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Exam 12: Reporting Cash Flows

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Question 81

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A main purpose of the statement of cash flows is to report all the major cash ________ and cash ________.

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receipts (...

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Question 82

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The appropriate section in the statement of cash flows for reporting the cash payment of wages is:

A) Operating activities.
B) Financing activities.
C) Investing activities.
D) Schedule of noncash investing or financing activity.
E) This is not reported on the statement of cash flows.

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

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Question 83

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In preparing a company's statement of cash flows for the most recent year using the indirect method, the following information is available: 1. $\begin{array} { | l | r | } \hline \text { Net income for the year was } & \$ 52,000 \\\hline \text { Accounts payable decreased by } & \$ 18,000 \\\hline \text { Accounts receivable increased by } & \$ 25,000 \\\hline \text { Inventories increased by } & \$ 5,000 \\\hline \text { Cash dividends paid were } & \$ 14,000 \\\hline \text { Depreciation expensewas } & \$ 20,000\\\hline\end{array}$ Net cash provided by operating activities was:

The cash flow on total assets ratio compared to the total assets ratio can be used as an indicator of earnings quality.

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:

Explain the value of separating cash flows into operating activities, investing activities, and financing activities to financial statement users in analyzing cash flows and the company's financial performance and condition.

The purchase of stock in another company is classified as an investing activity.

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

Define the cash flow on total assets ratio and explain how it is used to evaluate cash flows and to assess company performance.

A company's income statement showed the following: net income, $124,000 and depreciation expense, $30,000. An examination of the company's current assets and current liabilities showed the following changes as a result of operating activities: accounts receivable decreased $9,400; merchandise inventory increased $18,000; and accounts payable increased $3,400. Calculate the net cash provided or used by operating activities.

Stormer Company reports the following amounts on its statement of cash flow: Net cash provided by operating activities was $28,000; net cash used in investing activities was $10,000 and net cash used in financing activities was $12,000. If the beginning cash balance is $5,000, what is the ending cash balance?

In preparing a company's statement of cash flows for the most recent year using the indirect method, the following information is available: $\begin{array} { | l | r | } \hline \text { Net income for the year was } & \$ 52,000 \\\hline \text { Accounts payable increased by } & 18,000 \\\hline \text { Accounts receivable decreased by } & 25,000 \\\hline \text { Inventories increased by } & 5,000 \\\hline \text { Depreciation expense was } & 30,000 \\\hline\end{array}$ Net cash provided by operating activities was:

Keita Co. reported net income of $213.4 million, net cash provided by operating activities of $151.3 million, total cash flows of $187.7 million, and average total assets of 2,314.8 million at the end of the year. Calculate the cash flow on total assets ratio for Keita.

Rowan, Inc.'s, income statement is shown below. Based on this income statement and the other information provided, calculate the net cash provided by operations using the indirect method. $\begin{array}{c}\text {Rowan, Inc.}\\\text {Income Statement}\\\text {For Year Ended December 31,20X1}\\\begin{array}{|l|}\hline\text {Sales}\\\hline\text {Cost of goods sold}\\\hline\text {Grossprofit}\\\hline\text {Operating expenses}\\\hline\text {Wages and salaries expense}\\\hline\text {Rent expense}\\\hline\text {Depreciation expense}\\\hline\text {Other operating expenses}\\\hline\text {Income from operations}\\\hline\text {Gain on sale of equipment}\\\hline\text {Income before income taxes}\\\hline\text {Income taxes expense}\\\hline\text {Net incone}\\\hline\end{array}\begin{array}{|r|}\hline\\\hline\\\hline\\\hline\\\hline \$ 44,000 \\\hline 16,000 \\\hline 30,000 \\\hline 18,000 \\\hline\\\hline\\\hline\\\hline\\\hline\\\hline \end{array}\begin{array}{r|}\hline\$248,000\\\hline116,000\\\hline\$132,000\\\hline\\\hline \\\hline \\\hline \\\hline 108,000 \\\hline\$24,000\\\hline26,000\\\hline\$50,000\\\hline\17,500\\\hline\$32,500\\\hline\end{array}\end{array}$ Additional information: $\begin{array} { | l | r | } \hline \text { Increase in accounts receivable } & \$ \quad 4,000 \\\hline \text { Increase in accounts payable } & 16,000 \\\hline \text { Increase in income taxes payable } & 300 \\\hline \text { Decrease in prepaid expenses } & 10,00 \\\hline \text { Decrease in merchandise inventory } & 14,00 \\\hline \text { Decrease in long-term notes payable } & 20,000 \\\hline\end{array}$

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

Cash flows from interest received on loans are reported in the statement of cash flows as part of:

Use the following financial statements and additional information to (1) prepare a statement of cash flows for the year ended December 31, 20X2 using the indirect method, and (2) compute the company's cash flow on total assets ratio for 20X2. $\begin{array}{c} \text {Derby Company}\\ \text { Balance Sheets}\\ \text {At December 31}\\\begin{array}{|l|l|l|}\hline & 20 \mathrm{X} 2 & \text { 20X1 } \\\hline \text { Assets: } & & \\\hline&&\\\hline&\$&\$\\ \text { Cash } & \$ 85,600 & \$ 65,200 \\\hline \text { Accounts receivable, net } & 72,850 & 56,750 \\\hline \text { Merchandise inventory } & 157,750 & 144,850 \\\hline \text { Prepaid expenses } & 6,080 & 12,680 \\\hline \text { Equipment } & 280,600 & 145,600 \\\hline \text { Accumulated depreciation-Equipment } & \underline{(80,600)} & \underline{(97,600)} \\\hline \text { Total assets } & \underline{\$ 522,280} & \underline{\$ 427,480 }\\\hline\\\hline \text { Liabilities: } & & \\\hline&\$&\$\\ \text { Accounts payable } & 52,850&45,450 \\\hline \text { Income taxes payable } &15,240 &12,240 \\\hline&\underline{\quad\quad}&\underline{\quad\quad}\\ \text { Notes payable (long term) } &\underline{59,200 }&\underline{ 79,200} \\\hline \text { Total liabilities } & \$127,290& \$136,890 \\\hline \text { Equity: } & \\\hline \text { Common stock } & 200,000&150,000 \\\hline \text { Paid-in capital in excess of par } &53,000 &40,000 \\\hline \text { Retained earnings } &\underline{ \$ 141,980 }& \underline{100,590}\\\hline \text { Total equity } &\underline{ \$ 394,990 }& \underline{\$290,590 }\\\hline \text { Total liabilities and equity } &\underline{\$522,280}& \underline{\$427,480} \\\hline\end{array}\end{array}$ $\begin{array}{c}\text { Derby Company}\\\text { Income Statement}\\\text { For Year Ended December 31, 20X2}\\\begin{array}{|l|l|l|}\hline \text { Costes } & &\$488,000\\\hline \text { Depreciation expense } & 43,000 \\\hline \text { Other operating expenses } & 106,260 \\\hline&\underline{\quad\quad}\\ \text { Interest expense } &\underline{6,400}&(368,200)\\\hline \text { Other gains (losses): } & \\\hline&&\underline{\quad\quad}\\ \text { Gain on sale of equipment } &&\underline{4,700} \\\hline\text { Income before taxes } &&124,500 \\\hline&&\$\underline{\quad\quad}\\ \text { income taxes expense } &&\underline{41,100} \\\hline&&\$\underline{\quad\quad}\\ \text { Net income}&&\underline{83,400}\\\hline\\\hline\end{array}\end{array}$ Additional Information a. A $20,000 note payable is retired at its carrying value in exchange for cash. b. The only changes affecting retained earnings are net income and cash dividends paid. c. New equipment is acquired for $120,000 cash. d. Received cash for the sale of equipment that had cost $85,000, yielding a gain of $4,700. e. Prepaid expenses relate to Other Expenses on the income statement. f. All purchases and sales of merchandise inventory are on credit.

Internal users of the statement of cash flows often use cash flow information to plan day-to-day operating activities and make long-term investment and financing decisions.

Based on the information provided below for Krackle Corp., complete the following worksheet to be used to prepare the statement of cash flows using the indirect method. (a) Net income for the year was $30,000. (b) Dividends of $10,000 were declared and paid. (c) Krackle's only noncash expense was depreciation which totaled $50,000. (d) The company purchased plant assets for $70,000. (e) Notes payable in the amount of $40,000 were issued during the year for cash.

The accountant for Huckleberry Company is preparing the company's statement of cash flows for the fiscal year just ended. The following information is available: $\begin{array} { | l | r | } \hline \text { Retained earnings balance at the beginning of the year } & \$ 151,000 \\\hline \text { Cash dividends declared for the year } & 46,000 \\\hline \text { Net income for the year } & 92,000 \\\hline\end{array}$ What is the ending balance for retained earnings?