FAR - F7: Stockholder's Equity, Earnings Per Share, Statement of Cash Flow Flashcards
Q: Purchase a three-month U.S. Treasury Bill.
How should this purchase be reported in Mend’s Statement of Cash Flows?
A: Not reported.
**The U.S. Treasury bill is considered to be a cash equivalent item, so purchasing the T-bill merely changes the form of cash held, it does not change the cash position of the entity.
**Thus, the purchase is not reported on the statement of cash flows.
Q: Which of the following is not disclosed on the statement of cash flows when prepared under the direct method, either on the face of the statement or in a separate schedule under U.S. GAAP
A: A reconciliation of ending retained earnings to net cash flow from operations.
**A reconciliation of ending retained earnings to net cash flow from operations is not disclosed on the statement of cash flows either on the direct or indirect method, nor is it shown in a separate schedule.
**Instead, the reconciliation is from “net income” to net cash from operations.”
- *The following are required disclosures of a statement of cash flows under the direct method under U.S. GAAP:
- the major classes of gross cash receipts and gross cash payments.
- The amount of income taxes paid.
- A reconciliation of net income to net cash flow from operations.
Q: Cash flow
What amount should Reve report as net cash used in investing activities?/
A. $170,000
**Investing activities includes acquisitions and sales of long-term assets or investment assets.
**Cash used equals $170,000 ($180,000 paid less $10,000 received from the sale of the equipment)
Q: Cash Flow statements
In its December 31, statement of cash flows, what amount should Reve report as net cash provided by financing activities?
A: $37,000
**Financing activities include obtaining resources from owners and providing them with a return on, and a return of their investment; borrowing money and repaying amounts borrowed.
**Dividends paid, not dividends declared, should be included as an outflow of cash from financing activities.
Q: Which of the following information should be disclosed as supplemental information in the statement of cash flows?
A: Cash flow per share - NO
Conversion of debt to equity - YES
**Conversion of debt to equity should be disclosed as supplemental information in the statement of cash flows.
**Cash flow per share should not be disclosed.
Q: The primary purpose of a statement of cash flows is to provide relevant information about:
A: The cash receipts and cash disbursements of an enterprise during a period.
**The primary purpose of a statement of cash flows is to provide relevant information about the cash receipts and cash disbursements of an enterprise during an accounting period.
**The operating activities section of the statement of cash flows provides information about the differences between net income and associated cash receipts and disbursements. However, this is not the primary purpose of a statement of cash flows.
**The statement of cash flows is an analysis of historical cash flows rather than a projection of an enterprise’s ability to generate future cash flows.
**The statement of cash flows is an analysis of historical cash flows rather than a projection of an enterprise’s ability to meet cash operation needs.
Q: Cash Flow Statement
What amount should Lino include as net cash provided by operating activities in the statement of cash flows?
A: $151,400 net cash provided by operating activities, as follows:
Net Income: $15,000
\+ in AR (6,000)
\+ in AUA 200
- in Prepaid 4,200
\+ in A/P 3,000
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$151,400
Note: The allowance is a contra-asset and, like a liability, an increase in contra-asset should be added to net income to compute operating cash flow.
In Karr’s Year 2 statement of cash flows, net cash provided by operating activities should be:
A: $347,000
**Net income: $300,000 Depreciation Exp(Added back): 52,000 Gain on Sale (subtracted) (5,000) ------------------------------------------------------------ Cash Provided by Operations: $347,000
The JE for the equipment sold is:
Dr. Cash 18
Dr. AD - 12
Cr. Gain - 5
Cr. Equip. - 25
**The depreciation expense is added to income and the gain deducted.
Note: The gain on the sale of equipment is included in net income, but must be excluded from cash provided by operations because the cash flows related to fixed asset sales are reported in the investing section.
Q: In Karr’s statement of cash flows, net cash used in investing activities should be:
A: $2,000
**Cash used for investing activities is computed as follows:
Sale of equipment: $18,000
Purchase of equipment (20,000)
————————————————–
Cash used for investing: $2,000
**The $30,000 note is non-cash financing.
**The Journal entry for the sale of equipment is:
Dr. Cash - $18,000 (plug)
Dr. Accumulated depreciation - 12,000
Cr. Gain - $5,000
Cr. Equipment - 25,000
Q: How should Dewey report the effect of the lease payments in the financing activities section of its statement of cash flows?
A: An outflow equal to the current year principal payments only.
**Cash payments made to reduce debt principal are properly reported as a financing activity.
**Cash interest payments would be reported as a component of cash from operating activities.
Q: In Reed’s statement of cash flows, what amount was reported as net income?
A: Start with cash flows from operating activities and subtract depreciation and impairment expenses. Dividends paid are not included because dividends reduce retained earnings, not net income, and are included in cash flows from financing activities.
Q: Under IFRS, interest received during a period is reported on the statement of cash flows in:
A: Operating or investing cash flow.
**Under IFRS, interest and dividends received may be reported in either operating cash flow or in investing cash flow.
**Under U.S GAAP, interest (and dividends) received must be reported in operating cash flow because interest and dividend income is reported on the income statement.
Q: Under IFRS, interest paid during a period is reported on the statement of cash flows in:
A: Operating or financing cash flow
**Under IFRS, interest paid may be reported in either operating cash flow or in financing cash flow.
**Under GAAP, interest paid must be reported only in operating cash flow because interest expense is reported on the Income statement.
Q: Under IFRS, dividends paid during a period are reported on the statement of cash flows in:
A: Operating or financing cash flow.
**Under U.S. GAAP, dividends paid must be reported in financing cash flow because dividends are paid on equity and are not reported on the income statement.
**The $1,000 of cash received from sale of equipment would fall under the….
investing activities section along with any other capital expenditures or other investments.
