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Exam 12: Reporting Cash Flows

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Question 51

True/False

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

A) True
B) False

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Question 52

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The primary purpose of the statement of cash flows is to report all major cash receipts (inflows)and cash payments (outflows)during a period.

A) True
B) False

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Question 53

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If a company is using the indirect method to prepare the statement of cash flows,identify where an increase in the accounts receivable account should be reported:

The statement of cash flows cannot help address questions such as:

The cash flow on total assets ratio is computed by dividing average total assets by operating income.

Companies have the option of using either the direct or indirect method to prepare the operating section of the statement of cash flows.

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

When the operating activities section of the statement of cash flows is reported using the direct method,the FASB requires:

Marshland Company is preparing the company's statement of cash flows for the fiscal year just ended.The following information is available: $\begin{array}{llr} \text { Cash dividends declared for the year } &\$40,000\\ \text { Cash dividends payable at the beginning of the year } &17,000\\ \text { Cash dividends payable at the end of the year } &13,000\end{array}$ The amount of cash paid for dividends was:

Use the following company information to prepare a schedule of significant noncash investing and financing activities: (a)Sold a building with a book value of $300,000 for $225,000 cash and sold land with a book value of $40,000 for $65,000 cash. (b)Issued 15,000 shares of $10 par value common stock in exchange for equipment with a market value of $175,000. (c)Retired a $100,000,8% bond by issuing another $100,000,7% bond issue. (d)Acquired land by issuing a twenty-year,5%,$73,000 note payable.

The gain or loss from retirement of debt is reported under cash flows from operating activities on the statement of cash flows using the direct method.

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

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

Investing activities include: (a)the purchase and sale of long-term assets, (b)lending and collecting on notes receivable,and (c)the purchase and sale of short-term investments in the securities of other entities,other than cash equivalents and trading securities.

A purchase of land in exchange for a long-term note payable must be disclosed as a noncash investing and financing activity.

A spreadsheet can help organize the information needed to prepare a statement of cash flows.

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.

The following information is available for the Aarons Corporation: Additional information: (1)There was no gain or loss on the sales of the long-term investments,nor on the bonds retired. (2)Old equipment with an original cost of $37,550 was sold for $2,100 cash. (3)New equipment was purchased for $67,550 cash. (4)Cash dividends of $33,600 were paid. (5)Additional shares of stock were issued for cash. Prepare a complete statement of cash flows for calendar-year 20X2 using the indirect method.

Use the following company information to calculate net cash provided or used by investing activities: (a)Equipment with a book value of $175,000 and an original cost of $300,000 was sold at a loss of $17,000. (b)Paid $62,000 cash for a new truck. (c)Sold land costing $32,000 for $36,000 cash,realizing a $4,000 gain. (d)Purchased treasury stock for $61,000 cash. (e)Long-term investments in stock are sold for $41,000 cash,realizing a gain of $3,500.

Investing activities include (a)the purchase and sale of long-term assets, (b)the purchase and sale of short-term investments,and (c)lending and collecting on loans.