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Exam 12: Reporting Cash Flows

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Question 21

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A machine with a cost of $130,000, accumulated depreciation of $85,000, and current year depreciation expense of $17,000 is sold for $40,000 cash. The amount that should be reported as a source of cash under cash flows from investing activities is:

A) $45,000.
B) $5,000.
C) $17,000.
D) $28,000.
E) $40,000.

F) B) and D)
G) B) and C)

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Question 22

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The direct method for computing and reporting net cash flows from operating activities involves adjusting the net income figure to obtain net cash provided or used by operating activities.

A) True
B) False

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Question 23

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A purchase of land in exchange for a long-term note payable is reported in the investing section of the statement of cash flows.

When preparing a statement of cash flows using the indirect method, which of the following is correct?

Receipts of cash dividends and interest earned on loans are classified as investing activities.

The appropriate section in the statement of cash flows for reporting the receipt of cash dividends from investments in securities is:

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

When preparing the operating activities section of the statement of cash flows using the indirect method, expenses with no cash outflows are added back to net income.

In preparing a company's statement of cash flows for the most recent year, Ransom Corp. reported the following information: $\begin{array}{llcc} \text { Repayriert of outstardirg bords} &\$107,000 \\ \text {Purchase of treasury stock } &62,000\\ \text { Issuarnce of contruon stock }& 46,000&\\ \text {Payment of cash dividends } &15\\\end{array}$ Net cash flows from financing activities for the year were:

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.

Equipment costing $100,000 with accumulated depreciation of $40,000 is sold at a loss of $10,000. This implies that $40,000 cash was received from the sale.

A cash equivalent must be readily convertible to a known amount of cash, and must be sufficiently close to its maturity so its market value is unaffected by interest rate changes.

Use the following information to calculate cash paid for salaries: $\begin{array} { | l | r | } \hline \text { Salaries expense } & \$ 175,000 \\\hline \text { Salaries payable, January 1 } & 20,000 \\\hline \text { Salaries payable, December } 31 & 12,000 \\\hline\end{array}$

In preparing a company's statement of cash flows for the most recent year, the following information is available: $\begin{array} { | l | r | } \hline \text { Loss on the sale of equipment } & \$ 14,00 0\\\hline \text { Purchase of equipment } & 225,000 \\\hline \text { Proceeds from the sale of equipment } & 106,00 \\\hline \text { Repayment of outstanding bonds } & 87,000 \\\hline \text { Purchase of treasury stock } & 25,000 \\\hline \text { Issuance of common stock } & 96,000 \\\hline \text { Purchase of land } & 115,00 \\\hline \text { Decrease in accounts receivable during the year } & 33,000 \\\hline \text { Payment of cash dividends } & 75,000 \\\hline\end{array}$ Net cash flows from investing activities for the year were:

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

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:

Cash paid for merchandise is an operating activity.

Tate Company's 20X2 income statement and changes in selected balance sheet accounts are given below. Calculate the company's net cash provided or used by operating activities using the direct method. \begin{array}{c} \text {Tate Company}\\ \text {Income Statement}\\ \text {For Year Ended December 31, 20 \mathrm{X} 2 }\\\begin{array}{|ll|c|c|} \hline \text {Sales } & \text { } & \text { }&\$248,000\\\hline \text {Cost of goods sold } & \text { } & \text { }&\underline{116,000}\\\hline \text { Gross profit } & \text { } & \text { }&\$132,000\\ \hline\text { Operating expenses:} & \text { } & \text { }\\\hline \text { Wages and salaries expense } & \text { } & \$44,000\\\hline \text {Rent expense } & \text { } & 16,000\\ \hline \text { Depreciation expense } & \text { } & 30,000\\\hline \text { Amortization expense } & \text { } & 12,000\\\hline \text { Other expenses } & \text { } &\underline{18,000 }&\underline{120,000}\\ \hline\text {Income from operations } & \text { } & \text { }&\$12,000\\\hline \text { Gain on sale of equipment} & \text { } & \text { }&\underline{26,000}\\\hline \text { Income before taxes} & \text { } & \text { }&\$38,000\\\hline &&&\underline{\quad\quad}\\ \text {Income tax expense } & \text { } & \text { }&\underline{13,300}\\\hline \text { Net Income } & \text { } & \text { }&\underline{\$24,700}\\\hline \text { } & \text { } & \text { }\\\hline \end{array}\end{array} The company also experienced the following during 20X2: $\begin{array} { | l | l | } \hline \text { Increase in accounts receivable } & \$ 4,000 \\\hline \text { Increase in accounts payable (all accounts } & \\\hline \text { payable transactions are for inventory) } & 16,000 \\\hline \text { Increase in income taxes payable } & 300 \\\hline \text { Decrease in prepaid expenses } & 10,000 \\\hline \text { Decrease in merchandise inventory } & 14,000 \\\hline \text { Decrease in long-term notes payable } & 0,000 \\\hline\end{array}$

In preparing a company's statement of cash flows for the most recent year using the indirect method, the following information is available: $\begin{array} { | l | r | } \hline \text { Net income for the year was } & \$ 52,000 \\\hline \text { Accounts payable increased by } & 18,000 \\\hline \text { Accounts receivable decreased by } & 25,000 \\\hline \text { Inventories decreased by } & 5,000 \\\hline \text { Cash dividends paid were } & 14,000 \\\hline \text { Depreciation expense was } & 20,000 \\\hline\end{array}$ Net cash provided by operating activities was:

The appropriate section in the statement of cash flows for reporting the issuance of common stock for cash is: