D105 Unit 8: Statement of Cash Flows

Statement of Cash Flows

A financial statement that reflects an entity's cash receipts classified by major sources and its cash payments classified by major uses.

During 2021, Stout Inc. had the following activities related to its financial operations: Payment in 2021 of cash dividend declared in 2020 to preferred S/Hs: $279,000 Payment for the early retirement of long-term bonds payable (carrying amount $3.93 million): $3.975 million Proceeds from the sale of treasury stock (on books at cost of $387,000): $450,000 Which amount of net cash used in financing activities should appear in Stout's statement of cash flows? (a) $3,804,000 (b) $2,985,000 (c) $3,264,000 (d) $3,822,000

(a) $3,804,000 $450,000 - $3,975,000 - $279,000 = ($3,804,000) net cash used

A company borrows $10,000 and signs a 90-day nontrade note payable. In preparing a statement of cash flows (indirect method), this event would be reflected as an adjustment in which section of the statement of cash flows? (a) Cash outflow from operating activities (b) Cash inflow from financing activities (c) Cash inflow from investing activities (d) Cash outflow from investing activities

(b) Cash inflow from financing activities

A company acquired a building, paying a portion of the purchase price in cash and issuing a mortgage note payable to the seller for the balance. In a statement of cash flows, which amount is included in investing activities for the transaction? (a) Mortgage amount (b) Cash payment (c) Acquisition price (d) Zero

(b) Cash payment The cash payment would be included in the investing activities section of the statement of cash flows.

Which classification of activities involves the cash effects of transactions that enter into the determination of net income? (a) Financing activities (b) Operating activities (c) Noncash investing and financing activities (d) Investing activities

(b) Operating activities

What best describes the primary purpose of the information provided by the statement of cash flows? (a) To provide information about the entity's ability to meet its obligations, its ability to pay dividends, and its need for external financing (b) To provide information about cash receipts and cash payments of an entity during a period (c) To provide information about the operating, investing, and financing activities of an entity during a period (d) To provide information that is useful in assessing cash flow prospects

(b) To provide information about cash receipts and cash payments of an entity during a period

To arrive at net cash provided by operating activities, it is necessary to report revenues and expenses on a cash basis. How is this accomplished? (a) By eliminating all transactions that have no current or future effect on cash, such as depreciation, from the net income computation (b) By estimating the percentage of income statement transactions that were originally reported on a cash basis and projecting this amount to the entire array of income statement transactions (c) By eliminating the effects of income statement transactions that didn't result in a corresponding increase or decrease in cash (d) By re-recording all income statement transactions that directly affect cash in a separate cash flow journal

(c) By eliminating the effects of income statement transactions that didn't result in a corresponding increase or decrease in cash

Xanthe Corporation had the following transactions occur in the current year: 1. Cash sale of merchandise inventory. 2. Sale of a delivery truck at book value. 3. Sale of Xanthe common stock for cash. 4. Issuance of a note payable to a bank for cash. 5. Sale of a security held as an available-for-sale investment. 6. Collection of loan receivable. How many of the above items will appear as a cash inflow from investing activities on a statement of cash flows for the current year? (a) Five items (b) Four items (c) Three items (d) Two items

(c) Three items 1. Operating activity 2. Investing activity 3. Financing activity 4. Financing activity 5. Investing activity 6. Investing activity

Which needs to be eliminated from operating activities to determine net cash flow from operating activities? (a) Earned revenues from net income (b) Cash expenses and cash revenues from net income (c) Incurred expenses from net income (d) Noncash expenses and noncash revenues from net income

(d) Noncash expenses and noncash revenues from net income

Which event would be classified as a financing activity on a statement of cash flows? (a) Purchase of a new major asset (b) Payment of interest to a creditor (c) Sale of a loan receivable (d) Payment of a bond payable

(d) Payment of a bond payable

Indirect Method of Cash Flows

(or reconciliation method): a method used that adjusts net income for items that affect reported net income but doesn't affect cash

Investing Activities

Cash flow activities that a. involve long-term assets and include (a) making and collecting loans and (b) acquiring and disposing of investments and productive long-lived assets. (i.e., generally, Long-Term Asset Items)

Financing Activities

Cash flow activities that involve liability and stockholders' equity and include (a) obtaining cash from creditors and repaying amounts borrowed and (b) obtaining capital from owners and providing them with a return on, and a return of, their investment. (i.e., generally, Long-Term Liability and Equity Items)

Operating Activities

Cash flow activities that involve the cash effects of transactions that enter into the determination of net income, such as cash receipts from sales of goods and services, and cash payments to suppliers and employees for acquisitions of inventory and expenses. (i.e., Income Statement items)