Chapter 12

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The statement of cash flows reports

inflows and cash outflows for an accounting period

The statement of cash flows reports:

A. Cash flows from operating activities
B. Cash flows from financing activities
C. Cash flows from investing activities
D. Significant noncash financing and investing activities
E. All of the above

The statement of cash flows is:

A financial statement that reports the cash inflows and cash outflows for an accounting period and that classifies those cash flows as operating activities, investing activities or financing activities

A cash equivalent is an investment that:

A. Is readily convertible to a known amount of cash
B. Is sufficiently close to its maturity date so that its market value is unaffected by interest rate changes
C. Generally is within 3 months of its maturity date
D. Is highly liquid
E. All of the above

An investment that is readily convertible to a known amount of cash and that is sufficiently close to its maturity date so that its market value is relatively insensitive to interest rate changes is a(n):

D. Cash equivalent

The appropriate section in the statement of cash flows for reporting the purchase of equipment for cash is:

C. Investing activities

The appropriate section in the statement of cash flows for reporting the cash payment of wages is:

A. Operating activities

The appropriate section in the statement of cash flows for reporting the issuance of common stock for cash is:

B. Financing activities

A company's transactions with its creditors to borrow money and/or to repay the principal amounts of loans are reported as cash flows from:

C. Financing activities

Activities that involve the production or purchase of merchandise and the sale of goods and services to customers, including expenditures related to administering the business, are classified as:

C. Operating activities

The appropriate section in the statement of cash flows for reporting the receipt of cash dividends from investments in securities is:

A. Operating activities

Which one of the following is representative of typical cash flows from operating activities?

E. Receipts of cash sales

Typical cash flows from investing activities include:

A. Payments to purchase property, plant and equipment or other productive assets (excluding inventory)
B. Proceeds from the sale (discounting) of notes receivable made by the company
C. Proceeds from collecting the principal amount of notes receivable
D. Payments to acquire held-to maturity securities of other entities, except cash equivalents
E. All of the above

Cash flows from selling trading securities are reported in the statement of cash flows as part of:

A. Operating activities

. Cash flows from interest received are reported in the statement of cash flows as part of:

A. Operating activities

The accounting principle that requires significant noncash financing and investing activities be reported on the statement of cash flows is the:

C. Full disclosure principle

The appropriate section in the statement of cash flows for reporting the purchase of land in exchange for common stock is:

D. Schedule of noncash investing or financing activity

The purchase of long-term assets by issuing a note payable for the entire amount is reported on the statement of cash flows in the:

D. Schedule of noncash financing and investing activities

Noncash investing and financing activities may be disclosed in:

A. A note to the statement of cash flows
B. A separate schedule attached to the statement of cash flows
E. Both A and B

An example of a transaction that must be disclosed as a noncash investing and financing activity includes:

A. The retirement of debt by issuance of equity
B. The purchase of long-term assets financed by a cash down payment and a note payable to the seller for the balance
C. The leasing of assets in a transaction that qualifies as a capital lease
D. The purchase of noncash assets in exchange for equity or debt securities
E. All of the above

Accounting standards:

C. Require that companies include a statement of cash flows in a complete set of financial statements

The statement of cash flows helps analysts evaluate the:

A. Source of cash for debt repayments
B. Source of cash for plant expansion
C. Differences between net income and net operating cash flow
D. Means used to finance investing activities
E. All of the above

The statement of cash flows helps address questions such as

A. How is the increase in investments financed?
B. What is the source of cash for new plant assets?
C. How much cash is generated from or used in operations?
D. Why is cash flow from operations different from income?
E. All of the above

The cash flow on total assets ratio

C. Can be an indicator of earnings quality

The cash flow on total assets ratio is calculated by:

A. Dividing cash flows from operations by average total assets

A company had net cash flows from operations of $120,000, total cash flows of $500,000 and average total assets of $2,500,000. The cash flow on total assets ratio equals:

A. 4.8%
$120,000/$2,500,000 = 4.8%

A company had total assets of $1,760,000, total cash flows of $1,320,000 and cash flows from operations of $205,000. This implies its cash flow on total assets ratio equals

C. 11.65%
$205,000/$1,760,000 = 11.65%

A company had total assets of $745,000, total cash flows of $230,000 and cash flows from operations of $50,000. This implies its cash flow on total assets ratio equals:

C. 6.71%
$50,000/$745,000 = 6.7%

Use the cash flow on total assets ratio to determine which of these three companies is most efficiently using its assets.

A. Company A #83

Use the cash flow on total assets ratio to determine which of these three companies is most efficiently using its assets.

A. Company A #84

A company's cash flow on total assets ratio equals 16%. If average total assets equal $2,937,500 and total cash flows equal $600,000, what is the amount of cash flows from operations?

C. $470,000
$2,937,500 x .16 = $470,000

Preparation of the statement of cash flows involves:

A. Computing the net increase or decrease in cash
B. Computing and reporting net cash provided or used by operations
C. Computing and reporting net cash provided or used by investing activities
D. Computing and reporting net cash provided or used by financing activities
E. All of the above

The reporting of net cash provided or used by operating activities that lists the major items of operating cash receipts, such as receipts from customers and subtracts the major items of operating cash disbursements, such as cash paid for merchandise is referred to as the:

A. Direct method of reporting net cash provided or used by operating activities

. A statement of cash flows should reconcile the differences between the beginning and ending balances of:

C. Cash and cash equivalents

The direct method for the preparation of the operating activities section of the statement of cash flows:

A. Separately lists each major item of operating cash receipts and cash payments

The indirect method for the preparation of the operating activities section of the statement of cash flows:

C. Reports net income and then adjusts it for items necessary to determine net cash provided or used by operating activities

The direct method of reporting operating cash flows

A. Is recommended but not required by the FASB

If a company borrows money from a bank, the interest paid on this loan should be reported on the statement of cash flows as a(n):

A. Operating activity

Use the following information to calculate cash received from dividends:

Dividends revenue...$29,800
Dividends receivable 1/1....2600
Dividends receivable 12/31...3400

B. $29,000
Increase in Dividends Receivable = $3,400 - $2,600 = $800

Use the following information to calculate cash paid for wages and salaries:

Salaries Expense...168,000
salaries payable 1/1....6400
salaries payable 12/31..10,600

B. $163,800
Increase in Salaries Payable = $10,600 - $6,400 = $4,200

Use the following information to calculate cash paid for wages and salaries:

salaries expense...79000
salaries payable 1/1...6400
salaries payable 12/31...3320

B. $82,080
Decrease in Salaries Payable = $6,400 - $3,320 = $3,080

When using the indirect method to calculate and report the net cash provided or used by operating activities, net income is adjusted for:

A. Gains and losses from nonoperating items
B. Revenues and expenses that did not provide or use cash
C. Changes in noncash current assets and current liabilities related to operating activities
D. Changes in current liabilities related to operating activities
E. All of the above

When using the indirect method to calculate and report net cash provided or used by operating activities, which of the following is subtracted from net income?

A. Decrease in income taxes payable

A company's inventory balance at 12/31/08 was $200,000 and was $188,000 at 12/31/09. Its accounts payable balance at 12/31/08 was $80,000 and was $84,000 at 12/31/09 and its cost of goods sold for 2009 was $720,000. The company's total amount of cash payments for merchandise in 2009 equals:

A. $704,000
Decrease in merchandise = $200,000 - $188,000 = $12,000

Assume the following information was available for the current year's operations of Jungle Jim's International Market. Use these data to calculate the cash paid for merchandise.

COGS=226,000
merchandise inventory 1/1=54800
merchandise inventory 12/31=57400
accounts payable1/1=54400
accounts payable 12/31=59800

B. $223,200
Increase in inventory = $57,400 - $54,800 = $2,600

Use the following information about the current year's operations of a company to calculate the cash paid for merchandise.

COGS=536,000
merchandise inventory 1/1=64800
merchandise inventory 12/31=57000
accounts payable1/1=64400
accounts payable 12/31=59000

B. $533,600
Decrease in inventory = $64,800 - $57,000 = $7,800

. A company's income statement showed the following: net income, $124,000; depreciation expense, $30,000 and gain on sale of plant assets, $14,000. An examination of the company's current assets and current liabilities showed the following changes as a result of operating activities: accounts receivable decreased $9,400; merchandise inventory increased $18,000; prepaid expenses decreased $6,200; accounts payable increased $3,400. Calculate the net cash provided or used by operating activities.

B. $141,000
look at #101 for explanation

Use the following information and the indirect method to calculate the net cash provided or used by operating activities

net income 12300
depr expense 12000
payment on mortgage payable 15000
gain on sale of land 7500
increase in merchandise inv 2050
increase in accts payable 6150
proceeds from sale of land 8000

C. $20,900

net income 12300
depr exp 12000
gain on sale of land (7500)
increase in merchandise inventory (2050)
increase in accts payable (6150)
net cash provided by operations 20900

Use the following information and the indirect method to calculate the net cash provided or use by operating activities:

cash paid for purchase of plant assets 15000
decrease in interest payable 2000
depr expense 30000
gain on retirement of bonds 32000
increase in accts receivable 40000
loss on sale of plant assets 5000
net income 76000

D. $37,000

net income 76000
increase in a/r (40,000)
decrease in interest payable (2000)
depr expense 30000
loss on sale of plant assets 5000
gain on retirement of bonds (32000)
net cash provided by operations 37000

Investing activities include the

A. Purchase of plant assets
B. Lending and collecting on notes receivable
C. Sale of short-term investments other than cash equivalents
D. Sale of plant assets
E. All of the above

A machine with a cost of $130,000 and accumulated depreciation of $85,000 is sold for $50,000 cash. The amount that should be reported as a source of cash under cash flows from investing activities is:

A. $50,000

A company reported that its bonds with a par value of $50,000 and a carrying value of $57,000 are retired for $60,000 cash, resulting in a loss of $3,000. The amount to be reported under cash flows from financing activities is:

B. $(60,000)

Which of the following items is reported on the statement of cash flows under financing activities?

B. Payment of a cash dividend

Which of the following is included in the cash flows from financing activities section of the statement of cash flows?

D. Purchase of treasury stock

Given the following information, determine the amount of cash flows from investing and financing activities.

net income 50,000
loss on sale of plant assets 15000
cash received from sale of plant assets 26000
cash received from issuing stock 70000
increase in income taxes payable 120,000

E. Cash provided by investing activities, 26000
Cash provided by financing activities, 70000

Given the following information, determine the amount of cash flows from investing and financing activities.

net income 70,000
loss on sale of plant assets 25000
cash received from sale of plant assets 36000
cash received from issuing stock 80000
increase in income taxes payable 20,000

E. Cash provided by investing activities, 36000
Cash provided by financing activities, 80000

The first line item in the operating activities section of a spreadsheet for a statement of cash flows prepared using the indirect method is:

D. Net income

Which of the following transactions or events should be reported as a source of cash from operating activities when using the direct method?

B. Cash collections from customers

When analyzing the changes on a spreadsheet used to prepare a statement of cash flows, the cash flows from operating activities generally affect:

A. Net income, current assets and current liabilities

When analyzing the changes on a spreadsheet used to prepare a statement of cash flows, the cash flows from investing activities generally affect:

B. Noncurrent assets

When analyzing the changes on a spreadsheet used to prepare a statement of cash flows, the cash flows from financing activities generally affect

C. Noncurrent liability and the equity accounts

When the operating activities section of the statement of cash flows is reported using the direct method, the FASB requires:

B. A reconciliation of net income to net cash provided or used by operating activities

A company had cost of goods sold of $150,000 during a given period. Compute cash paid for merchandise during this period given the following data.

accts payable beginning balance=20k end bal=17500
merchandise inventory beginning bal=35k end bal=42k

B. $159,500

step 1
purchases=COGS + increase in merchandise inventory
=150,000 + 7000
=157000

step 2
cash paid=purchases + decrease in accounts payable
=157000+2500
=159,500

A company had wage expense of $750,000 during a given period. Compute cash paid for wages during this period given the following data.

wages payable beginning balance 100,000 ending balance 25,500

C. $824,500

cash paid = wage expense+ decrease in wages payable
=750,000+74,500
=824,500

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