Question 1

Bowman Corporation's sales were $300,000, and the balance in its Accounts Receivable increased by $8,000 during the year. Bowman collected $308,000 in cash from its customers.

Accepted Answer

A) True 
 B)False

Question 2

The amount of revenue a company recognizes on the income statement normally differs from the amount of cash collected from customers.

Accepted Answer

A) True 
 B)False

Question 3

In preparing the statement of cash flows by the indirect method, an increase in a current asset is subtracted from net income.

Accepted Answer

A) True 
 B)False

Question 4

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. $$\begin{array} { | l | l | c | } 
\hline & & \text { Answers } \
\hline & \text { Example: Increase In Accounts Receivable } & \text { S } \
\hline \text { a. } & \text { Decrease in Accounts Payable } & \
\hline \text { b. } & \text { Decrease in Bond Payable } & \
\hline \text { c. } & \text { Decrease in Inventory } & \
\hline \text { d. } & \text { Increase in Common Stock } & \
\hline \text { e. } & \text { Decrease in Accounts Receivable } & \
\hline \text { f. } & \text { Depreciation Expense } & \
\hline \text { g. } & \text { Decrease in Equipment } & \
\hline \text { h. } & \text { Increase in Prepaid Rent } & \
\hline \text { i. } & \text { Decrease in Prepaid Insurance } & \
\hline
\end{array}$$

Accepted Answer

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

Question 5

During the year, the Equipment account increased by $25,000 and the Accumulated Depreciation account increased by $2,000. In addition, the company sold equipment, which originally cost $12,000 and had $9,000 of accumulated depreciation, for $4,500. What was the cash outflow to purchase equipment?

Accepted Answer

A) $25,000 
B) $37,000 
C) $29,500 
D) $13,000

Question 6

Use the reconciliation approach to compute cash paid for salaries for the Norton Corporation. The income statement reported salaries expense as $49,800. Beginning and ending salaries payable balances were $3,720 and $2,840 respectively.

Accepted Answer

The answer of Use the reconciliation approach to compute cash...

Question 7

What is the proper treatment of a loss on disposal of equipment when using the indirect method to complete the cash flows from operating activities section?

Accepted Answer

A) Disregard the loss because it relates to an investing activity. 
B) Disregard the loss because it relates to a financing activity. 
C) Add the loss to net income. 
D) Subtract the loss from net income.

Question 8

Painter Corporation had the following beginning and ending balances for the current year:
During the year, Painter sold equipment, which had originally been purchased for $160,000, for cash of $60,000. The old equipment had accumulated depreciation of $120,000 at the time of sale. To replace the equipment Painter purchased new equipment by making a $20,000 down payment and signing a 2-year note for the balance.Required:
1) Calculate the cost of the new equipment.2) What was the amount of the gain or loss on the sale of the old equipment? If Painter uses the indirect approach to calculate cash flow from operating activities, how will the gain or loss be reported on the statement of cash flows?
3) What was the amount of depreciation expense for the year? How will the depreciation expense affect the statement of cash flows prepared by the indirect method?
 $$\begin{array} { | l | r | r | } 
\hline &  { \text { Beginning } } & { \text { Ending } } \
\hline \text { Equipment } & \$ 850,000 & \$ 870,000 \
\hline \text { Accumulated depreciation } & 300,000  & 280,000 \
\hline
\end{array}$$

Accepted Answer

The answer of Painter Corporation had the following beginning and...

Question 9

Under the indirect method, which of the following is not an item that is added back to net income in determining net cash flow from operating activities?

Accepted Answer

A) Decrease in Accounts Receivable 
B) Decrease in inventory 
C) Depreciation expense 
D) Gain on sale of store fixtures

Question 10

The following information was prepared for Standard Corporation: Net cash flow from operating activities equals:
$$\begin{array} { | l | r | } 
\hline \text { Net income } & \$ 650,000 \
\hline \text { Gain on sale of equipment } & 30,000 \
\hline \text { Dividends paid } & 80,000 \
\hline \text { Decrease in prepaid expenses } & 16,000 \
\hline \text { Increase in accorints receivable } & 8,000 \
\hline
\end{array}$$

Accepted Answer

A) $672,000 
B) $628,000 
C) $658,000 
D) $548,000

Question 11

Can a company have a negative cash flow from operating activities for the year on the statement of cash flows but still have a net income on the income statement? Explain.

Accepted Answer

The answer of Can a company have a negative cash...

Question 12

Both the indirect and direct method of preparing a statement of cash flows begin with net income.

Accepted Answer

A) True 
 B)False

Question 13

The investing section of the statement of cash flows is the same regardless of whether the direct or indirect method is used.

Accepted Answer

A) True 
 B)False

Question 14

The following is a partial list of accounts and balances for the Spencer Corporation.Additional Information:
Net income for the current year was $78,800; depreciation expense was $53,400; equipment with a book value of $40,000 was sold for $36,000 cash. $\begin{array}{|l|r|r|}
\hline &{\text { Beginning }} &{\text { Ending }} \
\hline \text { Land } & \$ 48,000 & \$  131,800 \
\hline \text { Accounts receriable } & 20,800  & 20,000 \
\hline \text { Prepaid rent } &  4,200 &  2,800 \
\hline \text { Prepaid insurance } & 1,800 & 5,600 \
\hline \text { Equipment } & 24,000 & 29,000 \
\hline \text { Accounts payable } & 3,600 & 2,800 \
\hline \text { Dividends payable } & 2,000 & 2,400 \\hline \text { Utilities payable } & 1,000 & 1,600 \
\hline \text { Cash } & 16,000 & 14,400 \
\hline \text { Buildings } & 188,000 & 224,000 \
\hline \text { Salaries payable } & 5,800 & 4,400 \
\hline \text { Unearned revenue } & 1,600 & 1,800 \
\hline
\end{array}$ Prepare the operating activities section of the statement of cash flows for the current year using the indirect method.

Accepted Answer

The answer of The following is a partial list of...

Question 15

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.Calculate Diaz's cash flow from investing activities for Year 2. Diaz Company
Comparative Balance Sheets
$$\begin{array}{l}
\begin{array} {| l | l | l | } 
\hline &2013&2014\
\hline \text {Cash }&\$ 30,000&\$28,000 \
\hline \text {Accounts receivable}&48,000&50,000 \
\hline \text {Inventory }& 158,000&156,000\
\hline \text {Prepaid insurance }&10,000&8,000\
\hline \text {Property, plant and equipment }&70,000&60,000\
\hline \text {Accumulated depreciation }&(14,000)&(10,000)\
\hline \text {Total }&\$302,000&\$292,000\\hline \text { }&\
\hline \text { Accounts payable } &\$  14,000& \$  18,000\
\hline \text { Bonds payable } &90,000&120,000\
\hline \text {Common stock } & 140,000&120,000\
\hline \text { Retained earnings }&58,000&34,000 \
\hline \text { Total } &\$ 302,000&\$  292,000\
\hline
\end{array}
\end{array}$$

Accepted Answer

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

Question 16

Cash payments for interest expense on a bond payable would be classified as a financing activity.

Accepted Answer

A) True 
 B)False

Question 17

Baltimore Company reported revenue of $124,000 on its income statement. The balance in its Unearned Revenue account was $6,000 at the beginning of the year and $2,000 at the end of the year. Based on this information alone, the amount of cash that Baltimore collected from customers was $120,000 during the year.

Accepted Answer

A) True 
 B)False

Question 18

In preparing the statement of cash flows by the indirect method, a decrease in a current liability is deducted from net income.

Accepted Answer

A) True 
 B)False

Question 19

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. There were no sales or disposals of property, plant, and equipment during the year. Diaz uses the indirect method to prepare the statement of cash flows.Calculate Diaz's cash flow from financing activities for Year 2. Diaz Company
Comparative Balance Sheets
$$\begin{array}{l}
\begin{array} {| l | l | l | } 
\hline &2013&2014\
\hline \text {Cash }&\$ 30,000&\$28,000 \
\hline \text {Accounts receivable}&48,000&50,000 \
\hline \text {Inventory }& 158,000&156,000\
\hline \text {Prepaid insurance }&10,000&8,000\
\hline \text {Property, plant and equipment }&70,000&60,000\
\hline \text {Accumulated depreciation }&(14,000)&(10,000)\
\hline \text {Total }&\$302,000&\$292,000\\hline \text { }&\
\hline \text { Accounts payable } &\$  14,000& \$  18,000\
\hline \text { Bonds payable } &90,000&120,000\
\hline \text {Common stock } & 140,000&120,000\
\hline \text { Retained earnings }&58,000&34,000 \
\hline \text { Total } &\$ 302,000&\$  292,000\
\hline
\end{array}
\end{array}$$

Accepted Answer

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

Question 20

On January 1, Steigel Company had a balance of $720,000 in its Land account. During the year, Steigel sold land, which had cost $240,000, for $440,000 cash. The balance in the Land account was $980,000 on December 31. What is the net cash outflow from investing activities?

Accepted Answer

A) $60,000 
B) $120,000 
C) $200,000 
D) $280,000

Exam 14: Statement of Cash Flows

Bowman Corporation's sales were $300,000, and the balance in its Accounts Receivable increased by $8,000 during the year. Bowman collected $308,000 in cash from its customers.

The amount of revenue a company recognizes on the income statement normally differs from the amount of cash collected from customers.

In preparing the statement of cash flows by the indirect method, an increase in a current asset is subtracted from net income.

During the year, the Equipment account increased by $25,000 and the Accumulated Depreciation account increased by $2,000. In addition, the company sold equipment, which originally cost $12,000 and had $9,000 of accumulated depreciation, for $4,500. What was the cash outflow to purchase equipment?

Use the reconciliation approach to compute cash paid for salaries for the Norton Corporation. The income statement reported salaries expense as $49,800. Beginning and ending salaries payable balances were $3,720 and $2,840 respectively.

What is the proper treatment of a loss on disposal of equipment when using the indirect method to complete the cash flows from operating activities section?

Under the indirect method, which of the following is not an item that is added back to net income in determining net cash flow from operating activities?

Can a company have a negative cash flow from operating activities for the year on the statement of cash flows but still have a net income on the income statement? Explain.

Both the indirect and direct method of preparing a statement of cash flows begin with net income.

The investing section of the statement of cash flows is the same regardless of whether the direct or indirect method is used.

Cash payments for interest expense on a bond payable would be classified as a financing activity.

In preparing the statement of cash flows by the indirect method, a decrease in a current liability is deducted from net income.

On January 1, Steigel Company had a balance of $720,000 in its Land account. During the year, Steigel sold land, which had cost $240,000, for $440,000 cash. The balance in the Land account was $980,000 on December 31. What is the net cash outflow from investing activities?