Accounting Chapter 16: Cash Flow

Which of the following should be added to net income in calculating net cash flow from operating activities using the indirect method? A. A decrease in accounts payable B. A decrease in accrued liabilities C. Dividends paid on common stock D. A loss on the sale of land

D. A loss on the sale of land

a) Purchase of patent b) Payment of cash dividend c) Disposal of equipment d) Cash sales e) Purchase of treasury stock f) Payment of wages expense

a investing b financing c investing d operating e financing f operating

When preparing its statement of cash flows, Simon Says Games, Inc., reported net income of $88,000, a decrease in accounts receivable of $24,200, an increase in mortgage note payable of $431,000, and an increase in depreciation expense of $25,300. The Financing Activities section of the statement of cash flows would show net cash flows of a. $(431,000). b. $(343,000). c. $(341,900). d. $431,000.

a. $431,000.

Question Content Area Which of the following should be subtracted from net income in computing net cash flows from operating activities using the indirect method? a. A gain on a sale of equipment b. A loss on a sale of equipment c. A decrease in accounts receivable d. An increase in accounts payable

a. A gain on a sale of equipment

Question Content Area Perriman Company declares and pays a $2.25 dividend per share in the current fiscal year. This cash activity would be listed in the a. Financing Activities section of the statement of cash flows. b. net income amount on the statement of cash flows. c. Operating Activities section of the statement of cash flows using the indirect method. d. Investing Activities section of the statement of cash flows.

a. Financing Activities section of the statement of cash flows.

Which of the following cash activities would be listed in the Investing Activities section of the statement of cash flows? a. Depreciation expense on factory building b. Cash paid for purchasing equipment c. Cash received from customers d. Cash paid for purchasing inventory

b. Cash paid for purchasing equipment

Accounts receivable from sales transactions were $51,000 at the beginning of the year and $64,000 at the end of the year. Net income reported on the income statement for the year was $105,000. Exclusive of the effect of other adjustments, the net cash flows from operating activities to be reported on the statement of cash flows prepared by the indirect method would be a. $105,000 b. $118,000 c. $92,000 d. $169,000

c. $92,000

When preparing its statement of cash flows, Novelty Game Creators, Inc., reported net income of $279,000, a decrease in accounts payable of $39,000, an increase in bonds payable of $98,000, and an increase in depreciation expense of $28,000. The Financing Activities section would show net cash flows of a. $405,000. b. $377,000. c. $98,000. d. $(98,000).

c. $98,000.

Question Content Area If the free cash flow is $55,000, sales are $220,000, and net income is $130,000, the ratio of free cash flow to sales is a. 400%. b. 42%. c. 25%. d. The ratio cannot be computed from this information because cash used to purchase property, plant, and equipment is not given.

c. 25%.

Question Content Area Which of the following should be added to net income in computing net cash flows from operating activities using the indirect method? a. Dividends paid on common stock b. A decrease in accrued liabilities c. A loss on the sale of land d. A decrease in accounts payable

c. A loss on the sale of land

Which of the following accounts would be found in the Operating Activities section of the statement of cash flows using the indirect method? a. Depreciation; Land; Cash Dividends b. Income Taxes Payable; Accounts Payable; Bonds Payable c. Accounts Payable; Accounts Receivable; Inventory d. Bonds Payable; Accounts Payable; Notes Payable

c. Accounts Payable; Accounts Receivable; Inventory

Which of the following cash activities would be listed in the Financing Activities section of the statement of cash flows? a. Purchase of a new office building b. Gain on sale of a long-term asset c. Issuance of company stock d. Net income

c. Issuance of company stock

A company that has free cash flow struggles with a. funding internal growth. b. having financial flexibility. c. retiring debt. d. None of these choices are correct.

d. None of these choices are correct.

The order of presentation of activities on the statement of cash flows is a. operating, financing, and investing b. financing, investing, and operating c. financing, operating, and investing d. operating, investing, and financing

d. operating, investing, and financing

Which of the following would not be classified as an operating activity? a. interest expense b. selling expenses c. income taxes d. payment of dividends

d. payment of dividends

3 parts of cash flow statement

operating activities, investing activities, financing activities

Cash flow from financing

pay dividends, issue LT LIABILITIES, s. equity : Issuing or retiring equity and debt securities

Cash flow from operating activities

transactions that affects net income: day-to-day operations. Purchase or sale of merchandise, ST ASSETS/ LIABILITIES, inventory Purchase and sale of merchandise by a retailer

Cash flow equasion

Cash= liabilities + S. equity - non cash assets

Indirect for operating income

Net income add depreciation, amortization, - gains on disposal of assets changes in current operating assets Net cash flows for operating activity

Cash flow from investing

Received for transactions that affect investments, purchase or sale of fixed assets, LT ASSETS (PP&E) Purchase and sale of fixed assets, such as equipment and buildings

posative of indirect method

Reconciles the differences between net income and net cash flows from operations Other advantage Less costly to prepare than the direct method as data are readily available; most commonly used in practice

Which of the following increases cash? a. borrowing money by issuing a 6-month note b. the declaration of a cash dividend c. depreciation expense d. acquisition of treasury stock

a. borrowing money by issuing a 6-month note

On the statement of cash flows, the Cash Flows from (used for) Operating Activities section would include a. cash payments for salaries. b. payments for the acquisition of investments. c. receipts from the issuance of capital stock. d. receipts from the sale of investments.

a. cash payments for salaries.

On the statement of cash flows prepared by the indirect method, the operating activities section would include a. gains or losses on fixed assets b. receipts from the sale of investments c. payments for cash dividends d. receipts from the issuance of capital stock

a. gains or losses on fixed assets

A negative net cash flow in the Financing Activities section of the statement of cash flows would likely indicate that the company a. is paying off some or all of its debt and/or paying dividends to shareholders. b. issued more common stock to shareholders. c. is buying more equipment. d. had a strong net income for the year.

a. is paying off some or all of its debt and/or paying dividends to shareholders.

A spreadsheet __________ used in preparing the statement of cash flows. a. may be b. must be c. cannot be d. is required by the FASB to be

a. may be

Cash received for preferred stock dividends should be shown on the statement of cash flows under __________ activities. a. operating b. noncash investing and financing c. investing d. financing

a. operating

Cash flows from operating activities differ from net income because it does not use the BLANK cash basis of accounting. For example revenues are recorded on the income statement when cash is received they are BLANK

accural basis, earned

The net income reported on the income statement for the current year was $275,100. Depreciation recorded on fixed assets and amortization of patents for the year were $30,200 and $4,300, respectively. Balances of current asset and current liability accounts at the end and beginning of the year are as follows: EndBeginningCash$50,300$60,100 Accounts receivable102,100108,100 Inventories88,10093,300 Prepaid expenses8,7006,800 Accounts payable (merchandise creditors)95,10089,300 What amount of cash flows from (used for) operating activities is reported on the statement of cash flows prepared by the indirect method? a. $328,600 b. $324,700 c. $306,300 d. $256,500

b. $324,700

Question Content Area Donnegan Inc. bought a piece of land for $218,000. What would be the effect of this transaction on the statement of cash flows? a. The gain on sale of land would be listed in the Operating Activities section. b. The cash paid for land would be listed in the Investing Activities section. c. The cash paid for land would be listed in the Operating Activities section. d. The cash received for land would be listed in the Investing Activities section.

b. The cash paid for land would be listed in the Investing Activities section.

Depreciation on factory equipment would be reported on the statement of cash flows prepared by the indirect method in a. the Cash Flows from (used for) Financing Activities section b. the Cash Flows from (used for) Operating Activities section c. the Cash Flows from (used for) Investing Activities section d. a separate section of noncash investing and financing activities

b. the Cash Flows from (used for) Operating Activities section

Step 4 of preparing a spreadsheet for the statement of cash flows is to a. enter the balance of each balance sheet account. b. add the column totals. c. analyze the change during the year in each noncash account and classify the change. d. list the title of each balance sheet account in the Accounts column.

c. analyze the change during the year in each noncash account and classify the change.

Question Content Area A company purchases equipment for $32,000 cash. This transaction should be shown on the statement of cash flows under a. operating activities b. noncash investing and financing activities c. investing activities d. financing activities

c. investing activities

Analysts often use free cash flow, rather than cash flows from (used for) _________ activities, to measure the financial strength of a business. a. financing b. investing c. operating d. noncash investing and financing

c. operating