Accounting Chapter 12 Orion

****Jose is analyzing the financial statements of two companies. The first company has a net income that is significantly higher than their cash flows provided by operating activities, whereas the second company has net income and cash flows provided by operating activities that are very similar. What can Jose assume about these two companies?

****The first company is in the growth phase of the corporate life cycle, whereas the second company is in the maturity phase of the corporate life cycle.

****You are a salesman for Pickett Industries. You normally report the sales of inventory that you make each month. However, the production manager has asked you to find a buyer for some used equipment they no longer need. If the buyer of the equipment pays in cash, where would the two types of sales be reported on the statement of cash flows?

****The inventory sales would be reported under operating activities, and the equipment sales would be reported under investing activities.

****Which of the following two items are similar in that they both are added back to net income to calculate the cash flows from operating activities?

****depreciation expenses and losses from the disposal of plant assets

****Michelle is investigating the financial statements of two companies. One company is in the maturity phase of the corporate life cycle, and the other company is in the decline phase. What financial activity might both companies be involved in?

****purchasing treasury stock

What is one way that cash flows from investing activities are the opposite of cash flows from financing activities?

Cash flows from investing activities frequently reflect cash flows related to cash the company has loaned to others, whereas cash flows from financing activities frequently reflect cash flows related to cash the company has borrowed from others.

Cortes Manufacturing needs to replace one of their automated assembly line machines. They have about 75% of the cash needed to purchase the new machine, but they would like to pay for the rest of the machine with noncash items. Which of the following are they most likely to use?

Exchange the old machine for the new machine.

Enrico is assessing the financial statements of two companies. The first company is in the introductory phase, whereas the second company is in the decline phase. What can Enrico expect to find related to long-term assets on the comparative balance sheet?

In the first company, the balance of long-term assets will increase from year to year; in the second company, the balance of long-term assets will decrease from year to year.

Jacob is assessing the corporate life cycle of two companies. He notices that Monaco Enterprises is purchasing many long-term assets and that Resendez Industries is selling many long-term assets. What should Jacob conclude about these two companies?

Monaco Enterprises is in the introductory phase, whereas Resendez Industries is in the decline phase.

In 2017, Medrano Manufacturing reported $3.9 billion in cash flows from operating activities but only $2.7 billion in net income. What is one reason that Medrano would report this difference?

They recorded $1.2 billion in noncash expenses on their income statement

Buster Company reported a net loss of $6,000 for the year ended December 31, 2010. During the year, accounts receivable increased $14,000, merchandise inventory decreased $10,000, accounts payable decreased by $20,000, and depreciation expense of $10,000 was recorded. During 2010, operating activities a. used net cash of $20,000. b. used net cash of $28,000. c. provided net cash of $28,000. d. provided net cash of $18,000.

a. used net cash of $20,000.

Wilton Company reported net income of $50,000 for the year. During the year, accounts receivable decreased by $7,000, accounts payable increased by $3,000 and depreciation expense of $5,000 was recorded. Net cash provided by operating activities for the year is a. $40,000. b. $65,000. c. $49,000. d. $45,000.

b. $65,000

In Gentry Company, land decreased $140,000 because of a cash sale for $140,000, the equipment account increased $40,000 as a result of a cash purchase, and Bonds Payable increased $130,000 from issuance for cash at face value. The net cash provided by investing activities is a. $140,000. b. $230,000. c. $100,000. d. $110,000.

c. $100,000.

Accounts receivable arising from sales to customers amounted to $35,000 and $40,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $150,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is a. $150,000. b. $155,000. c. $185,000. d. $145,000.

d. $145,000.

Gleason Company reported net income of $242,000 for the year. During the year, accounts receivable increased by $32,000, accounts payable decreased by $10,000 and depreciation expense of $65,000 was recorded. Net cash provided by operating activities for the year is

$265,000.

****Which of the following statements describes a major similarity between the introductory and growth phases of the corporate life cycle?

****Cash flow from operating and investing activities is frequently lower than cash flow from financing activities.

****In 2017, Sweet Treats sold a piece of equipment with a purchase value of $371,000 and accumulated depreciation of $247,000 for $75,000. Sweet Treats realized a loss of $49,000 on the sale. How would this transaction affect overall cash flows?

****Cash flows would increase by $75,000.

****Why is the adjusted trial balance an unreliable source for preparing the statement of cash flows?

****The statement of cash flows requires more detail.

Which of the following companies is most likely in the introductory phase?

a company with negative cash flows from operating activities, negative cash flows from capital expenditures, and zero cash flows from dividends

The net income reported on the income statement for the current year was $225,000. Depreciation recorded on plant assets was $38,000. Accounts receivable and inventories increased by $2,000 and $8,000, respectively. Prepaid expenses and accounts payable decreased by $1,000 and $11,000 respectively. How much cash was provided by operating activities? a. $205,000 b. $243,000 c. $225,000 d. $259,000

b. $243,000

Accounts receivable arising from sales to customers amounted to $80,000 and $70,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $280,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is a. $280,000. b. $290,000. c. $350,000. d. $270,000.

b. $290,000

Relying entirely on a firm's statement of cash flows while ignoring its income statement is

not recommended, because doing so would mean complete exclusion of accrual-based accounting