acct chapter 12: statement of cash flows LS

True or false: Two common ways to assess a company's ability to internally finance expansion needs are the capital acquisition ratio and free cash flow

true

Rent-a-wreck, Inc.'s property, plant and equipment balance, net of depreciation, at the beginning of the year was $100,000 and at the end was $150,000. During the year, depreciation expense was $10,000 and new equipment was purchased for $80,000 cash. What is the amount of proceeds from the disposal of property, plant and equipment shown on the statement of cash flows for the year?

$20,000 $20,000 = $100,000 + 80,000 - 150,000 - 10,000

Beginning accounts receivable is $20,000, and ending accounts receivable is $15,000. As a result, cash collected from customers is ______ than sales on account.

$5,000 greater

Beginning inventory is $15,000, and ending inventory is $20,000. As a result, purchases are ______ than cost of goods sold

$5,000 greater

When calculating net cash flow provided by operating activities, an increase in accounts payable is __ net income because payments to suppliers are __ than new purchases

added to; less

The complete list of items needed to prepare a statement of cash flows includes

comparative balance sheets complete income statement additional details

When using the indirect method to prepare the operating activities section of the statement of cash flows, the first amount listed is

net income

Beginning inventory is $20,000, and ending inventory is $15,000. As a result, purchases are ______ than cost of goods sold

$5,000 less

Beginning prepaid expenses is $20,000, and ending prepaid expenses is $15,000. As a result, cash payments are _______ than the related expense and thus ______ net income in the operating section of the statement of cash flows

$5,000 less; this decrease is added to Cash prepayments (debits to Prepaid Expenses) were $5,000 less than the related expense (credits to Prepaid Expenses) causing the balance to decrease and thus the decrease is added to net income

Which of the following transactions would be classified as investing activities?

- purchase of investments for cash - sale of a building used in the business - purchase of equipment

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 the expense does not involve paying cash.

A decrease in Prepaid Insurance is added to net income because ______

a decrease in Prepaid Insurance causes an increase in Insurance Expense and a decrease in net income, but it does not involve cash

An decrease in the inventory account will be ______ net income to arrive at net cash flow provided by operating activities.

added to

A net cash outflow from financing activities means ______.

amounts received from issuing stocks and debt were less than repurchasing or repayments of stocks and debt Revenues and expenses relate to operating, not financing, activities. Financing activities relate to cash transaction with shareholders and creditors.

Two common ways to assess a company's ability to internally finance its expansion needs are the ______

capital acquisitions ratio free cash flow

Identify which of the following are properly reported in a statement of cash flows.

cash paid for interest: cash outflow under operating activities repayment of loan principal: cash outflow under financing activities net proceeds from stock issuance: cash inflow under financing activities

The complete list of items needed to prepare a statement of cash flows includes...

comparative balance sheets, complete income statement, and additional data concerning accounts in investing and financing activities

When preparing the statement of cash flows using the indirect method, 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

A decrease in accounts payable will result in a(n) _____, Correct Unavailable to net cash flow from operating activities

decrease

Which of the following items would be added to Net income in the operating activities section of the statement of cash flows prepared using the indirect method?

depreciation and amortization expense loss on sale of investing asset decreases in operating assets

Which of the following will be added to net income when preparing the statement of cash flows using the indirect method?

depreciation expense increases in operating liabilities decreases in operating assets

True or false: Changes in cash are classified as either operating activities, direct activities or indirect activities

false

Repayments of formal, long-term debt contracts are classified as ______ activities

financing

Using the indirect method, when the direction of change in Inventory is a(n) _______, Correct Unavailable, the amount of that change is subtracted from net income to include inventory transactions that decrease cash, but do not impact net income.

increase

When using the ___________ method to prepare the operating activities section of the statement of cash flows, the first amount listed is Net income.

indirect

Net cash from operating activities is considered favorable if it is a net cash ______

inflow

The sale of property, plant, and equipment results in a cash ___, (inflow/outflow) to the ___, activities section of the statement of cash flows

inflow, investing

A $5,000 decrease in prepaid expenses means that cash payments were ______ (greater/less) than the amount used (expenses) and thus the decrease is ______ (added to/subtracted from) net income in the operating activities section of the statement of cash flows

less; added to A decrease means that less cash was paid (debits to Prepaid Expenses) than the amount expensed (credits to Prepaid Expenses). Thus, the decrease is added.

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

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 Depreciation Expense decreases net income on the income statement but does not decrease cash from operating activities on the statement of cash flows (no check is written for depreciation expense). Depreciation Expense is a non-cash expense and thus is added back to net income when calculating cash from operating activities.

The ___ activities section of the statement of cash flows indicates how well a company is able to generate cash through its normal business activities and management of working capital

operating

The ______ activities section is very important, since ______ are the only continuing, internal source of cash for the business

operating; operations

A company that reports a significant negative cash flows from investing activities due to the purchase of a building will most likely report a ______

positive cash flow from financing activities

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

sale of held-to-maturity investments sale of equipment sale of building

An increase in accounts receivable on a comparative balance sheet indicates that more ______ during the accounting period.

sales revenue was earned than cash was collected

Beginning accounts receivable is $20,000, and ending accounts receivable is $30,000. The change in accounts receivable should be ______ net income in preparing the operating activities section of the statement of cash flows.

subtracted from

When using the indirect method, subtracting an increase in Accounts Receivable from net income eliminates the effect of recording credit sales ______

that increased net income, but did not impact cash When assets such as Accounts Receivable are increased, a corresponding revenue account is increased. In this case, the revenue increases net income, but does not represent a cash inflow this period.

Purchases of stock in other corporations is a(n) ______ activity.

investing

ABC Company issued 30,000 shares of common stock in January. In August, the company repurchased 5,000 shares for the treasury. When reporting these transactions in the statement of cash flows, ABC Company ______ combine them into one transaction in the ______ activities section

cannot; financing Increases and decreases in stockholders' equity accounts should be reported separately, rather than netted in the statement of cash flows.

The direct method presents a summary of all operating transactions that result in either a debit or credit to ______.

cash

Credits in the accounts receivable account during a period represent the

cash collected

Cashews, Inc.'s financing activities section of the statement of cash flows reported a significant cash inflow from the issuance of bonds and cash outflow from the repurchase of treasury stock; all other financing activities were insignificant. As a result, which of the following may be expected to occur in the near future?

decrease in number of shares outstanding increase in interest expense

When using the indirect method, adding a decrease in Prepaid Insurance to net income eliminates the effect of recording Insurance Expense that ______

decreased net income, but did not impact cash When assets such as Prepaid Insurance are decreased, a corresponding expense account is increased. In this case, the expense decreases net income, but does not represent a cash outflow this period because it was paid in a prior period.

Companies are required to report material noncash transactions from ___ and ___ activities in either a supplementary schedule to the statement of cash flows or as a disclosure in the notes to the financial statements.

investing financing

Which of the following is necessary for a company to remain in business for the long run?

positive cash flows from operating activities

Material noncash investing and financing transactions are

reported in a supplementary schedule to the statement of cash flows

Cash paid for property, plant and equipment is found in the cash outflows from the ___ activities section of the statement of cash flows

investing

Which of the following classifications is not used to categorize cash inflows and cash outflows on the statement of cash flows?

spending