CH 11 Smart Book Act 201A-03

Which of the following would be reported as a cash outflow from financing activities? Paying interest on a long-term notes payable Sale of common stock Borrowing on a line of credit Purchase of treasury shares

Purchase of treasury shares

The purchase and sale of long-term assets and current investments are classified as operating activities. investing activities. financing activities.

investing activities.

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

noncash or non-cash

Cash return on assets is calculated as ______ divided by average total assets. total liabilities net income retained earnings operating cash flow

operating cash flow

Select all that apply Which of the following are common financing activities? Issuing common stock Payment of cash dividends Borrowing money Receiving dividends from an investment in another company

Issuing common stock Payment of cash dividends Borrowing money

Select all that apply Which of the following are common financing activities? Purchasing treasury stock Issuing common stock Payment of cash dividends Receiving dividends from an investment in another company

Purchasing treasury stock Issuing common stock Payment of cash dividends

Net cash flows provided by operating activities will be ______ when using the direct method compared to the indirect method. lower higher the same

the same Reason: Both methods result in the same net cash flows. It is just the approach that differs.

Lein's net income is $200,000 and its operating cash flows are $240,000. The company reports total assets of $1.6 million and $1.8 million at the end of the prior and current year, respectively. Return on assets (rounded to one-tenth of a percent) is: 11.1% 11.8% 14.1% 12.5%

11.8% Reason: $200k/(($1.6mill+1.8mill)/2)

Cash return on assets is calculated as ______ divided by average total assets. retained earnings operating cash flow total liabilities net income

operating cash flow

Select all that apply Which of the following are common noncash items requiring adjustment to net income under the indirect method? insurance expense prepaid expense depreciation expense salaries expense amortization expense

depreciation expense amortization expense

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 actually represents a cash inflow for the company. Depreciation expense originally reduced net income, but it is not classified as an operating activity. Depreciation expense is not included in net income, so its cash effect must be accounted for separately. Depreciation expense originally reduced net income, but it is a noncash expense.

Depreciation expense originally reduced net income, but it is a noncash expense. Reason: Depreciation is a noncash expense that reduces net income. It is added back to net income.

Which of the following represents the final step in preparing a statement of cash flows in the correct order? determine the net cash flows from investing activities combine operating, investing, and financing activities calculate the net cash flows from operating activities determine the net cash flows from financing activities

combine operating, investing, and financing activities

Select all that apply Noncash investing and financing activities are either: (Select all that apply.) reported as investing and financing activities on the statement of cash flows reported directly after the statement of cash flows reported in the notes to the financial statements

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

The ratio that is calculated by dividing net income by average total assets is referred to as: return on assets asset turnover asset utilization

return on assets

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. derive the correct ending balance of cash.

convert items included in net income to cash.

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 __________________ activities.

noncash or non-cash

Cash receipts and cash payments for transactions relating to revenue and expense activities are classified on the statement of cash flows as financing activities investing activities operating activities

operating activities

Select all that apply Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? Payment of utilities Borrowing from bank Collection of interest Sale of a building Collection from customers

Collection of interest Collection from customers

Select all that apply Which of the following are cash inflows from financing activities? Receiving dividends Purchasing treasury stock Collecting from customers Issuing stock to investors for cash Issuance of bonds

Issuing stock to investors for cash Issuance of bonds

Select all that apply Which of the following are nonoperating items that require adjustments under the indirect method? Depreciation expense Losses on the sale of long-term assets Gains on the sale of long-term assets Amortization expense

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

Select all that apply The three classifications on the statement of cash flows are cash flows from (Select all that apply.) investing activities. operating activities. discontinued activities. financing activities. business activities.

investing activities. operating activities. financing activities.

Changes to current assets and current liabilities require adjustment of net income under the indirect method because these changes increase or decrease cash flows related to long-term assets these changes increase or decrease cash flows related to debt and stockholders' equity related cash may be higher or lower than the accrued amount included in net income

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

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

Blank 1: nonoperating, non operating, or non-operating

Select all that apply Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? Sale of building Collection from customers Borrowing from bank Issuance of common stock Interest received on notes receivable

Collection from customers Interest received on notes receivable

Lein's net income is $200,000 and its operating cash flows are $240,000. The company reports total assets of $1.6 million and $1.8 million at the end of the prior and current year, respectively. Cash return on assets (rounded to one-tenth of a percent) is: 13.3% 15% 11.8% 14.1%

14.1% Reason: Cash return on assets = operating cash flows/average total assets $240k/((1.6mill+1.8mill)/2)

The financial statement that provides information about cash receipts and cash disbursements for the period is the income statement. statement of cash flows. balance sheet. statement of retained earnings.

statement of cash flows.

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

financing

Select all that apply 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? Bonds payable Notes receivable Accounts receivable Accounts payable Inventory

Accounts receivable Accounts payable Inventory

The statement of cash flows provides summary information about cash ___________________ and cash ________________ during the year.

Blank 1: inflows, proceeds, sources, in, inflow, or receipts Blank 2: outflows, disbursements, uses, out, outflow, or payments

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

Blank 1: investing or investment

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

Blank 1: net Blank 2: income, profit, or earnings

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? Wait until the problem is reviewed in class Send an e-mail inquiry to her professor Calculate the change in the beginning and ending balance of cash

Calculate the change in the beginning and ending balance of cash

Select all that apply Which of the following are cash outflows from financing activities? Repayment of note payable Payment of income taxes Payment of dividends Issuance of common stock Purchase of equipment

Repayment of note payable Payment of dividends

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

True or false: Amortization of intangible assets is treated the same way as depreciation of tangible assets on the statement of cash flows using the indirect method.

True

True or false: Amortization of intangible assets is treated the same way as depreciation of tangible assets on the statement of cash flows using the indirect method.

True Reason: both are noncash items that are added to net income under the indirect format.

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 to subtracted from

added back to

When preparing a statement of cash flows using the indirect format, amortization expense must be: subtracted from net income added to investing activities subtracted from investing activities ignored added back to net income

added back to net income

In order to determine cash flows from financing activities, we need to examine changes to long-term liability and stockholders' equity accounts long-term asset accounts current assets and current liability accounts

long-term liability and stockholders' equity accounts

Select all that apply 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. payment of a noncurrent liability. issuance of bonds for cash. gain from sale of asset. depreciation expense.

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

The starting point for preparing the operating activities section using the indirect method is: current assets net income ending cash balance current liabilities

net income

The return on assets is calculated by dividing ____ by _______. average total assets; net income net income; ending balance of total assets net income; average total assets ending balance of total assets; net income

net income; average total assets

The statement of cash flows classifies items as operating and nonoperating. operating, investing, and financing. current and noncurrent. recurring and nonrecurring.

operating, investing, and financing.

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. added back to subtracted from

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

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 added back to

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

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 $185,000 $200,000

$215,000 Reason: $200,000 + $15,000

Wiese reports net income of $100,000 for the year ended 12/31/18. Total assets were $800,000 on 12/31/17 and $900,000 on 12/31/18. The company earned a return on assets of: (round the tenth of percent) 11.8% 12.5% 11.1%

11.8% Reason: $100k/((800k+900k)/2)

Select all that apply Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? Payment of utilities Collection from customers Collection of interest Borrowing from bank Sale of a building

Collection from customers Collection of interest

Select all that apply Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? Borrowing from bank Collection from customers Sale of building Issuance of common stock Interest received on notes receivable

Collection from customers Interest received on notes receivable

Select all that apply Which of the following are common financing activities? Issuing common stock Payment of cash dividends Receiving dividends from an investment in another company Borrowing money

Issuing common stock Payment of cash dividends Borrowing money

List the four steps in preparing a statement of cash flows in the correct order.

calculate the net cash flows from the operating activities. determine the net cash flows from investing activities. determine the net cash flows from financing activities. combine operating, investing, and financing activites.

Operating cash flows divided by average total assets will calculate the: asset turnover ratio return on assets cash return on assets

cash return on assets

Select all that apply Under the indirect method of preparing the statement of cash flows, depreciation expense is added back to net income because it was subtracted in deriving net income. provides an inflow of cash. increases the cash balance. did not require an outflow of cash.

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

Select all that apply Select the items that would be added to net income in order to prepare the operating activities section of a statement of cash flows - indirect method. increase in current asset gain on sale of land decrease in current asset loss on sale of land depreciation expense

decrease in current asset loss on sale of land depreciation expense

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. increase noncash negative decrease cash

noncash Reason: Depreciation expense decreases net income on the income statement but does not decrease cash from operating activities on the statement of cash flows (no check is written for depreciation expense). Depreciation expense is a non-cash expense and thus is added back to net income when calculating cash from operating activities.

Select all that apply Select the items that would be subtracted from net income in order to prepare the operating activities section of a statement of cash flows - indirect method. depreciation expense gain on sale of land increase in current liability decrease in current liability loss on sale of land

gain on sale of land decrease in current liability

Meadows Inc. reports operating cash flows of $100,000 for the year ended 12/31/18. Total assets were $800,000 on 12/31/17 and $900,000 on 12/31/18. The company earned a cash return on asset of: (round the tenth of percent) 11.8% 12.5% 11.1%

11.8% Reason: Cash return on assets = operating cash flows/average total assets Reason: Cash return on assets = operating cash flows/average total assets $100k/((800k+900k)/2)

Meadows Inc. reports operating cash flows of $100,000 for the year ended 12/31/18. Total assets were $800,000 on 12/31/17 and $900,000 on 12/31/18. The company earned a cash return on asset of: (round the tenth of percent) 11.8% 12.5% 11.1%

11.8% Reason: Cash return on assets = operating cash flows/average total assets $100k/((800k+900k)/2)

Select all that apply Which of the following are significant noncash activities? (Select all that apply.) Selling land. Issuing common stock for cash. Acquiring land by issuing common stock. Acquiring equipment by issuing a long-term note.

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

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.

Blank 1: net Blank 2: income or earnings

In a statement of cash flows, the sum of cash inflows and outflows is equal to cash flows from operating activities. net income plus depreciation and amortization. the change in the cash balance.

the change in the cash balance.

In a statement of cash flows, the sum of cash inflows and outflows is equal to net income plus depreciation and amortization. cash flows from operating activities. the change in the cash balance.

the change in the cash balance.

Select all that apply Which of the following sections will be identical in every detail under the direct and indirect methods. Cash flows from investing activities Cash flows from financing activities Cash flows from operating activities

Cash flows from investing activities Cash flows from financing activities

Select all that apply Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? Sale of a building Collection from customers Payment of utilities Borrowing from bank Collection of interest

Collection of interest Collection from customers

Select all that apply Which of the following cash transactions are classified as cash inflows from investing activities? Sale of equipment Sale of merchandise inventory Sale of building Borrowing from bank Sale of investments

Sale of equipment Sale of building Sale of investments

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 actually represents a cash inflow for the company. Depreciation expense is not included in net income, so its cash effect must be accounted for separately. Depreciation expense originally reduced net income, but it is a noncash expense. Depreciation expense originally reduced net income, but it is not classified as an operating activity.

Depreciation expense originally reduced net income, but it is a noncash expense.

Select all that apply Which of the following are classified as cash inflows from investing activities? Issuance of common stock Purchase of an investment Sale of equipment Sale of land

Sale of equipment Sale of land

Select all that apply Which of the following are classified as cash inflows from investing activities? Sale of equipment Issuance of common stock Purchase of an investment Sale of land

Sale of equipment Sale of land

Which is a significant noncash activity? Collecting on customer accounts. Signing a note payable in exchange for land. Receiving proceeds from sale of stock. Repurchasing common stock.

Signing a note payable in exchange for land.

Select all that apply Which of the following describes the acceptable methods that may be used to report cash flows from operating activities on the statement of cash flows? Indirect method Accrual basis method Direct method Cash basis method

Indirect method Direct method Reason: The purpose of the statement is to transform the accrual basis financial statements to give a cash-based view of the company, but the acceptable methods for preparation are the direct and indirect methods.

Select all that apply Which of the following items are classified as cash outflows from operating activities on the statement of cash flows? Interest paid on bonds purchase of supplies purchase of a building retirement of common stock payment on account payable

Interest paid on bonds purchase of supplies payment on account payable

Select all that apply Which of the following are cash inflows from financing activities? Sale of land Issuance of common stock to investors Interest received Borrowing from bank Collection from customers

Issuance of common stock to investors Borrowing from bank

Select all that apply Which of the following are common financing activities? Issuing common stock Purchasing treasury stock Receiving dividends from an investment in another company Payment of cash dividends

Issuing common stock Purchasing treasury stock Payment of cash dividends

Which is a significant noncash activity? Repurchasing common stock. Receiving proceeds from sale of stock. Collecting on customer accounts. Signing a note payable in exchange for land.

Signing a note payable in exchange for land.

Select all that apply Adjustments to net income in calculating operating cash flows include: Noncash items Changes in current assets and current liabilities Changes in noncurrent assets and noncurrent liabilities Nonoperating items

Noncash items Changes in current assets and current liabilities Nonoperating items

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

Operating

Select all that apply Which of the following are cash outflows from financing activities? Pay dividends Purchase of supplies Receive interest Issue common stock Repay borrowing from bank

Pay dividends Repay borrowing from bank

Select all that apply Which of the following are common financing activities? Receiving dividends from an investment in another company Payment of cash dividends Purchasing treasury stock Issuing common stock

Payment of cash dividends Purchasing treasury stock Issuing common stock

Select all that apply Which of the following are classified as cash outflows from investing activities? Sale of land Purchase of an investment Payment of accounts payable balance Sale of equipment Purchase of land

Purchase of an investment Purchase of land

Select all that apply Which of the following are cash outflows from investing activities? Purchase of land Payment on account payable Purchase of investment Purchase of inventory Repurchase of common stock

Purchase of land Purchase of investment

Which of the following would result in a cash inflow from investing activities? Sale of a machine for cash. Sale of the company's common stock for cash. Sale of inventory in excess of cost.

Sale of a machine for cash.

Multiple Select Question Select all that apply Which of the following cash transactions are classified as cash inflows from investing activities? Sale of equipment Sale of building Borrowing from bank Sale of investments Sale of merchandise inventory

Sale of equipment Sale of building Sale of investments

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

financing, finance, or financial

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

added to

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 ignored. added to net income. subtracted from net income.

added to net income.

Select all that apply Which of the following are common noncash items requiring adjustment to net income under the indirect method? amortization expense salaries expense depreciation expense prepaid expense insurance expense

amortization expense depreciation expense

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 all current assets and liabilities. amounts presented in the income statement. all long-term assets and liabilities. changes in equity.

amounts presented in the income statement.

Operating cash flows divided by average total assets will calculate the: return on assets cash return on assets asset turnover ratio

cash return on assets

Select all that apply 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 owners' equity accounts during the period that affected cash. changes in operating assets and liabilities during the period that affected cash and were not in net income. changes in liabilities and owners' equity accounts during the period that affected cash.

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.

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

financing or finance

Select all that apply Which of the following nonoperating items require adjustments to net income under the indirect method? prepaid expenses gains from sale of long-term assets accrued expenses losses from sale of long-term assets stock dividends distributed during the year

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

A decrease in prepaid insurance is added to net income because it includes the impact of increasing cash and increasing net income. insurance expense decreased net income; however, cash was not paid. The prepaid insurance account was decreased rather than cash. it accounts for purchasing more insurance during the period than has been expensed. the company paid additional premiums this period in excess of the insurance expense recorded on the income statement.

insurance expense decreased net income; however, cash was not paid. The prepaid insurance account was decreased rather than cash. Reason: A decrease in prepaid insurance (an asset) means the cash paid (which increases prepaid insurance) was less than the insurance expense incurred (which decreases prepaid insurance). 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 or investment

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

investing or investment

An increase in accounts receivable indicates that the company collected _____ cash than the amount of ______. less; sales revenue more; sales revenue

less; sales revenue

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

noncash or non-cash

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 ______________ activities.

noncash or non-cash

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 inflow; outflow

outflow; inflow

Select all that apply Which of the following items are classified as cash outflows from operating activities on the statement of cash flows? payment on account purchase of supplies on account Payment of salaries purchase of building issuance of bonds

payment on account Payment of salaries

Select all that apply Which of the following items are classified as cash outflows from operating activities on the statement of cash flows? payment on account purchase of supplies on account issuance of bonds purchase of building Payment of salaries

payment on account Payment of salaries

Select all that apply Which of the following are cash outflows from investing activities? payment of income taxes purchase of land purchase of long-term investments repayment of long-term debt Purchase of building

purchase of land purchase of long-term investments Purchase of building

Select all that apply Which of the following items are classified as cash outflows from operating activities on the statement of cash flows? retirement of common stock purchase of supplies Interest paid on bonds purchase of a building payment on account payable

purchase of supplies Interest paid on bonds payment on account payable

Select all that apply Which of the following items are classified as cash outflows from operating activities on the statement of cash flows? purchase of supplies purchase of a building retirement of common stock payment on account payable Interest paid on bonds

purchase of supplies payment on account payable Interest paid on bonds

Select all that apply Kleister Company issues bonds for $100 million and repays a long-term notes payable of $10 million. The company also sells its own common shares for $12 million and pays cash dividends of $5 million. Which of the following are cash outflows from financing activities? repayment of notes payable issuance of bonds sale of Kleister Company common shares payment of cash dividends

repayment of notes payable payment of cash dividends

Select all that apply Noncash investing and financing activities are either: (Select all that apply.) reported directly after the statement of cash flows reported as investing and financing activities on the statement of cash flows reported in the notes to the financial statements

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

An increase in prepaid insurance is subtracted from net income because insurance expense decreased net income; however, cash was not paid. The prepaid insurance account was decreased rather than cash. the company paid additional premiums this period in excess of the insurance expense recorded on the income statement. it includes the impact of increasing cash and increasing net income.

the company paid additional premiums this period in excess of the insurance expense recorded on the income statement. Reason: An increase in prepaid insurance (an asset) means the cash paid (which increases prepaid insurance) was greater than the insurance expense incurred (which decreases prepaid insurance.)