Exam 17: Statement of Cash Flows

The FASB addressed simultaneous financing and investing activities by requiring they be

Accrual accounting is often based upon subjective judgments that can introduce measurement errors and uncertainty into reported earnings.

Investing transactions that do not directly and immediately affect cash are

An increase in accounts payable of $6,000 for the year increases cash flow from operating activities by $6,000.

Current GAAP requires firms to use the direct method when preparing the operating activities section of the statement of cash flows because it is more informative and transparent.

Depreciation expense is the most common adjustment under the indirect method because it does not cause cash to increase or decrease.

Changes in the balance sheet accounts at June 30, 2014 and 2015 for the Poker Company are presented below: $\begin{array}{lr}\text { Assets } & \begin{array}{r}\text { Increase } \\\text { (Decrease }\end{array} \\\text { Cash } & \$ 80,000 \\\text { Accounts receivable } & 200,000 \\\text { Lnventory } & 300,000 \\\text { Long-term investments } & 200,000 \\\text { Equipment } & (200,000 \\\text { Accumulated depreciation } & (60,000)\\\\\text { Liabilities and Stockholders' Equity }\\\text {Accounts payable }&\$(40,000)\\\text {Dividends payable}&400,000\\\text {Notes payable-Current }&(200,000)\\\text {Notes payable-Long-term }&400,000\\\text {Common stock, \$ 1.00 par }&300,000\\\text {Additional paid-in capital }&100,000\\\text {Retained eamings }&80,000\\\end{array}$ Additional Information for 2015: Net income was $480,000 and dividends of $400,000 were declared. Common stock was issued for cash. A Long-term investment was sold for $160,000. A new Long-term investment was acquired for $360,000. Equipment that cost $600,000 was sold for $200,000. The book value of those assets was $150,000. -The purchase of equipment during 2015 is

A decrease in prepaid expenses of $8,000 for the year

The Gopher Company's transactions during 2015 included the following: • Paid cash dividends totaling $1,200,000. • Paid $900,000 cash toward a long-term note payable. • Issued common stock in exchange for a building valued at $750,000. • Issued bonds with a maturity value of $2,000,000 in exchange for $1,950,000 cash. • Paid $50,000 cash for bond interest. • $2,250 of bond discount amortization was recorded. • Issued preferred stock for $250,000 cash. • A long-term stock investment with a book value of $79,000 was sold for $123,000 cash. • Sold equipment for cash;the equipment's book value at the time of sale was $90,000 and the sale resulted in a $15,000 loss. Required: 1.Determine the net cash flow from investing activities for 2015. 2.Determine the net cash flow from financing activities for 2015.

Changes in the balance sheet accounts at June 30, 2014 and 2015 for the Poker Company are presented below: $\begin{array}{lr}\text { Assets } & \begin{array}{r}\text { Increase } \\\text { (Decrease }\end{array} \\\text { Cash } & \$ 80,000 \\\text { Accounts receivable } & 200,000 \\\text { Lnventory } & 300,000 \\\text { Long-term investments } & 200,000 \\\text { Equipment } & (200,000 \\\text { Accumulated depreciation } & (60,000)\\\\\text { Liabilities and Stockholders' Equity }\\\text {Accounts payable }&\$(40,000)\\\text {Dividends payable}&400,000\\\text {Notes payable-Current }&(200,000)\\\text {Notes payable-Long-term }&400,000\\\text {Common stock, \$ 1.00 par }&300,000\\\text {Additional paid-in capital }&100,000\\\text {Retained eamings }&80,000\\\end{array}$ Additional Information for 2015: Net income was $480,000 and dividends of $400,000 were declared. Common stock was issued for cash. A Long-term investment was sold for $160,000. A new Long-term investment was acquired for $360,000. Equipment that cost $600,000 was sold for $200,000. The book value of those assets was $150,000. -The net cash flow from operating activities for 2015 is a

The most popular method used by the majority of firms for reporting operating activities is the indirect method.

A company issued 1,000 shares of $10 par value common stock due to a previously declared stock dividend;the market value at both the date of declaration and distribution was $12 per share.Which of the following correctly describes the reporting of this stock issue within the financing activities section of the cash flow statement?

Which of the following transactions would not be reported within the financing activities section of the cash flow statement?

Cannon Company has the following information for the year ending December 31,2015: • Long-term debt of $18,000 was issued for cash. • Cash paid for labor during 2015 amounted to $489,500. • During the year,Cannon experienced a pension outflow of $14,000. • Dividends of $34,000 were received. • Cannon's cash balance at the beginning of 2015 was $975,000;at the end of 2015 the cash balance was $839,500. • The company made an investment of $310,000 in an affiliate company. • A lease payment of $110,000 was made on November 1,2015.There is no asset recorded in connection with the lease. • During the year,Cannon collected $780,000 cash from customers. • Cash paid for income taxes amounted to $56,000 for all of 2015. • During 2015,Cannon discontinued its consumer electronics division.The business was sold resulting in a $12,000 net cash inflow. Required: Prepare Cannon Company's statement of cash flows for the year ending December 31,2015.

An increase in prepaid expenses of $8,000 for the year increases cash flow from operating activities by $8,000.

Firms using the indirect method must also provide a reconciliation between accrual earnings and cash flows from operating activities.

The changes in the working capital accounts are the major sources and uses of cash flows from operating activities.

Current GAAP for preparing the statement of cash flows using the direct method requires cash flows from "interest paid" and "interest received" to be shown as operating activities.

The Superior Real Estate Corporation reported rental income totaling $175,000 for the year ending December 31,2015.The following information was obtained from Superior Corporation's balance sheets: Unearned Rent \ 7,500 \ 6,750 Rent Receivable \ 9,250 \ 6,750 How much cash did Superior collect from its tenants during 2015?

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