ACCT EXAM 4

Red Oak Inc. determined its net cash flows from operating activities to be an inflow of $35,000 and its ending cash balance to be $26,000. Net cash flows from investing activities is an outflow of $23,000 while net cash flows from financing activities is an inflow of $5,000. A purchase of equipment for the same period resulted in a cash outflow of $20,000 and an increase in notes payable of $20,000. What is the cash balance at the beginning of the period? A) $29,000 B) $ 9,000 C) $ 5,000 D) $25,000

B) $ 9,000

which of the following is true assuming that Walker uses the indirect method in presenting cash flows from operating activities? A) a distributed cash dividend ($3000) would be an addition in the financing section B) a stock dividend (stock issued to shareholders) does not effect the statement of cash flows C) a property dividend ( decreases in assets, increase in equity) is shown in operating activities D) the sale of treasury shares will be a use of cash in the financing activities

B) a stock dividend (stock issued to shareholders) does not effect the statement of cash flows

How should a gain from the sale of used equipment for cash be reported in a statement of cash flows using the indirect method? A) In investment activities as a reduction of the cash inflow from the sale. B) In investment activities as a cash outflow. C) In operating activities as a deduction from income. D) In operating activities as an addition to income.

C) In operating activities as a deduction from income.

In the statement of cash flows, which of the following would decrease reported cash flows from financing activities? A) Issuance of common stock previously purchased for the treasury. B) Increase in dividends payable. C) Principal payments on installment note. D) Interest payment on bonds issued at par value

C) Principal payments on installment note.

Which of the following items must be disclosed when the indirect method of reconciling net income to operating cash flows is used in the operating activities section of a statement of cash flows? A) Cash paid for income taxes B) Cash paid for interest C) Cash paid for research and development costs D) A & B

D) A & B

cash flows from operating activities

net income + noncash expenses and losses - noncash revenues and gains - increases in operating assets (other than cash) + decrease in operating assets (other than cash) - decrease in operating liabilities + increases in operating liabilities +/- cash flows classified as operating, but not included in net income = net cash flows from operating activities

cash flows from financing activities

- financing activities presented as gross cash inflows and outflows -for example a cash receipt is reported separately from a cash payment -generally includes cash flows related to equity financing, debt financing (excluding trade debt), and dividend payments -dividends are adjusted for a change in dividends payable -also includes cash flows related to: (1) principal payments for sale type or finance leases (2) principal payments on installment notes =cash from financing activities = +cash received for stock issuances + cash received for debt proceeds - cash paid for debt payments -cash paid for treasury stock -cash paid for dividends

Oahu Manufacturing Company purchased a three-month U.S. Treasury bill, to be classified as a cash equivalent. In the preparation of Oahu 's statement of cash flows, this purchase would: A) Not be reported separately as a cash outflow, but the amount would be included in the cash balance at the end of the period B) Be treated as an outflow from financing activities C) Be treated as an outflow from operating activities D) Be treated as an outflow from investing activities.

A) Not be reported separately as a cash outflow, but the amount would be included in the cash balance at the end of the period

cash flows from operating activities

(1) cash inflows - cash received from: - sale of goods or services -refunds from suppliers -dividends from investments -interest on receivables -settlement of lawsuits -proceeds from sale of investments held for resale in a trading account (2) cash outflows - cash paid for: -purchase of goods for resale -salaries and other operating expenses -income taxes, duties, and fines -interest on liabilities -settlement of lawsuit -purchases of investments held for resale in trading account

cash flows from financing activities

(1) cash inflows - cash received from: -issuance of a company's own stock -issuance of bonds or other debt ( short term and long term) -sale of treasury stock (2) cash outflows - cash paid for : -dividends and other cash distributions to owners -reacquiring previously issued capital stock -principal payments on loans, payments to retire bonds or other debt, debt issues costs and principal payments on finance leases

cash flows from investing activities

(1) cash inflows - cash received from: -sale of property, plant, and equipment -sale of debt and equity investments in other companies -collection of a loan (excluding interest, which is an operating activity) -sale of patents or other intangible assets (2) cash outflows - cash paid for: -purchase of property plant and equipment -investments in debt and equity investments in other companies -loans to other entities -purchase of patents or other intangible assets

equity method non cash adjustments

(1) for equity investments, companies record: -investment income for a proportionate share of the investees income (noncash item) -cash dividend declared and received as an increase to cash and a decrease to the investment account (no net income impact) (2) on the cash flow statement: -investment income > dividends, subtract difference from net income -investment income < dividends, add difference to net income -net income - excess of investment income over dividends from equity investments + excess of dividends from equity investments over investment income

cash flows from operating activites

(1) noncash revenue/ gain and expense/ loss adjustments: ---examples of noncash revenues and gains: -gain on disposition of fixed asset -gain on settlement of nonoperating liability -unrealized gain - income ---examples of noncash expenses and losses: -loss on disposition of fixed asset -depreciation expense or amortization expense -stock compensation expense -unrealized loss - income -loss on settlement of nonoperating liability (2) changes in operating assets and operating liabilities: ---examples of operating assets: -accounts receivable -supplies -income tax receivable -misc. prepaid expense -inventory -prepaid insurance -- add decreases in operating asset and deduct increase in operating asset ---examples of operating liabilities: -accounts payable -income tax payable -deferred revenue -salaries payable -interest payable -accrued liabilities -- add increases in operating liability and deduct decreases in operating liability (3) cash flows not included in net income -selling and purchasing investments acquired specifically for resale by banks, brokers, or dealers -notes issued for an operating activity

operating, investing, and financing activities

(1) operating activities - include all transactions and other events that are not defined as investing or financing activities... operating activities generally involve producing and delivering goods and providing services. cash flows from operating activities are generally the cash effects of transactions and other events that enter into the determination of net income (2) investing activities - include making and collecting loans and acquiring and disposing of debt or equity instruments and property, plant, and equipment and other productive assets, that is, assets held for or used in the production of goods or services by the entity (other than materials that are part of the entity's inventory). investing activities exclude acquiring and disposing of certain loans or other debt or equity instruments that are acquired specifically for resale (3) financing activities - include obtaining resources from owners and providing them with a return on and a return of their investments; receiving restricted resources that by donor stipulation must be used for long-term purposes; borrowing money and repaying amounts borrowed or otherwise settling the obligation; and obtaining and paying for other resources obtained from creditors on long term credit

cash flow disclosures

(1) reporting requirements: -reconciliation of net income to operating cash flow -report investing and financing inflows and outflows -disclose interest and income taxes paid -disclose noncash investing and financing transactions -disclose nature and amounts of restricted cash and cash equivalents

cash flow worksheet

(1) statement of cash flow worksheet: -optional tool to prepare statement of cash flows -tracks changes in balance sheet accounts by reconstructing transaction entries -identify balance sheet changes that impact the statement of cash flows and classify as operating, investing, or financing

cash flow statement

+/- net cash flows from operating activities for the period +/- net cash flows from investing activities for the period +/- net cash flows from financing activities for the period = +/- net change in cash during the period + cash at beginning of the period = cash at the end of the period

identifying cash flow activities

- proceeds from issuance of preferred stock - inflow financing -payment for the early extinguishment of long term debt issued for capital projects - outflow financing -cash sale of merchandise inventory - inflow operating -nontrade loan made to another entity - outflow investing -sale of patent for cash - inflow investing -purchase of equity securities - outflows investing -proceeds from issuance of bonds - inflow financing -payments to purchase capital stock for treasury - outflow financing -sale of land for cash - inflow investing -issuance of short term note payable for operations - inflow operating -declaration and payments of dividends - outflow financing -payment of operating expenses with cash - outflow operating

example

-cash receipt for issuance of preferred stock - financing -cash payment for dividends to shareholders - financing -cash outflows for a nontrade loan advanced to another entity - investing -cash payment for the redemption of bonds - financing -cash receipt from customers for services performed- operating -cash paid to the federal government for federal income taxes - operating -cash receipt for sale of patent - investing -cash receipt for issuance of bonds at a premium - financing -cash receipt frim dividends from investments- operating -cash payments on nontrade note payable (principal balance) - financing -cash payments for interest on debt - operating -cash receipt from sale of equity securities (not held in trading account) - investing -cash receipt for sale of equipment - investing -cash payment for employee salaries - operating

changes in deferred tax assets and liabilities

-changes in deferred tax assets and liabilities may affect tax expense -on the cash flow statement: adjust net income for increases (decreases) in deferred tax accounts = net income + increases in deferred tax liability - decreases in deferred tax liability - increases in deferred tax assets + decreases in deferred tax assets

compensation expense

-compensation for share-based plans increases compensation expense and capital accounts -no impact on cash - accrual only -on the cash flow statement: add amount back to net income -net income + add compensation expense (noncash)

cash flow information

-helps financial statement users assess financial performance and condition -indicates whether a borrower will produce sufficient cash to pay its debt -indicator of a company's financial flexibility or ability to use cash for unexpected needs and opportunities -classified as operating, investing, and financing cash flows -classification helps financial statement users distinguish between ongoing activity and long term strategic changes

cash flows from investing activities

-investing activities presented as gross cash inflows and outflows -for example , a sale is reported separately from a purchase -generally includes cash flows related to changes in fixed assets, intangible assets, investments in other companies (excluding trading accounts), and nontrade loans to other companies -cash paid for the acquisition of fixed assets includes cash paid for interest that is capitalized - cash from investing activities = + cash received for sale of fixed asset + cash received for sale on investment + cash received for sale of intangible asset -cash paid for fixed assets - cash paid for investments - cash paid for intangible assets

non cash investing and financing transactions

-noncash transactions involve no exchange of cash -examples of noncash exchanges include: (1) conversion of debt securities to equity securities (2) acquisition of assets by assuming liabilities (3) securing a right of use asset in exchange for a lease liability (4) refinancing a long term note payable -omit noncash exchanges from the cash flow statement but disclose if material

pension expense

-pension expense recognized for defined benefit plans may differ from cash funding payments to the plan -on the cash flow statement: (1) pension expense > contributions, add difference to net income (2) pension expense < contributions, subtract difference from net income -net income + excess of pension over cash contributions - excess of cash contributions over pension expense

Napoli Inc. summarized the following information for 2020: Net increase in cash $15,000 Net decrease in deferred tax liability, noncurrent 5,000 Loss on sale of fixed assets 2,000 Increase in accounts receivable, net 8,000 Decrease in inventory 6,000 Increase in accounts payable 10,000 Increase in nontrade note payable 6,000 Depreciation expense 11,000 Net income 180,000 Based on the information provided, what is net cash flows from operating activities for 2020? A) $196,000 B) $217,000 C) $202,000 D) $223,000

A) $196,000

unrealized gain or loss - income

-unrealized holding gains (losses) are recorded to adjust certain debt and equity securities to fair value -unrealized holding gains (losses) affect net income and the investment account -no impact on cash until settled in cash -on the cash flow statement: add losses (subtract gains) to (from) net income -net income + unrealized loss income - unrealized gain income -no adjustments are required for unrealized gains or losses impacting OCI

cash flow statement

= operating cash flows + investing cash flows + financing cash flows = net cash flows ( change in cash for the period)

Lorelai Inc. reported Equipment on January 1 of $430,000 and on December 31 of $392,000. The company also reported Accumulated Depreciation on January 1 of $280,000 and December 31 of $313,000. During the year, the company sold equipment with an original cost of $80,000 and a carrying value of $60,000, resulting in a loss of $5,000. What amounts would be included in the operating activities section of the statement of cash flows? A) Add depreciation expense of $93,000 and subtract loss on sale of equipment of $5,000 from net income. B) Add depreciation expense of $53,000 and subtract loss on sale of equipment of $5,000 from net income. C) Add depreciation expense of $93,000 and add loss on sale of equipment of $5,000 to net income. D) Add depreciation expense of $53,000 and add loss on sale of equipment of $5,000 to net income

D) Add depreciation expense of $53,000 and add loss on sale of equipment of $5,000 to net income

Catalina Company sold used equipment for a cash amount equaling its carrying amount for both book and tax purposes. A few days later, Catalina replaced the equipment by paying a cash down payment and signing a note payable for new equipment. The cash down payment exceeded the cash received for the old equipment. How should these equipment transactions be reported in the investing activities section of Catalina 's statement of cash flows? A) Cash outflow equal to the down payment less the cash received. B) Cash outflow equal to the down payment and note payable less the cash received. C) Cash inflow equal to the cash received and a cash outflow equal to the down payment and note payable. D) Cash inflow equal to the cash received and a cash outflow equal to the down payment

D) Cash inflow equal to the cash received and a cash outflow equal to the down payment

Steinbeck Corporation issued a $80,000, 15-year bond dated January 1, 2020, at 7% with 5% interest payable annually on December 31. . Annual payments were 4000/year and the principal amount is due upon maturity. Assume that the company uses the effective interest method to amortize any discounts or premiums. How would the bond transactions affect the financing activities section of the statement of cash flows for 2020, assuming that the company uses the indirect method in reporting cash flows from operating activities? A) Cash inflow for $96,607 and a cash outflow for $830. B) Cash inflow for $80,000 and a cash outflow for $4,000. C) Cash inflow for $65,427 and a cash outflow for $580. D) Cash inflow for $65,427

D) Cash inflow for $65,427

Under the indirect method, the reconciliation of net income to operating cash flows A) Is required on the face of the statement of cash flows. B) Is required as a separate schedule. C) Is not required, but is highly encouraged for inclusion on the face of the statement of cash flows. D) Is required on the face of the statement of cash flows or as a separate schedule

D) Is required on the face of the statement of cash flows or as a separate schedule

The process of creating a cash flow worksheet as an aid in preparing the statement of cash flows: A) Is a required step in creating a statement of cash flows that is accurately presented. B) Provides the required information for recording transaction entries in the general journal. C) Identifies the income statement changes that impact the statement of cash flows. D) Requires the reconciliation of all balance sheet account changes

D) Requires the reconciliation of all balance sheet account changes