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Exam 16: Reporting the Statement of Cash Flows

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Question 111

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

A) Reports adjustments to reconcile net income to net cash provided or used by operating activities in the statement.
B) Is required by the FASB.
C) Reports a different amount of cash flows from operations than if the indirect method is used.
D) Separately lists each major item of operating cash receipts and cash payments.
E) Is required if the company is a merchandiser.

F) B) and C)
G) B) and D)

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Question 112

Multiple Choice

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

A) Operating activities.
B) Financing activities.
C) This is not reported in the statement of cash flows.
D) Noncash activities.
E) Investing activities.

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

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Question 113

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

Financing 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.

The cash flow on total assets ratio is computed by dividing ________ by ________.

Common uses of the statement of cash flows include all but which of the following?

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

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.

Cash flow amounts and their timing should be considered when planning and analyzing operating activities.

Preparation of the statement of cash flows does not involve:

A cash-based measure to help business decision makers estimate the amount and timing of cash flows is the cash flow on total assets ratio.

Noncash financing and investing activities are disclosed in a ________ or in a separate ________.

The purchase of stock in another company is classified as a financing activity.

Match each of the following items with the appropriate definitions. (A) Financing activities (B) Investing activities (C) Statement of cash flows (D) Indirect method (E) Direct method (F) Operating activities ________ (1) A method of computing and reporting that involves adjusting the net income amount by adding and subtracting items that are necessary to yield net cash provided (used) by operating activities. ________ (2) A financial statement that reports the cash inflows and cash outflows for an accounting period, and classifies those cash flows as operating, investing, or financing activities. ________ (3) A method of computing and reporting the net cash provided (used) by operating activities that lists the major items of operating cash receipts, and then subtracts the major items of operating cash payments. ________ (4) Transactions that include making and collecting notes receivable or purchasing and selling plant assets, or investments in other than cash equivalents and trading securities. ________ (5) Transactions with a company's owners and creditors that include obtaining cash from issuing debt and repaying the amounts borrowed, and obtaining cash from or distributing cash to owners. ________ (6) Activities that involve the production or purchase of merchandise and the sale of goods or services to customers, including expenditures related to administering the business.

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.

In preparing a company's statement of cash flows for the most recent year using the indirect method, the following information is available: 1. $\begin{array}{ll}\text { Net income for the year was } & \$ 52,000 \\\hline \text { Accounts payable decreased by } & \$ 18,000 \\\hline \text { Accounts receivable increased by } & \$ 25,000 \\\hline \text { Inventories increased by } & \$ 5,000 \\\hline \text { Cash dividends paid were } & \$ 14,000 \\\hline \text { Depreciation expense was } & \$ 20,000\end{array}$ Net cash provided by operating activites was: A) $\$ 120,000$ . B) $\$ 70,000$ . C) $\$ 110,000$ D) $\$ 24,000$ . E) $\$ 71,000$

A machine with a cost of $130,000, current year depreciation expense of $17,000 and accumulated depreciation of $85,000 is sold for $40,000 cash. The total amount that should be reported in the operating section of the statement of cash flow as per indirect method is:

Fernwood Company is preparing the company's statement of cash flows for the fiscal year just ended. The following information is available: Retained earnings balance at the beginning of the year $233,000 Cash dividends declared for the year 50,000 Proceeds from the sale of equipment 85,000 Gain on the sale of equipment 4,500 Cash dividends payable at the beginning of the year 22,000 Cash dividends payable at the end of the year 30,000 Net income for the year 110,000

The cash flow on total assets ratio reflects actual cash flows and is therefore affected by income recognition and measurement.

When preparing a statement of cash flows using the indirect method, each of the following should be classified as an operating cash flow except: