Chapter 12

Question 1

statement of cash flows provides info to help assess

Answer 1

1) entity’s ability to generate future cash flows
2) entity’s ability to pay dividends and meet obligations
3) reasons for dif. btw net income/net cash provided (used) by operating activities
4) cash investing/financing transactions during the period

Question 2

order of the statement of cash flows

Answer 2

operating, investing, financing

Question 3

operating activities

Answer 3

income statement items

Question 4

investing activities

Answer 4

changes in investments and long term assets

Question 5

financing activities

Answer 5

changes in long term liabilities and SHE

Question 6

cash inflows of operating activities

Answer 6

from sale of goods/services and from interest received/dividends received

Question 7

cash outflows of operating activities

Answer 7

to suppliers for inventory, to employees for wages, to gov for taxes, to lenders for interest, to others for expenses

Question 8

_______ effects for _____ _______ and _______ effects for ____ ________ (operating activities)

Answer 8

opposite; current assets; direct; current liabilities

Question 9

cash inflows from investing activities

Answer 9

from sale of PPE, from sale of investments in debt or equity securities of other entities, from collection of principle on loans to other entities

Question 10

cash outflows from investing activities

Answer 10

purchase of PPE, purchase of investments in debt/equity securities of other entities, and to make loans to other entities

Question 11

cash inflows from financing activities

Answer 11

from sale of CS, from issuance of debt (bond/notes)

Question 12

cash outflows from financing activities

Answer 12

to stockholders as dividend, and to redeem long term debt or reacquire capital stock (treasury stock)

Question 13

significant noncash activities

Answer 13

direct issuance of CS to purchase assets, conversion of bonds into CS, issuance of debt to purchase assets, exchanges of plant assets

Question 14

companies report noncash activities in either

Answer 14

1) a separate schedule (bottom of the statement)

2) a separate note to the financial statements

Question 15

3 sources of info when preparing a statement of cash flows

Answer 15

1) comparative balance sheet
2) current income statement
3) additional info

Question 16

3 steps of preparing the statement of cash flows

Answer 16

determine net cash provided/used by op activities by converting net income from accural basis to cash basis

2) analyze changes in noncurrent asset/liability accounts and record as inv/fin activities or disclose as noncash transactions
3) compare the net change in cash on the statement of cash flows with the change in the cash acct reported on the balance sheet to make sure the amounts agree

Question 17

why are indirect methods favored?

Answer 17

easier and less costly to prepare and the focus on difs btw net income/net cash fow from operating activites

Question 18

common adjustments when converting net cash provided by op act from accrual to cash basis

Answer 18

1) add back noncash expenses (depreciation, amortization, or depletion exp)
2) deduct gains/add losses
3) analyze changes ito noncash current asset/liability accts

Question 19

_____ increases in current assets and _____ decreases

Answer 19

subtract; add

Question 20

_____ increases in current liabilities and _____ decreases

Answer 20

add; subtract

Question 21

how to find dividend amount from the balance sheet

Answer 21

net income-(ending RE- beginning RE)

Question 22

impact of product lifecycles on cash flows graph

Answer 22

financing (top)
operating (middle)
investing (bottom)

Question 23

free cash flow

Answer 23

the cash remaining from operations after adjustment for capital expenditures/dividends

Question 24

equation for free cash flow

Answer 24

net cash provided by op. activities-capital expenditures-cash dividends