Exam 15: The Statement of Cash Flows

Investors could use the statement of cash flows to determine whether the company will be able to pay dividends and interest.

A positive free cash flow indicates that the company has met all its planned cash commitments and has cash available to reduce debt or to expand.

For purposes of preparing the statement of cash flows,cash is defined as including both cash and cash equivalents.

When preparing a statement of cash flows using the indirect method,amortization expense is added to net income in the cash flows from operating activities section of the statement of cash flows.

If net cash flows from operating activities were $296,000,net income were $200,000,and sales were $2,000,000,cash flows to sales would equal (Round amounts to one decimal place)

The statement of cash flows explains the difference between net income as shown on the income statement and the net cash flows generated from operations.

Since it impacts Retained Earnings,the net income for the period would appear in the cash flows from financing activities section of a statement of cash flows prepared using the indirect method.

Ralston Company's cash balance at December 31,20x5,was $23,000.During the year,Ralston sold assets with a book value of $245,000 that resulted in a loss of $110,000.Calculate the company's cash balance at December 31,20x6 ,given the following information for the year ended December 31,20x6.Show your work.

When preparing a statement of cash flows using the indirect method,a gain on sale of land is deducted from net income to arrive at net cash flows from operating activities.

Assume the indirect method is used to compute net cash flows from operating activities.For this item extracted from the financial statements-Decrease in Accounts Receivable-indicate the effect on net income in arriving at net cash flows from operating activities by choosing one of the following:

A cash flow yield of 2.5 times is considered better than one of 3.0 times.

Determining net cash flows from operating activities using the indirect method reveals cash collected from customers.

For 20x5,Sahara Company had average total assets of $520,000,sales of $450,000,net income of $50,000,net cash flows from operating activities of $75,000,dividend payments of $25,000,purchases of plant assets of $60,000,and sales of plant assets of $55,000.Using this information,compute (a)cash flow yield,(b)cash flows to sales,(c)cash flows to assets,and (d)free cash flow.Round amounts to one decimal place.

Lincoln Company engaged in this transaction: Purchased treasury stock with cash. Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

Indicate on the blanks below the letter of the type of activity (O = operating activity,F = financing activity,I = investing activity,N = noncash transaction)each of the following transactions represents. _____ 1.Company sold shares of its own stock for cash. _____ 2.Acquired land and buildings by issuance of long-term mortgage payable. _____ 3.Declared and paid cash dividends. _____ 4.Received interest income. _____ 5.Exchanged shares of stock for 15-year bonds. _____ 6.Paid the U.S.Treasury for income taxes. _____ 7.Collected proceeds from the sale of a long-term investment at cost. _____ 8.Declared stock dividends. _____ 9.Paid off long-term debt with cash. _____ 10.Purchased equipment with cash.

Lincoln Company engaged in this transaction: Accrued employee wages earned but not yet paid at year-end. Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

Net cash flows from operating activities would be needed to calculate cash flow yield,cash flows to assets,and cash flows to sales.

Cash equivalents do not include

Lincoln Company engaged in this transaction: Accrued interest expense on long-term bonds payable. Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.

Lincoln Company engaged in this transaction: Declared and issued the required dividend on preferred stock. Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.