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Exam 14: The Statement of Cash Flows

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Question 51

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Which of the following sections from the statement of cash flows includes the cash paid for the purchase of Treasury Stock?

A) the financing activities section
B) the operating activities section
C) the investing activities section
D) the non-cash investing and financing section

E) None of the above
F) C) and D)

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Question 52

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Nelson Corp.uses the indirect method to prepare the statement of cash flows.Refer to the following section of the comparative balance sheet: $\begin{array}{c}\text {Nelson Corp.}\\\text {Comparative Balance Sheet}\\\text {December 31, 2017 and 2016}\\\begin{array}{|l|r|r|r|}\hline& 2017 & 2016 & \text { Increase/(Decrease) } \\ \hline\text { Accounts Payable } & \$ 8,000 & \$ 9,000 & \$(1,000) \\\hline \text { Accrued Liabilities } & 3,000 & 1,500 & 1,500 \\\hline \text { Long-term Notes Payable } & \underline{56,00} & \underline{60,000} & \underline{(4,000)} \\\hline \text { Total Liabilities } & \$ 67,00 & \$ 70,500 & \$(3,500) \\\hline\end{array}\end{array}$ The change in Accounts Payable is as a negative cash flow in the adjustments to net income.

A) True
B) False

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Question 53

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Starfire Telescopes Company uses the indirect method to prepare the statement of cash flows.Refer to the following income statement: $\begin{array}{c} \text {Starfire Telescopes Company } &\\ \text { Income Statement } &\\ \text { Year Ended December 31, 2017 } &\end{array}$ $\begin{array}{ll}\text { Sales Revenue } & \$ 275,000 \\\text { Interest Revenue } & \underline{2,600} \\\text { Total Revenues } &&\$277,600 \\\text { Cost of Goods Sold } & 135,000 \\\text { Salary Expense } & 66,500\\\text { Depreciation Expense } & 32,000 \\\text { Other Operating Expenses } & 35,900 \\\text { Interest Expense } & 2,400 \\\text { Income Tax Expense } & 6,500 \\\text { Loss on Sale of Plant Assets } & \underline{2,000} \\\text { Total Expenses } &&\underline{280,300} \\\text { Net Loss }&&\underline{(\$2,700)}\end{array}$ Additional information provided by the company includes the following: Current assets other than cash decreased by $25,000. Current liabilities increased by $3,000. Prepare the operating activities section of the statement of cash flows.

Colorful Cat Company uses the direct method to prepare its statement of cash flows.Refer to the following financial statement information for the year ending December 31,2017: $\begin{array}{c}\text {Colorful Cat Company }\\\text {Income Statement}\\ \text {Year Ended December 31, 2017}\\\begin{array}{|l|r|l|}\hline & 2017 & 2016 \\\hline \text { Sales Revenue } & \$ 289,400 & \\\hline \text { Interest Revenue } & 2,900 & \\\hline \text { Gain on Sale of Plant Assets } & 6,000 & \\\hline \text { Total Revenues and Gains } & & \$ 298,300 \\\hline \text { Cost of Goods Sold } & 146,100 \\\hline \text { Salaries and Wages Expense } & 49,700 \\\hline \text { Depreciation Expense - Plant Assets } & 16,000 \\\hline \text { Other Operating Expense } & 23,200 \\\hline \text { Interest Expense } & 3,500 \\\hline \text { Income Tax Expense } & \text { 7,800 } \\\hline \text { Total Expenses } & & 246,300 \\\hline \text { Net Income } & & \$ 52,000 \\\hline\end{array}\end{array}$ $\begin{array} {c } \text { Colorful Cat Company } \\\text { Statement of Retzined Earnings } \\\text { Year Ended December 31, 2017 }\\ { \begin{array} { |l | r| } \hline \text { Retained Earnings, January 1, 2017 } & \$ 78,000 \\\hline \text { Add: Net income } & 52,000 \\\hline \text { Less: Dividends } & \underline { 15,000 } \\\hline \text { Retained Earnings, December 31,2017 } & \$ 115,000 \\\hline\end{array} } \end{array}$ Prepare the operating activities section of the statement of cash flows,using the direct method.

When preparing the statement of cash flows using the indirect method,depreciation expense is subtracted from net income under operating activities.

While preparing a statement of cash flows using the indirect method,an increase in current assets is added to net income to arrive at net cash flow from operating activities.

The three sections of the statement of cash flows report only activities that involve cash.

Harrison Recyclers Company uses the indirect method to prepare its statement of cash flows.Refer to the following information for 2017: 1.Retained Earnings,beginning balance,$138,000 2.Retained Earnings,ending balance,$122,000 3.There is a net loss of $15,000 for the year. What is the amount of dividends declared during the year?

Manning Tint,Inc.uses the indirect method to prepare its statement of cash flows.Refer to the following portion of the comparative balance sheet: $\begin{array}{c}\text { Manning Tint, Inc.}\\\text { Comparative Balance Sheet}\\\text { December 31,2017 and 2016}\\\begin{array}{|l|r|r|r|}\hline& 2017 & 2016 & \text { Increase/(Decrease) } \\ \hline \text { Cash } & \$ 28,000 & \$ 25,000 & \$ 3,000 \\\hline \text { Accounts Receivable } & 32,000 & 38,000 & (6,000 \\\hline \text { Merchandise Inventory } & 55,000 & 25,000 & 30,000 \\\hline \text { Plant and Equipment } & 126,000 & 93,000 & 33,000 \\\hline \text { Accumulated Depreciation-Plant } & & & \\\text { and Equipment } & \underline{44,000} & \underline{(45,000} & \underline{(81,000) } \\\hline \text { Total Assets } & \$ 197,000 & \$ 136,000 & \$ 141,000 \\\hline\end{array}\end{array}$ Additional information provided by the company includes the following: 1.Equipment was purchased for $66,000. 2.Equipment with a cost of $37,000 and accumulated depreciation of 7,200 was sold for $49,000. What was the amount of net cash provided by (used for) investing activities?

Free cash flow is the amount of cash available from operating activities before paying for planned investments in long-term assets.

Ocean Auto Parts Company uses the direct method to prepare its statement of cash flows.Refer to the following information reported for 2017: 1.Sales Revenue,$520,000 2.Accounts Receivable,beginning balance,$99,000 3.Accounts Receivable,ending balance,$62,000 Compute the collections from customers.

Buying property,plant,and equipment for cash is considered a cash outflow for the financing activities section of the statement of cash flows.

Free cash flow is calculated by adding cash payments planned for investments in long-term assets and cash dividends to the amount of net cash provided by operating activities.

The net cash flow from operating activities is calculated in the same way,whether the company uses the direct or the indirect method of preparing the statement of cash flow.

Tritan Company is preparing its statement of cash flows using the indirect method.Refer to the following portion of the comparative balance sheet: $\begin{array}{c}\text {Tritan Company}\\\text { Comparative Balance Sheet}\\\text { December 31,2017 and 2016}\\\begin{array}{|l|r|r|r|}\hline&2017 & 2016 & \text { Increase/(Decrease) }\\\hline \text { Accounts Payable } & \$ 7,000 & \$ 5,000 & \$ 2,000 \\\hline \text { Accrued Liabilities } & 3,500 & 1,100 & 2,400 \\\hline \text { Long-term Notes Payable } & \underline{56,00} & \underline{67,000} & \$(11,000 \\\hline \text { Total Liabilities } & \$ 66,500 & \$ 73,100 & \$(6,600) \\\hline\end{array}\end{array}$ Additional information provided by the company includes the following: 1.During 2016,the company repaid $35,000 of long-term notes payable. 2.During 2016,the company borrowed $24,000 on a new note payable. Based on the above information only,what amount of net cash flow would be shown in the financing section of the statement of cash flows?

The cash flow from investing activities section appears exactly the same,whether the company uses the direct or the indirect method to prepare the statement of cash flows.

Tuesday Electric Company uses the direct method to prepare its statement of cash flows.Tuesday has reported operating expenses of $63,000 on its income statement for the year 2017.If the balance in accrued liabilities has increased by $6,000 during the year,then $6,000 needs to be added to $63,000 to calculate payments to suppliers for operating expenses.

Cash received from the issuance of notes payable is a(n) ________ activity on the statement of cash flows.

Which of the following statements is true of the direct and indirect methods of preparing the statement of cash flows?

List and discuss three ways in which the statement of cash flows helps financial statement users.