Chapter 22 exam study

The first step in preparing the statement of cash flows requires the use of information included in which comparative financial statements?

Balance sheets

Significant noncash transactions are not to be incorporated in the statement of cash flows. They may be summarized in a separate schedule at the bottom of the statement or appear in a separate supplementary schedule to the financials. Is reported on the statement of cash flows according to

FASB statement no 95

Investing activities do not include cash inflows from A) sale of property, plant, and equipment. B) interest revenue from notes receivable. C) sale of debt or equity investments. D) collection of principal on loans to other entities.

b

Xanthe Corporation had the following transactions occur in the current year: 1. Cash sale of inventory. 2. Sale of a delivery truck at book value. 3. Sale of Xanthe common stock for cash. 4. Issuance of a note payable to a bank for cash. 5. Sale of security held as an available-for-sale investment. 6. Collection of a loan receivable. How many of the above items will appear as cash inflows from investing activities on the statement of cash flows for the current year?

c

To compute net cash provided by operating activities, it is necessary to report revenues and expenses on a cash basis. This is done by eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in ____.

cash

-treasury bills, commercial paper, and money market funds purchased with excess cash. -investments with original maturities of three months or less. -readily convertible into known amounts of cash. Are all examples of,

cash equivalents

The first category of cash flows reported on the Statement of Cash Flows is

cash flows from operating activities

A company borrows $10,000 and signs a 90-day nontrade note payable. In preparing a statement of cash flows (indirect method), this transaction would be reported as a(n)

cash inflow from financing activities

A company acquired a building, paying a portion of the purchase price in cash and issuing a mortgage note payable to the seller for the balance. In a statement of cash flows, which of these amounts would be included in investing activities?

cash payment

When preparing a statement of cash flows (indirect method), an increase in ending inventory over beginning inventory will result in an adjustment to reported net earnings because

cost of goods sold on an accrual basis is lower than on a cash basis

Financing activities do NOT include cash outflows to A) stockholders as dividends. B) lenders to pay off long-term debt. C) stockholders to repurchase common stock. D) make loans to other entities.

d

In reporting unusual items on a statement of cash flows (indirect method), the gross amount of an unusual gain should be

deducted from net income

The amortization of bond premium on long-term debt should be presented in a statement of cash flows (using the indirect method for operating activities) as a(n)

deduction from net income

An increase in inventory balance would be reported in a statement of cash flows using the indirect method (reconciliation method) as a(n)

deduction from net income in arriving at net cash flow from operating activities

Dolan Company reports its income from investments under the equity method and recognized income of $25,000 from its investment in Moss Co. during the current year, even though no dividends were declared or paid by Moss during the year. On Dolan's statement of cash flows (indirect method), the $25,000 should be reported as a

deduction from net income in the cash flows from operating activities section.

The ________ method is more consistent with the primary purpose of the statement of cash flows.

direct

When preparing a statement of cash flows, a decrease in accounts receivable during a period would require which of the following adjustments in determining cash flow from operating activities?

direct method increase, indirect method increase

Declaration of a cash dividend on common stock affects cash flows from operating activities under the direct and indirect methods as follows:

direct: no effect; indirect: no effect

Operating activities include cash inflows from

dividends from equity investments

payment of a bond payable, is what kind of cash flow activity?

financing

When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is deducted from net income to compute cash provided by/used by operating activities?

gain on sale of land

When preparing a statement of cash flows, a decrease in prepaid insurance during a period would require which of the following adjustments in determining cash flows from operating activities?

indirect method increase, direct method decrease

When preparing a statement of cash flows, an increase in accounts payable during a period would require which of the following adjustments in determining cash flows from operating activities?

indirect method increase, direct method decrease

Major repair to machinery charged to accumulated depreciation, would be reported in what section of the statement of cash flows?

investing

In determining net cash flow from operating activities, a decrease in accounts payable during a period

is added to cost of goods sold under the direct method.

A company acquired a building, paying a portion of the purchase price in cash and issuing a mortgage note payable to the seller for the balance. In a statement of cash flows, which of these amounts would be included in financing activities?

none

How is the following reported on the statement of cash flows? a stock dividend a stock split an appropriation of retained earnings

none

How is the issuance of a short-term note payable reported on the Statement of Cash Flows? -nontrade -trade

nontrade: financing; trade: adj to net income in operating activities

The FASB requires companies to classify all income taxes paid as

operating cash outflow

An objective of the statement of cash flows is to

provide information about the operating, investing, and financing activities of an entity during a period.

When the direct method is used, an increase in gross accounts receivable is deducted from _____, and a change in the allowance for doubtful accounts is an adjustment to _________ expenses.

sales, operating

A statement of cash flows typically would not disclose the effects of

stock dividends declared

When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is added to net income to compute cash provided by/used by operating activities?

amortization of patent

Crabbe Company reported $80,000 of selling and administrative expenses on its income statement for the past year. The company had depreciation expense and an increase in prepaid expenses associated with the selling and administrative expenses for the year. Assuming the direct method is used, how would these items be handled in converting the accrual based selling and administrative expenses to the cash basis? 1. depreciation 2. increase in prepaid expenses

1. deducted from 2. added to

The primary purpose of the statement of cash flows is to provide information

about the cash receipts and cash payments of an entity during a period.