Chapter 12 SB- Accounting

XYZ Co. sold equipment that originally cost $14,000 with accumulated depreciation of $11,000 for $4,000 cash, resulting in a gain of $1,000. Which of the statements below are correct regarding the treatment of this transaction on the statement of cash flows for the current period

$1,000 is deducted from operating activities. $4,000 is a cash inflow in investing activities.

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

Vango, Inc. sold its delivery van with an original cost of $40,000 and an accumulated depreciation balance at the time of sale of $30,000. Given it was sold at a $1,000 loss, proceeds from the disposal of the van will equal ______ on the statement of cash flows under ______ activities.ango, Inc. sold its delivery van with an original cost of $40,000 and an accumulated depreciation balance at the time of sale of $30,000. Given it was sold at a $1,000 loss, proceeds from the disposal of the van will equal ______ on the statement of cash flows under ______ activities.

$9,000; investing

When cash is paid before the expense is recognized, the payment is recorded as a (_1__)expense and is classified as a current (_2__) and affects the (__3_) section of the statement of cash flows.

1. prepaid 2. asset 3. operating

Subtracting decreases in current liabilities such as Salaries Payable

Allows the inclusion of transactions that decreased cash but not net income

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.

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

Positive cash flows from operating activities

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

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

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

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

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?

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).

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

Net income on the income statement typically differs from Cash from operating activities on the statement of cash flows. Sales on account can cause some of this difference. The change in ______ which is classified as ______ on the balance sheet is analyzed to help determine the difference in revenue and cash collected from customers.

accounts receivable; current asset

Which of the following is the best measure of a company's profitability?

accrual-based net income

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

added to

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

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

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

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

Credits in the accounts receivable account during a period represent the ______.

cash collected

Which of the following cash flows are classified as operating activities?

cash flow causing decrease in current liabilities cash from revenue earned in daily transactions

The two types of adjustments to net income for the indirect method are adjustments for ______.

components of net income that do not affect cash changes in operating assets and liabilities during the period that affected cash and were not in net income

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

When calculating net cash flow provided by operating activities, a decrease in Accounts Payable is ______ net income because payments to suppliers are ______ than new purchases.

deducted from; more

True or false: The company's cash outflows for operating expenses can be taken directly from the income statement because the expenses reflect the actual cash paid during the period.

false

issuing bonds payable is an example of a ____ activity

financing

Payment of dividends to stockholders

financing activities

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

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

Which of the following is a cash outflow from operating activities?

interest payments

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

In preparing the operating activities section of a statement of cash flows using the indirect method, net income should be adjusted for _____

loss from sale of asset gain from sale of asset depreciation expense

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

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 will most likely report a ______.

positive cash flow from financing activities

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

Adding increases in current liabilities such as Income Tax Payable

Allows the inclusion of transactions that decreased net income but not cash

Subtracting increases in current assets such as Accounts Receivable

Allows the inclusion of transactions that increased net income but not cash

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?

An increase in interest expense A decrease in the number of shares outstanding

Barclay, Inc. sold equipment that originally cost $30,000 four years ago for $8,000 cash. The equipment had accumulated depreciation totaling $24,000. How will this transaction be listed in the investing activities section of Barclay's statement of cash flows?

Cash inflow of $8,000

Expenses that are paid after they are incurred are referred to as ______ and affect the ______ section of the statement of cash flows.

accrued expenses; operating

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.

decreased cash, but did not affect

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

financing

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

inflow

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

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

The _____ activities section of the statement of cash flows shows the difference between accrual-based net income and cash from operating activities when prepared using the indirect method

operating

U.S. GAAP classifies the payment of interest as a(n) ____ activity on the statement of cash flows.

operating

payment of accounts payable

operating activities

Material noncash investing and financing transactions are ______.

reported in a supplementary schedule to the statement of cash flows

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

During the year, Cashews, Inc. borrowed $100,000 cash from a bank, received $700,000 of from issuing bonds, repaid $300,000 note payable from a bank, and sold $200,000 of short-term investments. The net cash inflow (outflow) from financing activities (assuming no other financing activities) equals ______.

$500,000

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

A decrease in Accounts Payable will result in a(n) ____ to net cash flow from operating activities.

decrease

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 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 ______.

increased cash, but did not affect net income

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

investing

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

Net cash inflow from operating activities using the direct method is ______ the Net cash inflow from operating activities using the indirect method.

the same as

The direct and indirect methods of preparing the statement of cash flows will result in ______.

the same net cash flows from operating, investing and financing activities different approaches to arriving at the same net cash flow from operating activities