Chapter 22

An increase in short-term notes receivable will be added to net income under the indirect method of preparing the statement of cash flows.

False:Increases in current assets, represented by the increase in short-term notes receivable, are deducted from (not added to) net income in the operating activities section.

Only the comparative balance sheet is needed to prepare the statement of cash flows.

False:Preparation of the statement of cash flows requires the comparative balance sheet, the current year's income statement, and selected transaction data.

Payment of a stock dividend is classified as a financing activity.

False:Stock dividends would not be classified as a financing activity. Companies generally report these items in conjunction with the statement of stockholders' equity or schedules and notes pertaining to changes in capital accounts.

The payment to a lender to pay off a long-term debt is classified as an operating activity.

False:The repayment of long-term debt is classified as a financing activity.

Under the direct method, a loss on the sale of long-term investments would be shown in the operating activities section.

False:Under the direct method, a loss on the sale of long-term investments would not be shown on a statement of cash flows.

Which of the following statements related to a worksheet used for the preparation of a statement of cash flows is not correct?

The reconciling items shown in the worksheet are entered in a journal and posted to the appropriate accounts.

Which of the following statements related to a work sheet used for preparation of the statement of cash flows is correct?

The use of a worksheet is strictly optional.

Of the following questions, which one would not be answered by the statement of cash flows?

Were all the cash expenditures of benefit to the company during the period?

Cullumber Co. provided the following information on selected transactions during 2021: Purchase of land by issuing bonds $650200 Proceeds from issuing stock 520900 Purchases of inventory 952500 Purchases of treasury stock 350800 Loans made to affiliated corporations 177100 Dividends paid to preferred stockholders 102900 Proceeds from issuing preferred stock 212400 Proceeds from sale of land 327900 The net cash provided (used) by investing activities during 2021 is

$150800 The net cash provided (used) by investing activities during 2021 is computed as follows: Proceeds from sale of land, $327900 less Loans made to affiliated corporations, $177100 = $150800.

Crane Pine Co. provided the following information on selected transactions during 2021: Repayment of bond principal $450600 Proceeds from issuing common stock 761500 Purchases of inventory 941500 Proceeds from the sale of treasury stock 122900 Purchase of 10% interest in stock of Hindi Corp. 221800 Dividends paid to common & preferred stockholders 82100 Proceeds from issuing preferred stock 152300 Proceeds from sale of land 382200 The net cash provided (used) by investing activities during 2021 is

$160400 The net cash provided (used) by investing activities during 2021 is computed as follows: Proceeds from sale of land, $382200 less Purchase of 10% interest in stock of Hindi Corp., $221800 = $160400.

Lisa Island Co. provided the following information on selected transactions during 2022: Purchase of land by issuing bonds $1552900 Proceeds from sale of land 927900 Proceeds from issuing bonds 1901800 Purchases of inventory 2977200 Purchases of treasury stock 191400 Loans made to affiliated corporations 527700 Dividends paid to preferred stockholders 120200 Proceeds from issuing preferred stock 327200 Proceeds from sale of equipment 650400 The net cash provided by financing activities during 2022 is

$1917400 The net cash provided by financing activities during 2022 is computed as follows: Proceeds from issuing bonds, $1901800 - Purchase of treasury stock, $191400 - Dividends paid to preferred stockholders, $120200 + Proceeds from issuing preferred stock, $327200 = $1917400, Net cash provided by financing activities during 2022.

Cullumber Co. provided the following information on selected transactions during 2022: Repayment of bond principal $452700 Proceeds from issuing common stock 762700 Purchases of inventory 941600 Proceeds from the sale of treasury stock 120500 Purchase of 10% interest in stock of Hanoi Corp. 322200 Dividends paid to common & preferred stockholders 100400 Proceeds from issuing preferred stock 151500 Proceeds from sale of land 282000 The net cash provided (used) by financing activities during 2022 is

$481600 The net cash provided (used) by financing activities during 2022 is computed as follows: Proceeds from issuing common stock, $762700 + Proceeds from the sale of treasury stock, $120500 - Dividends paid to common & preferred stockholders, $100400 + Proceeds from issuing preferred stock, $151500 - Repayment of bond principal, $452700 = $481600, Net cash provided (used by financing activities during 2022.

The method of calculating net cash flow from operating activities that results in the presentation of a condensed cash-basis income statement is the:

Direct method

The reconciliation of net income to net cash flow from operating activities is reported under:

both the direct method and the indirect method.

To arrive at net cash provided by operating activities using the indirect method, it is necessary to report revenues and expenses on a cash basis. This is done by

eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash.

All of the following adjustments would be deducted in determining net cash flow from operating activities using the indirect method except: • amortization of bond premium. • decrease in deferred income tax liability. • gain on the sale of plant assets. •increase in accrued liabilities.

increase in accrued liabilities.

Which method adjusts net income for items that affected reported net income but did not affect cash?

indirect

The method of calculating net cash flow from operating activities that adjusts net income for items that affected reported net income but not cash is the:

indirect method

All of the following would be classified as financing cash flows except: purchases of treasury stock. proceeds from the sale of stock. • interest paid on long-term debt. • dividends paid on preferred stock.

interest paid on long-term debt.

The sources of information used to prepare the statement of cash flows includes all of the following except • comparative balance sheets. • last year's income statement. • this year's income statement. • other selected transaction data

last year's income statement.

Which of the following is not needed in order to prepare a statement of cash flows?

last year's statement of cash flows.

Net cash flow from operating activities is determined by eliminating

noncash expenses and noncash revenues from net income.

Activities involving the cash effects of transactions that enter into the determination of net income are:

operating activities

Under the direct method, cash payments to suppliers equals cost of goods sold:

plus an increase in inventory and minus an increase in accounts payable.

All of the following would be considered investing activities except: • purchase of equipment for cash. • sale of land for cash. • purchase of 25% interest in the stock of a supplier. • receipt of cash dividends from equity investment.

receipt of cash dividends from equity investment.

A statement of cash flows typically would not disclose the effects of

stock dividends declared

When preparing a statement of cash flows (indirect method), which of the following is not an adjustment to reconcile net income to net cash provided by operating activities?

A change in dividends payable

All of the following adjustments are added to net income in computing net cash flow from operating activities using the indirect method except • amortization expense. • a decrease in supplies. • an increase in salaries payable. • an increase in accounts receivable.

An increase in accounts receivable.

Acquiring land and a building by issuing common stock would be reported as:

Noncash investing and financing activity

The primary purpose of the statement of cash flows is to provide information

about the cash receipts and cash payments of an entity during a period.

Blossom Company sold some of its plant assets during 2022. The original cost of the plant assets was $502700 and the accumulated depreciation at date of sale was $327400. The proceeds from the sale of the plant assets were $151800. The information concerning the sale of the plant assets should be shown on Blossom's statement of cash flows (indirect method) for the year ended December 31, 2022, as a (n)

addition to net income of $23500 for loss on sale and a $151800 for cash proceeds as an increase in cash flows from investing activities. This transaction affects two sections in the statement of cash flows. First, the cash proceeds from the sale of plant assets would be reflected as a $151800 increase in cash flows from investing activities. Then the cash proceeds must be compared to the book value of the asset sold to determine if a gain/loss was recognized in the transaction. The gain/loss on the sale of the plant assets is computed as follows: Cash Proceeds from Sale, $151800 - Book Value, $175300 or (Cost of assets sold, $502700 - Accumulated depreciation on assets sold, $327400) = $23500 Loss on Sale of Plant Assets which would be added to net income to determine cash flows from operating activities.

Blossom Company sold some of its plant assets during 2022. The original cost of the plant assets was $1500100 and the accumulated depreciation at date of sale was $1300100. The proceeds from the sale of the plant assets were $310100. The information concerning the sale of the plant assets should be shown on Blossom's statement of cash flows (indirect method) for the year ended December 31, 2022, as a (n)

subtraction from net income of $110100 for gain on sale to determine cash flows from operating activities and a $310100 for cash proceeds as an increase in cash flows from investing activities. This transaction affects two sections in the statement of cash flows. First, the cash proceeds from the sale of plant assets would be reflected as a $310100 increase in cash flows from investing activities. Then the cash proceeds must be compared to the book value of the asset sold to determine if a gain/loss was recognized in the transaction. The gain/loss on the sale of the plant assets is computed as follows: Cash Proceeds from Sale, $310100 - Book Value, $200000 or (Cost of assets sold, $1500100 - Accumulated depreciation on assets sold, $1300100) = $110100, Gain on Sale of Plant Assets which would be subtracted from net income to determine cash flows from operating activities.