acct chapter 12: statement of cash flows LS
True or false: Two common ways to assess a company's ability to internally finance expansion needs are the capital acquisition ratio and free cash flow
true
Rent-a-wreck, Inc.'s property, plant and equipment balance, net of depreciation, at the beginning of the year was $100,000 and at the end was $150,000. During the year, depreciation expense was $10,000 and new equipment was purchased for $80,000 cash. What is the amount of proceeds from the disposal of property, plant and equipment shown on the statement of cash flows for the year?
$20,000 $20,000 = $100,000 + 80,000 - 150,000 - 10,000
Beginning accounts receivable is $20,000, and ending accounts receivable is $15,000. As a result, cash collected from customers is ______ than sales on account.
$5,000 greater
Beginning inventory is $15,000, and ending inventory is $20,000. As a result, purchases are ______ than cost of goods sold
$5,000 greater
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
added to; less
The complete list of items needed to prepare a statement of cash flows includes
comparative balance sheets complete income statement additional details
When using the indirect method to prepare the operating activities section of the statement of cash flows, the first amount listed is
net income
Beginning inventory is $20,000, and ending inventory is $15,000. As a result, purchases are ______ than cost of goods sold
$5,000 less
Beginning prepaid expenses is $20,000, and ending prepaid expenses is $15,000. As a result, cash payments are _______ than the related expense and thus ______ net income in the operating section of the statement of cash flows
$5,000 less; this decrease is added to Cash prepayments (debits to Prepaid Expenses) were $5,000 less than the related expense (credits to Prepaid Expenses) causing the balance to decrease and thus the decrease is added to net income
Which of the following transactions would be classified as investing activities?
- purchase of investments for cash - sale of a building used in the business - purchase of equipment
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 the expense does not involve paying cash.
A decrease in Prepaid Insurance is added to net income because ______
a decrease in Prepaid Insurance causes an increase in Insurance Expense and a decrease in net income, but it does not involve cash
An decrease in the inventory account will be ______ net income to arrive at net cash flow provided by operating activities.
added to
A net cash outflow from financing activities means ______.
amounts received from issuing stocks and debt were less than repurchasing or repayments of stocks and debt Revenues and expenses relate to operating, not financing, activities. Financing activities relate to cash transaction with shareholders and creditors.
Two common ways to assess a company's ability to internally finance its expansion needs are the ______
capital acquisitions ratio free cash flow
Identify which of the following are properly reported in a statement of cash flows.
cash paid for interest: cash outflow under operating activities repayment of loan principal: cash outflow under financing activities net proceeds from stock issuance: cash inflow under financing activities
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
When preparing the statement of cash flows using the indirect method, 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
A decrease in accounts payable will result in a(n) _____, Correct Unavailable to net cash flow from operating activities
decrease
Which of the following items would be added to Net income in the operating activities section of the statement of cash flows prepared using the indirect method?
depreciation and amortization expense loss on sale of investing asset decreases in operating assets
Which of the following will be added to net income when preparing the statement of cash flows using the indirect method?
depreciation expense increases in operating liabilities decreases in operating assets
True or false: Changes in cash are classified as either operating activities, direct activities or indirect activities
false
Repayments of formal, long-term debt contracts are classified as ______ activities
financing
Using the indirect method, when the direction of change in Inventory is a(n) _______, Correct Unavailable, the amount of that change is subtracted from net income to include inventory transactions that decrease cash, but do not impact net income.
increase
When using the ___________ method to prepare the operating activities section of the statement of cash flows, the first amount listed is Net income.
indirect
Net cash from operating activities is considered favorable if it is a net cash ______
inflow
The sale of property, plant, and equipment results in a cash ___, (inflow/outflow) to the ___, activities section of the statement of cash flows
inflow, investing
A $5,000 decrease in prepaid expenses means that cash payments were ______ (greater/less) than the amount used (expenses) and thus the decrease is ______ (added to/subtracted from) net income in the operating activities section of the statement of cash flows
less; added to A decrease means that less cash was paid (debits to Prepaid Expenses) than the amount expensed (credits to Prepaid Expenses). Thus, the decrease is added.
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
noncash
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
noncash Depreciation Expense decreases net income on the income statement but does not decrease cash from operating activities on the statement of cash flows (no check is written for depreciation expense). Depreciation Expense is a non-cash expense and thus is added back to net income when calculating cash from operating activities.
The ___ activities section of the statement of cash flows indicates how well a company is able to generate cash through its normal business activities and management of working capital
operating
The ______ activities section is very important, since ______ are the only continuing, internal source of cash for the business
operating; operations
A company that reports a significant negative cash flows from investing activities due to the purchase of a building will most likely report a ______
positive cash flow from financing activities
Which of the following cash transactions are classified as cash inflows from investing activities?
sale of held-to-maturity investments sale of equipment sale of building
An increase in accounts receivable on a comparative balance sheet indicates that more ______ during the accounting period.
sales revenue was earned than cash was collected
Beginning accounts receivable is $20,000, and ending accounts receivable is $30,000. The change in accounts receivable should be ______ net income in preparing the operating activities section of the statement of cash flows.
subtracted from
When using the indirect method, subtracting an increase in Accounts Receivable from net income eliminates the effect of recording credit sales ______
that increased net income, but did not impact cash When assets such as Accounts Receivable are increased, a corresponding revenue account is increased. In this case, the revenue increases net income, but does not represent a cash inflow this period.
Purchases of stock in other corporations is a(n) ______ activity.
investing
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
cannot; financing Increases and decreases in stockholders' equity accounts should be reported separately, rather than netted in the statement of cash flows.
The direct method presents a summary of all operating transactions that result in either a debit or credit to ______.
cash
Credits in the accounts receivable account during a period represent the
cash collected
Cashews, Inc.'s financing activities section of the statement of cash flows reported a significant cash inflow from the issuance of bonds and cash outflow from the repurchase of treasury stock; all other financing activities were insignificant. As a result, which of the following may be expected to occur in the near future?
decrease in number of shares outstanding increase in interest expense
When using the indirect method, adding a decrease in Prepaid Insurance to net income eliminates the effect of recording Insurance Expense that ______
decreased net income, but did not impact cash When assets such as Prepaid Insurance are decreased, a corresponding expense account is increased. In this case, the expense decreases net income, but does not represent a cash outflow this period because it was paid in a prior period.
Companies are required to report material noncash 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 statements.
investing financing
Which of the following is necessary for a company to remain in business for the long run?
positive cash flows from operating activities
Material noncash investing and financing transactions are
reported in a supplementary schedule to the statement of cash flows
Cash paid for property, plant and equipment is found in the cash outflows from the ___ activities section of the statement of cash flows
investing
Which of the following classifications is not used to categorize cash inflows and cash outflows on the statement of cash flows?
spending