Chapter 11 SmartBook

The direct method presents a summary of all operating transactions that result in either a debit or credit to the __________ account

cash

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

Financing activities

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

Purchase of an investment Purchase of land

Which of the following are cash outflows from financing activities?

Repay borrowing from bank repayment of note payable Pay dividends

Which is a significant noncash activity?

Signing a note payable in exchange for land.

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

1. calculate the net cash flows from operating activities 2. determine the net cash flows from investing activities 3. determine the net cash flows from financing activities 4. combine operating, investing and financing activities

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

added back to net income

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.

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.

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.

Which method of preparing the operating activities section of the statement of cash flows consists of a summary of all operating transactions that result in either a debit or a credit to cash?

direct

method for determining cash flows from operations, noncash expenses are omitted from the Statement of Cash Flows.

direct

The purchase and sale of long-term assets and current investments are classified as

investing activities.

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.

loss on sale of land depreciation expense decrease in current asset

The starting point for preparing the operating activities section using the indirect method is:

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

noncash activities

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.

The amount of net cash flows from operating activities calculated using the direct method is

the same as under the indirect method.

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

Which of the following items are classified as cash inflows from operating activities on the statement of cash flows?

Collection from customers Interest received on notes receivable

Which of the following are common financing activities?

Issuing common stock Payment of cash dividends Purchasing treasury stock borrowing money

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

calculate the net cash flows from operating activities

Operating cash flows divided by average total assets will calculate the:

cash return on assets

During the year, Amrerk Inc. recorded sales revenue of $200,000. The balance in accounts receivable increased by $4,000. The amount of cash received from customers can be derived by preparing a journal entry that includes: (Select all that apply.)

credit to sales revenue for $200,000 debit to accounts receivable for $4,000

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.

gain on sale of land decrease in current liability

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

nonoperating

Cash return on assets is calculated as ______ divided by average total assets.

operating cash flow

True or false: Cost of goods sold must be adjusted to a cash number because the cost of merchandise sold may be more or less than the amount of cash paid to suppliers during the period.

true

Maier's accounts receivable account shows the following information: beginning balance: $100; debits during the year: $1,250; ending balance: $150. Cash received from customers must be:

$1,200

Sales on account are $100,000. Beginning accounts receivable is $20,000, and ending accounts receivable is $15,000. What is the cash collected from customers during the period?

$105,000

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%

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 receivable Accounts payable

Which of the following would be reported as a cash outflow from financing activities?

Purchase of treasury shares

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

Sale of building Sale of investments Sale of equipment

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

Sale of land Sale of equipment

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

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

When accounts receivable decrease

net sales are less than cash receipts from customers.

Kleister Company issues bonds for $100 million and repays a long-term notes payable of $10 million. The company also sells its own shares for $12 million and pays cash dividends of $5 million. Cash inflows from financing activities will be:

$112 mill

If interest payable increases, which of the following is true?

Interest paid is lower than the interest expense on the income statement.

Which of the following items are classified as cash outflows from operating activities on the statement of cash flows?

Interest paid on bonds payment on account payable purchase of supplies payment of salaries

An increase in accounts receivable will result in a(n) ______ in cash from sales revenue when using the direct method to determine cash flows from operations.

decrease

The statement of cash flows provides information about the cash inflows and cash outflows of an entity. For financing activities, a cash __________ The statement of cash flows provides information about the cash inflows and cash outflows of an entity. For financing activities, a cash _________ occurs when a loan is repaid.

inflow outflow

A review of Elisa Company's financial statements reveals the following information: cost of goods sold: $200,000; increase in inventory: $10,000; increase in accounts payable: $20,000. Cash paid to suppliers was:

$190,000

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

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

Sales on account are $200,000. Cash sales during the period are $50,000. Beginning accounts receivable is $20,000, and ending accounts receivable is $30,000. What is the total cash collected from customers during the period?

$240,000

Roberts Company's operating expenses (excluding depreciation expense) were $50,000 and its balance in prepaid insurance increased by $2,000. Cash paid for operating expenses was:

$52,000

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

financing

The return on assets is calculated by dividing ____ by _______.

net income; average total assets

Which of the following sections will be identical in every detail under the direct and indirect methods.

Cash flows from financing activities Cash flows from investing activities

Which statement regarding the amount of cash from operating activities is correct?

It is identical under the direct and the indirect method

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

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

Sale of a machine for cash.

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

added to

Which of the following are significant noncash activities? (Select all that apply.)

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

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

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.

During the year, Unger Inc. recorded sales revenue of $400,000. The balance in accounts receivable decreased by $4,000. The amount of cash received from customers can be derived by preparing a journal entry that includes: (Select all that apply.)

credit to accounts receivable for $4,000 credit to sales revenue for $400,000

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

investing

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

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

noncash

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

When using the direct method to prepare the Statement of Cash Flows, depreciation expense is

not reported on the statement of cash flows.

When the ______ account decreases, it means the company paid less cash for insurance than it recorded as insurance expense.

prepaid insurance

Noncash investing and financing activities are either: (Select all that apply.)

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

The ratio that is calculated by dividing net income by average total assets is referred to as:

return on assets

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:

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

Which of the following are cash outflows from investing activities?

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

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

operating activities

Which of the following are cash inflows from financing activities?

Issuing stock to investors for cash Issuance of bonds borrowing from bank issuance of common stock

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.

Adjustments to net income in calculating operating cash flows include:

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

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

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

When there is no change in interest payable, the interest expense on the income statement is ______ the actual cash paid out during the period.

equal to

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

financing

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

We can determine cash received from customers by analyzing the accounts receivable account. Which of the following approaches would lead to the correct result?

Beginning balance + debits during the period -- ending balance

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

depreciation expense amortization expense

method prepares the operating activities section of the statement of cash flows by restating each revenue and expense from the accrual basis to the cash basis. It shows the cash collected from customers and the cash paid for operating expenses.

direct

A decrease in accounts receivable will result in a(n) ___________ in cash from sales revenue when using the direct method to determine cash flows from operations.

increase

in accounts payable indicates that cash payments were less than credit purchases and must be subtracted from purchases to calculate cash payments to suppliers.

increase

The statement of cash flows provides summary information about cash ________ and cash _________ during the year

inflows outflows

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

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

less; sales revenue

In order to determine cash flows from financing activities, we need to examine changes to

long-term liability and stockholders' equity accounts

When prepaid accounts increase, it indicates the company has paid ______ cash than it recorded as operating expenses.

more

The statement of cash flows classifies items as

operating, investing, financing

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

the change in the cash balance.

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

the same

Adam Company's operating expenses (excluding depreciation expense) were $80,000 and its balance in prepaid insurance decreased by $5,000. Cash paid for operating expenses was:

$75,000

A review of Munchen Corporation's financial statements reveals the following information: cost of goods sold: $100,000; decrease in inventory: $5,000; increase in accounts payable: $10,000. Cash paid to suppliers was:

$85,000

Which of the following statements is correct concerning a decrease in accounts payable?

Since the cash payments were more than the credit purchases, the decrease must be added to purchases to calculate cash payments to suppliers.

When using the direct method, why is cash received from customers greater than sales revenue on the income statement when accounts receivable decreases?

There were more collections of accounts receivable than sales on account during the year.

A decrease in Income Tax Payable will ______ cash outflows because cash paid for income tax is ______ income tax expense on the income statement.

increase; higher than

The three classifications on the statement of cash flows are cash flows from (Select all that apply.)

financing activities. investing activities. operating activities.

Issuing stock to owners is classified as a(n)

Financing activities