Ch. 11
Sales/average total assets
Asset turnover
Indirect method
Begins with net income and then lists adjustments to net income in order to arrive at operating cash flows.
Operating cash flows/sales
Cash flow to sales
Operating cash flows/average total assets
Cash return on assets
Investing activities
Cash transactions for the purchase and sale of long-term assets.
Financing activities
Cash transactions involving lenders and investors.
Operating activities
Cash transactions involving net income.
Declares and plays a cash dividend of $100,000. Investing, financing, operating or non cash activity?
Financing
Issuance of a note payable. Investing, financing, operating or non cash activity?
Financing
Issues $20 million in bonds. Investing, financing, operating or non cash activity?
Financing
Payment of dividends. Investing, financing, operating or non cash activity?
Financing
Collection of notes receivable. Investing, financing, operating or non cash activity?
Investing
Loans $50,000 to a customer, accepting a note receivable. Investing, financing, operating or non cash activity?
Investing
Purchase of a patent. Investing, financing, operating or non cash activity?
Investing
Purchase of equipment. Investing, financing, operating or non cash activity?
Investing
Purchases equipment for $80,000. Investing, financing, operating or non cash activity?
Investing
Depreciation expense
Item included in net income, but excluded from net operating cash flows.
Decrease in accounts payable. Positive or negative on the Statement of Cash Flows?
Negative
Decrease in income tax payable. Positive or negative on the Statement of Cash Flows?
Negative
Gain on sale of land. Positive or negative on the Statement of Cash Flows?
Negative
Increase in accounts receivable. Positive or negative on the Statement of Cash Flows?
Negative
Increase in prepaid rent. Positive or negative on the Statement of Cash Flows?
Negative
Payment of cash dividends. Positive or negative on the Statement of Cash Flows?
Negative
Purchase of investment. Positive or negative on the Statement of Cash Flows?
Negative
Cash return on assets
Net cash flows from operating activities divided by average total assets.
Return on assets
Net income/average total assets
Exchange of long-term assets. Investing, financing, operating or non cash activity?
Non cash
Exchanges land for a new patent. Both are valued at $300,000. Investing, financing, operating or non cash activity?
Non cash
Collects a $15,000 account receivable. Investing, financing, operating or non cash activity?
Operating
Decrease in accounts payable. Investing, financing, operating or non cash activity?
Operating
Decrease in accounts receivable. Investing, financing, operating or non cash activity?
Operating
Depreciation expense. Investing, financing, operating or non cash activity?
Operating
Increase in inventory. Investing, financing, operating or non cash activity?
Operating
Pays $75,000 to suppliers for inventory. Investing, financing, operating or non cash activity?
Operating
Pays a $20,000 account payable. Investing, financing, operating or non cash activity?
Operating
Cash return on assets
Operating cash flows/average total assets
Cash flow to sales
Operating cash flows/sales
Decrease in inventory. Positive or negative on the Statement of Cash Flows?
Positive
Depreciation expense. Positive or negative on the Statement of Cash Flows?
Positive
Increase in interest payable. Positive or negative on the Statement of Cash Flows?
Positive
Issuance of common stock. Positive or negative on the Statement of Cash Flows?
Positive
Loss on sale of land. Positive or negative on the Statement of Cash Flows?
Positive
Sale of land. Positive or negative on the Statement of Cash Flows?
Positive
Net income. Positive or negative on the Statement of Cash Flows?
Positive because income should be positive
Non cash activities
Purchase of long-term assets by issuing stock.
Net income/average total assets
Return on assets
Asset turnover
Sales/average total assets
Direct method
Shows the cash inflows and outflows from operations such as cash received from customers and cash paid for inventory, salaries, rent, interest, and taxes