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

question 27

Multiple Choice

Reference: 14-01
Financial statements for Larned Company appear below:
Larned Company
Balance Sheet
December 31, 20X6 and 20X5 (dollars in thousands) $$\begin{array} { | c | l | l | } \hline & 20 X 6 & 20 \times 5 \\\hline \text { Current assets: } & & \\\hline \text { Cash and marketable securities } & \$ 130 & \$ 100 \\\hline \text { Accounts receivable, net } & 150 & 130 \\\hline \text { Inventory } & 100 & 100 \\\hline \text { Prepaid expenses } & 20 & 20 \\\hline \text { Total current assets } & 400 & 350 \\\hline \text { Noncurrent assets: } & & \\\hline \text { Plant \& equipment, net } &{ 1,640 } & 1,600 \\\hline \text { Total assets } & \underline { \$ 2,040 } & \underline { \$ 1,950 } \\\hline & & \\\hline \text { Current liabilities: } & & \\\hline \text { Accounts payable } & \$ 290 & \$ 280 \\\hline \text { Accrued liabilities } & \underline { 110 } & 80 \\\hline \text { Total current liabilities } & 400 & 360 \\\hline \text { Stockholders' equity: } & & \\\hline \text { Preferred stock, \$20 par, 10\% } & 120 & 120 \\\hline \text { Common stock, \$10 par } & 660 & 690 \\\hline \text { Retained earnings } & 860 & 780 \\\hline \text { Total stockholders' equity } & { 1,640 }& { 1,590 } \\\hline \text { Total liabilities \& stockholders' equity } & \underline { \$ 2,040 } & \underline { \$ 1,950 } \\\hline\end{array}$$ Larned Company
Income Statement
For the Year Ended December 31, 20X6 (dollars in thousands) $$\begin{array} { | l | r | } \hline \text { Sales (all on account) } & \$ 2,930 \\\hline \text { Cost of goods sold } & 2,050 \\\hline \text { Gross margin } & 880 \\\hline \text { Operating expenses } & 350 \\\hline \text { Net operating income } & 530 \\\hline \text { Interest expense } & 40 \\\hline \text { Net income before taxes } & 490 \\\hline \text { Income taxes (30\%) } & 147 \\\hline \text { Net income } & \$ 343 \\\hline\end{array}$$ 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.
-Which of the following statements is correct about cash flows

• A)Net income is a use of cash.
• B)An increase in noncash assets is a source of cash.
• C)Net loss is a source of cash.
• D)A decrease in noncash assets is a source of cash.

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Definitions:

Inventory Turnover

Inventory turnover is a measure of how frequently a company sells and replaces its stock of goods within a certain period, indicating the efficiency of inventory management.

Inventory Management

The process of ordering, storing, using, and selling a company's inventory, which includes both raw materials and finished goods.

Days' Sales

A financial metric that estimates the average time it takes for a company to collect cash from its customers after a sale has been made, often related to inventory turnover.

Receivables

Financial assets representing money owed to an entity by others for goods delivered or services provided on credit.