Topic 5: The Statement of Cash Flows

financing activities

Obtaining resources from owners and providing them a return on their investment, and obtaining resources from creditors and repaying those borrowings

Significant noncash financing and investing transactions are

Reported in a narrative or in a separate schedule

Cash equivalents

Short-term, highly liquid investments such as Treasury bills, commercial paper, and money market funds.

Significant noncash financing transactions

Should not be disclosed in the body of a statement of cash flows but should appear elsewhere

$120,000 + $25,000 + $10,000 + $6,000 - $3,000 = $158,000

The following information appeared on the 2012 income statement of Kane Company: Depreciation expense $25,000 Patent depreciation expense 10,000 Loss on sale of machinery 6,000 Gain on sale of securities 3,000 Net income 120,000 Based on this information, what is Kane's net cash provided by operations? The company uses the indirect method.

Direct Method

The method by which cash flows are presented on a statement of cash flows as operating cash receipts and payments is the

Financing activity

The repayment of the principal on a loan should be classified as a(n)

Summarizes all cash inflows and outflows of an entity for a given period of time

The statement of cash flows

D. None of these

The statement of cash flows replaces the A. Balance sheet B. Statement of financial position C. Income statement D. None of these

Which of the following statements is true?

The statement of cash flows sheds some light on a company's ability to generate income in the future. The statement of cash flows provides details as to how the cash account changed during a period. The statement of cash flows does not replace the income statement.

Operating activities

Those transactions and events that enter into the determination of net income are reported under which section of the statement of cash flows?

B. It measures the profitability of an entity.

Which of the following is NOT a purpose of the statement of cash flows? A. It highlights changes in managerial strategy regarding investments and finances. B. It measures the profitability of an entity. C. It provides investors with information about the investing and financing activities of an entity. D. It provides information about an entity's cash receipts and payments over a period of time.

C. Depreciation expense

Which of the following items would be reported on a statement of cash flows prepared by the indirect method but NOT by the direct method? A. Cash received from issuance of stock B. Cash paid for dividends C. Depreciation expense D. Cash received from the sale of a building

B. The statement of cash flows includes transactions that are not already reflected in the balance sheet and income statement.

Which of the following statements is NOT true? A. The statement of cash flows sheds some light on a company's ability to generate income in the future. B. The statement of cash flows includes transactions that are not already reflected in the balance sheet and income statement. C. The statement of cash flows provides details as to how the cash account changed during a period. D. The statement of cash flows does not replace the income statement.

C. Dividends paid

Which of the following would NOT be included in the operating activities section of the statement of cash flows? A. Dividends received B. Interest received C. Dividends paid D. Interest paid

C. Cash received as dividends on investments

Which of the following would be classified as an operating activity on a statement of cash flows? A. Cash dividends paid to stockholders B. Cash paid to purchase treasury stock C. Cash received as dividends on investments D. Cash received from selling equity securities

$1,875 + $6,450 - $4,735 - $1,200 = $2,390

Yuka Company had a beginning cash balance of $1,875. In addition, Yuka Company reported the following items from its cash flow statement: Operating activities $6,450 Investing activities ($4,735) Financing activities ($1,200) Given this information, Yuka Company's ending cash balance is

direct method

reporting the information contained in the last column of the adjustment worksheet

indirect method

A method for creating a statement of cash flows a company may use during any given reporting period. The indirect method uses accrual accounting information to present the cash flows from the operations section of the cash flow statement.

pro forma

A prediction of what the actual cash flow statement will look like in future years if the operating, investing, and financing plans are implemented.

operating activities

All transactions relating to a company's delivering or producing its goods for sale and providing its services

Which of the following would be reported as a cash flow from financing activities?

Answer: Cash receipts from the issuance of long-term debt

Which of the following would NOT be included in the operating activities section of the statement of cash flows? Interest received Dividends received Interest paid Dividends paid

Answer: Dividends paid

376,000 (Net increase in cash: $2,000,000 - $1,500,000 - $20,000 - $120,000 + $10,000 + $6,000 - $150,000 - $50,000 + $300,000 - $100,000 = $376,000)

Avondale Inc. had the following cash transactions during 2012: Sales receipts $2,000,000 Inventory payments 1,500,000 Interest payments 20,000 Wage payments 120,000 Dividend receipts 10,000 Interest receipts 6,000 Equipment purchased 150,000 Stock of Canton Company purchased 50,000 Stock issued 300,000 Repaid a note (nonoperating) 100,000 What was Avondale's net increase in cash for the year?

$300,000 - $100,000 = $200,000

Avondale Inc. had the following cash transactions during 2012: Sales receipts $2,000,000 Inventory payments 1,500,000 Interest payments 20,000 Wage payments 120,000 Dividend receipts 10,000 Interest receipts 6,000 Equipment purchased 150,000 Stock of Canton Company purchased 50,000 Stock issued 300,000 Repaid a note (nonoperating) 100,000 What was Avondale's total net increase in cash for the year provided by (used in) financing activities?

The exchange of debt for equipment would

Be shown as a supplementary disclosure

investing activities

Cash inflows and outflows from (1) acquiring and selling productive assets such as property, plant, and equipment, (2) acquiring and selling investment securities, and (3) lending money and collecting on those loans

Which of the following would be classified as an operating activity on a statement of cash flows?

Cash received as dividends on investments

Which of the following would be classified as an investing activity on a statement of cash flows?

Cash received from the sale of a land

$120,000 + $40,000 = $160,000

Chen Corporation had the following cash flows during 2012. The company uses the direct method of preparing a statement of cash flows. Cash receipt from the issuance of stock $80,000 Cash received from customers 40,000 Dividends received on long-term investments 20,000 Cash paid for wages 24,000 Cash paid for insurance 2,000 Cash paid for dividends 12,000 Cash paid to purchase building 120,000 Loan made to another company 40,000 Given the information above, net cash inflow (outflow) from investing activities is

$80,000 - $12,000 = $68,000

Chen Corporation had the following cash flows during 2012. The company uses the direct method of preparing a statement of cash flows. Cash receipt from the issuance of stock $80,000 Cash received from customers 40,000 Dividends received on long-term investments 20,000 Cash paid for wages 24,000 Cash paid for insurance 2,000 Cash paid for dividends 12,000 Cash paid to purchase building 120,000 Loan made to another company 40,000 Given the information above, net cash inflow (outflow) from financing activities is

($1,450 + $14,250 + x + $3,500 = $5,650) x = ($13,550)

Dahbi Corporation has the following financial information available: Operating activities $14,250 Financing activities $3,500 Beginning cash balance $1,450 Ending cash balance $5,650 Given this information, what is the amount of cash provided by (used in) Dahbi's investing activities?

The repayment of the principal on a loan used to finance the purchase of equipment should be classified as a(n)

Financing activity

Which of the following is a purpose of the statement of cash flows?

It provides investors with information about the investing and financing activities of an entity. It highlights changes in managerial strategy regarding investments and finances. It provides information about an entity's cash receipts and payments over a period of time

A. Should not be disclosed in the body of a statement of cash flows but should appear in the notes to the financial statements elsewhere

Significant noncash financing transactions A. Should not be disclosed in the body of a statement of cash flows but should appear in the notes to the financial statements elsewhere B. Are deducted from net income to determine cash provided by operating activities on a statement of cash flows C. Should not be disclosed at all since they are irrelevant to actual performance D. Are included parenthetically on a statement of cash flows

non-cash investing and financing activities

Some investing and financing activities affect a company's financial position but not the company's cash flows during the period.

statement of cash flows

Summarize a company's cash flows for a period of time.

The statement of cash flows

Summarizes all cash inflows and outflows of an entity for a given period of time

x + $309,800 - $118,000 - $190,000 = $5,600 x = $3,800

The following financial information is available for the year 2012: Operating activities $309,800 Investing activities ($118,000) Financing activities ($190,000) Ending cash balance $5,600 Given this information, what is the beginning cash balance?