Ch 15 - Statement of Cash Flow

$4 million

Galas by Jacki had a beginning balance of retained earnings of $127 million and an ending balance of $134 million. Net income for the year was $11 million. Calculate the dividends paid to stockholders.

investing

Transactions that involve acquiring or disposing of noncurrent assets are ___ activities.

decreasing sales

Trouble for a company may be indicated when increases in inventory and accounts payable are accompanied by ______. Multiple choice question. -decreasing sales -increasing accounts receivable -increasing sales -decreasing accounts receivable

False

True or false: A company can increase its cash flow by increasing its depreciation expense.

reports cash collected from customers instead of revenues treats cash disbursements as expenses

Under the direct method, the operating activities section of the statement of cash flows ______. Multiple select question. -presents revenues and expenses on the accrual basis -reports cash collected from customers instead of revenues -treats cash disbursements as expenses -adds depreciation expense to net income

financing

Cardinal Company issues new common stock for $50,000. This transaction is a(n) ___ activity on the statement of cash flows.

added to, indirect

Depreciation expense is ______ net income when preparing the operating activities section using the ______ method. Multiple choice question. -added to, direct -subtracted from, direct -subtracted from, indirect -added to, indirect

interest on notes receivable or notes payable wage payments to employees corporate income taxes payments

Operating activities include ______. Multiple select question. -dividend payments to stockholders -interest on notes receivable or notes payable -wage payments to employees -corporate income taxes payments

increases

When calculating net cash flows from operating activities, the change in accounts receivable is subtracted from net income when accounts receivable ______ during the period. Multiple choice question. decreases increases

59000

Jay Corporation began the year with a $153,000 balance in the accumulated depreciation account. The ending balance was $197,000. During the year a piece of equipment with $15,000 in accumulated depreciation was sold. Therefore, the depreciation adjustment that Jay needs to add to net income is $

free cash

A company's ability to fund its capital expenditures and dividends from net cash provided by operating activities is measured by ___ ___ flow.

False Reason: Start-up companies often generate negative cash flow from operations and must rely on stock and loans to finance investments.

True or false: Start-up companies are usually able to generate positive cash flows from operating activities to finance investments.

nonrecurring transactions

When net income is steadily increasing and net cash provided by operating activities is declining, it suggests that net income is influenced by ______. Multiple choice question. -nonrecurring transactions -conservative accounting principles and estimates -high levels of inflation

subtracted from

A gain on the sale of a fixed asset is ______ net income to arrive at the cash provided or (used) by operating activities prepared using the indirect method. Multiple choice question. -added back to -subtracted from

the gain increases net income, but is not a cash flow. the entire proceeds from the sale must be reported in the investing section of the statement.

A gain on the sale of an asset is deducted in the operating activities section of the statement of cash flows because ______. Multiple select question. -the gain increases net income, but is not a cash flow. -the entire proceeds from the sale must be reported in the -investing section of the statement. -the gain does not increase net income, but it increases net cash flow. -the entire proceeds from the sale must be reported in the financing section of the statement.

only the net increase of $70 million

During the year sales added $430 million to a company's accounts receivable. A total of $360 million of accounts were collected. On the statement of cash flows ______ will be reported. Multiple choice question. -both the $430 increase and the $360 decrease -only the net increase of $70 million

operating

Either the direct or the indirect method may be used when preparing the net cash provided by ___ activities

sale of land for cash and purchase of machinery for cash (depreciation charges: When using the indirect method depreciation, charges are added back to net income in the operating activities section. Payment of dividends to the stockholders is a financing activity.)

Investing activities include ______. Multiple select question. -depreciation charges -payment of dividends to the stockholders -sale of land for cash -purchase of machinery for cash

equivalents

Investments in securities that can be quickly converted to cash are known as cash ___

The company purchased $8,000 of equipment during the year. A cash inflow of $2,000 will be reported from the sale of equipment. A $200 gain will be subtracted from net income in the operating activities section. (A $1,000 loss will be added to net income in the operating activities section. Reason:$2,000 - $1,800 book value = $200 gain. A $200 gain will be subtracted from net income in the operating activities section. Reason:$2,000 - $1,800 book value = $200 gain. The company purchased $8,000 of equipment during the year. Reason:$15,000 - $3,000 = $12,000 after the sale. $20,000 - $12,000 = $8,000 purchased)

JJP, Inc. started the year with a balance of $15,000 in Property, Plant and Equipment. During the year equipment with an original cost of $3,000 and accumulated depreciation of $1,200 was sold for $2,000. The ending balance in the account was $20,000. Which of the following statements are true? Multiple select question. -A cash inflow of $1,800 will be reported from the sale of equipment. -The company purchased $8,000 of equipment during the year. -A cash inflow of $2,000 will be reported from the sale of equipment. -A $1,000 loss will be added to net income in the operating activities section. -A $200 gain will be subtracted from net income in the operating activities section. -The company purchased $5,000 of equipment during the year.

9,000

JVL Corporation began the year with a $75,000 balance in retained earnings. Net income for the year was $24,000 and the ending balance in retained earnings was $90,000. Given this information, cash dividends paid to stockholders equaled $___

assets, liabilities

When preparing the investing activity section of the statement of cash flows increases in noncurrent ______ are subtracted and increases in noncurrent ______ are added. Multiple choice question. -assets, liabilities -liabilities, assets

items that do not affect cash flow are removed from net income and net income is adjusted to a cash basis (only cash payments for expenses are reported Reason: This is done when using the direct method. cash collected from customer is reported instead of revenues Reason: This is done when using the direct method.)

When preparing the operating activities section of the statement of cash flows using the indirect method ______. Multiple select question. -items that do not affect cash flow are removed from net income. -net income is adjusted to a cash basis -only cash payments for expenses are reported -cash collected from customer is reported instead of revenues

items that do not affect cash flow are removed from net income. net income is adjusted to a cash basis

When preparing the operating activities section of the statement of cash flows using the indirect method ______. Multiple select question. -only cash payments for expenses are reported -items that do not affect cash flow are removed from net income. -cash collected from customer is reported instead of revenues -net income is adjusted to a cash basis

cash receipts are reported instead of income statement revenues and the difference between cash receipts and disbursements is calculated

When preparing the operating activities section under the direct method ______. Multiple select question. -cash receipts are reported instead of income statement revenues -depreciation expense is added back to net income -net income is adjusted to a cash basis -the difference between cash receipts and disbursements is calculated

the difference between cash receipts and disbursements is calculated

When preparing the operating activities section under the direct method ______. Multiple select question. -the difference between cash receipts and disbursements is calculated -depreciation expense is added back to net income -cash receipts are reported instead of income statement revenues -net income is adjusted to a cash basis

net cash provided by operating activities - capital expenditures - cash dividends

free cash flow calculation

free cash flow

net cash provided by operating activities after adjusting for capital expenditures and cash dividends paid

The company purchased equipment costing a total of $45,000 during the year.

Sing Corporation began the year with a $190,000 balance in its equipment account. During the year, equipment with an original cost of $25,000 was sold. The ending balance in the equipment account was $210,000. Which of the following statements is true? Multiple choice question. -The company purchased equipment costing a total of $20,000 during the year. -The cash inflow from investing activities will be $210,000 -The company will report a cash inflow from investing activities of $25,000 during the year. -The company purchased equipment costing a total of $45,000 during the year.

118000

The Trustworthy Corporation reported net income of $100,000 which included depreciation expense of $20,000 and a gain on sale of equipment of $5,000. Current asset accounts increased by $8,000 and current liability accounts increased by $11,000. Trustworthy's net cash provided by operating activities is $___

explain the change in cash during the period

The purpose of the statement of cash flows is to ______.

financing, operating, investing

The sections of the statement of cash flows include ______ activities. Multiple select question. -administrative -operating -financing -investing

operating, investing, financing

The three sections of the statement of cash flows report results from ___ activities, ___ activities and ___ activities.

financing, investing

issuing stock is a ___ activity, buying stock is a ___ activity

is

the statement of cash flow is/is not one of the required financial statements

operating

Changes in noncash balance sheet accounts that directly affect net income are classified as ___ activities.

are not a result of high inflation are computed using conservative estimates are correlated with cash flow from operating activities

When analyzing a company's earnings quality, earnings are considered to be higher quality or more indicative of performance when they ______. Multiple select question. -are not a result of high inflation -are computed using conservative estimates -are correlated with cash flow from operating activities -lead to a high dividend payout to stockholders

decreases

When calculating net cash flows from operating activities, the change in accounts payable is subtracted from net income when accounts payable ______ during the period. Multiple choice question. increases decreases

depreciation expense (purchase of fixed assets Reason: Fixed asset purchases are shown as cash outflows in the investing activities section. redemption of bonds payable Reason: Redemption of bonds is a financing section cash outflow. cash received from the sale of equipment Reason: This is an investing activity.)

When preparing the operating section using the indirect method, ______ is added back to net income. Multiple choice question. -purchase of fixed assets -depreciation expense -redemption of bonds payable -cash received from the sale of equipment

Adams cash outflow for the purchase of equipment is $205,000. Adams will report a cash inflow from investing activities of $20,000.

Adams Inc. began the year with $495,000 in the Equipment account. During the year they sold equipment that had originally cost $50,000 for $20,000. The ending balance in the Equipment account was $650,000. Which of the following statements are true? Multiple select question. -Adams cash outflow for the purchase of equipment is $155,000. -Adams cash outflow for the purchase of equipment is $205,000. -Adams will report a cash inflow from investing activities of $20,000. -Adams will report a cash inflow from investment activities of $50,000.

financing

All transactions (other than interest payments) involving borrowing from creditors or repaying creditors as well as transactions with the company's owners are ______ activities.

asset

Beginning balance + debits - credits = Ending balance is the basic equation for ______ accounts

liability and contra-asset

Beginning balance - debits + credits = Ending balance is the basic equation for ______ accounts

operating

Cash inflows and outflows related to revenue and expense transactions that affect net income are generated by ___ activities

operating

Cash inflows and outflows related to revenue and expense transactions that affect net income are generated by ___ activities.

$30,000 Reason: (Net income) $40,000 + $10,000 (depreciation expense) - $50,000 (gain on sale of asset) + $30,000 (loss on sale of investment) = $30,000 cash provided from operations.

Company A reported net income of $40,000. Included in net income was $10,000 of deprecation expense, a gain of $50,000 from the sale of a fixed asset and a $30,000 loss from the sale of an investment. Cash provided by operating activities equals ______. Multiple choice question. -$50,000 -$30,000 -$80,000 -$130,000

not investing enough to maintain its noncurrent assets

If additions to property, plant and equipment are consistently less than depreciation, it suggests the company is ______. Multiple choice question. purchasing too many short-term assets not investing enough to maintain its noncurrent assets investing too much in noncurrent assets

did not generate enough operating cash flow to pay bills at the end of the period

If net cash flow from operating activities is less than current liabilities, it indicates the company ______. Multiple choice question. -did not generate enough operating cash flow to pay bills at the end of the period -purchased all new long term assets with cash rather than with financing -does not have enough current assets

$19,000

In 2020, Angel Corporation generated $75,000 in cash flow from operations. Capital projects expenditures were $50,000, and dividends of $6,000 were paid. Calculate free cash flow. Multiple choice question. $19,000 $56,000 $31,000 $75,000

direct, indirect

Net cash flows from operating activities will be identical under both the ___ and the ___ methods.

direct, indirect

Net cash provided by operating activities may be computed using either the ___ or the ___ method.

indirect

Net income is adjusted to a cash basis when using the ___ method to prepare the operating section of the statement of cash flows

indirect

Net income is adjusted to a cash basis when using the ___ method to prepare the operating section of the statement of cash flows.

equivalents

On the statement of cash flows cash is defined as cash and cash ___

does not impact

Recording an increase in depreciation expense ______ a company's net cash flows from operating activities. Multiple choice question. -does not impact -always increases -always decreases -either increases or decreases

dividends paid

Retained earnings is decreased by ______. Multiple choice question. -net income and dividends received -dividends paid -net income and dividends paid -dividends paid and received

issuing new common stock payment of cash dividends to stockholders

Select all that apply Financing activities include ______. Multiple select question. -purchase of land for resale -issuing new common stock -payment of cash dividends to stockholders -purchase of stock in another company

current liability accounts for amounts owed to employees (current notes payable accounts are included in the financing activities section. noncurrent assets that are not included in income are included in the investing activities section.)

Select all that apply Operating activities include changes in ______. Multiple select question. -current liability accounts for amounts owed to employees -noncurrent assets that affect net income -current notes payable accounts -noncurrent assets that are not included in income

treats cash disbursements as expenses and reports cash collected from customers instead of revenues (presents revenues and expenses on the accrual basis Reason: Using the direct method, revenues and expenses are reported on the cash basis. adds depreciation expense to net income Reason: This is done when the operating activity section is prepared using the indirect method)

Select all that apply Under the direct method, the operating activities section of the statement of cash flows ______. Multiple select question. -presents revenues and expenses on the accrual basis -adds depreciation expense to net income -treats cash disbursements as expenses -reports cash collected from customers instead of revenues

is broken down into net income and dividends paid to stockholders

To construct the statement of cash flows, the change in retained earnings ______. Multiple choice question. -is always equal to the net income or loss during the period -includes the sale of common stock -is reported in the investing section of the statement of cash flows -is broken down into net income and dividends paid to stockholders

False

True or false: The first step in computing net cash provided by operating activities is to subtract depreciation from net income.

false

True or false: When interpreting the statement of cash flows, consideration should not be given to a company's specific circumstances.

direct

When preparing a statement of cash flows, very few companies choose the ___ method because it requires more work

Decreases in accounts receivable Increases in wages payable (Increases in prepaid expenses Reason: An increase in a prepaid expense account is subtracted from net income. Decreases in accounts payable Reason: Decreases in accounts payable are subtracted from net income.)

When preparing the operating activities section using the indirect method, which of the following are added back to net income? Multiple select question. -Increases in prepaid expenses -Increases in wages payable -Decreases in accounts payable -Decreases in accounts receivable

assets, liabilities

When preparing the operating activity section of the statement of cash flows using the indirect method, increases in current ______ are subtracted from and increases in current ______ are added to net operating income. Multiple choice question. -assets, liabilities -liabilities, assets

loss

When preparing the statement of cash flows using the indirect method, a ______ on the sale of an investment asset is added back to net income. Multiple choice question. loss gain

debits and credits are netted against each other

When reporting operating activities ______. Multiple choice question. -debits and credits are netted against each other -the gross method of reporting cash flows is used

90 days

Cash equivalents are highly liquid investments due in ___ or less

commercial paper and treasury bills (dividends receivable would not be reported on the statement until the cash was received. notes receivable due in 6 months - Cash equivalents are highly liquid investments due in 90 days or less.)

Cash equivalents on the statement of cash flows include: Multiple select question. -commercial paper -treasury bills -dividends receivable -notes receivable due in 6 months

borrowing money and repurchasing common stock (payment of interest is an operating activity. purchase of equipment is an investing activity.)

Financing activities include ______. -borrowing money -payment of interest -purchase of equipment -repurchasing common stock

payment of cash dividends to stockholders issuing new common stock

Financing activities include ______. Multiple select question. -purchase of stock in another company -purchase of land for resale -payment of cash dividends to stockholders -issuing new common stock

at gross amounts on the statement of cash flows

Financing and investing activities are reported ______. Multiple choice question. -at gross amounts on the statement of cash flows -only when using the direct method -only when using the indirect method -at net amounts on the statement of cash flows

the sale of used equipment the purchase of a new building

Investing activities include ______. Multiple select question. -the sale of used equipment -the sale of common stock -interest payments on long term loans -the purchase of a new building

both financing and investing activities are reported at gross amounts

When preparing a statement of cash flows ______. Multiple choice question. -both financing and investing activities are reported at net amounts -both financing and investing activities are reported at gross amounts -investing activities are reported at gross amounts and financing activities are reported at net amounts -financing activities are reported at gross amounts and investing activities are reported at net amounts

increases in bonds payable are added retained earnings requires additional analysis

When preparing the financing activities section of the statement of cash flows ______, Multiple select question. -increases in common stock are subtracted -increases in bonds payable are added -retained earnings requires additional analysis