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The question:

Matching

Referring to the items listed below, place the appropriate letter next to the corresponding description.

a. Direct method

b. Financing activities

c. Indirect method

d. Investing activities

e. Cash flows from operating activities

f. Non cash charges/expenses

g. Non cash credits/revenues

h. Operating activities

i. Separate Schedule

j. Statement of cash flows

k. Statement of charges in financial position

l. Working capital

m. Cash flows margin ratio

n. Cash flows per stock of common stock outstanding.

1. Generally include the cash effects of transactions and other events that enter into the determination of net income.
2. Replaced by the statement of cash flows.
3. Reports the flow of cash into and out of a business in a given period.
4. Current assets minus current liabilities.
5. Include obtaining resources from owners and providing them with a return on their investment and obtaining resources from creditors and repaying or otherwise settling the debt.
6. Shows significant financing and investing activities that did not affect cash.
7. A way of determining cash flows from operating activities that starts with net income and adjusts for expenses and revenues that do not affect cash.
8. Include lending money and collecting the principal on those loans; acquiring and selling or disposing of securities of other companies; and acquiring or disposing of property, plant, and equipment.
9. Deducts from cash sales only those operating expenses that consumed cash.
10. Revenues and gains included in arriving at net income that do not provide cash.
11. Expenses and losses that are added back to net income because they do not actually use cash of the the company.
12. Net cash provided by operating activities divided by the average number of shares of common stock outstanding.
13. Net cash provided by operating activities divided by net sales.
14. Cash generated by the regular operations of a business; usually computed as net income plus or minus the effects of other current assets and current liabilities on cash flows, plus noncash expenses deducted in arriving at net income, minus noncash revenues included, less certain gains and plus any losses that are included in the total proceeds received from sale of fixed assets.

The Problem

1. Common-size percentages are often used to compare the statements of companies of unequal size. The condensed income statements of Companies A and B are given below. Enter in the spaces provided the amounts expressed in common-size percentages.

Company A and Company B

Income Statements for Year Ended December 31, 2007

Dollar Amounts Common Size Percentages

Company A Company B Company A Company B

Sales $450,000 $525,000

Cost of goods sold $261,000 $210,000

Gross Margin $189,000 $315,000

Selling Expenses $81,000 $89,250

Administrative Expenses $45,000 $52,500

Total Operating Expenses $126,000 $141,750

Income $63,000 $173,250

After expressing the amounts of the income statements in common-size percentages, examine them and name the company that operated more efficiently.