Exam 13: Statement of Cash Flows

[The following information applies to the questions displayed below.] The financial statements of New World,Inc. ,provide the following information for the current year: -Compute the amount of cash received from customers during the current year.

The principal purpose of a statement of cash flows is to measure the profitability of a business that maintains its accounting records on the cash basis.

Indicate how each of the following events should be classified in a statement of cash flows for the current calendar year.Use the following code: O = operating activities,I = investing activities,and F = financing activities Assume this company uses the direct method.If the event does not involve a cash flow that should be included in the statement of cash flows,use an X. ________ (a)Declared a dividend to be paid early next year. ________ (b)Recorded depreciation expense for the current year. ________ (c)At year-end,paid rent in advance for the next six months. ________ (d)Issued capital stock for cash;management plans to use this cash to invest in marketable securities. ________ (e)Sold a parcel of unused land at a loss. ________ (f)Collected principal amount due on a note receivable. ________ (g)Used the cash received in d,above,to purchase marketable securities. ________ (h)Collected interest due on note receivable described in f,above. ________ (i)Made an adjusting entry to accrue interest payable at year-end. ________ (j)Collected account receivable from a customer who made a large credit purchase in a prior period. Answer: X (a)Declared a dividend to be paid early next year. X (b)Recorded depreciation expense for the current year. O (c)At year-end,paid rent in advance for the next six months. F (d)Issued capital stock for cash;management plans to use this cash to invest in marketable securities. I (e)Sold a parcel of unused land at a loss. I (f)Collected principal amount due on a note receivable. I (g)Used the cash received in d,above,to purchase marketable securities. O (h)Collected interest due on note receivable described in f,above. X (i)Made an adjusting entry to accrue interest payable at year-end. O (j)Collected account receivable from a customer who made a large credit purchase in a prior period. Difficulty: 1 Easy Topic: Cash Flows from Operating Activities;Cash Flows from Investing Activities Learning Objecti: 13-03 Compute the major cash flows relating to operating activities. ;13-04 Compute the cash flows relating to investing and financing activities. Bloom's: Remember AACSB: Analytical Thinking -Computation of cash flows An analysis of changes in selected balance sheet accounts of Gable Corporation shows the following for the current year: The income statement for the current year included the following items relating to the transactions summarized above: All payments and proceeds relating to these transactions were in cash.Using this information,compute the following cash flows for the current year:

[The following information applies to the questions displayed below.] An analysis of changes in selected balance sheet accounts of Hierarchy Corporation shows the following for the current year: Hierarchy's income statement for the current year includes a $9,600 gain on disposal of plant assets.All payments and proceeds relating to purchase or sale of plant assets were in cash. -Total cash proceeds received by Hierarchy from sales of plant assets during the current year amounted to:

Indicate how each of the following events should be classified in a statement of cash flows for the current calendar year.Use the following code: O = operating activities,I = investing activities,and F = financing activities. Assume use of the direct method.If the event does not involve a cash flow that should be included in the statement of cash flows,use an X. ________ (a)Paid an account payable for inventory purchased in a prior accounting period. ________ (b)On December 28,made a large credit sale;terms,2/10,n/30. ________ (c)Received a dividend from an investment in IBM common stock. ________ (d)Paid a dividend to stockholders. ________ (e)Paid the interest on a note payable to First Bank. ________ (f)Paid the principal amount due on the note payable to First Bank. ________ (g)Transferred cash from a checking account into a money market fund. ________ (h)Made an adjusting entry to record accrued wages payable at the end of the period. ________ (i)Recorded depreciation expense for the current year. ________ (j)Purchased plant assets for cash. Answer: O (a)Paid an account payable for inventory purchased in a prior accounting period. X (b)On December 28,made a large credit sale;terms,2/10,n/30. O (c)Received a dividend from an investment in IBM common stock. F (d)Paid a dividend to stockholders. O (e)Paid the interest on a note payable to First Bank. F (f)Paid the principal amount due on the note payable to First Bank. X (g)Transferred cash from a checking account into a money market fund. X (h)Made an adjusting entry to record accrued wages payable at the end of the period. X (i)Recorded depreciation expense for the current year. I (j)Purchased plant assets for cash. Difficulty: 1 Easy Topic: Classification of Cash Flows Learning Objecti: 13-02 Describe how cash transactions are classified in a statement of cash flows. Bloom's: Remember AACSB: Analytical Thinking -Place an X in the column signifying whether the activity is an operating,investing,or a financing activity,and if it is a source or a use of funds or if it is a non-cash activity.

[The following information applies to the questions displayed below.] An analysis of Korman Corporation's Investment in Marketable Securities account during 2018 disclosed the following: Korman's 2018 income statement included a $40,000 gain on sale of marketable securities and $30,000 dividend income from marketable securities.All payments and proceeds relating to marketable securities transactions were in cash. -The cash proceeds received by Korman Corporation in 2018 for the sale of marketable securities was:

When credit sales exceed collections of cash from accounts receivable,the increase in accounts receivable is added to net sales to determine the amount of cash collected from customers during the period.

Net cash flow from operating activities for the current year is:

[The following information applies to the questions displayed below.] The financial statements of Garver,Inc. ,provide the following information for the current year: -Compute the cash payments for operating expenses.

A statement of cash flows is not intended to assist investors in evaluating:

Which of the following is an investing activity?

[The following information applies to the questions displayed below.] The financial statements of York,Inc. ,provide the following information for the current year: -Net cash flow from operating activities for the current year is:

Craig Corporation's reported net income for 2018 is less than its net cash flow from operating activities.One reason for this could be:

[The following information applies to the questions displayed below.] An analysis of changes in selected balance sheet accounts of Hierarchy Corporation shows the following for the current year: Hierarchy's income statement for the current year includes a $9,600 gain on disposal of plant assets.All payments and proceeds relating to purchase or sale of plant assets were in cash. -The amount of cash paid by Hierarchy to acquire plant assets during the current year was:

At the beginning of 2018,Baldwin Corporation bought an automobile for $36,000 by issuing a note payable.The automobile has a six-year life and is depreciated using the straight-line method.To determine net cash flow from operating activities for 2018 using the indirect method,net income should be:

Indicate how each of the following events should be classified in a statement of cash flows for the current calendar year.Use the following code: O = operating activities,I = investing activities,and F = financing activities. Assume use of the direct method.If the event does not involve a cash flow that should be included in the statement of cash flows,use an X. ________ (a)Paid an account payable for inventory purchased in a prior accounting period. ________ (b)On December 28,made a large credit sale;terms,2/10,n/30. ________ (c)Received a dividend from an investment in IBM common stock. ________ (d)Paid a dividend to stockholders. ________ (e)Paid the interest on a note payable to First Bank. ________ (f)Paid the principal amount due on the note payable to First Bank. ________ (g)Transferred cash from a checking account into a money market fund. ________ (h)Made an adjusting entry to record accrued wages payable at the end of the period. ________ (i)Recorded depreciation expense for the current year. ________ (j)Purchased plant assets for cash. Answer: O (a)Paid an account payable for inventory purchased in a prior accounting period. X (b)On December 28,made a large credit sale;terms,2/10,n/30. O (c)Received a dividend from an investment in IBM common stock. F (d)Paid a dividend to stockholders. O (e)Paid the interest on a note payable to First Bank. F (f)Paid the principal amount due on the note payable to First Bank. X (g)Transferred cash from a checking account into a money market fund. X (h)Made an adjusting entry to record accrued wages payable at the end of the period. X (i)Recorded depreciation expense for the current year. I (j)Purchased plant assets for cash. Difficulty: 1 Easy Topic: Classification of Cash Flows Learning Objecti: 13-02 Describe how cash transactions are classified in a statement of cash flows. Bloom's: Remember AACSB: Analytical Thinking -Format of a cash flows statement-direct method Arrange the following information to complete the statement of cash flows for Jericho Corporation.Place parentheses around those dollar amounts representing cash outlays.

For a company to survive in the long-run it must have positive cash flows from investing activities.

Collections of interest revenue are classified as operating activities.

During 2018,Gillespie Corporation made a loan of $155,000 to a major customer.By the end of 2018 the customer had paid back $60,000 of the loan plus interest of $12,000.In the statement of cash flows for 2018,Gillespie Corporation would report:

Which method will yield higher cash flows from operating activities?