ACCT Ch 11 LS

Carola Inc. issues common stock for $20 million and pays dividends of $2 million. Net cash inflows from financing activities will be:

$18 million

Roberts Inc. sells common stock for $10 million and pays dividends of $1 million. Net cash inflows from financing activities will be:

$9 million

True or false: Every time land is sold, the line item for the sale of land in the investing activities section of the Statement of Cash Flows will equal the change in the asset account on the balance sheet.

False

Which of the following methods for reporting cash flows from operating activities begins with net income and works backward to calculate net cash flow from operating activities?

Indirect method

If interest payable increases, which of the following is true?

Interest paid is lower than the interest expense on the income statement.

Which of the following are cash inflows from financing activities?

Issuing stock to investors for cash Issuance of bonds Borrowing from bank

Adjustments to net income in calculating operating cash flows include:

Noncash items Nonoperating items Changes in current assets and current liabilities

Which of the following provides an indication of a higher quality of net income?

Operating cash flows that are highly correlated with net income

Which of the following are cash outflows from investing activities?

Purchase of land Purchase of investment

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

Repayments of accounts payable

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

Sale of a machine for cash.

Which of the following are classified as cash inflows from investing activities?

Sale of land Sale of equipment

Which is a significant noncash activity?

Signing a note payable in exchange for land.

List the four steps in preparing a statement of cash flows in the correct order.

1. calculate net cash flows from operating activities 2. calculate net cash flows from investing activities 3. calculate net cash flows from financing activities 4. combine operating, investing, and financing activities

Wiese reports net income of $100,000 for the year ended 12/31/18. Total assets were $800,000 on 12/31/17 and $900,000 on 12/31/18. The company earned a return on assets of:

11.8%

Which of the following statements is correct regarding the information content of the income statement and the balance sheet?

Both provide information that help determine cash flows.

Which of the following sections will be identical in every detail under the direct and indirect methods.

Cash flows from investing activities Cash flows from financing activities

The "asset turnover" measures the sales revenue generated per _____ of assets.

$

Maier's accounts receivable account shows the following information: beginning balance: $100; debits during the year: $1,250; ending balance: $150. Cash received from customers must be:

$1,200 Rationale: $100+$1,250-$150

When preparing the statement of cash flows using the indirect method, depreciation expense is ______ ______ net income.

added to

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.

When reporting cash flows from operating activities using the indirect method, an increase in accounts payable is ______ net income because payments to suppliers are ______ than new purchases.

added to; less

When cash from operating activities is presented using the indirect method, net income must be adjusted for increases and decreases in balance sheet accounts that relate to

amounts presented in the income statement.

Cash return on assets can be calculated as cash flows to sales multiplied by

asset turnover.

The direct method presents a summary of all operating transactions that result in either a debit or credit to the _____ account.

cash

Sale of services for cash Payment on account Payment of salaries Collection on account

cash inflow cash outflow cash outflow cash inflow

When looking at the accounts payable account, we can derive _____ by adding the beginning balance of accounts payable + credits during the period - the ending balance of accounts payable.

cash paid to suppliers

The direct method for preparing the statement of cash flows reports

cash received and cash paid from operating activities.

The two types of adjustments to net income for the indirect method are adjustments for

components of net income that do not affect cash. changes in operating assets and liabilities during the period that affected cash and were not in net income.

One of the purposes of adjusting net income for changes to certain balance sheet accounts is to

convert items included in net income to cash.

In order to use a single journal entry to derive cash paid to suppliers for inventory, we need which of the following information?

cost of goods sold increase or decrease in inventory increase or decrease in accounts payable

During the year, Unger Inc. recorded sales revenue of $400,000. The balance in accounts receivable decreased by $4,000. The amount of cash received from customers can be derived by preparing a journal entry that includes:

credit to sales revenue for $400,000 credit to accounts receivable for $4,000

Peck Company's ledger reveals the following information: cost of goods sold $500,000; decrease in accounts payable: $20,000; decrease in inventory: $10,000. Which of the following debits and credits would be included in a journal entry used to derive cash paid to suppliers for inventory?

debit cost of goods sold debit accounts payable credit inventory credit cash

When the indirect method is used to report cash flows from operating activities, a decrease in accrued liabilities, such as wages payable, is subtracted from net income to include the effects of transactions that ______ cash, but ______ net income.

decrease; do not affect

The balance of retained earnings:

decreases with dividends declared increases with net income

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

depreciation and amortization expenses

In preparing the operating activities section of a statement of cash flows using the indirect method, net income should be adjusted for

depreciation expense. gain from sale of asset. loss from sale of asset.

Cash from operating activities differs between the direct and indirect method with respect to the:

detail and presentation only

Under the indirect method of preparing the statement of cash flows, depreciation expense is added back to net income because it

did not require an outflow of cash. was subtracted in deriving net income.

The _____ method prepares the operating activities section of the statement of cash flows by restating each revenue and expense from the accrual basis to the cash basis. It shows the cash collected from customers and the cash paid for operating expenses.

direct

When using the _____ method for determining cash flows from operations, noncash expenses are omitted from the Statement of Cash Flows.

direct

Which method of preparing the operating activities section of the statement of cash flows consists of a summary of all operating transactions that result in either a debit or a credit to cash?

direct

The two generally accepted formats for reporting cash flows from operating activities using U.S. GAAP are the

direct and indirect method.

The "cash flow to sales" ratio measures the operating cash flows generated for each _____ of sales.

dollar

In order to determine the amount of inventory purchased during the year using only the inventory account, we combine the amount of cost of goods sold with the _____ balance of inventory and subtract the _____ balance of inventory.

ending, beginning

When there is no change in interest payable, the interest expense on the income statement is ______ the actual cash paid out during the period.

equal to

Cash flows from _____ activities include both inflows and outflows of cash from the external funding of a business.

financing

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

financing

Repayments of formal, long-term debt contracts are classified as ______ activities.

financing

The payment of dividends is classified as a(n) _____ activities.

financing

A(n) _____ in accounts payable indicates that cash payments were less than credit purchases and must be subtracted from purchases to calculate cash payments to suppliers.

increase

A(n) _____ in accrued liabilities, such as interest payable, will be added to net income when determining net cash flow from operating activities using the indirect method.

increase

Norbert Company reports the following net cash flows in its statement of cash flows: net inflow from operating activities: $200; net outflow from investing activities: $220; net inflow from financing activities: $130. The current year beginning balance of cash was $80. During the current year, cash must have

increased by $110. Rationale: 200 - 220 + 130

The _____ method of reporting cash flows from operating activities begins with net income.

indirect

The two acceptable methods for U.S. GAAP for reporting cash flows from operating activities are the _____ method and the _____method.

indirect, direct

Which of the following describes the acceptable methods that may be used to report cash flows from operating activities on the statement of cash flows?

indirect; direct

The difference between cash _____ and cash _____ is called net cash flows and represents the change in cash during the period.

inflows and outflows

The statement of cash flows provides summary information about cash _____ and cash _____ during the year.

inflows, outflows

A decrease in prepaid insurance is added to net income because

insurance expense decreased net income; however, cash was not paid. The prepaid insurance account was decreased rather than cash.

Cash flows from _____ activities are both outflows and inflows of cash related to the acquisition and disposal of long-term assets.

investing

Cash transactions involving the purchase and sale of long-term assets and current investments are classified on the statement of cash flows as _____ activities.

investing

The purchase and sale of long-term assets and current investments are classified as

investing activities.

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

long-term liability and stockholders' equity accounts

Select the items that would be added to net income in order to prepare the operating activities section of a statement of cash flows - indirect method.

loss on sale of land depreciation expense decrease in current asset

Diamond Company's land account decreased by 10 million. Cash received from sale of land

may be higher or lower than $10 million.

When prepaid accounts increase, it indicates the company has paid ______ cash than it recorded as operating expenses.

more

Cash flow ratios substitute cash flow from operations in place of _____ to provide additional insight into a company's financial strength.

net income

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

Dividends received are classified as operating activities cash flows, while dividends paid are classified as financing activities cash flows because dividends received increase _____, and dividends paid decrease ____.

net income; retained earnings

When accounts receivable decrease

net sales are less than cash receipts from customers.

Depreciation expense and amortization expense represent _____ items requiring adjustments to net income under the indirect method.

noncash

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

Transactions reported on the statement of cash flows that do not increase or decrease cash, but that result in significant investing and financing activities are referred to as _____ activities.

noncash

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

nonoperating

Cash receipts and cash payments for transactions relating to revenue and expense activities are classified on the statement of cash flows as

operating activities

The statement of cash flows classifies items as

operating, investing, and financing.

The three classifications on the statement of cash flows are cash flows from

operation, investing, financing

The direct method for reporting cash flows from operating activities reports cash inflows and outflows from operations such as:

payments for inventory cash received from customers

When the ______ account decreases, it means the company paid less cash for insurance than it recorded as insurance expense.

prepaid insurance

Some analysts supplement accrual-based ratio analysis with cash flow-based ratio analysis because cash flow-based ratios:

provide additional tools for evaluating the company's financial strength and profitability

Dividends _____ are classified as operating activities cash flows, while dividends _____ are classified as financing activities cash flows.

received, paid

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 basic purpose of the statement of cash flows is to

report the activities that changed the cash balance during the year

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

return on assets

Cash return on assets can be calculated by multiplying cash flow to _____ and the asset turnover.

sales

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.

An increase in prepaid insurance is subtracted from net income because

the company paid additional premiums this period in excess of the insurance expense recorded on the income statement.

The amount of net cash flows from operating activities calculated using the direct method is

the same as under the indirect method.

A review of Elisa Company's financial statements reveals the following information: cost of goods sold: $200,000; increase in inventory: $10,000; increase in accounts payable: $20,000. Cash paid to suppliers was:

$190,000 Rationale: $200,000+$10,000-$20,000

During the current period, Kunze Corp. disposed of old equipment for $2,000, purchased new equipment for $20,000, collected an accounts receivable balance of $2,500, and purchased an investment for $3,000. Net cash from investing activities is

$21,000 net outflow. Rationale: 2,000 - 20,000 - 3,000

Sales on account are $200,000. Cash sales during the period are $50,000. Beginning accounts receivable is $20,000, and ending accounts receivable is $30,000. What is the total cash collected from customers during the period?

$240,000

During the current period, Schmidt Corp. sold equipment for $1,000, purchased new equipment for $10,000, paid an accounts payable balance of $2,500, and sold an investment costing $2,000 for $2,800. Net cash from investing activities is (indicate the amount and whether it is a net inflow or outflow)

$6,200 net outflow Rationale: 1,000 - 10,000 + 2,800

Adam Company's operating expenses (excluding depreciation expense) were $80,000 and its balance in prepaid insurance decreased by $5,000. Cash paid for operating expenses was:

$75,000

Lein's net income is $200,000 and its operating cash flows are $240,000. The company reports total assets of $1.6 million and $1.8 million at the end of the prior and current year, respectively. Return on assets (rounded to one-tenth of a percent) is:

11.8% Rationale: $200k/(($1.6mill+1.8mill)/2)

Lein's net income is $200,000 and its operating cash flows are $240,000. The company reports total assets of $1.6 million and $1.8 million at the end of the prior and current year, respectively. Cash return on assets (rounded to one-tenth of a percent) is:

14.1% Rationale: Cash return on assets = operating cash flows/average total assets $240k/((1.6mill+1.8mill)/2)

Arlington Inc.'s income statement showed net income of $57,600 and depreciation expense of $9,200. Accounts receivable increased $3,750, Inventory increased $3,200, Supplies decreased $500, Accounts payable increased $2,700 and Salaries payable decreased $1,900. Arlington's net cash flows from operating activities was $

61150

We can determine cash paid to suppliers during the period by analyzing the accounts payable account. Which of the following approaches would lead to the correct result?

Beginning balance + credits during the period -- ending balance

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 ratios measures the operating cash flows generated for each dollar of sales?

Cash flow to sales

We can determine cost of goods purchased during the period by analyzing the inventory account. Which of the following approaches would lead to the correct result?

Credits during the period -- beginning balance + ending balance

Which of the following are nonoperating items that require adjustments under the indirect method?

Gains on the sale of long-term assets Losses on the sale of long-term assets

Which statement regarding the amount of cash from operating activities is correct?

It is identical under the direct and the indirect method

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

Purchase of a machine for cash.

Neue Inc. reports sales revenue of $200,000; in addition, its accounts receivable balance decreased by $15,000. Neue's cash flows from sales were:

Rationale: $200,000 + $15,000

Roberts Company's operating expenses (excluding depreciation expense) were $50,000 and its balance in prepaid insurance increased by $2,000. Cash paid for operating expenses was:

Rationale: $50,000+$2,000

Which of the following cash transactions are classified as cash inflows from investing activities?

Sale of building Sale of investments Sale of equipment

Using the indirect method to report cash flows from operating activities, how is the change in retained earnings accounted for in the statement of cash flows?

The change is accounted for by the addition of net income in operating activities and the subtraction of dividends in financing activities.

Which of the following financial statements provide(s) useful information to prepare the statement of cash flows?

The income statement The balance sheet

When using the direct method, why is cash received from customers greater than sales revenue on the income statement when accounts receivable decreases?

There were more collections of accounts receivable than sales on account during the year.

True or false: Amortization of intangible assets is treated the same way as depreciation of tangible assets on the statement of cash flows using the indirect method.

True

True or false: If a company chooses to prepare the operating section of the statement of cash flows using the direct method, it must also report using the indirect method.

True

Operating cash flows divided by average total assets will calculate the:

cash return on assets

Hazel reports income tax expense of $25,000 for the current year. During the year, taxes payable decreased by $2,000. The journal entry used to derive cash paid for income taxes would include:

debit to income tax expense for $25,000 debit to income tax payable for $2,000

West reports income tax expense of $50,000 for the current year. During the year, taxes payable decreased by $5,000. The journal entry used to derive cash paid for income taxes would include:

debit to income tax expense for $50,000 debit to income tax payable for $5,000 credit to cash $55,000

Haizel reports interest expense of $15,000 for the current year. During the year, interest payable increased by $1,000. The journal entry used to derive cash paid for interest would include:

debit to interest expense for $15,000 credit to interest payable for $1,000

When cash flows from operating activities are reported using the indirect method, a(n) _____ in accounts payable will be subtracted from net income.

decrease

Select the items that would be subtracted from net income in order to prepare the operating activities section of a statement of cash flows - indirect method.

decrease in current liability gain on sale of land

Using the indirect method to report cash flows from operating activities, a(n) _____ in the accounts receivable from the prior period is added to net income in the _____ activities section of the statement of cash flows.

decrease, operating

Wiese Company presents its statement of cash flows using the direct method. Wiese must also prepare the operating section using the indirect method and report it:

either along with the direct method on the face of the statement or in the financial statement notes

During Arnold & Co.'s most recent fiscal year, the income tax payable account had a beginning balance of $42,500. At the end of the year, the income tax payable account still reported a balance of $42,500. The income statement showed income tax expense of $170,000. How much cash was paid for income tax during the year?

$170,000

Norbert Company reports the following net cash in its statement of cash flows: net inflow from operating activities: $200; net outflow from investing activities: $220; net inflow from financing activities: $130. The current year beginning balance of cash was $80. The cash balance at the end of the year will be

$190. Rationale: 80 + 200 - 220 + 130

Sales on account are $100,000. Beginning accounts receivable is $20,000, and ending accounts receivable is $15,000. What is the cash collected from customers during the period?

$105,000

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

A decrease in income tax payable will I_____ cash outflows because cash paid for income tax is _____ than income tax expense.

increase; greater

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

the same

Western Inc.'s income statement showed net income of $60,000 and depreciation expense of $10,000. Accounts receivable decreased $3,000, Inventory increased $4,000, Supplies increased $1,000, and Accounts payable increased $3,000. Western's net cash flows from operating activities was ______.

$71,000 Rationale: Net cash flow from operating activities = $60,000 + 10,000 + 3,000 - 4,000 - 1,000 + 3,000

Which of the following are significant noncash activities?

Acquiring equipment by issuing a long-term note. Acquiring land by issuing common stock.

Which of the following ratios measures the revenue generated per dollar of assets?

Asset turnover

Which of the following statements is correct concerning a decrease in accounts payable?

Since the cash payments were more than the credit purchases, the decrease must be added to purchases to calculate cash payments to suppliers.

When preparing a statement of cash flows using the indirect format, amortization expense must be:

added back to net income

Smith reports interest expense of $5,000 for the current year. During the year, interest payable increased by $1,000. The journal entry used to derive cash paid for interest would include:

debit to interest expense for $5,000 credit to interest payable for $1,000 credit to cash $4,000

Analysis of Mainzer's comparative balance sheet reveals that the land decreased by 200,000; the income statement shows a loss of $20,000. The journal entry used to derive the amount of cash received from the sale of land would include:

debit to loss for $20,000 credit to land for $200,000

A decrease in Income Tax Payable will ______ cash outflows because cash paid for income tax is ______ income tax expense on the income statement.

increase; higher than

When using the direct method to prepare the Statement of Cash Flows, depreciation expense is

not reported on the statement of cash flows.

A decrease in accounts payable represents a cash ______ from operating activities, whereas a decrease in accounts receivable represents a cash _____ from operating activities.

outflow; inflow

Noncash investing and financing activities are either:

reported directly after the statement of cash flows reported in the notes to the financial statements

Using the indirect method to report cash flows from operating activities, an increase in the inventory account will be ______ net income to arrive at net cash flow provided by operating activities.

subtracted from Rationale: An increase in inventory indicates that inventory has been purchased resulting in a decrease to cash.

A review of Munchen Corporation's financial statements reveals the following information: cost of goods sold: $100,000; decrease in inventory: $5,000; increase in accounts payable: $10,000. Cash paid to suppliers was:

$85,000 Rationale: $100,000-$5,000-$10,000

Analysis of Western's comparative balance sheet reveals that the land account decreased by 100,000; the income statement shows a loss of $50,000. The journal entry used to derive the amount of cash received from the sale of land would include:

debit to loss for $50,000 credit to land for $100,000 debit to cash $50,000

Using the indirect method to report cash flows from operating activities, decrease in the inventory account will be ______ net income to arrive at net cash flow provided by operating activities.

added back to

An increase in accounts receivable indicates that the company collected _____ cash than the amount of ______.

less; sales revenue

Cash return on assets is calculated as ______ divided by average total assets.

operating cash flow

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

combine operating, investing, and financing activities

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

operating

The return on assets is calculated by dividing ____ by _______.

net income; average total assets

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

During the year, Amrerk Inc. recorded sales revenue of $200,000. The balance in accounts receivable increased by $4,000. The amount of cash received from customers can be derived by preparing a journal entry that includes:

debit to accounts receivable for $4,000 credit to sales revenue for $200,000

We can determine cash received from customers by analyzing the accounts receivable account. Which of the following approaches would lead to the correct result?

Beginning balance + debits during the period -- ending balance

Cash Inflows Cash Outflows

Cash received by the company during the period Cash paid by the company during the period

Michaela is comparing two companies using three years of financial statement data. Company A's net income for the three years was $200 million and its operating cash flows $80 million. Company B's net income for the three years was $120 million and its operating cash flows $110 million. Which company appears to have a higher quality net income?

Company B Rationale: Company B's income is strongly backed by its operating cash flows; that is not the case for company A.

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.