242 chapter 15

A gain on the sale of a fixed asset is ______ net income to arrive at the cash provided or (used) by operating activities prepared using the indirect method. - subtracted from - added back to

subtracted from

JJP, Inc. started the year with a balance of $15,000 in Property, Plant and Equipment. During the year equipment with an original cost of $3,000 and accumulated depreciation of $1,200 was sold for $2,000. The ending balance in the account was $20,000. Which of the following statements are true?(all) - A $200 gain will be subtracted from net income in the operating activities section. - A $1,000 loss will be added to net income in the operating activities section. - The company purchased $5,000 of equipment during the year. - The company purchased $8,000 of equipment during the year. - A cash inflow of $2,000 will be reported from the sale of equipment. - A cash inflow of $1,800 will be reported from the sale of equipment.

- A $200 gain will be subtracted from net income in the operating activities section. - The company purchased $8,000 of equipment during the year.(Reason: $15,000 - $3,000 = $12,000 after the sale. $20,000 - $12,000 = $8,000 purchased) - A cash inflow of $2,000 will be reported from the sale of equipment.

Operating activities include changes in ______(select all that apply). - current liability accounts for amounts owed to employees - noncurrent assets that affect net income - current notes payable accounts - noncurrent assets that are not included in income

- current liability accounts for amounts owed to employees - noncurrent assets that affect net income

When analyzing a company's earnings quality, earnings are considered to be higher quality or more indicative of performance when they ______.(all) -are correlated with cash flow from operating activities -are computed using conservative estimates -lead to a high dividend payout to stockholders -are not a result of high inflation

-are correlated with cash flow from operating activities -are computed using conservative estimates -are not a result of high inflation

LTD, Inc. started the year with a $8,000 balance in Retained Earnings. Net income for the year was $1,500 and ending Retained Earnings was $9,000. The company ______. -will report dividends paid in the investing section -will report $1,500 in the operating activities section -will report a net $1,000 cash flow in the financing activities section -paid $500 in dividends

-paid $500 in dividends -will report $1,500 in the operating activities section

On January 1, 2020, Ajax Corporation sold a truck for $28,000 cash. The original purchase price was $45,000 and accumulated depreciation at the time of sale was $7,000. The beginning balance of the Equipment account was $100,000 and no other Equipment transactions occurred during the year. Calculate the ending balance of the account. -83k -55k -72k -93k

55k because: $100,000 - $45,000 purchase price of truck sold = $55,000

When preparing the operating activities section using the indirect method, which of the following are added back to net income? - Decreases in accounts payable - Decreases in accounts receivable - Increases in prepaid expenses - Increases in wages payable

Decreases in accounts receivable Increases in wages payable

Financing activities include ______. payment of interest repurchasing common stock purchase of equipment borrowing money

repurchasing common stock borrowing money

Retained earnings is decreased by ______.

dividends paid

Beginning balance + debits - credits = Ending balance is the basic equation for ______ accounts. asset contra-asset liability and stockholders' equity all

asset

When preparing a statement of cash flows ______. - both financing and investing activities are reported at gross amounts - both financing and investing activities are reported at net amounts - investing activities are reported at gross amounts and financing activities are reported at net amounts - financing activities are reported at gross amounts and investing activities are reported at net amounts

both financing and investing activities are reported at gross amounts

Investments in securities that can be quickly converted to cash are known as cash______

equivalents

The statement of cash flows: - is not one of the required financial statements - answers the same questions that are answered by the balance sheet - reports changes in net operating income - focuses on activities that affect the cash balance

focuses on activities that affect the cash balance

When preparing the financing activities section of the statement of cash flows ______,(all) increases in bonds payable are added retained earnings requires additional analysis increases in common stock are subtracted

increases in bonds payable are added retained earnings requires additional analysis

Beginning balance - debits + credits = Ending balance is the basic equation for ______ accounts. - liability and contra-asset - all - asset and liability - asset and stockholders' equity

liability and contra-asset

When net income is steadily increasing and net cash provided by operating activities is declining, it suggests that net income is influenced by ______. conservative accounting principles and estimates nonrecurring transactions high levels of inflation

nonrecurring transactions

If additions to property, plant and equipment are consistently less than depreciation, it suggests the company is ______. purchasing too many short-term assets not investing enough to maintain its noncurrent assets investing too much in noncurrent assets

not investing enough to maintain its noncurrent assets

During the year sales added $430 million to a company's accounts receivable. A total of $360 million of accounts were collected. On the statement of cash flows ______ will be reported. - both the $430 increase and the $360 decrease - only the net increase of $70 million

only the net increase of $70 million

Investing activities include ______. depreciation charges purchase of machinery for cash payment of dividends to the stockholders sale of land for cash

purchase of machinery for cash sale of land for cash

Cash equivalents on the statement of cash flows include: treasury bills dividends receivable notes receivable due in 6 months commercial paper

treasury bills commercial paper

Under the direct method, the operating activities section of the statement of cash flows ______. - presents revenues and expenses on the accrual basis - treats cash disbursements as expenses - adds depreciation expense to net income - reports cash collected from customers instead of revenues

treats cash disbursements as expenses reports cash collected from customers instead of revenues