Exam 16: The Statement of Cash Flows

A debtor of Adams Company owes $500,000 but does not have enough cash to repay the debt.Following lengthy negotiations,the parties agreed that the debtor will issue 200,000 shares of common stock to settle the debt.This transaction will be reported in the investing activities section of the statement of cash flows for Adams Company.

Which of the following sections from the statement of cash flows includes borrowing cash and paying off loans?

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

Louisiana Company uses the indirect method to prepare its statement of cash flows.Refer to the following portion of the comparative balance sheet: Lotisiana Company Comparative Balance Sheet December 31, 2019 and 2018 2018 2017 Increase/(Decrease) Common Stock \ 31,000 \ 2200 \ 28,800 Retained Earnings 120,000 79,000 41,000 Treasury Stock (13,000) (8500) (4500) Total Equity \ 138,000 \ 72,700 \ 65,300 Note: 1)There were no stock retirements during the year. 2)There were no sales of treasury stock during the year. Compute the cash flow from transactions involving treasury stock.

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.

Murphy & Murphy Enterprises expects the following for 2018: Net cash provided by operating activities of $\$ 232,000$ Net cash provided by financing activities of $\$ 18,000$ Net cash provided by investing activities of $\$ 67,000$ Cash dividends paid to stockholders of $\$ 16,000$ The business plans to spend $107,000 to purchase equipment. What is the expected amount of free cash flow for 2018?

Urban Installations Company uses the direct method to prepare its statement of cash flows.Urban has reported cost of goods sold of $95,000 on its income statement for 2018.If the balance in the Merchandise Inventory account decreased by $6,000 during the year,then $6,000 needs to be added to $95,000 to calculate payments to suppliers for inventory purchases.

For the year ending December 31,2018,Sparks Electric expects net cash provided by operations of $328,000,net cash used by investing activities of $141,000,and net cash provided by financing activities of $50,000.Sparks plans to spend $259,000 to add a warehouse for its operations and pays $35,000 in cash dividends.What is the amount of free cash flow?

Arena,Inc.uses the direct method to prepare its statement of cash flows.Use the following information reported for 2019 to compute the amount of cash paid for merchandise inventory. Cost of Goods Sold,$134,000 Merchandise Inventory,beginning balance,$27,000 Merchandise Inventory,ending balance,$67,000 Accounts Payable,beginning balance,$7600 Accounts Payable,ending balance,$5000

Which of the following is a cash outflow for a financing activity on the statement of cash flows?

Tennessee Moving Company uses the indirect method to prepare its statement of cash flows.Refer to the following portion of the comparative balance sheet: Tennessee Company Comparative Balance Sheet December 31,2018 and 2017 2018 2017 Increase/(Decrease) Common Stock \ 34,000 \ 10,000 \ 24,000 Retained Earnings 115,000 90,000 25,000 Treasury Stock Total Stockholder's' Equity 136,000 92,000 44,000 If the net income for the year was $67,000,the company must have declared $42,000 as dividends during the year.

Accountants can prepare the statement of cash flows directly from the lower part of the spreadsheet.

The investing activities section of the statement of cash flows reports cash receipts and payments that increase or decrease long-term liabilities.

Nashville Records Company uses the indirect method to prepare its statement of cash flows.Refer to the following sections of the comparative balance sheet: Nashville Records Company Comparative Balance Sheet December 31, 2018 and 2017 Increase 2018 2017 (Decrease) Accounts Payable \ 6,000 \ 9,000 (\ 3,000 Accrued Liabilities 3,000 1,500 1,500 Long-term Notes Payable 126,000 135,000 (9,000 Total Liabilities \ 135,000 \ 145,500 (\ 10,500 Common Stock \ 45,000 \ 3,000 \ 42,000 Retained Earnings 169,500 111,000 58,500 Treasury Stock (12,000 (7,500 Total Equity 202,500 106,500 96,000 Total Liabilities and Stockholders' Equity \ 337,500 \ 252,000 \ 85,500 Additional information for 2018: • No stock was retired. • No treasury stock was sold. • The company repaid $60,000 of long-term notes payable. • The company borrowed $51,000 on a new long-term note payable. • Net income for the year was $68,000. Prepare the financing section of the statement of cash flows for the year ended December 31,2018.

The activities that are included in the operating activities section of the statement of cash flows are ________.

Regarding the use of a spreadsheet for the preparation of the statement of cash flows,which of the following statements is incorrect?

The only part that differs in a statement of cash flows prepared by the direct method from one prepared by the indirect method is the ________.

What does free cash flow represent? How is it used to evaluate business performance?

Investors and management use the statement of cash flows to evaluate a firm's profitability.

Canada Company needs to purchase a property to build their headquarters.An investor is willing to exchange land with a market value of $700,000 for shares of common stock.On the statement of cash flows,this transaction would be shown as ________.