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Exam 16: Reporting the Statement of Cash Flows

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Question 41

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

A) Credit sales.
B) Cash collections from customers.
C) Depreciation expense.
D) Cash received from the sale of a building.
E) Cash received from the sale of treasury stock.

F) C) and D)
G) B) and D)

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Question 42

Multiple Choice

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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 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 choices are correct.

F) D) and E)
G) C) and E)

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Question 43

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The cash flow on total assets ratio is computed by dividing average total assets by operating income.

When preparing the operating section of the statement of cash flows using the indirect method,noncash expenses are _____________ net income.

Martin,Inc.'s,income statement is shown below.Based on this income statement and the other information provided,calculate the net cash provided by operations using the indirect method. Additional information:

Analysis reveals that a company had a net decrease in cash of $4,000 for the current year.Net cash provided by operating activities was $18,000; net cash used in investing activities was $10,000 and net cash used in financing activities was $12,000.If the year-end cash balance is $21,000,the beginning cash balance was:

All cash transactions eventually affect noncash ___________ accounts.

A cash coverage ratio of less than 1 indicates cash inadequacy to meet asset growth.

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.

Both the direct and indirect methods yield the identical net cash flow amount provided or used by operating activities.

A corporation reported average total assets in Year 1 of $397,350 and $440,800 in Year 2.Its net operating cash flow for Year 1 was $35,667 and $35,790 for Year 2.Calculate the cash flow on total assets ratio for both years.Comment on the results.

The following transactions and events occurred during the year.Assuming that this company uses the indirect method to report cash provided by operating activities,indicate where each item would appear on its statement of cash flows by placing an x in the appropriate column.

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.

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

Use the following company information to prepare a schedule of significant noncash investing and financing activities: (a)Sold a building with a book value of $125,000 for $195,000 cash and land with a book value of $32,000 for $65,000 cash. (b)Issued 10,000 shares of $10 par value common stock in exchange for equipment with a market value of $135,000. (c)Retired a $100,000,10% bond by issuing another $100,000,12% bond issue. (d)Acquired land by issuing a ten-year,9%,$44,000 note payable.

The FASB requires a reconciliation of net income to net cash provided or used by operating activities when the direct method is used (which can be reported in the notes).

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

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:

In preparing a company's statement of cash flows for the year just ended,the following information is available: Net cash flows from financing activities for the year were:

A company had net cash flows from operations of $120,000,cash flows from financing of $330,000,total cash flows of $500,000,and average total assets of $2,500,000.The cash flow on total assets ratio equals: