Question 1

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

Accepted Answer

The answer of The FASB requires a reconciliation of net...

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A)  Interest expense. 
B)  Sale of equipment. 
C)  Interest revenue. 
D)  Purchase of stock in another company. 
E)  Purchase of treasury stock. 
A)  Interest expense. 
B)  Sale of equipment. 
C)  Interest revenue. 
D)  Purchase of stock in another company. 
E)  Purchase of treasury stock.

Question 4

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

Accepted Answer

A)  The definition of cash and cash equivalents is similar for U.S. GAAP and IFRS. 
B)  U.S. GAAP requires cash outflows for interest expense to be classified as financing activities. 
C)  U.S. GAAP requires cash flows from interest revenue and dividend revenue be classified as operating activities. 
D)  IFRS permits classification of interest expense under operating or financing activities. 
E)  IFRS permits classification of interest revenue and dividend revenue under operating or investing activities. 
A)  The definition of cash and cash equivalents is similar for U.S. GAAP and IFRS. 
B)  U.S. GAAP requires cash outflows for interest expense to be classified as financing activities. 
C)  U.S. GAAP requires cash flows from interest revenue and dividend revenue be classified as operating activities. 
D)  IFRS permits classification of interest expense under operating or financing activities. 
E)  IFRS permits classification of interest revenue and dividend revenue under operating or investing activities.

Question 5

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.
 $$\begin{array} { l | l } 
\text { Increase in accounts receivable } & \text { \$ } 32,000 \
\hline \text { Increase in accounts payable (all accounts } & \
\hline \text { payable transactions are for inventory) } & 13,500 \
\hline \text { Decrease in prepaid expenses } & 9,200 \
\hline \text { Decrease in merchandise inventory } & 14,000 \
\hline \text { Decrease in long-term notes payable } & 20,000
\end{array}$$

Accepted Answer

(2) $137,2

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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 $}\\begin{array}{l|r|r}
\hline \text { Sales } & & \$ 504,000 \
\hline \text { Cost of goods sold } & \$ 327,600 & \
\hline \text { Depreciation expense } & 33,000 & \
\hline \text { Other operating expenses } & \underline{125,500} & (486,100 \
\hline \text { Other gains (losses): } & & \
\hline \text { Gain on sale of equipment } & & 5,200 \
\hline \text { Income before taxes } & & \$ 23,100 \
\hline \text { Income tax expense } & & (4,800 \
\hline \text { Net income } & & \underline{\$ 18,300} \
\hline 
\end{array}\end{array}$

Accepted Answer

Bankowski Corporation
Cash flows from op

Question 8

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
 
  $$\begin{array} { | l | l | l | } 
\hline \text { Sales } & & \$ 504,000 \
\hline \text { Cost of goods sold } & 327,600 & \
\hline \text { Depreciation } & 42,000 & \
\hline \text { Other operating expenses } & 125,500 & ( 495,100 \
\hline \text { Other gains (losses): } & & \
\hline \text { Gain on sgle of equipment } & & 7,200 \
\hline \text { Income before taxes } & & 16,100 \
\hline \text { Income tax expense } & & ( 4,800 \
\hline \text { Net income } & & \$ 11,300 \
\hline & &
\end{array}$$

Accepted Answer

None

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A)  Why is cash flow from operations different from income? 
B)  What is the source of cash for new plant assets? 
C)  How much of the company's revenues have been retained as profit? 
D)  How much cash is generated from or used in operations? 
E)  How is the increase in investments financed? 
A)  Why is cash flow from operations different from income? 
B)  What is the source of cash for new plant assets? 
C)  How much of the company's revenues have been retained as profit? 
D)  How much cash is generated from or used in operations? 
E)  How is the increase in investments financed?

Question 11

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?

Accepted Answer

A)  $31,000. 
B)  $45,000. 
C)  $6,000. 
D)  $55,000. 
E)  $11,000. 
A)  $31,000. 
B)  $45,000. 
C)  $6,000. 
D)  $55,000. 
E)  $11,000.

Question 12

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:

Accepted Answer

A)  $(7,000). 
B)  $7,000. 
C)  $(57,000). 
D)  $(60,000). 
E)  $(3,000). 
A)  $(7,000). 
B)  $7,000. 
C)  $(57,000). 
D)  $(60,000). 
E)  $(3,000).

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

The answer of The reporting of investing and financing activities...

Question 15

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

Accepted Answer

A spreadsheet can help organize the info

Question 16

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

Accepted Answer

A)  Both U.S. GAAP and IFRS permit the reporting of cash flows from operating activities using either the direct or indirect method. 
B)  IFRS permits classification of cash outflows for interest expense under operating or financing based on which one results in better cash flows from operating activities. 
C)  IFRS permits classification of interest expense under operating or financing activities provided it is consistently applied across periods. 
D)  IFRS permits the splitting of income tax cash flows among operating, investing, and financing depending on the sources of that tax. 
E)  U.S. GAAP requires cash outflows for income tax be classified as operating activities. 
A)  Both U.S. GAAP and IFRS permit the reporting of cash flows from operating activities using either the direct or indirect method. 
B)  IFRS permits classification of cash outflows for interest expense under operating or financing based on which one results in better cash flows from operating activities. 
C)  IFRS permits classification of interest expense under operating or financing activities provided it is consistently applied across periods. 
D)  IFRS permits the splitting of income tax cash flows among operating, investing, and financing depending on the sources of that tax. 
E)  U.S. GAAP requires cash outflows for income tax be classified as operating activities.

Question 17

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.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

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. 
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.

Question 20

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:

Accepted Answer

A)  $40,000. 
B)  $4,000. 
C)  $44,000. 
D)  $39,000. 
E)  $16,000. 
A)  $40,000. 
B)  $4,000. 
C)  $44,000. 
D)  $39,000. 
E)  $16,000.

Exam 16: Reporting the Statement of Cash Flows

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

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

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

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

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

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

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:

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

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

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

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

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.

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

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

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets Natural Resoures and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Capital Budgeting and Managerial Decisions

Present and Future Values in Accounting

Activity-Based Costing

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