adaptive questions chapter 12 accounting

Determine free cash flow if net cash provided by operating activities was $472,000, capital expenditures were $39,000, land was sold for $65,000, and cash dividends of $15,000 were paid.

$418,000

Which of the following companies paid the MOST in cash dividends during the year?

Cash dividends for each company are: (A) $812,000 - $623,000 - $64,000 = $125,000; (B) $963,000 - $642,000 - $175,000 = $146,000; (C) $894,000 - $546,000 - $153,000 = $195,000; (D) $728,000 - $593,000 - $75,000 = $60,000. Therefore, the company with the highest cash dividends is company (C) with $546,000 in free cash flows.

Which is true of the growth phase?

Small amounts of cash from operations, negative cash from investing, and positive cash from financing.

When preparing the statement of cash flows, the FASB prefers that companies use the ________ method

direct

Accounts receivable arising from sales to customers amounted to $60,000 and $45,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $180,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is

$195,000.

Blackstone Company has the following information available: Net income, $20,000; Cash provided by operating activities, $30,000; Cash sales, $75,000; Capital expenditures, $12,000; and Cash dividends, $6,000. What is Blackstone's free cash flow?

(12,000) The formula for free cash flow is Free Cash Flow = Net Cash Provided by Operating Activities ($30,000) - Capital Expenditures ($12,000) - Cash Dividends ($6,000). Therefore, Blackstone Company's free cash flow is $12,000.

What is the result of an increase in accounts payable during a period?

Expenses on an accrual basis are greater than expenses on a cash basis.

A company issued 20,000 shares of $1 par common stock for $35 per share during 2022. The company paid dividends of $25,000 and issued long-term notes payable of $275,000 during the year. What amount of cash flow from financing activities will be reported on the statement of cash flows?

Issuance of stock and long-term notes signify a cash inflow, whereas the payment of dividends represents a cash outflow. Therefore, 20,000 shares x $35 = $700,000 + $275,000 long-term note = $975,000 cash inflow - $25,000 dividends paid = $950,000 overall net cash inflow that would be reported from financing activities on the statement of cash flows.

What effect will a decrease in inventory have on free cash flows?

It will increase free cash flows

Simon's Eatery reported net income of $56,000 for the year. During the year, accounts receivable decreased by $8,000, accounts payable increased by $4,000, and depreciation expense of $5,000 was recorded. Calculate the net cash provided by operating activities for the year.

Simon's Eatery would use net income of $56,000 as the starting point. A $8,000 decrease in accounts receivable, a $4,000 increase in accounts payable, and $5,000 of depreciation expense is added back into net income to calculate the net cash provided of $73,000 by operating activities for the year.

As an accountant for Hartley Enterprises, you are responsible for preparing the statement of cash flows. You have transactions for dividends received and dividends paid during the current accounting period. Where would you place these in the statement of cash flows?

The dividends received should be placed under operating activities, and the dividends paid should be placed under financing activities. (Even though the purchase of securities is an investing activity, Hartley Enterprises' dividends received from those securities are reported as an operating activity because they are recorded on the income statement. The payment of dividends to stockholders is a stockholders' equity transaction, so it is placed under financing activities in the statement of cash flows.)

During 2022, Freda's Donuts reported cash provided by operations of $735,000, cash used in investing of $1,300,000, and cash used in financing of $135,000. In addition, cash spent for fixed assets during the period was $233,000. Dividends of $28,000 were paid. Given this information, calculate Freda's free cash flow.

The formula for free cash flow is Free Cash Flow = Net Cash Provided by Operating Activities ($735,000) - Capital Expenditures ($233,000) - Cash Dividends ($28,000). Therefore, Freda's Donut's free cash flow is $474,000.

Gleason Company reported net income of $242,000 for the year. During the year, accounts receivable increased by $32,000, accounts payable decreased by $10,000 and depreciation expense of $65,000 was recorded. Net cash provided by operating activities for the year is

The formula to calculate net cash provided by operating activities for the year is net income plus the depreciation expense minus the increase in accounts receivable minus the decrease in accounts payable. Using this formula, Gleason Company can calculate the net cash provided by operating activities as $265,000.242,000 + $65,000 - $32,000 - $10,000 = $265,000

In 2022, Medrano Manufacturing reported $3.9 billion in cash flows from operating activities but only $2.7 billion in net income. What is one possible reason that Medrano could report this difference?

They recorded $1.2 billion in noncash expenses on their income statement.

Gilliam Industries records revenue of $6.4 million for an accounting period. In that same accounting period, they have a beginning balance of $392,000 and an ending balance of $439,000 in the Accounts Receivable account. How should the cash flows from operating activities be adjusted to account for these items? Why? Assume Gilliam uses the indirect method.

Using the indirect method, Gilliam will only have to adjust for the change in Accounts Receivable, resulting in a $47,000 decrease in cash flows from operating activities.

Kersey Industries is in the decline phase of the corporate life cycle. Which of the following would you expect to see when you look at their financial statements?

a decrease in long-term assets

Which of the following shows the sources and uses of cash during a period?

a statement of cash flows

An example of a noncash transaction that is not reported in the body of a statement of cash flows is

acquiring land by issuing common stock. (Noncash transactions, such as the acquisition of land by issuing common stock, are not reported in the body of the statement of cash flows. (Instead, it is reported in a separate schedule right below the cash flow statement.)

In general, which of the following is considered the MOST important category on the statement of cash flows?

cash flows from operating activities (the most important category in the statement of cash flow because it shows a company's overall net income from its operations.)

To prepare a statement of cash flows, a company uses information from a current income statement and

comparative balance sheets.

________ is added to net income when computing cash from operating activities.

depreciation expense (A transaction that impacts revenues or expenses, such as a decrease in accounts payable, is added to overall net income when computing cash from operating activities.)

When preparing the statement of cash flows, the FASB prefers that companies use the ________ method.

direct

On the statement of cash flows, where is a conversion of bonds into common stock reported?

in a separate schedule or note to the financial statements (The conversion of bonds into common stock should be reported on the statement of cash flows in a separate schedule or note to the financial statements. Bond conversion can be done at specific times during the life of the bond. This conversion is based on the bond holder's discretion.)

How should Farah's Hair Co. report $25,000 of new bonds issued and $11,000 of retired bonds in the same year?

increase in cash of $25,000 and a decrease in cash of $11,000

The ________ method adjusts net income to find net cash provided by operating activities.

indirect

What method do most companies in the United States use when determining cash flows from operating activities?

indirect method

Which method is used to find net cash provided by operating activities by adjusting net income?

indirect method

Which of the following is associated with financing activities?

issuing debt

Which of the following are considered investing activities?

lending money to other entities (Investing activities involve the purchase or sale of property, plant, and equipment and the lending of money to other entities or collecting principle on loans.)

A company has positive cash flows from operating activities, negative cash flows from capital expenditures, and negative cash flows from dividends. This company is most likely in which phase of the corporate life cycle?

maturity phase ( Companies with positive cash flows from operating activities could be in the growth, maturity, or decline phases but probably not in the introductory phase. On the other hand, companies with negative cash flows from capital expenditures could be in the introductory, growth, or maturity phases but probably not in the decline phase. Also, companies with negative cash flows from dividends could be in the maturity or decline phases, but probably not in the introductory or growth phases. All three qualifications are met in the maturity phase.)

Because the statement of cash flows does not employ accrual-based accounting, it is said to be ________ than other financial statements.

more reliable

Which of the following is a typical experience for a company in the introductory phase of the corporate life cycle?

negative cash from operations

If a company uses the indirect method to report cash flows, where, if at all, would a decrease in accounts receivable be classified on the statement of cash flows?

operating activities section

Which of the following would be in the investing section of the statement of cash flows?

proceeds from selling equipment

Michelle is investigating the financial statements of two companies. One company is in the maturity phase of the corporate life cycle, and the other company is in the decline phase. What financial activity might both companies be involved in?

purchasing treasury stock

On the statement of cash flows, the cash flows from operating activities section would include which of the following?

receipts from the sale of goods or services

Which of the following would be classified as a financing activity?

the payment of a cash dividend

Comparing a company's income statement to its statement of cash flows can reveal information about the "quality" of the company's reported net income, because

the statement of cash flows reflects cash-based accounting techniques and thus relies on fewer estimates than the income statement. (A statement of cash flows compared to an income statement is more reliable and can reveal information about the quality of a company. This is because it requires less estimates than an income statement and reflects cash-based accounting techniques.)

What is the primary purpose of the statement of cash flows?

to provide information about the cash receipts, or sources, and cash payments, or how cash was used during a period