Acc 3120 - SmartBook Chapter 21:

Under the indirect method of deriving net cash flows from operating activities, decreases in assets relating to operating activities must be

added to net income.

Cash flows from _ activities are both outflows and inflows of cash caused by the acquisition and disposal of long-term assets.

investing

In a statement of cash flows—direct method, depreciation expense should

not be reported.

During the year, Pernell Company issued a 10% stock dividend. In its statement of cash flows, Pernell should

not report the stock dividend.

In a statement of cash flows, stock dividends typically are

not reported.

During the current year, Barber Corp.'s balance in bonds payable decreased. In the absence of specific information, it should be assumed that

the bonds were repaid.

Net income (or loss) is the result of netting together the _ recognized and the _ incurred during the current reporting period. (Enter only one word per blank.)

Blank 1: revenues or revenue Blank 2: expenses or expense

During the current year, Hainzel Corp.'s income statement shows that the company accrued salary expense of $85,000; for the same period the salary payable balance decreased by $3,000. The journal entry to derive cash paid for salaries would include a credit to

cash for $88,000.

Cash flows from operating activities are both inflows and outflows of cash that result from activities reported in the

income statement.

Mark wishes to evaluate Jones Company's current operating performance. Mark will find the most pertinent information in Jones Company's

income statement.

The method of presenting the statement of cash flows that begins with a presentation of net income or net loss is referred to as the ____ method.

indirect

the _ method of reporting cash flows from operating activities begins with net income and works backward to derive cash from operating activities.

indirect

During the current year, Marked Company sold equipment with an original cost of $100,000 and accumulated depreciation of $60,000. The income statement reveals a loss of $10,000 relating to this disposal. Cash received from the sale of the equipment is:

$30,000

During the current year, Nary Corp.'s income statement shows that the company accrued interest expense of $5,000; for the same period the interest payable balance increased by $300 and bond discounts decreased by $400. Cash paid for interest is

$4,300

During the current year Mainzel Corp. sold inventory costing $100,000 for $220,000. The balance of accounts payable increased by $10,000, and the balance of the inventory account increased by $6,000. Cash paid to suppliers is

$96,000.

Cash received from the sale of common and preferred stock and the issuance of bonds and other debt securities are reported on the statement of cash flows as _ activities.

Blank 1: financing, financial, or finance

Which of the following statements regarding income statement and related cash amounts is correct?

Income statement amounts and cash amounts typically are not the same.

Which of the following methods of preparing the statement of cash flows is (are) acceptable under U.S. GAAP? (Select all that apply.)

The direct method The indirect method

During the current year Hainzel Corp. sold inventory costing $200,000 for $500,000. The balance of accounts payable decreased by $20,000, and the balance of the inventory account decreased by $10,000. Cash paid to suppliers is

$210,000

During the current year, Hainzel Corp.'s income statement shows that the company accrued interest expense of $5,000; for the same period the interest payable balance decreased by $300 and bond discounts decreased by $500. Cash paid for interest is

$4,800.

During the current year, Hainzel Corp.'s income statement shows that the company accrued interest expense of $5,000; for the same period the interest payable balance decreased by $300. Cash paid for interest is

$5,300.

During the current period, Schmidt Corp. disposed of old equipment and received $1,000 cash; purchased new equipment for $10,000 cash; paid an accounts payable balance of $2,500; and sold an investment costing $2,000 for $2,800. Net cash from investing activities is (indicate the amount and whether it is a net inflow or outflow)

$6,200 net outflow

Which of the following statements is correct with respect to analyzing accounts for the preparation of a statement of cash flows? (Select all that apply.)

All changes in balance sheet accounts must be accounted for. All income statement amounts must be accounted for.

Short-term, highly liquid investments that can be readily converted to cash, with little risk of loss, are referred to as _ _.

Blank 1: cash Blank 2: equivalents

Kester Corp.'s land account increased by $140,000. No specific information regarding this increase is available. In its statement of cash flows, Kester should report

cash outflows from investing activities of $140,000.

Kunze's common stock and paid-in capital accounts increased by a total of $10 million. To analyze the transaction using a journal entry, Kunze should debit ______ and credit ____.

cash; common stock and paid-in capital

Glueck Corp. reports sales revenue of $200,000. During the year, the company's accounts receivable balance decreased by $14,000. Cash collected from customers is

$214,000.

Cash flows from _ activities are both inflows and outflows of cash that result from activities reported in the income statement.

Blank 1: operating or operation

Which of the following statements regarding reporting of cash from investing and cash from financing activities is correct under the direct and the indirect method?

They are the same

Kunzen Company shows salaries expense of $15,000 in its income statement. During the current year, the balance of its salaries payable account increased by $2,000. If the company uses the indirect method of presenting the operating activities section of the statement of cash flows, the change of $2,000 should be

added to net income.

Abner Corp. prepares its statement of cash flows utilizing the direct method. During the current period, its cash from operating activities was $15.5 million. If the company had utilized the indirect method, its cash from operating activities would have been

$15.5 million.

During the current year, Mainzel Corp.'s income statement shows that the company accrued interest expense of $5,000; for the same period the interest payable balance increased by $300. Cash paid for interest is

$4,700.

Sales revenue for the year was $100,000; accounts receivable had a beginning balance of $10,000 and an ending balance of $18,000. Cash collected from customers was

$92,000.

Depreciation represents a noncash expense because it is merely an ____ of a ____ cash expenditure.

allocation; previous

Michal Corp.'s land account decreased by $250,000. No specific information regarding this decrease is available. In its statement of cash flows, Michael should report

cash inflows from investing activities of $250,000.

Margaret is analyzing the current year income statement and the comparative balance sheet in order to prepare the statement of cash flows. She should expect the operating cash flows to be ______ the amounts reported in the income statement.

different from

The _ method of reporting cash flows from operating activities reports the cash effect of each operating activity.

direct

Glueck Corp. reports sales revenue of $200,000. During the year, the company's accounts receivable balance decreased by $14,000. Additional information reveals that during the year accounts totaling $7,000 were written off and bad debt expense of $10,000 recognized. A journal entry prepared to determine cash collected from customers would include credits to (Select all that apply.)

allowance for doubtful accounts for $3,000. accounts receivable for $14,000. sales revenue for $200,000.

Wichtel Corp. reports sales revenue of $400,000. During the year, the company's accounts receivable balance decreased by $10,000 and its deferred revenue decreased by $6,000. Cash collected from customers is

$404,000.

During the current year, Hainzel Corp.'s income statement shows that the company accrued salary expense of $85,000; for the same period the salary payable balance decreased by $3,000. Cash paid for salaries is

$88,000.

Why is inventory treated differently than property, plant, and equipment when classifying their cash effects on the statement of cash flows? (Select all that apply.)

Property, plant, and equipment benefit the business over a relatively long period of time. Inventory is purchased and sold as part of the firm's current operations.

Which of the following are valid categories in the statement of cash flows? (Select all that apply.)

cash flows from investing activities cash flows from operating activities cash flows from financing activities

Which of the following are included in the statement of cash flows? (Select all that apply.)

cash flows from operating activities cash flows from financing activities cash flows from investing activities noncash investing and financing activities

Glueck Corp. reports sales revenue of $200,000. During the year, the company's accounts receivable balance decreased by $10,000 and its deferred revenue increased by $4,000. Cash collected from customers is

$214,000.

During the current year, Mainzel Corp.'s income statement shows that the company accrued salary expense of $85,000; for the same period the salary payable balance increased by $3,000. Cash paid for salaries is

$82,000.

Which of the following are not valid categories in the statement of cash flows? (Select all that apply.)

cash flows from discontinued operations cash flows from continuing operations

Which of the following decision makers tend to be especially interested in cash flow information? (Select all that apply.)

creditors investors

Huger Company prepares its statement of cash flows using the indirect method. Huger should present the reconciliation between net income and cash from operating activities

in the first section of the statement of cash flows.`

During the current year, Mainzel Corp. sold inventory costing $100,000 for $220,000. The company's accounts payable balance increased by $10,000, and the inventory account balance increased by $6,000. The journal entry to derive cash paid to vendors would include debits to (Select all that apply.)

inventory for $6,000. cost of goods sold for $100,000.

Cash from the sale of land is reported on the statement of cash flows as a(n) _ activity

investing

A cash inflow from the sale of land is categorized as a(n)

investing activity

The objective in preparing the statement of cash flows is to identify all transactions and events that represent

operating, investing, and financing activities and report them in the proper statement format.

During the current year, Parsley Company sold equipment with an original cost of $100,000 and accumulated depreciation of $70,000. The income statement reveals a gain of $20,000 relating to this disposal. Cash received from the sale of the equipment is

$50,000.

Jasper's income statement reports revenue from investments that lack significant influence of $10,000, and its balance sheet reports that dividends receivable decreased by $1,500. How much will Jasper report as cash received from investments?

$11,500

Fault Company's records indicate that, during the current year, land costing $150,000 was sold. A loss of $25,000 was recognized on the sale. Cash inflows associated with this sale were

$125,000.

Aggie Company reports investment revenue of $14,000 in its income statement relating to a 5% investment in another company's common stock. During the current year, dividends receivable increased by $1,000. Thus, cash collected from investments will be

$13,000.

Milky Company reports sales revenue of $200, an increase in deferred revenue of $2, and an increase in accounts receivable of $1. Cash collected from customers is:

$201

For the current year ended, Fohlen Corp. accrued $1,200 of insurance expense. The company's account balance of prepaid insurance decreased by $500. Cash paid for insurance is

$700.

Which of the following concepts governs recognition of revenue and expense?

Accrual accounting

Inflows and outflows of cash resulting from the external funding of a business are cash flows from _ activities.

Blank 1: financing or finance

Under which method(s) will a reconciliation of net income to cash from operating activities be presented? (Select all that apply.)

Both the direct and the indirect method

Which of the following methods of preparing the statement of cash flows is (are) acceptable under U.S. GAAP?

Both the direct and the indirect method

Which of the following is true regarding classification on the statement of cash flows?

Cash flows from inventory are classified as operating while cash flows from property, plant, and equipment are classified as investing.

Which sections are identical under the direct and indirect method of the statement of cash flows? (Select all that apply.)

Cash from investing activities Cash from financing activities

Which of the following statements is correct regarding the direct and indirect methods of preparing the operating activities section of the statement of cash flows?

Cash from operating activities is the same under either method.

Which of the following transactions/events commonly give rise to cash inflows for business entities? (Select all that apply.)

Common stock is sold to investors. Cash is collected from customers.

Which of the following transactions/events commonly give rise to cash outflows of business entities? (Select all that apply.)

Fire insurance is purchased. Employees are paid. // Treasury stock is purchased. Inventory is purchased.

Which of the following financial statements tends to provide the best indication of current operating performance?

Income statement

Which of the following statements best describes the importance of cash flow information?

Investors and creditors consider the risk associated with cash flow forecasts. Investors and creditors rely heavily on cash flow information.

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.

Which of the following is critically important with respect to the ultimate potential of a firm to provide cash flows to investors and creditors?

The firm's ability to generate cash flows for itself.

Which of the following statements regarding the recognition of revenues and expenses is correct?

They are recognized even if cash has not been received or paid.

During the current year Mainzel Corp. sold inventory costing $100,000 for $220,000. The balance of accounts payable increased by $10,000, and the balance of the inventory account increased by $6,000. The journal entry to derive cash paid to vendors would include credits to (Select all that apply.)

accounts payable for $10,000. cash for $96,000.

Gerta Company shows salaries expense of $30,000 in its income statement. During the current year, the balance of its salaries payable account increased by $4,000. If the company uses the indirect method of presenting the operating activities section of the statement of cash flows, the change of $4,000 should be

added to net income.

To identify all the operating, investing, and financing activities using a spreadsheet, we must account for the changes in each account on the: (Select all that apply.)

balance sheet income statement

During the current year, Barber Corp.'s balance in bonds payable decreased. No specific information about this decrease is available. In the statement of cash flows, the decrease should

be reported as a cash outflow from financing activities.

The difference between net income and cash from operating activities must be reconciled under

both the direct and indirect method.

Glueck Corp. reports sales revenue of $200,000. During the year, the company's accounts receivable balance decreased by $14,000. Additional information reveals that during the year accounts totaling $7,000 were written off and bad debt expense of $10,000 was recognized. A journal entry prepared to determine cash collected from customers would include debits to (Select all that apply.)

cash for $207,000. bad debt expense for $10,000.

Increases in investment account balances not accounted for under the equity method, and for which no specific additional information is available, are interpreted as

cash outflows from investing activities.

The method that reports the cash effect of each operating activity explicitly on the statement of cash flows is referred to as the _____ method.

direct

During the current year, Palmer Company purchased equipment costing $100,000 by signing a 2-year promissory note. In its statement of cash flows, Palmer should

disclose

During the current year, Schneider Company purchased equipment costing $200,000 by issuing 1,000 shares of its common stock. In its statement of cash flows, Schneider should

disclose information in the noncash investing and financing section.

Under the indirect method of preparing the statement of cash flows, depreciation expense and losses are added back to net income because they (Select all that apply.)

do not require an outflow of cash. were subtracted in deriving net income.

Financing activities are inflows and outflows of cash resulting from the

external financing of a business.

Which of the following are required characteristics of cash equivalents? (Select all that apply.)

low risk short-term high liquidity

An important advantage of using a spreadsheet to analyze transactions that may need to be reported in the statement of cash flows is to

make sure that no reportable activity is overlooked.

Kunze's common stock and paid-in capital accounts increased by a total of $10 million. All known changes to retained earnings were already explained, except for a decrease of $10 million, which remains unexplained. If there is no additional information available, Kunze should assume that the changes in the two equity categories involved

no cash.

In addition to the primary activities, what other required information must be presented in a statement of cash flows? (Select all that apply.)

noncash investing and financing activities a reconciliation of the net increase or decrease in cash with the change in the cash balance

Pernell Company's short-term investment account balance increased by $10,000. No other information is available. This means that Pernell

purchased additional investments for $10,000.

During the current year, Hainzel Corp.'s income statement shows that the company accrued salary expense of $85,000; for the same period the salaries payable balance decreased by $3,000. The journal entry to derive cash paid for salaries would include debits to (Select all that apply.)

salaries payable for $3,000. salaries expense for $85,000.

If a journal entry is used to derive the amount of cash collected from customers,

sales revenue, bad debt accruals, and changes in A/R and the allowance account need to be recognized.

Under the indirect method of deriving net cash flows from operating activities, decreases in liabilities relating to operating activities must be

subtracted from net income.

Which accounts or balances must be considered in order to calculate the amount of cash paid to suppliers for inventory? (Select all that apply.)

the change in the accounts payable balance cost of goods sold the change in the inventory account balance

When preparing the statement of cash flows using the indirect method, depreciation expense and losses are

added to net income.

Malt Corporation reported insurance expense of $15,000. Prepaid insurance shows a beginning balance of $1,800 and an ending balance of $2,300. The amount of cash paid for insurance must be:

$15,500

During the current period, Kunze Corp. disposed of old equipment and received $2,000 cash; purchased new equipment for $20,000 cash; collected an accounts receivable balance of $2,500; and purchased an investment for $3,000. Net cash from investing activities is (indicate the amount and whether it is a net inflow or outflow)

$21,000 net outflow.

Marten Company's records indicate that, during the current year, land costing $50,000 was sold. A gain of $45,000 was recognized on the sale. Cash inflows associated with this sale were

$95,000.

Under which method of preparing a statement of cash flows will a reconciliation between net income and cash from operating activities be shown on a separate schedule?

The direct method only

Which of the following transactions would be classified as financing activities in the statement of cash flows? (Select all that apply.)

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

Kunze's common stock and paid-in capital accounts increased by $10 million. All known changes to retained earnings were already explained, except for a $10 million decrease, which remains unexplained. The likely explanation for the changes in the two equity categories is that Kunze

issued stock dividends

Kunze's common stock and paid-in capital accounts increased by a total of $10 million. In the absence of additional information, the likely explanation for the increase in the accounts is that Kunze

sold common stock for cash.

An important tool that can be used to ensure that no reportable activities are inadvertently overlooked is a:

spreadsheet