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Exam 16: Reporting the Statement of Cash Flows

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Question 41

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Companies have the option of using either the direct or indirect method to prepare the operating section of the statement of cash flows.

A) True
B) False

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Question 42

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Most managers stress the importance of understanding and predicting cash flows for business decisions.

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B) False

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Question 43

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Bagwell's net income for the year ended December 31, Year 2 was $185,000. Information from Bagwell's comparative balance sheets is given below. Compute the cash received from the sale of its common stock during Year 2. $\begin{array} { | l | l | l | } \hline \text { At December 31 } & { \text { Year 2 } } & \text { Y ear 1 } \\\hline \text { Common Stock, \$5 par value } & \$ 500,000 & \$ 450,000 \\\hline \text { Paid-in capital in excess of par } & 948,000 & 853,000 \\\hline \text { Retained eargings } & 688,000 & 582,000 \\\hline\end{array}$

The following selected account balances are taken from a merchandising company's records: $\begin{array} { l | r | r | r } & \text { Dec. 31 } & \text { Dec. 31, } & \text { For the } \\\hline & { \text { 20X2 } } & { 20 \mathrm { X } 1 } & \text { Year 20X2 } \\\hline \text { Merchandise inventory } & \$ 15,600 & \$ 21,200 & \\\hline\text { Accounts receivable } & 42,000 & 36,000 & \\ \hline \text { Accounts payable } & 32,400 & 27,400 & \\\hline \text { Salaries payable } & 4,400 & 3,000 & \\\hline\\\hline \text { Total assets } & 234,000 & 286,000 & \\\hline \text { Sales } & & & \$ 312,000 \\\hline \text { Cost of goods sold } & & & 165,600 \\\hline \text { Salaries expense } & & & 48,000\end{array}$ (a) Calculate the cash payments made during 20X2 for merchandise. Assume all of the company's accounts payable balances result from merchandise purchases. (b) Calculate the cash receipts from customer sales during 20X2. (c) Calculate the cash payments for salaries during 20X2.

Typical cash flows from investing activities include each of the following except:

When preparing the operating activities section of the statement of cash flows using the indirect method, an increase in income taxes payable is added to net income.

Both the direct and indirect methods yield the identical net cash flow amount provided or used by operating activities.

When analyzing the changes on a spreadsheet used to prepare a statement of cash flows, the cash flows from investing activities generally affect:

A machine with a cost of $130,000 and accumulated depreciation of $85,000 is sold for $50,000 cash. The amount that should be reported as a source of cash under cash flows from investing activities is:

Use the information provided to calculate the cash paid for insurance for the period $\begin{array}{|l|c|}\hline \text { Prepaid insurance, beginning-year.......... } & 7,000 \\\hline \text { Insurance expense............. } & 16,800 \\\hline \text { Prepaid insurance, year-end. } & 3,400 \\\hline\text { Cash paid for insurance.. }\\\hline\end{array}$

When analyzing the changes on a spreadsheet used to prepare a statement of cash flows, the cash flows from financing activities generally affect:

Use the information provided to calculate the missing cash paid for merchandise for the period. $\begin{array} { l | | l } \text { Accounts payable, beginning-year } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 60,000 \\\hline \text { Cost af goods sold } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 244,000 \\\hline \text { Merchandise inventory, beginning-year } \ldots \ldots \ldots \ldots \ldots \ldots & 35,000 \\\hline \text { Merchandise inventory, year-end } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 40,500 \\\hline \text { Accounts payable, year-end } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 64,800 \\\hline \text { Cash paid for merchandist } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots &\end{array}$

The accounting principle that requires important noncash financing and investing activities be reported on the statement of cash flows or in a footnote is the:

Alvez Company reports net income of $305,000 for the year ended December 31. It also reports $93,700 depreciation expense and a $10,000 loss on the sale of equipment. Its comparative balance sheet reveals a $40,200 increase in accounts receivable, a $10,200 decrease in prepaid expenses, a $15,200 increase in accounts payable, a $12,500 decrease in wages payable, and a $100,000 decrease in notes payable. Calculate the cash provided (used) in operating activities using the indirect method.

On a spreadsheet used to prepare the operating activities section of the statement of cash flows, depreciation expense does not require an entry in the Analysis of Changes columns because it is a noncash item.

______________activities include those transactions that affect long-term liabilities and equity.

Faster Freight Co. reported net cash provided by operating activities of $142.7 million and average total assets of 1,762.5 million at the end of the year. Calculate the cash flow on total assets ratio for Faster Freight.

In preparing a company's statement of cash flows for the most recent year, Ransom Corp. reported the following information: $\begin{array}{llr} \text {Repayment of outstanding bonds } &\$107,000\\ \text {Purchase of treasury stock } &62,000\\ \text { Issuance of common stock } &46,000\\ \text { Payment of cash dividends } &15\end{array}$ Net cash flows from financing activities for the year were:

A company's Inventory balance at the end of the year was $188,000 and $200,000 at the beginning of the year. Its Accounts Payable balance at the end of the year was $84,000 and $80,000 at the beginning of the year, and its cost of goods sold for the year was $720,000. The company's total amount of cash payments for merchandise during the year equals:

Use the following company information to prepare a schedule of significant noncash investing and financing activities: (a) Sold a building with a book value of $300,000 for $225,000 cash and sold land with a book value of $40,000 for $65,000 cash. (b) Issued 15,000 shares of $10 par value common stock in exchange for equipment with a market value of $175,000. (c) Retired a $100,000, 8% bond by issuing another $100,000, 7% bond issue. (d) Acquired land by issuing a twenty-year, 5%, $73,000 note payable.