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Exam 13: Statement of Cash Flows

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Question 51

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Which of the following statements regarding use of the direct and indirect methods of determining cash flows from operating activities is incorrect?

A) The indirect method starts with net income.
B) The direct method calculates cash collected from customers.
C) The majority of U.S.companies use the indirect method.
D) The FASB recommends use of the indirect method.

E) A) and B)
F) All of the above

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Question 52

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Halbur Company reported the following for its recent year of operation: $\begin{array}{l}\text { From the income statement: }\\\begin{array} { l r } \text { Depreciation expense } & \$ 1,000 \\\text { Loss on sale of equipment } & 3,000 \\\text { From the comparative balance sheet: } & \\\text { Beginning balance, equipment } & \$ 12,500 \\\text { Ending balance, equipment } & 8,000 \\\text { Beginning balance, accumulated depreciation } & 2,000 \\\text { Ending balance, accumulated depreciation } & 2,400\end{array}\end{array}$ No new equipment was purchased during the year.What was the selling price of the equipment?

A) $3,900
B) $1,000
C) $900
D) $600

E) A) and B)
F) B) and C)

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Question 53

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Which of the following statements about the capital acquisitions ratio is correct?

Below is the 2011 income statement for the Critters Corporation. Critters Corporation Income Statement For the Year Ended December 31, 2011 $\begin{array} { l r r } \text { Net sales } & & \$ 100,000 \\ \text { Cost of goods sold } & &\underline {( 40,000)} \\ \text { Gross profit on sales } & & \$ 60,000\\ \text { Various operating expenses } & \$ 25,000 & \\ \text { Depreciation expense } & 5,000 & \\ \text { Interest expense } & 2,000 & \\ \text { Income tax expense } & \underline {( 4,000)} & \underline { ( 36,000 ) }\\ \text { Net income } & & \underline { \underline {( \$ 24,000)}}\end{array}$ Additional Information: Accounts receivable increased by $8,000 Merchandise inventory increased by $4,000 Accounts payable increased by $6,000 Prepaid expenses decreased by $2,000 Accrued liabilities decreased by $5,000 Interest payable increased by $1,000 Prepare the operating activities section of the statement of cash flows using the indirect method.

Amortization of a patent reduces cash flows from investing activities.

Which of the following transactions would not create a cash flow from operating activities?

Milliken Company paid $2.2 million to purchase stock in another company,$1.0 million to repurchase treasury shares,$.5 million to buy short-term investments,sold used equipment for $.8 million when its book value was $.6 million,and purchased new equipment for $3.4 million.How much will be reported as net investing cash flow?

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

Which of the following transactions would be reported as a cash flow from financing activities?

The difference between the indirect and direct methods of cash flow determination only affects the determination of investing activities cash flows.

Describe the three cash flow classifications that are reported within a statement of cash flows.

Aaron Inc.reported operating expenses during 2011 of $765,000 (including $80,000 of depreciation expense) .Prepaid expenses increased $25,000 while accrued liabilities increased $43,000.How much cash was paid for operating expenses during 2011?

Roberts Company sold equipment for $250,000,purchased a building for $6,500,000,sold short-term investments for $280,000,repaid principal on a note payable for $2,300,000 plus $230,000 of interest,and paid cash dividends of $20,000.How much was the net cash flow from investing activities?

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 operating expenses for 2010.

Complete the following statement of cash flows using the indirect method:

When accrued liabilities increase from the beginning to the end of the year,it means accrued expenses were greater than cash payment of such expenses so the increase would be added to net income to convert to cash flow from operating activities under the indirect method.

Under the indirect method,an increase in accounts receivable during the year will be added to net income.

The statement of cash flows explains how the cash balance changed during a particular period of time.

During 2011,Tommy's Toys reported the following: short-term borrowings of $419 million; long-term borrowings of $147 million; long-term debt repayments of $45 million; interest paid,$128 million; treasury shares repurchased $632 million; and exercise of stock options by employees,$2 million.How much is net cash flow from financing activities during 2011?

Which of the following transactions decreases the quality of income ratio?