Gilmore Company Uses the Direct Method to Prepare Its Statement

question 179

Multiple Choice

Gilmore Company uses the direct method to prepare its statement of cash flows. Refer to the following financial statement information for the year ended December 31, 2018: $\begin{array}{c} \text { Gilmore Company}\\ \text { Comparative Balance Sheet}\\ \text { December 31,2018 and 2017}\\\begin{array}{|l|c|c|c|}\hline & 2018 & 2017 & \begin{array}{r}\text { Increase } \\\text { (Decrease } \\\end{array} \\\hline \text { Cash } & \$ 34,600 & \$ 16,900 & \$ 17,700 \\\hline \text { Accounts Receivable } & 27,000 & 31,700 & (4700) \\\hline \text { Merchandise Inventory } & 56,400 & 29,400 & 27,000 \\\hline \text { PP\&E, net } & \underline{126,000} & 92,000 & 34,000 \\\hline \text { Total Assets } & \$ 244,000 & \$ 170,000 & \$ 74,000 \\\hline \text { Accounts Payable } & 3200 & 12,200 & \$(4,000 \\\hline \text { Accrued Liabilities } & 6100 & 2100 & 4,000 \\\hline \text { Long-term Notes Payable } & 71,700 & 30,700 & \$(9000) \\\hline \text { Total Liabilities } & \$ 86,000 & \$ 95,000 & \$(9,000 \\\hline \text { Common Stock } & \$ 55,000 & \$ 3,000 & \$ 52,000 \\\hline \text { Retained Earnings } & 115,000 & 78,000 & 37,000 \\\hline \text { Treasury Stock } & (12,000) & (6,000) & (6,000 \\\hline \text { Total Stockholders' Equity } & \$ 158,000 & \$ 75,000 & \$ 83,000 \\\hline \text { Total Liabilities and Stockholders' Equity } & \$ 244.000 & \$ 170,000 & \$ 74,000 \\\hline\end{array}\end{array}$
$\begin{array}{c}\text {Gilmore Company}\\\text {Income Statement}\\\text {December 31,2018}\\\begin{array}{|l|l|l|}\hline \text { Sales Revenue } & \$ 289,800 & \\\hline \text { Interest Revenue } & 2500 & \\\hline \text { Gain on Sale of Plant Assets } & \underline{6,000} & \\\hline \text { Total Revenues and Gains } & &\$298,300 \\\hline \text { Cost of Goods Sold } & 147,900 & \\\hline \text { Salaries and Wages Expense } & 46,200& \\\hline \text { Depreciation Expense - Plant Assets } & 16,000 & \\\hline \text { Other Operating Expense } & 24,900 & \\\hline \text { Interest Expense } &3,500 & \\\hline \text { Income Tax Expense } &\underline{7,800} & \\\hline \text { Total Expenses } & &\underline{ 246,300} \\\hline \text { Net Income } & &\underline{\$ 52,000} \\\hline\end{array}\end{array}$ Use the direct method, to compute the net cash provided by operating activities. (Accrued Liabilities relate to other operating expense.)

• A) $(55,700)
• B) $39,700
• C) $(39,700)
• D) $55,700

Identify and analyze accounting transactions and their impact on the accounting equation.

Calculate and interpret the cash account balance changes.

Understand the impact of stockholder investments and dividends on financial statements.

Calculate revenue based on provided services and understand the distinction between cash and credit transactions.

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Definitions:

Consumer Surplus

The difference between the maximum price a consumer is willing to pay for a good or service and the actual market price they pay.

Demand Curve

A graph showing the relationship between the price of a good and the quantity demanded by consumers, typically downward sloping.

Marginal Cost

The rise in overall expenses associated with the production of an extra unit of a good or service.

Price Discrimination

A strategy for setting prices where the same or very similar products or services are offered at different prices by the same seller in various markets.