 400 & 360 \\\hline \text { Stockholders' equity: } & & \\\hline \text { Preferred stock, \$20 par, 10\% } & 120 & 120 \\\hline \text { Common stock, \$10 par } & 660 & 690 \\\hline \text { Retained earnings } & 860 & 780 \\\hline \text { Total stockholders' equity } & 1,640 & 1,590 \\\hline \text { Total liabilities \& stockholders' equity } & \$ 2,040 & \$ 1,950 \\\hline\end{array}$$ Larned Company
Income Statement
For the Year Ended December 31, 20X6 (dollars in thousands) $$\begin{array} { | l | c | } \hline \text { Sales (all on account) } & \$ 2,930 \\\hline \text { Cost of goods sold } & 2,050 \\\hline \text { Gross margin } & 880 \\\hline \text { Operating expenses } & 350 \\\hline \text { Net operating income } & 530 \\\hline\end{array}$$ $$\begin{array} { | l | r | } \hline \text { Net operating income } & 530 \\\hline \text { Interest expense } & 40 \\\hline \text { Net income before taxes } & 490 \\\hline \text { Income taxes (30\%) } & 147 \\\hline \text { Net income } & \$ 343 \\\hline\end{array}$$ Dividends during 20X6 totalled $263 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $160.
Included in operating expenses was depreciation expense of $20,000. No non-current assets were sold.
-In which section of the cash flow statement will dividends payable be reported

• A)Operating activities
• B)Financing activities
• C)Investing activities
• D)In none of the sections - it is not a cash flow

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Definitions:

Concentrated Industry

characterizes a market structure where a few firms dominate the industry, often leading to reduced competition.

Cournot

A model of duopoly in which two firms assume the output of the other, deciding their own levels of production to maximize profit, leading to a strategic equilibrium.

Contestable

Pertaining to a market condition where the entry and exit of firms are costless or have low barriers, enabling potential competition to limit the market power of existing firms.

Price Competition

A market situation where businesses compete primarily on the price of their products or services.