CH 21:

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

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.

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

= T-account = spreadsheet

Sales and service revenue

Cash collected from customers

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

Income statment

Which of the following is critically important with respect to the ultimate potential of a firm to provide cash flows to investors and creditors?

The firm's ability to generate cash flows for itself.

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.

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

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.

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.

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

different from

Margaret is analyzing the current year income statement and the comparative balance sheet in order to prepare the statement of cash flows. She should expect the operating cash flows to be ______ the amounts reported in the income statement.

different from

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

financing

Cash flows from operating activities are both inflows and outflows of cash that result from activities reported in the

income statement.

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

income statement.

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

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

not be reported.

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.

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

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.

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 (indicate the amount and whether it is a net inflow or outflow)

$6,200 net outflow

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

= accounts payable for $10,000. = 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 recognized. A journal entry prepared to determine cash collected from customers would include credits to

= allowance for doubtful accounts for $3,000. = accounts receivable for $14,000. = sales revenue for $200,000.

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

= sale of the company's common stock = issuance of bonds = repurchase of the company's own common stock = repayment of a long-term loan = payment of cash dividends

Which of the following are required characteristics of cash equivalents?

= short-term = low risk = high liquidity

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

Both the direct and the indirect method

Interest expense

Cash paid to creditors

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.

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

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.

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.

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

cash; equivalents

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

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

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

indirect

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.

Cash flows from ___ activities are both inflows and outflows of cash that result from activities reported in the income statement.

operating

Net income (or loss) is the result of netting together the ___ recognized and the ___ incurred during the current reporting period.

revenues; expenses

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

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.

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.

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

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 (indicate the amount and whether it is a net inflow or outflow)

$21,000 net outflow.

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.

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.

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.

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.

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. Cash paid for salaries is

$88,000.

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.

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.

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.

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

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

Which of the following transaction/events commonly give rise to cash inflows for business entities?

= Common stock is sold to investors. = Cash is collected from customers

Which of the following transactions/events commonly give rise to cash outflows of business entities?

= Fire insurance is purchased. = Employees are paid. = Treasury stock is purchased. = Inventory is purchased.

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.

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

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

Which of the following are not valid categories in the statement of cash flows?

= cash flows from discontinued operations = cash flows from continuing operations

Which of the following are included in the statement of cash flows?

= cash flows from financing activities = noncash investing and financing activities = cash flows from operating activities = cash flows from investing activities

Which of the following are valid categories in the statement of cash flows?

= cash flows from investing activities = cash flows from operating activities = cash flows from financing activities

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

= cash for $207,000 = bad debt expense for $10,000

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

= cost of goods sold = the change in the inventory account balance = the change in the accounts payable balance

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

= cost of goods sold for $100,000. = inventory for $6,000.

Which of the following decision makers tend to be especially interested in cash flow information?

= creditors = investors

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

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

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

= identifying all operating, investing, and financing events and transactions = adhering to a proper statement format = classifying the transactions and events correctly

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

= income statement = balance sheet

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

= salaries expense for $85,000. = salaries payable for $3,000.

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.

Salaries expense

Cash paid to employees

Tax expense

Cash paid to governments

Cost of goods sold

Cash paid to suppliers of inventory

Investment revenue

Cash received from dividends and interest

Depreciation expense

Not reported

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

Purchase of a machine for cash.

Two systematic approaches that assist in the preparation in the statement of cash flows are the spreadsheet method and the ___ - ___ method.

T; account

Which of the following statements regarding the recognition of revenues and expenses is correct?

They are recognized even if cash has not been received or paid.

Gerta Company shows salaries expense of $30,000 in its income statement. During the current year, the balance of its salaries payable account increased by $4,000. If the company uses the indirect method of presenting the operating activities section of the statement of cash flows, the change of $4,000 should be

added to net income.

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

allocation; previous

Milky Company reports sales revenue of $200, an increase in deferred revenue of $2, and an increase in accounts receivable of $1. Using a journal entry to determine cash collected from customers, accounts receivable should be ____ and deferred revenue ___.

debited; credited

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

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.

During the current year, Schneider Company purchased equipment costing $200,000 by issuing 1,000 shares of its common stock. In its statement of cash flows, Schneider should

disclose information in the noncash investing and financing section.

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

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.

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.

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.