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Exam 16: Reporting the Statement of Cash Flows

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Question 21

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The indirect method for the preparation of the operating activities section of the statement of cash flows:

A) Separately lists each major item of operating cash payments.
B) Is required if the company is a merchandiser.
C) Must not be used in all circumstances.
D) Separately lists each major item of operating cash receipts.
E) Reports net income and then adjusts it for items necessary to determine net cash provided or used by operating activities.

F) A) and B)
G) All of the above

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Question 22

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When using the indirect method to calculate and report the net cash provided or used by operating activities, net income is adjusted for all but which of the following?

A) Depreciation and amortization expense.
B) Changes in current liabilities related to operating activities.
C) Gains and losses from nonoperating items.
D) Revenues and expenses that did not provide or use cash.
E) Changes in noncurrent assets and noncurrent liabilities.

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

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Question 23

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Alvez reports net income of $305,000 for the year ended December 31. It also reports $93,700 depreciation expense and a $10,000 loss on the sale of equipment. Its comparative balance sheet reveals a $40,200 increase in accounts receivable, a $10,200 decrease in prepaid expenses, a $15,200 increase in accounts payable, a $12,500 decrease in wages payable, a $75,000 increase in equipment, and a $100,000 decrease in notes payable. Calculate the net increase in cash for the year.

Explain the purpose and format of the statement of cash flows. Also describe its relevance to decision makers.

Define and discuss the differences between operating, investing, and financing activities.

The full disclosure principle requires that noncash investing and financing activities be disclosed in the financial statements.

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

The appropriate section in the statement of cash flows for reporting the purchase of land in exchange for common stock is:

Information to prepare the statement of cash flows usually comes from three sources: (1) ________, (2) ________, and (3) ________.

When using the indirect method to calculate and report net cash provided or used by operating activities, which of the following is subtracted from net income?

The statement of cash flows reports and proves the net change in cash for a reporting period.

The direct method of reporting operating cash flows:

Cash paid for merchandise is an operating activity.

Use the following information to calculate the net cash provided or used by financing activities for the Streams Corporation: (a) Net income, $10,000 (b) Sold common stock for $40,000 cash (c) Paid cash dividend of $13,000 (d) Paid bond payable, $28,000 (e) Purchased equipment for $12,000 cash

The statement of cash flows is:

Jeffreys Company reports depreciation expense of $40,000 for Year 2. Also, equipment costing $240,000 was sold for a $10,000 loss in Year 2. The following selected information is available for Jeffreys Company from its comparative balance sheet. Compute the cash received from the sale of the equipment. $\begin{array} { | l | l | l | } \hline \text { At December 31 } & { \text { Year 2 } } & \text { Year 1 } \\\hline \text { Equipment } & \$ 510,000 & \$ 750,000 \\\hline \text { Accumulated Depreciation-Equipment } & 328,000 & 500,000 \\\hline\end{array}$

Babson reported assets of $13,362 million at January 1 and $13,369 million as of December 31 of the current year. Babson's net cash flows from operations were $2,204 million. Calculate the cash flow on total assets ratio for Babson.

Information to prepare the statement of cash flows usually comes from (a) comparative balance sheets, (b) current income statement, and (c) additional information.

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

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. Derby Company Income Statement For Year Ended December 31, 20X2 $\begin{array} { | l | l | l } \hline \text { Sales } & & \$ 488,000 \\\hline \text { Cost of goods sold } & \$ 212,540 & \\\hline \text { Depreciation expense } & 43,000 & \\\hline \text { Other operating expenses } & 106,260 & \\\hline \text { Interest expense } & 6,400 & (3 6 8 , 2 0 0 \\\hline \text { Other gains (losses): } & & \\\hline \text { Gain on sale of equipment } & & 4,700 \\\hline \text { Income before taxes } & & 124,500 \\\hline \text { Income taxes expense } & & 41,100 \\\hline \text { Net income } & & \$ \\& & 8 3 , 4 0 0 \\\hline & &\end{array}$ 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.