Accounting Chapter 21 - Statement of Cash Flows

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Jasper's income statement reports revenue from investments that lack significant influence of $10,000, and its balance sheet reports that dividends receivable decreased by $1,500. How much will Jasper report as cash received from investments?

$11,500 Reason: $10,000 + $1,500

Fault Company's records indicate that, during the current year, land costing $150,000 was sold. A loss of $25,000 was recognized on the sale. Cash inflows associated with this sale were

$125,000. Reason: book value of $150,000 less loss of $25,000

Aggie Company reports investment revenue of $14,000 in its income statement relating to a 5% investment in another company's common stock. During the current year, dividends receivable increased by $1,000. Thus, cash collected from investments will be

$13,000.

During the year, Munster Company sold common stock for $50 million, paid dividends of $5 million, and repaid its bonds payable with a face amount of $30 million. In its statement of cash flows, Munster will report net cash flows from financing activities of:

$15 million Reason: $(50-5-30)million

Malt Corporation reported insurance expense of $15,000. Prepaid insurance shows a beginning balance of $1,800 and an ending balance of $2,300. The amount of cash paid for insurance must be:

$15,500 Reason: $(15,000-1,800+2,300)

Klein Corp. reports income tax expense of $157,000. During the current year, the company's income tax payable increased by $3,000. Cash paid for income taxes is

$154,000.

Milky Company reports sales revenue of $200, an increase in deferred revenue of $2, and an increase in accounts receivable of $1. Cash collected from customers is:

$201 Reason: $(200+2-1) = $201

During the current period, Kunze Corp. disposed of old equipment and received $2,000 cash; purchased new equipment for $20,000 cash; collected an accounts receivable balance of $2,500; and purchased an investment for $3,000. Net cash from investing activities is

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

During the current year Hainzel Corp. sold inventory costing $200,000 for $500,000. The balance of accounts payable decreased by $20,000, and the balance of the inventory account decreased by $10,000. Cash paid to suppliers is

$210,000 Reason: $200,000+20,000-10,000

Glueck Corp. reports sales revenue of $200,000. During the year, the company's accounts receivable balance decreased by $14,000. Cash collected from customers is

$214,000. Reason: $200,000 + $14,000

Glueck Corp. reports sales revenue of $200,000. During the year, the company's accounts receivable balance decreased by $10,000 and its deferred revenue increased by $4,000. Cash collected from customers is

$214,000. Reason: $200,000 + $10,000 + $4,000

An examination of Margot Company's records indicate that investment income relating to equity method investments was $100,000 and that the related investment account increased by $75,000. Cash received on the investment was

$25,000. Reason: $100,000-$75,000

During the current year, Marked Company sold equipment with an original cost of $100,000 and accumulated depreciation of $60,000. The income statement reveals a loss of $10,000 relating to this disposal. Cash received from the sale of the equipment is:

$30,000 Reason: $100,000 - $60,000 - $10,000

Olsen Company reports investment income relating to equity method investments of $50,000, and it had a related investment account that increased by $15,000. Cash received on the investment was

$35,000 Reason: $50,000-15,000

During the current year, Nary Corp.'s income statement shows that the company accrued interest expense of $5,000; for the same period the interest payable balance increased by $300 and bond discounts decreased by $400. Cash paid for interest is

$4,300 Reason: 5,000 - 300 - 400

During the current year, Mainzel Corp.'s income statement shows that the company accrued interest expense of $5,000; for the same period the interest payable balance increased by $300. Cash paid for interest is

$4,700. Reason: 5,000 - 300

During the current year, Hainzel Corp.'s income statement shows that the company accrued interest expense of $5,000; for the same period the interest payable balance decreased by $300 and bond discounts decreased by $500. Cash paid for interest is

$4,800. Reason: 5,000 + 300 - 500

Wichtel Corp. reports sales revenue of $400,000. During the year, the company's accounts receivable balance decreased by $10,000 and its deferred revenue decreased by $6,000. Cash collected from customers is

$404,000. Reason: $400,000 + $10,000 - $6,000

During the current year, Hainzel Corp.'s income statement shows that the company accrued interest expense of $5,000; for the same period the interest payable balance decreased by $300. Cash paid for interest is

$5,300. Reason: 5,000 + 300

During the current year, Parsley Company sold equipment with an original cost of $100,000 and accumulated depreciation of $70,000. The income statement reveals a gain of $20,000 relating to this disposal. Cash received from the sale of the equipment is

$50,000. Reason: $100,000 - $70,000 + $20,000

During the current period, Schmidt Corp. disposed of old equipment and received $1,000 cash; purchased new equipment for $10,000 cash; paid an accounts payable balance of $2,500; and sold an investment costing $2,000 for $2,800. Net cash from investing activities is

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

Gross Industries reports income tax expense of $57,000. During the current year, the company's income tax payable decreased by $3,000. Cash paid for income taxes is

$60,000

For the current year ended, Fohlen Corp. accrued $1,200 of insurance expense. The company's account balance of prepaid insurance decreased by $500. Cash paid for insurance is

$700. Reason: $1,200 - $500

Kleister Company issues bonds for $100 million and repays a long-term notes payable of $10 million. The company also repurchases its own shares for $12 million and issues stock dividends with a market value of $5 million. Net cash flow from financing activities will be

$78 million net inflow. Reason: 100 million - 10million - 12 million

During the current year, Mainzel Corp.'s income statement shows that the company accrued salary expense of $85,000; for the same period the salary payable balance increased by $3,000. Cash paid for salaries is

$82,000. Reason: $85,000 - $3,000

Sales revenue for the year was $100,000; accounts receivable had a beginning balance of $10,000 and an ending balance of $18,000. Cash collected from customers was

$92,000. Reason: revenue less increase in A/R

Marten Company's records indicate that, during the current year, land costing $50,000 was sold. A gain of $45,000 was recognized on the sale. Cash inflows associated with this sale were

$95,000 Reason: book value of $50,000 plus gain of $45,000

During the current year Mainzel Corp. sold inventory costing $100,000 for $220,000. The balance of accounts payable increased by $10,000, and the balance of the inventory account increased by $6,000. Cash paid to suppliers is

$96,000. Reason: $100,000 - 10,000 + 6,000

Which of the following statements is correct with respect to analyzing accounts for the preparation of a statement of cash flows?

1. All income statement amounts must be accounted for. 2. All changes in balance sheet accounts must be accounted for.

Which sections are identical under the direct and indirect method of the statement of cash flows?

1. Cash from investing activities 2. Cash from financing activities

Two systematic approaches that assist in the preparation of the statement of cash flows are the

1. T-account method 2. spreadsheet method

Which of the following methods of preparing the statement of cash flows is (are) acceptable under U.S. GAAP?

1. The indirect method 2. The direct method

on statement of cash flows you must .......

1. add a decrease in accounts receivable 2. subtract a decrease in deferred revenue

on statement of cash flows, you must ........

1. add an increase in deferred revenue 2. subtract an increase in accounts receivable

Which of the following represent objectives of preparing a statement of cash flows?

1. adhering to a proper statement format 2. classifying the transactions and events correctly 3. identifying all operating, investing, and financing events and transactions

To identify all the operating, investing, and financing activities using a spreadsheet, we must account for the changes in each account on the

1. balance sheet 2. income statement

During the current year Mainzel Corp. sold inventory costing $100,000 for $220,000. The balance of accounts payable increased by $10,000, and the balance of the inventory account increased by $6,000. The journal entry to derive cash paid to vendors would include credits to

1. credit accounts payable for $10,000. 2. credit cash for $96,000.

Glueck Corp. reports sales revenue of $200,000. During the year, the company's accounts receivable balance decreased by $14,000. Additional information reveals that during the year accounts totaling $7,000 were written off and bad debt expense of $10,000 was recognized. A journal entry prepared to determine cash collected from customers would include debits to

1. debit cash for $207,000. 2. bad debt expense for $10,000.

During the current year, Mainzel Corp. sold inventory costing $100,000 for $220,000. The company's accounts payable balance increased by $10,000, and the inventory account balance increased by $6,000. The journal entry to derive cash paid to vendors would include debits to

1. debit cost of goods sold for $100,000. 2. debit to inventory for $6,000.

An examination of Margot Company's records indicate that investment income relating to equity method investments was $100,000 and that the related investment account increased by $75,000. Utilizing only one journal entry to determine cash received from the investments, the entry would include

1. debit to investment for $75,000 2. credit to investment revenue for $100,000

An examination of Margot Company's records indicate that investment income relating to equity method investments was $100,000 and that the related investment account increased by $75,000. Utilizing only one journal entry to determine cash received from the investments, the entry would include:

1. debit to investment for $75,000 2. credit to investment revenue for $100,000

During the current year, Hainzel Corp.'s income statement shows that the company accrued salary expense of $85,000; for the same period the salaries payable balance decreased by $3,000. The journal entry to derive cash paid for salaries would include debits to

1. debit to salaries expense for $85,000. 2. debit to salaries payable for $3,000.

Which of the following sources commonly provide funding for investing activities?

1. financing activities 2. operating activities

In addition to the primary activities, what other required information must be presented in a statement of cash flows?

1. noncash investing and financing activities 2. a reconciliation of the net increase or decrease in cash with the change in the cash balance

Common types of cash outflows from investing activities include

1. purchases of investment securities. 2. purchases of property, plant, and equipment. 3. payments to acquire nontrade receivables.

Which of the following transactions would be classified as financing activities in the statement of cash flows?

1. repayment of a long-term loan 2. payment of cash dividends

Which of the following are required characteristics of cash equivalents?

1. short-term 2. low risk 3.high liquidity

Which accounts or balances must be considered in order to calculate the amount of cash paid to suppliers for inventory?

1. the change in the inventory account balance 2. the change in the accounts payable balance 3. cost of goods sold

Under the indirect method of preparing the statement of cash flows, depreciation expense and losses are added back to net income because they

1. were subtracted in deriving net income. 2. do not require an outflow of cash.

included in statement of cash flows

1.cash flows from operating activities 2.cash flows from investing activities 3.cash flows from financing activities 4.noncash investing and financing activities

Under which method(s) will a reconciliation of net income to cash from operating activities be presented?

Both the direct and the indirect method

Which of the following is true regarding classification on the statement of cash flows?

Cash flows from inventory are classified as operating while cash flows from property, plant, and equipment are classified as investing.

Which of the following statements is correct regarding the direct and indirect methods of preparing the operating activities section of the statement of cash flows?

Cash from operating activities is the same under either method.

Salaries expense

Cash paid to employees

Tax expense

Cash paid to governments

Which of the following financial statements tends to provide the best indication of current operating performance?

Income statement

Which of the following statements regarding income statement and related cash amounts is correct?

Income statement amounts and cash amounts typically are not the same.

Why is inventory treated differently than property, plant, and equipment when classifying their cash effects on the statement of cash flows?

Inventory is purchased and sold as part of the firm's current operations. Property, plant, and equipment benefit the business over a relatively long period of time.

Which of the following is correct regarding depreciation expense?

It is a noncash expense that does not require the use of cash.

depreciation expense

Not reported in statement of cash flows

on statement of cash flows...if we observe either an increase or decrease in an investment revenue recivable account (interest receivable, dividends receivable).......

we can conclude the amount of cash received during the year was less than (if an increase) or more than (if a decrease) the amount of revenue reported. Analysis - sales revenue to A/R

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

Purchase of a machine for cash.

on statement of cash flows....investment income related to equity method investments....

would be added (credited to investment revenue)

cash equivalents

Short-term, highly liquid investments that can be readily converted to a specific amount of cash

Under which method of preparing a statement of cash flows will a reconciliation between net income and cash from operating activities be shown on a separate schedule?

The direct method only

Which of the following statements regarding reporting of cash from investing and cash from financing activities is correct under the direct and the indirect method?

They are the same

Under the indirect method of deriving net cash flows from operating activities, increases in liabilities relating to operating activities must be

added to net income

Kunzen Company shows salaries expense of $15,000 in its income statement. During the current year, the balance of its salaries payable account increased by $2,000. If the company uses the indirect method of presenting the operating activities section of the statement of cash flows, the change of $2,000 should be

added to net income.

When preparing the statement of cash flows using the indirect method, depreciation expense and losses are

added to net income.

Depreciation represents a noncash expense because it is merely an ____ of a ____ cash expenditure.

allocation; previous

Fuller Company's retained earnings increased by $20,000 during the current year. Net income for the year was $50,000. No other information is available regarding retained earnings. In its statement of cash flows, Fuller should report

an outflow of $30,000 from financing activities relating to cash dividends

Tomasine Company's retained earnings increased by $50,000 during the current year. Net income for the year was $110,000. No other information is available regarding retained earnings. In its statement of cash flows, Tomasine should report

an outflow of $60,000 from financing activities relating to cash dividends.

During the current year, Barber Corp.'s balance in bonds payable decreased. No specific information about this decrease is available. In the statement of cash flows, the decrease should

be reported as a cash outflow from financing activities.

The difference between net income and cash from operating activities must be reconciled under

both the direct and indirect method.

sales and service revenue

cash collected from customers

Short-term, highly liquid investments that can be readily converted to cash, with little risk of loss, are referred to as ______ ______.

cash equivalents

During the current year, Hainzel Corp.'s income statement shows that the company accrued salary expense of $85,000; for the same period the salary payable balance decreased by $3,000. The journal entry to derive cash paid for salaries would include a credit to

cash for $88,000.

Direct method

cash in and outflows from operating activities

Michal Corp.'s land account decreased by $250,000. No specific information regarding this decrease is available. In its statement of cash flows, Michael should report

cash inflows from investing activities of $250,000.

Kester Corp.'s land account increased by $140,000. No specific information regarding this increase is available. In its statement of cash flows, Kester should report

cash outflows from investing activities of $140,000.

Increases in investment account balances not accounted for under the equity method, and for which no specific additional information is available, are interpreted as

cash outflows from investing activities.

interest expense

cash paid to creditors

cost of goods sold

cash paid to suppliers of inventory

investment revenue

cash received from dividends and interest

Kunze's common stock and paid-in capital accounts increased by a total of $10 million. To analyze the transaction using a journal entry, Kunze should debit ______ and credit ____.

cash; common stock and paid-in capital

Net cash flows for the year represent the

change in the cash account

Olsen Company reports investment income relating to equity method investments of $50,000, and it had a related investment account that increased by $15,000. If Olsen uses only one journal entry to determine cash received from the investments, the entry would include

credit to investment revenue of $50,000

Amounts reported in the income statement usually are ______ the cash effects of the items reported.

different from

The __________method of reporting cash flows from operating activities reports the cash effect of each operating activity.

direct

The method that reports the cash effect of each operating activity explicitly on the statement of cash flows is referred to as the _____ method

direct

During the current year, Palmer Company purchased equipment costing $100,000 by signing a 2-year promissory note. In its statement of cash flows, Palmer should

disclose information in the noncash investing and financing section.

on statement of cash flows...the sale of land.....

equal to the book value plus the gain or minus the loss

Investing activities, such as the purchase of new machinery, may be financed by the company's primary operating activities, or by _____ sources.

external

Financing activities are inflows and outflows of cash resulting from the

external financing of a business.

Cash received from the sale of common and preferred stock and the issuance of bonds and other debt securities are reported on the statement of cash flows as ______ activities.

financing

Cash received from the sale of common and preferred stock and the issuance of bonds and other debt securities are reported on the statement of cash flows as ________ activities.

financing

Inflows and outflows of cash resulting from the external funding of a business are cash flows from ________ activities.

financing

Margot Inc. reacquires its own shares and plans to immediately retire them. In its statement of cash flows, Margot should report this transaction as a(n)

financing activity

Marian Company's balance sheet shows that the balance in "treasury stock" increased by $200,000. No additional information that explains this change is available. If you were to prepare Marian's statement of cash flows, you would report the $200,000 as a(n)

financing outflow

Greer Company prepares its statement of cash flows using the direct method. Greer should present the reconciliation between net income and cash from operating activities

in a supplemental or separate schedule.

Huger Company prepares its statement of cash flows using the indirect method. Huger should present the reconciliation between net income and cash from operating activities:

in the first section of the statement of cash flows.

Mark wishes to evaluate Jones Company's current operating performance. Mark will find the most pertinent information in Jones Company's

income statement.

If a spreadsheet is used to assist in the preparation of a statement of cash flows, an income statement section is NOT included under the ______ method.

indirect

The _____ method of reporting cash flows from operating activities begins with net income and works backward to derive cash from operating activities.

indirect

The method of presenting the statement of cash flows that begins with a presentation of net income or net loss is referred to as the ____ method.

indirect

Cash flows from _______activities are both outflows and inflows of cash caused by the acquisition and disposal of long-term assets.

investing

Cash from the sale of land is reported on the statement of cash flows as a(n) _______ activity.

investing

A cash inflow from the sale of land is categorized as a(n)

investing activity

If a company reports neither an investment income receivable or a long-term investment account, we can conclude that the amount of cash received during the current year _______ that the company reports on the income statement.

is the same as investment revenue

Kunze's common stock and paid-in capital accounts increased by $10 million. All known changes to retained earnings were already explained, except for a $10 million decrease, which remains unexplained. The likely explanation for the changes in the two equity categories is that Kunze

issued stock dividends

An important advantage of using a spreadsheet to analyze transactions that may need to be reported in the statement of cash flows is to

make sure that no reportable activity is overlooked.

Indirect method

net income and required adjustments for non-cash effects

Kunze's common stock and paid-in capital accounts increased by a total of $10 million. All known changes to retained earnings were already explained, except for a decrease of $10 million, which remains unexplained. If there is no additional information available, Kunze should assume that the changes in the two equity categories involved

no cash

In a statement of cash flows—direct method, depreciation expense should

not be reported.

During the year, Pernell Company issued a 10% stock dividend. In its statement of cash flows, Pernell should

not report the stock dividend.

The purchase and sale of cash equivalents typically are _____ on a statement of cash flows

not reported

In a statement of cash flows, stock dividends typically are

not reported.

The objective in preparing the statement of cash flows is to identify all transactions and events that represent

operating, investing, and financing activities and report them in the proper statement format.

Pernell Company's short-term investment account balance increased by $10,000. No other information is available. This means that Pernell

purchased additional investments for $10,000.

Net income (or loss) is the result of netting together the _____________recognized and the _____________incurred during the current reporting period.

revenues, expenses

Which of the following transactions that involve cash flows typically is (are) not reported on a SCF?

sale of cash equivalents

If a journal entry is used to derive the amount of cash collected from customers,

sales revenue, bad debt accruals, and changes in A/R and the allowance account need to be recognized.

Bart Company's common stock account increased by $5 million. The company issues only no-par shares. In the absence of additional information, you would assume that Bart

sold common shares and received $5 million in cash

Kunze's common stock and paid-in capital accounts increased by a total of $10 million. In the absence of additional information, the likely explanation for the increase in the accounts is that Kunze

sold common stock for cash.

Pech Company's common stock account increased by $2 million. No additional information regarding the increase is available. The most likely assumption that explains the increase is that the company

sold its common stock for cash

Brown Company's short-term investment account balance decreased by $14,000. No other information is available. This means that Brown

sold some investments with an original cost of $14,000.

An important tool that can be used to ensure that no reportable activities are inadvertently overlooked is a:

spreadsheet

Carmen Company shows salaries expense of $25,000 in its income statement. During the current year, the balance of its salaries payable account decreased by $3,000. If the company uses the indirect method of presenting the operating activities section of the statement of cash flows, the change of $3,000 should be

subtracted from net income.

Under the indirect method of deriving net cash flows from operating activities, increases in assets relating to operating activities must be

subtracted from net income.

on statement of cash flows....when an investment account increases.....

the amount is added (credited to investment revenue)

On the statement of cash flows, the net increase or decrease in cash and cash equivalents must be reconciled with

the beginning and ending balances of cash

During the current year, Barber Corp.'s balance in bonds payable decreased. In the absence of specific information, it should be assumed that

the bonds were repaid


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