Chapter 23

In its first year of operations Trumbo Company reported net income of $257,000. Total sales, all on account, amounted to $486,000, and collections of receivables during the year totaled $396,500. Trumbo uses the allowance method in accounting for bad debts expense and during the year recorded bad debt expense of $21,000. Based on these facts alone, what is the net cash provided by operating activities?

B: 188500

The first step in the preparation of the statement of cash flow requires the use of information included in which comparative financial statements?

B: Balance Sheets.

The amortization of bond premium on longterm debt should be presented in a statement of cash flows (using the indirect method for operating activities) as a(n):

B:Deduction from net income.

The basis recommended by the FASB for the statement of cash flows is "cash and cash equivalents." As described by GAAP, cash equivalents are:

B:Shortterm,highly liquid investments that are both readily convertible to known amounts of cash, and so near their maturity that they present insignificant risk of changes in interest rates.

The method used to compute net cash provided by operating activities that adjusts net income for items that affected reported net income but did not affect cash is known as the:

A: Indirect Method

Schroeder Company uses the indirect method in computing net cash provided by operating activities. How would reported net income be adjusted for the following items?

A: Loss on sale of machinery: Added to, Increase in Inventories: Deducted from

In general, financing activities as used in the statement of cash flows refer to:

A:liability and owners' equity items and include (a) obtaining cash from creditors and repaying the amounts borrowed and (b) obtaining capital from owners and providing them with a return on, and a return of, their investment.

Crabbe Company reported $80,000 of selling and administrative expenses on its income statement for the past year. The Company had depreciation expense and an increase in prepaid expenses associated with the selling and administrative expense for the year. Assuming use of the direct method, how would these items be handled in converting the accrual based selling and administrative expense to the cash basis?

C: Depreciation: Deducted from, Increase in Prepaid expenses: Added to

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

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

In a statement of cash flows, the cash flows from investing activities section should report:

C: the assignment of accounts receivable.

Which of the following is not one of the benefits investors and creditors can expect as a result of the presentation of the statement of cash flows?

C:Assess the enterprise's ability to expand its operating facilities through the issuance of longterm debt.

How should significant noncash transactions (purchase of equipment in exchange for common stock) be reported in the statement of cash flows according to GAAP?

C:These noncash transactions are not to be incorporated in the statement of cash flows. They may be summarized in a separate schedule at the bottom of the statement or appear in a separate supplementary schedule to the financials.

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

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

Cashman Company reported net income after taxes of $85,000 for the year ended 12/31/17. Included in the computation of net income were: depreciation expense, $15,000; amortization of a patent, $8,000; income from an investment in common stock of Linda Inc., accounted for under the equity method, $12,000; and amortization of a bond premium, $3,000. Cashman also paid a $20,000 dividend during the year. The net cash provided by operating activities would be reported at

D: 85000+15000+8000-3000-12000=93000

When preparing a statement of cash flows, an increase in accounts receivable during the period would cause which one of the following adjustments in determining cash flows from operating activities?

D: Direct Method: decrease, Indirect Method: decrease

The cash received from the sale of property, plant, and equipment at no gain or loss is classified as what type of activity on the statement of cash flows?

D: Investing: Yes, Financing: No, Operating: No

Which of the following activities is classified as an investing activity on the statement of cash flows?

D:Cash received from the sale of property, plant, and equipment.