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Exam 16: Reporting the Statement of Cash Flows

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Question 91

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When preparing the operating activities section of the statement of cash flows using the indirect method, decreases in current operating assets are subtracted from net income.

A) True
B) False

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Question 92

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When preparing a statement of cash flows using the indirect method, which of the following is correct?

A) The declaration of a cash dividend should be a use of cash in the financing activities section.
B) The issuance of a stock dividend should be a use of cash in the financing activities section.
C) The purchase of land and a building by issuing a long-term note payable should be a source of cash in the financing activities section.
D) Proceeds from the sale of equipment should be added to net income in the operating activities section.
E) A loss on the sale of land should be added to net income in the operating activities section.

F) D) and E)
G) A) and D)

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Question 93

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Based on the information in the following income statement and balance sheet for Monterey Corporation, determine the cash flows from operating activities using the direct method. Monterey Corporation Income Statement For Year Ended December 31, 20X2 $\begin{array} { | l | l | l | } \hline \text { Sales } & & \$ 504,000 \\\hline \text { Cost of goods sold } & 327,600 & \\\hline \text { Depreciation } & 42,000 & \\\hline \text { Other operating expenses } & 125,500 & ( 495,100 \\\hline \text { Other gains (losses): } & & \\\hline \text { Gain on sgle of equipment } & & 7,200 \\\hline \text { Income before taxes } & & 16,100 \\\hline \text { Income tax expense } & & ( 4,800 \\\hline \text { Net income } & & \$ 11,300 \\\hline & &\end{array}$

The primary purpose of the statement of cash flows is to report all major cash receipts (inflows) and cash payments (outflows) during a period.

Based on the following income statement and balance sheet for Bankowski Corporation, determine the cash flows from operating activities using the indirect method. $\begin{array}{c} \text { Bankowski Corporation}\\ \text { Income Statement}\\ \text { For Year Ended December 31,20 \times 2 }\\\begin{array}{l|r|r}\hline \text { Sales } & & \$ 504,000 \\\hline \text { Cost of goods sold } & \$ 327,600 & \\\hline \text { Depreciation expense } & 33,000 & \\\hline \text { Other operating expenses } & \underline{125,500} & (486,100 \\\hline \text { Other gains (losses): } & & \\\hline \text { Gain on sale of equipment } & & 5,200 \\\hline \text { Income before taxes } & & \$ 23,100 \\\hline \text { Income tax expense } & & (4,800 \\\hline \text { Net income } & & \underline{\$ 18,300} \\\hline \end{array}\end{array}$

All of the following statements related to reporting cash flows from operating activities under U.S. GAAP and IFRS are true except:

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

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:

Use the following income statement and information about changes in noncash current assets and liabilities to (1) prepare only the cash flows from operating activities section of the statement of cash flows using the indirect method and (2) compute the company's cash flow on total assets ratio for the year assuming that average total assets are $525,250. Davey Company Income Statement For Year Ended December 31 $\begin{array} { l | l | l } \hline \text { Sales } & & \$ 80,000 \\\hline \text { Cost of goods sold } & & 487,000 \\\hline \text { Grost profit } & & \$ 393,000 \\\hline \text { Operating expenses: } & & \\\hline \text { Salaries expense } & \$ 144,000 & \\\hline \text { Rent expense } & 76,000 & \\\hline \text { Depreciation expense } & 45,000 & \\\hline \text { Amortization expens } & 22,000 & \\\hline \text { Utilities expenses } & 12,000 & 299,000 \\\hline \text { Income from operations } & & \$ 94,000 \\\hline \text { Loss on sale of equipment } & & 14,000 \\\hline \text { Income before taxes } & & \$ 80,000 \\\hline \text { Income tax expense } & & 28,500 \\\hline \text { Net Income } & & \$ 51,500 \\\hline & &\end{array}$ Changes in current asset and current liability accounts for the year that relate to operations follow. $\begin{array} { l | l } \text { Increase in accounts receivable } & \text { \$ } 32,000 \\\hline \text { Increase in accounts payable (all accounts } & \\\hline \text { payable transactions are for inventory) } & 13,500 \\\hline \text { Decrease in prepaid expenses } & 9,200 \\\hline \text { Decrease in merchandise inventory } & 14,000 \\\hline \text { Decrease in long-term notes payable } & 20,000\end{array}$

All of the following statements related to preparation of the statement of cash flows under U.S. GAAP and IFRS are true except:

Stormer Company reports the following amounts on its statement of cash flow: Net cash provided by operating activities was $28,000; net cash used in investing activities was $10,000 and net cash used in financing activities was $12,000. If the beginning cash balance is $5,000, what is the ending cash balance?

A purchase of land in exchange for a long-term note payable must be disclosed as a noncash investing and financing activity.

The reporting of financing activities in the statement of cash flows is identical under either the direct or indirect methods.

The FASB requires a reconciliation of net income to net cash provided or used by operating activities when the ________ method is used.

The cash flow on total assets ratio is computed by dividing cash flows from operations by average total assets.

Explain the use of a spreadsheet in the preparation of the statement of cash flows.

Which of the following is included in the cash flows from financing activities section of the statement of cash flows?

Since it is recommended by the FASB, the direct method of preparing the statement of cash flows is most frequently used.

The reporting of investing and financing activities is ________ under the direct and indirect methods of preparing the statement of cash flows.

Analysis reveals that a company had a net increase in cash of $20,000 for the current year. Net cash provided by operating activities was $18,000; net cash used in investing activities was $10,000 and net cash provided by financing activities was $12,000. If the year-end cash balance is $24,000, the beginning cash balance was: