Ch 15: Statement of clash flows

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?

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

When preparing the operating activities section using the indirect method, which of the following are added back to net income?

-Increases in wages payable -Decreases in accounts receivable

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

False

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

False

JP, 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?

-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.

When preparing the operating activities section under the direct method ______.

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

Cash equivalents on the statement of cash flows include:

-commercial paper -treasury bill

Operating activities include changes in ______.

-current liability accounts for amounts owed to employees -noncurrent assets that affect net income

When preparing the financing activities section of the statement of cash flows ______,

-increases in bonds payable are added -retained earnings requires additional analysis

When preparing the operating activities section of the statement of cash flows using the indirect method ______.

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

Financing activities include ______.

-payment of cash dividends to stockholders -issuing new common stock

Investing activities include ______.

-purchase of machinery for cash -sale of land for cash

Under the direct method, the operating activities section of the statement of cash flows ______.

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

Financing activities include ______.

-repurchasing common stock -borrowing money

A gain on the sale of an asset is deducted in the operating activities section of the statement of cash flows because ______.

-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.

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?

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

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

equivalents

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

false

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

financing

The sections of the statement of cash flows include ______ activities.

financing, operating and investing

The statement of cash flows ______.

focuses on activities that affect the cash balance

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

increases

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

indirect

Transactions that involve acquiring or disposing of noncurrent assets are activities

investing

Which section of the statement of cash flows shows the cash paid for property, plant and equipment purchases?

investing activities

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

liability and contra-asset

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.

only the net increase of $70 million

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

operating

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

operating

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

operating

The three sections of the statement of cash flows report results from______ activities, __________ activities and _____________

operating, investing, and financing

Explaining the change in the cash balance is the purpose of the ______.

statement of cash flows

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.

substracted from

Investing activities include ______.

-the sale of used equipment -the purchase of a new building

Operating activities include ______.

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

Given the following, calculate cash provided by operating activities:

66000

Cash flows from investing and financing activities are required to be shown at gross amounts on the statement of cash flows under ______.

both IFRS and GAAP

Purchases of equipment and the sale of land are transactions that are classified as activities

investing

If additions to property, plant and equipment are consistently less than depreciation, it suggests the company is ______.

not investing enough to maintain its noncurrent assets

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

operating

True or false: When interpreting the statement of cash flows, the most meaningful interpretation comes from considering the relationship among numbers.

true

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.

assets, liabilities

The statement of cash flows ______.

is one of the required financial statements

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 ______.

$30,000

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.

$4 million

When interpreting the statement of cash flows, the most meaningful insights are found by ______.

examining relationships among numbers

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

explain the change in cash during the period

To construct the statement of cash flows, the change in retained earnings ______.

is broken down into net income and dividends paid to stockholders

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?

-A $200 gain will be subtracted from net income in the operating activities section. -A cash inflow of $2,000 will be reported from the sale of equipment. -The company purchased $8,000 of equipment during the year.

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 $

118000

On January 1, 2020, Ajax Corporation sold a truck for $28,000 cash. The original purchase price was $45,000 and accumulated depreciation at the time of sale was $7,000. The beginning balance of the Equipment account was $100,000 and no other Equipment transactions occurred during the year. Calculate the ending balance of the account.

55000

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 $

59000

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

9000

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 $

9000

Which of the following statements are true regarding gains and losses of fixed assets when preparing the operating activity section of the statement of cash flows using the indirect method?

Losses are added back to net income and gains are subtracted from net income.

When preparing a statement of cash flows ______.

both financing and investing activities are reported at gross amounts

The first step in computing net cash provided by operating activities is to ______.

add depreciation to net income

Depreciation expense is ______ net income when preparing the operating activities section using the ______ method.

added to, indirect

When interpreting a statement of cash flows, the specific circumstances of a company should ______.

always be considered

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

asset

When preparing the investing activity section of the statement of cash flows increases in noncurrent ______ are subtracted from and increases in noncurrent ______ are added.

assets, liabilities

Financing and investing activities are reported ______.

at in gross amounts on the statement of cash flows

When reporting operating activities ______.

debits and credits are netted against each other

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

decreases

When preparing the operating section using the indirect method, ______ is added back to net income.

depreciation expense

If net cash flow from operating activities is less than current liabilities, it indicates the company ______.

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

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

direct

Net cash provided by operating activities may be computed using either the____________ or the____________ method

direct, indirect

Retained earnings is decreased by ______.

dividends paid

Recording an increase in depreciation expense ______ a company's net cash flows from operating activities.

does not impact