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Exam 3: Income Flows versus Cash Flows: Understanding the Statement of Cash Flows

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Question 21

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Kraco Corporation reported 2010 net income of $450,000,including the effects of depreciation expense of $60,000,and amortization expense on a patent of $10,000.Also,cash of $50,000 was borrowed on a 5-year note payable.Based on this data,total cash inflow from operating activities using the indirect method for 2010 was: 

A) $570,000
B) $520,000
C) $470,000
D) $440,000

E) A) and B)
F) All of the above

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Question 22

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One factor that may cause cash flow from operations to differ from net income is the length of the ______________________________.

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Question 23

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When preparing the statement of cash flows using the indirect method,the payment of dividends would appear as:

The expense incurred by issuing stock options should be:

Clarion Industries manufactures computer equipment and provides financing for purchases by its customers.Clarion reported sales and interest revenues of $79,500 million for 2010.The balance sheet showed current and noncurrent receivables of $ 30,750 million at the beginning of 2010 and $ 26,900 million at the end of 2010.Compute the amount of cash collected from customers during 2010.

The payment of dividends would be classified as ____________________ activities in the statement of cash flows.

Discuss operating,investing,and financing cash flows in relation to the various stages of the product life cycle.

Plano Corporation presented the following account balances for 2010 and 2009: $\begin{array}{lrr} & \text { December } 31,2010 & \text { December 31, 2009 } \\& & \\\text { Dividends payable } & \$ 20,000 & \$ 25,000 \\\text { Additional Paid-in-Capital } & \$ 580,000 & \$ 230,000 \\\text { Treasury Stock } & \$ 185,000 & \$ 100,000 \\\text { Equipment } & \$ 800,000 & \$ 700,000 \\\text { Accumulated Depreciation } & \$ 225,000 & \$ 140,000 \\\text { Common Stock } & \$ 630,000 & \$ 560,000 \\\text { Long-Term Notes Payable } & \$ 225,000 & \$ 125,000\end{array}$ Additional information: 1. Cash thands af 20,000 were declared an December 15, 2010, payable an January $15,2011 .$ 2. The campany issued To,000 shares of $\$ 1$ par value camman stock during $2010 .$ 3. The campary repurchased 34,000 shares of its awn comman stock during the period. Nateasury stack was sold during the peridd. 4. Additional equipment was purchased by issuing a 100,000 long-term note payable. Required: 1.Prepare the financing section of Plano's 2010 statement of cash flows. 2.Indicate if any of the events will be reported as a significant noncash transaction.

Discuss the correlations that have been found between net income,net income plus or minus Type 1 adjustments (i.e.,adjustments to net income for revenues,expenses,gains,and losses that are recognized in income and are associated with changes in noncurrent assets,noncurrent liabilities,and shareholders' equity,but do not affect cash by the same amounts for the period),and cash flow from operations.

Olive Corporation manufactures food processing equipment.Use Olive Corporation's two most recent balance sheets and most recent income statement to prepare a statement of cash flows for 2010.The company paid dividends of $6,250 during 2010. $\begin{array}{l}\begin{array}{lll}\text {Olive Corporation}\\\text {Balance Sheet}\\ \text {As of December 31 ,}\\ \text {Assets:}\\ \text {Cash and cash equivalents}\\ \text {Accounts Receivable}\\ \text {Inventory}\\ \text {Current Assets}\\\\ \text {Equipment}\\ \text {Less: Accumulated depreciation}\\ \text {Land}\\\\ \text {Total assets}\\\end{array}\begin{array}{lll}\\ \\2010 \\\\\$ 41,900 \\24,000 \\\underline{30,000} \\ 95,900 \\\\42,000 \\-14,000 \\25,000\\\\\$148,900\end{array}\begin{array}{lll}\\ \\2009\\\\\$ 25,000 \\6,250 \\\underline{36,000} \\ 67,250\\\\38,500 \\-7,000 \\10,000\\\\\$ 108,750 \end{array}\end{array}$ $\begin{array}{l}\begin{array}{lll} \text {Liabilities}\\ \text {Accounts Payable}\\ \text {Accrued Salaries Payable}\\ \text {Rent Expense Payable}\\ \text {Income Tax Payable}\\ \text {Current Liabilities}\\\\ \text {Long-term note payable}\\ \text {Total Liabilities}\\\\ \text {Stockholders' Equity:}\\ \text {Common stock}\\ \text {Retained earnings}\\\\\text { Total liabilities and stockholders' equity }\end{array}\begin{array}{lll}\\\$ 17,500 \\5,500 \\2,200 \\\underline{6,900} \\32,100 \\\\ \underline{50,000 }\\ 82,100\\\\ \\42,000\\24,800\\\\\$148,900\end{array}\begin{array}{lll}\\\$ 22,500 \\8,000 \\1,000 \\\underline{4,000 }\\ 35,500 \\\\ \underline{30,000 }\\ 65,500\\\\ \\30,000\\13,250\\\\\$108,750\end{array}\end{array}$ Olive Warporation Income statement For the year ended December 31, 2010 $\begin{array}{l}\begin{array}{lll}\text { Revenues}\\\text { Cost of goods sold}\\\text { Gross Profit}\\\underline{\text { Operating Expenses}}\\\text { Depreciation expense}\\\text { Salary expense}\\\text { Insurance Expense}\\\text { Rent Expense}\\\text { Interest Expense}\\\text { Total Operating Expenses}\\\text { Income from Operations}\\\text { Income Tax Expense}\\\text { Net income }\end{array}\begin{array}{lll}\$ 147,000 \\-84,000 \\&\$ 63,000\\\\-7,000 \\-14,600 \\-2,500 \\-10,000 \\\underline{-4,200} \\&\underline{-38,300}\\&24,700\\&\underline{-6,900}\\&\underline{\$ 17800}\\\end{array}\end{array}$

Krenzer,Inc.,a financial company,reported income tax expense of $2,648 million for 2010,comprising $2,346 million of current taxes and $302 million of deferred taxes.The balance sheet showed income taxes payable of $222 million at the beginning of 2010 and $427 million at the end of 2010.Compute the amount of income taxes paid in cash during 2010.

Krenshaw Company reported total sales revenue of $80,000,total expenses of $72,000,and net income of $8,000 for the year ended December 31,2009.During 2009,accounts receivable increased by $3,000,merchandise inventory decreased by $2,000,accounts payable increased by $1,000,and $5,000 in depreciation expense was recorded.Assuming no other adjustments to net income are needed,the net cash inflow from operating activities using the indirect method was: 

Lui Company's 2010 income statement reported total sales revenue of $350,000.The 2009-2010 comparative balance sheets showed that accounts receivable increased by $20,000.The 2010 "cash receipts from customers" would be: 

While preparing a statement of cash flows,you encountered the following transaction: February 1,2011: Galvinize Corporation acquired a small office building in exchange for 5,000 shares of its own common stock; par value $10 per share; market value $15 per share. A.Should this transaction be shown on the statement of cash flows? B.Why or why not? 

Interest expense and interest revenue would be classified as ____________________ activities in the statement of cash flows.

Normally,cash flows from investing activities will start providing cash during which phase of the product life cycle?

A cash inflow from financing activities includes: 

Luke Corporation is a manufacturer of home furnishings.Selected financial information about Luke is listed below: • Borrowed $850,000 from a bank. Purchased equipment for $210,000 in cash. • Purchase investments for $285,000. • Received dividends of $51,000 from an investment in Davis Corp. • Paid dividends of $55,000. • Issued shares of preferred stock for $500,000. Repurchased outstanding common shares using $100,000 in cash. • Purchased land for $100,000 cash. • Paid $36,000 interest expense on a bank loan. • Increased Inventories by $320,000 • Increased accounts receivable by $217,000. • Increased accounts payable $85,000. Use the above information to calculate Luke's: a.cash used or provided by investing activities b.cash used or provided by financing activities

Which of the following statements is true?

Which of the following would not be a cash flow from investing activities?