Chapter 23 statement of cash flows

Depreciation expense change from some of the year to straight line

( year 1+year 2...) / sum of years = ad Cost - ad = bv Bv- salvage value/ remaining years

In a statement of cash flow's the cash flows from investing activities should report

A major repair to machinery charge to accumulated depreciation

Error causing an understatement in expenses causes

An overstatement in net income

Cash payments for purchases

Cost of goods sold + increase in inventory - increase in accounts payable

A company changes from percentage of completion to completed contract method which is used for tax purposes. The entry to record this change should include a

Debit retained earnings in the amount of the difference in prior years net of tax

Counterbalancing errors do not include

Errors that correct themselves in three years

When preparing a statement of cash flow's a decrease in prepaid insurance during a period would require which of the following adjustments in determining cash flows from operating activities

In direct method - increase Direct method - decrease

When preparing a statement of cash flow, an increase in accounts payable during a period would require which of the following adjustments in determining cash flows from operating activities

In direct method - increase Direct method - decrease

Cash payment from income taxes

Income taxes - Increase in income taxes payable+ increase in prepaid income

Cash interest

Interest expense - increase in interest payable

Net income understatement overstatement from insurance expense ending inventory and depreciation expense

Prepaid insurance expense/ by years - depreciation not reported + ending inventory prior year+ ending inventory current year

Which of the following disclosures is required for a change from some of the years did you to straight-line depreciation

Re-computation of current and future years depreciation

On the statement of Cash flows in which the operating activities is prepared in the indirect method depreciation is treatedas in adjustment to reported net earnings because depreciation

Reduces net earnings. But does not involve outflow of cash so you add it back in

In the process of conversion from equity method to fair value method the earnings or losses that the investor previously recognize under the equity method should be

Remain as a part of the carrying amount of the investment

Cash payments for operations

SGA cash expenses(excluding depreciation and amortization) + increase in prepaid expenses -increase in accrued liabilities

Which of the following is not a retrospective type accounting chains

Some of the years digits method to the straight-line method

A statement of cash flow's typically would not disclose the Effects of

Stock dividends declared

Which of the following disclosures is required for a change from LIFO to FIFO

The cumulative effect on prior years net of taxes in current retain earnings statement justification for the change Reithe par year income statement

When preparing a statement of cash flow's in direct method which of the following is not an adjustment to reconcile net income to net cash provided by operating activities

A change in dividends payable

Which of the following is not accounted for a change in accounting principle

A change to a different method of depreciation for plant assets

True /false stock divided, stock splits and an appropriation of retained earnings are on the statement of cash flows

False

The primary purpose of the statement of Cash flows is to provide information

About the cash receipts and cash payments of an entity during a period

A company borrows $10,000 and signs a 90 day non-trade trade note payable. In preparing a statement of cash flow's(In direct method) this event would be reflected as an

Cash inflow from financing activities

Cash from sales of goods or service (cash sales, collections on account, and collections in advance)

Cash inflow-operating

From issuance of non-trade Debt. (Bonds and notes)

Cash inflows - financing

From collection of principal on loans to other entities or sale of loans made to others

Cash inflows - investing

Cash from returns on loans ( interest received) and on equity securities (dividends received)

Cash inflows - operating

From sale of equity securities (companies own stock) and exercise of employee stop stock options

Cash inflows -financing

Equity earning or percentage of net income from acquired common stock

Cash inflows -operating Deduct

To pay dividends to stockholders

Cash outflows - financing

To pay non-trade Debt. (Both short term and long term)

Cash outflows - financing

To reacquire capital stock

Cash outflows - financing

To make loans to other entities

Cash outflows - investing

To purchase debt or equity securities other entities

Cash outflows - investing

To purchase property, plant, equipment(Plant assets)

Cash outflows - investing

Cash to employees for services

Cash outflows - operating

Cash to government for taxes

Cash outflows - operating

Cash to lenders for interest

Cash outflows - operating

When a company decides to switch from double declining balance method to the straight-line method this change should be handled as

Change in accounting estimate

Which type of accounting changes should always be accounted for in current future periods

Change in accounting estimate

Which of the following describes a change in reporting entity

Changing the company included in combined financial statements

Accounting changes been made and monetary impact is reflected in the financial statements of a company even though, in theory this may be a violation of accounting concept of

Consistency

When preparing a statement of cash flow's in direct method, an increase in ending inventory over beginning inventory will result in an adjustment to reported earnings because

Cost of good sold on accrual basis is the Lord van on a cash basis

A company changes from straight-line method to in accelerated method of accounting depreciation which will be similar to the method used for tax purposes. The entry to record this change will include a

Credit to a accumulated depreciation

Which of the following will be included in a journal entry made to record and income effect from change of completed contract to percentage of completion

Credit to retained earning for total gross year 1,2.. Using old method - total gross using new method

Prepaid expenses

Current asset

Accrued , liability , expense

Current liability

Which of the following is the proper time period to record The Effects of change in accounting estimate

Current periods and prospectively

When preparing a statement of cash flow's, the following are used for which method in determining cash flow from operating activities

Gross accounts receivable - direct Net accounts receivable - indirect

Which of the following statements is correct

A change from expensing certain cost to capitalizing these cost due to a change in the period Benefited , should be handled as a change in accounting estimate

Which of the following disclosures is required for a change phone FIFO to LIFo what type of accounting changes does this represent

A change in accounting principle for which the financial statements for. Prior periods include for comparative purposes should be restated

Which of the following is accounted for as a change in accounting principle

A change in inventory valuation from average cost to FIFO

When using the indirect method to prepare the operating section of a statement of cash flow's which of the following is added to net income to compute cash provided by slash you by operating activities

Amortization of patent

Presenting consolidated financial statements this year when statements of individual companies were presented last year

An accounting change that should be reported by restating the financial statement of all prior periods Presented

The first step in preparation of the statement of cash flow's require the use of information included in which comparative financial statements

Balance sheet

Dolan company reports it's income from investments under the equity method and recognized income of 25,000 from its investment in Moss company during the current year even though no big dividends were declared or paid by Moss during the year. On Dolenz statement of cash flow(Indirect method) the 25,000 should

Be shown as a deduction from net income in the cash flow from operating activities section

Cash from the sale of debt or equity securities of other entities or return of investment in those instruments

Cash inflows - investing

From sale of property, plant, and equipment and other productive assets

Cash inflows - investing

Cash from other transactions such as; amounts received to settle lawsuit, refunds from suppliers, and some insurance settlement (such as Business interruption claim)

Cash inflows - operating

Cash to others for items such as: payments to settle lawsuit, refunds to customers, and contributions to charities

Cash outflows - operating

Cash to suppliers for inventory and other goods and services (includes cash purchases and payments on account)

Cash outflows - operating

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

Eliminating the effects of the income statement trans actions that did not result in a corresponding increase or decrease in cash

Deposit to a bond shrinking fun is classified as a

Financing activity

An example of a correction of an error in previously issued financial statements is a change

From the cash basis of accounting to The accrual basis of accounting

When using the indirect method to prepare of the operating section of a statement of cash flow, which of the following is the ducted from net income to compute cash provided by/used by operating activities

Gain on sale of land

In reporting extraordinary transaction on a statement of cash flow's (indirect method) the

Gross amount of an extraordinary gain should be deducted from net income

If at the end of a period , A company erroneously excluded goods from its ending inventory and Erroneously did not record the purchase of the goods in accounting records these areas would cause

No affect on net income working capital and retained earnings

Issued par value common stock upon conversion of bonds payable

Non-cash financing activity

Equal exchange for equipment by giving land

Non-cash investing activity

Purchase equipment by giving long term note in exchange

Non-cash investing and /or financing activity

Dividend payable

Not included in operating

Cash equivalents are

Treasury bills, commercial paper, money market fund purchased with excess cash investments with original maturities three months or less. Ridley convertible into unknown amount of cash

Of the following questions which would not be answered by the statement of cash flow's

Where all the cash expenditures of benefit to the company during the period

Change in depreciation from double declining balance method to straight-line depreciation method

cost- ( year 1 bv * .2 ) (year 2 bv *.2) cont... Divided by remaining years

The amortization of bond premium on long term debt should be presented in a statement of cash flow(Using the indirect method for operating activities) As a

Deduction from net income

An increase in inventory balance would be reported in a statement of cash flow's using the indirect method (reconciliation method) as an

Deduction from net income in arriving at net cash flow from operating activities

The estimated life of a building that has been depreciated over 30 years of an originally estimated life of 50 years has been revised to a remaining life of 10 years based on the information the account should

Depreciate the remaining book value over the remaining life of the balance

How would converting the accrual-based selling administrative expense to catch base assuming the use of the direct method

Depreciation deduction from Increase in prepaid expenses added to

Retained earnings

Depreciation expense understatement+ ending inventory overstatement- and insurance expense-depreciation expense

Declaration of cash dividends on common stock affects which cash flows from operating activities under the direct and indirect method as follows

Direct method - no effect In direct method - no effect

When preparing a statement of cash flow's a decrease in Accounts Receivable during a period would cause which one of the following adjustments in determining cash flows from operating activities

Direct method increase In direct method increase

Issuance of stock in exchange for plant assets

Does not involve any cash issuance of stock is financing activity and the accusation of plant assets is investing activities- non-cash investing and or financing activity

Current year net income over statement/understatement but ending inventory in depreciation expense

Ending inventory overstatement + depreciation expense understatement= overstatement

No correcting entries were made at the end of the prior year or the end of current year how much will retain earnings be overstated or understated with ending inventory and depreciation expense

Ending inventory understatement + depreciation expense understatement = understatement

Changes in estimate method of accounting

Prospective

An objective of the statement of cash flows is to

Provide information about the operating investing and financing activities of an entity during a period

In determining net cash flows from operating activities, a decrease in accounts payable during a period

Requires an increase adjustment to cost of goods sold under the direct method

Changes in error

Retrospective

Changes in reporting entity

Retrospective

Changes in accounting principle method of accounting

Retrospective - most changes Prospective

Cash collections

Revenues + decrease in account receivables

Which of the following is false concerning the statement of cash flow's

The FASB requires companies to classify all income taxes paid as operating cash outflows

Which of the following statements about the statement of cash flow's is correct

The direct method is more consistent with the primary purpose of the statement of cash flow's