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Exam 13: Statement of Cash Flows

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Question 21

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Cash flows associated with property,plant,and equipment acquisition and disposition are reported as cash flows from investing activities.

A) True
B) False

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Question 22

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The payment of interest on a note payable is a cash flow from a financing activity.

A) True
B) False

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Question 23

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Most companies use the direct method for disclosing their cash flows from operating activities rather than the indirect method.

Which of the following statements about the quality of income ratio is correct?

Roberts Company sold equipment for $250,000,purchased a building for $6,500,000,sold short-term investments for $280,000,repaid principal on a note payable for $2,300,000 plus $230,000 of interest,and paid cash dividends of $20,000.How much was the net cash flow from financing activities?

Canadian Beer had a capital acquisitions ratio of 7.49,which means its net income exceeded its cash investment in property,plant and equipment by almost 7.5 times.

Which of the following would not be considered a cash equivalent?

Which of the following is correct?

Cash flows associated with issuance and retirement of long-term debt and equity are reported as cash flows from investing activities.

Use the following information to prepare a statement of cash flows (direct method)for Ames Corporation for the year ended December 31,2011. $\begin{array}{l}\text { Cash and cash equivalent balances: }\\\begin{array} { l r } 12 - 31 - 2010 & \$ 26,000 \\12 - 31 - 2011 & 18,000 \\\text { Cash paid for purchase of treasury stock } & 50,000 \\\text { Accepted note receivable in exchange for a computer } & \\\text { that had been used in business operations } & 10,000 \\\text { Depreciation expense } & 15,000 \\\text { Cash received from customers } & 200,000 \\\text { Cash paid for operating expenses } & 75,000 \\\text { Cash paid for merchandise } & 130,000 \\\text { Cash received from dividends } & 2,000 \\\text { Cash paid for dividends } & 5,000 \\\text { Cash paid for office building } & 75,000 \\\text { Cash borrowed on a 6-month note payable } & 40,000 \\\text { Cash received from issuance of bonds payable } & 90,000 \\\text { Cash paid for bond interest expense } & 5,000\end{array}\end{array}$

Only highly liquid investments with original maturities of less than six months at the date of purchase qualify as cash equivalents.

The financial statements for World Company show the following: Cost of goods sold,$725,000. $\begin{array}{lrlrl}&\text { Beginning Balance } & \text { Ending Balance } \\\text { Merchandise Inventory } & \$ 45,000 & \$ 56,000 \\\text { Accounts Receivable } & 53,000 & 50,000 \\\text { Accounts Payable } & 37,000 & 42,000\end{array}$ How much cash was paid to suppliers?

Cash flows from financing activities include those cash flows with respect to issuing and retiring long-term debt and equity.

Darwin Company,a manufacturer,has provided the following information pertaining to its recent year of operation: Net income,$200,000; Accounts receivable increased $18,000; Prepaid insurance increased $7,000; Depreciation expense was $25,000; Loss on sale of a building was $22,000; Wages payable increased $14,000; Unearned revenue decreased $21,000. How much was Darwin's net cash inflow from operating activities?

Slipper Company sold a productive asset,a machine,for cash.It originally cost $20,000.The accumulated depreciation at the date of disposal was $15,000.A gain on the disposal of $2,000 was reported.What was the asset's selling price?

Atkins Corporation has provided the following information for the year ended December 31,2010: The equipment account balance increased $200,000. The equipment accumulated depreciation account increased $35,000. Equipment costing $50,000 was sold during the year resulting in a $10,000 gain. Depreciation expense on the equipment recorded during the year was $65,000. Which of the following statements is correct with respect to cash flow from investing activities determination? Assume that the equipment purchase and sale resulted in cash flows.

While preparing a statement of cash flows,you encountered the following transaction: February 1,2011: Battles Corporation acquired a small office building in exchange for 5,000 shares of its own common stock; par value $10 per share; market value $15 per share. Should this transaction be shown on the statement of cash flows? Why or why not?

The following information was reported from the statement of cash flows for Landlover's Restaurants for the years 2008 through 2010 (in millions of dollars): $\begin{array} { l rl rl r l } & 2010& 2009&2008 \\\text { Net income } & \$ 45 & \$ 42 & \$ 27 \\\text { Cash provided (used) by operations } & 122 & 112 & 89 \\\text { Cash provided (used) by investments } & (190) & (275) & (105 ) \\\text { Cash provided (used) by financing } & 90 & 146 & 21\end{array}$ Requirements: A.Calculate the quality of income ratio for the years 2008 through 2010. B.Interpret the quality of income ratio for Landlover's for the three year period.

Brice Corporation reported the following information: $\begin{array}{l}\begin{array} { l r } 2010 \text { Income Statement: } & \\\text { Sales Revenue } & \$ 8,200,000 \\\text { Cost of goods sold } & \underline{6,400,000} \\\text { Gross profit } & 1,800,000 \\\text { Operating expenses (includes } \$ 200,000 \text { depreciation expense) } & \underline{1,250,000} \\\text { Pretax income } & 550,000 \\\text { Income tax expense ( } 30 \% \text { rate) } & \underline{165,000} \\\text { Net Income } & \$ 385,000 \\\end{array}\\\underline { \text { Balance Sheet: } }\\\begin{array} { l r r } & \underline { 2010 } & \underline { 2009 } \\\text { Accounts receivable } & \$ 800,000 & \$ 600,000 \\\text { Inventory } & 520,000 & 480,000 \\\text { Prepaid expenses } & 110,000 & 120,000 \\\text { Accounts payable } & 340,000 & 310,000 \\\text { Accrued liabilities } & 80,000 & 90,000 \\\text { Income taxes payable } & 25,000 & 40,000 \\\text { Unearned revenue } & 100,000 & 200,000\end{array}\end{array}$ Compute Brice Corporation's cash collected from customers for 2010.

Wish Corporation acquired a computer for $15,000 and paid for it in full by issuing 1,000 shares of its own common stock,par $10 (current market price $15 share).This transaction should not be reported on the statement of cash flows because cash was neither paid out nor received.