Accounting 201Chapter 11 Power Point

Question 1

Name a list, in order, and summarize cash inflows and cash outflows during the reporting period: (Standard List)

Answer 1

Cash Flows from Operating ActivitiesNet income $42,000Adjustments for noncash effects:Depreciation expense 9,000Loss on sale of land 4,000Increase in accounts receivable (7,000)Decrease in inventory 10,000Increase in prepaid rent (2,000)Decrease in accounts payable (5,000)Increase in interest payable 1,000Decrease in income tax payable (2,000)Net cash flows from operating activities $50,000

Question 2

Name a list, in order, and summarize cash inflows and cash outflows during the reporting period: (Reporting List)

Answer 2

Cash Flows from Investing ActivitiesPurchase of investment (35,000)Sale of land 6,000Net cash flows from investing activities (29,000)Cash Flows from Financing ActivitiesIssuance of common stock 5,000Payment of cash dividends (12,000)Net cash flows from financing activities (7,000)Net increase (decrease) in cash 14,000Cash at the beginning of the period 48,000Cash at the end of the period $62,000Note: Noncash ActivitiesPurchased equipment by issuing a note payable $20,000

Question 3

Name three Categories of Cash Flows and define them:

Answer 3

1) Operating activities = Include cash receiptsand cash payments for transactions relatingto revenue and expense activities.2) Investing activities = Include cash transactions involving the purchase and saleof long-term assets and current investments.3) Financing activities = Inflows and outflowsof cash resulting from the external financingof a business.

Question 4

Describe the four steps in Preparing the Statement of Cash Flows:

Answer 4

Step 1. Calculate net cash flows from operating activities, using information from the income statement and changes in current assets (other than cash) and current liabilities from the comparative balance sheets.Step 2. Determine the net cash flows from investing activities, by analyzing changes in long-term asset accounts from the comparative balance sheets.Step 3. Determine the net cash flows from financing activities, by analyzing changes in long-term liabilities and stockholders’equity accounts from the comparative balance sheets.Step 4. Combine the operating, investing, and financing activities, and make sure the total agrees with the net increase (decrease) incash.

Question 5

Operating Activities – Indirect MethodBoth net income and cash flows from operating activities represent the same?

Answer 5

operating activities

Question 6

Operating Activities – Indirect MethodThe income statement reports net income on an ____________. On the other hand, the statement of cash flows reports the very same activities on a ____________.

Answer 6

accrual basiscash basis

Question 7

Operating Activities – Indirect MethodWe remove the noncash components from net income so that what’s left is?

Answer 7

cash flows from operating activities.

Question 8

We can classify the noncash components as:

Answer 8

1) revenues and expenses that don’t affect cash at all (adjustments for noncash components of net income). 2) revenues and expenses that do affect cash, but not by the amount reported as the revenue or expense (adjustments for changes in current assets and current liabilities).

Question 9

Cash Flows from Operating ActivitiesAdjustments for noncash effects:For noncash components of income: + or - Depreciation expense+ or - Loss on sale of assets+ or - Gain on sale of assets

Answer 9

+ Depreciation expense+ Loss on sale of assets– Gain on sale of assets

Question 10

Cash Flows from Operating ActivitiesFor changes in current assets and current liabilities+ or - Increase in a current asset+ or - Decrease in a current asset+ or - Increase in a current liability+ or - Decrease in a current liability+ or - Net cash flows from operating activities

Answer 10

– Increase in a current asset+ Decrease in a current asset+ Increase in a current liability– Decrease in a current liability= Net cash flows from operating activities

Question 11

Operating Activities-Direct Method:We report the cash inflows and cash outflowsdirectly on the ______ __ ______ ______.

Answer 11

statement of cash flows

Question 12

Operating Activities-Direct MethodWe report cash received from customers as the cash effect of_________ ________.

Answer 12

sales activities

Question 13

Operating Activities-Direct MethodWe report cash paid to suppliers as the cash effect of _______ __ ________ _______.

Answer 13

cost of goods sold

Question 14

Income statement items that have no casheffect—such as depreciation expense or gainsand losses on the sale of assets are?

Answer 14

not reported under the direct method.

Question 15

Operating Activities-Direct MethodName three Cash Inflows:

Answer 15

1) Cash received from customers2) Cash received from interest3) Cash received from dividends

Question 16

Operating Activities-Direct MethodName four Cash Outflows:

Answer 16

1) Cash paid to suppliers2) Cash paid for operating expenses3) Cash paid for interest4) Cash paid for income taxes