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Exam 12: Reporting Cash Flows

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Question 91

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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) All of the above
G) D) and E)

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Question 92

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A purchase of land in exchange for a long-term note payable is reported in the investing section of the statement of cash flows.

A) True
B) False

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Question 93

Multiple Choice

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In preparing a company's statement of cash flows for the most recent year,the following information is available: $\begin{array}{|l|r|}\hline \text { Loss on the sale of equipment } & \$ 14,000 \\\hline \text { Purchase of equipment } & 225,000 \\\hline \text { Proceeds from the sale of equipment } & 106,000 \\\hline \text { Repayment of outstanding bonds } & 87,000 \\\hline \text { Purchase of treasury stock } & 25,000 \\\hline \text { Issuance of common stock } & 96,000 \\\hline \text { Purchase of land } & 115,000 \\\hline \text { Increase in accounts receivable during the year } & 33,000 \\\hline \text { Decrease in accounts payable during the year } & 75,000 \\\hline \text { Payment of cash dividends } & 35,000\\\hline\end{array}$ Net cash flows from investing activities for the year were:

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 investing activities: $\begin{array}{|l|r|}\hline \text { Net income } & \$ 182,000 \\\hline \text { Gain on the sale of equipment } & 12,300 \\\hline \text { Proceeds from the sale of equipment } & 92,300 \\\hline \text { Depreciation expense }- \text { equipment } & 50,000 \\\hline \text { Payment of bonds at maturity } & 100,000 \\\hline \text { Purchase of land } & 200,000 \\\hline \text { Issuance of common stock } & 300,000 \\\hline \text { Increase in merchandise inventory } & 35,400 \\\hline \text { Decrease in accounts receivable } & 28,800 \\\hline \text { Increase in accounts payable } & 23,700 \\\hline \text { Payment of cash dividends } & 32,000\\\hline\end{array}$

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:

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

Bagwell's net income for the year ended December 31,Year 2 was $175,000.Information from Bagwell's comparative balance sheets is given below.Compute the cash paid for dividends during Year 2. $\begin{array} { | l | r | r | } \hline \text { At December 31 } & \text { Year 2 } & \text { Year 1 } \\\hline \text { Common Stock, \$5 par value } & \$ 500,000& \$ 450,000\\\hline \text { Paid-in capital in excess of par } & 948,000 & 853,000 \\\hline \text { Retained earnings } & 688,000 & 582,000 \\\hline\end{array}$

The payment of cash dividends to shareholders is classified as a financing activity.

Babson reported assets of $13,362 million at January 1 and $13,369 million as of December 31 of the current year.Babson's net cash flows from operations were $2,204 million.Calculate the cash flow on total assets ratio for Babson.

Based on the information provided below for Krackle Corp.,complete the following worksheet to be used to prepare the statement of cash flows using the indirect method. (a)Net income for the year was $30,000. (b)Dividends of $10,000 were declared and paid. (c)Krackle's only noncash expense was depreciation which totaled $50,000. (d)The company purchased plant assets for $70,000. (e)Notes payable in the amount of $40,000 were issued during the year for cash.

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) :

Match each of the following items with the appropriate definitions. -A method of computing and reporting the net cash provided (used) by operating activities that lists the major items of operating cash receipts,and then subtracts the major items of operating cash payments.

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

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

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

Internal users of the statement of cash flows often use cash flow information to plan day-to-day operating activities and make long-term investment and financing decisions.

The reporting of financing activities in the statement of cash flows is identical under either the direct or indirect methods.

The indirect 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 indirect method separately lists each major item of operating cash receipts and cash payments.

A company purchased equipment for $150,000 by paying $50,000 and signing a $100,000 note payable.The entire transaction is disclosed to users in the financing section of the statement of cash flows.