AC 210 Learn Smart Ch. 12

List the steps in preparing a Statement of Cash Flows in the correct order from top to bottom.

Determine the change in each balance sheet account. Identify the cash flow category/categories to which each account relates Create schedules that summarize the operating, investing, and financing cash flows

Which of the following describes the acceptable methods that may be used to prepare the statement of cash flows?

Direct Method Indirect method

Payment of Accounts Payable Payment of dividends to stockholders Purchase of a new delivery truck

Operating activities Financing activities Investing activities

The classifications used to categorize cash inflows and outflows on the statement of cash flows includes _____ activities, _____ activities, and _____ activities.

Operating, Investing, Financing

Depreciation Expense is _____ when preparing the indirect method of the statement of cash flows.

added back to net income because the expense does not involve the payment of cash

When preparing the statement of cash flow using the indirect method, Depreciation Expense is ____.

added back to net income under the operating activities section

Fraudulent financial reporting often involves aggressive revenue recognition and delayed expense recognition resulting in _____ net income relative to operating cash flow.

higher

A(n) _____ in accrued liabilities, such as interest payable, will be added to net income when determining net cash flow from operating activities.

increase

During the past year, Arnold Inc.'s comparative balance sheet reported an increase in overall stockholers' equity of $43,500, a decrease in total liabilities of $17,200, and an increase in assets other than cash of $12,000. Consequently, Arnold, Inc. reported a(n) _____ (increase/decrease) in cash of $______.

increase and $14,300

When using the indirect method, subtracting a decrease in Deferred Revenue from net income eliminates the effect of recording revenue _____.

that increased net income, but did not impact cash this period.

Purchase of stock in another company Payments to creditors resulting in a decrease to Accounts Payable Issuance of additional stock to stockholders

Investing activities + Operating activities + Financing activities +

What are some reason for adverse differences between net income and cash flows from operating activities that should cause concern?

Uncontrolled growth of accounts receivable Overstocking inventory

Place in order the development stages of a typical life cycle of a business starting with the first stage on top.

Introductory phase Growth phase Maturity phase Decline phase

What are some reasons for adverse differences between net income and cash flows from operating activities that should cause concern?

Uncontrolled growth of accounts receivable Overstocking inventory

When using the indirect method, adding a decrease in Prepaid insurance to net income eliminates the effect of recording Insurance Expense that _____.

decreased net income, but did not impact cash

Issuing stock to owners is classified as a(n) ____ activity.

financing

The Hill Company's statement of cash flows contained the following: net cash provided from operating activities of $42,500; net cash used by investing activities of $29,300; and net cash provided by financing activities of $15,000. Hill Company's cash increased by $_____ during the year.

28200

Which of the following variations of the accounting equation describes the preparation of the statement of cash flows? Change In Cash = _____.

Change In Liabilities + Change in Stockholders' equity - Change in Noncash Assets

Which of the following statements best describes the reason depreciation expense is added to net income when preparing the statement of cash flows?

Depreciation Expense originally reduced net income, but the expense does not involve paying cash.

Free cash flow is the amount of cash available to use to ____.

Expand the business through additional investing activities build up the company's cash balance repay existing financing

Which allows dividends and interest paid to be classified as operating or financing activities?

IFRS

Which of the following is not a possible cause of deviations in net income and cash flows from operating activities?

Issuance of bonds

Cash collected from customers Repayment of loan principal to lenders Sale of equipment no longer needed in the business

Operating activies + Financing activities + Investing activities +

Which of the following will result in a decrease to Net Cash from Investing Activities?

Purchase of equipment Purchase of intangible assets

Which of the following will result in a decrease to Net Cash from investing activities?

Purchase of equipment Purchase of intangible assets

Which of the following transactions would be classified as investing activities?

The purchase of equipment The purchase of investment for cash The sale of a building used in the business

A decrease in Accounts Payable will result in a(n) ____ to net cash flow from operating activities.

decrease

A purchase of an intangible asset results in a(n) _____ (increase/decrease) to net cash flow provided by ______ activities.

decrease and investing

If the direction of change in Accounts Receivable is a(n) ______ from the prior period, the amount of that change is added to net income in the _____ activities section of the statement of cash flows.

decrease and operating

If the direction of change in Accounts Receivable is a ______ from the prior period, the amount of that change is added to net income in the _____ activities section of the statement of cash flows

decrease, operating

In arriving at cash from operating activities using the indirect method, subtracting a decrease in Accounts Payable from net income adjusts net income for transactions that _____ net income.

decreased cash, but did not affect

When using the indirect method, adding a decrease in Prepaid Insurance to net income eliminates the effect of recording Insurance Expense that _____.

decreased net income, but did not impact cash

Issuing stock to owners is classified as a(n) _____ activity.

financing

The cash flow statement should be evaluated by examining the cash flow pattern ____.

of the subtotals for the three sections of the statement

A change in Accounts Receivable will be reported in the _____ activities section of the statement of cash flows prepared using the indirect method.

operating

It is most important that a company's statement of cash flows reports a positive cash flows from _____ activities.

operating

The ____ activities section of the statement of cash flows indicates how well a company is able to generate cash through its normal business activities and management of working capital.

operating

The _____ activities section of the statement of cash flows indicates how well a company is able to generate cash through its normal business activities and management of working capital.

operating

U.S. GAAP classifies the payment of interest as a(n) ____ activity on the statement of cash flows.

operating

An increase in Accounts Payable on the statement of cash flows prepared using the indirect method is found in the _____ section as a(n) ____ to net income.

operating activity; increase

The net change in cash on the statement of cash flows equals ____.

operating plus investing plus financing activities.

The ____ activities section very important, since _____ are the only continuing, internal source of cash for the business.

operating; operations

Credits to the Common Stock account recorded during the period will be reported as cash _____________ activities on the statement of cash flows.

inflows under financing

A decrease in Inventory indicates that ____ inventory has been sold than purchased and thus the decrease will be ____ net income on the statement of cash flows prepared using the indirect method.

more; added to

A decrease in Prepaid Expenses indicates that ____ was expensed than paid. Thus the decrease will be ____ net income on the statement of cash flows prepared using the indirect method.

more; added to

An increase in Accounts Payable indicates that ___ was purchased than paid. Thus the increase will be ____ net income on the statement of cash flows prepared using the indirect method.

more; added to

An increased in Accrued Liabilities indicates that ___ was expensed than paid. Thus the increase will be ___ net income on the statement of cash flows prepared using the indirect method.

more; added to

The introductory phase of a company's life cycle will most likely have a _____.

negative cash flow from investing activities positive cash flow from financing activities negative cash flow from operating activities

Why is the accrual-based income statement superior to a cash-based income statements in measuring profitability?

It reports the expenses incurred in generating the revenues regardless of when the cash was paid. It better reflects the operating activities of the business It reports the revenues generated regardless of when the cash was collected

The starting point for preparing the operating activities section using the indirect method is _____.

net income

Cashew, Inc. generated a positive cash flow from operating activities of $15,000 and a negative cash flow from investing activities of $6,000 and a negative cash flow financing activities of $2,000. What was the change in cash and cash equivalents on its statement of cash flows?

$7,000 increase

Current assets Stockholders' equity Noncurrent assets

Operating activities Financing activities Investing activities

Current liabilities Noncurrent liabilities Noncurrent assets

Operating activities Financing activities Investing activities

Short-term, highly-liquid investments that are purchased within three months of maturity can be considered equivalent to cash because they are ____.

So near maturity that their value is unlikely to change readily convertible to known amounts of cash

ABC Company issued 30,000 shares of common stock in January. In August, the company repurchased 5,000 shares for the treasury. When reporting these transactions in the statement of cash flows, ABC Company ____ combine them into one transaction in the _____ activities section.

cannot; financing

Cash flows associated with intangible assets are ____ activities.

investing

Accrual-basis accounting is superior to cash-basis accounting in that ____.

it provides a better measure of profitability

What is the purpose of the Statement of Cash Flows?

It is intended to provide a cash-based view of a company

Arlington Inc.'s income statement showed Net Income of $57,600 and Depreciation Expense of $9,200 Accounts Receivable increased $3,750, Inventory increased $3,200, Supplies decreased $500, Accounts Payable increased $2,700 and Accrued Liabilities decreased $1,900. Arlington's net cash flow provided by operations totaled $_____.

61150

Which balance sheet line item will help explain a difference between net income on the income statement and cash from operating activities on the statement of cash flows?

Accounts Receivable

New companies often experience rapid sales growth causing increases in sales-related asset accounts such as _____ and _____. This growth can lead to differences in net income and operating cash flows.

Accounts receivable Inventory

After its first year of business, Best Measures, Inc.'s sales revenue were $100,000 of which $90,000 was collected and total expenses of $60,000 of which $20,000 was paid. Which of the following statements is correct?

Accrual-basis net income equals $40,000. Cash-basis net income equals $70,000

Which of the following are financing activities and show the appropriate cash effect?

Issuance of bonds; inflow Repurchase of stock; outflow Repayment of bond face value; outflow

Short-term, highly liquid investments that are purchased within three months of maturity can be considered ____ equivalents.

cash

Short-term, highly liquid investments that are purchased within three months of maturity can be considered _____ equivalents.

cash

During the past year, Arnold's Inc.'s comparative balance sheet reported an increase in overall stockholders' equity of $43,500, a decrease in total liabilities of $17,200, and an increase in assets other than cash of $12,000. Consequently, Arnold, Inc. reported a(n) _____ in cash of $____.

increase and $14300

The two alternative methods that may be used in preparing the operating section of the statement of cash flows are the ___ and ___ methods.

indirect and direct

The two alternative methods that may be used in preparing the operating section of the statement of cash flows are the _____ and ____ methods.

indirect and direct

New companies often experience rapid sales growth causing increases in sales-related asset accounts such as ____ and ___. This growth can lead to difference in net income and operating cash flows.

inventory accounts receivable

Cash paid for property, plant and equipment is found in the cash outflows from the ____ activities section of the statement of cash flows.

investing

Companies are required to report material noncash transactions from ____ and ____ activities in either a supplementary schedule to the statement of cash flows or as a disclosure in the notes to the financial statements.

investing and financing

A positive cash flow under financing activities on the statement of cash flows may indicate a company _____.

is borrowing to offset negative cash from operating activities and had to borrow long-term to finance its operations is expanding

A negative cash flow under financing activities on the statement of cash flows may indicate a company ____.

is contracting has declared a dividend has repaid loan principal

When using the indirect method to prepare the operating activities of the statement of cash flows, the first amount listed is ____ ____.

net income