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Exam 13: Statement of Cash Flows

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Question 1

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Which of the following would be deducted from net income when determining cash flows from operating activities under the indirect method?

A) A decrease in utilities payable.
B) Patent amortization expense.
C) A decrease in prepaid rent.
D) A loss on the sale of a depreciable asset.

E) None of the above
F) A) and B)

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Question 2

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Which of the following statements about the quality of income ratio is incorrect?

A) An increase in operating assets and a decrease in liabilities will reduce operating cash flows, thereby reducing the ratio.
B) Seasonal variations in sales and purchases of inventory can cause wide deviations in the quality of income ratio.
C) When sales are growing, receivables and inventory normally increase at a faster rate than accounts payable often causing operating cash flows to be less than income.
D) Aggressive revenue recognition tends to increase the ratio.

E) None of the above
F) A) and B)

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Question 3

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Hill Company reported net income of $10,000 for 2010.Additional 2010 information is as follows: $\begin{array} { l r } \text { Expenditures for productive assets } & \$ 6,000 \\\text { Depreciation expense on productive assets } & 2,000 \\\text { Dividends paid on common stock } & 900 \\\text { Increase in accounts payable } & 400 \\\text { Decrease in inventory } & 200 \\\text { Amortization of patent } & 100 \\\text { Decrease in accounts receivable } & 300\end{array}$ Calculate cash flows from operating activities.

Flow Company has provided the following information for the year ended December 31,2010: Cash paid for interest,$20,000; Cash paid for dividends,$6,000; Cash dividends received,$4,000; Cash proceeds from bank loan,$29,000; Cash purchase of treasury stock,$11,000; Cash paid for equipment purchase,$27,000; Cash received from common stock sale,$37,000; Cash received from sale of land with a $32,000 book value,$25,000; Acquisition of land costing $51,000 in exchange for preferred stock issuance. Paid a $100,000 note payable by exchanging used machinery with a $77,000 book value. How much was Flow's net cash flow from investing activities?

Kennel Co.reported short-term borrowings of $2,500,000,long-term borrowings of $6,800,000,repayments of long-term borrowings of $3,500,000,interest payments of $780,000,repurchase of treasury shares of $500,000,cash dividends declared of $1,100,000,and cash dividend payments of $800,000.Kennel also issued their common stock in exchange for a building costing $400,000.How much is the net cash flow from financing activities?

During 2010,Eva's Enterprises cash paid for property,plant and equipment was $755 million and cash flow from operations was $5,968 million.The average property,plant and equipment from the comparative balance sheets were $6,094 million.Compute Eva's Enterprises capital acquisitions ratio for 2010.

Which of the following transactions increases the quality of income ratio?

Marissa Company is preparing a statement of cash flows using the indirect method.The following data are available: $\begin{array} { l r } \text { Net income } & \$ 30,000 \\\text { Depreciation expense } & 18,000 \\\text { Inventory increase } & 5,000 \\\text { Wages payable decrease } & 10,000 \\\text { Accounts receivable decrease } & 10,000 \\\text { Accounts payable decrease } & 7,000\end{array}$ Calculate cash flows from operating activities.

During 2010,Boogle reported net income of $785 million and net cash inflow from operations of $1,196 million.During 2009,their net income was $563 million and net cash inflow from operations was $1,237 million.Which of the following is incorrect about their quality of income ratios?

The capital acquisitions ratio represents the portion of property,plant,and equipment purchases which could have been financed with cash flow from operations.

Which of the following would be deducted from net income when determining cash flows from operating activities under the indirect method?

The quality of income ratio can only be interpreted based on knowledge of a company's business operations and strategies.

Under the indirect method,a decrease in inventory is deducted from net income,because inventory purchases are less than cost of goods sold.

Blythe Company paid $2.2 million to purchase stock in another company,$1.0 million to repurchase treasury shares,$.5 million to buy short-term investments,sold used equipment for $.8 million when its book value was $.6 million,and purchased new equipment for $3.4 million.How much will be reported as net cash flow from investing activities?

The following information has been provided to you by RKJ Company: $\begin{array} { l c } \text { Net income } & \$ 300,000 \\\text { Decrease in accounts payable } & \$ 114,000 \\\text { Increase in inventory } & \$ 22,000 \\\text { Increase in accounts receivable } & \$ 24,000 \\\text { Decrease in bonds payable } & \$ 25,000 \\\text { Loss on sale of a depreciable asset } & \$ 19,000 \\\text { Depreciation expense } & \$ 40,000 \\\text { Decrease in income taxes payable } & \$ 12,000\end{array}$ What is the net cash flow from operating activities?

Collection of principal on a note receivable is a cash flow from financing activities.

Under the indirect method,an increase in prepaid expenses is deducted from net income,because the cash prepayments exceed the related expenses.

Rice Company,a retailer,has provided the following information pertaining to its recent year of operation: Net income,$100,000; Accounts receivable increased $9,000; Prepaid insurance decreased $3,000; Depreciation expense was $15,000; Gain on sale of land,$2,000; Wages payable decreased $7,000; Unearned revenue increased $11,000. How much was Rice's net cash inflow from operating activities?

Which of the following statements about the statement of cash flows is correct?

Allen Company's 2010 income statement reported total revenues,$850,000 and total expenses (including $40,000 depreciation) of $720,000.The 2009 balance sheet reported the following: Accounts receivable-beginning balance,$50,000 and ending balance,$40,000; accounts payable-beginning balance,$22,000 and ending balance,$28,000.Therefore,based only on this information,how much was the 2010 net cash inflow from operating activities?