Exam 6: Statement of Cash Flows

The final step in preparing the statement of cash flows is to use the information provided in the master T-account for _____ to prepare the formal statement.

Firms have some choice as to when they disburse cash.Firms that delay making payments to suppliers, employees, and others during the last several days of an accounting period

U.S.GAAP classifies all of the following as financing activities on the statement of cash flows except

Firms not experiencing rapid growth can often finance capital expenditures with

Alsup Company had the following transactions during the fiscal year ended December 31, Year 4. ·Accounts receivable decreased from $115,000 on December 31, Year 3, to $100,000 On December 31, Year 4. ·Alsup's Board of Directors declared dividends on December 31, Year 4, of $.05 Per share on the 2.8 million shares outstanding, payable to shareholders of record On January 31, Year 5.The company did not declare or pay dividends for fiscal year, Year 3. ·Sold a truck with a net book value of $7,000 for $5,000 cash, reporting a loss of $2,000. ·Paid interest to bondholders of $780,000. ·Cash increased from $106,000 on December 31, Year 3, to $284,000 on December 31, Year 4. (CMA Dec 95 #3) Refer to the Alsup Company example.Alsup Company uses the indirect method to prepare its Year 4 statement of cash flows, and would show a(n)

Most firms prefer to prepare the statement of cash flows after they have prepared the income statement and the balance sheet.The amounts debited to various accounts on the T-account work sheet

Below is an Income Statement and a Statement of Cash Flows for Morgan Corporation for Year 8. Morgan Corporation Income Statement For the Year Ended December 31 , Year 8 Sales Revenue \ 11,400 Gain on Sale of Equipment 60 Interest Revenue Total Revenues 11,476 Cost of Goods Sold (7,070) Selling and Administrative Expense (2,240) Interest Expense (210) Income Tax Expense Net Income Required: Respond to each of the following questions. a. Compute the amount of cash collected from customers during Year 8. b. Compute the amount of cash paid to suppliers for merchandise during Year 8. c. Compute the amount of income taxes paid to governmental agencies during Year 8. d. Property, plant and equipment (at cost) had a balance of $3,700 on January 1, Year 8 and $3,940 on December 31, Year 8. Accumulated depreciation had a balance of $1,290 on January 1, Year 8 and $1,540 on December 31, Year 8. Give the journal entry that Morrissey Corporation made in its accounting records during Year 8 to record the sale of the equipment. e. The balance in the retained earnings account on December 31, Year 8 after closing entries was $1,154. Compute the balance in the retained earnings account on January 1, Year 8.

Net income for a particular period does not equal cash flow from operations because

Delaying payments to suppliers and others during the last several days of an accounting period conserves cash and thereby increases cash flow from operations for that period.

The inflows and outflows of cash during the year appear in the statement of cash flows in one of three categories: operating, investing, and financing.Explain each category.

Using the accrual basis of accounting to measure net income creates the need for a separate financial statement that reports the impact of operations on cash flows.

The acquisition of equipment by assuming a mortgage is a transaction that firms cannot report in their statement of cash flows but must report in a supplemental schedule or note.

Why is a Statement of Cash Flows needed?

On the statement of cash flows, the issuance of capital stock for cash to be used for future expansion of a production facility is treated as a/an

Regarding the Statement of Cash Flow, which of the following is not true regarding operations?

Under U.S.GAAP, the classification of interest expense as a(n) _____ activity and dividends paid on common or preferred shares as a(n) _____ activity appears inconsistent to some observers as both are payments to suppliers of funds.

At different points in their existence, companies will have different cash inflow and outflow requirements.Such differences make intercompany comparisons difficult, even within the same industry. Required: a. Consider a start-up company in the software development industry. What might its operating, investing, and financing cash flows look like in general? Provide examples where appropriate. b. Consider a mature auto dealership. What might its operating, investing, and financing cash flows look like in general? Provide examples where appropriate.

Which of the following statements is/are true concerning the statement of cash flows?

For each of the following activities, identify where the activity would be reported on the statement of cash flows. O -Operating I -Investing F -Financing 1. Change in accounts receivable 2. Acquisition of fixed assets 3. Change in short-term borrowing 4. Change in inventories 5. Change in long-term borrowing 6. Purchase of municipal bonds with the intention of holding the bonds to maturity 7. Purchase of supplies inventory 8. Issue of capital stock 9. Change in trade accounts payable 10. Payment of interest expense

The statement of cash flows usually presents cash flow from operations in the _____ format, beginning with net income for the period.The statement then adjusts for revenues not providing cash, for expenses not using cash, and for changes in working capital accounts.