CH 11 Smart Book
Which of the following are significant noncash activities? (Select all that apply.) Multiple select question. ▢ Issuing common stock for cash. ▢ Selling land. ▢ Acquiring land by issuing common stock. ▢ Acquiring equipment by issuing a long-term note.
Acquiring land by issuing common stock. Acquiring equipment by issuing a long-term note.
Noncash items, nonoperating items, and changes in current assets and liabilities are necessary adjustments to___ to ____ prepare the operating section for the indirect format of the statement of cash flows.
Field 1: net Field 2: income or earnings
Transactions reported on the statement of cash flows that do not increase or decrease cash, but that result in significant investing and financing activities are referred to as _____ activities.
Field 1: noncash or non-cash
Gains and losses on the sale of long-term assets represent common ______ items needing adjustment under the indirect method.
Field 1: nonoperating, non operating, or non-operating
The primary purpose of the statement of cash flows is to report activities that increased or decreased cash during the year and to group those activities based on ______, investing, and _____ .
Field 1: operating Field 2: financing
The purchase of equipment is a cash _____ from ____ activities, whereas the sale of land is a cash ____ from ____ activities.
Field 1: outflow or disbursement Field 2: investing or investment Field 3: inflow or receipt Field 4: investing or investment
Dividends _____ are classified as operating activities cash flows, while dividends _____ are classified as financing activities cash flows.
Field 1: received Field 2: paid
Kleister Company issues bonds for $100 million and repays a long-term notes payable of $10 million. The company also sells its own shares for $12 million and pays cash dividends of $5 million. Cash inflows from financing activities will be: Multiple choice question. ◌ $112 mill ◌ $110 mill ◌ $17 mill ◌ $15 mill
$112 mill $100 mill.+ $12 mill.
Neue Inc. reports sales revenue of $200,000; in addition, its accounts receivable balance decreased by $15,000. Neue's cash flows from sales were: Multiple choice question. ◌ $215,000 ◌ $200,000 ◌ $185,000
$215,000 $200,000 + $15,000
Arlington Inc.'s income statement showed net income of $57,600 and depreciation expense of $9,200. Accounts receivable increased $3,750, Inventory increased $3,200, Supplies decreased $500, Accounts payable increased $2,700 and Salaries payable decreased $1,900. Arlington's net cash flows from operating activities was $. ________.
$61150
Which of the following methods for reporting cash flows from operating activities begins with net income and works backward to calculate net cash flow from operating activities? Multiple choice question. ◌ Matching method ◌ Indirect method ◌ Direct method ◌ Accrual method
Indirect method
Which of the following accounts results in adjustments to net income under the indirect method of preparing the statement of cash flows if their balances change during the year? Multiple select question. ▢ Inventory ▢ Accounts payable ▢ Accounts receivable ▢ Notes receivable ▢ Bonds payable
Inventory Accounts payable Accounts receivable
Which of the following are cash inflows from financing activities? Multiple select question. ▢ Collecting from customers ▢ Receiving dividends ▢ Purchasing treasury stock ▢ Issuance of bonds ▢ Issuing stock to investors for cash
Issuance of bonds Issuing stock to investors for cash
Which of the following are cash inflows from financing activities? Multiple select question. ▢ Collection from customers ▢ Interest received ▢ Sale of land ▢ Issuance of common stock to investors ▢ Borrowing from bank
Issuance of common stock to investors Borrowing from bank
Which of the following are common financing activities? Multiple select question. ▢ Issuing common stock ▢ Purchasing treasury stock ▢ Receiving dividends from an investment in another company ▢ Payment of cash dividends
Issuing common stock Purchasing treasury stock Payment of cash dividends
Which of the following are nonoperating items that require adjustments under the indirect method? Multiple select question. ▢ Losses on the sale of long-term assets ▢ Amortization expense ▢ Gains on the sale of long-term assets ▢ Depreciation expense
Losses on the sale of long-term assets Gains on the sale of long-term assets
Adjustments to net income in calculating operating cash flows include: Multiple select question. ▢ Changes in noncurrent assets and noncurrent liabilities ▢ Nonoperating items ▢ Changes in current assets and current liabilities ▢ Noncash items
Nonoperating items Changes in current assets and current liabilities Noncash items
Which of the following are cash outflows from financing activities? Multiple select question. ▢ Pay dividends ▢ Purchase of supplies ▢ Repay borrowing from bank ▢ Receive interest ▢ Issue common stock
Pay dividends Repay borrowing from bank
Which of the following are common financing activities? Multiple select question. ▢ Receiving dividends from an investment in another company ▢ Payment of cash dividends ▢ Issuing common stock ▢ Borrowing money
Payment of cash dividends Issuing common stock Borrowing money
Which of the following are cash outflows from investing activities? Multiple select question. ▢ Purchase of investment ▢ Purchase of inventory ▢ Payment on account payable ▢ Purchase of land ▢ Repurchase of common stock
Purchase of investment Purchase of land
Which of the following are cash outflows from investing activities? Multiple select question. ▢ Purchase of inventory ▢ Repurchase of common stock ▢ Purchase of land ▢ Purchase of investment ▢ Payment on account payable
Purchase of land Purchase of investment
Which of the following would be reported as a cash outflow from financing activities? Multiple choice question. ◌ Borrowing on a line of credit ◌ Paying interest on a long-term notes payable ◌ Sale of common stock ◌ Purchase of treasury shares
Purchase of treasury shares
Which of the following would be reported as a cash outflow from financing activities? Multiple choice question. ◌ Paying interest on a long-term notes payable ◌ Borrowing on a line of credit ◌ Sale of common stock ◌ Purchase of treasury shares
Purchase of treasury shares
Which of the following cash transactions are classified as cash inflows from investing activities? Multiple select question. ▢ Sale of building ▢ Sale of investments ▢ Borrowing from bank ▢ Sale of equipment ▢ Sale of merchandise inventory
Sale of building Sale of investments Sale of equipment
Which is a significant noncash activity? Multiple choice question. ◌ Receiving proceeds from sale of stock. ◌ Signing a note payable in exchange for land. ◌ Repurchasing common stock. ◌ Collecting on customer accounts.
Signing a note payable in exchange for land.
Which of the following financial statements provide(s) useful information to prepare the statement of cash flows? Multiple select question. ▢ The stockholders' equity statement ▢ The balance sheet ▢ The income statement
The balance sheet The income statement
Which of the following represents the first step in preparing a statement of cash flows in the correct order? Multiple choice question. ◌ combine operating, investing, and financing activities ◌ determine the net cash flows from investing activities ◌ calculate the net cash flows from operating activities ◌ determine the net cash flows from financing activities
calculate the net cash flows from operating activities
The direct method for preparing the statement of cash flows reports Multiple choice question. ◌ changes in retained earnings with adjustments. ◌ net income with adjustments. ◌ cash equivalents adjusted for net income effects. ◌ cash received and cash paid from operating activities.
cash received and cash paid from operating activities.
Combining cash from operating, investing, and financing activities should yield a number that is identical to the Multiple choice question. ◌ beginning balance of cash ◌ change in cash balance during the year ◌ net income ◌ ending balance of cash
change in cash balance during the year
Which of the following represents the final step in preparing a statement of cash flows in the correct order? Multiple choice question. ◌ calculate the net cash flows from operating activities ◌ determine the net cash flows from financing activities ◌ combine operating, investing, and financing activities ◌ determine the net cash flows from investing activities
combine operating, investing, and financing activities
Which of the following transactions would be classified as financing activities in the statement of cash flows? Multiple select question. ▢ Purchase of another company's bonds ▢ payment of cash dividends ▢ Purchase of another company's common stock ▢ repayment of a long-term loan
payment of cash dividends repayment of a long-term loan
An increase in prepaid insurance is subtracted from net income because Multiple choice question. ◌ insurance expense decreased net income; however, cash was not paid. The prepaid insurance account was decreased rather than cash. ◌ the company paid additional premiums this period in excess of the insurance expense recorded on the income statement. ◌ it includes the impact of increasing cash and increasing net income.
the company paid additional premiums this period in excess of the insurance expense recorded on the income statement.
A decrease in accounts payable represents a cash ______ from operating activities, whereas a decrease in accounts receivable represents a cash ______ from operating activities. Multiple choice question. ◌ inflow; outflow ◌ outflow; inflow
outflow; inflow
Which of the following statements is correct regarding the information content of the income statement and the balance sheet? Multiple choice question. ◌ Only the balance sheet provides information that helps determine cash flows. ◌ Only the income statement provides information that helps determine cash flows. ◌ Both provide information that help determine cash flows. ◌ Neither provide information that helps determine cash flows.
Both provide information that help determine cash flows.
Joann is preparing a statement of cash flows as part of a homework assignment. She hopes to find a check figure that will help her assess the accuracy of her results. What should Joann do to quickly find a check figure? Multiple choice question. ◌ Calculate the change in the beginning and ending balance of cash ◌ Send an e-mail inquiry to her professor ◌ Wait until the problem is reviewed in class
Calculate the change in the beginning and ending balance of cash
Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? Multiple select question. ▢ Sale of a building ▢ Borrowing from bank ▢ Collection from customers ▢ Collection of interest ▢ Payment of utilities
Collection from customers Collection of interest
Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? Multiple select question. ◌ Borrowing from bank ◌ Collection from customers ◌ Interest received on notes receivable ◌ Issuance of common stock ◌ Sale of building
Collection from customers Interest received on notes receivable
Michaela is comparing two companies using three years of financial statement data. Company A's net income for the three years was $200 million and its operating cash flows $80 million. Company B's net income for the three years was $120 million and its operating cash flows $110 million. Which company appears to have a higher quality net income? Multiple choice question. ◌ Company A ◌ Company B
Company B
Which of the following statements best describes the reason depreciation expense is added to net income when preparing the statement of cash flows? Multiple choice question. ◌ Depreciation expense originally reduced net income, but it actually represents a cash inflow for the company. ◌ Depreciation expense is not included in net income, so its cash effect must be accounted for separately. ◌ Depreciation expense originally reduced net income, but it is a noncash expense. ◌ Depreciation expense originally reduced net income, but it is not classified as an operating activity.
Depreciation expense originally reduced net income, but it is a noncash expense.
________ activities include cash receipts and cash payments for transactions relating to revenue and expense activities.
Field 1: Operating
Using the indirect method to report cash flows from operating activities, a(n) ______ (increase/decrease) in the accounts receivable from the prior period is added to net income in the _____ activities section of the statement of cash flows.
Field 1: decrease or reduction Field 2: operating
When cash flows from operating activities are reported using the indirect method, a(n) _____ in accounts payable will be subtracted from net income.
Field 1: decrease, outflow, subtraction, or reduction
The two acceptable methods for U.S. GAAP for reporting cash flows from operating activities are the _____ method and the _____ method.
Field 1: direct Field 2: indirect
Cash inflows and outflows involving stockholders and creditors are classified on the statement of cash flows as _______ activities.
Field 1: financing or finance
Cash inflows and outflows involving stockholders and creditors are classified on the statement of cash flows as _________ activities.
Field 1: financing or finance
Cash flows from _______ activities include both inflows and outflows of cash from the external funding of a business.
Field 1: financing, finance, or financial
The ______ method of reporting cash flows from operating activities begins with net income.
Field 1: indirect
The statement of cash flows provides information about the cash inflows and cash outflows of an entity. For financing activities, a cash _____ occurs when cash is borrowed from a creditor, and a cash ________ occurs when a loan is repaid.
Field 1: inflow or receipt Field 2: outflow or disbursement
The difference between cash _______ and cash _______ is called net cash flows and represents the change in cash during the period.
Field 1: inflows or inflow Field 2: outflows or outflow
The statement of cash flows provides summary information about cash ______ and cash _______ during the year.
Field 1: inflows, proceeds, sources, in, inflow, or receipts Field 2: outflows, disbursements, uses, out, outflow, or payments
Cash transactions involving the purchase and sale of long-term assets and current investments are classified on the statement of cash flows as ______ activities.
Field 1: investing or investment
When using the indirect method to prepare the operating activities section of the statement of cash flows, the first amount listed is _____ _____
Field 1: net Field 2: income, profit, or earnings
True or False: Collection on account and sale of services for cash are considered cash inflows, while payment on account and payment of salaries are considered cash outflows from operating activities.
True
True or false: If a company chooses to prepare the operating section of the statement of cash flows using the direct method, it must also report using the indirect method.
True
When preparing the statement of cash flows using the indirect method, depreciation expense is _____ ____ net income. Multiple choice question. ◌ added to ◌ subtracted from
added to
Which of the following are common noncash items requiring adjustment to net income under the indirect method? Multiple select question. ▢ amortization expense ▢ prepaid expense ▢ depreciation expense ▢ insurance expense ▢ salaries expense
amortization expense depreciation expense
When cash from operating activities is presented using the indirect method, net income must be adjusted for increases and decreases in balance sheet accounts that relate to Multiple choice question. ◌ all long-term assets and liabilities. ◌ all assets and liabilities. ◌ changes in equity. ◌ amounts presented in the income statement.
amounts presented in the income statement.
The two types of adjustments to net income for the indirect method are adjustments for Multiple select question. ▢ changes in owners' equity accounts during the period that affected cash. ▢ changes in liabilities and owners' equity accounts during the period that affected cash. ▢ components of net income that do not affect cash. ▢ changes in operating assets and liabilities during the period that affected cash and were not in net income.
components of net income that do not affect cash. changes in operating assets and liabilities during the period that affected cash and were not in net income.
One of the purposes of adjusting net income for changes to certain balance sheet accounts is to Multiple choice question. ◌ convert items included in net income to cash. ◌ derive the correct ending balance of cash.
convert items included in net income to cash.
Select the items that would be subtracted from net income in order to prepare the operating activities section of a statement of cash flows - indirect method. Multiple select question. ▢ loss on sale of land ▢ decrease in current liability ▢ gain on sale of land ▢ depreciation expense ▢ increase in current liability
decrease in current liability gain on sale of land
When the indirect method is used to report cash flows from operating activities, a decrease in accrued liabilities, such as wages payable, is subtracted from net income to include the effects of transactions that ______ cash, but _____ net income. Multiple choice question. ◌ decrease; do not affect ◌ do not affect; decrease ◌ increase; do not affect ◌ do not affect; increase
decrease; do not affect
Select the items that would be added to net income in order to prepare the operating activities section of a statement of cash flows - indirect method. Multiple select question. ▢ gain on sale of land ▢ increase in current asset ▢ depreciation expense ▢ loss on sale of land ▢ decrease in current asset
depreciation expense loss on sale of land decrease in current asset
In preparing the operating activities section of a statement of cash flows using the indirect method, net income should be adjusted for Multiple select question. ▢ payment of a noncurrent liability. ▢ depreciation expense. ▢ loss from sale of asset. ▢ issuance of bonds for cash. ▢ gain from sale of asset.
depreciation expense. loss from sale of asset. gain from sale of asset.
The two generally accepted formats for reporting cash flows from operating activities using U.S. GAAP are the Multiple choice question. ◌ operating and nonoperating method. ◌ current and noncurrent method. ◌ direct and indirect method. ◌ recurring and nonrecurring method.
direct and indirect method.
Wiese Company presents its statement of cash flows using the direct method. Wiese must also prepare the operating section using the indirect method and report it: Multiple choice question. ◌ either along with the direct method on the face of the statement or in the financial statement notes ◌ along with the direct method on the face of the statement only ◌ as a separate note in the financial statement only
either along with the direct method on the face of the statement or in the financial statement notes
Select the items that would be subtracted from net income in order to prepare the operating activities section of a statement of cash flows - indirect method. Multiple select question. ▢ increase in current liability ▢ gain on sale of land ▢ depreciation expense ▢ loss on sale of land ▢ decrease in current liability
gain on sale of land decrease in current liability
Which of the following nonoperating items require adjustments to net income under the indirect method? Multiple select question. ▢ gains from sale of long-term assets ▢ stock dividends distributed during the year ▢ accrued expenses ▢ losses from sale of long-term assets ▢ prepaid expenses
gains from sale of long-term assets losses from sale of long-term assets
A decrease in prepaid insurance is added to net income because Multiple choice question. ◌ it includes the impact of increasing cash and increasing net income. ◌ the company paid additional premiums this period in excess of the insurance expense recorded on the income statement. ◌ it accounts for purchasing more insurance during the period than has been expensed. ◌ insurance expense decreased net income; however, cash was not paid. The prepaid insurance account was decreased rather than cash.
insurance expense decreased net income; however, cash was not paid. The prepaid insurance account was decreased rather than cash.
By analyzing changes in long-term asset accounts, we can derive cash flows from Multiple choice question. ◌ financing activities ◌ investing activities ◌ operating activities
investing activities
The purchase and sale of long-term assets and current investments are classified as Multiple choice question. ◌ investing activities. ◌ financing activities. ◌ operating activities.
investing activities.
The three classifications on the statement of cash flows are cash flows from (Select all that apply.) Multiple select question. ▢ investing activities. ▢ operating activities. ▢ discontinued activities. ▢ business activities. ▢ financing activities.
investing activities. operating activities. financing activities.
Which of the following transactions would be classified as financing activities in the statement of cash flows? Multiple select question. ▢ Purchase of another company's common stock ▢ issuance of bonds ▢ Repurchase of the company's own common stock ▢ sale of the company's common stock
issuance of bonds Repurchase of the company's own common stock sale of the company's common stock
Which of the following transactions would be classified as financing activities in the statement of cash flows? Multiple select question. ▢ issuance of bonds ▢ sale of the company's common stock ▢ Purchase of another company's common stock ▢ Repurchase of the company's own common stock
issuance of bonds sale of the company's common stock Repurchase of the company's own common stock
Which of the following transactions would be classified as financing activities in the statement of cash flows? Multiple select question. ▢ issuance of bonds ▢ sale of the company's common stock ▢ Repurchase of the company's own common stock ▢ Purchase of another company's common stock
issuance of bonds sale of the company's common stock Repurchase of the company's own common stock
Select the items that would be added to net income in order to prepare the operating activities section of a statement of cash flows - indirect method. Multiple select question. ▢ loss on sale of land ▢ decrease in current asset ▢ increase in current asset ▢ gain on sale of land ▢ depreciation expense
loss on sale of land decrease in current asset depreciation expense
Select the items that would be added to net income in order to prepare the operating activities section of a statement of cash flows - indirect method. Multiple select question. ▢ loss on sale of land ▢ depreciation expense ▢ decrease in current asset ▢ gain on sale of land ▢ increase in current asset
loss on sale of land depreciation expense decrease in current asset
The starting point for preparing the operating activities section using the indirect method is: Multiple choice question. ◌ current assets ◌ ending cash balance ◌ current liabilities ◌ net income
net income
Dividends received are classified as operating activities cash flows, while dividends paid are classified as financing activities cash flows because dividends received increase ______, and dividends paid decrease ______. Multiple choice question. ◌ net income; net income ◌ retained earnings; net income ◌ retained earnings; retained earnings ◌ net income; retained earnings
net income; retained earnings
Dividends received are classified as operating activities cash flows, while dividends paid are classified as financing activities cash flows because dividends received increase ______, and dividends paid decrease ______. Multiple choice question. ◌ retained earnings; retained earnings ◌ net income; net income ◌ net income; retained earnings ◌ retained earnings; net income
net income; retained earnings
Depreciation expense is added back to net income when preparing the cash flow from operating activities section because depreciation represents a(n) ______ reduction to net income. Multiple choice question. ◌ increase ◌ cash ◌ decrease ◌ negative ◌ noncash
noncash
Cash receipts and cash payments for transactions relating to revenue and expense activities are classified on the statement of cash flows as Multiple choice question. ◌ operating activities ◌ financing activities ◌ investing activities
operating activities
The statement of cash flows classifies items as Multiple choice question. ◌ operating and nonoperating. ◌ operating, investing, and financing. ◌ current and noncurrent. ◌ recurring and nonrecurring.
operating, investing, and financing.
Which of the following transactions would be classified as financing activities in the statement of cash flows? Multiple select question. ▢ payment of cash dividends ▢ Purchase of another company's bonds ▢ repayment of a long-term loan ▢ Purchase of another company's common stock
payment of cash dividends repayment of a long-term loan
Which of the following items are classified as cash outflows from operating activities on the statement of cash flows? Multiple select question. ▢ payment on account ▢ payment of salaries ▢ purchase of building ▢ purchase of supplies on account issuance of bonds
payment on account payment of salaries
Which of the following items are classified as cash outflows from operating activities on the statement of cash flows? Multiple select question. ▢ payment on account ▢ payment of salaries ▢ purchase of building ▢ purchase of supplies on account ▢ issuance of bonds
payment on account payment of salaries
Select all that apply Which of the following items are classified as cash outflows from operating activities on the statement of cash flows? Multiple select question. ▢ payment on account payable ▢ retirement of common stock ▢ purchase of a building ▢ Interest paid on bonds ▢ purchase of supplies
payment on account payable Interest paid on bonds purchase of supplies
Which of the following items are classified as cash outflows from operating activities on the statement of cash flows? Multiple select question. ◌ payment on account payable ◌ purchase of a building ◌ purchase of supplies ◌ retirement of common stock ◌ interest paid on bonds
payment on account payable purchase of supplies Interest paid on bonds
The direct method for reporting cash flows from operating activities reports cash inflows and outflows from operations such as: Multiple select question. ▢ issuance of stock ▢ payments for inventory ▢ sale of equipment ▢ cash received from customers ▢ net income
payments for inventory cash received from customers
Which of the following are cash outflows from investing activities? Multiple select question. ▢ purchase of land ▢ purchase of long-term investments ▢ Purchase of building ▢ payment of income taxes ▢ repayment of long-term debt
purchase of land purchase of long-term investments Purchase of building
Which of the following are cash outflows from investing activities? Multiple select question. ▢ purchase of long-term investments ▢ repayment of long-term debt ▢ payment of income taxes ▢ Purchase of building ▢ purchase of land
purchase of long-term investments Purchase of building purchase of land
Changes to current assets and current liabilities require adjustment of net income under the indirect method because Multiple choice question. ◌ related cash may be higher or lower than the accrued amount included in net income ◌ these changes increase or decrease cash flows related to long-term assets ◌ these changes increase or decrease cash flows related to debt and stockholders' equity
related cash may be higher or lower than the accrued amount included in net income
Changes to current assets and current liabilities require adjustment of net income under the indirect method because Multiple choice question. ◌ these changes increase or decrease cash flows related to debt and stockholders' equity ◌ related cash may be higher or lower than the accrued amount included in net income ◌ these changes increase or decrease cash flows related to long-term assets
related cash may be higher or lower than the accrued amount included in net income
The basic purpose of the statement of cash flows is to Multiple choice question. ◌ report every debit and credit to the account during the year ◌ show that the company was profitable ◌ report the activities that changed the cash balance during the year ◌ report the accrual-based activities during the year
report the activities that changed the cash balance during the year
Noncash investing and financing activities are either: (Select all that apply.) Multiple select question. ▢ reported as investing and financing activities on the statement of cash flows ▢ reported directly after the statement of cash flows ▢ reported in the notes to the financial statements
reported directly after the statement of cash flows reported in the notes to the financial statements
The financial statement that provides information about cash receipts and cash disbursements for the period is the Multiple choice question. ◌ statement of cash flows. ◌ balance sheet. ◌ income statement. ◌ statement of retained earnings.
statement of cash flows.
Under the indirect method of preparing the statement of cash flows, depreciation expense is added back to net income because it Multiple select question. ▢ increases the cash balance. ▢ provides an inflow of cash. ▢ was subtracted in deriving net income. ▢ did not require an outflow of cash.
was subtracted in deriving net income. did not require an outflow of cash.