Exam 16: The Statement of Cash Flows

Arkansas Corp.is preparing its statement of cash flows using the indirect method.It provides the following information about transactions for the year: Plant assets,net-beginning balance: $111,000 Plant assets,net-ending balance: $148,000 Equipment was purchased for $65,000 with cash. Equipment with a net asset value of $12,000 was sold for $18,000. Depreciation Expense of $16,000 was recorded during the year. What was the amount of net cash provided by (used for)investing activities?

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

Washington Company is preparing its statement of cash flows using the indirect method.Refer to the following portion of the comparative balance sheet: $\begin{array}{c}\text {Washington Company}\\\text { Comparative Balance Sheet}\\\text { December 31,2019 and 2018}\\\begin{array}{|l|r|r|r|}\hline&2018 & 2017 & \text { Increase/(Decrease) }\\\hline\text { Accounts Payable } & \$ 9000 & \$ 5000 & \$(4000) \\\hline \text { Accrued Liabilities } & 3000 & 1400 & 1600 \\\hline \text { Long-term Notes Payable } & 57,000 & 68,000 & (11,000 \\\hline \text { Total Liabilities } & \$ 69,000 & \$ 74,40 & \$(5400)\\\hline\end{array}\end{array}$ Additional information provided by the company includes the following: 1)During 2019,the company repaid $38,000 of long-term notes payable. 2)During 2019,the company borrowed $27,000 on a new long-term 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 statement of cash flows is the link between the accrual-based income statement and the cash reported on the balance sheet.

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

Atlanta Company sold equipment for cash.The income statement shows a gain on the sale of $1020.The net book value of the asset was $3810.Which of the following statements describes the cash effect of the transaction?

The direct method of reporting cash flows from operating activities provides clearer information about the sources and uses of cash than does the indirect method.

When preparing the statement of cash flows,the amount of net cash provided by operating activities differs between the direct and indirect methods.

The direct method starts with net income and adjusts it to net cash provided by operating activities.

Selling property,plant,and equipment for $10,000 cash is considered a cash inflow from investing activities on the statement of cash flows.

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 ________.

In preparing a statement of cash flows using the indirect method,the Depreciation Expense ________.

Michigan Auto Parts Company uses the indirect method to prepare its statement of cash flows.Refer to the following portion of the comparative balance sheet: Michigan Auto Parts Company Comparative Balance Sheet December 31, 2018 and 2017 2019 2018 Increase/(Decrease) Cash \ 42,000 \ 36,000 \ 6,000 Accounts Receivable 62,000 70,000 (8,000) Merchandise Inventory 106,000 50,000 56,000 PP\&E, net Total Assets \ 450,000 \ 336,000 \ 114,000 Additional information provided by the company includes the following: Equipment costing $104,000 was purchased for cash. Equipment with a net book value of $20,000 was sold for $28,000. Depreciation expense of $24,000 was recorded during the year. Prepare the investing activities section of the statement of cash flows.

Lightning Electric Company uses the direct method to prepare its statement of cash flows.Lightning has reported operating expenses of $63,000 on its income statement for the year 2019.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.Accrued liabilities relate to operating expenses.

Although the direct method is easier to use,the Financial Accounting Standards Board (FASB)prefers the indirect method of reporting cash flows from operating activities.

Most public companies use the indirect method to prepare their statement of cash flows because it is the method the FASB prefers.

The operating and financing activities of the statement of cash flows are presented differently between the indirect and direct methods.

Florida Chemicals Company uses the indirect method to prepare its statement of cash flows.Refer to the following portion of the comparative balance sheet: Florida Chemicals Company Comparative Balance Sheet December 31,2018 and 2017 2018 2017 Increase/(Decrease) Common Stock \ 30,000 \ 2500 \ 27,500 Retained Earnings 159,000 154,000 5,000 Treasury Stock (8400) (5200) (3200) Total Equity \ 180,600 \1 51,300 \ 29,300 Net Income for the year was $57,000. Which of the following statements is TRUE of Florida Chemicals Company's statement of cash flows for 2018?

Optics Company uses the direct method for preparing its statement of cash flow.Optics reports the following information regarding 2019: From the income statement: Sales Revenues,$266,000 Cost of Goods Sold,$212,000 Operating Expenses,$37,000 Net Income $17,000 From the balance sheet: Beginning Balance Ending Balance Accounts Receivable \ 14,900 \ 18,400 Merchandise Inventory 23,900 17,800 Accounts Payable 6100 13,800 Accrued Liabilities 4500 1500 Assume that there were no sales of long-term assets,no interest revenue,and no expenses other than the expenses shown above.Also,assume that Accounts Payable are for purchases of merchandise inventory only.Accrued liabilities relate to operating expenses.What amount will be shown for the net cash provided by operating activities?

Dental,Inc.uses the direct method to prepare its statement of cash flows.Refer to the following financial statement information for the year ended December 31,2019: Dental, Inc, Income Statement December 31,2019 Sales Revenue \ 289,600 Interest Revenue 2600 Gain on Sale of Plant Assets 6,000 Total Revenues and Gains \ 298,300 Cost of Goods Sold 146,800 Salaries and Wages Expense 47,500 Depreciation Expense - Plant Assets 16,000 Other Operating Expense 24,700 Interest Expense 3,500 Income Tax Expense 7,800 Total Expenses 246,300 Net Income \5 2,000 Use the direct method to compute the payments made to employees.(Accrued Liabilities relate to other operating expense.)