Accounting Chapter 11

When preparing the statement of cash flows using the indirect method, depreciation expense is ______ ______ net income.

added to

During the current period, Schmidt Corp. sold equipment for $1,000, purchased new equipment for $10,000, paid an accounts payable balance of $2,500, and sold an investment costing $2,000 for $2,800. Net cash from investing activities is (indicate the amount and whether it is a net inflow or outflow)

$6,200 net outflow. 1,000 - 10,000 + 2,800

Carola Inc. issues common stock for $20 million and pays dividends of $2 million. Net cash inflows from financing activities will be:

18 million

Neue Inc. reports sales revenue of $200,000; in addition, its accounts receivable balance decreased by $15,000. Neue's cash flows from sales were:

215,000= $200,000 + $15,000

Roberts Inc. sells common stock for $10 million and pays dividends of $1 million. Net cash inflows from financing activities will be:

9 million

Which of the following are significant noncash activities?

Acquiring land by issuing common stock. Acquiring equipment by issuing a long-term note.

Which of the following are cash outflows from investing activities?

Purchase of investment Purchase of land

Which of the following items would not be classified as a financing activity?

Repayments of accounts payable

Which of the following would result in a cash inflow from investing activities?

Sale of a machine for cash.

Which of the following are classified as cash inflows from investing activities?

Sale of equipment and sale of land

Which of the following cash transactions are classified as cash inflows from investing activities?

Sale of investments Sale of equipment Sale of building

Which is a significant noncash activity?

Signing a note payable in exchange for land.

Using the indirect method to report cash flows from operating activities, decrease in the inventory account will be ______ net income to arrive at net cash flow provided by operating activities.

added back

When preparing a statement of cash flows using the indirect format, amortization expense must be:

added back to net income

When reporting cash flows from operating activities using the indirect method, an increase in accounts payable is ______ net income because payments to suppliers are ______ than new purchases.

added to; less

When cash from operating activities is presented using the indirect method, net income must be adjusted for increases and decreases in balance sheet accounts that relate to

amounts presented in the income statement.

Which of the following represents the final step in preparing a statement of cash flows in the correct order?

combine operating, investing, and financing activities

The two types of adjustments to net income for the indirect method are adjustments for

components of net income that do not affect cash. changes in operating assets and liabilities during the period that affected cash and were not in net income.

When cash flows from operating activities are reported using the indirect method, a(n) ______ in accounts payable will be subtracted from net income.

decrease

Using the indirect method to report cash flows from operating activities, a(n) _____ in the accounts receivable from the prior period is added to net income in the ________ activities section of the statement of cash flows.

decrease, operating

Which of the following are common noncash items requiring adjustment to net income under the indirect method?

depreciation expense and amortization expense

Cash flows from _____ activities include both inflows and outflows of cash from the external funding of a business.

financing

Repayments of formal, long-term debt contracts are classified as ______ activities.

financing

Cash inflows and outflows involving stockholders and creditors are classified on the statement of cash flows as

financing activities

The statement of cash flows provides summary information about cash

inflows and cash outflows during the year

A decrease in prepaid insurance is added to net income because

insurance expense decreased net income; however, cash was not paid. The prepaid insurance account was decreased rather than cash.

Cash flows from _____ activities are both outflows and inflows of cash related to the acquisition and disposal of long-term assets.

investing

Cash transactions involving the purchase and sale of long-term assets and current investments are classified on the statement of cash flows as

investing activities

Noncash items, nonoperating items, and changes in current assets and liabilities are necessary adjustments to ____ __________to prepare the operating section for the indirect format of the statement of cash flows.

net income

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

net income

Transactions reported on the statement of cash flows that do not increase or decrease cash, but that result in significant investing and financing activities are referred to as

non-cash activities

The statement of cash flows classifies items as

operating, financing, investing

Changes to current assets and current liabilities require adjustment of net income under the indirect method because

related cash may be higher or lower than the accrued amount included in net income

The financial statement that provides information about cash receipts and cash disbursements for the period is the

statement of cash flows

Using the indirect method to report cash flows from operating activities, an increase in the inventory account will be ______ net income to arrive at net cash flow provided by operating activities

subtracted from because An increase in inventory indicates that inventory has been purchased resulting in a decrease to cash.

In a statement of cash flows, the sum of cash inflows and outflows is equal to

the change in the cash balance

An increase in prepaid insurance is subtracted from net income because

the company paid additional premiums this period in excess of the insurance expense recorded on the income statement.

Munster Company reports the following net cash in its statement of cash flows: net inflow from operating activities: $200; net outflow from investing activities: $300; net outflow from financing activities: $50. The ending balance in cash is $20; the beginning balance must have been

$170.

Western Inc.'s income statement showed net income of $60,000 and depreciation expense of $10,000. Accounts receivable decreased $3,000, Inventory increased $4,000, Supplies increased $1,000, and Accounts payable increased $3,000. Western's net cash flows from operating activities was ______.

71,000= Net cash flow from operating activities = $60,000 + 10,000 + 3,000 - 4,000 - 1,000 + 3,000

Which of the following are cash inflows from financing activities? (2)

Borrowing from bank Issuance of common stock to investors

Joann is preparing a statement of cash flows as part of a homework assignment. She hopes to find a check figure that will help her assess the accuracy of her results. What should Joann do to quickly find a check figure?

Calculate the change in the beginning and ending balance of cash

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 it is a noncash expense.

Which of the following accounts results in adjustments to net income under the indirect method of preparing the statement of cash flows if their balances change during the year?

Inventory Accounts payable Accounts receivable

Which of the following are cash inflows from financing activities? (2)

Issuing stock to investors for cash Issuance of bonds

Which of the following are nonoperating items that require adjustments under the indirect method?

Losses on the sale of long-term assets Gains on the sale of long-term assets

Adjustments to net income in calculating operating cash flows include:

Noncash items Nonoperating items Changes in current assets and current liabilities

Which of the following provides an indication of a higher quality of net income?

Operating cash flows that are highly correlated with net income

Using the indirect method to report cash flows from operating activities, how is the change in retained earnings accounted for in the statement of cash flows?

The change is accounted for by the addition of net income in operating activities and the subtraction of dividends in financing activities.

One of the purposes of adjusting net income for changes to certain balance sheet accounts is to

convert items included in net income to cash.

When the indirect method is used to report cash flows from operating activities, a decrease in accrued liabilities, such as wages payable, is subtracted from net income to include the effects of transactions that ______ cash, but ______ net income.

decrease; do not affect

Under the indirect method of preparing the statement of cash flows, depreciation expense is added back to net income because it

did not require an outflow of cash. was subtracted in deriving net income.

The two generally accepted formats for reporting cash flows from operating activities using U.S. GAAP are the

direct and indirect method

Issuing stock to owners is classified as a(n)

financing activity

The payment of dividends is classified as a(n)

financing activity

Operating activities

include cash receipts and cash payments for transactions relating to revenue and expense activities.

An _____ in accrued liabilities, such as interest payable, will be added to net income when determining net cash flow from operating activities using the indirect method.

increase

Norbert Company reports the following net cash flows in its statement of cash flows: net inflow from operating activities: $200; net outflow from investing activities: $220; net inflow from financing activities: $130. The current year beginning balance of cash was $80. During the current year, cash must have

increased by $110.

The balance of retained earnings:

increases with net income decreases with dividends declared

The two acceptable methods for U.S. GAAP for reporting cash flows from operating activities are the

indirect and direct method

An increase in accounts receivable indicates that the company collected _____ cash than the amount of ______.

less; sales revenue

In preparing the operating activities section of a statement of cash flows using the indirect method, net income should be adjusted for

loss from sale of asset. depreciation expense. gain from sale of asset.

Noncash items, nonoperating items, and changes in current assets and liabilities are necessary adjustments to __________ __________ to prepare the operating section for the indirect format of the statement of cash flows.

net income

A decrease in accounts payable represents a cash ______ from operating activities, whereas a decrease in accounts receivable represents a cash _____ from operating activities.

outflow; inflow

During the current period, Kunze Corp. disposed of old equipment for $2,000, purchased new equipment for $20,000, collected an accounts receivable balance of $2,500, and purchased an investment for $3,000. Net cash from investing activities is (indicate the amount and whether it is a net inflow or outflow)

$21,000 net outflow. 2,000 - 20,000 - 3,000

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 Salaries payable decreased $1,900. Arlington's net cash flows from operating activities was $

$61150

Michaela is comparing two companies using three years of financial statement data. Company A's net income for the three years was $200 million and its operating cash flows $80 million. Company B's net income for the three years was $120 million and its operating cash flows $110 million. Which company appears to have a higher quality net income?

Company B's income is strongly backed by its operating cash flows; that is not the case for company A.

Which of the following nonoperating items require adjustments to net income under the indirect method?

gains from sale of long-term assets losses from sale of long-term assets

Both the _______- and ________ provide information that help determine cash flows.

income statement and balance sheet

An ________ in accrued liabilities, such as interest payable, will be added to net income when determining net cash flow from operating activities using the indirect method.

increase

Which of the following methods for reporting cash flows from operating activities begins with net income and works backward to calculate net cash flow from operating activities?

indirect method

Diamond Company's land account decreased by 10 million. Cash received from sale of land

may be higher or lower than $10 million

Gains and losses on the sale of long-term assets represent common _______ items needing adjustment under the indirect method.

non operating

Depreciation expense and amortization expense represent _______ items requiring adjustments to net income under the indirect method.

non-cash

Gains and losses on the sale of long-term assets represent common __________items needing adjustment under the indirect method.

nonoperating

Noncash investing and financing activities are either:

reported directly after the statement of cash flows reported in the notes to the financial statements

True or False: Collection on account and sale of services for cash are considered cash inflows, while payment on account and payment of salaries are considered cash outflows from operating activities.

true

Grant's income statement reveals a loss from the sale of land. In preparing the operating activities section of the statement of cash flows using the indirect format, the loss should be

added to net income.

Depreciation expense is added back to net income when preparing the cash flow from operating activities section because depreciation represents a(n) ______ reduction to net income.

noncash

True or false: Every time land is sold, the line item for the sale of land in the investing activities section of the Statement of Cash Flows will equal the change in the asset account on the balance sheet.

False

The three classifications on the statement of cash flows are cash flows from

Financing, investing and operating activities