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Exam 12: Reporting Cash Flows

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Question 101

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A cash coverage of growth ratio of less than 1 indicates cash inadequacy to meet asset growth.

A) True
B) False

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Question 102

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Fernwood Company is preparing the company's statement of cash flows for the fiscal year just ended. The following information is available: Retained earnings balance at the beginning of the year $233,000 Cash dividends declared for the year 50,000 Proceeds from the sale of equipment 85,000 Gain on the sale of equipment 4,500 Cash dividends payable at the beginning of the year 22,000 Cash dividends payable at the end of the year 30,000 Net income for the year 110,000 The amount of cash paid for dividends was:

A) $52,000.
B) $60,000.
C) $58,000.
D) $50,000.
E) $42,000.

F) C) and D)
G) B) and C)

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Question 103

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Information to prepare the statement of cash flows usually comes from (a) comparative balance sheets, (b) current income statement, and (c) additional information.

The use of a spreadsheet for analysis is especially useful when preparing the statement of cash flows using the ________ method.

Northington, Inc. is preparing the company's statement of cash flows for the fiscal year just ended. Using the following information, determine the amount of cash flows from operating activities using the indirect method: $\begin{array} { | l | r | } \hline \text { Net income } & \$ 182,000 \\\hline \text { Gain on the sale of equipment } & 12,300 \\\hline \text { Proceeds from the sale of equipment } & 92,300 \\\hline \text { Depreciation expense- equipment } & 50,000 \\\hline \text { Payment of bonds at maturity } & 100,000 \\\hline \text { Purchase of land } & 200,000 \\\hline \text { Issuance of common stock } & 300,000 \\\hline \text { Increase in merchandise inventory } & 35,400 \\\hline \text { Decrease in accountsreceivable } & 28,800 \\\hline \text { Increase in accounts payable } & 23,700 \\\hline \text { Payment of cash dividends } & 32,000\\\hline \end{array}$

Cash flows are essentially the same as net income because they are both measured using accrual accounting principles.

A machine with a cost of $130,000, current year depreciation expense of $17,000 and accumulated depreciation of $85,000 is sold for $40,000 cash. The total amount that should be reported in the operating section of the statement of cash flow as per indirect method is:

The statement of cash flows explains how transactions and events impact the end-of-period cash balance to produce the end-of-period net income.

A company purchased equipment for $150,000 by paying $50,000 and signing a $100,000 note payable. The entire transaction is disclosed to users in the financing section of the statement of cash flows.

The cash flow on total assets ratio reflects actual cash flows and is therefore affected by income recognition and measurement.

A company reported that its bonds with a par value of $50,000 and a carrying value of $57,000 are retired for $60,000 cash, resulting in a loss of $3,000. The amount to be reported under cash flows from financing activities is:

The statement of cash flows cannot help address questions such as:

A company's income statement showed the following: net income, $134,000; depreciation expense, $30,000; and gain on sale of plant assets, $4,000. An examination of the company's current assets and current liabilities showed the following changes as a result of operating activities: accounts receivable decreased $9,400; merchandise inventory increased $18,000; prepaid expenses increased $6,200; accounts payable increased $3,400. Calculate the net cash provided or used by operating activities.

Alvez reports net income of $305,000 for the year ended December 31. It also reports $93,700 depreciation expense and a $10,000 loss on the sale of equipment. Its comparative balance sheet reveals a $40,200 increase in accounts receivable, a $10,200 decrease in prepaid expenses, a $15,200 increase in accounts payable, a $12,500 decrease in wages payable, a $75,000 increase in equipment, and a $100,000 decrease in notes payable. Calculate the net increase in cash for the year.

The gain or loss from retirement of debt is reported under cash flows from operating activities on the statement of cash flows using the direct method.

A company reported average total assets of $501,000 in Year 1 and $611,000 in Year 2. Its net operating cash flow in Year 1 was $41,500 and $55,250 in Year 2. Calculate its cash flow on total assets ratio for both years. Comment on the results.

A purchase of land in exchange for shares of stock is disclosed at the bottom of the statement of cash flows or in a note to the statement.

The purchase of long-term assets by issuing a note payable for the entire amount is reported on the statement of cash flows in the:

Managers only use the cash flow statement to evaluate the net cash increase or decrease, and do not pay much attention to the details of cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities.

Use the information provided to calculate the missing cash received for interest for the period. $\begin{array}{|l|lcc|} \hline \text {Interest receivable, beginning-year\ldots \ldots \ldots \ldots \ldots \ldots \ldots } & \$800 \\ \text { Interest revenue.\ldots \ldots \ldots \ldots \ldots \ldots \ldots } &12,600\\ \hline\text { Interest receivable, year-end.\ldots \ldots \ldots \ldots \ldots \ldots \ldots} &1,200\\\hline \text { Cash received for interest.\ldots \ldots \ldots \ldots \ldots \ldots \ldots } &\\\hline\\\hline\end{array}$