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Exam 13: Statement of Cash Flows

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Question 41

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Free cash flow measures the sufficiency of cash flow from operating activities to cover both capital expenditures for property,plant and equipment as well as the payment of dividends.

A) True
B) False

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Question 42

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When a company sells equipment for cash at a loss,cash flows from investing activities decreases.

A) True
B) False

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Question 43

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When a company purchases equipment using common stock,the equipment purchase is reported as a financing activity.

KJ Company,a manufacturer,has provided the following information pertaining to its recent year of operation: Cash flow from operating activities,$136,000; Accounts payable increased $11,000; Prepaid assets decreased $8,000; Depreciation expense was $12,000; Accounts receivable increased $23,000; Loss on sale of a depreciable asset was $6,000; Wages payable decreased $9,000; Unearned revenue decreased $19,000; Patent amortization expense was $3,000. How much was KJ's net income?

Which of the following would not be a cash flow from investing activities?

Which of the following items about the statement of cash flows is correct?

Brice Corporation reported the following information: $\begin{array}{lr}\text {2010 Income Statement:}\\\text { Sales Revenue } & \$ 8,200,000 \\\text { Cost of goods sold } & \underline{6,400,000}\\\text { Gross profit } & 1,800,000\\\text { Operating expenses (includes } \$ 200,000 \text { depreciation expense) } & \underline{1,250,000} \\\text { Pretax income } &550,000\\\text { Income tax expense ( } 30 \% \text { rate) } & \underline{165,000}\\\text { Net Income }&\$ 385,000 \end{array}$ $\underline { \text { Balance Sheet: } }$ $\begin{array} { l r r } & \underline { 2010 } & \underline { 2009 } \\ \text { Accounts receivable } & \$ 800,000 & \$ 600,000 \\ \text { Inventory } & 520,000 & 480,000 \\ \text { Prepaid expenses } & 110,000 & 120,000 \\ \text { Accounts payable } & 340,000 & 310,000 \\ \text { Accrued liabilities } & 80,000 & 90,000 \\ \text { Income taxes payable } & 25,000 & 40,000 \\ \text { Unearned revenue } & 100,000 & 200,000 \end{array}$ Compute Brice's cash paid to suppliers for inventory for 2010.

Use the following information to prepare a statement of cash flows for Stable Equipment Company for the year ended December 31,2010: Net income for the year 2010 was $5,000.Accounts receivable decreased $2,000,while inventories increased $4,000,and accounts payable decreased $7,000.Depreciation expense included in net income was $8,000. During the year,a piece of land held for future expansion was sold for its book value of $8,000 and a new service truck was purchased for $14,000. The company borrowed $18,000 on a two-year note from the bank.Dividends of $6,000 were paid in cash.Preferred stock was issued to retire $7,000 of long-term notes payable. The beginning cash balance was $10,000 and the ending balance was $20,000.

The quality of income ratio increases when depreciation expense is recorded.

A company reported an increase in accounts receivable and an increase in unearned revenues during 2010.Which of the following statements is correct?

When a company both borrows $150 million during the year and repays $120 million of notes,the company can disclose the $30 million net amount as excess of borrowings over repayments in the financing activities section of the statement of cash flows.

A company reported an increase in accrued revenues and a decrease in unearned revenues during 2010.Which of the following statements is correct?

The quality of income ratio decreases when cash is used to pay accounts payable.

Brice Corporation reported the following information: $\begin{array}{lr}\text {2010 Income Statement:}\\\text { Sales Revenue } & \$ 8,200,000 \\\text { Cost of goods sold } & \underline{6,400,000}\\\text { Gross profit } & 1,800,000\\\text { Operating expenses (includes } \$ 200,000 \text { depreciation expense) } & \underline{1,250,000} \\\text { Pretax income } &550,000\\\text { Income tax expense ( } 30 \% \text { rate) } & \underline{165,000}\\\text { Net Income }&\$ 385,000 \end{array}$ $\underline { \text { Balance Sheet: } }$ $\begin{array} { l r r } & \underline { 2010 } & \underline { 2009 } \\ \text { Accounts receivable } & \$ 800,000 & \$ 600,000 \\ \text { Inventory } & 520,000 & 480,000 \\ \text { Prepaid expenses } & 110,000 & 120,000 \\ \text { Accounts payable } & 340,000 & 310,000 \\ \text { Accrued liabilities } & 80,000 & 90,000 \\ \text { Income taxes payable } & 25,000 & 40,000 \\ \text { Unearned revenue } & 100,000 & 200,000 \end{array}$ Compute Brice's cash paid for income taxes in 2010.

Cash flows from financing activities include those cash flows with respect to paying previously declared dividends.

Which of the following statements does not correctly describe an adjustment to net income when determining cash flows from operating activities when using the indirect method?

A Company reported net income of $200,000 during 2010.The company reported depreciation expense of $35,000,patent amortization of $10,000 and a $5,000 loss on the sale of equipment.Based on the information provided,how much is the company's cash flow from operating activities?

A company reported an increase in accounts payable and a decrease in inventory during 2010.Which of the following statements is correct?

The following information was available from the financial statements of Collateral,Inc.for the years 2010 and 2009 (in millions of dollars): $\begin{array}{lrr} & \underline{2010}& \underline{2009}\\\text { Cash flow from operating activities } & \$ 5,968 & \$ 5,456 \\\text { Cash paid for purchases of property, plant and equipment } & 755 & 812 \\\text { Property, plant and equipment, net } & 6,091 & 6,097\end{array}$ Requirements: A.Calculate the capital acquisitions ratio for each of the two years. B.Comment on the sufficiency of the capital acquisitions ratio for the two years.

Cash collected from customers is a cash flow from operating activities,which is calculated using the indirect method in preparing the statement of cash flows