MGMT 200 Chapter 11

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

It is identical under the direct and the indirect method

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

Operating

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

Purchase of an investment Purchase of land

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

Sale of equipment Sale of building Sale of investments

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

amortization expense depreciation expense

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

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 as ____ activities.

financing

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

financing

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

financing

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

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

A decrease in accounts receivable will result in a(n) ___ in cash from sales revenue when using the direct method to determine cash flows from operations.

increase

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

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.

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.

non cash

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

non-operating

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

operating activities

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

prepaid insurance

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?

repayment of notes payable payment of cash dividends

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

return on assets

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.

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

the same as under the indirect method.

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 (Sales on account + cash sales + the change in accounts receivable = cash collected for the period. $200,000 + 50,000 - 10,000 = $240,000)

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:

$52,000 ($50,000+$2,000)

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 ($80,000-$5,000)

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

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

Collection on account Interest received on notes receivable Collection of interest Collection from customers

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.

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

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 are classified as cash inflows from investing activities?

Sale of equipment Sale of land

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 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.

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.

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

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

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.

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

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.

inflow, outflow

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

inflows, outflows

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

investing

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

more

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

net income; average total assets

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.

non cash

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

purchase of supplies payment on account payable Interest paid on bonds payment on account Payment of salaries

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 (200,000+10,000-20,000)

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:

$215,000 ($200,000 + $15,000)

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

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

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

The statement of cash flows classifies items as

operating, investing, and financing.

Which of the following are cash outflows from investing activities?

Purchase of land Purchase of investment

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

not reported on the statement of cash flows.

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

True or false: Cost of goods sold must be adjusted to a cash number because the cost of merchandise sold may be more or less than the amount of cash paid to suppliers during the period.

true

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.

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 ($100,000-$5,000-$10,000)

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

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

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

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

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

detail and presentation only