ACC 21 & 23

A company acquired a building, paying a portion of the purchase price in cash and issuing a mortgage note payable to the seller for the balance. 111. In a statement of cash flows, what amount is included in investing activities for the above transaction? a. Cash payment b. Acquisition price c. Zero d. Mortgage amount

a. Cash payment

37. When preparing a statement of cash flows, a decrease in prepaid insurance during a period would require which of the following adjustments in determining cash flows from operating activities?Indirect Method Direct Method a. Increase Decrease b. Decrease Increase c. Increase Increase d. Decrease Decrease

a. Increase Decrease

80. During 2018, Greta Company earned net income of $262,000 which included depreciation expense of $39,000. In addition, the company experienced the following changes in the account balances listed below: Decreases Accounts receivable $ 6,000 Prepaid expenses $16,500 Accrued liabilities 12,000 Increases Accounts payable $ 22,500 Accounts payable...... $18,000 Based upon this information what amount will be shown for net cash provided by operating activities for 2018? a. $316,000. b. $302,500. c. $212,500. d. $203,500.

a. $316,000. $262,000 + $39,000 + $22,500 - $18,000 + $6,000 + $16,500 - $12,000 = $316,000.

a deferred gain.

*108. Jamar Co. sold its headquarters building at a gain, and simultaneously leased back the building. The lease was reported as a capital lease. At the time of the sale, the gain should be reported as

$0.

*109. On December 31, 2011, Haden Corp. sold a machine to Ryan and simultaneously leased it back for one year. Pertinent information at this date follows: Sales price $900,000 Carrying amount 825,000 Present value of reasonable lease rentals ($7,500 for 12 months @ 12%) 85,000 Estimated remaining useful life 12 years In Haden's December 31, 2011 balance sheet, the deferred profit from the sale of this machine should be

75. In preparing Titan Inc.'s statement of cash flows for the year ended December 31, 2018, the following amounts were available: Collect note receivable $615,000 Issue bonds payable 639,000 Purchase treasury stock 300,000 What amount should be reported on Titan, Inc.'s statement of cash flows for investing activities? a. $615,000 b. $315,000 c. $1,254,000 d. $339,000

a. $615,000 $615,000.

81. Cashman Company reported net income of $530,000 for the year ended 12/31/18. Included in the computation of net income were: depreciation expense, $90,000; amortization of a patent, $48,000; income from an investment in common stock of Linda Inc., accounted for under the equity method, $72,000; and amortization of a bond premium, $18,000. Cashman also paid a $120,000 dividend during the year. The net cash provided by operating activities would be reported at a. $578,000. b. $482,000. c. $458,000. d. $362,000.

a. $578,000. $530,000 + $90,000 + $48,000 - $18,000 - $72,000 = $578,000.

*50. In a sale-leaseback transaction where none of the four leasing criteria are satisfied, which of the following is false? a. The seller-lessee removes the asset from its books. b. The purchaser-lessor records a gain. c. The seller-lessee records the lease as an operating lease. d. All of the answers are false statements.

B

23. Which of the following best describes current practice in accounting for leases? a. Leases are not capitalized. b. Leases similar to installment purchases are capitalized. c. All long-term leases are capitalized. d. All leases are capitalized.

B

34. From the lessee's perspective, in the earlier years of a lease, the use of the a. capital method will enable the lessee to report higher income, compared to the operating method. b. capital method will cause debt to increase, compared to the operating method. c. operating method will cause income to decrease, compared to the capital method. d. operating method will cause debt to increase, compared to the capital method.

B

S43. The primary difference between a direct-financing lease and a sales-type lease is the a. manner in which rental receipts are recorded as rental income. b. amount of the depreciation recorded each year by the lessor. c. recognition of the manufacturer's or dealer's profit at (or loss) the inception of the lease. d. allocation of initial direct costs by the lessor to periods benefited by the lease arrangements.

C

d. None of these answers are correct. 33. Lessees prefer to account for their leases as operating lease because: a. it increases their debt to total equity ratio. b. it decreases the income tax expense. c. it increases the amount of total assets. d. it decreases the amount of liability reported.

D

91. The following information was taken from the 2018 financial statements of Jenny Gardner Corporation: Inventory, January 1, 2018 $ 180,000 Inventory, December 31, 2018 240,000 Accounts payable, January 1, 2018 150,000 Accounts payable, December 31, 2018 240,000 Sales revenue 1,200,000 Cost of goods sold 800,000 If the direct method is used in the 2018 statement of cash flows, what amount should Jenny Gardner report as cash payments to suppliers? a. $770,000 b. $830,000 c. $890,000 d. $950,000

a. $770,000 $800,000 + ($240,000 - $180,000) - ($240,000 - $150,000) = $770,000.

41. When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is deducted from net income to compute cash provided by/used by operating activities? a. Decrease in accounts receivable. b. Gain on sale of land. c. Amortization of patent. d. All of these are deducted from net income to arrive at cash flow from operating activities.

b. Gain on sale of land.

28. Which of the following would be classified as a financing activity on a statement of cash flows? a. Declaration and distribution of a stock dividend b. Payment of a bond payable c. Sale of a loan receivable d. Payment of interest to a creditor

b. Payment of a bond payable

Harlan Mining Co. has recently decided to go public and has hired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of cash flows. Financial statements of Harlan Mining Co. for 2019 and 2018 are provided below. 55. The net cash provided (used) by financing activities is a. $(240,000). b. $48,000. c. $(432,000). d. $192,000.

c. $(432,000). ($192,000) + ($240,000) = ($432,000).

92. Alex Company prepares its statement of cash flows using the direct method for operating activities. For the year ended December 31, 2018, Alex Company reports the following activity: Sales on account $2,100,000 Cash sales 1,110,000 Decrease in accounts receivable 915,000 Increase in accounts payable 108,000 Increase in inventory 72,000 Cost of good sold 1,575,000 What is the amount of cash collections from customers reported by Alex Company for the year ended December 31, 2018? a. $3,210,000 b. $3,015,000 c. $4,125,000 d. $2,295,000

c. $4,125,000 $2,100,000 + $1,110,000 + $915,000 = $4,125,000.

70. The following information was taken from the 2018 financial statements of Dunlop Corporation: Bonds payable, January 1, 2018 $ 800,000 Bonds payable, December 31, 2018 4,800,000 During 2018 • A $720,000 payment was made to retire bonds payable with a face amount of $800,000. • Bonds payable with a face amount of $320,000 were issued in exchange for equipment. In its statement of cash flows for the year ended December 31, 2018, what amount should Dunlop report as proceeds from issuance of bonds payable? a. $4,000,000 b. $4,400,000 c. $4,480,000 d. $5,120,000

c. $4,480,000 $4,800,000 - $800,000 + $800,000 - $320,000 = $4,480,000.

Total assets on the balance sheet at December 31, 2018 are $6,648,000. Accumulated deprecia-tion on the equipment sold was $336,000. 63. When the equipment was sold, the Buildings and Equipment account received a credit of a. $288,000. b. $624,000. c. $480,000. d. $336,000.

c. $480,000. $288,000 - $144,000 = $144,000 (BV); $144,000 + $336,000 = $480,000.

60. During 2018, equipment was sold for $468,000. The equipment cost $786,000 and had a book value of $432,000. Accumulated Depreciation—Equipment was $2,061,000 at 12/31/17 and $2,205,000 at 12/31/18. Depreciation expense for 2018 was a. $144,000. b. $288,000. c. $498,000. d. $576,000.

c. $498,000. $2,205,000 - $2,061,000 + ($786,000 - $432,000) = $498,000.

104. Zook Incorporated, had net income for 2018 of $5,400,000. Additional information is as follows: Amortization of patents $ 45,000 Depreciation on plant assets 1,650,000 Long-term debt: Bond premium amortization 65,000 Interest paid 900,000 Provision for doubtful accounts: Current receivables 80,000 Long-term nontrade receivables 30,000 What should be the net cash provided by operating activities in the statement of cash flows for the year ended December 31, 2018, based solely on the above information? a. $7,220,000. b. $7,270,000. c. $7,140,000. d. $7,240,000.

c. $7,140,000. $5,400,000 + $45,000 + $1,650,000 - $65,000 + $80,000 + $30,000 = $7,140,000.

30. 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 expenses for the year. Assuming use of the direct method, how would these items be handled in converting the accrual based selling and administrative expenses to the cash basis? Increase in Depreciation Prepaid Expenses a. Deducted Deducted From From b. Added To Added To c. Deducted From Added To d. Added To Deducted From

c. Deducted From Added To

47. Dolan Company reports its income from investments under the equity method and recognized income of $25,000 from its investment in Moss Co. during the current year, even though no dividends were declared or paid by Moss during the year. On Dolan's statement of cash flows (indirect method), the $25,000 should a. not be shown. b. be shown as cash inflow from investing activities. c. be shown as cash outflow from financing activities. d. be shown as a deduction from net income in the cash flows from operating activities section.

d. be shown as a deduction from net income in the cash flows from operating activities section.

26. A company borrows $10,000 and signs a 90-day nontrade note payable. In preparing a statement of cash flows (indirect method), this event would be reflected as a(n) a. addition adjustment to net income in the cash flows from operating activities section. b. cash outflow from investing activities. c. cash inflow from investing activities. d. cash inflow from financing activities.

d. cash inflow from financing activities.

74. Minear Company reported net income of $480,000 for the year ended 12/31/18. Included in the computation of net income were: depreciation expense, $60,000; amortization of a patent, $32,000; income from an investment in common stock of Brett Inc., accounted for under the equity method, $48,000; and amortization of a bond discount, $12,000. Minear also paid an $80,000 dividend during the year. The net cash provided by operating activities would be reported at a. $536,000. b. $456,000. c. $424,000. d. $344,000.

a. $536,000. $480,000 + $60,000 + $32,000 - $48,000 + $12,000 = $536,000.

73. During 2018, Orton Company earned net income of $494,000 which included deprecia-tion expense of $78,000. In addition, the company experienced the following changes in the account balances listed below: Increases Accounts payable $45,000 Inventory 36,000 Decreases Accounts receivable $12,000 Accrued liabilities 24,000 Prepaid insurance 33,000 Based upon this information what amount will be shown for net cash provided by operating activities for 2018? a. $602,000 b. $575,000 c. $395,000 d. $377,000

a. $602,000 $494,000 + $78,000 + $45,000 - $36,000 + $12,000 - $24,000 + $33,000 = $602,000.

88. The following information on selected cash transactions for 2018 has been provided by Mancuso Company: Proceeds from sale of land $315,000 Proceeds from long-term borrowings 600,000 Purchases of plant assets 216,000 Purchases of inventories 1,020,000 Proceeds from sale of Mancuso common stock 360,000 What is the cash provided (used) by investing activities for the year ended December 31, 2018, as a result of the above information? a. $99,000 b. $384,000. c. $315,000. d. $1,275,000.

a. $99,000 $315,000 - $216,000 = $99,000.

36. When preparing a statement of cash flows, an increase in accounts payable during a period would require which of the following adjustments in determining cash flows from operating activities?Indirect Method Direct Method a. Increase Decrease b. Decrease Increase c. Increase Increase d. Decrease Decrease

a. Increase Decrease

48. In reporting unusual items on a statement of cash flows (indirect method), the a. gross amount of an unusual gain should be deducted from net income. b. net of tax amount of an unusual gain should be added to net income. c. net of tax amount of an unusual gain should be deducted from net income. d. gross amount of an unusual gain should be added to net income.

a. gross amount of an unusual gain should be deducted from net income.

Napier Co. provided the following information on selected transactions during 2018: Purchase of land by issuing bonds $1,000,000 Proceeds from issuing bonds 3,000,000 Purchases of inventory 3,800,000 Purchases of treasury stock 600,000 Loans made to affiliated corporations 1,400,000 Dividends paid to preferred stockholders 400,000 Proceeds from issuing preferred stock 1,600,000 Proceeds from sale of equipment 300,000 83. The net cash provided (used) by investing activities during 2018 is a. $300,000. b. $(1,100,000). c. $(2,100,000). d. $(4,500,000).

b. $(1,100,000). $300,000 - $1,400,000 = ($1,100,000).

Smiley Corp.'s transactions for the year ended December 31, 2018 included the following: • Purchased real estate for $1,250,000 cash which was borrowed from a bank. • Sold available-for-sale securities for $1,000,000. • Paid dividends of $1,200,000. • Issued 500 shares of common stock for $500,000. • Purchased machinery and equipment for $250,000 cash. • Paid $900,000 toward a bank loan. • Reduced accounts receivable by $200,000. • Increased accounts payable $400,000. 114. Smiley's net cash used in financing activities for 2018 was a. $450,000. b. $350,000. c. $900,000. d. $850,000.

b. $350,000. $1,250,000 - $1,200,000 + $500,000 - $900,000 = ($350,000).

Equipment that cost $875,000 and had a book value of $390,000 was sold for $450,000. Data from the comparative balance sheets are: 12/31/18 Equipment $5,400,000 12/31/17 Equipment $4,875,000 12/31/18 Accumulated Depreciation 1,650,000 12/31/17 Accumulated Depreciation 1,425,000 62. Equipment purchased during 2018 was a. $1,400,000. b. $825,000. c. $525,000. d. $915,000.

a. $1,400,000. $5,400,000 - $4,875,000 + $875,000 = $1,400,000.

93. Alex Company prepares its statement of cash flows using the direct method for operating activities. For the year ended December 31, 2018, Alex Company reports the following activity: Sales on account $2,100,000 Cash sales 1,110,000 Decrease in accounts receivable 915,000 Increase in accounts payable 108,000 Increase in inventory 72,000 Cost of goods sold 1,575,000 What is the amount of cash payments to suppliers reported by Alex Company for the year ended December 31, 2018? a. $1,539,000 b. $1,611,000 c. $1,755,000 d. $1,395,000

a. $1,539,000 $1,575,000 - $108,000 + $72,000 = $1,539,000.

Lease A Capital lease Lease B Capital lease

100. Lease A does not contain a bargain purchase option, but the lease term is equal to 90 percent of the estimated economic life of the leased property. Lease B does not transfer ownership of the property to the lessee by the end of the lease term, but the lease term is equal to 75 percent of the estimated economic life of the leased property. How should the lessee classify these leases?

$606,528.

101. On December 31, 2011, Burton, Inc. leased machinery with a fair value of $840,000 from Cey Rentals Co. The agreement is a six-year noncancelable lease requiring annual payments of $160,000 beginning December 31, 2011. The lease is appropriately accounted for by Burton as a capital lease. Burton's incremental borrowing rate is 11%. Burton knows the interest rate implicit in the lease payments is 10%. The present value of an annuity due of 1 for 6 years at 10% is 4.7908. The present value of an annuity due of 1 for 6 years at 11% is 4.6959. In its December 31, 2011 balance sheet, Burton should report a lease liability of

$1,492,200.

102. On December 31, 2010, Harris Co. leased a machine from Catt, Inc. for a five-year period. Equal annual payments under the lease are $630,000 (including $30,000 annual executory costs) and are due on December 31 of each year. The first payment was made on December 31, 2010, and the second payment was made on December 31, 2011. The five lease payments are discounted at 10% over the lease term. The present value of minimum lease payments at the inception of the lease and before the first annual payment was $2,502,000. The lease is appropriately accounted for as a capital lease by Harris. In its December 31, 2011 balance sheet, Harris should report a lease liability of

the current liability shown for the lease at the end of year 1.

103. A lessee had a ten-year capital lease requiring equal annual payments. The reduction of the lease liability in year 2 should equal

should be recognized over the period of the lease using the effective interest method.

106. In a lease that is recorded as a sales-type lease by the lessor, interest revenue

$170,000

107. Torrey Co. manufactures equipment that is sold or leased. On December 31, 2011, Torrey leased equipment to Dalton for a five-year period ending December 31, 2016, at which date ownership of the leased asset will be transferred to Dalton. Equal payments under the lease are $220,000 (including $20,000 executory costs) and are due on December 31 of each year. The first payment was made on December 31, 2011. Collectibility of the remaining lease payments is reasonably assured, and Torrey has no material cost uncertainties. The normal sales price of the equipment is $770,000, and cost is $600,000. For the year ended December 31, 2011, what amount of income should Torrey realize from the lease transaction?

P35. A lessee with a capital lease containing a bargain purchase option should depreciate the leased asset over the a. asset's remaining economic life. b. term of the lease. c. life of the asset or the term of the lease, whichever is shorter. d. life of the asset or the term of the lease, whichever is longer.

A

S40. If the residual value of a leased asset is guaranteed by a third party a. it is treated by the lessee as no residual value. b. the third party is also liable for any lease payments not paid by the lessee. c. the net investment to be recovered by the lessor is reduced. d. it is treated by the lessee as an additional payment and by the lessor as realized at the end of the lease term.

D

41. When lessors account for residual values related to leased assets, they a. include the residual value because they always assume the residual value will be realized. b. include the unguaranteed residual value in sales revenue. c. recognize more gross profit on a sales-type lease with a guaranteed residual value than on a sales-type lease with an unguaranteed residual value. d. All of the answers are true with regard to lessors and residual values.

A

28. The methods of accounting for a lease by the lessee are a. operating and capital lease methods. b. operating, sales, and capital lease methods. c. operating and leveraged lease methods. d. None of these answers are correct.

A

31. In computing depreciation of a leased asset, the lessee should subtract a. a guaranteed residual value and depreciate over the term of the lease. b. an unguaranteed residual value and depreciate over the term of the lease. c. a guaranteed residual value and depreciate over the life of the asset. d. an unguaranteed residual value and depreciate over the life of the asset.

A

36. Based solely upon the following sets of circumstances indicated below, which set gives rise to a sales-type or direct-financing lease of a lessor? Transfers Ownership Contains Bargain Collectibility of Lease Any Important By End Of Lease? Purchase Option? Payments Assured? Uncertainties? a. No Yes Yes No b. Yes No No No c. Yes No No Yes d. No Yes Yes Yes

A

38. In a lease that is appropriately recorded as a direct-financing lease by the lessor, the unearned income a. should be amortized over the period of the lease using the effective interest method. b. should be amortized over the period of the lease using the straight-line method. c. does not arise. d. should be recognized at the lease's expiration.

A

S26. What impact does a bargain purchase option have on the present value of the minimum lease payments computed by the lessee? a. There is no impact as the option does not enter into the transaction until the end of the lease term. b. The lessee must increase the present value of the minimum lease payments by the present value of the option price. c. The lessee must decrease the present value of the minimum lease payments by the present value of the option price. d. The minimum lease payments would be increased by the present value of the option price if, at the time of the lease agreement, it appeared certain that the lessee would exercise the option at the end of the lease and purchase the asset at the option price.

B

24. While only certain leases are currently accounted for as a sale or purchase, there is theoretic justification for considering all leases to be sales or purchases. The principal reason that supports this idea is that a. all leases are generally for the economic life of the property and the residual value of the property at the end of the lease is minimal. b. at the end of the lease the property usually can be purchased by the lessee. c. a lease reflects the purchase or sale of a quantifiable right to the use of property. d. during the life of the lease the lessee can effectively treat the property as if it were owned.

C

29. Which of the following is a correct statement of one of the capitalization criteria? a. The lease transfers ownership of the property to the lessor. b. The lease contains a purchase option. c. The lease term is equal to or more than 75% of the estimated economic life of the leased property. d. The minimum lease payments (excluding executory costs) equal or exceed 90% of the fair value of the leased property.

C

32. In computing the present value of the minimum lease payments, the lessee should a. use its incremental borrowing rate in all cases. b. use either its incremental borrowing rate or the implicit rate of the lessor, whichever is higher, assuming that the implicit rate is known to the lessee. c. use either its incremental borrowing rate or the implicit rate of the lessor, whichever is lower, assuming that the implicit rate is known to the lessee.

C

42. The initial direct costs of leasing a. are generally borne by the lessee. b. include incremental costs related to internal activities of leasing, and internal costs related to costs paid to external third parties for originating a lease arrangement. c. are expensed in the period of the sale under a sales-type lease. d. All of the answers are true with regard to the initial direct costs of leasing.

C

45. For a sales-type lease, a. the sales price includes the present value of the unguaranteed residual value. b. the present value of the guaranteed residual value is deducted to determine the cost of goods sold. c. the gross profit will be the same whether the residual value is guaranteed or unguaranteed. d. None of these answers are correct.

C

47. The Lease Liability account should be disclosed as a. all current liabilities. b. all noncurrent liabilities. c. current portions in current liabilities and the remainder in noncurrent liabilities. d. deferred credits.

C

*49. If the lease in a sale-leaseback transaction meets one of the four leasing criteria and is therefore accounted for as a capital lease, who records the asset on its books and which party records interest expense during the lease period? Party recording the Party recording asset on its books interest expense a. Seller-lessee Purchaser-lessor b. Purchaser-lessor Seller-lessee c. Purchaser-lessor Purchaser-lessor d. Seller-lessee Seller-lessee

D

*51. When a company sells property and then leases it back, any gain on the sale should usually be a. recognized in the current year. b. recognized as a prior period adjustment. c. recognized at the end of the lease. d. deferred and recognized as income over the term of the lease.

D

21. Major reasons why a company may become involved in leasing to other companies is (are) a. interest revenue. b. high residual values. c. tax incentives. d. All of these answers are correct.

D

22. Which of the following is an advantage of captive leasing companies over the other players in the leasing market? a. They have access to low-cost funds allowing them to purchase assets at lower cost. b. They are good at developing innovative contracts that help avoid accounting problems. c. They provide leasing arrangements for a wider range of products than the parent company's product line. d. They have the paint-of-sale advantage in finding leasing customers.

D

30. Minimum lease payments may include a a. penalty for failure to renew. b. bargain purchase option. c. guaranteed residual value. d. any of these.

D

37. Which of the following would not be included in the Lease Receivable account? a. Guaranteed residual value b. Unguaranteed residual value c. A bargain purchase option d. All would be included

D

$90,000

On January 2, 2011, Hernandez, Inc. signed a ten-year noncancelable lease for a heavy duty drill press. The lease stipulated annual payments of $150,000 starting at the end of the first year, with title passing to Hernandez at the expiration of the lease. Hernandez treated this transaction as a capital lease. The drill press has an estimated useful life of 15 years, with no salvage value. Hernandez uses straight-line depreciation for all of its plant assets. Aggregate lease payments were determined to have a present value of $900,000, based on implicit interest of 10%. 104. In its 2011 income statement, what amount of interest expense should Hernandez report from this lease transaction?

$60,000

On January 2, 2011, Hernandez, Inc. signed a ten-year noncancelable lease for a heavy duty drill press. The lease stipulated annual payments of $150,000 starting at the end of the first year, with title passing to Hernandez at the expiration of the lease. Hernandez treated this transaction as a capital lease. The drill press has an estimated useful life of 15 years, with no salvage value. Hernandez uses straight-line depreciation for all of its plant assets. Aggregate lease payments were determined to have a present value of $900,000, based on implicit interest of 10%. 105. In its 2011 income statement, what amount of depreciation expense should Hernandez report from this lease transaction?

Information relating to 2018 activities: • Net income for 2018 was $1,500,000. • Cash dividends of $600,000 were declared and paid in 2018. • Equipment costing $1,000,000 and having a carrying amount of $320,000 was sold in 2018 for $360,000. • A long-term investment was sold in 2018 for $320,000. There were no other transactions affecting long-term investments in 2018. • 20,000 shares of common stock were issued in 2018 for $25 a share. • Short-term investments consist of treasury bills maturing on 6/30/19. 107. Net cash used in Jamison's 2018 investing activities was a. $2,320,000. b. $1,820,000. c. $1,680,000. d. $1,720,000.

a. $2,320,000. $320,000 + $360,000 - ($3,400,000 + $1,000,000 - $2,000,000) - $600,000 = $2,320,000.

79. Howell, Inc. reported net income of $88,000 for the year ended December 31, 2018. Included in net income was a gain on early extinguishment of debt of $120,000 related to bonds payable with a book value of $2,400,000. Each of the following accounts increased during 2018: Notes receivable $90,000 Deferred tax liability $20,000 Treasury stock $240,000 What is the amount of cash used by financing activities for Jarvis, Inc. for the year ended December 31, 2018? a. $2,520,000 b. $2,540,000 c. $3,800,000 d. $ 450,000

a. $2,520,000 $2,400,000 - $120,000 + $240,000 = $2,520,000.

a. Accounts receivable and accounts payable relate to merchandise held for sale in the normal course of business. The allowance for bad debts was the same at the end of 2019 and 2018, and no receivables were charged against the allowance. Accounts payable are recorded net of any discount and are always paid within the discount period. b. The proceeds from the note payable were used to finance the acquisition of property, plant, and equipment. Capital stock was sold to provide additional working capital. 97. The amount to be shown on the cash flow statement as net cash provided by financing activities would total what amount? a. $2,850,000. b. $1,650,000. c. $1,200,000. d. $816,000.

a. $2,850,000. $1,650,000 + ($6,000,000 - $4,800,000) = $2,850,000.

Harlan Mining Co. has recently decided to go public and has hired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of cash flows. Financial statements of Harlan Mining Co. for 2019 and 2018 are provided below. 51. The net cash provided by operating activities is a. $408,000. b. $288,000. c. $240,000. d. $200,000.

a. $408,000. $288,000 + $48,000 + ($320,000 + $64,000 - $304,000) - $144,000 + $96,000 + $80,000 - $40,000 = $408,000.

101. During 2018, Oldham Corporation, which uses the allowance method of accounting for doubtful accounts, recorded a provision for bad debt expense of $45,000 and in addition it wrote off, as uncollectible, accounts receivable of $10,000. As a result of these transactions, net cash flows from operating activities would be calculated (indirect method) by adjusting net income with a a. $45,000 increase. b. $10,000 increase. c. $35,000 increase. d. $35,000 decrease.

a. $45,000.

72. Net cash flow from operating activities for 2018 for Spencer Corporation was $450,000. The following items are reported on the financial statements for 2018: Cash dividends paid on common stock $20,000 Depreciation and amortization 12,000 Increase in accounts receivable 24,000 Based on the information above, Spencer's net income for 2018 was a. $462,000. b. $446,000. c. $414,000. d. $406,000.

a. $462,000. X + $12,000 - $24,000 = $450,000; X = $462,000.

Information relating to 2018 activities: • Net income for 2018 was $1,500,000. • Cash dividends of $600,000 were declared and paid in 2018. • Equipment costing $1,000,000 and having a carrying amount of $320,000 was sold in 2018 for $360,000. • A long-term investment was sold in 2018 for $320,000. There were no other transactions affecting long-term investments in 2018. • 20,000 shares of common stock were issued in 2018 for $25 a share. • Short-term investments consist of treasury bills maturing on 6/30/19. 108. Net cash provided by Jamison's 2018 financing activities was a. $480,000. b. $520,000. c. $1,080,000. d. $1,680,000.

a. $480,000. 20,000 × $25 = $500,000 $500,000 + $580,000 - $600,000 = $480,000.

Fleming Company provided the following information on selected transactions during 2018: Dividends paid to preferred stockholders $ 500,000 Loans made to affiliated corporations 1,400,000 Proceeds from issuing bonds 1,600,000 Proceeds from issuing preferred stock 2,100,000 Proceeds from sale of equipment 800,000 Purchases of inventories 2,400,000 Purchase of land by issuing bonds 600,000 Purchases of treasury stock 1,200,000 98. The net cash provided (used) by investing activities during 2018 is a. $(1,200,000). b. $(600,000). c. $200,000. d. $800,000.

b. $(600,000). ($1,400,000) + $800,000 = ($600,000).

110. Nagel Co.'s prepaid insurance was $190,000 at December 31, 2018 and $90,000 at December 31, 2017. Insurance expense was $62,000 for 2018 and $54,000 for 2017. What amount of cash disbursements for insurance would be reported in Nagel's 2018 net cash provided by operating activities presented on a direct basis? a. $198,000. b. $162,000. c. $128,000. d. $62,000.

b. $162,000. $190,000 + $62,000 - $90,000 = $162,000.

100. The net cash provided by operating activities in Sosa Company's statement of cash flows for 2018 was $310,000. For 2018, depreciation on plant assets was $90,000, amortization of patent was $16,000, and cash dividends paid on common stock was $108,000. Based only on the information given above, Sosa's net income for 2018 was a. $310,000. b. $204,000. c. $16,000. d. $312,000.

b. $204,000. $310,000 - $90,000 - $16,000 = $204,000.

Napier Co. provided the following information on selected transactions during 2018: Purchase of land by issuing bonds $1,000,000 Proceeds from issuing bonds 3,000,000 Purchases of inventory 3,800,000 Purchases of treasury stock 600,000 Loans made to affiliated corporations 1,400,000 Dividends paid to preferred stockholders 400,000 Proceeds from issuing preferred stock 1,600,000 Proceeds from sale of equipment 300,000 84. The net cash provided by financing activities during 2018 is a. $3,200,000. b. $3,600,000. c. $4,200,000. d. $4,600,000.

b. $3,600,000. $3,000,000 - $600,000 - $400,000 + $1,600,000 = $3,600,000.

38. When preparing a statement of cash flows, the following are used for which method in determining cash flows from operating activities? Gross Accounts Net Accounts Receivable Receivable a. Indirect Direct b. Direct Indirect c. Direct Direct d. Neither Indirect

b. Direct Indirect

105. The net income for the year ended December 31, 2018, for Oliva Company was $2,900,000. Additional information is as follows: Depreciation on plant assets $600,000 Amortization of leasehold improvements 340,000 Provision for doubtful accounts on short-term receivables 120,000 Provision for doubtful accounts on long-term receivables 100,000 Interest paid on short-term borrowings 80,000 Interest paid on long-term borrowings 60,000 Based solely on the information given above, what should be the net cash provided by operating activities in the statement of cash flows for the year ended December 31, 2018? a. $3,960,000. b. $4,060,000. c. $4,040,000. d. $4,200,000.

b. $4,060,000. $2,900,000 + $600,000 + $340,000 + $120,000 + $100,000 = $4,060,000.

The balance in retained earnings at December 31, 2017 was $1,440,000 and at December 31, 2018 was $1,164,000. Net income for 2018 was $1,000,000. A stock dividend was declared and distributed which increased common stock $500,000 and paid-in capital $220,000. A cash dividend was declared and paid. 68. The amount of the cash dividend was a. $496,000. b. $556,000. c. $776,000. d. $1,276,000.

b. $556,000. $1,440,000 + $1,000,000 - ($500,000 + $220,000) - X = $1,164,000 X = $556,000.

Peavy Corp.'s transactions for the year ended December 31, 2018 included the following: • Acquired 50% of Gant Corp.'s common stock for $300,000 cash which was borrowed from a bank. • Issued 5,000 shares of its preferred stock for land having a fair value of $480,000. • Issued 600 of its 11% debenture bonds, due 2023, for $588,000 cash. • Purchased a patent for $330,000 cash. • Paid $180,000 toward a bank loan. • Sold available-for-sale securities for $1,194,000. • Had a net increase in returnable customer deposits (long-term) of $132,000. 115. Peavy's net cash provided by investing activities for 2018 was a. $414,000. b. $564,000. c. $864,000. d. $894,000.

b. $564,000. ($300,000) - $330,000 + $1,194,000 = $564,000.

Total assets on the balance sheet at December 31, 2018 are $6,648,000. Accumulated deprecia-tion on the equipment sold was $336,000. 65. The accounts payable at December 31, 2018 were a. $264,000. b. $648,000. c. $192,000. d. $888,000.

b. $648,000. $456,000 + $192,000 = $648,000.

Harlan Mining Co. has recently decided to go public and has hired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of cash flows. Financial statements of Harlan Mining Co. for 2019 and 2018 are provided below. 53. Under the direct method, the cash received from customers is a. $8,544,000. b. $8,256,000. c. $8,400,000. d. $8,440,000.

b. $8,256,000. $216,000 + $8,400,000 - $360,000 = $8,256,000.

a. Accounts receivable and accounts payable relate to merchandise held for sale in the normal course of business. The allowance for bad debts was the same at the end of 2019 and 2018, and no receivables were charged against the allowance. Accounts payable are recorded net of any discount and are always paid within the discount period. b. The proceeds from the note payable were used to finance the acquisition of property, plant, and equipment. Capital stock was sold to provide additional working capital. 95. What amount of cash was paid on accounts payable to suppliers during 2019? a. $9,210,000. b. $8,850,000. c. $8,190,000. d. $7,470,000.

b. $8,850,000. $2,190,000 + ($7,830,000 + $3,900,000 - $2,520,000) - $2,550,000 = $8,850,000.

Peavy Corp.'s transactions for the year ended December 31, 2018 included the following: • Acquired 50% of Gant Corp.'s common stock for $300,000 cash which was borrowed from a bank. • Issued 5,000 shares of its preferred stock for land having a fair value of $480,000. • Issued 600 of its 11% debenture bonds, due 2023, for $588,000 cash. • Purchased a patent for $330,000 cash. • Paid $180,000 toward a bank loan. • Sold available-for-sale securities for $1,194,000. • Had a net increase in returnable customer deposits (long-term) of $132,000. 116. Peavy's net cash provided by financing activities for 2015 was a. $708,000. b. $840,000. c. $888,000. d. $1,020,000.

b. $840,000. $300,000 + $588,000 - $180,000 + $132,000 = $840,000.

45. 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. A change in interest payable b. A change in dividends payable c. A change in income taxes payable d. All of these are adjustments.

b. A change in dividends payable

A flood damaged a building and contents. The receipts from insurance companies totaled $600,000, which was $180,000 less than the book values. The tax rate is 30%. 103. On the statement of cash flows (indirect method), the flood loss should a. be shown as an addition to net income of $126,000. b. be shown as an addition to net income of $180,000. c. be shown as an inflow from investing activities of $126,000. d. not be shown.

b. be shown as an addition to net income of $180,000. 780,000-600,000

33. When preparing a statement of cash flows (indirect method), an increase in ending inventory over beginning inventory will result in an adjustment to reported net earnings because a. cash was increased while cost of goods sold was decreased. b. cost of goods sold on an accrual basis is lower than on a cash basis. c. acquisition of inventory is an investment activity. d. inventory purchased during the period was less than inventory sold resulting in a net cash increase.

b. cost of goods sold on an accrual basis is lower than on a cash basis.

43. An increase in inventory balance would be reported in a statement of cash flows using the indirect method (reconciliation method) as a(n) a. addition to net income in arriving at net cash flow from operating activities. b. deduction from net income in arriving at net cash flow from operating activities. c. cash outflow from investing activities. d. cash outflow from financing activities.

b. deduction from net income in arriving at net cash flow from operating activities.

29. The amortization of bond premium on long-term debt should be presented in a statement of cash flows (using the indirect method for operating activities) as a(n) a. addition to net income. b. deduction from net income. c. investing activity. d. financing activity.

b. deduction from net income.

44. A statement of cash flows typically would not disclose the effects of a. capital stock issued at an amount greater than par value. b. stock dividends declared. c. cash dividends paid. d. a purchase and immediate retirement of treasury stock.

b. stock dividends declared.

Land was acquired for $200,000 in exchange for common stock, par $200,000, during the year; all equipment purchased was for cash. Equipment costing $20,000 was sold for $8,000; book value of the equipment was $16,000 and the loss was reported as an ordinary item in net income. Cash dividends of $30,000 were charged to retained earnings and paid during the year; the transfer of net income to retained earnings was the only other entry in the Retained Earnings account. In the statement of cash flows for the year ended December 31, 2018, for Naley Company: 87. The net cash provided (used) by financing activities was a. $ -0-. b. $(30,000). c. $(70,000). d. $120,000.

c. $(70,000). ($160,000) + $120,000 - $30,000 = ($70,000).

Land was acquired for $200,000 in exchange for common stock, par $200,000, during the year; all equipment purchased was for cash. Equipment costing $20,000 was sold for $8,000; book value of the equipment was $16,000 and the loss was reported as an ordinary item in net income. Cash dividends of $30,000 were charged to retained earnings and paid during the year; the transfer of net income to retained earnings was the only other entry in the Retained Earnings account. In the statement of cash flows for the year ended December 31, 2018, for Naley Company: 85. The net cash provided by operating activities was a. $94,000. b. $122,000. c. $102,000. d. $86,000.

c. $102,000. $32,000 + $30,000 + $60,000 = $122,000 (NI) ($20,000 - $4,000) - $8,000 = $8,000 (Loss) $72,000 + $4,000 - $32,000 = $44,000 (Depr. exp.) $122,000 - $60,000 - $100,000 + $60,000 + $8,000 + $44,000 + $52,000 -$24,000 = $102,000.

109. Foxx Corp.'s comparative balance sheet at December 31, 2018 and 2017 reported accumulated depreciation balances of $1,245,000 and $900,000, respectively. Property with a cost of $75,000 and a carrying amount of $57,000 was the only property sold in 2018. Depreciation charged to operations in 2018 was a. $327,000. b. $345,000. c. $363,000. d. $402,000.

c. $363,000. $1,245,000 - $900,000 + ($75,000 - $57,000) = $363,000.

a. Accounts receivable and accounts payable relate to merchandise held for sale in the normal course of business. The allowance for bad debts was the same at the end of 2019 and 2018, and no receivables were charged against the allowance. Accounts payable are recorded net of any discount and are always paid within the discount period. b. The proceeds from the note payable were used to finance the acquisition of property, plant, and equipment. Capital stock was sold to provide additional working capital. 94. What amount of cash was collected from 2019 accounts receivable? a. $15,000,000. b. $14,040,000. c. $13,080,000. d. $6,540,000.

c. $13,080,000. $2,160,000 + $14,040,000 - $3,120,000 = $13,080,000.

Information relating to 2018 activities: • Net income for 2018 was $1,500,000. • Cash dividends of $600,000 were declared and paid in 2018. • Equipment costing $1,000,000 and having a carrying amount of $320,000 was sold in 2018 for $360,000. • A long-term investment was sold in 2018 for $320,000. There were no other transactions affecting long-term investments in 2018. • 20,000 shares of common stock were issued in 2018 for $25 a share. • Short-term investments consist of treasury bills maturing on 6/30/19. 106. Net cash provided by Jamison's 2018 operating activities was a. $1,500,000. b. $2,120,000. c. $2,080,000. d. $2,160,000.

c. $2,080,000. $1,500,000 - $180,000 + ($900,000 - $900,000 + $680,000) - ($360,000 - $320,000) + $20,000 + $220,000 - ($320,000 - $200,000) = $2,080,000.

Total assets on the balance sheet at December 31, 2018 are $6,648,000. Accumulated deprecia-tion on the equipment sold was $336,000. 66. The balance in the Retained Earnings account at December 31, 2018 was a. $1,080,000. b. $2,640,000. c. $2,280,000. d. $3,000,000.

c. $2,280,000. $1,440,000 + $1,200,000 - $360,000 = $2,280,000.

Harlan Mining Co. has recently decided to go public and has hired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of cash flows. Financial statements of Harlan Mining Co. for 2019 and 2018 are provided below. 52. The net cash provided (used) by investing activities is a. $(352,000). b. $48,000. c. $240,000. d. $(288,000).

c. $240,000. $240,000.

56. During 2018, Stout Inc. had the following activities related to its financial operations: Carrying value of convertible preferred stock in Stout, converted into common shares of Stout $ 540,000 Payment in 2018 of cash dividend declared in 2017 to preferred shareholders 279,000 Payment for the early retirement of long-term bonds payable (carrying amount $3,930,000) 3,975,000 Proceeds from the sale of treasury stock (on books at cost of $387,000) 450,000 The amount of net cash used in financing activities to appear in Stout's statement of cash flows for 2018 should be a. $2,985,000. b. $3,264,000. c. $3,804,000. d. $3,822,000.

c. $3,804,000. $450,000 - $279,000 - $3,975,000 = $3,804,000.

76. In preparing Titan Inc.'s statement of cash flows for the year ended December 31, 2018, the following amounts were available: Collect note receivable $615,000 Issue bonds payable 639,000 Purchase treasury stock 300,000 What amount should be reported on Titan, Inc's statement of cash flows for financing activities? a. $ 24,000 b. $1,254,000 c. $339,000 d. $315,000

c. $339,000 639,000 - $300,000 = $339,000.

90. Donnegan Company reported operating expenses of $375,000 for 2018. The following data were extracted from the company's financial records: 12/31/17 12/31/18 Prepaid Expenses $ 60,000 $69,000 Accrued Expenses 210,000 255,000 On a statement of cash flows for 2018, using the direct method, cash payments for operating expenses should be a. $429,000. b. $411,000. c. $339,000. d. $321,000.

c. $339,000. $375,000 + $9,000 - $45,000 = $339,000.

25. Cash equivalents are a. treasury bills, commercial paper, and money market funds purchased with excess cash. b. investments with original maturities of three months or less. c. readily convertible into known amounts of cash. d. All of these answers are correct.

d. All of these answers are correct.

50. How should significant noncash transactions be reported in the statement of cash flows according to FASB Statement No. 95? a. They should be incorporated in the statement of cash flows in a section labeled, "Significant Noncash Transactions." b. Such transactions should be incorporated in the section (operating, financing, or investing) that is most representative of the major component of the transaction. 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. d. They should be handled in a manner consistent with the transactions that affect cash flows.

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.

27. Xanthe Corporation had the following transactions occur in the current year: 1. Cash sale of merchandise inventory. 2. Sale of delivery truck at book value. 3. Sale of Xanthe common stock for cash. 4. Issuance of a note payable to a bank for cash. 5. Sale of a security held as an available-for-sale investment. 6. Collection of loan receivable. How many of the above items will appear as a cash inflow from investing activities on a statement of cash flows for the current year? a. Five items b. Four items c. Three items d. Two items

c. Three items

23. Of the following questions, which one would not be answered by the statement of cash flows? a. Where did the cash come from during the period? b. What was the cash used for during the period? c. Were all the cash expenditures of benefit to the company during the period? d. What was the change in the cash balance during the period?

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

A company acquired a building, paying a portion of the purchase price in cash and issuing a mortgage note payable to the seller for the balance. 112. In a statement of cash flows, what amount is included in financing activities for the above transaction? a. Cash payment b. Acquisition price c. Zero d. Mortgage amount

c. Zero

32. In a statement of cash flows, the cash flows from investing activities section should report a. the issuance of common stock in exchange for a factory building. b. stock dividends received. c. a major repair to machinery charged to accumulated depreciation. d. the assignment of accounts receivable.

c. a major repair to machinery charged to accumulated depreciation.

22. The primary purpose of the statement of cash flows is to provide information a. about the operating, investing, and financing activities of an entity during a period. b. that is useful in assessing future cash flow prospects. c. about the cash receipts and cash payments of an entity during a period. d. about the entity's ability to meet its obligations and to pay dividends.

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

59. Equipment which cost $426,000 and had accumulated depreciation of $228,000 was sold for $222,000. This transaction should be shown on the statement of cash flows (indirect method) as a(n) a. addition to net income of $24,000 and a $222,000 cash inflow from financing activities. b. deduction from net income of $24,000 and a $198,000 cash inflow from investing activities. c. deduction from net income of $24,000 and a $222,000 cash inflow from investing activities. d. addition to net income of $24,000 and a $198,000 cash inflow from financing activities.

c. deduction from net income of $24,000 and a $222,000 cash inflow from investing activities. $222,000 - ($426,000 - $228,000) = $24,000, $222,000 (proceeds).

31. 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 a. re-recording all income statement transactions that directly affect cash in a separate cash flow journal. b. estimating the percentage of income statement transactions that were originally reported on a cash basis and projecting this amount to the entire array of income statement transactions. c. eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash. d. eliminating all transactions that have no current or future effect on cash, such as depreciation, from the net income computation.

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

21. An objective of the statement of cash flows is to a. disclose changes during the period in all asset and all equity accounts. b. disclose the change in working capital during the period. c. provide information about the operating, investing, and financing activities of an entity during a period. d. None of these answers are correct.

c. provide information about the operating, investing, and financing activities of an entity during a period.

35. In determining net cash flow from operating activities, a decrease in accounts payable during a period a. means that income on an accrual basis is less than income on a cash basis. b. requires an addition adjustment to net income under the indirect method. c. requires an increase adjustment to cost of goods sold under the direct method. d. requires a decrease adjustment to cost of goods sold under the direct method.

c. requires an increase adjustment to cost of goods sold under the direct method.

46. Declaration of a cash dividend on common stock affects cash flows from operating activities under the direct and indirect methods as follows: Direct Method Indirect Method a. Outflow Inflow b. Inflow Inflow c. Outflow Outflow d. No effect No effect

d. No effect No effect

Land was acquired for $200,000 in exchange for common stock, par $200,000, during the year; all equipment purchased was for cash. Equipment costing $20,000 was sold for $8,000; book value of the equipment was $16,000 and the loss was reported as an ordinary item in net income. Cash dividends of $30,000 were charged to retained earnings and paid during the year; the transfer of net income to retained earnings was the only other entry in the Retained Earnings account. In the statement of cash flows for the year ended December 31, 2018, for Naley Company: 86. The net cash provided (used) by investing activities was a. $52,000. b. $(80,000). c. $(272,000). d. $(72,000).

d. $(72,000). $8,000 - ($360,000 + $20,000 - $300,000) = ($72,000).

a. Accounts receivable and accounts payable relate to merchandise held for sale in the normal course of business. The allowance for bad debts was the same at the end of 2019 and 2018, and no receivables were charged against the allowance. Accounts payable are recorded net of any discount and are always paid within the discount period. b. The proceeds from the note payable were used to finance the acquisition of property, plant, and equipment. Capital stock was sold to provide additional working capital. 96. The amount to be shown on the cash flow statement as net cash provided by investing activities would total what amount? a. $450,000. b. $1,500,000. c. $1,590,000. d. $1,950,000.

d. $1,950,000. $450,000 + ($4,380,000 - $2,880,000) = $1,950,000.

Harlan Mining Co. has recently decided to go public and has hired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of cash flows. Financial statements of Harlan Mining Co. for 2019 and 2018 are provided below 54. Under the direct method, the total taxes paid is a. $96,000. b. $40,000. c. $56,000. d. $136,000.

d. $136,000. $392,000 + $96,000 - $352,000 = $136,000.

89. Selected information from Dinkel Company's 2018 accounting records is as follows: Proceeds from issuance of common stock $ 800,000 Proceeds from issuance of bonds 2,400,000 Cash dividends on common stock paid 290,000 Cash dividends on preferred stock paid 120,000 Purchases of treasury stock 240,000 Sale of stock to officers and employees not included above 200,000 Dinkel's statement of cash flows for the year ended December 31, 2018, would show net cash provided (used) by financing activities of a. $120,000. b. $(470,000). c. $290,000. d. $2,750,000.

d. $2,750,000. $800,000 + $2,400,000 - $290,000 - $120,000 - $240,000 + $200,000 = $2,750,000.

Total assets on the balance sheet at December 31, 2018 are $6,648,000. Accumulated deprecia-tion on the equipment sold was $336,000. 67. Capital stock (plus any additional paid-in capital) at December 31, 2018 was a. $2,400,000. b. $2,760,000. c. $1,560,000. d. $3,720,000.

d. $3,720,000. $2,760,000 + $960,000 = $3,720,000.

82. Net cash flow from operating activities for 2018 for Graham Corporation was $495,000. The following items are reported on the financial statements for 2018: Depreciation and amortization $ 30,000 Cash dividends paid on common stock 18,000 Increase in accounts receivable 36,000 Based only on the information above, Graham's net income for 2018 was: a. $429,000. b. $441,000. c. $489,000. d. $501,000.

d. $501,000. X + $30,000 - $36,000 = $495,000 X - $6,000 = $495,000; X = $501,000.

77. Jarvis, Inc. reported net income of $59,000 for the year ended December 31, 2018 Included in net income were depreciation expense of $8,400 and a gain on sale of equipment of $1,700. Each of the following accounts increased during 2018: Accounts receivable $2,200 Inventory $4,500 Prepaid rent $6,800 Available-for-sale $1,000 Securities Accounts payable $5,000 What is the amount of cash provided by operating activities for Jarvis, Inc. for the year ended December 31, 2018? a. $56,200 b. $58,900 c. $47,200 d. $57,200

d. $57,200 $59,000 + $8,400 - $1,700 - $2,200 - $4,500 - $6,800 + $5,000 = $57,200.

S25. An essential element of a lease is that the a. lessor conveys less than his or her total interest in the property. b. lessee provides a sinking fund equal to one year's lease payments. c. property that is the subject of the lease agreement must be held for sale by the lessor prior to the drafting of the lease agreement. d. term of the lease is substantially equal to the economic life of the leased property.

A

P27. The amount to be recorded as the cost of an asset under capital lease is equal to the a. present value of the minimum lease payments. b. present value of the minimum lease payments or the fair value of the asset, whichever is lower. c. present value of the minimum lease payments plus the present value of any unguaranteed residual value. d. carrying value of the asset on the lessor's books.

B

P44. A lessor with a sales-type lease involving an unguaranteed residual value available to the lessor at the end of the lease term will report sales revenue in the period of inception of the lease at which of the following amounts? a. The minimum lease payments plus the unguaranteed residual value. b. The present value of the minimum lease payments. c. The cost of the asset to the lessor, less the present value of any unguaranteed residual value. d. The present value of the minimum lease payments plus the present value of the unguaranteed residual value.

B

48. To avoid leased asset capitalization, companies can devise lease agreements that fail to satisfy any of the four leasing criteria. Which of the following is not one of the ways to accomplish this goal? a. Lessee uses a higher interest rate than that used by lessor. b. Set the lease term at something less than 75% of the estimated useful life of the property. c. Write in a bargain purchase option. d. Use a third party to guarantee the asset's residual value.

C

S39. In order to properly record a direct-financing lease, the lessor needs to know how to calculate the lease receivable. The lease receivable in a direct-financing lease is best defined as a. the amount of funds the lessor has tied up in the asset which is the subject of the direct-financing lease. b. the difference between the lease payments receivable and the fair value of the leased property. c. the present value of minimum lease payments. d. the total book value of the asset less any accumulated depreciation recorded by the lessor prior to the lease agreement.

C

46. Which of the following statements is correct? a. For direct-financing leases, initial direct costs are added to the net investment in the lease. b. For sales-type leases, initial direct costs are expensed in the year of incurrence. c. For operating leases, initial direct costs are deferred and allocated over the lease term. d. All of these answers are correct.

D

Total assets on the balance sheet at December 31, 2018 are $6,648,000. Accumulated deprecia-tion on the equipment sold was $336,000. 64. The book value of the buildings and equipment at December 31, 2018 was a. $3,048,000. b. $3,120,000. c. $4,272,000. d. $3,528,000.

a. $3,048,000. ($3,600,000 - $1,200,000) - $144,000 + $1,152,000 - $360,000 = $3,048,000.

71. Lindsay Corporation had net income for 2018 of $3,000,000. Additional information is as follows: Depreciation of plant assets $1,200,000 Amortization of intangibles 240,000 Increase in accounts receivable 420,000 Increase in accounts payable 540,000 Lindsay's net cash provided by operating activities for 2018 was a. $4,560,000. b. $4,440,000. c. $4,320,000. d. $2,680,000.

a. $4,560,000. $3,000,000 + $1,200,000 + $240,000 - $420,000 + $540,000 = $4,560,000.

Equipment that cost $875,000 and had a book value of $390,000 was sold for $450,000. Data from the comparative balance sheets are: 12/31/18 Equipment $5,400,000 12/31/17 $4,875,000 12/31/18 Accumulated Depreciation 12/31/18 1,650,000 12/31/17 1,425,000 61. Depreciation expense for 2018 was a. $770,000. b. $710,000. c. $135,000. d. $90,000.

b. $710,000. $1,650,000 - $1,425,000 + ($875,000 - $390,000) = $710,000.

24. The first step in the preparation of the statement of cash flows requires the use of information included in which comparative financial statements? a. Statements of cash flows b. Balance sheets c. Income statements d. Statements of retained earnings

b. Balance sheets

42. Which of the following is false concerning the statement of cash flows? a. When pension expense exceeds cash funding, the difference is deducted from investing activities on the statement of cash flows. b. The FASB requires companies to classify all income taxes paid as operating cash outflows. c. Under GAAP, the purchase of land by issuing stock will be shown as a cash outflow under investing activities and a cash inflow under financing activities. d. All of these are true concerning the statement of cash flows.

b. The FASB requires companies to classify all income taxes paid as operating cash outflows.

58. An analysis of the machinery accounts of Noller Company for 2018 is as follows The information concerning Noller's machinery accounts should be shown in Noller's statement of cash flows (indirect method) for the year ended December 31, 2018, as a(n) a. subtraction from net income of $100,000 and a $200,000 decrease in cash flows from financing activities. b. addition to net income of $100,000 and a $200,000 decrease in cash flows from investing activities. c. $100,000 increase in cash flows from financing activities. d. $200,000 decrease in cash flows from investing activities.

b. addition to net income of $100,000 and a $200,000 decrease in cash flows from investing activities.

78. Howell, Inc. reported net income of $88,000 for the year ended December 31, 2018 Included in net income were depreciation expense of $16,800 and a gain on sale of equipment of $3,400. The equipment had an historical cost of $80,000 and accumulated depreciation of $48,000. Each of the following accounts increased during 2018: Land $11,000 Prepaid rent $13,600 Available-for-sale securities $2,000 Bonds payable $10,000 What is the amount of cash provided by or used by investing activities for Jarvis, Inc. for the year ended December 31, 2018? a. ( $ 9,600) b. $33,400 c. $22,400 d. $24,400

c. $22,400 [($80,000 - $48,000) + $3,400] - $11,000 - $2,000 = $22,400.

Smiley Corp.'s transactions for the year ended December 31, 2018 included the following: • Purchased real estate for $1,250,000 cash which was borrowed from a bank. • Sold available-for-sale securities for $1,000,000. • Paid dividends of $1,200,000. • Issued 500 shares of common stock for $500,000. • Purchased machinery and equipment for $250,000 cash. • Paid $900,000 toward a bank loan. • Reduced accounts receivable by $200,000. • Increased accounts payable $400,000. 113. Smiley's net cash used in investing activities for 2018 was a. $1,500,000. b. $750,000. c. $500,000. d. $250,000.

c. $500,000. ($1,250,000) + $1,000,000 - $250,000 = ($500,000).

40. When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is added to net income to compute cash provided by/used by operating activities? a. Increase in accounts receivable. b. Gain on sale of land. c. Amortization of patent. d. All of these are added to net income to arrive at cash flow from operating activities.

c. Amortization of patent.

34. When preparing a statement of cash flows, a decrease in accounts receivable during a period would cause which one of the following adjustments in determining cash flow from operating activities? Direct Method Indirect Method a. Increase Decrease b. Decrease Increase c. Increase Increase d. Decrease Decrease

c. Increase Increase

39. Which of the following statements about the statement of cash flows is correct? a. The indirect method starts with income from continuing operations. b. The direct method is known as the reconciliation method. c. The direct method is more consistent with the primary purpose of the statement of cash flows. d. All of these answers are correct.

c. The direct method is more consistent with the primary purpose of the statement of cash flows.

A flood damaged a building and contents. The receipts from insurance companies totaled $600,000, which was $180,000 less than the book values. The tax rate is 30%. 102. On the statement of cash flows (indirect method), the receipts from insurance companies should a. be shown as an addition to net income of $420,000. b. be shown as an inflow from investing activities of $420,000. c. be shown as an inflow from investing activities of $600,000. d. not be shown.

c. be shown as an inflow from investing activities of $600,000.

57. Hager Company sold some of its plant assets during 2018. The original cost of the plant assets was $900,000 and the accumulated depreciation at date of sale was $840,000. The proceeds from the sale of the plant assets were $90,000. The information concerning the sale of the plant assets should be shown on Hager's statement of cash flows (indirect method) for the year ended December 31, 2018, as a(n) a. subtraction from net income of $30,000 and a $60,000 increase in cash flows from financing activities. b. addition to net income of $30,000 and a $90,000 increase in cash flows from investing activities. c. subtraction from net income of $30,000 and a $90,000 increase in cash flows from investing activities. d. addition of $90,000 to net income.

c. subtraction from net income of $30,000 and a $90,000 increase in cash flows from investing activities. $90,000 - ($900,000 - $840,000) = $30,000, $90,000 (proceeds).

Fleming Company provided the following information on selected transactions during 2018: Dividends paid to preferred stockholders $ 500,000 Loans made to affiliated corporations 1,400,000 Proceeds from issuing bonds 1,600,000 Proceeds from issuing preferred stock 2,100,000 Proceeds from sale of equipment 800,000 Purchases of inventories 2,400,000 Purchase of land by issuing bonds 600,000 Purchases of treasury stock 1,200,000 99. The net cash provided (used) by financing activities during 2018 is a. $(3,300,000). b. $1,110,000. c. $2,600,000. d. $2,000,000.

d. $2,000,000. ($500,000) + $1,600,000 + $2,100,000 + ($1,200,000) = $2,000,000.

49. Which of the following is shown on a statement of cash flows? a. A stock dividend b. A stock split c. An appropriation of retained earnings d. None of these answers are correct.

d. None of these answers are correct.

The balance in retained earnings at December 31, 2017 was $1,440,000 and at December 31, 2018 was $1,164,000. Net income for 2018 was $1,000,000. A stock dividend was declared and distributed which increased common stock $500,000 and paid-in capital $220,000. A cash dividend was declared and paid. 69. The stock dividend should be reported on the statement of cash flows (indirect method) as a. an outflow from financing activities of $500,000. b. an outflow from financing activities of $720,000. c. an outflow from investing activities of $720,000. d. Stock dividends are not shown on a statement of cash flows.

d. Stock dividends are not shown on a statement of cash flows.