Diaz Company had the following comparative balance sheet information at the end of Year 2 and Year 1: Diaz reported net income for Year 2 of $40,000. No property, plant, & equipment was disposed of during the year. Diaz uses the indirect method to prepare the statement of cash flows.Using the indirect method, calculate Diaz's cash flow from operating activities for Year 2. Diaz Company Comparative Balance Sheets \[\begin{array}{l} \begin{array} {| l | l | l | } \hline &2013&2014\\ \hline \text {Cash }&\$ 30,000&\$28,000 \\ \hline \text {Accounts receivable}&48,000&50,000 \\ \hline \text {Inventory }& 158,000&156,000\\ \hline \text {Prepaid insurance }&10,000&8,000\\ \hline \text {Property, plant and equipment }&70,000&60,000\\ \hline \text {Accumulated depreciation }&(14,000)&(10,000)\\ \hline \text {Total }&\$302,000&\$292,000\\\hline \text { }&\\ \hline \text { Accounts payable } &\$ 14,000& \$ 18,000\\ \hline \text { Bonds payable } &90,000&120,000\\ \hline \text {Common stock } & 140,000&120,000\\ \hline \text { Retained earnings }&58,000&34,000 \\ \hline \text { Total } &\$ 302,000&\$ 292,000\\ \hline \end{array} \end{array}\]

The answer of Diaz Company had the following comparative balance...

Exam 14: Statement of Cash Flows

Assuming the use of the indirect method to prepare the statement of cash flows, indicate whether each of the following items would be added to net income, subtracted from net income or not included in the operating activity section. Use the letters "A" for added; "S" for subtracted or "N" for not included in operating activity section. Answers a. Increase in Treasury Stock b. Decrease in Interest Payable c. Increase in Unearned Revenue d. Increase in Bonds Payable e. Decrease in Treasury Stock f. Increase in Inventory g. Decrease in Marketable Securities (Available for sale securities) h. Gain on Sale of Land i. Increase in Buildings j. Decrease in Supplies

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Question 1

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$\begin{array} { | l | l | c | } \hline & & \text { Answers } \\\hline \text { a. } & \text { Increase in Treasury Stock } & \mathrm { N } \\\hline \text { b. } & \text { Decrease in Interest Payable } & \mathrm { S } \\\hline \text { c. } & \text { Increase in Unearned Revenue } & \mathrm { A } \\\hline \text { d. } & \text { Increase in Bonds Payable } & \mathrm { N } \\\hline \text { e. } & \text { Decrease in Treasury Stock } & \mathrm { N } \\\hline \text { f. } & \text { Increase in Inventory } & \mathrm { S } \\\hline \text { g. } & \text { Decrease in Marketable Securities (Available for } & \mathrm { N } \\& \text { Sale) } & \\\hline \text { h. } & \text { Gain on Sale of Land } & \mathrm { S } \\\hline \text { i. } & \text { Increase in Buildings } & \mathrm { N } \\\hline \text { j. } & \text { Decrease in Supplies } & \mathrm { A } \\\hline\end{array}$

Under the indirect method losses are added and gains are subtracted when computing net cash flow from operating activities.

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Question 2

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Under the indirect method, the increase or decrease in current liabilities is handled in the operating section of a cash flow statement.

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Question 3

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True

The Ling Corporation reported a beginning balance of $1,200 in its Prepaid Insurance account. During the year, a total of $16,000 was recognized as insurance expense and the Prepaid Insurance account had an ending balance of $1,600. How much cash did Ling pay for insurance during the year?

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Question 4

Jennings Company issued a $250,000 note to purchase a building. Jennings would report the event as a noncash investing and financing activity.

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Question 5

Under the direct method, there is no adjustment for noncash items or gains or losses.

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Question 6

The following information was drawn from the year-end balance sheets of White, Inc.The amount of net income shown on the Year 2 income statement was $17,500. There was no beginning or ending balance in the Dividends Payable account. What is the amount of cash outflows for dividends? 2014 2013 Bonds payable \ 200,000 \ 275,000 Common stock 112,500 87,500 Treasury stock 17,500 12,500 Retained earnings 35,000 27,500

(Multiple Choice)

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Question 7

When using the indirect method to complete the cash flows from operating activities section, what is the proper treatment for an increase in the inventory account?

(Multiple Choice)

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Question 8

The Valz Corporation had a balance in its Equipment account at the beginning of the year of $650,000. During the year, equipment originally costing $170,000, which had accumulated depreciation of $40,000, was sold for $134,000. The ending balance of the Equipment account was $550,000. How much additional equipment was purchased during the year?

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Question 9

Increases in long-term asset balances indicate cash outflows to purchase assets.

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Question 10

Diaz Company had the following comparative balance sheet information at the end of Year 2 and Year 1: Diaz reported net income for Year 2 of $40,000. No property, plant, & equipment was disposed of during the year. Diaz uses the indirect method to prepare the statement of cash flows.Using the indirect method, calculate Diaz's cash flow from operating activities for Year 2. Diaz Company Comparative Balance Sheets 2013 2014 Cash \ 30,000 \2 8,000 Accounts receivable 48,000 50,000 Inventory 158,000 156,000 Prepaid insurance 10,000 8,000 Property, plant and equipment 70,000 60,000 Accumulated depreciation (14,000) (10,000) Total \3 02,000 \2 92,000 Accounts payable \ 14,000 \ 18,000 Bonds payable 90,000 120,000 Common stock 140,000 120,000 Retained earnings 58,000 34,000 Total \ 302,000 \ 292,000

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Question 11

When the indirect method is used to prepare the statement of cash flows, what is the starting point of the operating activities section?

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Question 12

All cash exchanges between a company and its owners are reported as investing activities in the statement of cash flows.

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Question 13

The Good Corporation provided the following for the current year: Good's income statement reported an $8,000 gain on sale of land as well as a $10,000 loss on the sale of marketable securities. A parcel of land costing $16,000 was sold for a gain of $8,000. No additional securities were purchased during the year. The company also sold equipment originally costing $6,000 with accumulated depreciation of $4,000 for a gain of $1,600. Purchases of additional land and equipment were cash transactions.Required: Prepare the investing activities section of the statement of cash flows. Use the reconciliation approach. Beginning Ending Land \ 48,000 \ 100,000 Equipment 36,800 44,000 Marketable securities 200,000 160,000

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Question 14

Which of the following would be reported as a financing activity on the statement of cash flows?

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Question 15

In preparing the statement of cash flows by the indirect method, an increase in inventory would be added to net income.

(True/False)

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Question 16

The difference between the direct and the indirect method applies only to cash from what type of activity?

(Multiple Choice)

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Question 17

What kinds of cash flows are reported as investing activities on the statement of cash flows?

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Question 18

During the year, the Abbot Company had the following changes in account balances: 1) The Accumulated Depreciation account had a beginning balance of $25,000 and an ending balance of $35,000. The increase was due to depreciation expense.2) The long-term Notes Payable account had a beginning balance of $40,000 and an ending balance of $15,000. The decrease was due to repayment of debt.3) The Accounts Receivable account had a beginning balance of $60,000 and an ending balance of $50,000.4) The Equipment account had a beginning balance of $25,000 and an ending balance of $92,500. The increase was due to the purchase of equipment for cash.5) The long term investments account (marketable securities) had a beginning balance of $18,000 and an ending balance of $12,500. The decrease was due to the sale of investments at cost.6) The amount of cash dividends declared and paid during the year was $22,000.7) The interest payable account had a beginning balance of $2,250 and an ending balance of $1,250.Assume that a statement of cash flows has been prepared. The combination of the three major components (operating activities, investing activities, financing activities) equals the:

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Question 19

Under the indirect method, the increase or decrease in stockholder's equity is handled in the investing section of a cash flow statement.

(True/False)

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Question 20

Under the indirect method losses are added and gains are subtracted when computing net cash flow from operating activities.

Under the indirect method, the increase or decrease in current liabilities is handled in the operating section of a cash flow statement.

The Ling Corporation reported a beginning balance of $1,200 in its Prepaid Insurance account. During the year, a total of $16,000 was recognized as insurance expense and the Prepaid Insurance account had an ending balance of $1,600. How much cash did Ling pay for insurance during the year?

Jennings Company issued a $250,000 note to purchase a building. Jennings would report the event as a noncash investing and financing activity.

Under the direct method, there is no adjustment for noncash items or gains or losses.

When using the indirect method to complete the cash flows from operating activities section, what is the proper treatment for an increase in the inventory account?

Increases in long-term asset balances indicate cash outflows to purchase assets.

When the indirect method is used to prepare the statement of cash flows, what is the starting point of the operating activities section?

All cash exchanges between a company and its owners are reported as investing activities in the statement of cash flows.

Which of the following would be reported as a financing activity on the statement of cash flows?

In preparing the statement of cash flows by the indirect method, an increase in inventory would be added to net income.

The difference between the direct and the indirect method applies only to cash from what type of activity?

What kinds of cash flows are reported as investing activities on the statement of cash flows?

Under the indirect method, the increase or decrease in stockholder's equity is handled in the investing section of a cash flow statement.

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