accounting chapter 11

Which is a significant noncash activity?

Signing a note payable in exchange for land.

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

added to

Which of the following nonoperating items require adjustments to net income under the indirect method?

losses from sale of long-term assets gains from sale of long-term assets

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 would be

$112 million($100 + $12)

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

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 form investing activities 3. determine the net cash flows from financing activities 4. combine each of them

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

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.

Which of the following methods for reporting cash flows from operating activities begins with net income and works backward to calculate net cash flow from operating activities?

Indirect method

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 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

Adjustments to net income in calculating operating cash flows include:

Nonoperating items Changes in current assets and current liabilities Noncash items

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

Purchase of a machine for cash.

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

Sale of a machine for cash.

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.

what is the last step in preparing a statement of cash flows in correct order

combine operating, investing, and financing activities

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

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.

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.

Using the indirect method to report cash flows from operating activities, a(n) _____ in the accounts receivable from the prior period is added to net income in the _____ activities section of the statement of cash flows.

decrease, operating

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.

depreciation expense decrease in current asset loss on sale of land

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

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

The two generally accepted formats for reporting cash flows from operating activities using U.S. GAAP are the

direct and indirect method.

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

The method of reporting cash flows from operating activities begins with net income.

indirect

The statement of cash flows provides information about the cash inflows and cash outflows of an entity. For financing activities, a cash ___occurs when cash is borrowed from a creditor, and a cash___ occurs when a loan is repaid.

inflow/receipt/increase outflow/disbursement/decrease

which of the following items are classifies as cash outflows from operating activities on the statement of cash flows

interest paid on bonds purchase of supplies payment on account

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

interest received on notes receivable collection on account collection of interest collection from customers

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

transactions reported on the statement of CF that do not increase or decrease cash, but that result in significant investing and financing activities are

noncash activities

___ activities include cash receipts and cash payments for transactions

operating

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

operating activities

the three classifications on the statement of cash flows are flows cash from

operating, investing, and financing activities

the statement of cash flows classifies items as

operating, investing, financing

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

payment of salaries payment on account

which of the following are outflows from investing activities

purchase of investment purchase of land

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

the change in the cash balance.

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

True or false: If a company chooses to prepare the operating section of the statement of cash flows using the direct method, it must also report using the indirect method

true

Under the indirect method of preparing the statement of cash flows, depreciation expense is added back to net income because it

was subtracted in deriving net income. did not require an outflow of cash.

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

financing

the financial statement that provides information about cash receipts and cash disbursements for the period is the

statement of cash flows

which of the following are significant noncash activities

acquiring equipment by issuing a long-term note acquiring land by issuing common stock

which of the following are classified as cash inflows from investing activities

sale of land sale of equipment sale of building sale of investment

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

Inflows/receipts, outflows/payments

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

added back to net income

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

amortization expense depreciation expense

Wiese Company presents its statement of cash flows using the direct method. Wiese must also prepare the operating section using the indirect method and report it:

either along with the direct method on the face of the statement or in the financial statement notes

cash flows from ___ activities include both inflows and outflows of cash from the external funding of a business

financing

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

financing activities

cash transaction involving the purchase and sale of long-term assets and current investments are classified as

investing

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

long-term liability and stockholders' equity accounts

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

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

net income

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

non operating

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

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

purchase of treasury shares pay dividends repay borrowing from a bank repayment of notes payable

Noncash investing and financing activities are either:

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

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

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

investing activities

which of the following are cash inflows from financing activities

issuing stock to investors for cash issuance of bonds borrowing from bank

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