SB11

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 cash outflows from financing activities?

Repayment of note payable Payment of dividends

Which of the following items would not be classified as a financing activity?

Repayments of accounts payable

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 will be:

$112 mill Reason: $100 mill. + $12 mill.

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.

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

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

The three classifications on the statement of cash flows are cash flows from (Select all that apply.)

financing activities. investing activities. operating activities.

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

indirect

The two acceptable methods for U.S. GAAP for reporting cash flows from operating activities are the

indirect and direct methods

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

inflows; outflows

A decrease in prepaid insurance is added to net income because

insurance expense decreased net income; however, cash was not paid. The prepaid insurance account was decreased rather than cash.

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

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

net income

The return on assets is calculated by dividing ____ by _______.

net income; average total assets

A decrease in accounts payable represents a cash ______ from operating activities, whereas a decrease in accounts receivable represents a cash _____ from operating activities.

outflow; inflow

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

Kleister Company issues bonds for $100 million and repays a long-term notes payable of $10 million. The company also sells its own common shares for $12 million and pays cash dividends of $5 million. Which of the following are cash outflows from financing activities?

repayment of notes payable payment of cash dividends

The ratio that is calculated by dividing net income by average total assets is referred to as:

return on assets

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

statement of cash flows.

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

the change in the cash balance.

An increase in prepaid insurance is subtracted from net income because

the company paid additional premiums this period in excess of the insurance expense recorded on the income statement.

Using the indirect method to report cash flows from operating activities, decrease in the inventory account will be ______ net income to arrive at net cash flow provided by operating activities.

added back to

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

added back to net income

Lein's net income is $200,000 and its operating cash flows are $240,000. The company reports total assets of $1.6 million and $1.8 million at the end of the prior and current year, respectively. Return on assets (rounded to one-tenth of a percent) is:

11.8%

Which of the following are significant noncash activities? (Select all that apply.)

Acquiring land by issuing common stock. Acquiring equipment by issuing a long-term note.

Adjustments to net income in calculating operating cash flows include:

Changes in current assets and current liabilities Nonoperating items Noncash items

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 are nonoperating items that require adjustments under the indirect method?

Gains on the sale of long-term assets Losses on the sale of long-term assets

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 are cash inflows from financing activities?

Issuance of common stock to investors Borrowing from bank

Which of the following are common financing activities?

Payment of cash dividends Issuing common stock Purchasing treasury stock Borrowing money

Which of the following are classified as cash outflows from investing activities?

Purchase of an investment Purchase of land

Which of the following are cash outflows from investing activities?

Purchase of land Purchase of investment

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

Purchase of treasury shares

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

Sale of a machine for cash.

Which of the following cash transactions are classified as cash inflows from investing activities?

Sale of investments Sale of building Sale of equipment

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

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.

Which of the following represents the first step in preparing a statement of cash flows in the correct order?

calculate the net cash flows from operating activities

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.

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.

decrease in current liability gain on sale of land

When the indirect method is used to report cash flows from operating activities, a decrease in accrued liabilities, such as wages payable, is subtracted from net income to include the effects of transactions that ______ cash, but ______ net income.

decrease; do not affect

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

depreciation expense amortization expense

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

direct and indirect method.

Cash flows from _____ activities include both inflows and outflows of cash from the external funding of a business.

financing

Cash flows from ______ activities include both inflows and outflows of cash from the external funding of a business.

financing

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

financing activities

in accrued liabilities, such as interest payable, will be added to net income when determining net cash flow from operating activities using the indirect method.

increase

Cash transactions involving the purchase and sale of long-term assets and current investments are classified on the statement of cash flows as

investing activities

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

investing activities.

Which of the following transactions would be classified as financing activities in the statement of cash flows?

issuance of bonds sale of the company's common stock Repurchase of the company's own common stock payment of cash dividends repayment of a long-term loan

An increase in accounts receivable indicates that the company collected _____ cash than the amount of ______.

less; sales revenue

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

long-term liability and stockholders' equity accounts

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

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

activities include cash receipts and cash payments for transactions relating to revenue and expense activities.

operating

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

operating activities

Cash return on assets is calculated as ______ divided by average total assets.

operating cash flow

The statement of cash flows classifies items as

operating, investing, financing

Noncash investing and financing activities are either: (Select all that apply.)

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

When reporting cash flows from operating activities using the indirect method, an increase in accounts payable is ______ net income because payments to suppliers are ______ than new purchases.

added to; less

Which of the following are classified as cash inflows from investing activities?

Sale of land Sale of equipment

Which is a significant noncash activity?

Signing a note payable in exchange for land.

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.

Roberts Inc. sells common stock for $10 million and pays dividends of $1 million. Net cash inflows from financing activities will be:

$9 million

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

added to

Wiese reports net income of $100,000 for the year ended 12/31/18. Total assets were $800,000 on 12/31/17 and $900,000 on 12/31/18. The company earned a return on assets of: (round the tenth of percent)

11.8%

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 purchase of supplies payment on account Interest paid on bonds

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

True or False: Collection on account and sale of services for cash are considered cash inflows, while payment on account and payment of salaries are considered cash outflows from operating activities.

true

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

Collection on account Interest received on notes receivable Collection from customers Collection of interest

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.