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Principles of Accounting - Financial > Chapter 11 > Flashcards

Chapter 11 Flashcards

1
Q

List the accounts that fall under operating activity on the statement of cash flow?

A
  1. Revenue
  2. Expenses
  3. Changes in current assets
  4. Changes in current liabilities
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2
Q

List the accounts that fall under investing activity on the statement of cash flow

A
  1. Changes in long-term assets
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3
Q

List the accounts that fall under financing activity on the statement of cash flow?

A
  1. Changes in long-term liabilities
  2. Changes in common stock
  3. Changes in retained earnings
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4
Q

What are changes in retained earnings?

A

Dividends paid

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5
Q

What is net cash flow equal to?

A

The change in cash

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6
Q

What are significant investing and financing activities that do not affect cash?

A

Noncash activities

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7
Q

Fill in the Blank: Indirect or Direct

The ______ method for operating activities is the most popular method out of the two

A

The Indirect method

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8
Q

Fill in the Blank: Indirect or Direct

The ______ method for operating activities is easier and less costly

A

The Indirect method

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9
Q

What are the advantages of the indirect method for operating activities?

A

It’s easier and less costly

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10
Q

What does the indirect method for operating activities do in order to find the operating cash flows?

A

It begins with net income and then list adjustments to net income

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11
Q

What does the direct method for operating activities do in order to find the operating cash flows?

A

It directly reports the cash inflows and outflows

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12
Q

Fill in the Blank: Indirect or Direct

The ______ method for operating activities is a conceptually better method

A

The Direct method

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13
Q

Fill in the Blank: Indirect or Direct

The ______ method for operating activities is more difficult and more costly

A

The Direct method

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14
Q

Lists the steps for preparing the statement of cash flows

A
  1. Calculate net cash flows from operating activities
  2. Calculate net cash flows from investing activities
  3. Calculate net cash flows from financing activities
  4. Combine operating, investing, and financing activities
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15
Q

What is the formula to find net increase (decrease) in cash?

A

Operating + Investing + Financing

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16
Q

What is the formula to find cash at the end of the period?

A

Cash at the beginning of the period + net increase (decrease) in cash

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17
Q

Fill in the Black:

In the Indirect method both ______ and _______ from operating activities represent the same operating activities

A
  1. Net income

2. Cash flows

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18
Q

In the indirect method what 2 things does net income include?

A

Cash and noncash components

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19
Q

Fill in the Blank: Positive or Negative

While using the indirect method, a depreciation expense will have a _______ effect on net cash flow for operative activities

A

Positive effect

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20
Q

Fill in the Blank: Positive or Negative

While using the indirect method, an amortization expense will have a _______ effect on net cash flow for operative activities

A

Positive effect

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21
Q

Fill in the Blank: Positive or Negative

While using the indirect method, a loss in sales of assets will have a _______ effect on net cash flow for operative activities

A

Positive effect

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22
Q

Fill in the Blank: Positive or Negative

While using the indirect method, a gain in sales of assets will have a _______ effect on net cash flow for operative activities

A

Negative effect

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23
Q

Fill in the Blank: Positive or Negative

While using the indirect method, an increase in a current asset will have a _______ effect on net cash flow for operative activities

A

Negative effect

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24
Q

Fill in the Blank: Positive or Negative

While using the indirect method, a decrease in a current asset will have a _______ effect on net cash flow for operative activities

A

Positive effect

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25
Q

Fill in the Blank: Positive or Negative

While using the indirect method, a increase in a current liability will have a _______ effect on net cash flow for operative activities

A

Positive effect

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26
Q

Fill in the Blank: Positive or Negative

While using the indirect method, a decrease in a current liability will have a _______ effect on net cash flow for operative activities

A

Negative effect

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27
Q

How do you know if a statement of cash flow is using the indirect or direct method?

A

You look to see if there’s a net income

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28
Q

Which method is being used if there’s a net income at the beginning of the statement of cash flow?

A

The indirect method

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29
Q

Which method is being used if there’s not net income?

A

The direct method

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30
Q

What does the change in (∆) cash equal in the indirect method?

A

∆Cash = ∆L + ∆SE - ∆Other Assets

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31
Q

What measures the operating cash flow generated per dollar of assets?

A

Cash return on assets

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32
Q

What measures the operating cash flows generated for each dollar of sales?

A

Cash flow to sales

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33
Q

What measures the sales revenue generated per dollar of assets?

A

Asset turnover

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34
Q

What are the two equations to find cash return on assets?

A
  1. Cash flow to sales x Asset turnover

2. Operating Cash flow / Average total assets

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35
Q

What is the equation to find average total assets?

A

(Beginning assets + ending assets) / 2

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36
Q

What is the equation to find cash flow to sales?

A

Operating Cash Flow / Net Sales

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37
Q

What is the equation to find asset turnover?

A

Net sales / Average total assets

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38
Q

In the direct method are income statement items that have no cash effect reported?

A

No

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39
Q

Classify each of the following items as an operating, investing, or financing activity: Dividends paid

A

Financing

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40
Q

Classify each of the following items as an operating, investing, or financing activity: Repayment of notes payable

A

Financing

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41
Q

Classify each of the following items as an operating, investing, or financing activity: Payment for inventory

A

Operating

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42
Q

Classify each of the following items as an operating, investing, or financing activity: Purchase of equipment

A

Investing

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43
Q

Classify each of the following items as an operating, investing, or financing activity: Interest paid

44
Q

Place the following items in the correct order as they would appear in the statement of cash flows.

a. Financing activities
b. Net increase (decrease) in cash
c. Operating activities
d. Beginning cash balance
e. Ending cash balance
f. Investing activities

A

c. Operating Activity
f. Investing Activity
a. Financing Activity
b. Net income (decrease) in cash
d. Beginning cash balance
e. Ending cash balance

45
Q

Match the following items with the description or example that best fits: Operating activities

a. Begins with net income and then lists adjustments to net income in order to arrive at operating cash flows.
b. Item included in net income, but excluded from net operating cash flows.
c. Net cash flows from operating activities divided by average total assets.
d. Cash transactions involving lenders and investors.
e. Cash transactions involving net income.
f. Cash transactions for the purchase and sale of long-term assets.
g. Purchase of long-term assets by issuing stock.
h. Shows the cash inflows and outflows from operations such as cash received from customers and cash paid for inventory, salaries, rent, interest, and taxes.

A

e. Cash transactions involving net income.

46
Q

Match the following items with the description or example that best fits: Investing activities

a. Begins with net income and then lists adjustments to net income in order to arrive at operating cash flows.
b. Item included in net income, but excluded from net operating cash flows.
c. Net cash flows from operating activities divided by average total assets.
d. Cash transactions involving lenders and investors.
e. Cash transactions involving net income.
f. Cash transactions for the purchase and sale of long-term assets.
g. Purchase of long-term assets by issuing stock.
h. Shows the cash inflows and outflows from operations such as cash received from customers and cash paid for inventory, salaries, rent, interest, and taxes.

A

f. Cash transactions for the purchase and sale of long-term assets.

47
Q

Match the following items with the description or example that best fits: Financing activities

a. Begins with net income and then lists adjustments to net income in order to arrive at operating cash flows.
b. Item included in net income, but excluded from net operating cash flows.
c. Net cash flows from operating activities divided by average total assets.
d. Cash transactions involving lenders and investors.
e. Cash transactions involving net income.
f. Cash transactions for the purchase and sale of long-term assets.
g. Purchase of long-term assets by issuing stock.
h. Shows the cash inflows and outflows from operations such as cash received from customers and cash paid for inventory, salaries, rent, interest, and taxes.

A

d. Cash transactions involving lenders and investors.

48
Q

What’s the purchase of long-term assets by issuing stock an example of?

A

Noncash activities

49
Q

Match the following items with the description or example that best fits: Indirect method

a. Begins with net income and then lists adjustments to net income in order to arrive at operating cash flows.
b. Item included in net income, but excluded from net operating cash flows.
c. Net cash flows from operating activities divided by average total assets.
d. Cash transactions involving lenders and investors.
e. Cash transactions involving net income.
f. Cash transactions for the purchase and sale of long-term assets.
g. Purchase of long-term assets by issuing stock.
h. Shows the cash inflows and outflows from operations such as cash received from customers and cash paid for inventory, salaries, rent, interest, and taxes.

A

a. Begins with net income and then lists adjustments to net income in order to arrive at operating cash flows.

50
Q

Match the following items with the description or example that best fits: Direct method

a. Begins with net income and then lists adjustments to net income in order to arrive at operating cash flows.
b. Item included in net income, but excluded from net operating cash flows.
c. Net cash flows from operating activities divided by average total assets.
d. Cash transactions involving lenders and investors.
e. Cash transactions involving net income.
f. Cash transactions for the purchase and sale of long-term assets.
g. Purchase of long-term assets by issuing stock.
h. Shows the cash inflows and outflows from operations such as cash received from customers and cash paid for inventory, salaries, rent, interest, and taxes.

A

h. Shows the cash inflows and outflows from operations such as cash received from customers and cash paid for inventory, salaries, rent, interest, and taxes.

51
Q

Match the following items with the description or example that best fits: Depreciation expense

a. Begins with net income and then lists adjustments to net income in order to arrive at operating cash flows.
b. Item included in net income, but excluded from net operating cash flows.
c. Net cash flows from operating activities divided by average total assets.
d. Cash transactions involving lenders and investors.
e. Cash transactions involving net income.
f. Cash transactions for the purchase and sale of long-term assets.
g. Purchase of long-term assets by issuing stock.
h. Shows the cash inflows and outflows from operations such as cash received from customers and cash paid for inventory, salaries, rent, interest, and taxes.

A

b. Item included in net income, but excluded from net operating cash flows.

52
Q

Match the following items with the description or example that best fits: Cash return on assets

a. Begins with net income and then lists adjustments to net income in order to arrive at operating cash flows.
b. Item included in net income, but excluded from net operating cash flows.
c. Net cash flows from operating activities divided by average total assets.
d. Cash transactions involving lenders and investors.
e. Cash transactions involving net income.
f. Cash transactions for the purchase and sale of long-term assets.
g. Purchase of long-term assets by issuing stock.
h. Shows the cash inflows and outflows from operations such as cash received from customers and cash paid for inventory, salaries, rent, interest, and taxes.

A

c. Net cash flows from operating activities divided by average total assets.

53
Q

What activity does depreciation expense go under in the statement of cash flow?

A

Operating Activity

54
Q

What activity does inventory go under in the statement of cash flow?

A

Operating Activity

55
Q

What activity does prepaid rent go under in the statement of cash flow?

A

Operating Activity

56
Q

What activity does accounts receivable go under in the statement of cash flow?

A

Operating Activity

57
Q

What activity does accounts payable go under in the statement of cash flow?

A

Operating Activity

58
Q

What activity does interest payable go under in the statement of cash flow?

A

Operating Activity

59
Q

What activity does sale of land go under in the statement of cash flow?

A

Investing Activity

60
Q

What activity does investment bonds go under in the statement of cash flow?

A

Investing Activity

61
Q

What activity does issuing common stock go under in the statement of cash flow?

A

Financing Activity

62
Q

Is retained earnings included in the statement of cash flow?

63
Q

What activity does dividends go under in the statement of cash flow?

A

Financing Activity

64
Q

What are the two equations to find net increase (decrease) in cash flow?

A
  1. Operating + Investing + Financing

2. Cash at end of period - cash at beginning of period

65
Q

If you have noncash activities what do you have to do on the statement of cash flow?

A

You have to leave a note at the end of the statement

66
Q

What activity does the purchase of long-term assets go under in the statement of cash flow?

A

Investing Activity

67
Q

What activity does borrowing money from the bank go under in the statement of cash flow?

A

Financing Activity

68
Q

What activity does replaying debt go under in the statement of cash flow?

A

Financing Activity

69
Q

What activity does purchasing equipment go under in the statement of cash flow?

A

Investing Activity

70
Q

What activity does an exchange go under in the statement of cash flow?

A

Noncash Activity

71
Q

What activity does loans go under in the statement of cash flow?

A

Investing Activity

72
Q

Select the section of the statement of cash flows in which each of these items would be reported: Issues $20 million in bonds

a. operating activities
b. investing activities
c. financing activities
d. noncash activities note

A

c. financing activities

73
Q

Select the section of the statement of cash flows in which each of these items would be reported: Purchases equipment for $80,000

a. operating activities
b. investing activities
c. financing activities
d. noncash activities note

A

b. investing activities

74
Q

Select the section of the statement of cash flows in which each of these items would be reported: Pays a $20,000 account payable.

a. operating activities
b. investing activities
c. financing activities
d. noncash activities note

A

a. operating activities

75
Q

Select the section of the statement of cash flows in which each of these items would be reported: Collects a $15,000 account receivable

a. operating activities
b. investing activities
c. financing activities
d. noncash activities note

A

a. operating activities

76
Q

Select the section of the statement of cash flows in which each of these items would be reported: Exchanges land for a new patent. Both are valued at $300,000

a. operating activities
b. investing activities
c. financing activities
d. noncash activities note

A

d. noncash activities note

77
Q

Select the section of the statement of cash flows in which each of these items would be reported: Declares and pays a cash dividend of $100,000

a. operating activities
b. investing activities
c. financing activities
d. noncash activities note

A

c. financing activities

78
Q

Select the section of the statement of cash flows in which each of these items would be reported: Loans $50,000 to a customer, accepting a note receivable.

a. operating activities
b. investing activities
c. financing activities
d. noncash activities note

A

b. investing activities

79
Q

Select the section of the statement of cash flows in which each of these items would be reported: Pays $75,000 to suppliers for inventory.

a. operating activities
b. investing activities
c. financing activities
d. noncash activities note

A

a. operating activities

80
Q

Fill in the Blank: Positive or Negative

While using the indirect method, the issuance of common stock will have a _______ effect

A

Positive effect

81
Q

Fill in the Blank: Same or Opposite

Current assets is the _______ of current liabilities

82
Q
  1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
  2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.

Transaction: Payment of employee salaries

A
  1. Operating Activity

2. Outflow

83
Q
  1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
  2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.

Transaction: Sale of land for cash

A
  1. Investing Activity

2. Inflow

84
Q
  1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
  2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.

Transaction: Purchase of rent in advance

A
  1. Operating Activity

2. Outflow

85
Q
  1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
  2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.

Transaction: Collection of an accounts receivable

A
  1. Operating Activity

2. Inflow

86
Q
  1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
  2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.

Transaction: Issuance of common stock

A
  1. Financing Activity

2. Inflow

87
Q
  1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
  2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.

Transaction: Purchase of inventory

A
  1. Operating Activity

2. Outflow

88
Q
  1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
  2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.

Transaction: Collection of notes receivable

A
  1. Investing Activity

2. Inflow

89
Q
  1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
  2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.

Transaction: Payment of income taxes

A
  1. Operating Activity

2. Outflow

90
Q
  1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
  2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.

Transaction: Sale of equipment for a note receivable

A
  1. Noncash Activity

2. No effect

91
Q
  1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
  2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.

Transaction: Issuance of bonds

A
  1. Financing Activity

2. Inflow

92
Q
  1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
  2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.

Transaction: Loan to another firm

A
  1. Investing Activity

2. Outflow

93
Q
  1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
  2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.

Transaction: Purchase of treasury stock

A
  1. Financing Activity

2. Outflow

94
Q
  1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
  2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.

Transaction: Payment of an account payable

A
  1. Operating Activity

2. Outflow

95
Q
  1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
  2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.

Transaction: Payment of a long-term note payable

A
  1. Financing Activity

2. Outflow

96
Q
  1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
  2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.

Transaction: Sale of equipment for cash

A
  1. Investing Activity

2. Inflow

97
Q

Is accumulated depreciation included in the statement of cash flow?

98
Q

Indicate in which section of the statement of cash flows each of these items would be reported: Purchase of a patent

a. operating activities (indirect method)
b. investing activities
c. financing activities
d. a separate noncash activities note

A

b. investing

99
Q

Indicate in which section of the statement of cash flows each of these items would be reported: Depreciation expense

a. operating activities (indirect method)
b. investing activities
c. financing activities
d. a separate noncash activities note

A

a. operating

100
Q

Indicate in which section of the statement of cash flows each of these items would be reported: Decrease in accounts receivable.

a. operating activities (indirect method)
b. investing activities
c. financing activities
d. a separate noncash activities note

A

a. operating

101
Q

Indicate in which section of the statement of cash flows each of these items would be reported: Issuance of a note payable

a. operating activities (indirect method)
b. investing activities
c. financing activities
d. a separate noncash activities note

A

c. financing

102
Q

Indicate in which section of the statement of cash flows each of these items would be reported: Increase in inventory

a. operating activities (indirect method)
b. investing activities
c. financing activities
d. a separate noncash activities note

A

a. operating

103
Q

Indicate in which section of the statement of cash flows each of these items would be reported: Collection of notes receivable

a. operating activities (indirect method)
b. investing activities
c. financing activities
d. a separate noncash activities note

A

b. investing

104
Q

Indicate in which section of the statement of cash flows each of these items would be reported: Purchase of equipment

a. operating activities (indirect method)
b. investing activities
c. financing activities
d. a separate noncash activities note

A

b. investing

105
Q

Indicate in which section of the statement of cash flows each of these items would be reported: Exchange of long-term assets

a. operating activities (indirect method)
b. investing activities
c. financing activities
d. a separate noncash activities note

A

d. noncash

106
Q

Indicate in which section of the statement of cash flows each of these items would be reported: Decrease in accounts payable

a. operating activities (indirect method)
b. investing activities
c. financing activities
d. a separate noncash activities note

A

a. operating

107
Q

Indicate in which section of the statement of cash flows each of these items would be reported: Payment of dividends

a. operating activities (indirect method)
b. investing activities
c. financing activities
d. a separate noncash activities note

A

c. financing

Principles of Accounting - Financial (11 decks)

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