Chapter 16

The net income reported on the income statement for the current year was $80,100. Depreciation recorded on fixed assets and amortization of patents for the year were $10,100 and $2,200, respectively. The company purchased equipment for $85,100 and an acre of land for $49,100. What amount of cash flows from (used for) investing activities is reported on the statement of cash flows?

$(134,200) $(85,100) + $(49,100) = $(134,200).

Step 4 of preparing a spreadsheet for the statement of cash flows is to

analyze the change during the year in each noncash account and classify the change.

Activity reported in the Financing Activities section of the statement of cash flows would include accounts classified as

long-term liabilities and stockholders' equity.

Sales for the year were $509,000. Accounts receivable were $102,000 and $85,000 at the beginning and end of the year, respectively. Cash received from customers to be reported on the statement of cash flows using the direct method is

sales of $509,000 plus a decrease in accounts receivable of $17,000 ($102,000 - $85,000) = $526,000.

Cash received through the sale of long-term investments would be reported on the statement of cash flows in

The Cash Flows from (used for) Investing Activities section.

Carrington Company bought a factory building 2 years ago for $250,000. In the current year, it sold the building for $275,000. On the statement of cash flows, the net effect of this transaction would be recorded as

a gain of $25,000 in the Operating Activities section.

Balances of certain asset accounts at the end and beginning of the year are as follows: End Cash $20,200 Land 125,100 Equipment 87,500 Accumulated Depreciation 18,200 Beginning Cash $40,100 Land 75,300 Equipment 87,100 Accumulated Depreciation 12,200

-50,200 $49,800 ($125,100 - $75,300) + $400 ($87,500 - $87,100) = -50,200

Which of the following would be found in the Investing Activities section of the statement of cash flows?

Land

Donnegan Inc. bought a piece of land for $218,000. What would be the effect of this transaction on the statement of cash flows?

The cash paid for land would be listed in the Investing Activities section.

A negative net cash flow in the Financing Activities section of the statement of cash flows would likely indicate that the company

is paying off some or all of its debt and/or paying dividends to shareholders.

Which of the following would NOT be shown on a statement of cash flows in the Operating Activities section using the indirect method?

Purchase of a building

If a gain of $7,500 results from selling (for cash) office equipment having a book value of $55,200, the amount reported in the Cash Flows from (used for) Operating Activities section of the statement of cash flows using the indirect method is

$7,500.

Perriman Company declares and pays a $2.25 dividend per share in the current fiscal year. This cash activity would be listed in the

Financing Activities section of the statement of cash flows.

Which of the following cash activities would be listed in the Financing Activities section of the statement of cash flows?

Issuance of company stock

A company reports net income of $129,100, depreciation expense of $46,300, an increase in inventory of $38,200, sale of land for $288,000, payment of dividends for $75,100, and purchase of new equipment for $137,100. The Investing Activities section of the statement of cash flows would show a net cash flow of

150,900 $288,000 - $137,100 = $150,900

The Financing Activities section of a recent statement of cash flows for Bay Area Corporation reported a $81,000 payment of shareholder dividends and an issuance of common stock at par for $528,000, resulting in net cash flows of

$447,000. 528,000 - 81,000 = 447,000

The Financing Activities section of a recent statement of cash flows for Bay Area Corporation reported a $79,000 payment of shareholder dividends and an issuance of common stock at par for $531,000, resulting in net cash flows of

$452,000. 531,000 - 79,000 = 452,000

When preparing its statement of cash flows, Simon Says Games, Inc., reported net income of $89,000, a decrease in accounts receivable of $24,300, an increase in mortgage note payable of $431,000, and an increase in depreciation expense of $25,100. The Financing Activities section of the statement of cash flows would show net cash flows of

-431,000

The comparative balance sheet of Orange Angel Enterprises Inc. at December 31, 20Y8 and 20Y7, is as follows: 1 Dec. 31, 20Y8 Dec. 31, 20Y7 2 Assets 3 Cash $146,190.00 $179,070.00 4 Accounts receivable (net) 224,940.00 241,100.00 5 Merchandise inventory 322,390.00 299,700.00 6 Prepaid expenses 12,670.00 9,430.00 7 Equipment 655,160.00 537,730.00 8 Accumulated depreciation-equipment (170,790.00) (131,900.00) 9 Total assets $1,190,560.00 $1,135,130.00 10 Liabilities and Stockholders' Equity 11 Accounts payable (merchandise creditors) $250,640.00 $237,300.00 12 Mortgage note payable 0.00 336,600.00 13 Common stock, $10 par 73,000.00 23,000.00 14 Excess of paid-in capital over par 500,000.00 310,000.00 15 Retained earnings 366,920.00 228,230.00 16 Total liabilities and stockholders' equity $1,190,560.00 $1,135,130.00 Additional data obtained from the income statement and from an examination of the accounts in the ledger for 20Y8 are as follows: a. Net income, $291,590. b. Depreciation reported on the income statement, $83,790. c. Equipment was purchased at a cost of $162,330, and fully depreciated equipment costing $44,900 was discarded, with no salvage realized. d. The mortgage note payable was not due for six years, but the terms permitted earlier payment without penalty. e. 10,000 shares of common stock were issued at $24 for cash. f. Cash dividends declared and paid, $152,900.

1 Cash flows from (used for) operating activities: 2 Net income $291,590.00 3 Adjustments to reconcile net income to net cash flows from (used for) operating activities: 4 Depreciation 83,790.00 5 Changes in current operating assets and liabilities: 6 Decrease in accounts receivable 16,160.00 7 Increase in merchandise inventory (22,690.00) 8 Increase in prepaid expenses (3,240.00) 9 Increase in accounts payable 13,340.00 10 Net cash flows from operating activities $378,950.00 11 Cash flows from (used for) investing activities: 12 Cash paid for equipment $(162,330.00) 13 Net cash flows used for investing activities (162,330.00) 14 Cash flows from (used for) financing activities: 15 Cash received from issuing common stock $240,000.00 16 Cash dividends (152,900.00) 17 Cash paid to retire mortgage note payable (336,600.00) 18 Net cash flows used for financing activities (249,500.00) 19 Net decrease in cash $(32,880.00) 20 Cash balance, January 1, 20Y8 179,070.00 21 Cash balance, December 31, 20Y8 $146,190.00 Cash received from issuing common stock: 10,000 shares × $24 = $240,000

Sanchez Inc. reported the following on the company's statement of cash flows: 35% of the net cash flows used for investing activities was used to purchase property, plant, and equipment. What is the free cash flow?

433,300 $202,000 × 0.35 = $70,700; $504,000 - $70,700 = $433,300

The formula to compute free cash flow is

Net Cash Flows from Operating Activities - Cash Used to Purchase Property, Plant, and Equipment.

Which of the following cash activities would NOT be part of the Financing Activities section of the statement of cash flows?

Net Income

Cash received for preferred stock dividends should be shown on the statement of cash flows under __________ activities.

Operating

Identify the type of cash flow activity for each of the following events (operating, investing, or financing):

a. Redeemed bonds Financing b. Issued preferred stock Financing c. Paid cash dividends Financing d. Net income Operating e. Sold equipment Investing f. Purchased treasury stock Financing g. Purchased patents Investing h. Purchased buildings Investing i. Sold long-term investments Investing j. Issued bonds Financing k. Issued common stock Financing

Whittaker Machine Inc. owns multiple pieces of equipment that are depreciated annually. The depreciation would be shown as a(n)

addition to net income in the Operating Activities section of the statement of cash flows.

The net income reported on the income statement for the current year was $295,300. Depreciation recorded on fixed assets and amortization of patents for the year were $40,200 and $5,200, respectively. Balances of current asset and current liability accounts at the end and beginning of the year are as follows: What amount of cash flows from (used for) operating activities is reported on the statement of cash flows prepared by the indirect method?

312,800 Net Income + Depreciation + Amortization - Increase in Accounts Receivable - Increase in Inventory + Decrease in Prepaid Expenses - Decrease in Accounts Payable $295,300 + $40,200 + $5,200 - $4,000 - $11,900 + $2,100 - $14,100 = $312,800.

The net income reported on the income statement for the current year was $305,100. Depreciation recorded on the building and equipment for the year was $50,300 and $15,200, respectively. Balances of current asset and current liability accounts at the end and beginning of the year are as follows: What amount of cash flows from (used for) operating activities is reported on the statement of cash flows prepared using the indirect method?

342,000 Net Income + Depreciation - Increase in Accounts Receivable - Increase in Inventory + Decrease in Prepaid Expenses - Decrease in Accounts Payable $305,100 + ($50,300 + $15,200) - $3,900 - $12,100 + $2,200 - $14,800 = $342,000.

The Financing Activities section of a recent statement of cash flows for Bay Area Corporation reported a $83,000 payment of shareholder dividends and an issuance of common stock at par for $527,000, resulting in net cash flows of

444,000 527,000 - 83,000

Harrisville Production, Inc., had the following activity during the most recent fiscal year: What amount of cash flows from (used for) financing activities is reported on the statement of cash flows?

5,000 $202,000 - $160,000 - $37,000 = $5,000

A company reports net income of $129,100, depreciation expense of $46,200, an increase in inventory of $38,200, sale of land for $288,000, payment of dividends for $75,200, and purchase of new equipment for $137,300. The Investing Activities section of the statement of cash flows would show a net cash flow of

50,700 288,000 - 137,000 = 150,700

Which of the following accounts would be found in the Operating Activities section of the statement of cash flows using the indirect method?

Accounts Payable; Accounts Receivable; Inventory

Which of the following cash activities would be listed in the Investing Activities section of the statement of cash flows?

Cash paid for purchasing equipment

Which of the following is the starting point in computing net cash flows from operating activities using the direct method?

Cash received from customers

When completing the spreadsheet to prepare the statement of cash flows, a decrease in retained earnings due to net loss would require an entry on the work sheet involving a

Credit to Operating Activities—Net Loss.

Cash transactions involving which of the following would NOT be found in the Financing Activities section of the statement of cash flows?

Depreciation expense

Which of the following accounts would be found in the Financing Activities section of the statement of cash flows?

Dividends

Which of the following would be considered a long-term asset in the Investing Activities section of the statement of cash flows?

Equipment

The net income reported on the income statement for the current year was $231,900. Depreciation recorded on equipment and a building amounted to $69,300 for the year. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows: End of Year Cash $63,540 Accounts receivable (net) 80,570 Inventories 158,850 Prepaid expenses 8,830 Accounts payable (merchandise creditors) 70,970 Salaries payable 10,230 Beginning of Year Cash $66,720 Accounts receivable (net) 82,330 Inventories 141,850 Prepaid Expenses 9,410 Accounts payable (merchandise creditors) 74,460 Salaries Payable 9,270 b. If the direct method had been used, would the net cash flow from operating activities have been the same?

Yes

The net income reported on the income statement for the current year was $80,200. Depreciation recorded on fixed assets and amortization of patents for the year were $10,200 and $2,100, respectively. The company purchased equipment for $85,200 and an acre of land for $49,300. What amount of cash flows from (used for) investing activities is reported on the statement of cash flows?

-134,500 $(85,200) + $(49,300) = $(134,500).

A company reports net income of $129,100, depreciation expense of $46,200, an increase in inventory of $38,300, sale of land for $288,000, payment of dividends for $75,100, and purchase of new equipment for $137,100. The Investing Activities section of the statement of cash flows would show a net cash flow of

150,900 $288,000 - $137,100 = $150,900.

Which of the following is used in computing cash received from customers using the direct method?

A decrease in accounts receivable

Which of the following should be subtracted from net income in computing net cash flows from operating activities using the indirect method?

A gain on a sale of equipment

Which of the following should be added to net income in computing net cash flows from operating activities using the indirect method?

A loss on the sale of land

The net income reported on the income statement for the current year was $231,900. Depreciation recorded on equipment and a building amounted to $69,300 for the year. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows: End of Year Cash $63,540 Accounts receivable (net) 80,570 Inventories 158,850 Prepaid expenses 8,830 Accounts payable (merchandise creditors) 70,970 Salaries payable 10,230 Beginning of Year Cash $66,720 Accounts receivable (net) 82,330 Inventories 141,850 Prepaid Expenses 9,410 Accounts payable (merchandise creditors) 74,460 Salaries Payable 9,270 a. Prepare the Cash Flows from (used for) Operating Activities section of the statement of cash flows, using the indirect method. Use the minus sign to indicate cash outflows, cash payments, decreases in cash, or any negative adjustments.

Cash flows from (used for) operating activities: Net income $231,900 Adjustments to reconcile net income to net cash flows from (used for) operating activities: Depreciation 69,300 Changes in current operating assets and liabilities: Decrease in accounts receivable 1,760 Increase in inventories -17,000 Decrease in prepaid expenses 580 Decrease in accounts payable -3,490 Increase in salaries payable 960 Net cash flows from operating activities $284,010

Which of the following statements regarding the statement of cash flows using the indirect method is true?

The statement of cash flows shows the change in cash from the previous year to the current year.

Line 1 Dec. 31, 20Y3 Dec. 31, 20Y2 2 Assets 3 Cash $625,650.00 $586,340.00 4 Accounts receivable (net) 228,170.00 208,030.00 5 Inventories 641,480.00 617,130.00 6 Investments 0.00 240,290.00 7 Land 328,170.00 0.00 8 Equipment 706,070.00 552,300.00 9 Accumulated depreciation-equipment (165,580.00) (147,010.00) 10 Total assets $2,363,960.00 $2,057,080.00 11 Liabilities and Stockholders' Equity 12 Accounts payable $424,300.00 $404,860.00 13 Accrued expenses payable 41,850.00 52,880.00 14 Dividends payable 23,200.00 19,880.00 15 Common stock, $4 par 153,000.00 99,000.00 16 Excess of paid-in capital over par 418,000.00 279,800.00 17 Retained earnings 1,303,610.00 1,200,660.00 18 Total liabilities and stockholders' equity $2,363,960.00 $2,057,080.00 Additional data obtained from an examination of the accounts in the ledger for 20Y3 are as follows: a. The investments were sold for $280,680 cash. b. Equipment and land were acquired for cash. c. There were no disposals of equipment during the year. d. The common stock was issued for cash. e. There was a $199,210 credit to Retained Earnings for net income. f. There was a $96,260 debit to Retained Earnings for cash dividends declared.

Line 1 Cash flows from (used for) operating activities: 2 Net income $199,210.00 3 Adjustments to reconcile net income to net cash flows from operating activities: 4 Depreciation 18,570.00 5 Gain on sale of investments (40,390.00) 6 Changes in current operating assets and liabilities: 7 Increase in accounts receivable (20,140.00) 8 Increase in inventories (24,350.00) 9 Increase in accounts payable 19,440.00 10 Decrease in accrued expenses payable (11,030.00) 11 Net cash flows from operating activities $141,310.00 12 Cash flows from (used for) investing activities: 13 Cash received from sale of investments $280,680.00 14 Cash paid for purchase of land (328,170.00) 15 Cash paid for purchase of equipment (153,770.00) 16 Net cash flows used for investing activities (201,260.00) 17 Cash flows from (used for) financing activities: 18 Cash received from issuing common stock $192,200.00 19 Cash dividends (92,940.00) 20 Net cash flows from financing activities 99,260.00 21 Net increase in cash $39,310.00 22 Cash balance, January 1, 20Y3 586,340.00 23 Cash balance, December 31, 20Y3 $625,650.00 Accumulated Depreciation: $165,580 - $147,010 = $18,570 Cash dividends $96,260 + $19,880 - $23,200 = $92,940

Line 1 Dec. 31, 20Y2 Dec. 31, 20Y1 2 Assets 3 Cash $491.00 $157.00 4 Accounts receivable (net) 285.00 196.00 5 Inventories 173.00 109.00 6 Land 401.00 451.00 7 Equipment 220.00 173.00 8 Accumulated depreciation-equipment (62.00) (29.00) 9 Total assets $1,508.00 $1,057.00 10 Liabilities and Stockholders' Equity 11 Accounts payable (merchandise creditors) $173.00 $157.00 12 Dividends payable 35.00 13 Common stock, $1 par 98.00 50.00 14 Excess of paid-in capital over par 255.00 122.00 15 Retained earnings 947.00 728.00 16 Total liabilities and stockholders' equity $1,508.00 $1,057.00 a. Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Be sure to complete the heading of the statement. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries. Use the minus sign to indicate cash outflows, decreases in cash and a net cash outflow for each section, if required.

Line 1 Cash flows from (used for) operating activities: 2 Net income $321.00 3 Adjustments to reconcile net income to net cash flows from (used for) operating activities: 4 Depreciation 33.00 5 Gain on sale of land (72.00) 6 Changes in current operating assets and liabilities: 7 Increase in accounts receivable (89.00) 8 Increase in inventories (64.00) 9 Increase in accounts payable 16.00 10 Net cash flows from operating activities $145.00 11 Cash flows from (used for) investing activities: 12 Cash received from sale of land $122.00 13 Cash paid for purchase of equipment (47.00) 14 Net cash flows from investing activities 75.00 15 Cash flows from (used for) financing activities: 16 Cash received from issuing common stock $181.00 17 Cash dividends (67.00) 18 Net cash flows from financing activities 114.00 19 Net increase in cash $334.00 20 Cash balance, January 1, 20Y2 157.00 21 Cash balance, December 31, 20Y2 $491.00 Cash dividends $102 - $35 = $67

b. Was Hirayama Industries Inc.'s net cash flows from operations more or less than net income? What is the source of this difference? The source(s) of the difference are: Check all that apply.

Net cash flow from operations was less than net income. Gain on the sale of land Changes in current operating assets and liabilities Depreciation expense

Which of the following statements regarding free cash flow is true? a.Free cash flow measures the operating cash flow of a company after the purchase of inventory. b.Free cash flow is a valuable tool for evaluating net income. c.Free cash flow ignores productive capacity. d.None of these choices are correct.

None of these choices are correct

Which of the following is the proper order in which to list activities on the statement of cash flows, using the indirect method?

Operating; investing; financing