HMD 221 Module 9, Chapter 17 Review

Milford Lighting Supply expects the following for 2016. Net cash provided by operating activities of $281,000 Net cash provided by financing activities of $65,000 Net cash provided by investing activities of $85,000 Cash dividends paid to stockholders of $24,000 Milford expects to spend $157,000 to modernize its showroom. How much free cash flow does Milford expect for 2016? A) $124,000 B) $277,000 C) $100,000

$100,000 Free cash flow = Net cash provided by operating activities - Cash payments planned for investments in long-term assets - Cash dividends Free cash flow = $281,000 - $157,000 - $24,000 Free cash flow = $100,000

To Go Company is preparing its statement of cash flows using the indirect method. During the​ year, they purchased equipment for​ $15,000 cash. Which of the following statements is​ true?

$15,000 would be shown as a negative cash flow in the investing activities section.

Felix Skateboards Company uses the indirect method to prepare the statement of cash flows. Refer to the following income statement: Felix Company Income Statement Year Ended December 31, 2017, Sales Revenue $250,000, Interest Revenue 2,200, Gain on Sale of Plant Assets 5,100, Total Revenues and Gains $257,300

$35,600 Net Income $48,200, Less: Change in Current Assets $(20,000 ),Less: Change in Current Liabilities (1,500 ), Add: Depreciation Expense 14,000, Less: Gain on sale of plant assets (5,100 ), Net cash provided by operating activities $35,600

Sonesta Farm Equipment Company sold equipment for cash. The income statement shows a loss on the sale of $7000. The net book value of the asset was $28,900. Which of the following statements describes the cash effect of the transaction?

- Positive cash flow of $21,900 from investing activities - Net book value of equipment: $28,900 Less: Loss on sale ($7000) Cash inflow from investing activity = $21,900

List and discuss three ways in which the statement of cash flows helps financial statement users.

1) Predict future cash flows 2) evaluate management 3) predict ability to pay debts and dividends

Operating Activities

Current assets and current liabilities

The statement of cash flows helps users

Evaluate management decisions

Partisan Services purchased 10 delivery vehicles by issuing a 10 year installment not payable for $320,000. This transaction is shown in the investing activities section of the statement of cash flows.

False (ADD WHICH SECTION)

Buying property, plant, and equipment for cash is considered a cash outflow for the financing activities section of the statement of cash flows.

False - Investing

Cash borrowed on a mortgage note is a(n) ________ activity on the statement of cash flows.

Financing

Proceeds from the issuance of capital stock appear under which section of the statement of cash flows?

Financing Activities

If a company purchases treasury stocks, this will be included in the cash flow statement categroy of:

Financing activities

Caleb Auto Parts Company uses the indirect method to prepare its statement of cash flows. Refer to the following portion of the comparative balance sheet: Caleb CompanyComparative Balance Sheet. December 31, 2017 and 2016 2017 2016 Increase (Decrease) Cash $42,000 $36,000 $6,000 Accounts Receivable 62,000 70,000 (8,000 )

Investing Activities: Cash Receipt from Sale of Equipment $28,000 Cash Payment for Acquisition of Equipment (104,000 ) Net Cash Used for Investing Activities $(76,000 )

The ---- financing section of the statement of cash flows includes increases and decrease in long-term assets

Investing activities

Which of the following statements accurately describes the statement of cash flows?

It is the link between the accrual-based income statement and the cash reported on the balance sheet

Which of the following will be shown under the investing activities section of the statement of cash flows?

Loaned money to a third party

Investing Activities

Long Term Assets

Financing Activities

Long term liabilities and owners equity

The contribution of equipment by a stakeholder in exchange for common stock is an example of

Non-cash investing and financing activity

Which of the following sections of the statement of cash flows is presented differently between the direct method and indirect method?

Operating Activities

If a company pays interest on a mortgage loan, this will be included in the cash flow statement category of:

Operating activites

If a company purchases inventory, this will be included in the cash flow statement categroy of:

Operating activities

The depreciation expense from the income statement of the Copa Cabana Resort showed an amount of $275,000. The cash flow section that will be affected by this result is:

Operating section for +$275,000

Which of the following is the typical order of the sections on a stamens of cash flows?

Operating, investing, financing

One of the purposes of the statement of cash flows is to

Predict the ability of a company to pay debts and dividends

Allen Moving Company uses the indirect method to prepare its statement of cash flows. Refer to the following portion of the comparative balance sheet: Allen Company Comparative Balance Sheet December 31, 2017 and 2016------------------2017--------2016--Increase/(Decrease) Common Stock $34,000 $10,000 $24,000 Retained Earnings 115,000 90,000 25,000 Treasury Stock (13,000 ) (8,000 ) (5,000 )

TRUE . Retained Earnings, 12/31/16 $90,000 Add: Net Income for the year 67,000 $157,000 Less: Retained Earnings for 12/13/17 115,000 Dividends Declared $42,000

Which of the following sections from the statement of cash flows includes borrowing cash and paying off loans?

The financing activities section

Which of the following sections of the statement of cash flows includes activities that affect net income on the income statement?

The operating activities section

A company purchases machinery by issuing a long term note payable. This is an example of a non-cash investing and finning activity for the statement of cash flows.

True

Investors who want to know the amount of cash a company has available for new opportunities, such as expanding into new sales region, should analyze the company's free cash flow.

True

Issuing preferred stock to stockholders in exchange for cash is shown under the financing activities section of the statement of cash flows.

True

Selling property, plant, and equipment for $10,000 cash is considered a cash inflow from investing activities on the statement of cash flows.

True

The cash paid for the purchase of equipment will typically be shown in the investing activities section of the statement of cash flows.

True

The financing activities section on the statement of cash flows includes paying dividends and making payments on long term liabilities

True

The operating activities section on the statement of cash flows includes activities that create revenue or expenses for the entity's business.

True

The statement of cash flows explains why net income as reported on the income statement does not equal the change in the cash balance.

True

The three sections of the statement of cash flows report only activities that involve cash

True

The Norumbega Villa Resort sold investments that originally cost it $300,000 for $200,000. How would this transaction affect the Investing Activities section of its statement of cash flows?

as a $200,000 cash inflow

Which of the following would best be described as short-term, highly liquid investments?

cash equivalents

Planned investments and cash dividends are deducted from ________ to arrive at free cash flow.

net cash provided by operating activities

The issuance of common stock for cash is shown as a _

positive cash flow in the financing activities section of the statement of cash flows

Which of the following transactions would be shown in the non-cash investing and financing activities section of the statement of cash flows?

settled a long-term note payable by issuing common stock

A business's cash receipts and cash payments for a specific period are reported on a

statement of cash flows