Chapter 11

During the current period, Kunze Corp. disposed of old equipment for $2,000, purchased new equipment for $20,000, collected an accounts receivable balance of $2,500, and purchased an investment for $3,000. Net cash from investing activities is (indicate the amount and whether it is a net inflow or outflow)

$21,000 net outflow. Reason: 2,000 - 20,000 - 3,000

True or false: Every time land is sold, the line item for the sale of land in the investing activities section of the Statement of Cash Flows will equal the change in the asset account on the balance sheet.

False Reason: The SOCF will report actual cash received or paid for the asset, which is typically different than the change in the asset account. The change in the asset account will report the land's original cost.

Which of the following cash transactions are classified as cash inflows from investing activities? Sale of investments Sale of building Borrowing from bank Sale of merchandise inventory Sale of equipment

Sale of investments Sale of building Sale of equipment

Which of the following financial statements provide(s) useful information to prepare the statement of cash flows? The stockholders' equity statement The balance sheet The income statement

The balance sheet The income statement

using the indirect method to report cash flows from operating activities, how is the change in retained earnings accounted for in the statement of cash flows?

The change is accounted for by the addition of net income in operating activities and the subtraction of dividends in financing activities.

When preparing the statement of cash flows using the indirect method, depreciation expense is ______ ______ net income.

added to

Cash inflows and outflows involving stockholders and creditors are classified on the statement of cash flows as ______ activities

financing

In a statement of cash flows, the sum of cash inflows and outflows is equal to: net income plus depreciation and amortization. cash flows from operating activities. the change in the cash balance.

the change in the cash balance

Norbert Company reports the following net cash in its statement of cash flows: net inflow from operating activities: $200; net outflow from investing activities: $220; net inflow from financing activities: $130. The current year beginning balance of cash was $80. The cash balance at the end of the year will be

$190. Reason: 80 + 200 - 220 + 130

Which of the following items would not be classified as a financing activity? Issuing additional common stock Payments of amounts owed to owners Borrowing from financial institutions Repayments of accounts payable

Repayments of accounts payable Reason: Transactions involving liabilities owed to owners, liabilities owed to financial institutions, and changes in stockholders' equity accounts are classified as financing activities. Changes in current liabilities, such as accounts payable, are classified as operating activities.

True or False: Collection on account and sale of services for cash are considered cash inflows, while payment on account and payment of salaries are considered cash outflows from operating activities.

True

True or false: If a company chooses to prepare the operating section of the statement of cash flows using the direct method, it must also report using the indirect method.

True Reason: The indirect method of presenting the operating section is a required disclosure when the direct method is used.

Using the indirect method to report cash flows from operating activities, decrease in the inventory account will be ______ net income to arrive at net cash flow provided by operating activities.

added back to reason: A decrease in inventory indicates that inventory that had been purchased during a previous period did not result in a decrease to cash.

When reporting cash flows from operating activities using the indirect method, an increase in accounts payable is _________ net income because payments to suppliers are __________ than new purchases

added to; less

List the four steps in preparing a statement of cash flows in the correct order. determine the net cash flows from financing activities. calculate the net cash flows from operating activities. combine operating, investing, and financing activities. determine the net cash flows from investing activities.

calculate the net cash flows from operating activities. determine the net cash flows from investing activities. determine the net cash flows from financing activities. combine operating, investing, and financing activities.

The direct method for preparing the statement of cash flows reports net income with adjustments. cash received and cash paid from operating activities. cash equivalents adjusted for net income effects. changes in retained earnings with adjustments.

cash received and cash paid from operating activities.

Which of the following items are classified as cash outflows from operating activities on the statement of cash flows? purchase of supplies interest paid on bonds purchase of a building retirement of common stock payment on account

purchase of supplies interest paid on bonds payment on account

Which of the following are classified as cash inflows from investing activities? Sale of land Purchase of an investment Issuance of common stock Sale of equipment

sale of land sale of equipment

Which of the following are cash inflows from financing activities? Collection from customers Borrowing from bank Interest received Issuance of common stock to investors Sale of land

Borrowing from bank Issuance of common stock to investors

Which of the following are classified as cash outflows from investing activities? Purchase of an investment Payment of accounts payable balance Purchase of land Sale of equipment Sale of land

Purchase of an investment Purchase of land

Which of the following are common financing activities? Purchasing treasury stock Payment of cash dividends Issuing common stock Receiving dividends from an investment in another company

Purchasing treasury stock Payment of cash dividends Issuing common stock

True or false: Amortization of intangible assets is treated the same way as depreciation of tangible assets on the statement of cash flows using the indirect method.

True Reason: both are noncash items that are added to net income under the indirect format.

Which of the following are common noncash items requiring adjustment to net income under the indirect method? amortization expense prepaid expense depreciation expense salaries expense insurance expense

amortization expense depreciation expense

When the indirect method is used to report cash flows from operating activities, a decrease in accrued liabilities, such as wages payable, is subtracted from net income to include the effects of transactions that ______ cash, but ______ net income.

decrease; do not affect

Under the indirect method of preparing the statement of cash flows, depreciation expense is added back to net income because it did not require an outflow of cash. was subtracted in deriving net income. provides an inflow of cash. increases the cash balance.

did not require an outflow of cash. was subtracted in deriving net income.

A decrease in prepaid insurance is added to net income because the company paid additional premiums this period in excess of the insurance expense recorded on the income statement. insurance expense decreased net income; however, cash was not paid. The prepaid insurance account was decreased rather than cash. it includes the impact of increasing cash and increasing net income. it accounts for purchasing more insurance during the period than has been expensed.

insurance expense decreased net income; however, cash was not paid. The prepaid insurance account was decreased rather than cash.

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

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

investing

In preparing the operating activities section of a statement of cash flows using the indirect method, net income should be adjusted for loss from sale of asset. depreciation expense. issuance of bonds for cash. gain from sale of asset. payment of a noncurrent liability.

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

Diamond Company's land account decreased by 10 million. Cash received from sale of land is equal to $10 million. must be higher than $10 million. may be higher or lower than $10 million. must be lower than $10 million.

may be higher or lower than $10 million.

Dividends received are classified as operating activities cash flows, while dividends paid are classified as financing activities cash flows because dividends received increase _____, and dividends paid decrease ____.

net income; retained earnings

Depreciation expense and amortization expense represent ____________ items requiring adjustments to net income under the indirect method.

noncash

Transactions reported on the statement of cash flows that do not increase or decrease cash, but that result in significant investing and financing activities are referred to as ___________ activities

noncash

The statement of cash flows classifies items as

operating, investing, financing

Which of the following would result in a cash outflow from investing activities? Purchase of the company's common stock for cash. Purchase of a machine for cash. Purchase of inventory for cash.

purchase of a machine for cash

Which of the following transactions would be classified as financing activities in the statement of cash flows? Purchase of another company's common stock sale of the company's common stock Repurchase of the company's own common stock issuance of bonds

sale of the company's common stock Repurchase of the company's own common stock issuance of bonds

Wiese Company presents its statement of cash flows using the direct method. Wiese must also prepare the operating section using the indirect method and report it: either along with the direct method on the face of the statement or in the financial statement notes as a separate note in the financial statement only along with the direct method on the face of the statement only

either along with the direct method on the face of the statement or in the financial statement notes

cash flows from __________ activities include both inflows and outflows of cash from the external funding of a business

financing

A(n) ___________ in accrued liabilities, such as interest payable, will be added to net income when determining net cash flow from operating activities using the indirect method.

increase

The balance of retained earnings: increases with dividends declared increases with net income decreases with dividends declared decreases with net income

increases with net income decreases with dividends declared

the _________ method of reporting cash flows from operating activities begins with net income.

indirect

Which of the following methods for reporting cash flows from operating activities begins with net income and works backward to calculate net cash flow from operating activities? Indirect method Accrual method Matching method Direct method

indirect method

The difference between cash _______ and cash ______ is called net cash flows and represents the change in cash during the period.

inflows; outflows

The statement of cash flows provides summary information about cash ___________ and cash ________ during the year

inflows; outflows

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? Inventory Notes receivable Accounts receivable Bonds payable Accounts payable

inventory accounts receivable accounts payable

Using information available on the income statement and changes in current assets and current liabilities we can derive cash flows from

operating activities

A decrease in accounts payable represents a cash _________ from operating activities, whereas a decrease in accounts receivable represents a cash ___________ from operating activities

outflow; inflow

Which of the following are cash outflows from financing activities? Purchase of supplies Pay dividends Issue common stock Repay borrowing from bank Receive interest

pay dividends repay borrowing from bank

Which of the following transactions would be classified as financing activities in the statement of cash flows? payment of cash dividends Purchase of another company's bonds repayment of a long-term loan Purchase of another company's common stock

payment of cash dividends repayment of a long-term loan

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? Send an e-mail inquiry to her professor Calculate the change in the beginning and ending balance of cash Wait until the problem is reviewed in class

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? Borrowing from bank Sale of a building Payment of utilities Collection from customers Collection of interest

Collection from customers Collection of interest

The starting point for preparing the operating activities section using the indirect method is: current assets net income ending cash balance current liabilities

net income

During the current period, Schmidt Corp. sold equipment for $1,000, purchased new equipment for $10,000, paid an accounts payable balance of $2,500, and sold an investment costing $2,000 for $2,800. Net cash from investing activities is (indicate the amount and whether it is a net inflow or outflow)

$6,200 net outflow. Reason: 1,000 - 10,000 + 2,800

Which of the following are significant noncash activities? Selling land. Acquiring land by issuing common stock. Issuing common stock for cash. Acquiring equipment by issuing a long-term note.

Acquiring land by issuing common stock Acquiring equipment by issuing a long-term note

When preparing a statement of cash flows using the indirect format, amortization expense must be: subtracted from net income added back to net income added to investing activities subtracted from investing activities ignored

added back to net income

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

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

operating

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? issuance of bonds sale of Kleister Company common shares payment of cash dividends repayment of notes payable

payment of cash dividends repayment of notes payable

Which of the following items are classified as cash outflows from operating activities on the statement of cash flows? issuance of bonds purchase of building purchase of supplies on account payment on account Payment of salaries

payment on account payment of salaries

Which of the following are cash outflows from investing activities? purchase of long-term investments purchase of land payment of income taxes Purchase of building repayment of long-term debt

purchase of long-term investments purchase of land Purchase of building

The financial statement that provides information about cash receipts and cash disbursements for the period is 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 these changes increase or decrease cash flows related to debt and stockholders' equity these changes increase or decrease cash flows related to long-term assets

related cash may be higher or lower than the accrued amount included in net income

The direct method for reporting cash flows from operating activities reports cash inflows and outflows from operations such as: issuance of stock cash received from customers net income payments for inventory sale of equipment

cash received from customers payments for inventory

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. changes in liabilities and owners' equity accounts during the period that affected cash. components of net income that do not affect cash. changes in owners' equity accounts during the period that affected cash.

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.

Noncash investing and financing activities are either:

reported directly after the statement of cash flows OR reported in the notes to the financial statements

Adjustments to net income in calculating operating cash flows include: Changes in noncurrent assets and noncurrent liabilities Noncash items Nonoperating items Changes in current assets and current liabilities

Noncash items Nonoperating items Changes in current assets and current liabilities

Which of the following items are classified as cash outflows from operating activities on the statement of cash flows? issuance of bonds Payment of salaries payment on account purchase of supplies on account purchase of building

Payment of salaries payment on account

An increase in prepaid insurance is subtracted from net income because it includes the impact of increasing cash and increasing net income. the company paid additional premiums this period in excess of the insurance expense recorded on the income statement. insurance expense decreased net income; however, cash was not paid. The prepaid insurance account was decreased rather than cash.

the company paid additional premiums this period in excess of the insurance expense recorded on the income statement. reason: An increase in prepaid insurance (an asset) means the cash paid (which increases prepaid insurance) was greater than the insurance expense incurred (which decreases prepaid insurance.)

Norbert Company reports the following net cash flows in its statement of cash flows: net inflow from operating activities: $200; net outflow from investing activities: $220; net inflow from financing activities: $130. The current year beginning balance of cash was $80. During the current year, cash must have

increased by $110. Reason: 200 - 220 + 130

Which of the following are common financing activities? Borrowing money Payment of cash dividends Issuing common stock Receiving dividends from an investment in another company

Borrowing money Payment of cash dividends Issuing common stock

When cash flows from operating activities are reported using the indirect method, a(n) ___________ in accounts payable will be subtracted from net income.

decrease

Carola Inc. issues common stock for $20 million and pays dividends of $2 million. Net cash inflows from financing activities will be:

$18 million Reason: $(20 - 2) million

The two acceptable methods for U.S. GAAP for reporting cash flows from operating activities are the ________ method and the _______ method

direct; indirect

Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? Collection on account Borrowing from bank Sale of building Issuance of common stock Interest received on notes receivable

Collection on account Interest received on notes receivable

Roberts Inc. sells common stock for $10 million and pays dividends of $1 million. Net cash inflows from financing activities will be:

$9 million Reason: $(10 - 1) million

Statement of Cash Flows

A financial statement that measures activities involving cash receipts and cash payments over a period of time

Using the indirect method to report cash flows from operating activities, an increase in the inventory account will be ______ net income to arrive at net cash flow provided by operating activities.

subtracted from reason: An increase in inventory indicates that inventory has been purchased resulting in a decrease to cash.