A Security Analyst Obtained the Following Information from Prestopino Products

question 29

Multiple Choice

A security analyst obtained the following information from Prestopino Products' financial statements: ∙
Retained earnings at the end of the previous year were $700,000, but retained earnings at the end of the current year had declined to $320,000.
∙
The company does not pay dividends.
∙
The company's depreciation expense is its only non-cash expense; it has no amortization charges.
∙
The company has no non-cash revenues.
∙
The company's net cash provided (used) by operations for the current year was $150,000.
On the basis of this information, which of the following statements is CORRECT?

• A) Prestopino had negative net income in the current year.
• B) Prestopino's depreciation expense in the current year was less than $150,000.
• C) Prestopino had positive net income in the current year, but its income was less than its previous year's income.
• D) Prestopino's cash flow provided by operations in the current year must be higher than in the previous year.
• E) Prestopino's cash on the balance sheet at the end of the current year must be lower than the cash it had on the balance sheet at the previous year.

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Definitions:

Overhead Costs

Expenses related to the day-to-day operations of a business that are not directly tied to the production of goods or services, such as rent, utilities, and administrative salaries.

Equipment Depreciation

The process of spreading out the cost of physical assets over their useful lives for accounting and tax purposes.

Supervisory Expense

Costs associated with the salaries and benefits of supervisory staff, including managers and team leaders.

Activity-Based Costing

A costing methodology that assigns overhead and indirect costs to specific activities, thereby providing more accurate product costing and profitability analysis.