Chapter 12 Smart Book

The indirect method of computing and reporting net cash flows from operating activities involves adjusting ___________ __________ to obtain the net cash provided or used by operating activities.

Net income

Which of the following items would not be adjusted to net income when computing cash flows from operating activities, using the indirect method?

Cash received from sale of building

Which of the following questions could not be answered from the statement of cash flows?

What are the earnings-per-share of common stock?

Sunshine Company had a credit balance of $4,000 in accounts payable at the beginning of the period, and a credit balance of $6,000 at the end of the period. Based on this information, the adjustment to net income for the period will be reported as:

an increase of $2,000 which will be added to net income

Sheldon Company's balance in prepaid insurance at the beginning and end of the year was $2,500 and $1,000, respectively. This will be reported on the statement of cash flows using the indirect method as:

decrease of $1,500 which will be added to net income

Collecting money for notes receivable would be reported on the statement of cash flows as a(n) ____________ activity

investing

A(n) _______ occurs when the receipts in a category exceed the payments.

net cash inflow

Which of the following would be included in the operating section when preparing the statement of cash flows using the indirect method?

net income

A(n) _____________ activity includes those transactions and events that determine net income, including the purchase of merchandise, the sale of goods and services to customers, and expenditures to operate the business

operating

A gain from the sale of a building would be ____________ to (from) net income when computing cash flows from operations, using the indirect method.

subtracted

The statement of cash flows does not report the following transactions

between cash and cash equivalents

_______________ activities include those transactions and events that determine net income.

operating

_________ activities include those transactions and events that affect long-term liabilities and equity, such as obtaining cash from issuing debt and distributing cash to owners.

Financing

Inventory at the beginning of the period had a debit balance of $9,000, and a debit balance of $7,000 at the end of the period. Using the indirect method, this will be reported in the operating section of the statement of cash flows as:

A decrease of $2,000 will be added to net income.

The Coffee Cup Company had a credit balance of $500 in interest payable at the beginning of the period, and a credit balance of $600 at the end of the period. Based on this information, the adjustment to net income for the period will be reported as:

an increase of $100 which will be added to net income

Accounts receivable had a debit balance of $4,000 at the beginning of the period, and a debit balance of $6,000 at the end of the period. Based on this information, the adjustment to net income for the period will be reported as:

an increase of $2,000 which will be subtracted from net income Rationale: The increase in accounts receivable of $2,000 will be subtracted from net income to determine the net cash provided by operating activities.

Reid Company's balance in prepaid insurance at the beginning and end of the year was $1,000 and $1,200, respectively. This will be reported on the statement of cash flows using the indirect method as:

an increase of $200 which will be subtracted from net income

Inventory at the beginning of the period had a debit balance of $7,000, and a debit balance of $10,000 at the end of the period. Using the indirect method, this will be reported in the operating section of the statement of cash flows as:

an increase of $3,000 which will be subtracted from net income

The statement of cash flows explains the difference between beginning and ending balances of cash and cash equivalents. A cash equivalent must satisfy which of the following criteria? (Check all that apply.)

Be readily convertible to a known amount of cash Be close to maturity

Which of the following transactions would not be reported under investing activities in the statement of cash flows?

Cash paid for interest on long-term notes Rationale: This is an operating activity.

Which of the following transactions would be reported under investing activities in the statement of cash flows? (Check all that apply.)

Cash paid to purchase plant assets Cash paid to purchase investments in securities

Which of the following items would be reported under financing activities on the statement of cash flows?

Cash paid to repay cash loans Cash dividends paid to shareholders Cash received from issuing notes payable

A company's cash receipts and cash payments are recorded in the cash account in its general ledger. Which of the following can be determined by analyzing the cash account? (Check all that apply.)

Cash payments for equipment Cash receipts from customers Cash payments on notes

Which of the following would not be reported under financing activities on the statement of cash flows?

Cash received from sales of plant assets

Which of the following items would be subtracted from net income when reporting cash flows from operating activities, using the indirect method? (Check all that apply.)

Decrease in wages payable Decrease in taxes payable

Information about cash flows can influence decision makers in important ways. Which of the following questions could be answered by the statement of cash flows? (Check all that a

Does the company have the resources to pursue opportunities? Can the company pay its debts? How does a company spend its cash?

activities include those transactions and events that affect long-term liabilities and equity, such as obtaining cash from issuing debt and distributing cash to owners.

Financing

Which of the following items would be adjusted to net income when computing cash flows from operating activities, using the indirect method? (Check all that apply.)

Gain on sale of building Loss on sale of investment Depreciation expense

Which of the following items would be added to net income when reporting cash flows from operating activities, using the indirect method? (Check all that apply.)

Increase in unearned fees Increase in accounts payable

A company reported total assets at the end of 2017 of $95,000; including cash of $35,000, accounts receivable of $20,000, and inventory of $40,000. It reported total assets at the end of 2018 of $110,000; including cash of $44,000; accounts receivable of $29,000, and inventory of $37,000. Compute the net increase or decrease in cash in 2018.

Increase of $9,000

A net cash _________ occurs when the receipts in a category exceed the payments.

Inflow

Which of the following items are classified as noncash investing and financing activities? (Check all that apply.)

Purchase of a building with a note Retirement of debt by issuing stock Issuance of common stock in exchange for land

Identify which of the following items is not a noncash investing and financing activity that must be reported in a note to the statement of cash flows. (Check all that apply.)

Repayment of a note with cash Purchase of a plant asset with cash

Which of the following items would not be a correct adjustment to net income to arrive at cash flows from operating activities, using the indirect method?

Subtract increase in taxes payable

Which of the following statements about the statement of cash flows are correct? (Check all that apply.)

The purpose is to report cash receipts and cash payments during a period. It is a detailed disclosure of cash flows.

Emerald Jewelery Store had a credit balance in interest payable of $200 at the beginning of the period, and a credit balance of $50 at the end of the period. Based on this information, the adjustment to net income for the period will be reported as:

a decrease of $150 which will be subtracted from net income

Accounts receivable had a debit balance of $10,000 at the beginning of the period, and a debit balance of $6,000 at the end of the period. Based on this information, the adjustment to net income for the period will be reported as:

a decrease of $4,000 which will be added to net income

The statement of cash flows reports noncash investing and financing transactions in

a note or separate schedule

Investing activities are affected by

changes in long-term assets..

Carol Co. prepares a statement of cash flows starting with net income and then adjusting for items necessary to obtain net cash provided or used by operating activities. Carol Co. must be using the______________ method of reporting the statement of cash flows.

direct

Which of the following transactions would be reported under cash flows from operating activities? Select all that apply.

Cash received from sales Cash paid to lenders for interest Cash paid for salaries and wages

Which of the following is not one of the five important steps to preparing a statement of cash flows?

Compute the net income

information on the statement of cash flows helps users answer all of the following questions except:

Why did the company invest in long-term assets?

A cash ___________ must satisfy two criteria: (1) be readily convertible to a known amount of cash and (2) be sufficiently close to maturity so its market value is unaffected by interest rate changes

equivalent

activities include those transactions and events that affect long-term liabilities and equity, such as obtaining cash from issuing debt and distributing cash to owners.

financing

The format of a statement of cash flows includes reporting cash flows from three activities including:

financing operating investing

At the beginning of 2018, Rex Co. showed a debit balance in the cash account of $20,500. Total debits to this account during the year were $45,000, and total credits during the year were $35,000. The net __________________ in cash for 2018 equals $ ________________.

increase 10000

The _______ method of reporting the statement of cash flows reports net income and then adjusts it for items necessary to obtain net cash provided or used by operating activities.d

indirect

_______ activities include those transactions and events that affect long-term assets, such as lending and collecting money for notes receivable and cash receipts from sale of long-term plant assets.

investing

A(n) _____________ activity includes those transactions and events that determine net income, including the purchase of merchandise, the sale of goods and services to customers, and expenditures to operate the business.

operating

A net cash ______ occurs when the payments in a category exceed the receipts.

outflow

Lakeview, Inc.'s statement of cash flows reports financing activities with payments that exceed receipts. This means that Lakeview had a net cash _____________ from financing activities.

outflow

In preparing a cash flows from operating activities using the indirect method, an increase in accounts receivable would be (added/subtracted) _______________ to (from) net income.

subtracted

Current liabilities _____ operations, including short-term notes payable and dividends payable are categorized as financing activities.

unrelated

LiveLife Company had a credit balance of $10,000 in accounts payable at the beginning of the period, and a credit balance of $6,000 at the end of the period. Based on this information, the adjustment to net income for the period will be reported as:

a decrease of $4,000 which will be subtracted from net income]

A loss from the sale of an investment would be ____________ to (from) net income when computing cash flows from operations, using the indirect method.

added

An increase in wages payable would be_____________ to (from) net income when preparing cash flows from operating activities, using the indirect method.

added

The purchase of merchandise, the sale of goods and services to customers, and expenditures to operate the business are all reported on the statement of cash flows under________________ activities.

operating