LearnSmart Ch. 12
Issuing stock to owners is classified as a(n) ______________ activity.
financing
When using the indirect method to prepare the operating activities section of the statement of cash flows, the first amount listed is ________ _______ .
net income
If the direction of change in Accounts receivable is a(n) _______________ (increase/decrease) from the prior period, the amount of that change is added to net income in the _____________________ activities section of the statement of cash flows.
decrease, operating
The starting point for preparing the operating activities section using the indirect method is ______________. a) ending cash balance b) current assets c) current liabilities d) net income
d) net income
Cashew, Inc.'s income statement showed Net Income of $10,000 and Depreciation Expense of $1,000. Accounts Receivable increased $100, Inventory decreased $300, Supplies decreased $200, Accounts Payable increased $500 and Accrued Liabilities decreased $600. Cashew's net cash flow provided by operations totaled ____________.
$11,300 = $10,000 + 1,000 - 100 + 300 + 200 + 500 - 600
The Hill Company's statement of cash flows contained the following: net cash provided from operating activities of $42,500; net cash used by investing activities of $29,300; and net cash provided by financing activities of $15,000. Hill Company's cash increased by $_______________________ during the year.
$42,500 (inflow) - 29,300 (outflow) + 15,000 (inflow) = $28,200 increase in cash.
Arlington Inc.'s income statement showed Net Income of $57,600 and Depreciation Expense of $9,200. Accounts Receivable increase $3,750, Inventory increased $3,200, Supplies decreased $500, Accounts Payable increased $2,700 and Accrued Liabilities decreased $1,900. Arlington's net cash flow provided by operation totaled $____________________.
$61150
Match the transaction on the left with the appropriate statement of cash flows classification. Transactions: - payment of accounts payable - payment of dividends to stockholders - purchase of new delivery truck Statement of cash flows: - operating activities - investing activities - financing activities
- Payment of accounts payable with operating activities - payment of dividends to stockholders with financing activities - purchase of new delivery truck with investing activities
When preparing the statement of cash flows, changes in current assets and current liabilities are added to or subtracted from net income. Match adjustments to net income and reasons Adjustments: - adding increases in current liabilities - subtracting decreases in current liabilities such as salaries payable - subtracting increases in current assets such as accounts receivable Net income and reasons: - allows the inclusion of transactions that increased net income but not cash - allows the inclusion of transactions that decreased net income but not cash - allows the inclusion of transactions that decreased cash but not net income
- adding increases in current liabilities with allows the inclusion of transactions that decreased net income but not cash - subtracting decreases in current liabilities such as salaries payable with allows the inclusion of transactions that decreased cash but not net income - subtracting increases in current assets such as accounts receivable with allows the inclusion of transactions that increased net income but not cash
List steps in preparing a Statement of Cash Flows in the correct order: - identify the cash flow category/ cateogries to which each account relates - create schedules that summarize the operating, investing, and financing cash flows - determine the change in each balance sheet account
1) determine the change in each balance sheet account 2) identify the cash flow category/ categories to which each account relates 3) create schedules that summarize operating, investing, and financing cash flows
Bolt Inc.'s Income Statement showed Net Income of $10,000 and Depreciation Expense of $1,000. Accounts receivable decreased $100, Inventory increased $300, Supplies increased $200, Accounts Payable decreased $500 and Accrued Liabilities increased $600. Bolt's net cash flow provided by total operations totaled $_____________.
10700= 10,000 + 1000 +100 - 300 -200 -500 +600
Which balance sheet line item will help explain a difference between net income on the income statement and cash from operating activities on the statement of cash flows? a) Property, Plant and Equipment b) Retained Earnings c) Common Stock d) Accounts Receivable
Accounts receivable: Changes in Accounts receivable balance help explain the difference between revenue on the income statement and cash collected from customers on the statement of cash flows.
True or False: Changes in cash are classified as either operating activities, direct activities or indirect activities
False - the change in cash is the sum of the operating, investing, and financing activities sections and is found at the bottom of the statement.
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: changes in noncurrent liabilities relate to financing activities and increases are reported separately from decreases and not netted.
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.
True or False: depreciation expense is added to net income when preparing the operating activity section of the statement of cash flows using the indirect method.
True
True or False: Change in cash = change in liabilities + change in stockholders' equity - change in noncash assets
True Normal accounting equation: Cash + noncash assets = liabilities + stockholders' equity Revision: cash = liabilities + stockholders' equity - noncash assets
True or False: IFRS allows interest payments to be classified as either operating or financing activities on teh statement of cash flows, whereas US GAAP requires interest payment to be classified as operating activities only.
True: IFRS allows flexibility in the classifying of dividends and interest on the statement of cash flows. US GAAP is not flexible.
True or False: Net cash flows provided by (used in) operating activities is always the same under the direct and indirect methods.
True: each method calculates operating activities differently; however, they both result in the same amount of cash provided by (used in) operating activities.
Cashew, Inc. generated a positive cash flow from operating activities of $15,000 and a negative cash flow from investing activities of $6,000 and a negative cash flow financing activities of $2,000. What was the change in cash and cash equivalents on its statement of cash flows? a) $7,000 increase b) $9,000 decrease c) $23,000 decrease d) $8,000 decrease e) $23,000 increase
a) $7,000 increase: 15000 - 6000 - 2000
A decrease in Prepaid Insurance is added to net income because ___________. a) a decrease in Prepaid Insurance causes an increase in Insurance Expense and a decrease in net income, but it does not involve cash b) it includes the impact of increasing cash and increasing net income. c) the company paid additional premiums this period in excess of the Insurance Expense recorded on the income statement. d) it accounts for purchasing more insurance during the period than has been expensed.
a) 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 __________________ when preparing the indirect method of the statement of cash flows. a) added back to net income because the expense does not involve the payment of cash b) subtracted from net income because the expense does not involve the payment of cash c) subtracted from net income because the expense involves a cash outflow d) added back to net income because the expense involves a cash inflow
a) added back to net income because the expense does not involve the payment of cash
Which of the following cash flows are classified as operating activities? (select all that apply). a) cash from revenue earned in daily transactions b) cash for reacquiring common stock into treasury c) cash flow causing decrease in current liabilities d) cash for purchasing a warehouse to be used in the business e) payment of dividends f) cash from sale of investments
a) cash from revenue earned in daily transactions c) cash flow causing decrease in current liabilities
When operating cash flows are calculated using the indirect method, if Accrued Liabilities decreased, then the change is ___________ during the period. a) deducted from net income because more cash was paid than expensed b) added to net income becuase more cash was paid than expensed c) deducted from net income because less cash was paid than expensed d) added to net income because less cash was paid than expensed
a) deducted from net income because more cash was paid than expensed
Which of the following describes the acceptable methods that may be used to prepare statement of cash flows? a) direct method b) accrual-basis method c) cash-basis method d) indirect method
a) direct method d) indirect method
Credits to Common Stock account recorded during the period will be reported as cash _____________ activities on the statement of cash flows. a) inflows under financing b) outflows under investing c) outflows under financing d) inflows under investing
a) inflows under financing
What is the purpose of the Statement of Cash Flows? a) it is intended to provide a cash-based view of a company. b) it outlines the changes in stockholders' equity accounts from the beginning of the period to the end of the period. c) it reports the financial position of a company at a specific point in time. d) it illustrates the profitability of a company
a) it is intended to provide a cash-based view of a company
Repayments of loans will be reported as a ____________. a) negative cash flow under financing activities b) negative cash flow under investing activities c) positive cash flow under investing activities d) positive cash flow under financing activities
a) negative cash flow under financing activities
Free cash flow is the amount of cash available to use to _______. a) repay existing financing b) issue additional shares of stock or borrowings c) expand the business through additional investing activities d) build up the company's cash balance
a) repay existing financing c) expand the business through additional investing activities d) build up the company's cash balance
An increase in inventory will be _________ net income when determining net cash flow provided by operating activities. a) subtracted from b) added back to
a) subtracted from - an increase in inventory indicates that inventory has been purchased resulting in a decrease to cash.
Depreciation Expense is _______________ net income in a statement of cash flows prepared using the indirect method because it _____________.
added back to; is a non-cash expense
When operating cash flows are calculated 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
Which of the following statements best describes why changes in current liabilities are classified as operating activities? Changes in current liabilities______________. a) are not classified as operating activities b) are directly related to cash inflows and outflows arising from revenues and expenses involved in daily operating of the business c) represent changes in debt for the company, and debt is classified as an operating activity d) represent cash paid for current assets, thus both types of accounts should be classified in the same section
b) are directly related to cash inflows and outflows arising from revenues and expenses involved in daily operating of the business
Credit to the Notes Payable T-account are reported as ___________. a) cash outflows under financing activities b) cash inflows under financing activities c) cash outflows under investing activities d) cash inflows under investing activities
b) cash inflows under financing activities
When calculating net cash flow provided by operating activities using the indirect method, a decrease in Accrued Liabilities, such as Wages and Salaries Payable, is subtracted from net income to include the effects of transactions that __________ cash, but ____________ net income. a) increase; do not affect b) decrease; do not affect c) do not affect; decrease d) do not affect; increase
b) decrease; do not affect
A decrease in Accounts Payable indicates that _________ was purchased than paid during the accounting period. Thus the decrease will be ________ net income on the statement of cash flows prepared using the indirect method. a) more;added to b) less; subtracted from c) less; added to d) more; subtracted from
b) less; subtracted from
The cash flow statement should be evaluated by examining the cash flow pattern ___________. a) financing section since this section details how much debt the company has incurred b) of the subtotals for the three sections of the statement. c) change in cash regardless of which section had the biggest impact on the change d) operating activities section since this section details the day to day operations of the business
b) of the subtotals for the three sections of the statement
For any company to survive in the long run, it must generate positive cash flows from ________________ activities on a regular basis. a) financing b) operating c) investing
b) operating
The net change in cash on the statement of cash flows equals _______________. a) beginning cash plus operating activities minus investing activities b) operating plus investing plus financing activities c) investing minus financing activities d) net income minus changes in current assets and current liabilities
b) operating plus investing plus financing activities
Cash paid for dividends on the statement of cash flows is reported as a cash _______________ activities. a) outflow under investing b) outflow under financing c) inflow under investing d) outflow under operating e) inflow under operating f) inflow under financing
b) outflow under financing
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 cash flows from investing activities of ___________. a) $9,000 b) $(9,000) c) $(11,000) d) $11,000
c) $(11,000)
Dover Co.'s comparative balance sheet indicated that the Equipment account increase 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 ___________. a) $(70,000) b) $(40,000) c) $(62,000) d) $(32,000)
c) $(62000) = cash is decreased by $70,000, but cash of $8000 is also received for the sale of equipment
Which allows dividends and interest paid to be classified as operating or financing activities? a) US GAAP b) Both US GAAP and IFRS c) IFRS
c) IFRS
If the Deferred Revenue account balance increased, how should this be reflected in the operating activities section of the statement of cash flows when using the indirect method? The increase should be ________ net income because _______ during the accounting period. a) subtracted from; more revenue was generated than collected b) subtracted from; less revenue was generated than collected c) added to; less revenue was generated than collected d) added to; more revenue was generated than collected
c) added to; less revenue was generated than collected.
ABC Company issued 30,000 shares of common stock in January. In August, the company repurchased 5,000 shares for the treasury. When reporting these transactions in the statement of cash flows, ABC Company ___________ combine them into one transaction in the ___________ activities section.
c) cannot; financing
Purchases of property, buildings, equipment are a cash _____________ activities section of the statement of cash flows. a) inflow in the financing b) inflow in the investing c) outflow in the investing d) outflow in the operating d) outflow in the financing e) inflow in the operating
c) outflow in investing
Which of the following will result in a decrease to Net Cash from investing activities? a) repayment of loan principal b) sale of equipment c) purchase of intangible assets d) depreciation expense e) accumulated depreciation f) purchase of equipment
c) purchase of intangible assets f) purchase of equipment
Which of the following items would not be classified as a financing activity? a) borrowing from financial institutions b) issuing additional common stock c) repayments of accounts payable d) payments of amounts owed to owners
c) repayments of accounts payable
Short-term highly liquid investments that are purchased within 3 months of maturity can be considered ________________ equivalents
cash
During the past year, Arnold Inc.'s comparative balance sheet reported an increase in overall stockholder's equity of $43,500, a decrease in total liabilities of $17,200, and an increase in assets other than cash of $12,000. Consequently, Arnold, Inc. reported a(n) ________________ (increase/decrease) in cash of $________________.
cash = liabilities + stockholders' equity - noncash assets Increase and 14,300.. (43,500 - 17,200) - 12,000= 143000
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.
Which related balance sheet account will explain the difference between revenues on income statement and cash collected from customers? a) Cost of Goods Sold b) Accounts Payable c) Inventory d) Accounts Receivable
d) Accounts Receivable
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. a) added to; more b) deducted from; less c) deducted from; more d) added to; less
d) added to; less
Debits to Notes Payable T-account are reported as __________. a) cash inflows under investing activities b) cash inflows under financing activities c) cash outflows under investing activities d) cash outflows under financing activities
d) cash outflows under financing activities
The changes in the non-cash balance sheet accounts explained the differences between the _________________________. a) net income and total assets b) net income and total stockholders' equity c) income statement and the statement of retained earnings d) income statement and the statement of cash flows
d) income statement and the statement of cash flows
Accrual-basis accounting is superior to cash-basis accounting in that ________________. a) the cash balance reported will be greater b) there is only one method of preparing the operating activities of the statement of cash flows c) a statement of cash flows is not needed d) it provides a better measure of profitability
d) it provides a better measure of profitability
Which of the following are financing activities and show the appropriate cash effect? a) repurchase of stock; inflow b) purchase of a trademark; outflow c) purchase of a trademark; inflow d) repurchase of stock; outflow e) issuance of bonds; inflow f) repayment of bond face value; outflow
d) repurchase of stock; outflow e) issuance of bonds; inflow f) repayment of bond face value; outflow
Which of the following classifications is NOT used to categorize cash inflows and cash outflows on the statement of cash flows? a) operating b) investing c) financing d) spending
d) spending
A decrease in Accounts Payable will result in a(n) ________________ to net cash flow from operating activities.
decrease
A purchase of an intangible asset result in a(n) ________________ (increase/ decrease) to net cash flow provided by _____________ activities.
decrease; investing
When using the indirect method, adding an increase in an account such as Wages and Salaries Payable to net income eliminates the effect of recording Wage and Salary Expense that _____________ this period.
decreased net income, but has not been paid in cash - when liabilities such as payable are increased, a corresponding expense account is increased, but it has not been paid. The expense decreases net income, but does not represent a cash outflow this period.
The sale or maturity of investments in securities is a cash ___________ activities section of the statement of cash flows. a) inflow in the financing b) outflow in the financing c) outflow in the investing d) outflow in the operating e) inflow in the investing f) inflow in the operating
e) inflow in investing
The payment of dividends and changes in the Dividends Payable account are classified as ___________ activities.
financing
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
Companies are required to report material non-cash transactions from _______________ and ____________ activities in either a supplementary schedule to the statement of cash flows or as a disclosure in the notes to the financial statement
investing; financing
U.S. GAAP classifies the payment of interest as a(n) _________________ activity on the statement of cash flows.
operating
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.
To properly evaluate the statement of cash flows, it is important to evaluate _____________.
the pattern of the three sections, not just the change in cash during the period
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 purchase 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).
