Chapter 12 Accounting

When Prepaid Expenses increase, it indicates the company has paid ______ cash than it recorded as operating expenses. Multiple choice question. less more

more

Over Armoir, Inc. purchased a patent totaling $1,000 for cash during the year and equipment for $10,000 cash. Assuming these are the only transactions affecting the investing activities, it will report net cash flows from investing activities of ______. $(11,000) $9,000 $11,000 $(9,000)

$(11,000)

Which balance sheet line item will help explain a difference between revenue / net income on the income statement and cash from operating activities on the statement of cash flows? Accounts Receivable Common Stock Property, Plant and Equipment Retained Earnings

Accounts Receivable

Which of the following is the best measure of a company's profitability? Sales revenue Accrual-based net income Cash-based net income Accounts receivable

Accrual-based net income

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

False

Using the indirect method, when the direction of change in Inventory is a(n) _____, 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 Accounts Receivable decrease, cash from customer collections will _____.

Increase

Which of the following describes the acceptable methods that may be used to prepare the statement of cash flows? (Check all that apply.) Indirect method Direct method Cash-basis method Accrual-basis method

Indirect method Direct method

Which of the following are the classifications on the statement of cash flows? (Check all that apply.) Operating Financial Gross Profit Net Income Investing Investment Financing

Operating Investing Financing

When cash is paid within a year before the expense is recognized, the payment is recorded as a(n) _____ expense and is classified as a current _____ and affects the _____ section of the statement of cash flows.

Prepaid, asset, operating

Which of the following will result in a decrease to Net Cash from Investing Activities? (Check all that apply.) Repayment of loan principal Sale of equipment Purchase of equipment Purchase of intangible assets Depreciation Expense Accumulated Depreciation

Purchase of equipment Purchase of intangible assets

True or false: Net cash flows provided by (used in) operating activities is always the same under the direct and indirect methods.

True

Which balance sheet line item will help explain a difference between revenue / net income on the income statement and cash from operating activities on the statement of cash flows? Retained Earnings Property, Plant and Equipment Accounts Receivable Common Stock

accounts receivable

Depreciation Expense is ______ when preparing the indirect method of the statement of cash flows. subtracted from net income because the expense does not involve the payment of cash subtracted from net income because the expense involves a cash outflow added back to net income because the expense involves a cash inflow added back to net income because the expense does not involve the payment of cash

added back to net income because the expense does not involve the payment of cash

When preparing the statement of cash flow using the indirect method, Depreciation Expense is ______. added back to net income under the operating activities section added back to net income under the financing activities section subtracted from net income under the operating activities section subtracted net income under the financing activities section

added back to net income under the operating activities section

Depreciation Expense is ______ net income in a statement of cash flows prepared using the indirect method because it ______. subtracted from; is a noncash expense added back to; is a financing activity added back to; is a cash inflow subtracted from; is a cash outflow added back to; is a cash outflow added back to; is a noncash expense subtracted from; is a cash inflow

added back to; is a noncash expense

When using the indirect method, adding an increase in an account such as Wages and Salaries Payable to net income eliminates the effect of recording Wages and Salary Expense that _____ this period. decreased net income, but has not been paid in cash increased net income, but has not been paid in cash increased net income and increased cash flow decreased net income and decreased cash flow

decreased net income, but has not been paid in cash

The changes in the non-cash balance sheet accounts explain the differences between the ______. net income and total stockholders' equity net income and total assets income statement and the statement of cash flows income statement and the statement of retained earnings

income statement and the statement of cash flows

When preparing the operating activities section of the statement of cash flows using the indirect method, adding a decrease in Accounts Receivable to net income allows the inclusion of transactions that ______. decreased cash, but did not affect net income decreased cash and decreased net income increased cash and increased net income increased cash, but did not affect net income

increased cash, but did not affect net income

The two alternative methods that may be used in preparing the operating section of the statement of cash flows are the _____ and _____ methods

indirect and direct

Cash flows associated with intangible assets are ______ activities. investing operating amortization financing

investing

If the Deferred Revenue account balance decreased, how should this be reflected in the operating activities section of the statement of cash flows when using the indirect method? The decrease should be ______ net income because ______ during the accounting period. subtracted from; more revenue was generated than collected subtracted from; less revenue was generated than collected added to net income; less revenue was generated than collected added to net income; more revenue was generated than collected

subtracted from; more revenue was generated than collected

Net cash flows provided by operating activities will be ______ when using the direct method compared to the indirect method. the same lower higher

the same

If the direction of change in Accounts Receivable is a(n) _____ (increase/decrease) from the prior period, the amount of that change is added to net income in the _____ activities section of the statement of cash flows.

Blank 1: decrease or reduction Blank 2: operating

Issuing bonds payable is an example of a(n) _____ activity.

Blank 1: financing

The payment of dividends and changes in the Dividends Payable account are classified as activities.

Blank 1: financing

The starting point for preparing the operating activities section using the _____ method is Net Income.

Blank 1: indirect

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

Blank 1: investing

Which of the following items would not be classified as a financing activity? Repayments of accounts payable Issuing additional common stock Borrowing from financial institutions Payments of amounts owed to owners

Repayments of accounts payable

If the Accounts Receivable balance is $10 million less than the balance at the beginning of the year, then on the statement of cash flows (indirect method) $10 million should be ______. added to investing activities subtracted from net income subtracted from investing activities added to net income

added to net income

When using the indirect method, ______ an increase in Deferred Revenue to net income allows the inclusion of transactions that increase cash, but do not impact net income. adding subtracting

adding

The sale of its intangible asset, trademark, is considered a(n) ______. investing activity because the purchase and sale of assets that benefit the company for more than one year are classified as such financing activity because the sale provides funds that can be used in the business operating activity because the gain or loss that is generated by the sale of the trademark is included in net income

investing activity because the purchase and sale of assets that benefit the company for more than one year are classified as such

A decrease in Accounts Payable indicates that ______ was purchased than paid during the accounting period. Thus the decrease will be ______ net income on the statement of cash flows prepared using the indirect method. more; added to more; subtracted from less; added to less; subtracted from

less; subtracted from

A increase in Prepaid Expenses indicates that ______ was expensed than paid during the period. Thus the increase will be ______ net income on the statement of cash flows prepared using the indirect method. less; subtracted from less; added to more; subtracted from

less; subtracted from

After its first year of business, Best Measures, Inc.'s sales revenue were $100,000 of which $90,000 was collected and total expenses of $60,000 of which $20,000 was paid. Which of the following statements is correct? (Select all that apply.) Cash-basis net income equals $40,000. Accrual-based net income equals $70,000. Cash-basis net income equals $70,000. Cash-basis net income equals $80,000. Accrual-basis net income equals $80,000. Accrual-basis net income equals $40,000.

Cash-basis net income equals $70,000. Accrual-basis net income equals $40,000.

When operating cash flows are calculated using the indirect method, which of the following is the correct adjustment to convert net income into net cash from operating activities? Deduct from net income increases in current assets Deduct from net income increases in current liabilities Deduct from net income depreciation Add back to net income increases in current assets

Deduct from net income increases in current assets

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

Spending

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

Spending

Braden and Sons, Inc., paid cash to purchase equipment costing $342,000 this year. Also this year, the company sold for $70,000 cash equipment that originally cost $230,000 5 years ago. How should these transactions be listed in the statement of cash flows? Braden can combine the transactions and show a decrease to cash for $272,000. Braden can combine the transactions and show a decrease to cash for $112,000. The purchases and the sales of equipment must be shown separately as a decrease to cash for $572,000 (purchase) and an increase of $70,000 (sale). The purchases and the sales of equipment must be shown separately as a decrease to cash for $342,000 (purchase) and an increase of $70,000 (sale).

The purchases and the sales of equipment must be shown separately as a decrease to cash for $342,000 (purchase) and an increase of $70,000 (sale).

Braden and Sons, Inc. borrowed $700,000 cash from Trenton Savings and Loan last year. In addition, the company repaid a $450,000 note payable to First National Bank. How should these transactions be listed in the Statement of Cash Flows? Transactions must be shown separately as a decrease to cash for $450,000 and an increase of $700,000 in the financing activities section. Braden can combine the transactions and show an increase to cash of $250,000 in the financing activities section of the statement. Braden can combine the transactions and show an increase to cash of $250,000 in the investing activities section of the statement. A decrease to cash for $450,000 is listed in the investing activities section and an increase of $700,000 is in the financing activities section.

Transactions must be shown separately as a decrease to cash for $450,000 and an increase of $700,000 in the financing activities section.

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. can; investing can; financing cannot; investing cannot; financing

cannot; financing

If there are more debits to Accounts Receivable than credits during the year, then Cash ______. collected from customers on the statement of cash flows will be less than Revenues on the income statement paid to suppliers for inventory on the statement of cash flows will be less than Cost of Goods Sold on the income statement

collected from customers on the statement of cash flows will be less than Revenues on the income statement

When using the indirect method in preparing the statement of cash flows, if cash collected from customers is greater than the revenues generated, then the ______ net income. decrease in Accounts Receivable will be added to decrease in Accounts Receivable will be subtracted from increase in Accounts Receivable will be subtracted from increase in Accounts Receivable will be added to

decrease in Accounts Receivable will be added to

In arriving at cash from operating activities using the indirect method, subtracting a decrease in Accounts Payable from net income adjusts net income for transactions that ______ net income. increased cash, but did not affect decreased cash and decreased decreased cash, but did not affect increased cash and increased

decreased cash, but did not affect

A decrease in Prepaid Expenses indicates that ______ was expensed than paid. Thus the decrease will be ______ net income on the statement of cash flows prepared using the indirect method. more; added to more; subtracted from

more; added to

An increase in Accounts Payable indicates that ______ was purchased than paid. Thus the increase will be ______ net income on the statement of cash flows prepared using the indirect method. less; added to less; subtracted from more; added to more; subtracted from

more; added to

A healthy expanding company would most likely show a ______ cash flow from investing activities. positive negative neutral

negative

The starting point for preparing the operating activities section using the indirect method is ______. current assets current liabilities ending cash balance net income

net income

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. increase cash decrease noncash negative

noncash

The cash flow statement should be evaluated by examining the cash flow pattern ______. of the subtotals for the three sections of the statement change in cash regardless of which section had the biggest impact on the change operating activities section since this section details the day to day operations of the business financing section since this section details how much debt the company has incurred

of the subtotals for the three sections of the statement

Cash transactions that result in a debit to a Property or Equipment account will be reported on the statement of cash flows as a cash ______ activities. outflow under financing inflow under operating inflow under financing outflow under investing outflow under operating inflow under investing

outflow under investing

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 and increased cash flow that decreased net income and decreased cash flow that increased net income, but did not impact cash that decreased net income, but did not impact cash

that increased net income, but did not impact cash

When using the indirect method, subtracting a decrease in Deferred Revenue from net income eliminates the effect of recording revenue ______. that decreased net income and decreased cash flow this period that increased net income and increased cash flow this period that decreased net income, but did not impact cash this period that increased net income, but did not impact cash this period

that increased net income, but did not impact cash this period

To properly evaluate the statement of cash flows, it is important to evaluate ______. net income in relation to the investing activity section the pattern of the three sections, not just the change in cash during the period the ending cash balance to see that it increased net income in relation to the financing activity section

the pattern of the three sections, not just the change in cash during the period