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Exam 12: Reporting Cash Flows

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Question 51

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

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Question 52

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

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B) False

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Question 53

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Accounting standards:

Mercury Company reports depreciation expense of $40,000 for Year 2. Also, equipment costing $150,000 was sold for its book value in Year 2. There were no other equipment purchases or sales during the year. The following selected information is available for Mercury Company from its comparative balance sheet. Compute the cash received from the sale of the equipment. $\begin{array} { | l | c | c | } \hline \text { At December 31 } & \text { Year 2 } & \text { Year 1 } \\\hline \text { Equipment } & \$ 600,000 & \$ 750,000 \\\hline \text { Accumulated Depreciation-Equipment } & 428,000 & 500,000 \\\hline\end{array}$

Business activities that generate or use cash are classified as operating, investing, or financing activities on the statement of cash flows.

When using a spreadsheet to prepare the statement of cash flows, a decrease in accounts payable is entered in the Analysis of Changes columns with a debit in the statement of cash flows section and a credit in the balance sheet section.

The direct method separately lists each major item of operating cash receipts and cash payments.

Conversion of preferred stock to common stock is disclosed in the financing section of the statement of cash flows.

Cash flow amounts and their timing should be considered when planning and analyzing operating activities.

When preparing the operating activities section of the statement of cash flows using the indirect method, depreciation is added to net income.

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.

When preparing the operating activities section of the statement of cash flows using the indirect method, decreases in current operating liabilities are subtracted from net income.

Addams Corporation paid cash dividends totaling $75,000 during its most recent fiscal year. How should this information be reported on Addams's statement of cash flows?

The reporting of financing activities in the statement of cash flows is identical under either the direct or indirect methods.

Which of the following is included in the cash flows from financing activities section of the statement of cash flows?

The first line item in the operating activities section of a spreadsheet for a statement of cash flows prepared using the indirect method is:

When preparing the operating activities section of the statement of cash flows using the indirect method, non-operating losses are added to net income.

To be classified as a cash equivalent, the only criterion an item must meet is that it must be readily convertible to a known amount of cash.

A company had net cash flows from operations of $341,000, net income of $286,000 and average total assets of $1,850,000. The cash flow on total assets ratio equals:

A decrease in the inventory account during the year should be reported on the indirect method statement of cash flows as: