CH 12

The correct order of the three-step analysis of determining cash provided or used by investing activities is:

Identify changes in investing accounts, explain the changes, report the cash flow effects.

The Will Company reported the following data for last year: Decrease in the cash account: $25,000 Net cash provided by operating activities: 20,000 Net cash provided by investing activities: 15,000 Based solely on this information, the net cash provided (used) by financing activities on the statement of cash flows would be:

60,000

A machine with a cost of $100,000 and accumulated depreciation of $98,000 is sold for $70,000 cash. The amount that should be reported as a source of cash under cash flows from investing activities is _____.

70000

All of the following are sources of information to prepare the statement of cash flows

Current year's income statement Comparative balance sheets Additional information

Each of the following are classified as a noncash investing or financing activity

Retirement of debt by issuing equity stock Conversion of preferred stock to common stock Lease of assets in a long-term lease transaction Purchase of long-term assets by issuing a note or bond Exchange of noncash assets for other noncash assets Purchase of noncash assets by issuing equity or debt

Montego Company's Cash account had a balance of $14,000 on January 1. Analysis of the company's Cash account during the year revealed the following information: Decrease in interest payable: $1,000 Depreciation expense: 30,900 Gain on retirement of bonds: 32,300 Increase in accounts receivable: 40,000 Loss on sale of plant assets: 5,900 Net income: 78,000 The net cash provided (used) by operating activities is:

41500

Montego Company's Cash account had a balance of $14,000 on January 1. Analysis of the company's Cash account during the year revealed the following information: Receipts from customers: $50,000 Payments for dividends: 10,000 Receipts of dividends: 5,000 Payments for merchandise: 25,000 Receipts from issuance of stock: 20,000 On December 31, the company's Cash account had a balance of ____.

54000 explanation 14000+50000-10000+5000-25000+20000

Background information as of 12/31/19: Cash and currency in cash registers: $50,000 An investment in a debt security maturing on 2/15/20: 25,000 An investment in an equity security: 10,000 Checking account balance: 20,000 Petty cash: 1,000 At December 31, 2019, the amount of cash and cash equivalents that will be reported on the company's balance sheet is?

96000

Each of the following are classified as a financing activity

Examples are cash from issuing debt and repaying debt and receiving cash from or distributing cash to owners. Borrowing and repaying principal amounts relating to both short- and long-term debt are financing activities. Common cash inflows from financing activities include cash receipts from Contributions from owners The issuance of the company's own common and preferred stock The issuance of short- and long-term debt Reissuing its treasury stock Common cash outflows from financing activities include cash payments resulting from The repayment of short-term and long-term debt Withdrawals by owners The payment of dividends to shareholders The purchase of treasury stock Special attention needs to be paid to two types of items. Payments of interest are always classified as operating activities. Also, cash payments to settle credit purchases of merchandise, whether on account or by note, are classified as operating activities.

Each of the following are classified as an investing activity

They also include the purchase and sale of short-term investments and lending and collecting notes receivable. Common cash inflows from investing activities include cash receipts resulting from: Selling short-term and long-term investments Collecting principal on notes receivable Selling plant assets Selling (or discounting) notes receivable Selling intangible assets Common cash outflows from investing activities include payments relating to: Loans made in return for notes receivable Buying plant assets Buying short-term and long-term investments Buying intangible assets Cash from collecting the principal amounts of notes are classified as investing. However, the collection of interest on notes is reported as an operating activity. Also, if a note results from sales to customers, it is classified as operating.

Each of the following are classifications in the statement of cash flows:

Investing Financing Operating

The issuance of common stock and declaration and payment of cash dividends will result in the following:

Increase in financing activities for the issuance and a decrease in financing activities for the dividends.

A statement of cash flows helps answer all of the following:

What explains the changes in the cash account? Where does a company spends its cash? How does a company receives its cash?

Each of the following are classified as a noncash investing or financing activity except:

reissuing treasury stock

Under the indirect method of preparing the statement of cash flows, decreases in noncash current operating assets should be:

added to net income

Each of the following are classifications in the statement of cash flows except:

income

A company reported that its bonds with a par value of $40,000 and a carrying value of $52,000 are retired for $60,000 cash, resulting in a loss of $8,000. The amount to be reported under cash flows from financing activities is _____.

(60000)

All of the following are correct forms of the accounting equation

Cash = Liabilities + Equity + Noncash assets Assets = Liabilities + Equity Cash + Noncash assets = Liabilities + Equity

All of the following are correct forms of the accounting equation except:

Cash = Liabilities + Equity - Noncash assets

Cash flow on total assets is computed by

Cash flow from operations divided by average total assets.

Each of the following are classified as an operating activity:

Cash sales to customers Collections on credit sales Receipt of interest revenue Receipt of dividend revenue Common cash outflows from operating activities include payments made to: Pay salaries and wages Pay suppliers for goods and services Pay interest owed Pay operating expenses Pay taxes and fines

All of the following are sources of information to prepare the statement of cash flows except:

Prior year's income statement

Place the steps to preparing the statement of cash flows in the correct order.

Step 1: Compute net increase or decrease in cash Step 2: Compute net cash from or for operating activities Step 3: Compute net cash from or for investing activities Step 4: Compute net cash from or for financing activities Step 5: Compute net cash from all sources, then prove it

Under the indirect method of preparing the statement of cash flows, decreases in current liabilities should be:

deducted from net income

Under the indirect method of preparing the statement of cash flows, increases in current assets should be:

deducted from net income

Each of the following are classified as a financing activity except:

purchase of long-term investments

Each of the following are classified as an operating activity except:

purchase of short-term investments

Each of the following are classified as an investing activity except:

receipt of interest revenue

Blue, Inc., reported net cash flows from operating activities of $120,000, cash flows from investing activities of $300,000, cash flows from financing activities of $80,000, and average total assets of $2,500,000. The company's cash flow on total assets ratio (stated as a percentage rounded to one decimal point) is _____.

4.8% explanation: total assets ratio= cash flow from operations divided by average total assets 120000/2500000=.048=4.8%

Under the indirect method of preparing the statement of cash flows, depreciation and amortization should be:

added to net income