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Exam 16: Reporting the Statement of Cash Flows

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Question 21

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Use the following information and the indirect method to calculate the net cash provided or used by operating activities: $\begin{array} { l | r } \text { Net income } & \$ 85,300 \\\hline \text { Depreciation expense } & 12,000 \\\hline \text { Increase in merchandise inventory } & 2,050 \\\hline \text { Increase in accounts payable } & 6,150 \\\hline\end{array}$

A) $85,700.
B) $69,900.
C) $93,900.
D) $108,900.
E) $81,600.

F) A) and D)
G) C) and D)

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Question 22

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To be classified as a cash equivalent, the only criterion an item must meet is that it must be readily convertible to a known amount of cash.

A) True
B) False

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Question 23

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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 unaffected by interest rate changes is a(n) :

Financing activities include receiving cash from issuing debt and paying cash dividends to shareholders.

Explain how the cash flows from operating activities section of the statement of cash flows is prepared using the indirect method.

Equipment costing $200,000 with accumulated depreciation of $160,000 is sold at a loss of $10,000. This implies that $30,000 cash was received from the sale.

Financing activities include (a)the purchase and sale of long-term assets, (b)the purchase and sale of short-term investments, and (c)lending and collecting on loans.

The statement of cash flows cannot help address questions such as:

Investing activities include receiving cash dividends from investments in other companies' stocks.

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 in the operating activities section reported under the direct method is:

Northington, Inc. is preparing the company's statement of cash flows for the fiscal year just ended. Using the following information, determine the amount of cash flows from financing activities: $\begin{array}{|l|r|}\hline \text { Net income } & \$ 182,000 \\\hline \text { Gain on the sale of equipment } & 12,300 \\\hline \text { Proceeds from the sale of equipment } & 92,300 \\\hline \text { Depreciation expense - equipment } & 50,000 \\\hline \text { Payment of bonds at maturity } & 100,000 \\\hline \text { Purchase of land } & 200,000 \\\hline \text { Issuance of common stock } & 300,000 \\\hline \text { Increase in merchandise inventory } & 35,400 \\\hline \text { Decrease in accounts receivable } & 28,800 \\\hline \text { Increase in accounts payable } & 23,700 \\\hline \text { Payment of cash dividends } & 32,000\\\hline\end{array}$

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

Companies have the option of using either the direct or indirect method to prepare the operating section of the statement of cash flows.

The direct method for computing and reporting net cash flows from operating activities involves adjusting the net income figure to obtain net cash provided or used by operating activities.

The direct method of reporting operating cash flows:

When preparing the operating activities section of the statement of cash flows using the indirect method, decreases in current operating liabilities are added to net income.

On a spreadsheet used to prepare the operating activities section of the statement of cash flows, depreciation expense does not require an entry in the Analysis of Changes columns because it is a noncash item.

A company had average total assets of $1,660,000, total cash flows of $1,320,000, cash flows from operations of $205,000, and cash flows from financing of $750,000. The cash flow on total assets ratio equals:

Use the following information about the current year's operations of a company to calculate the cash paid for merchandise. $\begin{array} { l } \text {Cost of goods sold. } &\$735,000\\ \text {Merchandise inventory, January 1. } &84,700\\ \text {Merchandise inventory, December 31 } &82,400\\ \text {Accounts payable, January 1. } &54,500\\ \text {Accounts payable, December 31. } &60,200\\\end{array}$

The accountant for Mandarin Company is preparing the company's statement of cash flows for the fiscal year just ended. The following information is available: $\begin{array}{l|r}\hline \text { Retained earnings balance at the beginning of the year } & \$ 819,000 \\\hline \text { Net income for the year } & 230,000 \\\hline \text { Cash dividends declared for the year } & 42,000 \\\hline \text { Retained earnings balance at the end of the year } & 1,007,000 \\\hline \text { Cash dividends payable at the beginning of the year } & 10,000 \\\hline \text { Cash dividends payable at the end of the year } & 11,000\end{array}$ 84 What is the amount of cash dividends paid that should be reported in the financing section of the statement of cash flows?