AC 210 Chapter 12 LearnSmart

Over Armoir, Inc. purchased a patent totaling $1,000 for cash during the year and equipment for $10,000 cash. Assuming these are the only transactions affecting the investing activities, it will report net cash flows from investing activities of ______.

$(11,000) (-10,000 - 1,000)

Long-term Notes Payable was $20 million at the beginning of the year and $30 million at the end. During the year an additional $15 million was borrowed. Repayments on the statement of cash flow during the year were ______.

$(5) million under financing activities

Dover Co.'s comparative balance sheet indicated that the Equipment account increased by $40,000. Dover purchased equipment totaling $70,000 for cash during the year and sold equipment with an original cost of $30,000 for $8,000 cash. Assuming these are the only transactions affecting the investing activities, Dover will report net cash flows from investing activities of ______.

$(62,000) (8000 - 70,000)

Which balance sheet line item will help explain a difference between revenue / net income on the income statement and cash from operating activities on the statement of cash flows? Multiple choice question.

Accounts Receivable

After its first year of business, Best Measures, Inc.'s sales revenue were $100,000 of which $90,000 was collected and total expenses of $60,000 of which $20,000 was paid. Which of the following statements is correct?

Accrual-basis net income equals $40,000. ($100,000 - 60,000) Cash-basis net income equals $70,000. ($90,000 - 20,000)

Subtracting decreases in current liabilities such as Salaries Payable

Allows the inclusion of transactions that decreased cash but not net income

Adding increases in current liabilities such as Income Tax Payable

Allows the inclusion of transactions that decreased net income but not cash

Subtracting increases in current assets such as Accounts Receivable

Allows the inclusion of transactions that increased net income but not cash

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 the expense does not involve paying cash.

True or false: Changes in cash are classified as either operating activities, direct activities or indirect activities.

False

When using the T-account approach to prepare the indirect method of the statement of cash flows, which of the following would be associated with amounts entered on the credit side of the Cash T-account?

Increase in Inventory Increase in Accounts Receivable Increase in Prepaid Expenses

Which of the following describes the acceptable methods that may be used to prepare the statement of cash flows?

Indirect method Direct method

What is the purpose of the Statement of Cash Flows? Multiple choice question.

It is intended to provide a cash-based view of a company.

How is the change in cash classified on the statement of cash flows?

It is the sum of the operating, investing, and financing activities sections.

Why is the accrual-based income statement superior to a cash-based income statements in measuring profitability?

It reports the revenues generated regardless of when the cash was collected. It reflects well the operating activities of the business and the best measure of a company's profitability during the period. It reports the expenses incurred in generating the revenues regardless of when the cash was paid.

The statement of cash flows separates cash inflows and outflows into the following classifications.

Operating, Investing and Financing

Which of the following will result in a decrease to Net Cash from Investing Activities?

Purchase of equipment Purchase of intangible assets

Which of the following items would not be classified as a financing activity?

Repayments of accounts payable

Which of the following are financing activities and show the appropriate cash effect?

Repurchase of stock; outflow Issuance of bonds; inflow Repayment of bond face value; outflow

Which of the following transactions would be classified as investing activities?

The purchase of equipment The purchase of investments for cash The sale of a building used in the business

Braden and Sons, Inc., paid cash to purchase equipment costing $342,000 this year. Also this year, the company sold for $70,000 cash equipment that originally cost $230,000 5 years ago. How should these transactions be listed in the statement of cash flows?

The purchases and the sales of equipment must be shown separately as a decrease to cash for $342,000 (purchase) and an increase of $70,000 (sale).

Braden and Sons, Inc. borrowed $700,000 cash from Trenton Savings and Loan last year. In addition, the company repaid a $450,000 note payable to First National Bank. How should these transactions be listed in the Statement of Cash Flows?

Transactions must be shown separately as a decrease to cash for $450,000 and an increase of $700,000 in the financing activities section.

True or false: Net cash flows provided by (used in) operating activities is always the same under the direct and indirect methods.

True

A decrease in Prepaid Insurance is added to net income because ______.

a decrease in Prepaid Insurance causes an increase in Insurance Expense and a decrease in net income, but it does not involve cash

Depreciation Expense is ______ net income in a statement of cash flows prepared using the indirect method because it ______.

added back to; is a noncash expense

When operating cash flows are calculated using the indirect method, if Accrued Liabilities increased, then the change is ______ during the period.

added to net income because less cash was paid than expensed

When calculating net cash flow provided by operating activities, an increase in Accounts Payable is ______ net income because payments to suppliers are ______ than new purchases.

added to; less

When using the indirect method, ______ an increase in Deferred Revenue to net income allows the inclusion of transactions that increase cash, but do not impact net income.

adding

Debits to the Notes Payable T-account are reported as ______. Multiple choice question.

cash outflows under financing activities

The complete list of items needed to prepare a statement of cash flows includes ______.

comparative balance sheets, complete income statement, and additional data concerning accounts in investing and financing activities

When using the T-account approach to prepare the indirect method of the the statement of cash flows, a decrease in Accounts Payable will be associated with the ______ side of the Cash T-Account because the decrease is a cash ______.

credit; outflow

A decrease in Accounts Payable will result in a(n) xxxx to net cash flow from operating activities.

decrease

If the direction of change in Accounts Receivable is a(n) xxxx (increase/decrease) from the prior period, the amount of that change is added to net income in the xxxxx activities section of the statement of cash flows.

decrease, operating

When using the indirect method, adding a decrease in Prepaid Insurance to net income eliminates the effect of recording Insurance Expense that ______.

decreased net income, but did not impact cash

A purchase of an intangible asset results in a(n) xxxx (increase/decrease) to net cash flow provided by xxxx activities.

decreasing, investing

When operating cash flows are calculated using the indirect method, if Accounts Receivable balance increased, then the change is ______.

deducted from net income because less cash was collected than revenues earned during the period

When operating cash flows are calculated using the indirect method, if Accrued Liabilities decreased, then the change is ______ during the period.

deducted from net income because more cash was paid than expensed

True or false: Cash increases and decreases in noncurrent liabilities are netted together as one line item on the statement of cash flows under investing activities.

false

Issuing bonds payable is an example of a(n) xxxx activity.

financing

Repayments of principal to creditors are classified as ______ activities.

financing

The payment of dividends and changes in the Dividends Payable account are classified as xxxx activities.

financing

The changes in the non-cash balance sheet accounts explain the differences between the ______.

income statement and the statement of cash flows

Using the indirect method, when the direction of change in Inventory is a(n) xxxx, the amount of that change is subtracted from net income to include inventory transactions that decrease cash, but do not impact net income.

increase

When using the indirect method in preparing the statement of cash flows, if revenues generated during the period are greater than the cash collected, then the ______ net income.

increase in Accounts Receivable will be subtracted from

When using the indirect method in preparing the statement of cash flows, if revenues generated during the period are greater than the cash collected, then the ______ net income. Multiple choice question.

increase in Accounts Receivable will be subtracted from

When preparing the operating activities section of the statement of cash flows using the indirect method, adding a decrease in Accounts Receivable to net income allows the inclusion of transactions that ______.

increased cash, but did not affect net income

The starting point for preparing the operating activities section using the xxxx method is Net Income.

indirect

Sale of a copyright

inflow for intangible asset

sale of property

inflow for tangible asset

The issuance of common stock would be reported as a cash ______ activities on the statement of cash flows.

inflow under financing

Credits to the Common Stock account recorded during the period will be reported as cash ______ activities on the statement of cash flows.

inflows under financing

Cash flows associated with intangible assets are ______ activities.

investing

Changes in property, plant and equipment relate to the ______ activities on the statement of cash flows.

investing

The sale of its intangible asset, trademark, is considered a(n) ______.

investing activity because the purchase and sale of assets that benefit the company for more than one year are classified as such

An increase in Prepaid Insurance ______ net income.

is subtracted from

Accrual-basis accounting is superior to cash-basis accounting in that ______.

it provides a better measure of profitability

A decrease in Prepaid Expenses indicates that ______ was expensed than paid. Thus the decrease will be ______ net income on the statement of cash flows prepared using the indirect method.

more; added to

An increase in Accounts Payable indicates that ______ was purchased than paid. Thus the increase will be ______ net income on the statement of cash flows prepared using the indirect method.

more; added to

The starting point for preparing the operating activities section using the indirect method is ______. Multiple choice question.

net income

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

issuance of stock

not an investing activity

The classifications used to categorize cash inflows and outflows on the statement of cash flows includes xxxx activities, xxxx activities, and xxxx activities.

operating, investing, financial

Net cash flows provided by ______ activities will be ______ when using the direct method compared to the indirect method.

operating; the same

purchase of a copyright

outflow for intangible asset

purchase of property

outflow for tangible asset

Repaying principal to lenders is classified as a cash ______ activities on the statement of cash flows.

outflow under financing

Repurchases of treasury stock would be reported as a cash ______ activities on the statement of cash flows.

outflow under financing

Cash transactions that result in a debit to a Property or Equipment account will be reported on the statement of cash flows as a cash ______ activities.

outflow under investing

If the Deferred Revenue account balance decreased, how should this be reflected in the operating activities section of the statement of cash flows when using the indirect method? The decrease should be ______ net income because ______ during the accounting period.

subtracted from; more revenue was generated than collected

When using the indirect method, subtracting a decrease in Deferred Revenue from net income eliminates the effect of recording revenue ______.

that increased net income, but did not impact cash this period

Net cash flows provided by operating activities will be ______ when using the direct method compared to the indirect method.

the same

The T-account approach ______.

uses a large Cash T-account to reflect the cash effect of the changes in all the other balance sheet accounts