Ch 12 Rev. Flashcards
Which of the following questions could not be answered from the statement of cash flows?
What are the earnings-per-share of common stock?
Choose the list below that contains only cash or cash equivalents.
customer checks, money orders, certified checks
A cash …. must satisfy two criteria: (1) be readily convertible to a known amount of cash and (2) be sufficiently close to maturity so its market value is unaffected by interest rate changes.
equivalent
A(n) Blank______ occurs when the receipts in a category exceed the payments.
net cash inflow
Which of the following statements about the statement of cash flows are correct?
It details the sources and uses of cash.
The purpose is to report cash receipts and cash payments during a period.
Lakeview, Inc.’s statement of cash flows reports financing activities with payments that exceed receipts. This means that Lakeview had a net cash (inflow/outflow)
….. from financing activities.
outflow
Information about cash flows can influence decision makers in important ways. Which of the following questions could be answered by the statement of cash flows?
Multiple select question.
How does a company spend its cash?
Does the company have the resources to pursue opportunities?
Can the company pay its debts?
Which of the following transactions would not be classified as an operating activity on the statement of cash flows?
Cash dividends paid to shareholders
Cash equivalents include short term investments within
three months of their due date
A(n) Blank______ activity includes those transactions and events that affect net income, including the purchase of goods and services, cash sales to customers, and payment of operating expenses.
operating
The statement of cash flows does not report the following transactions
transactions between cash and cash equivalents
___ (Operating/Investing/Financing) activities include those transactions and events such as lending and collecting money for notes receivable and cash receipts from sale of short-term investments.
Investing
A net cash (inflow/outflow) …
occurs when the receipts in a category exceed the payments.
inflow
In a statement of cash flows, cash received from the sale of a building would be classified under “cash flows from ….
activities.”
investing
A net cash Blank______ occurs when the payments in a category exceed the receipts.
outflow
______ activities include those transactions and events that affect long-term liabilities and equity, such as obtaining cash from issuing debt and distributing cash to owners.
Financing
Which of the following transactions would be reported under cash flows from operating activities?
Cash paid for salaries and wages
Cash paid to lenders for interest
Cash received from sales
Which of the following items would be reported under financing activities on the statement of cash flows?
Cash paid to repay debt
Cash received from issuing notes payable
Cash dividends paid to shareholders
The purchase of goods and services, the sale of goods and services to customers, and costs to operate the business are all reported on the statement of cash flows under …
activities.
operating
Current liabilities Blank______ operations, including short-term notes payable and dividends payable are categorized as financing activities.
unrelated to
Collecting money for notes receivable would be reported on the statement of cash flows as a(n) …
activity.
investing
Which of the following items are classified as noncash investing and financing activities?
Conversion of preferred stock to common stock
Retirement of debt by issuing stock
Lease of assets in a long-term lease transaction
Which of the following transactions would be reported under investing activities in the statement of cash flows?
Cash paid to purchase plant assets
Cash paid to purchase investments in securities
The statement of cash flows reports noncash investing and financing transactions in
a note or separate schedule
….. activities include those transactions and events that affect long-term liabilities and equity, such as obtaining cash from issuing debt and distributing cash to owners.
Financing
Which of the following is not one of the five important steps to preparing a statement of cash flows?
Compute the net income
Which of the following would not be reported under financing activities on the statement of cash flows?
Cash received from sale of plant assets
Which of the following would not be reported under financing activities on the statement of cash flows?
A company reported total assets at the end of the previous year of $95,000; including cash of $35,000, accounts receivable of $20,000, and inventory of $40,000. It reported total assets at the end of the current year of $110,000; including cash of $44,000; accounts receivable of $29,000, and inventory of $37,000. Compute the net increase or decrease in cash for the current year.
Increase of $9,000
Reason: $44,000 current period balance minus $35,000 prior period balance= $9,000 increase.
Investing activities are affected by
changes in long-term assets.
A company’s cash receipts and cash payments are recorded in the cash account in its general ledger. Which of the following can be determined by analyzing the cash account?
Cash payments for equipment
Cash receipts from customers
Cash payments on notes
Identify which of the following items is a noncash investing and financing activity that must be reported in a note to the statement of cash flows.
Retirement of debt by issuing stock
Lease of an asset in a long-term lease transaction
The information needed to prepare a statement of cash flows could come from which of the following sources?
Income statement
Comparative balance sheets
Cash account
The format of a statement of cash flows includes reporting cash flows from three activities including:
investing
operating
financing
When analyzing the noncash accounts to assist in preparing the statement of cash flows, the changes in liabilities, equity and noncash asset accounts are analyzed along with the
income statement accounts
There are five important steps to preparing a statement of cash flows. Rank the steps in order from first to last.
- Compute net increase or decrease in cash
- Compute net cash from operating activities
- Compute net cash from investing
- Compute net cash from financing
- Compute net cash from all sources; prove by adding amount to beginning to get ending cash balance.
At the beginning of the year, Rex Co. showed a debit balance in the cash account of $20,500. Total debits to this account during the year were $45,000, and total credits during the year were $35,000. The net (increase/decrease) ….. in cash for the year equals $…..
Increase; 10,000
((25,000+45,000)
−35,000)−25,000
Cash flows provided (used) by operating activities are reported in one of two ways: the …. method or the … method. These two methods apply only to the operating activities section.
direct; indirect
A company’s cash receipts and cash payments are recorded in the cash account in its general ledger. Identify which of the following could not be determined by analyzing the cash account?
Payment for land by issuing a note
The______ method of reporting the statement of cash flows reports net income and then adjusts it for items that do not affect cash.
indirect
The information needed to prepare a statement of cash flows could come from all of the following sources, except the:
statement of retained earnings.
The net cash amount provided by operating activities is identical under both the … and …methods.
direct; indirect
In addition to analyzing the cash account, a second approach to preparing the statement of cash flows is to explain changes in cash by analyzing changes in:
liability accounts
noncash asset accounts
equity accounts
Which of the following is not one of the five important steps to preparing a statement of cash flows?
Compute the net income
The presentation of the Blank______ section is shown differently depending on if the statement of cash flows is reported using the direct or indirect method
Operating
The indirect method of computing and reporting net cash flows from operating activities involves adjusting …. to obtain the net cash provided or used by operating activities.
Net income
Carol Co. prepares a statement of cash flows starting with net income and then adjusting for items that do not affect cash. Carol Co. is using the (direct/indirect)…. method of reporting the statement of cash flows.
indirect
Which of the following items would be adjusted to net income when computing cash flows from operating activities, using the indirect method?
Gain on sale of building
Depreciation expense
Loss on sale of investment
Both the direct and indirect methods of operating activities report which of the following items?
Net cash inflows (outflows)
A gain from the sale of a building would be (added/subtracted) …..
to (from) net income when computing cash flows from operations, using the indirect method.
subtracted
When analyzing the noncash accounts to assist in preparing the statement of cash flows, the changes in liabilities, equity and noncash asset accounts are analyzed along with the
income statement accounts
An income statement reports:
the revenues minus the expenses incurred by a business
Which of the following would be included in the operating section when preparing the statement of cash flows using the indirect method?
Net income
In preparing a cash flows from operating activities using the indirect method, an increase in accounts receivable would be (added/subtracted) ….
to (from) net income.
subtracted
Which of the following items would not be adjusted to net income when computing cash flows from operating activities, using the indirect method?
Cash received from sale of building
A loss from the sale of an investment would be (added/subtracted)
to (from) net income when computing cash flows from operations, using the indirect method.
added
Accounts receivable had a debit balance of $10,000 at the beginning of the period, and a debit balance of $6,000 at the end of the period. Based on this information, the adjustment to net income for the period will be reported as:
a decrease of $4,000 which will be added to net income
10,000 - 6,000 = 4000
Inventory at the beginning of the period had a debit balance of $9,000, and a debit balance of $7,000 at the end of the period. Using the indirect method, this will be reported in the operating section of the statement of cash flows as:
a decrease of $2,000 which will be added to net income
9,000−7,000 = 2000
Which of the following would be included on an income statement?
Total revenues
Net income
Total expenses
Sheldon Company’s balance in prepaid insurance at the beginning and end of the year was $2,500 and $1,000, respectively. This will be reported on the statement of cash flows using the indirect method as:
a decrease of $1,500 which will be added to net income.
2,500−1,000 = 1500
Which of the following items would not be a correct adjustment to net income to arrive at cash flows from operating activities, using the indirect method?
Subtract increase in taxes payable
Sunshine Company had a credit balance of $4,000 in accounts payable at the beginning of the period, and a credit balance of $6,000 at the end of the period. Based on this information, the adjustment to net income for the period will be reported as:
an increase of $2,000 which will be added to net income
(−4,000)−(−6,000) = 2000
An increase in wages payable would be (added/subtracted) …
to (from) net income when preparing cash flows from operating activities, using the indirect method.
added
Accounts receivable had a debit balance of $4,000 at the beginning of the period, and a debit balance of $6,000 at the end of the period. Based on this information, the adjustment to net income for the period will be reported as:
an increase of $2,000 which will be subtracted from net income
4,000−6,000 = 6000
The Coffee Cup Company had a credit balance of $500 in interest payable at the beginning of the period, and a credit balance of $600 at the end of the period. Based on this information, the adjustment to net income for the period will be reported as:
an increase of $100 which will be added to net income
Inventory at the beginning of the period had a debit balance of $7,000, and a debit balance of $10,000 at the end of the period. Using the indirect method, this will be reported in the operating section of the statement of cash flows as:
an increase of $3,000 which will be subtracted from net income
The TeaCup Company reported an increase to net income in their income taxes payable account on the statement of cash flows using the indirect method. This means that TeaCup’s income taxes payable account (increased/decreased)
for the period.
increased
Reid Company’s balance in prepaid insurance at the beginning and end of the year was $1,000 and $1,200, respectively. This will be reported on the statement of cash flows using the indirect method as:
an increase of $200 which will be subtracted from net income
An increase in wages payable would be (added/subtracted) ….
to (from) net income, when computing cash flows from operations using the indirect method.
added
LiveLife Company had a credit balance of $10,000 in accounts payable at the beginning of the period, and a credit balance of $6,000 at the end of the period. Based on this information, the adjustment to net income for the period will be reported as:
a decrease of $4,000 which will be subtracted from net income
The three-step analysis to determine cash provided or used by investing activities includes:
determining the cash effects using T-accounts and reconstructed entries
reporting the cash flow effects
identifying changes in investing-related accounts
Which of the following items would be subtracted from net income when reporting cash flows from operating activities, using the indirect method?
Decrease in wages payable
Decrease in taxes payable
To compute cash flows from financing activities, accountants normally analyze changes in all of the following accounts except:
Interest Payable
Emerald Jewelery Store had a credit balance in interest payable of $200 at the beginning of the period, and a credit balance of $50 at the end of the period. Based on this information, the adjustment to net income for the period will be reported as:
a decrease of $150 which will be subtracted from net income
The three-step analysis to determine cash provided or used by financing activities includes:
reporting the cash flow effects
identifying changes in financing-related accounts
determine the cash effects using T-accounts and reconstructed entries
The Breezy Fan reported a decrease to net income in their income taxes payable account on the statement of cash flows using the indirect method. This means that Breezy Fan’s income taxes payable account (increased/decreased)…..
for the period.
decreased
Starfish Shells had a beginning balance in Notes Payable of $35,000 and an ending balance of $40,000. This will be reported as _____ on the statement of cash flows.
an increase of $5,000 in the cash flows from financing activities section
A gain from the sale of equipment would be (added/subtracted) ……
to (from) net income, when computing cash flows from operations using the indirect method.
subtracted
At the beginning of the period, a company reported $100,000 of common stock, $10 par; and $50,000 paid-in capital in excess of par. At the end of the period, this company reported $110,000 of common stock, $10 par; and $90,000 paid-in capital in excess of par. Cash received from the sale of common stock during the year is $…
50,000
(110,000−100,000)
+(90,000−50,000) = 50,000
Accountants can use a three-step process to determine cash provided (or used) by investing activities. Which of the following steps is not part of this process?
Identify adjustments to net income.
Dividends paid during a period totaled $5,000. This will be reported on the statement of cash flows as:
a decrease in the financing activities section
Cash flows from financing activities identifies cash receipts and cash payments related to which of the following types of accounts?
Bonds Payable
Common Stock
The three-step process to determine cash provided or used by financing activities includes all of the following steps except:
identify an increase or decrease in cash.
Net cash provided by operating activities was $12,000. Net cash provided by investing activities was $2,000. Net cash used in financing activities was $7,000. The cash balance at the beginning of the year was $4,000. The cash balance at the end of the year is:
$11,000
(4,000+12,000+2,000)
−7,000 = 11,000
A company repaid a long-term debt during the year. They will report this as a(n) (increase/decrease)…..
in the …..
activities section on the statement of cash flows.
Decrease; financing
Investors assess cash flows before
buying and selling stock
Red Co.’s beginning Common Stock balance was $110,000 and their ending Common Stock balance was $125,000. This will be reported as Blank______ in the statement of cash flows.
an increase of $15,000 in the financing activities section
Reason: Common stock issued totaled $15,000 ($125,000 - $110,000). Cash received from issuing stock is reported in the financing activities section.
Retained earnings at the beginning and end of the year totaled $25,000 and $75,000, respectively. Net income reported during the period was $70,000. Using this information, dividends paid will be reported as Blank______ on the statement of cash flows.
a decrease of $20,000 in the financing activities section.
25,000+70,000−75,000
Reason: $25,000 + $70,000 = $95,000. Ending retained earnings is $75,000. $95,000 - 75,000 = dividends of $20,000. Dividends paid will be reported as a decrease in the financing activities section.
The Blank______ helps measure a company’s ability to meet its obligations, pay dividends, expand operations, and obtain financing. It is computed by taking cash flow from operations divided by average total assets.
cash flow on total assets
To compute cash flows from financing activities, accountants normally analyze changes in all of the following accounts except:
Interest Payable
A(n) ….
, also called a worksheet, can help organize the information needed to prepare a statement of cash flows.
spreadsheet
Net cash used in operating activities was $10,000. Net cash provided by investing activities was $2,000. Net cash provided by financing activities was $5,000. The cash balance at the end of the year was $12,000. The cash balance at the beginning of the year was $…
15,000 beg bal.
(12,000−2,000−5,000)
+10,000
It is important to analyze the sources and uses of cash because:
Creditors use this information to assist them in deciding whether to loan funds to them.
Investors use this information to decide if they will purchase their stock.
Cash flows from operating activities under the ….
method adjusts accrual-based income statement items to a cash basis.
Direct
At the beginning of the period, a company reported $100,000 of common stock, $10 par; and $50,000 paid-in capital in excess of par. At the end of the period, this company reported $110,000 of common stock, $10 par; and $90,000 paid-in capital in excess of par. Cash received from the sale of common stock during the year is $…
If all sales are for cash, the amount received from customers will equal the …..
reported on the income statement.
sales
MRC Company reports the following information for the current year: total assets of $65,000 and total cash provided from operations of $20,000; For the previous year: total assets of $75,000 and cash provided from operations of $5,000. Cash flow on total assets for the current year is (round to the nearest tenth):
28.6%
(20,000÷((75,000
+65,000)÷2))×100
To compute cash received from customers under the direct method, the ….
account is adjusted for the decrease or increase in accounts receivable.
sales
A spreadsheet can help a company prepare a statement of cash flows.
True
If rent receivable decreases during the period, cash received from renters is ______ rent revenue reported on the income statement.
greater than
Sheldon Company pays for insurance policies in advance, recording the expenditure to Prepaid Insurance. The balance in the prepaid insurance account at the beginning and end of the year was $2,500 and $1,000, respectively. Insurance expense during this period totaled $10,000. Using this information, what is the total cash paid for insurance during the period?
$8,500
Reason: $10,000 plus (1,000 - 2,500) =$8,500.
True or false: The direct method of reporting operating cash flows begins with revenue and adjusts for changes in related balance sheet accounts.
True
Inventory at the beginning of the period had a debit balance of $9,000, and a debit balance of $10,000 at the end of the period. Cost of goods sold for the period totaled $40,000. Using this information, purchases for the period must have totaled:
$41,000
Reason: ($10,000 minus $9,000) plus $40,000.
Or (40,000−9,000)+10,000
Beginning accounts receivable were $20,000 and ending accounts receivable were $25,000. If sales were $150,000, cash receipts equal $
145,000
(150,000+20,000)
−25,000
Reid Company pays for insurance policies in advance, recording the expenditure to Prepaid Insurance. The balance in the prepaid insurance account at the beginning and end of the year was $1,000 and $1,200, respectively. Insurance expense during this period totaled $10,000. Using this information, what is the total cash paid for insurance during the period?
$10,200
(10,000−1,000)+1,200
The formula used to compute the cash received from customers under the direct method is:
sales plus decrease in accounts receivable OR minus increase in accounts receivable
Income taxes expense reported on the income statement was $2,500. The beginning balance in Income Taxes Payable was $1,000 and the ending balance was $1,500. Cash paid for taxes during the period is equal to:
2,000
Reason: $1,000 plus 2,500 = $3,500. $3,500 - $1,500 = $2,000
Or
(1,000+2,500)−1,500
Or
(2,500−1,500)+1,000
Which of the following items could be “other cash receipts”?
Cash received from interest
Cash received from rent
Cash received from dividends
When creating a statement of cash flows using the direct method, loss on sale of assets is:
never reported
Under the direct method, operating expenses includes all of the following except:
inventory
The inventory account had a debit balance of $7,000 at the beginning of the period, and a debit balance of $8,000 at the end of the period. Cost of goods sold for the period equaled $30,000. Based on this information, purchases during the period equal $
31,000
(30,000−7,000)+8,000
The income statement shows Wages Expense of $4,000 for the period. The balance sheet indicates that Wages Payable at the beginning of the year had a balance of $300 and at the end of the year had a balance of $500. Cash paid for wages equals:
$3,800
(4,000+300)−500
Reason: $4,000 - ($500 - 300) = $3,800.
Interest expense reported on the income statement was $1,000. The beginning balance in Interest Payable was $150 and the ending balance was $50. Cash paid for interest during the period is equal to:
$1,100
(1,000+150)−50
Reason: $150 plus 1,000 = $1,150. $1,150 - 50 = $1,100.
When creating a statement of cash flows using the direct method, depreciation is:
not reported
