MGMT chapter 11 review

Sales on account are $100,000. Beginning accounts receivable is $20,000, and ending accounts receivable is $15,000. What is the cash collected from customers during the period?

$105,000

Which of the following items are classified as cash inflows from operating activities on the statement of cash flows?

-Collection of interest -Collection from customers

Which of the following items are classified as cash inflows from operating activities on the statement of cash flows?

-Collection on account -Interest received on notes receivable

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

-Sale of equipment -Sale of land

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

-Sale of investments -Sale of equipment -Sale of building

Joann is preparing a statement of cash flows as part of a homework assignment. She hopes to find a check figure that will help her assess the accuracy of her results. What should Joann do to quickly find a check figure?

Calculate the change in the beginning and ending balance of cash

Which of the following sections will be identical in every detail under the direct and indirect methods.

Cash flows from financing activities Cash flows from investing activities

Which method of preparing the operating activities section of the statement of cash flows consists of a summary of all operating transactions that result in either a debit or a credit to cash?

Direct

True or false: When presenting the operating activities section of the statement of cash flows, the direct method starts with net income and adjusts it by eliminating the effects of transactions that do not involve cash. The indirect method reports the total cash inflow or cash outflow from each main type of transaction.

False

If interest payable increases, which of the following is true?

Interest paid is lower than the interest expense on the income statement.

Which statement regarding the amount of cash from operating activities is correct?

It is identical under the direct and the indirect method

Which of the following would result in a cash outflow from investing activities?

Purchase of a machine for cash.

Which of the following statements is correct concerning a decrease in accounts payable?

Since the cash payments were more than the credit purchases, the decrease must be added to purchases to calculate cash payments to suppliers.

When using the direct method, why is cash received from customers greater than sales revenue on the income statement when accounts receivable decreases?

There were more collections of accounts receivable than sales on account during the year.

True or false: Cost of goods sold must be adjusted to a cash number because the cost of merchandise sold may be more or less than the amount of cash paid to suppliers during the period.

True

Grant's income statement reveals a loss from the sale of land. In preparing the operating activities section of the statement of cash flows using the indirect format, the loss should be

added to net income

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.

Which of the following represents the first step in preparing a statement of cash flows in the correct order?

calculate the net cash flows from operating activities

The direct method presents a summary of all operating transactions that result in either a debit or credit to the___________ account.

cash

Which of the following represents the final step in preparing a statement of cash flows in the correct order?

combine operating, investing, and financing activities

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.

Cash from operating activities differs between the direct and indirect method with respect to the:

detail and presentation only

When there is no change in interest payable, the interest expense on the income statement is ______ the actual cash paid out during the period.

equal to

Cash flows from___________ activities include both inflows and outflows of cash from the external funding of a business.

financing

Issuing stock to owners is classified as a(n)_______ activity.

financing

A decrease in accounts receivable will result in a(n) ______________in cash from sales revenue when using the direct method to determine cash flows from operations.

increase

A(n)___________ in accounts payable indicates that cash payments were less than credit purchases and must be subtracted from purchases to calculate cash payments to suppliers.

increase

The statement of cash flows provides information about the cash inflows and cash outflows of an entity. For financing activities, a cash________ occurs when cash is borrowed from a creditor, and a cash __________occurs when a loan is repaid.

inflows, outflows

The statement of cash flows provides summary information about cash ___________and cash ____________during the year.

inflows, outflows

In order to determine cash flows from financing activities, we need to examine changes to

long-term liability and stockholders' equity accounts

When prepaid accounts increase, it indicates the company has paid ______ cash than it recorded as operating expenses.

more

When accounts receivable decrease

net sales are less than cash receipts from customers.

Depreciation expense and amortization expense represent_____________ items requiring adjustments to net income under the indirect method.

noncash

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

Gains and losses on the sale of long-term assets represent common_________ items needing adjustment under the indirect method.

nonoperating

When using the direct method to prepare the Statement of Cash Flows, depreciation expense is

not reported on the statement of cash flows.

___________activities include cash receipts and cash payments for transactions relating to revenue and expense activities.

operating

Cash receipts and cash payments for transactions relating to revenue and expense activities are classified on the statement of cash flows as

operating activities

The statement of cash flows classifies items as

operating, investing, and financing.

When the ______ account decreases, it means the company paid less cash for insurance than it recorded as insurance expense.

prepaid insurance

Changes to current assets and current liabilities require adjustment of net income under the indirect method because

related cash may be higher or lower than the accrued amount included in net income

The ratio that is calculated by dividing net income by average total assets is referred to as:

return on assets

Kleister Company issues bonds for $100 million and repays a long-term notes payable of $10 million. The company also sells its own shares for $12 million and pays cash dividends of $5 million. Cash inflows from financing activities will be:

$112 million

A review of Elisa Company's financial statements reveals the following information: cost of goods sold: $200,000; increase in inventory: $10,000; increase in accounts payable: $20,000. Cash paid to suppliers was:

$190,000

Neue Inc. reports sales revenue of $200,000; in addition, its accounts receivable balance decreased by $15,000. Neue's cash flows from sales were:

$215,000

Sales on account are $200,000. Cash sales during the period are $50,000. Beginning accounts receivable is $20,000, and ending accounts receivable is $30,000. What is the total cash collected from customers during the period?

$240,000. Reason: Sales on account + cash sales + the change in accounts receivable = cash collected for the period. $200,000 + 50,000 - 10,000 = $240,000

Roberts Company's operating expenses (excluding depreciation expense) were $50,000 and its balance in prepaid insurance increased by $2,000. Cash paid for operating expenses was:

$52,000

Adam Company's operating expenses (excluding depreciation expense) were $80,000 and its balance in prepaid insurance decreased by $5,000. Cash paid for operating expenses was:

$75,000

Which of the following nonoperating items require adjustments to net income under the indirect method?

-losses from sale of long-term assets -gains from sale of long-term assets

List the four steps in preparing a statement of cash flows in the correct order.

-operating -investing -financing -combine

The three classifications on the statement of cash flows are cash flows from (Select all that apply.)

-operating activities -financing activities -investing activities

An increase in accounts receivable will result in a(n) ______ in cash from sales revenue when using the direct method to determine cash flows from operations.

decrease

In a statement of cash flows, the sum of cash inflows and outflows is equal to

the change in the cash balance.

The amount of net cash flows from operating activities calculated using the direct method is

the same as under the indirect method.

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

financing

An increase in accounts receivable indicates that the company collected _____ cash than the amount of ______.

less, sales revenue

A review of Munchen Corporation's financial statements reveals the following information: cost of goods sold: $100,000; decrease in inventory: $5,000; increase in accounts payable: $10,000. Cash paid to suppliers was:

$85,000

When using the ____________method for determining cash flows from operations, noncash expenses are omitted from the Statement of Cash Flows.

direct

Cash inflows and outflows involving stockholders and creditors are classified on the statement of cash flows as _________activities.

financing

Cash transactions involving the purchase and sale of long-term assets and current investments are classified on the statement of cash flows as __________activities.

investing

When using the indirect method to prepare the operating activities section of the statement of cash flows, the first amount listed is _____________ _______________. (Enter one word per blank.)

net income

The return on assets is calculated by dividing ____ by _______.

net income, average total assets

Which of the following would result in a cash inflow from investing activities?

sale of machine for cash

The financial statement that provides information about cash receipts and cash disbursements for the period is the

statement of cash flows.

Which of the following are nonoperating items that require adjustments under the indirect method?

-Gains on the sale of long-term assets -Losses on the sale of long-term assets

Adjustments to net income in calculating operating cash flows include:

-Nonoperating items -Changes in current assets and current liabilities -Noncash items

Which of the following items are classified as cash outflows from operating activities on the statement of cash flows?

-Payment of salaries -payment on account

Which of the following are cash outflows from investing activities?

-Purchase of investment -Purchase of land

Which of the following are common noncash items requiring adjustment to net income under the indirect method?

-amortization expense -depreciation expense

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.

Which of the following items are classified as cash outflows from operating activities on the statement of cash flows?

-payment on account -purchase of supplies -Interest paid on bonds

The _______ method prepares the operating activities section of the statement of cash flows by restating each revenue and expense from the accrual basis to the cash basis. It shows the cash collected from customers and the cash paid for operating expenses.

direct

The purchase and sale of long-term assets and current investments are classified as

investing activities

Noncash items, nonoperating items, and changes in current assets and liabilities are necessary adjustments to _____________ ____________to prepare the operating section for the indirect format of the statement of cash flows.

net income

The starting point for preparing the operating activities section using the indirect method is:

net income

Kleister Company issues bonds for $100 million and repays a long-term notes payable of $10 million. The company also sells its own common shares for $12 million and pays cash dividends of $5 million. Which of the following are cash outflows from financing activities?

-payment of cash dividends -repayment of notes payable

Which of the following are cash outflows from investing activities?

-purchase of land -purchase of long-term investments -Purchase of building

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

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

Which of the following accounts results in adjustments to net income under the indirect method of preparing the statement of cash flows if their balances change during the year?

-accounts payable -inventory -accounts receivable

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 it is a noncash expense.