ACCT 2301 Chapter 11

Which of the following accounts results in adjustments to net income under the indirect method of preparing the statement of cash flows if their balances change during the year?

accounts receivable inventory accounts payable

Grant's income statement reveals a loss from the sale of land. In preparing the operating activities section of the statement of cash flows using the indirect format, the loss should be

added to net income

Adjustments to net income in calculating operating cash flows include:

changes in current assets and current liabilities noncash items nonoperating items

Which of the following items are classified as cash inflows from operating activities on the statement of cash flows?

collection from customers collection of interest

Identify investing activities from the items given below.

collection of notes receivable sale of property purchase of equipment

Which of the following represents the final step in preparing a statement of cash flows in the correct order?

combine operating, investing, and financing acitivities

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 it is a noncash expense

T/F: Both dividends paid and dividends declared during the year are reported in the statement of cash flows.

false

Cash inflows and outflows involving stockholders and creditors are classified on the statement of cash flows as __________ activities

financing

Which of the following nonoperating items require adjustments to net income under the indirect method?

gains on sale of long-term assets losses from sale of long-term assets

In order to determine cash flows from financing activities, we need to examine changes to

long-term liability and stockholders' equity accounts

Gains and losses on the sale of long-term assets represent common ________ items needing adjustment under the indirect method.

non operating

Which of the following is an example of a cash inflow from an investing activity?

receipt of cash from the sale of equipment

Changes to current assets and current liabilities require adjustment of net income under the indirect method because

related cash may be higher or lower than the accrued amount included in net income

The financial statement that provides information about cash receipts and cash disbursements for the period is the

statement of cash flows

In a statement of cash flows, the sum of cash inflows and outflows is equal to

the change in the cash balance

Monterey Corporation reports net income of $260,000 that includes depreciation expense of $30,000 and amortization expense of $20,000. What is the company's cash inflows from operating activities?

$260,000 + $30,000 + $20,000 = $310,000

T/F: The statement of cash flows reports business activities on an accrual basis.

False

Joann is preparing a statement of cash flows as part of a homework assignment. She hopes to find a check figure that will help her assess the accuracy of her results. What should Joann do to quickly find a check figure?

calculate the change in the beginning and ending balance of cash

Which of the following are common noncash items requiring adjustment to net income under the indirect method?

depreciation expense amortization expense

Which of the following represents the first step in preparing a statement of cash flows in the correct order?

determine net cash flows from operating activities

T/F: Nonoperating items that increase net income, such as gains on the sale of fixed assets, must be added in calculating operating cash flows.

false

Noncash items, nonoperating items, and changes in current assets and liabilities are necessary adjustments to ________ ________ to prepare the operating section for the indirect format of the statement of cash flows.

net income

The starting point for preparing the operating activities section using the indirect method is:

net income

When using the indirect method to prepare the operating activities section of the statement of cash flows, the first amount listed is

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

______________ activities include cash receipts and cash payments for transactions relating to revenue and expense activities.

operating

The statement of cash flows classifies items as

operating, investing, financing

Which of the following items are classified as cash outflows from operating activities on the statement of cash flows?

payment on account payment of salaries payment on account payable purchase of supplies interest paid on bonds

Which of the following would result in a cash outflow from investing activities?

purchase of a machine for cash

The ratio that is calculated by dividing net income by average total assets is referred to as:

return on assets

True or false: When presenting the operating activities section of the statement of cash flows, the direct method starts with net income and adjusts it by eliminating the effects of transactions that do not involve cash. The indirect method reports the total cash inflow or cash outflow from each main type of transaction.

false

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

the same