Exam 16: The Statement of Cash Flows

The statement of cash flows explains why net income as reported on the income statement does not equal the change in the cash balance.

Investors who want to know the amount of cash a company has available for new opportunities,such as expanding into a new sales region,should analyze the company's free cash flow.

Greene Electric Company uses the direct method to prepare its statement of cash flows.Greene has reported cost of goods sold of $85,000 on its income statement for 2018.If the balance in Accounts Payable,for merchandise inventory suppliers only,has decreased by $8,000 during the year,then $8,000 needs to be subtracted from $85,000 to calculate payments to suppliers for merchandise inventory purchases.

Oklahoma Corp.uses the indirect method to prepare its statement of cash flows.Refer to the following information for 2018: 1.Long-Term Notes Payable,beginning balance,$85,000 2)Long-Term Notes Payable,ending balance,$75,000 3)Common Stock,beginning balance,$3000 4)Common Stock,ending balance,$28,000 5)Retained Earnings,beginning balance,$76,000 6)Retained Earnings,ending balance,$118,000 7)Treasury Stock,beginning balance,$5500 8)Treasury Stock,ending balance,$10,100 9)No stock was retired. 10)No treasury stock was sold. 11)During 2018,the company repaid $35,000 of long-term notes payable. 12)During 2018,the company borrowed $25,000 on new long-term notes payable. 13)Net income for the year was $49,000. 14)Assume all dividends declared during the year were paid. What is the net cash provided by financing activities?

Wisconsin,Inc.owed one of its creditors $350,000,but it did not have enough cash to repay the debt.Following lengthy negotiations,the parties agreed that Wisconsin,Inc.would issue 50,000 shares of common stock to settle the debt.On the statement of cash flows,this transaction is shown in the ________.

Which of the following appears on a statement of cash flows prepared using the direct method?

The indirect and direct methods use different computations but produce the same amount of net cash provided by operating activities.

IFRS requires the use of the indirect method for the operating activities section of the statement of cash flows.

Which of the following describes the financing activities section of the statement of cash flows?

Which of the following sections of the statement of cash flows include activities that affect current assets and current liabilities on the balance sheet? (Assume the indirect method is used.)

One of the purposes of the statement of cash flows is to ________.

The ________ section of the statement of cash flows includes increases and decreases in long-term assets.

The purchase of equipment financed by a long-term notes payable is an example of ________.

List (in the correct order)and briefly discuss the five steps that are followed when preparing the statement of cash flows by the indirect method.

Which of the following is considered an operating activity on the statement of cash flows prepared using the direct method?

Wyoming Company uses the indirect method to prepare its statement of cash flows.Refer to the following portion of the comparative balance sheet: Wyoming Company Comparative Balance Sheet December 31,2018 and 2017 2018 2017 Increase/(Decrease) Common Stock \ 18,000 \ 12,400 \ 5600 Retained Earnings 113,000 80,000 33,000 Treasury Stock (8000 (5400) (2600 Total Equity \ 123,000 \ 87,000 \ 36,000 Note: 1)There was no retirement of stock during the year. 2)There were no sales of treasury stock during the year. Which of the following statements is correct?

The third section presented on the statement of cash flows is the non-cash operating activities section.

California Corp.uses the indirect method to prepare the statement of cash flows.Refer to the following section of the comparative balance sheet: $\begin{array}{c}\text { California Corp.}\\\text { Comparative Balance Sheet}\\\text { December 31,2018 and 2017}\\\begin{array}{|l|r|r|r|}\hline&2018&2017&\text { Increase/(Decrease) }\\\hline \text { Accounts Payable } & \$ 8,000 & \$ 9,000 & \$(1,000 \\\hline \text { Accrued Liabilities } & 3,000 & 1,500 & 1,500 \\\hline \text { Long-term Notes Payable } & \underline{56,000} & \underline{60,000} & \underline{(4,000} \\\hline \text { Total Liabilities } & \$ 67,000 & \$ 70,500 & \$(3,500) \\\hline \end{array}\end{array}$ The change in Accrued Liabilities is shown as a negative cash flow in the adjustments to net income.

The cash paid for the purchase of equipment will typically be shown in the investing activities section of the statement of cash flows.

Many companies use free cash flow to estimate the amount of cash that would be available for unexpected opportunities.