Chapter 12

When preparing the operating activities section of the statement of cash flows using the indirect method, adding a decrease in Accounts Receivable to net income allows the inclusion of transactions that ______.

increased cash, but did not affect net income

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?

A decrease in the number of shares outstanding An increase in interest expense

Which method of preparing the statement of cash flows is more widely used and why?

The indirect method is because it is less expensive to implement.

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

The sale of its intangible asset, trademark, is considered a(n) ______.

investing activity because the purchase and sale of assets that benefit the company for more than one year are classified as such

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.

non-cash

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

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 $80,000 of new equipment was purchased for 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

XYZ Co. sold equipment that originally cost $14,000 with accumulated depreciation of $11,000 for $4,000 cash, resulting in a gain of $1,000. Which of the statements below are correct regarding the treatment of this transaction on the statement of cash flows for the current period?

$4,000 is a cash inflow in investing activities. $1,000 is deducted from operating activities.

Which of the following describes the acceptable methods that may be used to prepare the statement of cash flows?

Indirect method Direct method

Which of the following transactions would be classified as investing activities?

The purchase of investments for cash The purchase of equipment The sale of a building used in the business

When cash from operating activities is presented using the indirect method, net income must be adjusted for increases and decreases in balance sheet accounts that relate to ______.

amounts presented in the income statement

Credits in the accounts receivable account during a period represent the ______.

cash collected

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 components of net income that do not affect cash

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

True or false: Changes in cash are classified as either operating activities, direct activities or indirect activities.

false

True or false: When presenting the operating activities section of the statement of cash flows, the direct method starts with net income and adjusts it by eliminating the effects of transactions that do not involve cash. The indirect method reports the total cash inflow or cash outflow from each main type of transaction.

false

Two common ways to assess a company's ability to internally finance its expansion needs are the ______.

free cash flow ratio capital acquisition ratio

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

The ______ activities section is very important, since ______ are the only continuing, internal source of cash for the business.

operating; operations

Which of the following cash transactions are classified as cash inflows from investing activities?

sale of building sale of equipment sale of held-to-maturity investments

Net cash flows provided by operating activities will be ______ when using the direct method compared to the indirect method.

the same

If the direction of change in Accounts Receivable is a(n) ___ (increase/decrease) from the prior period, the amount of that change is added to net income in the ___ activities section of the statement of cash flows.

decrease operating

Material noncash investing and financing transactions are ______.

reported in a supplementary schedule to the statement of cash flows

The ______ reports three broad categories: operating, investing, and financing activities.

statement of cash flows

During the year, Cashews, Inc. borrowed $100,000 cash from a bank, received $700,000 of from issuing bonds, repaid $300,000 note payable from a bank, and sold $200,000 of short-term investments. The net cash inflow (outflow) from financing activities (assuming no other financing activities) equals ______.

$500,000

Vango, Inc. sold its delivery van with an original cost of $40,000 and an accumulated depreciation balance at the time of sale of $30,000. Given it was sold at a $1,000 loss, proceeds from the disposal of the van will equal ______ on the statement of cash flows under ______ activities.

$9,000; investing

Issuing bonds payable is an example of a(n) ___ activity.

financing

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

Issuing stock to owners is classified as a(n) ___ activity.

financing

Repayments of formal, long-term debt contracts are classified as ______ activities.

financing

The classifications used to categorize cash inflows and outflows on the statement of cash flows includes ___ activities, ___ activities, and ___ activities.

operating investing financing

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

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

A purchase of an intangible asset results in a(n) ___ (increase/decrease) to net cash flow provided by ___ activities.

decrease investing

Barclay, Inc. sold equipment that originally cost $30,000 four years ago for $8,000 cash. The equipment had accumulated depreciation totaling $24,000. How will this transaction be listed in the investing activities section of Barclay's statement of cash flows?

Cash inflow of $8,000

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

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.

Purchases of stock in other corporations is a(n) ______ activity.

investing

Braden and Sons, Inc., paid cash to purchase equipment costing $342,000 this year. Also this year, the company sold for $70,000 cash equipment that originally cost $230,000 5 years ago. How should these transactions be listed in the statement of cash flows?

The purchases and the sales of equipment must be shown separately as a decrease to cash for $342,000 (purchase) and an increase of $70,000 (sale).

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

The indirect method of preparing the statement of cash flows affects how ______ activities section is(are) prepared.

operating

Select the categories found on a statement of cash flows

operating investing financing

A company that reports a significant negative cash flows from investing activities will most likely report a ______.

positive cash flow from financing activities

Which of the following are cash outflows from investing activities?

purchase of land purchase of long-term investments Purchase 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

Net cash inflow from operating activities using the direct method is ______ the Net cash inflow from operating activities using the indirect method.

the same as