Question 1

Phibbs Company prepared the following data for the year. $$\begin{array} { l r } 
\text { Outflow to purchase treasury stock } & 30,000 \
\text { Inflow from sale of machinery } & 7,500 \
\text { Inflow from sale of marketable securities } & 3,750 \
\text { Outflow to purchase building } & 87,500 \
\text { Outflow to purchase land } & 12,500 \
\text { Outflow to pay dividends } & 7,500 \
\text { Outflow to pay interest } & 37,500
\end{array}$$ What is the net cash flow from investing activities?

Accepted Answer

A)   $88,750 outflow
B)   $141,250 outflow
C)   $152,500 outflow
D)   $41,250 outflow  A

Question 2

Under the direct method,cash payments to suppliers would be reported in the operating section of a cash flow statement.

Accepted Answer

A) True 
 B)False  True

Question 3

The following information was drawn from the year-end balance sheets of White,Inc. $$\begin{array} { l r r } 
 & \text { Year } 2 & \text { Year } 1 \
 \text { Bonds payable }& \$ 200,000 &  \$275,000 \
\text { Common stock } & 112,500 & 87,500 \
\text { Treasury stock } & 17,500 & 12,500 \
\text { Retained earnings }& 35,000 & 27,500
\end{array}$$ White,Inc.,issued $30,000 in bonds during Year 2.The bonds were issued at face value.All bonds were retired at face value.What is the amount of cash outflow for the payment of bond liabilities?

Accepted Answer

A)   $75,000
B)   $25,000
C)   $55,000
D)   $105,000  D

Question 4

The indirect method for preparing the statement of cash flows begins with the amount of sales revenue reported on the income statement.

Accepted Answer

A) True 
 B)False

Question 5

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 activities section.Use the letters "A" for added,"S" for subtracted,or "N" for not included in the operating activities section.
 $$\begin{array} { | l | l | l | } 
\hline & & \text { Answers } \
\hline \text { a. } & \text { Increase in Treasury Stock } & \
\hline \text { b. } & \text { Decrease in Interest Payable } & \
\hline \text { c. } & \text { Increase in Unearned Revenue } & \
\hline \text { d. } & \text { Increase in Bonds Payable } & \
\hline \text { e. } & \text { Decrease in Treasury Stock } & \
\hline \text { f. } & \text { Increase in Inventory } & \
\hline \text { g. } & \begin{array} { l } 
\text { Decrease in Marketable Securities (Available for } \
\text { sale securities) }
\end{array} & \
\hline \text { h. } & \text { Gain on Sale of Land } & \
\hline \text { i. } & \text { Increase in Buildings } & \
\hline \text { j. } & \text { Decrease in Supplies } & \
\hline
\end{array}$$

Accepted Answer

The answer of Assuming the use of the indirect method...

Question 6

When using the indirect method,an increase in current liabilities is:

Accepted Answer

A)   subtracted in the cash flows from financing activities section.
B)   subtracted from net income in the cash flows from operating activities section.
C)   added to net income in the cash flows from operating activities section.
D)   added in the cash flows from investing activities section.

Question 7

A decrease in retained earnings may indicate a cash outflow occurred to pay a dividend.

Accepted Answer

A) True 
 B)False

Question 8

Under the indirect method,depreciation expense would be subtracted from net income when determining the net cash flow from operating activities.

Accepted Answer

A) True 
 B)False

Question 9

Noncash investing and financing activities are not reported on the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Blair Corporation reported the following for Year 2:
 $\begin{array}{lrr}
&\text { Beginning }&\text {Ending }\
\text { Accounts receivable } & \$ 40,000 & \$ 38,000 \
\text { Merchandise inventory } & 32,000 & 36,000 \
\text { Prepaid insurance } & 200 & 140 \
\text { Interest receivable } & 1,800 & 600 \
\text { Accounts payable } & 2,500 & 4,200 \
\text { Salaries payable } & 4,000 & 3,600\
\text { Other information: }\
\text { Sales (all on account) } & \$ 280,000 \
\text { Interest revenue } & 10,000 \
\text { Cost of goods sold } & 160,000 \
\text { Salaries expense } & 24,000 \
\text { Insurance expense } & 2,200
\end{array}$
 Required:
a)Use the reconciliation approach to compute the appropriate figures for cash flows from operating activities.
b)Using the direct method,present in good form the cash flows from the operating activities section of a statement of cash flows.

Accepted Answer

The answer of Blair Corporation reported the following for Year...

Question 12

Which of the following statements is incorrect regarding the investing activities section of the statement of cash flows?

Accepted Answer

A)   Investing activities deal with long-term liabilities (debt)  and equity accounts.
B)   Increases in long-term asset balances suggest cash outflows to purchase assets.
C)   Decreases in long-term asset balances suggest cash inflows from selling assets.
D)   Investing activities involve cash purchases and cash disposals of long-term assets.

Question 13

The following information was drawn from Eckerd Company's balance sheets at the end of Year 2 and Year 1. $\begin{array}{lrr}
&\text { Year } 2&\text { Year } 1\
 \text {Bonds payable } &\$170,000&\$150,000\
\end{array}$
 New bonds in the amount of $50,000 were issued at par during Year 2.What is the amount of cash flow associated with the repayment of bond liabilities?

Accepted Answer

A)   $120,000
B)   $150,000
C)   $30,000
D)   Cannot be determined

Question 14

The Good Corporation provided the following for the current year:
 $$\begin{array} { l r r } 
& \text { Begirning } & \text { Ending } \
\text { Land } & \$ 48,000 & \$ 100,000 \
\text { Equipment } & 36,800 & 44,000 \
\text { Marketable securities } & 200,000 & 160,000
\end{array}$$ 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.

Accepted Answer

The answer of The Good Corporation provided the following for...

Question 15

Under the direct method,which of the following would not be included in the operating section of the cash flow statement?

Accepted Answer

A)   Cash payments for income taxes
B)   Cash payments to purchase insurance
C)   Cash payments to purchase long-term equipment
D)   Cash receipts from customers

Question 16

Income tax expense was $137,500 for the year.The balance of the Income Tax Payable account was $7,500 at the beginning of the year and $10,000 at the end of the year.Cash payments for income tax reported on the cash flow statement using the direct method equal:

Accepted Answer

A)   $130,000.
B)   $137,500.
C)   $147,500.
D)   $135,000.

Question 17

Vinton Corp.had beginning accounts receivable of $36,000 and ending accounts receivable of $32,000.If total sales were $110,000,what amount of cash was collected from customers,and how would it be classified on the statement of cash flows?

Accepted Answer

The answer of Vinton Corp.had beginning accounts receivable of $36,000...

Question 18

The Penn Corporation provided the following for the current year:
 $\begin{array}{lrr}
&\text { Beginning}&\text {  Ending}\
\text { Mortgage payable } & \$ 200,000 & \$ 140,000 \
\text { Common stock } & 152,000& 280,000 \
\text { Paid-in Excess-Common } & 170,000 & 380,000 \
\text { Dividends payable } & 8,000 & 5,000 \
\text { Retained earnings } & 580,000 & 740,000
\end{array}$

Net income for the current year was reported as $200,000.
Required:
Use the reconciliation approach to obtain the information required to prepare the financing activities section of the statement of cash flows.(Note that you do not actually have to prepare that section of the statement.)

Accepted Answer

The answer of The Penn Corporation provided the following for...

Question 19

Winkler Company sold equipment for $25,000 cash.The equipment had cost $40,000 and had accumulated depreciation of $22,000 at the time of the sale.Based on this information alone,which of the following statements is correct?

Accepted Answer

A)   Cash flow from investing activities would be less if the statement of cash flows is prepared by the direct method than if it is prepared under the indirect method.
B)   Cash flow from investing activities would be the same regardless of whether the statement of cash flows is prepared by the direct method or the indirect method.
C)   Cash flow from investing activities would be greater if the sale of equipment is reported on the statement of cash flows under the direct method than if it is reported under the indirect method.
D)   The answer cannot be determined because the amount of the salvage value is unknown.

Question 20

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?

Accepted Answer

A)   $17,200
B)   $16,000
C)   $16,400
D)   $14,800

Exam 14: Statement of Cash Flows

Under the direct method,cash payments to suppliers would be reported in the operating section of a cash flow statement.

The indirect method for preparing the statement of cash flows begins with the amount of sales revenue reported on the income statement.

When using the indirect method,an increase in current liabilities is:

A decrease in retained earnings may indicate a cash outflow occurred to pay a dividend.

Under the indirect method,depreciation expense would be subtracted from net income when determining the net cash flow from operating activities.

Noncash investing and financing activities are not reported 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.

Which of the following statements is incorrect regarding the investing activities section of the statement of cash flows?

Under the direct method,which of the following would not be included in the operating section of the cash flow statement?

Income tax expense was $137,500 for the year.The balance of the Income Tax Payable account was $7,500 at the beginning of the year and $10,000 at the end of the year.Cash payments for income tax reported on the cash flow statement using the direct method equal:

Vinton Corp.had beginning accounts receivable of $36,000 and ending accounts receivable of $32,000.If total sales were $110,000,what amount of cash was collected from customers,and how would it be classified on the statement of cash flows?

Winkler Company sold equipment for $25,000 cash.The equipment had cost $40,000 and had accumulated depreciation of $22,000 at the time of the sale.Based on this information alone,which of the following statements is correct?

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?