Chapter 12 Smartbook Unit 3 A304

Interest payments is a form of _______ activities

Operating

Rent-a-wreck, Inc.'s property, plant and equipment balance, net of depreciation, at the beginning of the year was $100,000 and at the end was $150,000. During the year, depreciation expense was $10,000 and new equipment was purchased for $80,000 cash. What is the amount of proceeds from the disposal of property, plant and equipment shown on the statement of cash flows for the year? $0 $40,000 $20,000 $30,000

$20,000 Proceeds from disposal of property, plant and equipment = $100,000 + $80,000 - $10,000 - $150,000 Proceeds from disposal of property, plant and equipment = $20,000

Cashews, Inc.'s financing activities section of the statement of cash flows reported a significant cash inflow from the issuance of bonds and cash outflow from the repurchase of treasury stock; all other financing activities were insignificant. As a result, which of the following may be expected to occur in the near future? (Check all that apply.) A decrease in the number of shares outstanding An increase in dividends An increase in interest expense A decrease in interest expense

A decrease in the number of shares outstanding An increase in interest expense

Which of the following is the best measure of a company's profitability? Accounts receivable Sales revenue Accrual-based net income Cash-based net income

Accrual-based net income

Which of the following will result in a cash outflow from financing activities? (Check all that apply.) Payments of accounts payable Payment of interest Early retirement of debt Repayment of a note payable Borrowing from a bank

Early retirement of debt Repayment of a note payable

Match the transaction on the left with the appropriate statement of cash flows classification on the right. Payment of Accounts Payable Financing activities Payment of dividends to stockholders Operating activities Purchase of a new delivery truck Investing activities

Payment of Accounts Payable - Operating activities Payment of dividends to stockholders - Financing activities Purchase of a new delivery truck - Investing activities

Which of the following cash transactions are classified as cash inflows from investing activities? (Check all that apply.) Sale of equipment Borrowing from bank Sale of held-to-maturity investments Sale of merchandise inventory Sale of building

Sale of equipment Sale of held-to-maturity investments Sale of building

How is the change in Retained Earnings accounted for in the statement of cash flows? The change is accounted for by the addition of net income in operating activities and the subtraction of dividends in financing activities. The change in Retained Earnings is effectively ignored in the statement. The change in Retained Earnings is classified as an investing activity.

The change is accounted for by the addition of net income in operating activities and the subtraction of dividends in financing activities.

Which method of preparing the statement of cash flows is more widely used and why? The indirect method is because it is more conservative. The indirect method is because it is less expensive to implement. The indirect method is because it is recommended by FASB over the direct method. The direct method is because it is easier to understand.

The indirect method is because it is less expensive to implement.

Which of the following transactions would be classified as investing activities? (Check all that apply.) The sale of a building used in the business The purchase of investments for cash The increase in accounts receivable due to sales on account The purchase of equipment The repayment of a long-term note payable The issuance of additional common stock

The sale of a building used in the business The purchase of investments for cash The purchase of equipment

Credits in the accounts receivable account during a period represent the Blank______. sales on account amount owed for cash collected in advance cash collected cash paid in advance

cash collected

When preparing the statement of cash flows using the indirect method, one of the purposes of adjusting net income for changes to certain balance sheet accounts is to ______. ensure that net income is properly stated derive the correct ending balance of cash convert items included in net income to cash

convert items included in net income to cash

A purchase of an intangible asset results in a(n) ______ to net cash flow provided by ______ activities. (Enter one word per blank.)

decrease; investing

Which of the following will be added to net income when preparing the statement of cash flows using the indirect method? (Select all that apply.) increases in operating assets depreciation expense decreases in operating assets increases in operating liabilities decreases in operating liabilities

depreciation expense decreases in operating assets increases in operating liabilities

Retained Earnings is analyzed when preparing the statement of cash flows to help determine the amount of Blank______. (Select all that apply.) dividend payments under financing activities dividend payments under investing activities dividend payments under operating activities net income under investing activities net income under operating activities (indirect method)

dividend payments under financing activities net income under operating activities (indirect method)

Retained Earnings is analyzed when preparing the statement of cash flows to help determine the amount of Blank______. (Select all that apply.) dividend payments under financing activities net income under investing activities dividend payments under investing activities net income under operating activities (indirect method) dividend payments under operating activities

dividend payments under financing activities net income under operating activities (indirect method)

The balance sheet accounts related to financing ________ activities include Long-term Debt, Common Stock, Additional Paid-in Capital, and Retained Earnings (from dividends declared and paid).

financing

Revenues and expenses relate to the cash inflows and outflows found in the ______ activities section of the statement of cash flows.

operating

The ______ activities section of the statement of cash flows shows the difference between accrual-based net income and cash from operating activities when prepared using the indirect method.

operating

The Blank______ activities section is very important, since Blank______ are the only continuing, internal source of cash for the business. financing; capital contributions investing; investments operating; operations operations; capital contributions financing; operations investing; capital contributions

operating; operations

A company that reports a significant negative cash flow from investing activities due to the purchase of a building will most likely report a Blank______. positive cash flow from financing activities negative cash flow from operating activities positive cash flow from investing activities a large cash dividend

positive cash flow from financing activities

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

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

When presenting the operating activities section of the statement of cash flows, the indirect method Blank______. starts with cash and cash equivalents and adjusts for changes in noncash items reports the total cash inflow or cash outflow from each main type of transaction starts with revenues and adjusts for all cash items starts with net income and adjusts it by eliminating the effects of noncash items

starts with net income and adjusts it by eliminating the effects of noncash items

When using the indirect method, subtracting an increase in Accounts Receivable from net income eliminates the effect of recording credit sales Blank______. that increased net income and increased cash flow that increased net income, but did not impact cash that decreased net income and decreased cash flow that decreased net income, but did not impact cash

that increased net income, but did not impact cash

At the beginning of the year, Cashews, Inc. had $10,000 Common Stock and $90,000 Additional Paid-in Capital. At year end, Cashews, Inc. had $30,000 Common Stock and $270,000 Additional Paid-in Capital. During the year, Cashews' net income was $30,000, and it paid a $10,000 cash dividend. If the change in Common Stock and Additional Paid-in Capital is due to new shares being issued, what is the amount of net proceeds from the stock issuance on the statement of cash flows? $300,000 $200,000 $40,000 $30,000 $20,000

$200,000 90,000-> 270,000 = 180,000 difference 10,000-> 30,000 = 20,000 difference -------------------------------------- 200,000

During the year, Cashews, Inc. borrowed $100,000 cash from a bank, received $700,000 cash from issuing bonds, repaid a $300,000 note payable to a bank, and sold $200,000 of short-term investments. The net cash inflow (outflow) from financing activities (assuming no other financing activities) equals Blank______. $(300,000) $(500,000) $300,000 $500,000 $(700,000) $700,000

$500,000 700,000 +100,000 -300,000 -------------------------------------------- 500,000 200,000 not included because it is a investing activity, when it is only looking for financing activity

Which of these would be reported as cash flows from financing activities? (Check all that apply.) Cash paid to buy computers Cash borrowed from the bank Cash dividends paid to stockholders Cash paid to buy land

Cash borrowed from the bank Cash dividends paid to stockholders

True or false: Cash flows from operating activities equals net income and measures the company's profitability.

False

Identify which of the following are properly reported in a statement of cash flows. (Check all that apply.) Payment of accrued liabilities: cash outflow under financing activities Repayment of loan principal: cash outflow under financing activities Repurchase of treasury stock: cash inflow under financing activities Cash paid for interest: cash outflow under operating activities Net proceeds from stock issuance: cash inflow under financing activities

Repayment of loan principal: cash outflow under financing activities Cash paid for interest: cash outflow under operating activities Net proceeds from stock issuance: cash inflow under financing activities

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

amounts presented in the income statement

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 not classified as an operating activity. Depreciation Expense originally reduced net income, but the expense does not involve paying cash. 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 actually represents a cash inflow for the company.

Depreciation Expense originally reduced net income, but the expense does not involve paying cash.

How do financing activities differ from investing activities? (Check all that apply.) Financing activities may involve an exchange of cash for the company's own stock; investing activities do not. Financing activities involve an exchange of cash for productive assets; investing activities do not. Financing activities may involve an exchange of cash with creditors; investing activities do not.

Financing activities may involve an exchange of cash for the company's own stock; investing activities do not. Financing activities may involve an exchange of cash with creditors; investing activities do not.

A net cash outflow from financing activities means Blank______. amounts received from issuing stocks and debt were greater than repurchasing or repayments of stocks and debt revenues were less than expenses sales were greater than the purchases of long-lived assets and investments amounts received from issuing stocks and debt were less than repurchasing or repayments of stocks and debt revenues were greater than expenses sales were less than the purchases of long-lived assets and investments

amounts received from issuing stocks and debt were less than repurchasing or repayments of stocks and debt

ABC Company issued 30,000 shares of common stock in January. In August, the company repurchased 5,000 shares for the treasury. When reporting these transactions in the statement of cash flows, ABC Company Blank______ combine them into one transaction in the Blank______ activities section. cannot; financing can; financing cannot; investing can; investing

cannot; financing

The two types of adjustments to net income for the indirect method are adjustments for Blank______. (Check the two that apply.) 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 components of net income that do not affect cash

A large net income compared to cash flows from operations may indicate Blank______. an inflated cash collected from customers an overstatement of accrued expenses an understatement of accrued revenues earnings manipulation

earnings manipulation

Changes in which of the following balance sheet items relate to investing activities? (Check all that apply.) Property, Plant, and Equipment Inventory Short-term Investments Retained Earnings

Property, Plant, and Equipment Short-term Investments

Purchases of stock in other corporations is a(n) Blank______ activity. operating financing investing

investing