Ch12: Reporting Cash Flows ACCT 211

An increase in wages payable would be (added/subtracted) to (from) net income when preparing cash flows from operating activities, using the indirect method.

added

Lakeview, Inc.'s statement of cash flows reports financing activities with payments that exceed receipts. This means that Lakeview had a net cash (inflow/outflow) from financing activities.

outflow

A gain from the sale of equipment would be (added/subtracted) to (from) net income, when computing cash flows from operations using the indirect method.

subtracted

At the beginning of the period, a company reported $100,000 of common stock, $10 par; and $50,000 paid-in capital in excess of par. At the end of the period, this company reported $110,000 of common stock, $10 par; and $90,000 paid-in capital in excess of par. Cash received from the sale of common stock during the year is $

50000

Which of the following is not one of the five important steps to preparing a statement of cash flows? -Compute the net income -Compute and report the net cash from or for investing activities -Compute and report the net cash from or for financing activities -Compute the net cash flow from all sources and prove the change. -Compute net increase or decrease in cash

Compute the net income

Which of the following items would not be a correct adjustment to net income to arrive at cash flows from operating activities, using the indirect method? -Subtract decrease in accounts payable -Subtract increase in taxes payable -Add decrease in inventory -Add decrease in accounts receivable

Subtract increase in taxes payable

Red Co.'s beginning Common Stock balance was $110,000 and their ending Common Stock balance was $125,000. This will be reported as _____ in the statement of cash flows.

an increase of $15,000 in the financing activities section

A(n) _______ occurs when the receipts in a category exceed the payments.

net cash inflow

The indirect method of computing and reporting net cash flows from operating activities involves adjusting ____________ to obtain the net cash provided or used by operating activities.

net income

A(n) _____________ activity includes those transactions and events that affect net income, including the purchase of goods and services, cash sales to customers, and payment of operating expenses.

operating

Select all that apply Cash flows from financing activities identifies cash receipts and cash payments related to which of the following types of accounts? (Check all that apply.) -Common Stock -Notes Receivable -Bonds Payable -Interest Payable

-Common Stock -Bonds Payable

The three-step analysis to determine cash provided or used by financing activities includes:

-reporting the cash flow effects -determine the cash effects using T-accounts and reconstructed entries -identifying changes in financing-related accounts

__________ activities include those transactions and events that affect net income.

operating

Net cash provided by operating activities was $12,000. Net cash provided by investing activities was $2,000. Net cash used in financing activities was $7,000. The cash balance at the beginning of the year was $4,000. The cash balance at the end of the year is:

$11,000

There are five important steps to preparing a statement of cash flows. Rank the steps in order from first to last. -Compute the net cash from all sources; then prove it by adding it to beginning cash to get ending cash -Compute the net increase or decrease in cash -Compute net cash from or for investing activities -Compute net cash from or for operating activities -Compute net cash from or for financing activities

1.Compute the net increase or decrease in cash 2.Compute net cash from or for operating activities 3.Compute net cash from or for investing activities 4.Compute net cash from or for financing activities 5.Compute the net cash from all sources; then prove it by adding it to beginning cash to get ending cash

The statement of cash flows does not report the following transactions

transactions between cash and cash equivalents

The purchase of goods and services, the sale of goods and services to customers, and costs to operate the business are all reported on the statement of cash flows under ______ activities.

operating

A net cash ______ occurs when the payments in a category exceed the receipts.

outflow

Which of the following would be included in the operating section when preparing the statement of cash flows using the indirect method?

Net income

A loss from the sale of an investment would be (added/subtracted) to (from) net income when computing cash flows from operations, using the indirect method.

added

The _______ method of reporting the statement of cash flows reports net income and then adjusts it for items that do not affect cash.

indirect

Select all that apply It is important to analyze the sources and uses of cash because (select all that apply): -Taxing authorities use this information to assess tax on the company. -Customers use this information to decide whether to purchase from the company. -Creditors use this information to assist them in deciding whether to loan funds to them. -Investors use this information to decide if they will purchase their stock.

-Creditors use this information to assist them in deciding whether to loan funds to them. -Investors use this information to decide if they will purchase their stock.

Select all that apply Information about cash flows can influence decision makers in important ways. Which of the following questions could be answered by the statement of cash flows? (Check all that apply.) -Is the company using its assets efficiently? -Does the company have the resources to pursue opportunities? -Can the company pay its debts? -How does a company spend its cash?

Does the company have the resources to pursue opportunities? Can the company pay its debts? How does a company spend its cash?

To compute cash flows from financing activities, accountants normally analyze changes in all of the following accounts except: -Notes Payable -Retained Earnings -Bonds Payable -Common Stock -Interest Payable

Interest payable

Which of the following items would be subtracted from net income when reporting cash flows from operating activities, using the indirect method? (Check all that apply.) -Increase in accounts payable -Increase in unearned fees -Decrease in taxes payable -Decrease in wages payable

-Decrease in taxes payable -Decrease in wages payable

Which of the following transactions would not be classified as an operating activity on the statement of cash flows? -Collections on credit sales -Cash paid for salaries and wages -Payments for goods and services -Cash dividends paid to shareholders

Cash dividends paid to shareholders

Accountants can use a three-step process to determine cash provided (or used) by investing activities. Which of the following steps is not part of this process? -Determine the cash effects using T-accounts. -Report their cash flow effects. -Identify adjustments to net income. -Identify changes in investing-related accounts.

Identify adjustments to net income.

Which of the following questions could not be answered from the statement of cash flows? -Does the company have the resources to pursue opportunities? -Can the company pay its debts? -What are the earnings-per-share of common stock? -Where does a company spend its cash?

What are the earnings-per-share of common stock?

Information on the statement of cash flows helps users answer all of the following questions except: -Why was there a change in the cash balance? -How does a company obtain its cash? -Where does a company spend its cash? -Why did the company invest in long-term assets?

Why did the company invest in long-term assets?

Accounts receivable had a debit balance of $10,000 at the beginning of the period, and a debit balance of $6,000 at the end of the period. Based on this information, the adjustment to net income for the period will be reported as:

a decrease of $4,000 which will be added to net income

A company repaid a long-term debt during the year. They will report this as a(n) (increase/decrease) in the ________ activities section on the statement of cash flows.

decrease; financing

A net cash (inflow/outflow) occurs when the receipts in a category exceed the payments.

inflow

Select all that apply Which of the following items would be correct adjustments to net income to arrive at cash flows from operating activities, using the indirect method? (Correct all that apply.) -Subtract increase in wages payable -Add increase in accounts receivable -Add increase in accounts payable -Subtract increase in inventory

-Add increase in accounts payable -Subtract increase in inventory

Select all that apply Which of the following items would be adjusted to net income when computing cash flows from operating activities, using the indirect method? (Check all that apply.) -Increase in market value of stock -Loss on sale of investment -Gain on sale of building -Depreciation expense

-Loss on sale of investment -Gain on sale of building -Depreciation expense

Select all that apply Identify which of the following items is a noncash investing and financing activity that must be reported in a note to the statement of cash flows. (Check all that apply.) -Retirement of debt by issuing stock -Repayment of a note with cash -Lease of an asset in a long-term lease transaction -Purchase of a plant asset with cash

-Retirement of debt by issuing stock -Lease of an asset in a long-term lease transaction

Select all that apply Which of the following statements about the statement of cash flows are correct? (Check all that apply.) -The purpose is to report cash receipts and cash payments during a period. -It details the sources and uses of cash. -In certain circumstances, it can replace the statement of retained earnings.

-The purpose is to report cash receipts and cash payments during a period. -It details the sources and uses of cash.

Depreciation expense is (added/subtracted) to (from) net income, when computing cash flows from operations, using the indirect method.

added

Select all that apply Which of the following items are classified as noncash investing and financing activities? (Check all that apply.) -Retirement of debt by issuing stock -Repayment of a note with cash -Conversion of preferred stock to common stock -Lease of assets in a long-term lease transaction

-Retirement of debt by issuing stock -Conversion of preferred stock to common stock -Lease of assets in a long-term lease transaction

Select all that apply The format of a statement of cash flows includes reporting cash flows from three activities including: -operating -investing -equivalent -financing -cash

-operating -investing -financing

Select all that apply The three-step analysis to determine cash provided or used by investing activities includes: -identifying changes in investing-related accounts -determining the cash effects using T-accounts and reconstructed entries -reporting the cash flow effects -identifying changes in cash accounts

-reporting the cash flow effects -identifying changes in investing-related accounts -determining the cash effects using T-accounts and reconstructed entries

The statement of cash flows reports noncash investing and financing transactions in

a note or separate schedule

Accounts receivable had a debit balance of $4,000 at the beginning of the period, and a debit balance of $6,000 at the end of the period. Based on this information, the adjustment to net income for the period will be reported as:

an increase of $2,000 which will be subtracted from net income

Starfish Shells had a beginning balance in Notes Payable of $35,000 and an ending balance of $40,000. This will be reported as _____ on the statement of cash flows.

an increase of $5,000 in the cash flows from financing activities section

A gain from the sale of a building would be (added/subtracted) to (from) net income when computing cash flows from operations, using the indirect method.

subtracted

Net cash used in operating activities was $10,000. Net cash provided by investing activities was $2,000. Net cash provided by financing activities was $5,000. The cash balance at the end of the year was $12,000. The cash balance at the beginning of the year was $

15000

Which of the following items would not be adjusted to net income when computing cash flows from operating activities, using the indirect method?

Cash received from sale of building

The statement of cash flows explains the difference between beginning and ending balances of cash and cash equivalents. A cash equivalent must exhibit all of the following criteria, except: -be close to maturity. -be held at a local institution. -be readily convertible to a known amount of cash.

be held at a local institution.

Investors assess cash flows before

buying and selling stock