ACCTG 230 Chapter 11

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

Repayments of accounts payable

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.

Using the indirect method to report cash flows from operating activities, how is the change in retained earnings accounted for in the statement of cash flows?

The change is accounted for by the addition of net income in operating activities and the subtraction of dividends in financing activities.

During the current period, Kunze Corp. disposed of old equipment for $2,000, purchased new equipment for $20,000, 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.

Which of the following statements is correct regarding the information content of the income statement and the balance sheet?

Both provide information that help determine cash flows.

Both dividends paid and dividends declared during the year are reported in the statement of cash flows. True or False

False

True or false: Every time land is sold, the line item for the sale of land in the investing activities section of the Statement of Cash Flows will equal the change in the asset account on the balance sheet.

False

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 inflows from financing activities?

Issuance of bonds Issuing stock to investors for cash

Adjustments to net income in calculating operating cash flows include:

Noncash items Nonoperating items Changes in current assets and current liabilities

Which of the following is an example of a cash outflow for a financing activity? Payment of cash for supplies Payment of cash for the purchase of equipment Payment of cash for interest expense Payment of cash for treasury stock

Payment of cash for treasury stock

Which of the following is an example of a cash inflow from an investing activity? Receipt of cash from customers Receipt of cash from the issuance of common stock Receipt of cash from the issuance of bonds Receipt of cash from the sale of equipment

Receipt of cash from the sale of equipment

Which of the following financial statements provide(s) useful information to prepare the statement of cash flows?

The income statement The balance sheet

The direct method for preparing the statement of cash flows reports

cash received and cash paid 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.

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

depreciation expense amortization expense

Wiese Company presents its statement of cash flows using the direct method. Wiese must also prepare the operating section using the indirect method and report it:

either along with the direct method on the face of the statement or in the financial statement notes

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

financing

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

financing

We determine the net cash flows from investing activities by analyzing changes in _____ accounts from the balance sheet. long-term asset current asset and current liability stockholders' equity long-term liability

long-term asset

Diamond Company's land account decreased by 10 million. Cash received from sale of land

may be higher or lower than $10 million.

Noncash items, nonoperating items, and changes in current assets and liabilities are necessary adjustments to to prepare the operating section for the indirect format of the statement of cash flows.

net icome

gains and losses on the sale of long-term assets represent common items needing adjustment under the indirect method.

non-operating

List the four steps in preparing a statement of cash flows in the correct order.

operating, investing, financing, combine

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

The basic purpose of the statement of cash flows is to

report the activities that changed the cash balance during the year

Noncash investing and financing activities are either

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

Noncash investing and financing activities are either:

reported in the notes to the financial statements reported directly after 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.

Significant non cash activities

Purchase of long term assets by issuing debt Purchase of long term assets by issuing stock Conversion of bonds payable into common stock Exchange of long term assets

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

long-term liability and stockholders' equity accounts

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 cash transactions are classified as cash inflows from investing activities?

Sale of building Sale of investments Sale of equipment

Dividends received are classified as operating activities cash flows, while dividends paid are classified as financing activities cash flows because dividends received increase _____, and dividends paid decrease ____.

net income; retained earnings

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 activities.

non-cash

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

During the current period, Schmidt Corp. sold equipment for $1,000, purchased new equipment for $10,000, 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.

The balance of retained earnings:

increases with net income decreases with dividends declared

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

indirect