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Exam 16: Reporting the Statement of Cash Flows

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Question 91

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Use the following financial statements and additional information to (1) prepare a complete statement of cash flows for the year ended December 31, 2011. The cash provided or used by operating activities should be reported using the direct method, and (2) compute the company's cash flow on total assets ratio for 2011. Additional Information a. A $20,000 note payable is retired at its carrying value in exchange for cash. b. The only changes affecting retained earnings are net income and cash dividends paid. c. New equipment is acquired for $120,000 cash. d. Received cash for the sale of equipment that had cost $85,000, yielding a gain of $4,700. e. Prepaid expenses relate to Other Expenses on the income statement. f. All purchases and sales of merchandise inventory are on credit.

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What are the five usual steps involved in the preparation of the statement of cash flows?

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The preparation of the statement of cash...

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When preparing the operating activities section of the statement of cash flows using the indirect method, expenses with no cash outflows are added back to net income.

Typical cash flows from investing activities include:

Most managers stress the importance of understanding and predicting cash flows for business decisions.

Since it is recommended by the FASB, the direct method of preparing the statement of cash flows is most frequently used.

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

Use the following information to calculate the net cash provided or used by financing activities for the Brooks Corporation: (a) Net income, $10,000 (b) Sold common stock for $4,000 cash (c) Paid cash dividend of $3,000 (d) Paid bond payable, $8,000 (e) Purchased equipment for $12,000 cash

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

Noncash financing and investing activities are disclosed in the ____________ or in a separate ____________________________.

Woodlawn Company is preparing the company's statement of cash flows for the fiscal year just ended. The following information is available: Retained earnings balance at the beginning of the year $233,000 Cash dividends declared for the year $50,000 Proceeds from the sale of equipment $85,000 Gain on the sale of equipment $4,500 Cash dividends payable at the beginning of the year $22,000 Cash dividends payable at the end of the year $30,000 Net income for the year $110,000 The ending balance in retained earnings is:

A company reported operating cash flows in Year 1 of $23,400 and $26,220 in Year 2. Its average total assets in Year 1 were $262,000 and $285,000 in Year 2. Calculate the cash flow on total assets ratio for both years. Comment on the results.

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:

Investments that are readily convertible to a known amount of cash and are sufficiently close to their maturity so that the market value is unaffected by interest rate changes are ____________________________.

The FASB recommends that the operating section of the statement of cash flows be reported using the direct method.

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 company reported average total assets of $496,000 in Year 1 and $604,000 in Year 2. Its net operating cash flow in Year 1 was $41,150 and $55,500 in Year 2. Calculate its cash flow on total assets ratio for both years. Comment on the results.

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

A cash equivalent is an investment that: