Accounting Final Chapter 12.

The following selected information is from the accounting records for Able Company. 1. Net income, $50,000. 2. Decrease in inventory, $40,000. 3. Increase in unearned revenue, $20,000. 4. Gain on sale of equipment, $4,000. What amount is shown in the Able's operating activities section of the statement of cash flows using the indirect method?

$106,000 cash inflow

Ramos Company experienced the following events during the year: 1. Purchased $10,000 of treasury stock. 2. Paid $5,000 cash for Lamar Corporation stock. 3. Sold a parcel of land for $10,000 cash resulting in a $200 gain on the sale. 4. Sold marketable securities for $16,000 cash resulting in a $1,000 gain on the sale. What is the effect of these transactions on Ramos Company's statement of cash flows?

$21,000 cash inflow from investing activities and $10,000 cash outflow from financing activities.

Misti Company experienced the following events during the year: 1. Issued common stock for $30,000 cash. 2. Borrowed $25,000 cash from First Bank. 3. Purchased $10,000 of treasury stock. 4. Paid $8,000 cash for dividends. What is the effect of these transactions on Misti Company's statement of cash flows?

$37,000 cash inflow from financing activities.

Patton Company experienced the following events during the year: 1. Sold $30,000 of services on account. 2. Collected $20,000 on accounts receivable. 3. Paid $25,000 cash for operating expenses. 4. Received $1,000 cash for dividend revenue. What is the effect of these transactions on the statement of cash flows using the direct method?

$4,000 cash outflow from operating activities.

The Jackson Company issued a one-year $80,000 face value interest-bearing note with a stated interest rate of 9%. The note was issued to the Galaxy Bank on August 1, 2016. The amount of cash flow from financing activities on the December 31, 2016 statement of cash flows would be:

$80,000 inflow.

Which of the following items would be used to compute "Net Cash Flow from Investing Activities" on a Statement of Cash Flows? 1) issue common stock 2) payment on principal of note payable 3) depreciation expense 4) sale of equipment for cash

4 only

A cash purchase of land would appear in which of the following sections of the statement of cash flows?

Cash outflow from investing activities.

Which of the following cash transactions would not be shown under operating activities?

Cash paid for dividends

Which of the following would be found in the financing activities section of the statement of cash flows?

Cash sale of common stock, cash proceeds from loan, cash payment on bonds payable.

Which method of reporting cash flows from operating activities is used by most businesses in preparing the statement of cash flows?

Indirect method

When preparing a statement of cash flows, in which section is it permitted to use either the direct method or the indirect method?

Operating activities

Which of the following is the correct sequence for the major components of the Statement of Cash Flows?

Operating, Investing, Financing.

On January 1, 2016, the Chisolm Company purchased equipment for $36,000 cash. On December 31, 2016, depreciation of $9,000 was recorded. Which of the following correctly shows the combined effect of these two events on the income statement and statement of cash flows? Chisolm uses the direct method. Net Cash Flow Income Operating Investing Financing A. (45,000) (45,000) NA NA B. (9,000) NA (36,000) NA C. (9,000) (9,000) (27,000) NA D. (9,000) 9,000 (27,000) NA

Option B

What effect does depreciation expense have on net income and cash flows? Net Income Cash Flows A. Decrease Increase B. Decrease None C. Decrease Decrease D. Increase Increase

Option B

The Jackson Company issued a one-year $80,000 face value interest-bearing note with a stated interest rate of 9%. The note was issued to the Galaxy Bank on August 1, 2016. The amount of interest expense and cash outflow shown on the December 31, 2016 financial statements would be: Interest Expense Cash Outflow A. $ 7,200 $ 7,200 B. $ 7,200 $ - C. $ 3,000 $ - D. $ 3,000 $ 3,000

Option C

Dugger Company experienced an accounting event that affected its financial statements as indicated below: Assets = Liab. + Equity Rev. - Exp. = Net Inc. Cash Flow + - n/a n/a n/a n/a n/a - OA Which of the following accounting events could have caused these effects on Dugger Company's financial statements?

Paid cash for rent in advance.

Which of the following transactions is a use of cash?

Short-term borrowing of cash. Acquisition of land by issuing a short-term note payable. Issuance of a stock dividend D. Purchase of treasury stock. <--

Accounts Payable had a beginning balance that is less than its ending balance. What is the required adjustment to determine cash flow from operating activities using the indirect method?

The Accounts Payable balance increased and must be added to net income.

Accounts Receivable had a beginning balance that is less than its ending balance. What is the required adjustment to determine cash flow from operating activities using the indirect method?

The Accounts Receivable balance increased and must be deducted from net income.

What is the major difference between the direct method and the indirect method for preparing the statement of cash flows?

The presentation of the operating activities.

On January 1, 2016, the Colgate Corporation decided to switch from the direct method to the indirect method of preparing the statement of cash flows. Assuming a positive net income figure but a decrease in the cash balance, what can be said about the change in method of preparing the statement?

There will be no difference in the totals on the statement of cash flows.

Interest expense and interest paid are shown as:

an operating activity on the statement of cash flows and a non-operating item on the income statement.

The only difference between the direct and indirect methods of preparing the statement of cash flows is the manner in which the

cash flows from operating activities is presented.

A mortgage issued in exchange for a building would be reported on the statement of cash flows in the

noncash financing and investing section.

Cash receipts from interest on a note receivable would be classified on the statement of cash flows in the:

operating activity section.

On the statement of cash flows, the sum of the three major components (operating activities, investing activities, financing activities) adds up to

the change in the cash account balance between the beginning and ending of the period.