Chapter 11 - Financial Accounting
Which of the following are classified as cash inflows from investing activities?
Sale of land Sale of equipment
List the four steps in preparing a statement of cash flows in the correct order.
1. Operating 2. Investing 3. Financing 4. Combine (OIFC)
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?
Calculate the change in the beginning and ending balance of cash
Which of the following are significant noncash activities?
acquiring land by issuing common stock and acquiring equipment by issuing common stock
Using the indirect method to report cash flows from operating activities, decrease in the inventory account will be ______ net income to arrive at net cash flow provided by operating activities.
added back to
When preparing a statement of cash flows using the indirect format, amortization expense must be:
added back to net income
Grant's income statement reveals a loss from the sale of land. In preparing the operating activities section of the statement of cash flows using the indirect format, the loss should be
added to the net income
When reporting cash flows from operating activities using the indirect method, an increase in accounts payable is ______ net income because payments to suppliers are ______ than new purchases.
added to, less
Which of the following represents the final step in preparing a statement of cash flows in the correct order?
combine operating, investing, and financing activities
One of the purposes of adjusting net income for changes to certain balance sheet accounts is to
convert items included in net income to cash.
When cash flows from operating activities are reported using the indirect method, a(n) _______ in accounts payable will be subtracted from net income.
decrease
Using the indirect method to report cash flows from operating activities, a(n) ______ in the accounts receivable from the prior period is added to net income in the ______ activities section of the statement of cash flows.
decrease, operating
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.
decrease; do not affect
Under the indirect method of preparing the statement of cash flows, depreciation expense is added back to net income because it
did not require an outflow of cash and was subtracted in deriving the net income
Cash flows from _______ activities include both inflows and outflows of cash from the external funding of a business.
financing
Cash inflows and outflows involving stockholders and creditors are classified on the statement of cash flows as ______ activities.
financing
The statement of cash flows classifies items as
financing, operating and investing
In preparing the operating activities section of a statement of cash flows using the indirect method, net income should be adjusted for
gain from sale of asset. depreciation expense. loss from sale of asset.
The statement of cash flows provides summary information about cash ______ and cash _____ during the year.
in, out
Which of the following financial statements provide(s) useful information to prepare the statement of cash flows?
income statement and balance sheet
A(n) _____ in accrued liabilities, such as interest payable, will be added to net income when determining net cash flow from operating activities using the indirect method.
increase
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
The balance of retained earnings:
increases with net income and decreases with dividends declared
The purchase and sale of long-term assets and current investments are classified as
investing activities
Which of the following are cash inflows from financing activities?
issuance of bonds and issuing stock to investors for cash and borrowing from bank
Diamond Company's land account decreased by 10 million. Cash received from sale of land
may be higher or lower than $10 million.
The starting point for preparing the operating activities section using the indirect method is:
net income
Depreciation expense and amortization expense represent _______ items requiring adjustments to net income under the indirect method.
noncash
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.
noncash
Adjustments to net income in calculating operating cash flows include:
noncash items, nonoperating items, changes in current assets and current liabilities
Gains and losses on the sale of long-term assets represent common _______ items needing adjustment under the indirect method.
nonoperating
Cash receipts and cash payments for transactions relating to revenue and expense activities are classified on the statement of cash flows as
operating activities
Which of the following are cash outflows from investing activities?
purchase of equipment, purchase of building, purchase of long-term investments
Changes to current assets and current liabilities require adjustment of net income under the indirect method because
related cash may be higher or lower than the accrued amount included in net income
Which of the following items would not be classified as a financing activity?
repayment of accounts payable
Which of the following cash transactions are classified as cash inflows from investing activities?
sale of equipment, sale of building, sale of investments
Which of the following would result in a cash inflow from investing activities?
sale of machine for cash
Using the indirect method to report cash flows from operating activities, an increase in the inventory account will be ______ net income to arrive at net cash flow provided by operating activities.
subtracted from
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
During the current period, Schmidt Corp. sold equipment for $1,000, purchased new equipment for $10,000, 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
Western Inc.'s income statement showed net income of $60,000 and depreciation expense of $10,000. Accounts receivable decreased $3,000, Inventory increased $4,000, Supplies increased $1,000, and Accounts payable increased $3,000. Western's net cash flows from operating activities was ______.
71,000
Which of the following statements is correct regarding the information content of the income statement and the balance sheet?
Both provide information that help determine cash flows.
Which of the following statements best describes the reason depreciation expense is added to net income when preparing the statement of cash flows?
Depreciation expense originally reduced net income, but it is a noncash expense.
True or false: Every time land is sold, the line item for the sale of land in the investing activities section of the Statement of Cash Flows will equal the change in the asset account on the balance sheet.
False
Which of the following are nonoperating items that require adjustments under the indirect method?
Gains on the sale of long-term assets Losses on the sale of long-term assets
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?
Inventory Accounts receivable Accounts payable
Which of the following provides an indication of a higher quality of net income?
Operating cash flows that are highly correlated with net income
Using the indirect method to report cash flows from operating activities, how is the change in retained earnings accounted for in the statement of cash flows?
The change is accounted for by the addition of net income in operating activities and the subtraction of dividends in financing activities.
When preparing the statement of cash flows using the indirect method, depreciation expense is ______ ______ net income.
added to
The two types of adjustments to net income for the indirect method are adjustments for
changes in operating assets and liabilities during the period that affected cash and were not in net income and components of net income that do not affect cash
Which of the following are common noncash items requiring adjustment to net income under the indirect method?
depreciation expense amortization expense
The two acceptable methods for U.S. GAAP for reporting cash flows from operating activities are the
direct method and indirect method
The payment of dividends is classified as a(n) _____ activity
financing
ssuing stock to owners is classified as a(n) ______ activity
financing
The three classifications on the statement of cash flows are cash flows from
financing activities, investing activities, and operating activities
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?
indirect
A decrease in prepaid insurance is added to net income because
insurance expense decreased net income; however, cash was not paid. The prepaid insurance account was decreased rather than cash.
Cash flows from _______ activities are both outflows and inflows of cash related to the acquisition and disposal of long-term assets.
investing
Cash transactions involving the purchase and sale of long-term assets and current investments are classified on the statement of cash flows as ______ activities
investing
______ activities include cash receipts and cash payments for transactions relating to revenue and expense activities.
operating
Which of the following would result in a cash outflow from investing activities?
purchase of the company's common stock for cash
Which is a significant noncash activity?
signing a note payable in exchange for land
The financial statement that provides information about cash receipts and cash disbursements for the period is the
statement of cash flows
In a statement of cash flows, the sum of cash inflows and outflows is equal to
the change in cash balance
An increase in prepaid insurance is subtracted from net income because
the company paid additional premiums this period in excess of the insurance expense recorded on the income statement.
Carola Inc. issues common stock for $20 million and pays dividends of $2 million. Net cash inflows from financing activities will be:
$18 million
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:
$215,000
Roberts Inc. sells common stock for $10 million and pays dividends of $1 million. Net cash inflows from financing activities will be:
$9 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
The ______ method of reporting cash flows from operating activities begins with net income.
indirect
During the current period, Kunze Corp. disposed of old equipment for $2,000, purchased new equipment for $20,000, 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
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
61,150
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
amounts presented in the income statement.
In order to determine cash flows from financing activities, we need to examine changes to
long-term liability and stockholders' equity accounts
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
noncash
True or false: Amortization of intangible assets is treated the same way as depreciation of tangible assets on the statement of cash flows using the indirect method.
true
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.
net income
An increase in accounts receivable indicates that the company collected _____ cash than the amount of ______
less, sales revenue
A decrease in accounts payable represents a cash ______ from operating activities, whereas a decrease in accounts receivable represents a cash _____ from operating activities.
outflow, inflow
Which of the following are classified as cash outflows from investing activities?
purchase of land purchase of equiptment
Noncash investing and financing activities are either:
reported directly after the statement of cash flows and reported in the notes to the financial statements
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?
Company B