Chapter 11 Reading

Cash receipts and cash payments for transactions relating to revenue and expense activities are classified on the statement of cash flows as a) operating activities b) investing activities c) financing activities

A

Kleister Company issues bonds for $100 million and repays a long-term notes payable of $10 million. The company also sells its own shares for $12 million and pays cash dividends of $5 million. Cash inflows from financing activities will be: a) $112 mill b) $15 mill c) $17 mill d) $110 mill

A $100 mill + $12 mill.

Noncash investing and financing activities are either: a) reported directly after the statement of cash flows b) reported in the notes to the financial statements c) reported as investing and financing activities on the statement of cash flowsF

A &B

Roberts Inc. sells common stock for $10 million and pays dividends of $1 million. Net cash inflows from financing activities will be: a) $1 million b) $9 million c) $10 million d) $11 million

B $(10 - 1) million

Carola Inc. issues common stock for $20 million and pays dividends of $2 million. Net cash inflows from financing activities will be: a) $20 million b) $18 million c)$22 million d) $1 million

B $(20 - 2) million

Which of the following are common noncash items requiring adjustment to net income under the indirect method? a) salaries expense b) amortization expense c) prepaid expense d) insurance expense e) depreciation expense

B & E

Repayments of formal, long-term debt contracts are classified as ______ activities. a) operating b) investing c) financing

C

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 a) changes in equity. b) all long-term assets and liabilities. c) amounts presented in the income statement. d) all current assets and liabilities.

C

sale of equipment

Cash inflow

purchase of investment

Cash outflow

Cash Inflows

Cash received by the company during the period

The financial statement that provides information about cash receipts and cash disbursements for the period is the a) income statement. b) balance sheet. c) statement of retained earnings. d) statement of cash flows.

D

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 (The SOCF will report actual cash received or paid for the asset, which is typically different than the change in the asset account. The change in the asset account will report the land's original cost.)

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

Operating

True or False: Collection on account and sale of services for cash are considered cash inflows, while payment on account and payment of salaries are considered cash outflows from operating activities.

True

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

added to

Cash Outflows

cash paid by the company during the period

Using the __________ method of reporting cash flows from operating activities, we show cash received from customers and cash paid to employees.

direct

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

financing

Issuing stock to owners is classified as a(n) ________ activity.

financing

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

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

inflows; outflows

The statement of cash flows provides information about the cash inflows and cash outflows of an entity. For financing activities, a cash __________ occurs when cash is borrowed from a creditor, and a cash __________ occurs when a loan is repaid.

inflows; outflows

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

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

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

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

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

received; paid

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 $________. (Enter only the number with no punctuation.)

61,150

The statement of cash flows classifies items as a) operating, investing, and financing. b) current and noncurrent. c) recurring and nonrecurring. d) operating and nonoperating.

A

Which of the following would result in a cash inflow from investing activities? a) Sale of a machine for cash. b) Sale of inventory in excess of cost. c) Sale of the company's common stock for cash.

A

Adjustments to net income in calculating operating cash flows include: a) Changes in current assets and current liabilities b) Nonoperating items c) Changes in noncurrent assets and noncurrent liabilities d) Noncash items

A, B, & D

The three classifications on the statement of cash flows are cash flows from (Select all that apply.) a) financing activities. b) investing activities. c) business activities. d) operating activities. e) discontinued activities.

A, B, & D

The purchase and sale of long-term assets and current investments are classified as a) operating activities. b) investing activities. c) financing activities.

B

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? a) Accrual method b) Indirect method c) Direct method d) Matching method

B

Munster Company reports the following net cash in its statement of cash flows: net inflow from operating activities: $200; net outflow from investing activities: $300; net outflow from financing activities: $50. The ending balance in cash is $20; the beginning balance must have been a) $190. b) $150. c) $170. d) $210.

C 20 - 200 + 300 + 50

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: a) along with the direct method on the face of the statement only b) either along with the direct method on the face of the statement or in the financial statement notes c) as a separate note in the financial statement only

B

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 a) increased by $190. b) decreased by $110. c) increased by $110. d) decreased by $190.

C 200 - 220 + 130

The starting point for preparing the operating activities section using the indirect method is: a) net income b) current assets c) current liabilities d) ending cash balance

A

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? a) Wait until the problem is reviewed in class b) Send an e-mail inquiry to her professor c) Calculate the change in the beginning and ending balance of cash

C

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

investing

Diamond Company's land account decreased by 10 million. Cash received from sale of land a) may be higher or lower than $10 million. b) must be lower than $10 million. c) must be higher than $10 million. d) is equal to $10 million.

A

In a statement of cash flows, the sum of cash inflows and outflows is equal to a) the change in the cash balance. b) cash flows from operating activities. c) net income plus depreciation and amortization.

A

One of the purposes of adjusting net income for changes to certain balance sheet accounts is to a) convert items included in net income to cash. b) derive the correct ending balance of cash.

A

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

financing

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 ______. a) $51,000 b) $65,000 c) $71,000 d) $79,000 e) $73,000

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

Kleister Company issues bonds for $100 million and repays a long-term notes payable of $10 million. The company also sells its own common shares for $12 million and pays cash dividends of $5 million. Which of the following are cash outflows from financing activities? a) sale of Kleister Company common shares b) issuance of bonds c) repayment of notes payable d) payment of cash dividends

C & D

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 (The indirect method of presenting the operating section is a required disclosure when the direct method is used.)

The purchase of equipment is a cash ____________ from ____________ activities, whereas the sale of land is a cash __________ from ___________ activities.

outflows, investing; inflows, investing

The direct method for preparing the statement of cash flows reports a) cash received and cash paid from operating activities. b) cash equivalents adjusted for net income effects. c) changes in retained earnings with adjustments. d) net income with adjustments.

A

The two generally accepted formats for reporting cash flows from operating activities using U.S. GAAP are the a) direct and indirect method. b) recurring and nonrecurring method. c) current and noncurrent method. d) operating and nonoperating method.

A

Under the indirect method of preparing the statement of cash flows, depreciation expense is added back to net income because it a) provides an inflow of cash. b) did not require an outflow of cash. c) increases the cash balance. d) was subtracted in deriving net income.

B & D

In order to determine cash flows from financing activities, we need to examine changes to a) current assets and current liability accounts b) long-term asset accounts c) long-term liability and stockholders' equity accounts

C

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

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

inflows; outflows

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