Week 7

There are five important steps to preparing a statement of cash flows. Rank the steps in order from first to last.

1. Compute the net increase or decrease in cash. 2. Compute and report the net cash provided or used by operating activities. 3. Compute and report the net cash provided or used by investing activities. 4. Compute and report the net cash provided or used by financing activities. 5. Compute the net cash flow by combining net cash provided or used by operating, investing, and financing activities and prove the change.

Blink, Inc. has 1,000 shares of $10 par, 5% preferred stock, and 20,000 shares of $10 par common stock issued and outstanding. If the board of directors authorizes a $20,000 dividend, the payment to common shareholders will total $.

19500

Zinc, Inc. has 10,000 shares of $5 par, 5% preferred stock, and 5,000 shares of $10 par common stock issued and outstanding. If the board of directors authorizes a $15,000 dividend, the payments to preferred shareholders will total _________.

2500 Reason: 10,000 shares x $5 x .05 = $2,500.

Which of the following transactions would not be classified as an operating activity on the statement of cash flows?

Cash dividends paid to shareholders

Which of the following transactions would be reported under cash flows from operating activities? Select all that apply.

Cash paid for salaries and wages Cash received from sales Cash paid to lenders for interest

A company's cash receipts and cash payments are recorded in the cash account in its general ledger. Which of the following can be determined by analyzing the cash account? (Check all that apply.)

Cash payments on notes Cash payments for equipment Cash receipts from customers

Which of the following items would be reported under financing activities on the statement of cash flows? (Select all that apply).

Cash received from issuing notes payable Cash paid to repay debt Cash dividends paid to shareholders

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

Which of the following would not be reported under financing activities on the statement of cash flows?

Cash received from sale of plant assets

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 Bonds Payable

John Kim agrees to contribute equipment with a fair market value of $5,000 in exchange for 100 shares of Rio Inc.'s common stock with a par value of $1 per share. Rio will record this transaction as a credit to which of the following accounts? (Check all that apply.)

Common Stock Paid-in Capital in Excess of Par Value

Which of the following is not one of the five important steps to preparing a statement of cash flows?

Compute the net income

Vanya Inc.'s charter authorizes 1,000 shares of stock at a stated value of $1 per share. Vanya sells 50 shares of stock at its initial offering for $10 per share. The journal entry to record this transaction will include which of the following entries? (Check all that apply.) Multiple select question.

Credit to Paid-In Capital, in Excess of Stated Value for $450. Credit to Common Stock for $50. Debit to Cash for $500.

On May 25, Tyler, Inc. issues 100 shares of $10 par value preferred stock for $5,000 cash. The entry to record this transaction would include a (debit/credit) ________ to the preferred stock account in the amount of _______.

Credit,1,000

Vanya Inc.'s charter authorizes 1,000 shares of stock at a stated value of $1 per share. Vanya sells 50 shares of stock at its initial offering for $10 per share. The journal entry to record this transaction will include which of the following entries? (Check all that apply.)

Debit to Cash for $500. Credit to Paid-In Capital, in Excess of Stated Value for $450. Credit to Common Stock for $50..

Ivers, Inc. purchased 100 shares of its own $10 par value common stock for $20 per share. The journal entry to record this transaction would include which of the following entries?

Debit to Treasury Stock; credit to Cash.

activities include those transactions and events that affect long-term liabilities and equity, such as obtaining cash from issuing debt and distributing cash to owners.

Financing

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?

Identify adjustments to net income.

The information needed to prepare a statement of cash flows could come from which of the following sources? (Check all that apply.)

Income statement Comparative balance sheets Cash account

A company reported total assets at the end of the previous year of $95,000; including cash of $35,000, accounts receivable of $20,000, and inventory of $40,000. It reported total assets at the end of the current year of $110,000; including cash of $44,000; accounts receivable of $29,000, and inventory of $37,000. Compute the net increase or decrease in cash for the current year.

Increase of $9,000

To compute cash flows from financing activities, accountants normally analyze changes in all of the following accounts except:

Interest Payable

the equity sections for Atticus Group at the beginning of the year (January 1) and end of the year (December 31) follow.

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

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.)

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

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.)

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

Both the direct and indirect methods of operating activities report which of the following items?

Net cash inflows (outflows)

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

Net income

Jose Garcia agrees to contribute land with a fair market value of $10,000 in exchange for 200 shares of Damian Inc.'s common stock with a par value of $10 per share. The journal entry to record this transaction in the books of Damian, Inc., will include a credit to _________ in the amount of _______.

Paid-in Capital, in Excess of Par; $8,000

A company's cash receipts and cash payments are recorded in the cash account in its general ledger. Identify which of the following could not be determined by analyzing the cash account?

Payment for land by issuing a note

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 inventory Add increase in accounts payable

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.

Which of the following is not a reason that a corporation would issue preferred stock?

To obtain a tax advantage over corporations with no preferred stock

Corporations purchase and hold their own stock, known as treasury stock, for several reasons. Identify which of the following is not a reason that a corporation would buy treasury stock.

To reduce the market value of the common shares outstanding

When a corporation purchases shares of its own stock, it is called ________ stock.

Treasury

Which of the following questions could not be answered from the statement of cash flows?

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 did the company invest in long-term assets?

Sheldon Company's balance in prepaid insurance at the beginning and end of the year was $2,500 and $1,000, respectively. This will be reported on the statement of cash flows using the indirect method as:

a decrease of $1,500 which will be added to net income

Emerald Jewelery Store had a credit balance in interest payable of $200 at the beginning of the period, and a credit balance of $50 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 $150 which will be subtracted from net income

Inventory at the beginning of the period had a debit balance of $9,000, and a debit balance of $7,000 at the end of the period. Using the indirect method, this will be reported in the operating section of the statement of cash flows as:

a decrease of $2,000 which will be added to net income

Retained earnings at the beginning and end of the year totaled $25,000 and $75,000, respectively. Net income reported during the period was $70,000. Using this information, dividends paid will be reported as _____ on the statement of cash flows.

a decrease of $20,000 in the financing activities section. Reason: $25,000 + $70,000 = $95,000. Ending retained earnings is $75,000. $95,000 - 75,000 = dividends of $20,000. Dividends paid will be reported as a decrease in the financing activities section.

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

a note or separate schedule

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

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

added

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

added

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.

addedd

The Coffee Cup Company had a credit balance of $500 in interest payable at the beginning of the period, and a credit balance of $600 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 $100 which will be added to net income

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

Sunshine Company had a credit balance of $4,000 in accounts payable at the beginning of the period, and a credit 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 added to net income

A statement of stockholders' equity lists balances of:

cash dividends retained earnings net income common stock shares

_________ activities include those transactions and events that affect long-term liabilities and equity, such as obtaining cash from issuing debt and distributing cash to owners.

financing

The format of a statement of cash flows includes reporting cash flows from three activities including:

financing operating investing

The three-step process to determine cash provided or used by financing activities includes all of the following steps except:

identify an increase or decrease in cash.

When analyzing the noncash accounts to assist in preparing the statement of cash flows, the changes in liabilities, equity and noncash asset accounts are analyzed along with the

income statement accounts

The account that consists of a company's cumulative net income less any losses and dividends declared since its inception is called _________

retained earnings

is an account that consists of a company's cumulative net income less any losses and dividends declared since its inception.

retained earnings

The information needed to prepare a statement of cash flows could come from all of the following sources, except the:

statement of retained earnings.

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

In preparing a cash flows from operating activities using the indirect method, an increase in accounts receivable would be (added/subtracted) to (from) net income.

subtracted

The statement of cash flows does not report the following transactions

transactions between cash and cash equivalents

True or false: Preferred stock can be issued to raise money without giving up control.

true

Current liabilities _____ operations, including short-term notes payable and dividends payable are categorized as financing activities.

unrelated to

In the computation of basic earnings per share, a company will use the _____.

weighted-average common shares outstanding

Long, Inc. purchased 50 shares of its own $10 par value common stock for $50 per share. The journal entry to record this transaction would include a debit to the Stock account in the amount of $.

Blank 1: Treasury Blank 2: 2500

Avery, Inc. held 100 shares of its own $10 par value common stock purchased for $15 per share. On December 1, Avery sold 10 shares at $15 per share. The journal entry to record the sale of treasury stock would include a (debit/credit) to Treasury Stock in the amount of $.

Blank 1: credit Blank 2: 150

Which of the following items are classified as noncash investing and financing activities? (Check all that apply.)

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

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

LiveLife Company had a credit balance of $10,000 in accounts payable at the beginning of the period, and a credit 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 subtracted from net income

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

Reid Company's balance in prepaid insurance at the beginning and end of the year was $1,000 and $1,200, respectively. This will be reported on the statement of cash flows using the indirect method as:

an increase of $200 which will be subtracted from net income

Inventory at the beginning of the period had a debit balance of $7,000, and a debit balance of $10,000 at the end of the period. Using the indirect method, this will be reported in the operating section of the statement of cash flows as:

an increase of $3,000 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

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.)

be held at a local institution.

Investing activities are affected by

changes in long-term assets.

On August 20, Max, Inc. issues 100 shares of $1 par value preferred stock for $3,000 cash. The entry to record this transaction would include a (debit/credit) to the preferred stock account in the amount of $.

credit 100

Cameron, Inc. held 1,000 shares of its own $10 par value common stock purchased for $20 per share. In March, Cameron sold 10 shares at $20 per share. The journal entry to record the sale of treasury stock would include a (debit/credit) ________ to Treasury Stock in the amount of ________.

credit; $200

The Breezy Fan reported a decrease to net income in their income taxes payable account on the statement of cash flows using the indirect method. This means that Breezy Fan's income taxes payable account (increased/decreased) for the period.

decreased

Cash flows provided (used) by operating activities are reported in one of two ways: the method or the method. These two methods apply only to the operating activities section.

direct indirect

The net cash amount provided by operating activities is identical under both the and methods.

direct indirect

The amount of income earned per each share of a company's outstanding common stock is known as:

earnings per share

In addition to analyzing the cash account, a second approach to preparing the statement of cash flows is to explain changes in cash by analyzing changes in

equity accounts noncash asset accounts liability accounts

At the beginning of the year, Rex Co. showed a debit balance in the cash account of $20,500. Total debits to this account during the year were $45,000, and total credits during the year were $35,000. The net (increase/decrease) in cash for the year equals $.

increase 10000

The TeaCup Company reported an increase to net income in their income taxes payable account on the statement of cash flows using the indirect method. This means that TeaCup's income taxes payable account (increased/decreased) for the period.

increased

Carol Co. prepares a statement of cash flows starting with net income and then adjusting for items that do not affect cash. Carol Co. is using the (direct/indirect) method of reporting the statement of cash flows.

indirect

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

indirect

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

inflow

Collecting money for notes receivable would be reported on the statement of cash flows as a(n) activity.

investing

In a statement of cash flows, cash received from the sale of a building would be classified under "cash flows from activities."

investing

_______ activities include those transactions and events such as lending and collecting money for notes receivable and cash receipts from sale of short-term investments.

investing

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

The presentation of the _____ section is shown differently depending on if the statement of cash flows is reported using the direct or indirect method.

operating

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

activities include those transactions and events that affect net income.

operating

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

outflow

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

Stock that typically includes preference for receiving dividends and for distribution of corporate assets during a liquidation is called _ stock.

preferred

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

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