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Exam 12: Statement of Cash Flows

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Question 61

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In preparing the operating activities section of the statement of cash flows by the indirect method,decreases in current liabilities are added to net income.

A) True
B) False

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Question 62

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The Oglethorpe Corporation reported a beginning balance of $12,400 in its Prepaid Insurance account for 2016.During the year,Oglethorpe paid a total of $42,000 to purchase insurance,and the Prepaid Insurance account had an ending balance of $13,100.What was the amount of insurance expense that Oglethorpe reported for 2016?

A) $42,000
B) $42,300
C) $42,700
D) $41,300

E) A) and B)
F) A) and C)

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Question 63

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Jones Company requires prepayment from all customers.Jones Company reported revenue of $258,000 on its 2016 income statement.The balance in its Unearned Revenue account was $12,000 at the start of 2016 and $4,000 at the end of the year.Based on this information alone,the amount of cash that Jones collected from customers for 2016 was $250,000.

If a company sells equipment at a loss,the loss from selling the equipment is reported in the investing activities section of the statement of cash flows.

In preparing the operating activities section of the statement of cash flows by the indirect method,noncash revenues and gains are added to net income.

When the indirect method is used to prepare the operating activities section of the statement of cash flows,what is the starting point of that section?

On July 6,2016,Howard Corporation received an interest check on a note receivable.No principal was received at this time.Show the effects of this transaction on Howard's income statement and statement of cash flows.

For many companies,cash flow from operating activities exceeds income from operations,due to the effect of depreciation,which decreases income from operations but does not decrease cash.

When the direct method is used to prepare the operating activities section of the statement of cash flows,cash inflows from customers and cash outflows for depreciation are among the categories of cash flows likely to be reported.

The investing activities section of the statement of cash flows distinguishes between acquisitions of long-term assets that expand operating capacity and those that replace old,worn-out assets.

On the statement of cash flows,the sum of the three major components (operating activities,investing activities,financing activities) adds up to

Pittsburgh Company pays cash for all inventory purchases.The company had a beginning inventory of $18,500 and an ending inventory of $16,900.Their cost of goods sold amounted to $75,000.Based on this information,the amount of cash paid for inventory purchases was:

Cash flow from operating activities is often less stable from year to year than is the amount of net income reported on the income statement.

When using the indirect method to complete the cash flows from operating activities section of the statement of cash flows,what is the proper disposition of depreciation expense?

The direct method of preparing the operating activities section of the statement of cash flows shows increases and decreases in noncash current assets and current liabilities to arrive at cash flows from operating activities.

The Clarion Corporation provided the following partial list of accounts,balances and additional information for 2016: Net income for 2016 was reported as $100,000. Required: Prepare the financing activities section of the statement of cash flows.

Give an example of a noncash financing and investing activity.

How is depreciation expense classified on the statement of cash flows?

The Manhattan Corporation provided the following partial list of accounts,balances and activities for 2016: Manhattan's income statement reported an $8,000 gain on sale of land that occurred when land that had cost $16,000 was sold for $24,000.The company also recorded a $10,000 loss on the sale of marketable securities.No additional marketable securities were purchased during the year.The company also sold equipment originally costing $6,000 with accumulated depreciation of $4,000 for $3,600.Purchases of additional land and equipment were cash transactions. Required: Prepare the investing activities section of the statement of cash flows.

On January 1,2016,Mayer Corporation signed a contract to perform $25,000 worth of services for the Phibbs Company over the next three years.Which of the following indicates the effects of this event on the income statement and statement of cash flows of Mayer Corporation? D)