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Exam 12: Accounting for Cash Flows

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Question 41

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The indirect method for the preparation of the operating activities section of the statement of cash flows:

A) Separately lists each major item of operating cash receipts.
B) Separately lists each major item of operating cash payments.
C) Reports net income and then adjusts it for items necessary to determine net cash provided or used by operating activities.
D) Is required if the company is a merchandiser.
E) Must not be used in all circumstances.

F) A) and E)
G) C) and E)

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Question 42

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Use the following information and the indirect method to calculate the net cash provided or used by operating activities: $\begin{array} { | l | r | } \hline \text { Cash paid for purchase of plart assets } & \$ 15,000 \\\hline \text { Decrease in interest payable } & 2,000 \\\hline \text { Depreciation expense } & 30,000 \\\hline \text { Gain caretirement of bonds } & 32,000 \\\hline \text { Increase in accounts } & 40,000\\\hline \text { Loss on sale of plart assets } & 5,000 \\\hline \text { Net Incorne } & 76,000 \\\hline\end{array}$

A) $22,000
B) $117,000
C) $69,000
D) $37,000
E) $91,000

F) B) and E)
G) A) and D)

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Question 43

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For each of the following independent cases, use the information provided to calculate the missing cash inflow or cash outflow: (a.) $\begin{array} { | l | r | } \hline \text { Interest payable, begnning-year } & \$ 4,200 \\\hline \text { Interest expense } & { 2 6 , 7 0 0 } \\\hline \text { Interest payable, year-end } & { 3 , 0 0 0 } \\\hline \text { Cash paid for interest } & \$--- \\\hline\end{array}$ (b.) $\begin{array} { | l | r | } \hline \text { Prepaid insurance, begnning of year } & \$ 7,000 \\\hline \text { Insurrance expense } & 16,800 \\\hline \text { Prepaid insurance, year-end } & 3,400 \\\hline \text { Cash paid for insurance } & \$--- \\\hline\end{array}$ (c.) $\begin{array} { | l | r | } \hline \text { Interest receivable, begnning of year } & \${ 8 0 0 } \\\hline \text { Interest revenue } & 12,600 \\\hline \text { Interest receivable, year-end } & 1,200 \\\hline \text { Cash received for interest } & \$--- \\\hline\end{array}$ (d.) $\begin{array} { | l | r | } \hline \text { Accounts payable, begnning of year } & \$ 60,000 \\\hline \text { Cost of goods sold } & 244,000 \\\hline \text { Mercharndise inventory, begnning of year } & 35,000 \\\hline \text { Merchardise inventory, year-end } & 40,500 \\\hline \text { Accounts payable, year-end } & 64,800 \\\hline \text { Cash paid for merchardise } & \$---\\\hline\end{array}$

What are the five usual steps involved in the preparation of the statement of cash flows?

For each of the following items, indicate whether it would be classified as either an operating activity, an investing activity, a financing activity, or a significant noncash financing and investing activity.

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

Noncash financing activities are disclosed in a note in the financing section of the statement of cash flows.

Accounting standards require that the statement of cash flows be included in a complete set of financial statements.

A company's cash flow on total assets ratio equals 16%. If average total assets equal $2,937,500 and total cash flows equal $600,000, what is the amount of cash flows from operations?

Use the following information and the indirect method to calculate the net cash provided or used by operating activities: $\begin{array} { | l | r | } \hline \text { Net incorne } & \$ 12,300 \\\hline \text { Depreciation expense } & 12,000 \\\hline \text { Payment on mortgage payable } & 15,000 \\\hline \text { Gain on sale of land } & 7,500 \\\hline \text { Increase in merchardise inventory } & 2,050 \\\hline \text { Increase in accourts payable } & { 6 , 1 5 0 } \\\hline \text { Proceeds from sale of land } & { 8 , 0 0 0 } \\\hline\end{array}$

Based on the following income statement and balance sheet for Rashid Corporation, determine the cash flows from operating activities using the indirect method. RASHID CORPORATION Incorne Staternent For Year Ended December 31, 2013 $\begin{array}{|l|r|r|}\hline \text { Sales } & & \$ 504,000 \\\hline \text { Cost of goods sold } & \$ 327,600 & \\\hline \text { Depreciation expense } & 42,000 & \\\hline \text { Other operating expenses } & 125,500 & (495,100) \\\hline \text { Other gains (losses): } & & \\\hline \quad \text { Gain on sale of equipment } & & \underline{7,200} \\\hline \text { Income before taxes } & & \$ 16,100 \\\hline \text { Income tax expense } & & \underline{(4,800)} \\\hline \text { Net income } & & \underline{\$ 11,300}\\\hline\end{array}$

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

A company reported that its bonds with a par value of $50,000 and a carrying value of $57,000 are retired for $60,000 cash, resulting in a loss of $3,000. The amount to be reported under cash flows from financing activities is:

Financing activities include receiving cash dividends from investments in other companies' stocks.

When preparing the operating section of the statement of cash flows using the indirect method, noncash operating expenses are added back to net income.

If a company borrows money from a bank, the interest paid on this loan should be reported on the statement of cash flows as a(n) :

The FASB requires a reconciliation of net income to net cash provided or used by operating activities when the ______________ method is used.

Use the following information to calculate cash received from dividends: $\begin{array} {| l | r |} \hline \text { Dividends reveruse } & \$ 29,800 \\\hline \text { Dividends receivable, Jaruary 1 } & 2,600 \\\hline \text { Dividends receivable, Decermber } 31 & 3,400 \\\hline\end{array}$

Use the following company information to calculate its net cash provided or used by investing activities: (a) Equipment with a book value of $125,000 and an original cost of $220,000 was sold at a gain of $22,000. (b) Paid $49,000 cash for a new truck. (c) Sold land costing $30,000 for $26,000 cash, realizing a $4,000 loss. (d) Purchased treasury stock for $53,000 cash. (e) Long-term investments in stock are sold for $41,000 cash, realizing a gain of $3,500.

Cash flows from selling trading securities are reported in the statement of cash flows as part of: