Statement of Cash Flows
The following information was taken from the 20X5 financial statements of Plant Corp.: Accounts receivable, January 1, 20X5 $21,600 Accounts receivable, December 31, 20X5 30,400 Sales on account and cash sales 438,000 Uncollectible accounts 1,000 No accounts receivable were written off or recovered during the year. If the direct method is used in the 20X5 Statement of Cash Flows, Planet should report cash collected from customers as $447,800. $446,800. $429,200. $428,200.
Beg 30,400 ending -21,600 = 8,800 438,000-8,800 = 429,200 Although $1,000 of uncollectible accounts are indicated, the question states that no accounts were written off. The analysis includes cash sales in the "sales" term in the above equation. This is appropriate because cash sales can be considered increases and then immediate decreases in AR.
For the year ended December 31, Ion Corp. had cash inflows of $25,000 from the purchases, sales, and maturities of held-to-maturity debt securities and $40,000 inflows from the purchases, sales, and maturities of available-for-sale debt securities. What amount of net cash from investing activities should Ion report in its cash flow statement? $0 $25,000 $40,000 $65,000
Cash flows from available-for-sale and held-to-maturity investments are both included in investing activities. Therefore, net cash from investing activities should be $65,000 ($25,000 + $40,000).
Kresley Co. has provided the following 20X5 current account balances for the preparation of the annual Statement of Cash Flows: January 1-December 31 Accounts receivable $11,500-$14,500 Allowance for uncollectible accounts 400 - 500 Prepaid rent expense 6,200-4,100 Accounts payable 9,700-11,200 Kresley's 20X5 net income is $75,000. Net cash provided by operating activities in the Statement of Cash Flows should be $72,700. $74,300. $75,500. $75,700.
Net income$75,000 Increase in net accounts receivable ($14,500 − $500) — ($11,500 − $400)(2,900) Decrease in prepaid rent 2,100 Increase in accounts payable 1,500 Net operating cash flow$75,700 A = E + L - OA
In a statement of cash flows, interest payments to lenders and other creditors should be classified as cash outflows for Operating activities. Borrowing activities. Lending activities. Financing activities
Operating activities. Per ASC Topic 230, interest payments to lenders and other creditors are categorized as cash flows from operating activities.
Deferred income tax expense resulting from temporary differences related to depreciation of plant assets should be presented in a statement of cash flows (using indirect approach for operating activities) as a(n) -Noncash financing and investing activity reported in a separate schedule. -Financing activity. -Deduction from net income. -Addition to net income.
Addition to net income.
Baler Co. prepared its statement of cash flows at year-end using the direct method. The following amounts were used in the computation of cash flows from operating activities: Beginning inventory $200,000 Ending inventory 150,000 Cost of goods sold 1,200,000 Beginning accounts payable 300,000 Ending accounts payable 200,000 What amount should Baler report as cash paid to suppliers for inventory purchases? $1,200,000 $1,250,000 $1,300,000 $1,350,000
Beginning inventory $200,000 Ending inventory 150,000 = 50,000 Cost of goods sold 1,200,000 + 50,000 = 1,250,000
In a statement of cash flows, if used equipment is sold at a gain, the amount shown as a cash inflow from investing activities equals the carrying amount of the equipment -Plus the gain. -Plus the gain and less the amount of tax attributable to the gain. -Plus both the gain and the amount of tax attributable to the gain. -With no addition or subtraction.
Plus the gain. The carrying amount plus the gain equals the cash proceeds received. The proper disclosure is something along the lines of the following journal entry:
Rory Co.'s prepaid insurance was $50,000 at December 31, 20X5 and $25,000 at December 31, 20X4. Insurance expense was $20,000 for 20X5 and $15,000 for 20X4. What amount of cash disbursements for insurance should be reported in Rory's 20X5 net cash flows from operating activities presented on a direct basis? $55,000 $45,000 $30,000 $20,000
The prepaid insurance account is analyzed to determine insurance payments during the year. Beg. prepaid insurance + insurance payments − insurance expense = end. prepaid insurance $25,000 + insurance payments − $20,000 = $50,000 Insurance payments = $45,000 50,000-25,000 = 25k +20 for 2015 = 45k
During 20X2, Xan, Inc. had the following activities related to its financial operations: Payment for the early retirement of long-term bonds payable (carrying amount $370,000)$375,000 Distribution in 20X2 of cash dividends declared in 20X1 to preferred shareholders$31,000 Carrying amount of convertible preferred stock in Xan, converted into common shares$60,000 Proceeds from the sale of treasury stock (carrying amount at cost, $43,000) $50,000 In Xan's 20X2 Statement of Cash Flows, net cash used in financing operations should be: $265,000. $296,000. $356,000. $358,000.
$356,000. Of the four amounts listed, only the carrying amount of convertible preferred is excluded from the financing category of cash flows. The conversion does not involve cash (it would, however, be disclosed). Net cash used in financing operations is thus: $356,000 = $375,000 (debt retirement) + $31,000 (dividend) − $50,000 (treasury stock sale—this is a cash inflow).
A company's accounts receivable decreased from the beginning to the end of the year. In the company's statement of cash flows (operating activities shown using direct approach), the cash collected from customers would be -Sales revenues plus accounts receivable at the beginning of the year. -Sales revenues plus the decrease in accounts receivable from the beginning to the end of the year. -Sales revenues less the decrease in accounts receivable from the beginning to the end of the year. -The same as sales revenues.
-Sales revenues plus the decrease in accounts receivable from the beginning to the end of the year. In a statement of cash flows in which the operating activities section is prepared using the direct method, the cash collected from customers would equal the accrual-basis sales revenue plus/minus any decrease/increase in accounts receivable account.
Roe Company is preparing a statement of cash flows for the year ended December 31, Year 2. It has the following account balances: 12/31/Y1-12/31/Y2 Machinery$250,000-$320,000 Accumulated depreciation—machinery 102,000- 120,000 Loss on sale of machinery 4,000 During Year 2, Roe sold for $26,000 a machine that cost $40,000 and purchased several items of machinery. Machinery purchases for Year 2 amounted to $ 34,000. $ 70,000. $ 96,000. $110,000.
320-250 = 70 Cost 40 70 + 40 = 110,000
The following items relate to the preparation of a statement of cash flows: Year 2-Year 1-Year 2 Cash $150,000-$100,000 Net sales $3,200,000 Equity securities (at Fair Value) 40,000 CGS (2,500,000) ARnet 420,000-290,000 Expenses(500,000) Inventory-330,000-210,000 Net income$ 200,000 Noncurrent-assets 565,000-300,000 Accum. deprec.(25,000)-(5,000) All accounts receivable relate to trade merchandise. Cash discounts are not allowed to customers, but a service charge is added to an account for late payment. The allowance for doubtful accounts at the end of Year 2 was the same as the end of Year 1; no receivables were charged against the allowance during Year 2. Under investing activities, cash outflows during Year 2 totaled $ 40,000 $265,000 $275,000 $305,000
Cash outflows from investing activities is comprised of the $265,000 increase in noncurrent assets ($565,000 − $300,000) plus the increase in equity securities of $40,000 for a total of $305,000.
In a statement of cash flows, payments to acquire debt instruments of other entities (other than cash equivalents) which will be held until maturity should be classified as cash outflows for Operating activities. Investing activities. Financing activities. Lending activities.
Investing activities. Per ASC Topic 230, investing activities include making and collecting loans and acquiring and disposing of debt or equity instruments and property, plant, and equipment. Per ASC Topic 230, cash flows from transactions in held-to-maturity securities are to be classified as cash flows from investing activities. Conversely, amounts related to securities held for near-term sale are classified as operating activities.
Which of the following information should be disclosed as supplemental information in the statement of cash flows? Cash flow per share-Conversion of debt to equity Yes-Yes Yes-No No-Yes No-No
No-Yes Cash flow per share is specifically prohibited from being disclosed unless it is based on contractual amounts. The conversion of debt to equity is an example of a transaction that would appear in the supplemental noncash disclosure schedule.
Darinda Corporation has a cash advance from the bank for an overdraft of $5,000 on its checking account. Darinda prepares its financial statements in accordance with IFRS. The cash advances from the bank due to the overdraft should be reported on the statement of cash flows as Operating activities. Investing activities. Financing activities. Other significant noncash activities.
Operating activities. IFRS requires cash advances and loans from bank overdrafts to be classified as operating activities.
In preparing its cash flow statement for the year ended December 31, 20X4, Reve Co. collected the following data: Gain on the sale of equipment$ (6,000) Proceeds from the sale of equipment 10,000 Purchase of A.S., Inc. bonds (par value $200,000-(180,000) Amortization of bond discounts 2,000 Dividends declared (45,000) Dividends paid (38,000) Proceeds from the sale of treasury stock (carrying amount $65,000) 75,000 In its December 31, 20X4, Statement of Cash Flows, what amount should Reve report as net cash used in investing activities? $170,000 $176,000 $188,000 $194,000
Proceeds from sale of equipment $10,000, less purchase of A.S. bonds (180,000), equals net cash outflow from investing activities $(170,000). These two items are the only investing cash flows. The gain on the sale of equipment is subtracted in the reconciliation of net cash flow and net income but it is not itself a cash flow. Likewise, the amortization of the bond discount is a reconciling item, not a cash flow.
Karr, Inc. reported net income of $300,000 for 20X2. Changes occurred in several Balance Sheet accounts as follows: Equipment$25,000 increase Accumulated depreciation 40,000 increase Note payable 30,000 increase Additional information: During 20X2, Karr sold equipment costing $25,000, with accumulated depreciation of $12,000, for a gain of $5,000. In December 20X2, Karr purchased equipment costing $50,000 with $20,000 cash and a 12% note payable of $30,000. Depreciation expense for the year was $52,000. In Karr's 20X2 Statement of Cash Flows, net cash used in investing activities should be $2,000. $12,000. $22,000. $35,000.
$2,000. 20k - 18k = 2k The proceeds on sale of equipment equals $18,000: $13,000 carrying value ($25,000 − $12,000) + $5,000 gain. Net cash used in investing activities is: $2,000 = $20,000 down payment on equipment purchased − $18,000 proceeds on sale of equipment.
Lance Corp.'s statement of cash flows for the year ended September 30, Year 1, was prepared using the indirect method and included the following: Net income 60,000 Noncash adjustments: Depreciation expense 9,000 Increase in accounts receivable (5,000) Decrease in inventory 40,000 Decrease in accounts payable(12,000) Net cash flows from operating activities$92,000 Lance reported revenues from customers of $75,000 in its Year 1 income statement. What amount of cash did Lance receive from its customers during the year ended September 30, Year 1? $80,000 $70,000 $65,000 $55,000
$70,000
Which of the following is not disclosed on the Statement of Cash Flows, either on the face of the statement or in a separate schedule, when prepared under the direct method? -The major classes of gross cash receipts and gross cash payments -The amount of income taxes paid -A reconciliation of net income to net cash flow from operations -A reconciliation of ending retained earnings to net cash flow from operations
-A reconciliation of ending retained earnings to net cash flow from operations The direct method Statement of Cash Flows must be supported by the supplemental disclosure of a reconciliation, but the reconciliation is of net income to net cash flow from operations, not retained earnings to net cash flow from operations. The ending retained earnings balance is not related to, and does not affect, operating cash flow.
Which of the following items is included in the financing activities section of the statement of cash flows? -Cash effects of transactions involving making and collecting loans -Cash effects of acquiring and disposing of investments and property, plant, and equipment -Cash effects of transactions obtaining resources from owners and providing them with a return on their investment -Cash effects of transactions that enter into the determination of net income
-Cash effects of transactions obtaining resources from owners and providing them with a return on their investment This answer is correct because cash effects from obtaining resources from owners and providing them with a return on investment refers to issuing stock and paying dividends, both of which are in the financing activities section of the statement of cash flows.
Fara Co. reported bonds payable of $47,000 at December 31, 20X5 and $50,000 at December 31, 20X6. During 20X6, Fara issued $20,000 of bonds payable in exchange for equipment. There was no amortization of bond premiums or discounts during the year. What amount should Fara report in its 20X6 Statement of Cash Flows for the redemption of bonds payable? $3,000 $17,000 $20,000 $23,000
20,000 - 3,000 = 17,000 The bonds payable account (which reflects only face value) increased $3,000 during the year. If bonds of $20,000 face value were issued during the year, then $17,000 of bonds payable must have been retired (redeemed). Without additional information, the redemption must have been accomplished with a cash payment and thus is disclosed in the cash flow statement. The fact that $20,000 of bonds were issued without cash effect has no bearing on the determination of the $17,000 redemption.
lax Corp. uses the direct method to prepare its Statement of Cash Flows. Flax's trial balances at December 31, 20X4 and 20X3, are as follows: December 31 20X4 - 20X3 Debits: Cash-$35,000-$32,000 Accounts receivable-33,000-30,000 Inventory 31,000-47,000 Property, plant, & equipment 100,000-95,000 Unamortized bond discount 4,500-5,000 Cost of goods sold 250,000-380,000 Interest expense 4,300-2,600 Flax purchased $5,000 in equipment during 20X4. Flax allocated one-third of its depreciation expense to selling expenses and the remainder to general and administrative expenses. What amounts should Flax report in its Statement of Cash Flows for the year ended December 31, 20X4, for cash paid for interest? $4,800 $4,300 $3,800 $1,700
3,800 The only account listed that is related to interest expense is unamortized bond discount, which decreased $500. No bonds were retired. Therefore, the decrease in the discount account represents amortization. This amortization causes interest expense to increase without cash flow effect. A reconstructed journal entry tells the story: Interest expense 4,300 Bond discount 500 Cash 3,800
The following items relate to the preparation of a statement of cash flows: Year2 -Year 1 AP $265,000-$220,000 Dividends payable 35,000-0 Note payable 250,000 - 0 Common stock 600,000-450,000 Retained earnings 280,000 165,000 Year 2 Net sales $3,200,000 CGS (2,500,000) Expenses (500,000) Net income$ 200,000 All accounts payable relate to trade merchandise. Accounts payable are recorded net and always are paid to take all of the discount allowed. The proceeds from the note payable were used to finance a new store building. Capital stock was sold to provide additional working capital. Under financing activities, cash inflows during Year 2 totaled $400,000. $250,000. $150,000. $ 70,000.
400,000 250+150 = 400k Cash inflows from financing would include the long-term note of $250,000 and the issuance of common stock of $150,000 ($600,000 − $450,000) for a total of $400,000.
Lance Corp.'s Statement of Cash Flows for the year ended September 30, 20X4, was prepared using the indirect method and included the following: Net income$60,000 noncash adjustments: Depreciation expense 9,000 Increase in accounts receivable(5,000) Decrease in inventory 40,000 Decrease in accounts payable(12,000) Net cash flows from operating activities$92,000 Lance reported revenues from customers of $75,000 in its 20X4 Income Statement. What amount of cash did Lance receive from its customers during the year ended September 30, 20X4? $80,000 $70,000 $65,000 $55,000
Accounts receivable increased during the year. Therefore, more sales were recognized than cash was collected. The amount of cash collected from customers is $70,000 = $75,000 sales − $5,000 increase in accounts receivable. The increase in accounts receivable is that portion of sales that was not collected.
A company reports the following information for Year 1: Sale of equipment$20,000 Issuance of the company's bonds 10,000 Dividends paid 5,000 Purchase of stock of another company 2,000 Purchase of U.S. Treasury note 2,000 Income taxes paid 2,000 Interest income received 500 What is the company's net cash flow from financing activities? ($9,000) $5,000 $5,500 $15,000
Cash flows from financing activities are the cash inflows and outflows related to the financing of the entity's operations. Cash flows associated with the purchase and sale of common stock and bonds are financing activities. Dividends paid on common stock are also financing activities. The cash flows associated with financing activities are the sale of the bonds and payment of dividends: $10,000 - 5,000 = $5,000.
A company calculated the following data for the period: Cash received from customers $25,000 Cash received from sale of equipment 1,000 Interest paid to bank on note 3,000 Cash paid to employees 8,000 What amount should the company report as net cash provided by operating activities in its Statement of Cash Flows? $14,000 $15,000 $18,000 $26,000
Cash received from the customers and paid to employees are operating activities. Interest paid on a bank note is also an operating activity. Therefore, the cash for from operating activities is $25,000 − 3,000 − 8,000 = $14,000.
Duke Co. reported cost of goods sold of $270,000 for 20X5. Additional information is as follows: December 31-January 1 Inventory $60,000-$45,000 Accounts payable $26,000-39,000 If Duke uses the direct method, what amount should Duke report as cash paid to suppliers in its 20X5 Statement of Cash Flows? $242,000 $268,000 $272,000 $298,000
Cost of goods sold is used as a beginning estimate for cash paid to suppliers. It is adjusted by the change in the two accounts that affect payments to suppliers: inventory and accounts payable. Cost of goods sold$270,000 Plus inventory increase (an amount of inventory purchased but not sold during the period, thus increasing cash payments relative to cost of goods sold) 15,000 Plus decrease in accounts payable (an amount of accounts payable paid in excess of purchases, thus increasing cash payments relative to cost of good sold) 13,000 Equals cash paid to suppliers $298,000
In a statement of cash flows in which the operating activities section is prepared under the indirect method, a gain on the sale of an investment in debt securities classified as available-for-sale should be presented as a(n) Deduction from net income. Addition to net income. Inflow and outflow of cash. Outflow of cash.
Deduction from net income. Any gain on the sale of an investment other than trading securities should be included as part of the total proceeds reported in investing activities. However, this gain has been included in net income. Under the indirect method, net income is adjusted for items that affect income but not cash. Therefore, the amount of the gain must be deducted from net income to remove the book gain from the cash flows from operating activities, thereby avoiding double counting the gain.
In a statement of cash flows (using indirect approach for operating activities), an increase in inventories should be presented as a(n) Outflow of cash. Inflow and outflow of cash. Addition to net income. Deduction from net income.
Deduction from net income. When presenting cash flows from operating activities under the indirect approach, net income must be adjusted for changes in current assets (other than cash) and in current liabilities. Further, noncash events must be removed from net income to complete the conversion of net income from an accrual basis to a cash basis. When inventory increases, inventory sold is less than inventory purchased. Therefore, CGS on an accrual basis is less than it would have been if the cash basis were used. In converting to the cash basis, the increase in inventory must be subtracted from net income to arrive at cash from operations.
The differences in Beal Inc.'s Balance Sheet accounts at December 31, 20X4 and 20X3, are presented below: Assets Increase (Decrease) Cash and cash equivalents$ 120,000 Short-term investments 300,000 Accounts receivable, net-Inventory 80,000 Long-term investments(100,000) Plant assets 700,000 Accumulated depreciation-$1,100,000 Liabilities and stockholders' equity Accounts payable and accrued liabilities$ (5,000) Dividends payable 160,000 Short-term bank debt 325,000 Long-term debt 110,000 Common stock, $10 par 100,000 Additional paid-in capital 120,000 Retained earnings 290,000 $1,100,000 The following additional information relates to 20X4: net income was $790,000; cash dividends of $500,000 were declared; building costing $600,000, with a carrying amount of $350,000, was sold for $350,000; equipment costing $110,000 was acquired through the issuance of long-term debt; and a long-term investment was sold for $135,000. There were no other transactions affecting long-term investments. 10,000 shares of common stock were issued for $22 a share. In Beal's 20X4 Statement of Cash Flows, net cash provided by financing activities was $20,000. $45,000. $150,000. $205,000.
Dividends paid ($500,000 declared less $160,000 increase in dividends payable)$(340,000) Issuance of stock 10,000($22)$220,000 Increase in short-term bank debt$325,000 Net cash provided by financing activities 205,000 The increase in long-term debt is not included because the entire increase is represented by the issuance of long-term debt for equipment. This is a noncash transaction.
Kollar Corp.'s transactions for the year ended December 31, Year 2, included the following: Purchased real estate for $550,000 cash, which was borrowed from a bank. Sold investment securities for $500,000. Paid dividends of $600,000. Issued 500 shares of common stock for $250,000. Purchased machinery and equipment for $125,000 cash. Paid $450,000 toward a bank loan. Reduced accounts receivable by $100,000. Increased accounts payable by $200,000. Kollar's net cash outflow from financing activities for Year 2 was $ 50,000. $250,000. $450,000. $500,000.
Financing activities include all cash flows involving liabilities and equity other than operating items. The financing activities are Bank borrowing$ 550,000 Dividend payment (600,000) Issuance of stock 250,000 Bank loan payment(450,000) Net cash used in financing activities$(250,000) The purchase of real estate ($550,000), sale of investment securities ($500,000), and purchase of machinery and equipment ($125,000) are investing activities. The reduction of accounts receivable ($100,000) and the increase in accounts payable ($200,000) are operating items.
During Year 2, Teb, Inc. had the following activities related to its financial operations: Payment for the early retirement of long-term bonds payable (carrying value $740,000) $750,000 Distribution in Year 2 of cash dividend declared in Year 1 to preferred shareholders 62,000 Carrying value of convertible preferred stock in Teb, converted into common shares 120,000 Proceeds from sale of treasury stock (carrying value at cost, $86,000) 95,000 In Teb's Year 2 statement of cash flows, net cash used in financing activities should be $717,000. $716,000. $597,000. $535,000.
Financing activities include all cash flows involving liabilities and equity, other than operating items. The only item given that is not classified as a cash flow from financing activities is the conversion of preferred stock into common stock ($120,000). This is a noncash item, reported in a separate schedule at the bottom of the statement of cash flows. The other items are cash financing activities, resulting in net cash used in financing activities of $717,000. Cash paid to retire bonds payable $(750,000) Payment of cash dividend(62,000) Sale of treasury stock 95,000 $(717,000) Note that the preferred dividends were a cash payment in Year 2, not in Year 1 when declared. For the other items, the important number is the cash flow, not the carrying value or cost.
In preparing its cash flow statement for the year ended December 31, year 1, Reve Co. collected the following data: Gain on sale of equipment$ (6,000) Proceeds from sale of equipment 10,000 Purchase of A.S., Inc. bonds (par value $200,000) (180,000) Amortization of bond discount 2,000 Dividends declared(45,000) Dividends paid(38,000) Proceeds from sale of treasury stock (carrying amount $65,000) 75,000 In its December 31, Year 1, statement of cash flows, what amount should Reve report as net cash provided by financing activities? $20,000 $27,000 $30,000 $37,000
Financing activities include all cash flows involving liabilities and owners' equity other than operating items. The financing activities are Dividends paid $(38,000) Proceeds from sale of treasury stock 75,000 Net cash provided by financing activities $37,000 The excess of dividends declared over dividends paid is a noncash financing activity. The gain on sale of equipment ($6,000) and amortization of bond discount ($2,000) are net income adjustments in the operating section, while the proceeds from sale of equipment ($10,000) and purchase of A.S., Inc. bonds ($180,000) are investing items.
How should the amortization of bond discount on long-term debt be reported in a statement of cash flows prepared using the indirect method? As a financing activities inflow As financing activities outflow In operating activities as a deduction from income In operating activities as an addition to income
In operating activities as an addition to income When a bond issued at a discount, the issue price is less than the face or maturity value. Using the effective interest method, interest expense is calculated as the bond carrying value multiplied by the effective interest rate. The cash paid to bondholders is the principal or maturity value multiplied by the coupon rate of interest. Since the carrying value is less than face, the effective interest on the bond issued at a discount will be less than the amount paid. This answer is correct because this difference (the amount of amortized discount) is added to net income to arrive at income from operating activities.
Flax Corp. uses the direct method to prepare its Statement of Cash Flows. Flax's trial balances at December 31, 20X4 and 20X3, are as follows: December 31, 20X4-20X3 Debits:Cash$ 35,000 $32,000 Accounts receivable 33,000 30,000 Inventory 31,000-47,000 Property, plant, & equipment 100,000-95,000 Unamortized bond discount 4,5005,000 Cost of goods sold 250,000-380,000 Selling expenses 141,500-172,000 General & administrative expense 137,000-151,300 Interest expense 4,300 - 2,600 Income tax expense 20,400-61,200 $756,700-$976,100 Credits:Allowance for uncollectible accounts $1,300-$1,100 Accumulated depreciation 16,500-15,000 Trade accounts payable 5,000-17,500 Income taxes payable 21,000- 27,100 Deferred income taxes 5,300- 4,600 8% callable bonds payable 45,000-20,000 Common stock 50,000-40,000 Additional paid-in capital-9,100-7,500 Retained earnings 44,700-64,600 Sales 538,800-778,700 $756,700-$976,100 Flax purchased $5,000 in equipment during 20X4. Flax allocated one-third of its depreciation expense to selling expenses and the remainder to general and administrative expenses. What amounts should Flax report in its Statement of Cash Flows for the year ended December 31, 20X4, for cash paid for income taxes? $25,800 $20,400 $19,700 $15,000
Income tax expense$20,400 Plus decrease in income tax payable (More tax was paid than recognized as expense for the account to decrease.)6,100 Less increase in deferred income tax liability (It is a liability as it is listed in the credits. 21,000- 27,100 = 6,100 This increases income tax expense relative to the payable without any increase in payments, thus it is subtracted from income tax expense.)(700) 5,300 - 4,600 = 700 Equals income taxes paid $25,800
The following information pertains to Ash Co., which prepares its statement of cash flows using the indirect method: Interest payable at beginning of year: $15,000 Interest expense during the year: $20,000 Interest payable at end of year: $5,000 What amount of interest should Ash report as a supplemental disclosure of cash flow information? $10,000 $20,000 $30,000 $35,000
Interest payable at beginning of year: $15,000 less Interest payable at end of year: $5,000 = 10,000 Interest expense during the year: $20,000 + 10,000 = 30,000
The differences in Beal Inc.'s Balance Sheet accounts at December 31, 20X4 and 20X3, are presented below: Assets-Increase (Decrease) Cash and cash equivalents$ 120,000 Short-term investments 300,000 Account receivable, net-Inventory 80,000 Long-term investments(100,000) Plant assets 700,000 Accumulated depreciation-$1,100,000 Liabilities and Stockholders' Equity Accounts payable and accrued liabilities$ (5,000) Dividends payable 160,000 Short-term bank debt 325,000 Long-term debt 110,000 Common Stock, $10 par 100,000 Additional paid-in capital 120,000 Retained Earnings290,000$1,100,000 The following additional information relates to 20X4: Net income was $790,000. Cash dividends of $500,000 were declared. Building costing $600,000, with a carrying amount of $350,000, was sold for $350,000. Equipment costing $110,000 was acquired through issuance of long-term debt. A long-term investment was sold for $135,000. There were no other transactions affecting long-term investments. These investments are categorized as available for sale. 10,000 shares of common stock were issued for $22 a share. The short-term investments are classified as trading securities. In Beal's 20X4 Statement of Cash Flows, net cash provided by operating activities was $1,160,000. $1,040,000. $620,000. $705,000.
Net income $790,000 Increase in inventory(80,000) Decrease in AP/accrued liabilities( 5,000) Gain on sale of long-term investments ($135,000 − $100,000)(35,000) Increase in short-term investments (from purchase)(300,000) Depreciation expense 250,000 Equals net operating cash inflow$620,000 The accumulated depreciation account did not change during the year. Therefore, depreciation expense equals $250,000, which offsets the decrease in the account due to the sale of the building.
Mend Co. purchased a three-month U.S. Treasury bill. Mend's policy is to treat as cash equivalents all highly liquid investments with an original maturity of three months or less when purchased. How should this purchase be reported in Mend's statement of cash flows? As an outflow from operating activities As an outflow from investing activities As an outflow from financing activities Not reported
Not reported The statement of cash flows is required to be prepared based on inflows and outflows of cash and cash equivalents during the period. The purchase of a cash equivalent using cash is not an outflow of cash and cash equivalents; it is merely a change in the composition of cash and cash equivalents. Cash has decreased and cash equivalents have increased, but total cash and cash equivalents is unchanged. Therefore, this purchase is not reported in the statement of cash flows.
During the current year, Ace Co. amortized a bond discount. Ace prepares its statement of cash flows using the indirect method. In which section of the statement should Ace report the amortization of the bond discount? Financing activities Operating activities Investing activities Supplemental disclosures
Operating activities This answer is correct because the adjustments made for bond amortization to change accrual-basis interest expense to the cash interest paid will be reported in the operating section of the statement of cash flows.
On December 31, 20X1, Deal, Inc. failed to accrue the December 20X1 sales salaries that were payable on January 6, 20X2. What is the effect of the failure to accrue sales salaries on working capital and cash flows from operating activities in Deal's 20X1 financial statements? Working capital - Cash flows from operating activities Overstated-No effect Overstated-Overstated No effect-Overstated No effect-No effect
Overstated-No effect Failure to accrue salaries at the end of 20X1 understates salaries payable, a current liability. Working capital equals current assets minus current liabilities. With current liabilities understated, working capital is overstated. The accrued salaries at the end of 20X1 would not have been paid in 20X1, even if they had been accrued correctly. Therefore, 20X1 operating cash flows are not affected by the failure to accrue the salaries.
The differences in some of Beal Inc.'s Balance Sheet accounts at December 31, 20X4 and 20X3, are presented below: Assets Increase (Decrease) Cash and cash equivalents$ 120,000 Investments in debt classified as trading securities 300,000 Accounts receivable, net-Inventory 80,000 Long-term investments(100,000) Plant assets (gross) 700,000 Liabilities and stockholders' equity Accounts payable and accrued liabilities$ (5,000) Dividends payable 160,000 Short-term bank debt 325,000 Long-term debt 110,000 Common Stock, $10 par 100,000 Additional paid-in capital 120,000 Retained earnings 290,000 The following additional information relates to 20X4: net income was $790,000; cash dividends of $500,000 were declared; building costing $600,000, with a carrying amount of $350,000, was sold for $350,000; equipment costing $110,000 was acquired through the issuance of long-term debt; and a long-term investment was sold for $135,000. There were no other transactions affecting long-term investments. 10,000 shares of common stock were issued for $22 a share. In Beal's 20X4 Statement of Cash Flows, net cash used in investing activities was $705,000. $1,190,000. $1,005,000. $165,000
Proceeds from sale of securities$ 135,000 Proceeds from sale of building 350,000 Purchase of other plant assets(1,190,000) Net cash used in investing activities$( 705,000) The plant assets (gross) account increased $700,000. $700,000 increase = -$600,000 (sale of building) + $110,000 (equipment purchase) + X. X = additional purchases of plant assets. 700+600-110 = 1.19 mil X = $1,190,000. PP&E The long-term investments were sold at a gain. That is why the change in the account ($100,000) does not equal the cash inflow from the sale. The equipment purchased with long-term debt is not listed in the investing section because no cash was used on the purchase (it is disclosed in the supplemental information). The purchase of debt securities classified as trading are classified as operating cash flow.
Baker Co. began its operations during the current year. The following is Baker's Balance Sheet at December 31: Baker Co. Balance Sheet Assets Cash$192,000 Accounts receivable 82,000 Total Assets$274,000 Liabilities and stockholders' equity Accounts payable$ 24,000 Common stock 200,000 Retained earnings 50,000 Total liabilities and stockholders' equity$274,000 Baker's net income for the current year was $78,000, and dividends of $28,000 were declared and paid. Common stock was issued for $200,000. What amount should Baker report as cash provided by operating activities in its Statement of Cash Flows for the current year? $20,000 $50,000 $192,000 $250,000
The correct calculation is $78,000 net income − $82,000 accounts receivable increase + $24,000 accounts payable increase = $20,000 = net operating cash flow.
The following items relate to the preparation of a statement of cash flows: Year 2-Year 1 Year 2 Cash$150,000-$100,000 Net sales $3,200,000 Dividends payable 35,000 CGS (2,500,000) Common stock 600,000-450,000 Expenses(500,000) Retained earnings 280,000-165,000 Net income $200,000 Capital stock was sold to provide additional working capital. Under financing activities, cash dividend payments during Year 2 amounted to $115,000. $ 85,000. $ 50,000. $ 35,000.
This answer is correct. Retained earnings increased $115,000 ($280,000 − $165,000) even though net income was $200,000 for Year 2. This indicates that dividends declared during this period amounted to $85,000 ($200,000 − $115,000). However, $35,000 of this represents a liability at the end of Year 2. Therefore, cash dividend payments for Year 2 is $50,000 ($85,000 − $35,000).
New England Co. had net cash provided by operating activities of $351,000; net cash used by investing activities of $420,000; and cash provided by financing activities of $250,000. New England's cash balance was $27,000 on January 1. During the year, there was a sale of land that resulted in a gain of $25,000, and proceeds of $40,000 were received from the sale. What was New England's cash balance at the end of the year? $ 27,000 $ 40,000 $208,000 $248,000
To calculate the cash balance at the end of the year, you should combine the effects of the changes in operating, investing, and financing activities and add the beginning cash balance. $351,000 − $420,000 + $250,000 = change in cash of $181,000 + beginning cash balance of $27,000 = $208,000 ending balance in cash.
Paper Co. had net income of $70,000 during the year. Dividend payment was $10,000. The following information is available: Mortgage repayment $20,000 Available-for-sale securities purchased 10,000 increase Bonds payable—issued 50,000 increase Inventory 40,000 increase Accounts payable 30,000 decrease What amount should Paper report as net cash provided by operating activities in its statement of cash flows for the year? $0 $10,000 $20,000 $30,000
the net cash from operating activities is $70,000 − $40,000 − $30,000 = $0. The mortgage repayment is a financing activity. The available-for-sale securities purchased are an investing activity, and the bonds issued are a financing activity.
