Chapter 23
In general, financing activities as used in the statement of cash flows refer to: A. liability and owners' equity items and include (a) obtaining cash from creditors and repaying the amounts borrowed and (b) obtaining capital from owners and providing them with a return on, and a return of, their investment. B. transactions involving long-term assets and include (a) making and collecting loans and (b) acquiring and disposing of investments and productive long-lived assets. C. only debt transactions that result from long-term borrowings from financial institutions. D. the cash effect of transactions that enter into the determination of net income and, thus, help finance the operations of the business through the generation of cash.
A
Schroeder Company uses the indirect method in computing net cash provided by operating activities. How would reported net income be adjusted for the following items? Loss on Sale of Machinery Increase in Inventories A. Added To Deducted From B. Deducted From Added To C. Added To Added To D. Deducted From Deducted From
A
The method used to compute net cash provided by operating activities that adjusts net income for items that affected reported net income but did not affect cash is known as the: A. Indirect method. B. Direct method. C. Adjustment method. D. Income statement method.
A
Crabbe Company reported $80,000 of selling and administrative expenses on its income statement for the past year. The Company had depreciation expense and an increase in prepaid expenses associated with the selling and administrative expense for the year. Assuming use of the direct method, how would these items be handled in converting the accrual based selling and administrative expense to the cash basis? Depreciation Increase in Prepaid Expenses A. Deducted From Deducted From B. Added To Added To C. Deducted From Added To D. Added To Deducted From
C
Which of the following is not one of the benefits investors and creditors can expect as a result of the presentation of the statement of cash flows? A. Assess the enterprise's ability to meet its obligations, its ability to pay dividends, and its need for external financing. B. Assess the effects on an enterprise's financial position of both its cash and noncash investing and financing transactions during a period. C. Assess the enterprise's ability to expand its operating facilities through the issuance of long-term debt. D. Assess the reasons for differences between net income and associated cash receipts and payments.
C
In its first year of operations Trumbo Company reported net income of $257,000. Total sales, all on account, amounted to $486,000, and collections of receivables during the year totaled $396,500. Trumbo uses the allowance method in accounting for bad debts expense and during the year recorded bad debt expense of $21,000. Based on these facts alone, what is the net cash provided by operating activities? A. $146,500 B. $188,500 C. $236,000 D. $325,500
B
The amortization of bond premium on long-term debt should be presented in a statement of cash flows (using the indirect method for operating activities) as a(n): A. Addition to net income. B. Deduction from net income. C. Investing activity. D. Financing activity
B
The basis recommended by the FASB for the statement of cash flows is "cash and cash equivalents." As described by GAAP, cash equivalents are: A. All current assets that have no realization problems associated with them. B. Short-term, highly liquid investments that are both readily convertible to known amounts of cash, and so near their maturity that they present insignificant risk of changes in interest rates. C. All cash and near cash items that will be turned into cash within one operating period or one year, whichever is shorter. D. All cash and investments in short-term securities that have a maturity of three months or less from the date of the financial statements.
B
The first step in the preparation of the statement of cash flow requires the use of information included in which comparative financial statements? A. Statements of Cash Flows. B. Balance Sheets. C. Income Statements. D. Statements of Retained Earnings.
B
How should significant noncash transactions (purchase of equipment in exchange for common stock) be reported in the statement of cash flows according to GAAP? A. They should be incorporated in the statement of cash flows in a section labeled, "Significant Noncash Transactions." B. Such transactions should be incorporated in the section (operating, financing, or investing) that is most representative of the major component of the transaction. C. These noncash transactions are not to be incorporated in the statement of cash flows. They may be summarized in a separate schedule at the bottom of the statement or appear in a separate supplementary schedule to the financials. D. They should be handled in a manner consistent with the transactions that affect cash flows.
C
In a statement of cash flows, the cash flows from investing activities section should report: A. the issuance of common stock in exchange for legal services. B. a stock split. C. the assignment of accounts receivable. D. a payment of dividends.
C
Of the following questions, which one would not be answered by the statement of cash flows? A. Where did the cash come from during the period? B. What was the cash used for during the period? C. Were all the cash expenditures of benefit to the company during the period? D. What was the change in the cash balance during the period?
C
To arrive at net cash provided by operating activities, it is necessary to report revenues and expenses on a cash basis. This is done by: A. re-recording all income statement transactions that directly affect cash in a separate cash flow journal. B. estimating the percentage of income statement transactions that were originally reported on a cash basis and projecting this amount to the entire array of income statement transactions. C. eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash. D. eliminating all transactions that have no current or future effect on cash, such as depreciation, from the net income computation.
C
Cashman Company reported net income after taxes of $85,000 for the year ended 12/31/20. Included in the computation of net income were: depreciation expense, $15,000; amortization of a patent, $8,000; income from an investment in common stock of Linda Inc., accounted for under the equity method, $12,000; and amortization of a bond premium, $3,000. Cashman also paid a $20,000 dividend during the year. The net cash provided by operating activities would be reported at: A. $57,000. B. $73,000. C. $77,000. D. $93,000.
D
During 2020, Osborn Corporation, which uses the allowance method of accounting for doubtful accounts, recorded a provision for bad debt expense of $75,000 and in addition it wrote off, as uncollectible, accounts receivable of $23,000. As a result of these transactions, net cash provided by operating activities would be calculated (indirect method) by adjusting net income with a(n): A. $23,000 increase. B. $52,000 increase. C. $52,000 decrease. D. $75,000 increase.
D
The cash received from the sale of property, plant, and equipment at no gain or loss is classified as what type of activity on the statement of cash flows? Investing Financing Operating A. Yes Yes No B. No No Yes C. No Yes No D. Yes No No
D
When preparing a statement of cash flows, an increase in accounts receivable during the period would cause which one of the following adjustments in determining cash flows from operating activities? Direct Method Indirect Method A. Increase Decrease B. Decrease Increase C. Increase Increase D. Decrease Decrease
D
Which of the following activities is classified as an investing activity on the statement of cash flows? A. Cash received from the sale of goods and services. B. Cash paid to suppliers for inventory. C. Cash paid to lenders for interest. D. Cash received from the sale of property, plant, and equipment.
D
