ACCT CH 21 SB

Abner Corp. prepares its statement of cash flows utilizing the direct method. During the current period, its cash from operating activities was $15.5 million. If the company had utilized the indirect method, its cash from operating activities would have been

$15.5 million.

Munster Company reports the following net cash in its statement of cash flows: net inflow from operating activities: $200; net outflow from investing activities: $300; net outflow from financing activities: $50. The ending balance in cash is $20; the beginning balance must have been

$170.

During the current year Hainzel Corp. sold inventory costing $200,000 for $500,000. The balance of accounts payable decreased by $20,000, and the balance of the inventory account decreased by $10,000. Cash paid to suppliers is

$210,000

Glueck Corp. reports sales revenue of $200,000. During the year, the company's accounts receivable balance decreased by $10,000 and its deferred revenue increased by $4,000. Cash collected from customers is

$214,000.

Glueck Corp. reports sales revenue of $200,000. During the year, the company's accounts receivable balance decreased by $14,000. Cash collected from customers is

$214,000.

An examination of Margot Company's records indicate that investment income relating to equity method investments was $100,000 and that the related investment account increased by $75,000. Cash received on the investment was

$25,000.

During the current year, Marked Company sold equipment with an original cost of $100,000 and accumulated depreciation of $60,000. The income statement reveals a loss of $10,000 relating to this disposal. Cash received from the sale of the equipment is:

$30,000

Olsen Company reports investment income relating to equity method investments of $50,000, and it had a related investment account that increased by $15,000. Cash received on the investment was

$35,000

During the current year, Nary Corp.'s income statement shows that the company accrued interest expense of $5,000; for the same period the interest payable balance increased by $300 and bond discounts decreased by $400. Cash paid for interest is

$4,300

During the current year, Mainzel Corp.'s income statement shows that the company accrued interest expense of $5,000; for the same period the interest payable balance increased by $300. Cash paid for interest is

$4,700.

During the current year, Mainzel Corp.'s income statement shows that the company accrued salary expense of $85,000; for the same period the salary payable balance increased by $3,000. Cash paid for salaries is

$82,000.

During the current year, Hainzel Corp.'s income statement shows that the company accrued salary expense of $85,000; for the same period the salary payable balance decreased by $3,000. Cash paid for salaries is

$88,000.

Able Company records income tax expense of $75,000. During the current year, the company's income tax payable decreased by $11,000 and its deferred tax asset increased by $3,000. Cash paid for income taxes is

$89,000

Sales revenue for the year was $100,000; accounts receivable had a beginning balance of $10,000 and an ending balance of $18,000. Cash collected from customers was

$92,000.

During the current year Mainzel Corp. sold inventory costing $100,000 for $220,000. The balance of accounts payable increased by $10,000, and the balance of the inventory account increased by $6,000. Cash paid to suppliers is

$96,000.

Which of the following is correct regarding the relationship between cash flows, income, and company survival?

A company with negative income, but good cash flows may survive for a number of years.

Which of the following approaches is commonly used to analyze transactions to help in the preparation of a statement of cash flows?

An electronic or manual spreadsheet

Which of the following statements is correct regarding the direct and indirect methods of preparing the operating activities section of the statement of cash flows?

Cash from operating activities is the same under either method.

Which of the following cash flow ratios provide information about a company's performance?

Cash to income Cash return on assets Cash return on shareholders' equity Cash flow to sales

Which of the following statements regarding the disclosure of cash equivalents are correct?

Companies must disclose what type of instruments are classified as cash equivalents. Companies must establish a policy regarding the types of instruments that are classified as cash equivalents.

Dividends received typically are reported as cash from investing activities by ____ based companies.

IFRS

Which of the following financial statements tends to provide the best indication of current operating performance?

Income statement

Which of the following statements regarding income statement and related cash amounts is correct?

Income statement amounts and cash amounts typically are not the same.

Which of the following may justify the difference in the rule for classifying interest paid and dividends paid?

Interest expense reduces net income, while dividends are a reduction of equity.

Why is inventory treated differently than property, plant, and equipment when classifying their cash effects on the statement of cash flows?

Inventory is purchased and sold as part of the firm's current operations. Property, plant, and equipment benefit the business over a relatively long period of time.

Steiner Corp. purchases a new machine for $120,000. The company makes a $20,000 downpayment and signs a promissory note for the difference. Which of the following statements is correct regarding this transaction and the classification in a statement of cash flows?

Investing cash outflow is $20,000.

Which of the following are classified as cash outflows from financing activities?

Payment of dividends Purchase of treasury stock Principal repayment on notes payable

Which of the following is correct regarding interest on a bond that was issued at a premium?

The cash outflow exceeds interest expense.

Which of the following represent differences between IFRS and U.S. GAAP with respect to the presentation of the statement of cash flows?

The degree of flexibility in some areas The potential classification of individual items among the categories

Identify reasons why the FASB encourages the direct method of presenting the statement of cash flows over the indirect method.

The direct method is consistent with the primary objective of the statement of cash flows. Investors gain additional insights into specific sources and uses of cash.

Under which method of preparing a statement of cash flows will a reconciliation between net income and cash from operating activities be shown on a separate schedule?

The direct method only

Which of the following is critically important with respect to the ultimate potential of a firm to provide cash flows to investors and creditors?

The firm's ability to generate cash flows for itself.

Muller Company's income statement reports a gain from the sale of equipment. Which of the following statements is correct regarding the gain?

The gain does not represent a cash flow

Which of the following represent limitations with respect to cash flows?

The items reported in the income statement are not necessarily reported in the period they occurred. The information in the balance sheet is provided only indirectly.

Ziegler Company's income statement reports a loss from the sale of machinery. Which of the following statements is correct regarding the loss?

The loss does not represent a cash flow

Which of the following aspects of a statement of cash flows are the same under IFRS and U.S. GAAP?

The same three major categories are presented

Which of the following statements is correct regarding the relationship between the cash balance in the balance sheet and the net change in cash reported in the statement of cash flows?

The two amounts usually are not the same.

Why have cash flow ratios received limited acceptance to date?

There exists a long tradition of accrual-based ratios. There exists a lack of consensus on how to compare cash flow ratios.

Which of the following is correct regarding transfers between cash and cash equivalents with respect to reporting the transfer in the statement of cash flows?

These transfers are not reported in the statement of cash flows.

Which of the following statements is correct regarding the entries made in the spreadsheet.

They are duplicates of the journal entries made during the year.

Which of the following statements regarding reporting of transfers between cash and cash equivalents is correct?

They are not reported because the total of cash and cash equivalents does not change.

Which of the following statements regarding the recognition of revenues and expenses is correct?

They are recognized even if cash has not been received or paid.

Which of the following statements regarding reporting of cash from investing and cash from financing activities is correct under the direct and the indirect method?

They are the same

Select the statement that best describes the current use of cash flow-based ratios.

They may be used by analysts to complement income statement and balance sheet-based ratios.

Which of the following transactions/events commonly give rise to cash outflows of business entities?

Treasury stock is purchased. Inventory is purchased. Employees are paid. Fire insurance is purchased.

True or false: An unprofitable company with good cash flow can survive for a period of time.

True

True or false: The statement of cash flows is inherently difficult to prepare because the typical accounting system is not designed to produce the specific information required for the statement.

True

Fuller Company's retained earnings increased by $20,000 during the current year. Net income for the year was $50,000. No other information is available regarding retained earnings. In its statement of cash flows, Fuller should report

an outflow of $30,000 from financing activities relating to cash dividends.

Tomasine Company's retained earnings increased by $50,000 during the current year. Net income for the year was $110,000. No other information is available regarding retained earnings. In its statement of cash flows, Tomasine should report

an outflow of $60,000 from financing activities relating to cash dividends.

Glueck Corp. reports sales revenue of $200,000. During the year, the company's accounts receivable balance decreased by $14,000. Additional information reveals that during the year accounts totaling $7,000 were written off and bad debt expense of $10,000 was recognized. A journal entry prepared to determine cash collected from customers would include debits to

bad debt expense for $10,000. cash for $207,000.

During the current year, Barber Corp.'s balance in bonds payable decreased. No specific information about this decrease is available. In the statement of cash flows, the decrease should

be reported as a cash outflow from financing activities.

Which of the following are included in the statement of cash flows?

cash flows from investing activities cash flows from operating activities cash flows from financing activities noncash investing and financing activities

During the current year, Hainzel Corp.'s income statement shows that the company accrued salary expense of $85,000; for the same period the salary payable balance decreased by $3,000. The journal entry to derive cash paid for salaries would include a credit to

cash for $88,000.

During the current year Mainzel Corp. sold inventory costing $100,000 for $220,000. The balance of accounts payable increased by $10,000, and the balance of the inventory account increased by $6,000. The journal entry to derive cash paid to vendors would include credits to

cash for $96,000. accounts payable for $10,000.

Michal Corp.'s land account decreased by $250,000. No specific information regarding this decrease is available. In its statement of cash flows, Michael should report

cash inflows from investing activities of $250,000.

Kester Corp.'s land account increased by $140,000. No specific information regarding this increase is available. In its statement of cash flows, Kester should report

cash outflows from investing activities of $140,000.

Increases in investment account balances not accounted for under the equity method, and for which no specific additional information is available, are interpreted as

cash outflows from investing activities.

Inglewood Company prepares a statement of cash flows under the direct method. Which of the following cash flows must be specifically reported under that method?

cash paid for interest cash paid for taxes

Hagar Company prepares a statement of cash flows under the indirect method. Which of the following cash flows must be specifically reported under that method either on the face of the statement or in the accompanying disclosure notes?

cash paid for taxes cash paid for interest

Kunze's common stock and paid-in capital accounts increased by a total of $10 million. To analyze the transaction using a journal entry, Kunze should debit _____ and credit _____.

cash; common stock and paid-in capital

The benefit of using a spreadsheet to analyze transactions and events that must be reported in the statement of cash flows is that it allows us to:

classify activities to be reported on the statement of cash flows record entries to explain account balance changes

An examination of Margot Company's records indicate that investment income relating to equity method investments was $100,000 and that the related investment account increased by $75,000. Utilizing only one journal entry to determine cash received from the investments, the entry would include:

credit to investment revenue for $100,000 debit to investment for $75,000

Olsen Company reports investment income relating to equity method investments of $50,000, and it had a related investment account that increased by $15,000. If Olsen uses only one journal entry to determine cash received from the investments, the entry would include

credit to investment revenue of $50,000

In preparing the current year statement of cash flows, what information is readily available to assist preparers in reconstructing the various cash flows during the reporting period?

current year income statement prior year balance sheet detailed accounting records current year balance sheet

Under the indirect method of preparing the statement of cash flows, gains reported in the income statement are deducted from net income because they

did not result in additional cash inflows. were added in deriving net income.

Amounts reported in the income statement usually are ______ the cash effects of the items reported.

different from

Margaret is analyzing the current year income statement and the comparative balance sheet in order to prepare the statement of cash flows. She should expect the operating cash flows to be ______ the amounts reported in the income statement.

different from

The method that reports the cash effect of each operating activity explicitly on the statement of cash flows is referred to as the _____ method.

direct

During the current year, Palmer Company purchased equipment costing $100,000 by signing a 2-year promissory note. In its statement of cash flows, Palmer should

disclose information in the noncash investing and financing section.

During the current year, Schneider Company purchased equipment costing $200,000 by issuing 1,000 shares of its common stock. In its statement of cash flows, Schneider should

disclose information in the noncash investing and financing section.

For the current year, Mainzel Corp.'s income statement shows that the company recognized interest expense of $5,000; during the same period, a bond discount of $200 was amortized. The journal entry to derive cash paid for interest will include credits to

discount on bonds payable for $200. cash for $4,800.

The entries in the spreadsheet used to prepare the statement of cash flows

duplicate the actual journal entries that occurred during the year.

Which of the following are required characteristics of cash equivalents?

high liquidity low risk short-term

Net cash from operating activities reported in a statement of cash flows prepared using the indirect method is _____ the amount reported in a statement of cash flows prepared using the direct method.

identical to

For the current year ended, Fohlen Corp. accrued $1,200 of insurance expense. The company's balance of the prepaid insurance account decreased by $500. The journal entry used to derive cash paid for insurance includes a debit to

insurance expense of $1,200.

For the current year, Mainzel Corp.'s income statement shows that the company recognized interest expense of $5,000; during the same period, a bond discount of $200 was amortized. There was no balance in interest payable at the beginning nor the end of the year. The journal entry to derive cash paid for interest will include a debit to

interest expense for $5,000.

During the current year, Mainzel Corp. sold inventory costing $100,000 for $220,000. The company's accounts payable balance increased by $10,000, and the inventory account balance increased by $6,000. The journal entry to derive cash paid to vendors would include debits to

inventory for $6,000. cost of goods sold for $100,000.

Cash flows from _____ activities are both outflows and inflows of cash caused by the acquisition and disposal of long-term assets.

investing

Kunze's common stock and paid-in capital accounts increased by $10 million. All known changes to retained earnings were already explained, except for a $10 million decrease, which remains unexplained. The likely explanation for the changes in the two equity categories is that Kunze

issued stock dividends

An important advantage of using a spreadsheet to analyze transactions that may need to be reported in the statement of cash flows is to

make sure that no reportable activity is overlooked.

Halon Company's net income was reduced by income tax expense of $5,000. The company's income tax payable shows both a beginning and ending balance of $500. Related to income tax expense, Halon should ______ in its statement of cash flows - direct method.

not adjust net income

In a statement of cash flows—direct method, depreciation expense should

not be reported.

During the year, Pernell Company issued a 10% stock dividend. In its statement of cash flows, Pernell should

not report the stock dividend.

The purchase and sale of cash equivalents typically are _____ on a statement of cash flows

not reported

The difference between the issue price and the face amount of a discounted bond is classified as _____ cash flows.

operating

When using a spreadsheet to derive a statement of cash flows, we can be confident that we considered all reportable items if there are no ____________ activity(ies) without a corresponding change in one or more of the non-cash accounts.

operating, investing, financing

For the current year ended, Fohlen Corp. accrued $1,200 of insurance expense. The company's balance of the prepaid insurance account decreased by $500. The journal entry used to derive cash paid for insurance includes credits to

prepaid insurance for $500. cash for $700.

When preparing the statement of cash flows using the indirect method, components of net income that increase cash by an amount exactly the same as that reported in the income statement,

require no adjustment to net income.

During the current year, Hainzel Corp.'s income statement shows that the company accrued salary expense of $85,000; for the same period the salaries payable balance decreased by $3,000. The journal entry to derive cash paid for salaries would include debits to

salaries payable for $3,000. salaries expense for $85,000.

Bart Company's common stock account increased by $5 million. The company issues only no-par shares. In the absence of additional information, you would assume that Bart

sold common shares and received $5 million in cash

Kunze's common stock and paid-in capital accounts increased by a total of $10 million. In the absence of additional information, the likely explanation for the increase in the accounts is that Kunze

sold common stock for cash.

Pech Company's common stock account increased by $2 million. No additional information regarding the increase is available. The most likely assumption that explains the increase is that the company

sold its common stock for cash

Brown Company's short-term investment account balance decreased by $14,000. No other information is available. This means that Brown

sold some investments with an original cost of $14,000.

On the statement of cash flows, the net increase or decrease in cash and cash equivalents must be reconciled with

the beginning and ending balances of cash

Milky Company reports sales revenue of $200, an increase in deferred revenue of $2, and an increase in accounts receivable of $1. Cash collected from customers is:

$201

For the current year ended, Fohlen Corp. accrued $1,200 of insurance expense. The company's account balance of prepaid insurance decreased by $500. Cash paid for insurance is

$700.

Kleister Company issues bonds for $100 million and repays a long-term notes payable of $10 million. The company also repurchases its own shares for $12 million and issues stock dividends with a market value of $5 million. Net cash flow from financing activities will be

$78 million net inflow.

Which of the following statements is correct with respect to analyzing accounts for the preparation of a statement of cash flows?

All changes in balance sheet accounts must be accounted for. All income statement amounts must be accounted for.

Which of the following transactions is reported on the statement of cash flows as a significant noncash investing and financing activity?

Common stock is issued in exchange for services

Which of the following transactions must be reported on the statement of cash flows as noncash investing and financing activities?

Converting convertible bonds to common stock. exchange of the company's common stock for a piece of land

Andrea Mueller prepares a spreadsheet to assist in the preparation of a statement of cash flows. One of the journal entries she enters in the spreadsheet recognizes the effect of net income on retained earnings. Which of the following statements is correct about the effect of this journal entry?

It helps explain part of the change in retained earnings. It does not affect cash flows.

Which of the following is correct regarding depreciation expense?

It is a noncash expense that does not require the use of cash.

Which of the following transactions is not reported on the statement of cash flows as a significant investing and financing activity?

Stock dividends are declared and distributed

Which of the following methods of presenting the statement of cash flows is preferred by the Financial Accounting Standards Board?

The direct method

When cash from operating activities is presented using the indirect method, net income must be adjusted for the components that increase and decrease in balance sheet accounts that relate to:

amounts presented in the income statement.

Daffodil Corp. acquires new equipment with a long-term lease. This transaction will

be reported as a noncash investing and financing activity

Which of the following information is entered in a spreadsheet used to analyze information for the preparation of a statement of cash flows?

beginning and ending account balances journal entries that explain the changes in the account balances

When using a spreadsheet to analyze the information needed to prepare a statement of cash flows, journal entries that explain changes in account balances during the year, as well as the _______ must be entered.

beginning and ending balances

Which of the following are not valid categories in the statement of cash flows?

cash flows from continuing operations cash flows from discontinued operations

Which of the following are valid categories in the statement of cash flows?

cash flows from financing activities cash flows from operating activities cash flows from investing activities

The net increase or decrease in the cash flows reported on the statement of cash flows is always equal to the ________ evident from the amounts reported on the comparative balance sheet.

change in the cash balance

Cash inflows from financing activities for bonds issued at a premium are equal to:

face amount plus premium

If a company reports neither an investment income receivable or a long-term investment account, we can conclude that the amount of cash received during the current year _______ that the company reports on the income statement.

is the same as investment revenue

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

issuance of bonds sale of common stock

Some cash flow ratios are derived by simply substituting cash from operations from the statement of cash flows for ______.

net income

The first item listed in the statement of cash flows - indirect method is:

net income or loss

Which of the following types of noncash transactions are reported in the statement of cash flows?

noncash financing activities noncash investing activities

Activities that do not directly increase or decrease cash but that are still reported in the statement of cash flows are classified as:

noncash investing and financing activities

Common types of cash outflows from investing activities include

purchases of investment securities. payments to acquire nontrade receivables. purchases of property, plant, and equipment.

On December 31, Vogel Company acquires equipment by signing a long-term financing lease agreement. The first lease payment will be due at the beginning of the following year. On December 31, Vogel should

report a significant noncash investing and financing activity on its statement of cash flows.

Which of the following transactions that involve cash flows typically is (are) not reported on a SCF?

sale of cash equivalents

Common types of cash inflows from investing activities include

sale of property, plant, and equipment. sale of investment securities. collection of nontrade receivables.

Which of the following transactions would be classified as financing activities in the statement of cash flows?

sale of the company's common stock issuance of bonds repurchase of the company's own common stock

If a journal entry is used to derive the amount of cash collected from customers,

sales revenue, bad debt accruals, and changes in A/R and the allowance account need to be recognized.

During the current year, Barber Corp.'s balance in bonds payable decreased. In the absence of specific information, it should be assumed that

the bonds were repaid.

To identify all the operating, investing, and financing activities using a spreadsheet, we must account for the changes in each account on the:

income statement balance sheet

Cash flows from operating activities are both inflows and outflows of cash that result from activities reported in the

income statement.

An important tool that can be used to ensure that no reportable activities are inadvertently overlooked is a:

spreadsheet

Much of the value of the underlying information provided by the _____ is lost if that information is reported only in the balance sheet.

statement of cash flows

When preparing the statement of cash flows—indirect method, gains reported in the income statement are ______.

subtracted from net income

Carmen Company shows salaries expense of $25,000 in its income statement. During the current year, the balance of its salaries payable account decreased by $3,000. If the company uses the indirect method of presenting the operating activities section of the statement of cash flows, the change of $3,000 should be

subtracted from net income.

Under the indirect method of deriving net cash flows from operating activities, decreases in liabilities relating to operating activities must be

subtracted from net income.

The debt payment ratio and the interest coverage ratio are examples of cash flow _____ ratios.

sufficiency

The _____ method of reporting cash flows from operating activities reports the cash effect of each operating activity.

direct

The journal entry to close the income summary:

does not affect cash flows partially explains the change in retained earnings

Spreadsheet analysis relies on the fact that in order for cash to increase or decrease, there must be a corresponding change in one or more ____ accounts.

noncash

A ratio that determines the number of times the cash outflows of interest is provided by cash inflow from operating activities is derived from the accrual-based ratio

times interest earned.

Cash outflows from financing activities related to bonds issued at a premium consist of:

periodic premium amortization face amount

Peony Corporation acquires a new office building by signing a long-term note. This transaction represents a

significant noncash investing activity significant noncash financing activity

Norbert Company reports the following net cash flows in its statement of cash flows: net inflow from operating activities: $200; net outflow from investing activities: $220; net inflow from financing activities: $130. The current year beginning balance of cash was $80. During the current year, cash must have

increased by $110.

Mark wishes to evaluate Jones Company's current operating performance. Mark will find the most pertinent information in Jones Company's

income statement.

The statement of cash flows provides information about cash and

sources of cash.

Cash from the sale of land is reported on the statement of cash flows as a(n) _____ activity.

investing

A cash inflow from the sale of land is categorized as a(n)

investing activity

Marten Company's records indicate that, during the current year, land costing $50,000 was sold. A gain of $45,000 was recognized on the sale. Cash inflows associated with this sale were

$95,000.

Noncash investing and financing activities can be reported on the same _____ as the statement of cash flows or in the _____ _____ to the financial statements.

Blank 1: page Blank 2: disclosure Blank 3: notes

Which of the following statements is correct regarding the information content of the income statement and the balance sheet?

Both provide information that helps forecast a company's ability to generate cash.

Which of the following is true regarding classification on the statement of cash flows?

Cash flows from inventory are classified as operating while cash flows from property, plant, and equipment are classified as investing.

During the current year, Parsley Company sold equipment with an original cost of $100,000 and accumulated depreciation of $70,000. The income statement reveals a gain of $20,000 relating to this disposal. A journal entry to derive the amount of cash received on the sale of equipment would include:

a credit to equipment. a credit to gain on the disposal of equipment.

Klein Corp. reports income tax expense of $157,000. During the current year, the company's income tax payable increased by $3,000. The journal entry to derive cash paid for income taxes will include

a credit to income tax payable for $3,000. a debit to income tax expense for $157,000. a credit to cash for $154,000.

During the current year, Marked Company sold equipment with an original cost of $100,000 and accumulated depreciation of $60,000. The income statement reveals a loss of $10,000 relating to this disposal. A journal entry to derive the amount of cash received from the sale of this equipment will include:

a debit to accumulated depreciation. a debit to loss on disposal of equipment.

Gross Industries reports income tax expense of $57,000. During the current year, the company's income tax payable decreased by $3,000. The journal entry to derive cash paid for income taxes will include

a debit to income tax payable for $3,000. a debit to income tax expense for $57,000.

Gerta Company shows salaries expense of $30,000 in its income statement. During the current year, the balance of its salaries payable account increased by $4,000. If the company uses the indirect method of presenting the operating activities section of the statement of cash flows, the change of $4,000 should be

added to net income.

Kunzen Company shows salaries expense of $15,000 in its income statement. During the current year, the balance of its salaries payable account increased by $2,000. If the company uses the indirect method of presenting the operating activities section of the statement of cash flows, the change of $2,000 should be

added to net income.

Under the indirect method of deriving net cash flows from operating activities, decreases in assets relating to operating activities must be

added to net income.

Under the indirect method of deriving net cash flows from operating activities, increases in liabilities relating to operating activities must be

added to net income.

When preparing the statement of cash flows using the indirect method, depreciation expense and losses are

added to net income.

When using a spreadsheet to analyze transactions and events that must be reported in the statement of cash flows we can be confident that we identified all reportable activities if

all changes to account balances have been explained.

Net cash flows for the year represent the

change in the cash account

Kunze's common stock and paid-in capital accounts increased by a total of $10 million. All known changes to retained earnings were already explained, except for a decrease of $10 million, which remains unexplained. If there is no additional information available, Kunze should assume that the changes in the two equity categories involved

no cash.

Under the indirect method of preparing the statement of cash flows, depreciation expense and losses are added back to net income because they

were subtracted in deriving net income. do not require an outflow of cash.

The amount of net cash from operating activities shown when the indirect method is used is

the same as under the direct method.

Which of the following may explain why a profitable company may still fail?

The company doesn't properly manage its cash flows

In the statement of cash flows, the lessee's cash payments for leases are reported as cash outflows from

financing activities.

Margot Inc. reacquires its own shares and plans to immediately retire them. In its statement of cash flows, Margot should report this transaction as a(n)

financing activity

Marian Company's balance sheet shows that the balance in "treasury stock" increased by $200,000. No additional information that explains this change is available. If you were to prepare Marian's statement of cash flows, you would report the $200,000 as a(n)

financing outflow

Semmel Inc. reported interest expense of $11,000 on bonds that were issued at a premium. Cash paid for bond interest must be:

greater than $11,000

IFRS-based statements of cash flows typically report interest received as

investing cash flows.

In the absence of an investment income receivable and a long-term investment account, we can conclude that the amount of investment revenue reported on the income statement _________ received during the current year.

is equal to cash

Recognition of a gain on disposal of long-lived assets

is not reported as a cash flow.

Recognition of a loss on disposal of long-lived assets

is not reported as a cash flow.

The statement of cash flows does not distinguish between cash and

cash equivalents.

Which method of preparing the statement of cash flows lists net income or net loss as the first item?

The indirect method

Which method of presenting the statement of cash flows is currently most frequently used by companies?

The indirect method

Many companies that suffer bankruptcy are unable to generate sufficient _____ to satisfy their obligations.

cash

What type of information does a statement of cash flows provide?

the amount of cash flows the sources of cash flows

Which accounts or balances must be considered in order to calculate the amount of cash paid to suppliers for inventory?

the change in the inventory account balance the change in the accounts payable balance cost of goods sold

During the current year, Hainzel Corp.'s income statement shows that the company accrued interest expense of $5,000; for the same period the interest payable balance decreased by $300. Cash paid for interest is

$5,300.

Which of the following concepts governs recognition of revenue and expense?

Accrual accounting

True or false: There can be no operating, investing, or financing activity without a corresponding change in one or more of the non-cash accounts.

True

In a statement of cash flows, stock dividends typically are

not reported.

Cash flow per share is considered a _____ ratio.

performance

Brandt Corp. sells short-term treasury bills that have a book value of $10,000 and are classified as cash equivalents on the company's balance sheet for $11,000. On its statement of cash flows, Brandt should report

$1,000 of operating activity inflows.

Jasper's income statement reports revenue from investments that lack significant influence of $10,000, and its balance sheet reports that dividends receivable decreased by $1,500. How much will Jasper report as cash received from investments?

$11,500

Fault Company's records indicate that, during the current year, land costing $150,000 was sold. A loss of $25,000 was recognized on the sale. Cash inflows associated with this sale were

$125,000.

Aggie Company reports investment revenue of $14,000 in its income statement relating to a 5% investment in another company's common stock. During the current year, dividends receivable increased by $1,000. Thus, cash collected from investments will be

$13,000.

During the year, Munster Company sold common stock for $50 million, paid dividends of $5 million, and repaid its bonds payable with a face amount of $30 million. In its statement of cash flows, Munster will report net cash flows from financing activities of:

$15 million

Malt Corporation reported insurance expense of $15,000. Prepaid insurance shows a beginning balance of $1,800 and an ending balance of $2,300. The amount of cash paid for insurance must be:

$15,500

Klein Corp. reports income tax expense of $157,000. During the current year, the company's income tax payable increased by $3,000. Cash paid for income taxes is

$154,000.

True or false: Most companies use the direct method to report cash flows from operating activities.

False

During the current year, Hainzel Corp.'s income statement shows that the company accrued interest expense of $5,000; for the same period the interest payable balance decreased by $300 and bond discounts decreased by $500. Cash paid for interest is

$4,800.

Wichtel Corp. reports sales revenue of $400,000. During the year, the company's accounts receivable balance decreased by $10,000 and its deferred revenue decreased by $6,000. Cash collected from customers is

$404,000.

During the current year, Parsley Company sold equipment with an original cost of $100,000 and accumulated depreciation of $70,000. The income statement reveals a gain of $20,000 relating to this disposal. Cash received from the sale of the equipment is

$50,000.

Gross Industries reports income tax expense of $57,000. During the current year, the company's income tax payable decreased by $3,000 and its deferred tax liability increased by $2,000. Cash paid for income taxes is

$58,000.

During the current period, Schmidt Corp. disposed of old equipment and received $1,000 cash; purchased new equipment for $10,000 cash; paid an accounts payable balance of $2,500; and sold an investment costing $2,000 for $2,800. Net cash from investing activities is (indicate the amount and whether it is a net inflow or outflow)

$6,200 net outflow Reason: 1,000 - 10,000 + 2,800

Gross Industries reports income tax expense of $57,000. During the current year, the company's income tax payable decreased by $3,000. Cash paid for income taxes is

$60,000.

Which of the following is true regarding the classification of investments as cash equivalents?

A company's policy should be consistent with its motivation for acquiring various investments.

Which of the following represents a common reason why business entities may fail?

A lack of positive cash flows

Which of the following are properly classified as cash equivalents?

A money market fund An investment in treasury bills that have been purchased within three months of maturity

Which of the following statements regarding cash flow-based ratios are correct?

Acceptability is limited. Some financial analysts utilize them for the additional insights they provide.

Which of the following represents an inherent difficulty of preparing the statement of cash flows?

Accounting systems typically do not produce the information needed to prepare the statement.

Under which method(s) will a reconciliation of net income to cash from operating activities be presented?

Both the direct and the indirect method

Which of the following methods of preparing the statement of cash flows is (are) acceptable under U.S. GAAP?

Both the direct and the indirect method

Noncash investing and financing activities can be reported

on the face of statement of cash flows in the notes to the financial statements

Which sections are identical under the direct and indirect method of the statement of cash flows?

Cash from investing activities Cash from financing activities

Which of the following cash flow ratios provide information about a company's cash flow sufficiency?

Dividend payment Reinvestment Interest coverage Debt coverage

Short-term, highly liquid investments that can be readily converted to cash, with little risk of loss, are referred to as _____ _____.

cash equivalents

Treasury bills and money market funds are common examples of

cash equivalents.

When presented using the indirect method, cash from operating activities is adjusted for changes in balance sheet accounts that relate to

components of net income.

What type of information that helps in the preparation of a current year statement of cash flows is readily available in the accounting system?

current year income statement current year balance sheet prior year balance sheet

Financing activities are inflows and outflows of cash resulting from the

external financing of a business.

The _____ method of reporting cash flows from operating activities begins with net income and works backward to derive cash from operating activities.

indirect

Which of the following sources commonly provide funding for investing activities?

operating activities financing activities

Under IAS 7, interest paid can be classified as a(n)

operating activity. financing activity.

Under IAS 7, dividends received can be classified as a(n)

operating activity. investing activity.

Gains or losses on the sale of cash equivalents are reported in the statement of cash flows as

operating inflows or outflows.

The objective in preparing the statement of cash flows is to identify all transactions and events that represent

operating, investing, and financing activities and report them in the proper statement format.

The objective in preparing the statement of cash flows is to identify all transactions and events that represent _____, _____ and _____ activities and to classify and list them in the proper format.

operating, investing, financing

During the current period, Kunze Corp. disposed of old equipment and received $2,000 cash; purchased new equipment for $20,000 cash; collected an accounts receivable balance of $2,500; and purchased an investment for $3,000. Net cash from investing activities is (indicate the amount and whether it is a net inflow or outflow)

$21,000 net outflow Reason: 2,000 - 20,000 - 3,000

Combined financing and investing transactions that, if they had been structured as two separate transactions, would have involved cash are reported in the statement of cash flows as

Noncash investing and financing activities

Which of following statements regarding the profitability of companies and role of cash flows is correct?

Profitable entities that cannot generate sufficient cash can fail.

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

Purchase of a machine for cash.

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

Sale of a machine for cash.

Which financial statement shows whether a business expansion was financed with debt, equity, or cash generated from operations?

Statement of cash flows

What circumstance typically causes a company to use a spreadsheet to analyze transactions in order to prepare a statement of cash flows?

Transactions that are complex.

Steiner Corp. purchases a new machine for $120,000. The company makes a $20,000 downpayment and signs a promissory note for the difference. This transaction consists of

a noncash investing and financing activity. a cash outflow from investing activity.

In addition to the primary activities, what other required information must be presented in a statement of cash flows?

a reconciliation of the net increase or decrease in cash with the change in the cash balance noncash investing and financing activities

Statement of Financial Accounting Concepts No. 1 states that the primary objective of financial reporting is to provide investors and creditors with information that helps predict future

cash flows.

Transactions that do not involve cash, but that result in significant investing or significant financing activities, are

disclosed as noncash investing and financing activities

Investing activities, such as the purchase of new machinery, may be financed by the company's primary operating activities, or by _____ sources.

external

Cash received from the sale of common and preferred stock and the issuance of bonds and other debt securities are reported on the statement of cash flows as _____ activities.

financing

Inflows and outflows of cash resulting from the external funding of a business are cash flows from _____ activities.

financing

Provided that we are able to identify the events and transactions that caused the change in each noncash account during the year, we will be able to

identify all operating, investing and financing activities.

Greer Company prepares its statement of cash flows using the direct method. Greer should present the reconciliation between net income and cash from operating activities

in a supplemental or separate schedule.

Huger Company prepares its statement of cash flows using the indirect method. Huger should present the reconciliation between net income and cash from operating activities:

in the first section of the statement of cash flows.

The method of presenting the statement of cash flows that begins with a presentation of net income or net loss is referred to as the ____ method.

indirect

Which of the following information would be useful in order to project a particular company's future profitability and risk?

information about the company's investing activities information about the company's expansion plans

Which of the following decision makers tend to be especially interested in cash flow information?

investors creditors

In the statement of cash flows, cash and cash equivalents are

not reported separately.

Cash flows from _____ activities are both inflows and outflows of cash that result from activities reported in the income statement.

operating

Which of the following financial statements provide useful information that helps financial statement users to forecast a company's cash-generating potential?

the balance sheet the income statement

Which of the following are common cash equivalents?

treasury bills commercial paper

The cash flow statement is intended to help investors and creditors assess the amounts, timing, and _____ of future cash flows.

uncertainty