Arch Associates Reports the Following Comparative Balance Sheets and Income

question 143

Multiple Choice

Arch Associates reports the following comparative balance sheets and income statement information. $\begin{array}{c}\text { Arch Associates}\\ \text { Comparative Balance Sheets}\\\\\begin{array}{lr}&12 / 31 / \text { Year } 1 &12 / 31 / \text { Year } 2\\\text { Cash } & \$ 12,000&\$22,000\\\text { Accounts receivable } & 4,000&8,000 \\\text { Prepaid insurance } & 10,000&8,000 \\\text { Inventory } & 6,000 &2,000\\\text { Property, plant and equipment } & \underline{12,000}&\underline{10,000} \\\text { Total assets } & \underline{ \$ 44,000}& \underline{50,000} \\\text { Accounts payable } & \$8, 000&\$12,000 \\\text { Salaries payable } & 10,000&4,000 \\\text { Long term notes payable } & 8,000 &6,000\\\text { Stockholders' equity } & \underline{18,000}& \underline{28,000} \\\text { Total liabilities and equity } & \underline{ \$ 44,000}& \underline{\$50,000}\end{array}\end{array}$
$\begin{array}{lcr} & \begin{array}{l}\text { Income Statement } \\\text { Year Ended 12/31/Year 2 }\end{array} \\\text { Revenue } & & 70,000\\\text { Cost of goods sold } & & \underline{40,000} \\\text { Gross margin } & &30,000 \\\text { Operating expense } & & \underline{20,000 }\\\text { Net income } & & \underline{\$10,000} \\\end{array}$
Which of the following cash flows would be included under the operating activities section of the cash flow statement? (Assume the direct method is used.)

• A) Cash received from issuing bonds payable.
• B) Cash paid to purchase equipment.
• C) Cash receipts from dividends.
• D) None of these answers are correct.

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Definitions:

Stakeholders

Individuals or groups that have an interest in the success and strategies of an organization, including employees, customers, investors, and suppliers.

Freezing Stage

A phase in change management where old behaviors are solidified to prepare for new strategies, often part of Lewin's Change Theory.

Trial-and-Error

A problem-solving method involving repeated attempts with the aim of finding a solution through successive failures or mistakes.

Intended Change

A change that is planned and purposefully implemented within an organization to achieve specific objectives.