Chapter 16

Chapter 016 Reporting the Statement of Cash Flows

Chapter 016 Reporting the Statement of Cash Flows

Summary of Questions by Difficulty Level (DL) and Learning Objective (LO)

True/False

ItemDLLOItemDLLOItemDLLO

1. EasyC120. EasyC438. MedP1

2. EasyC121. EasyA139. MedP2

3. MedC122. MedA140. HardP2

4. MedC123. EasyA241. HardP2

5. MedC124. EasyA242. HardP2

6. HardC125. EasyA243. EasyP3

7. EasyC226. MedA244. MedP3

8. MedC227. MedA245. MedP3

9. MedC228. HardA246. HardP3


11. HardC230. EasyP148. EasyP4

12. HardC231. EasyP149. MedP4

13. MedC332. EasyP150. HardP4

14. MedC333. MedP151. MedP5

15. MedC334. MedP152. HardP5


17. HardC336. MedP1

18. HardC337. MedP1

19. EasyC4

Multiple Choice


54. EasyC176. Med C398. Hard P2

55. EasyC177.HardC399. HardP2

56. EasyC178. Med C4100. HardP2



59. EasyC281. MedA2103. EasyP3

60. MedC282. MedA2104. MedP3

61. MedC283. MedA2105. Med P3

62. MedC284. MedA2106. Hard P3

63. MedC285. EasyP1107. Hard P3



66. MedC288. MedP1110. Hard P3

67. MedC289. Med P1111. HardP3



70. HardC292. MedP2 114. MedP4

71. HardC293. MedP2 115. MedP4

72. HardC294. MedP2 116. EasyP5

73. EasyC395. MedP2 117.HardP5

74. MedC396. HardP2

75. MedC397. HardP2

Matching


118. MedC1,P1119. MedC2,C3120. MedC2,C3

Short Essay



122. MedC2126. HardA1130. MedP3


124. MedC4128. MedP1132.HardP5

Problems



134. MedP2142. MedP4150. EasyA2

135. MedP2143. MedP5151. MedA2

136. MedP2144. MedP5152. MedA2

137. HardP2145. MedP5153. HardA2

138. HardP2,P3146. MedP5,C3154. HardA2

139. HardP2,P3147. HardP5155. HardA2

140. MedP3 148. MedP5

Completion Problems


156. EasyC1161. MedC3166. HardP1

157. MedC1162. EasyC4167. MedP2

158. EasyC2163. HardA1168. EasyP3

159, MedC2164. MedA2 169. MedP4

160. MedC2165. MedP1 170. HardP5

True / False Questions

1.The primary purpose of the statement of cash flows is to report all major cash receipts (inflows) and cash payments (outflows) during a period.TRUE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: EasyLearning Objective: C12.The statement of cash flows reports the total change in cash.TRUE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: EasyLearning Objective: C13.To be classified as a cash equivalent an investment must be readily convertible to an unknown amount of cash, because the market value may be affected by interest rate changes.FALSE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: MediumLearning Objective: C14.The statement of cash flows explains the difference between the beginning and ending balances of cash and cash equivalents.TRUE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: MediumLearning Objective: C1

5.Internal users of the statement of cash flows often use cash flow information to plan day-to-day operating activities and make long-term investment and financing decisions.TRUE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: MediumLearning Objective: C16.A cash equivalent must be readily convertible to a known amount of cash, and must be sufficiently close to its maturity so its market value is unaffected by interest rate changes.TRUE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: HardLearning Objective: C17.Business activities that generate or use cash are classified as operating, investing, or financing activities on the statement of cash flows.TRUE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: EasyLearning Objective: C28.Financing activities include (a) the purchase and sale of long-term assets, (b) the purchase and sale of short-term investments, and (c) lending and collecting on loans.FALSE


9.Cash paid for merchandise is an operating activity.TRUE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: MediumLearning Objective: C210.The purchase of stock in another company is classified as a financing activity.FALSE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: MediumLearning Objective: C211.Cash dividends received and interest received are investing inflows.FALSE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: HardLearning Objective: C212.The payment of cash dividends to shareholders is classified as a financing activity.TRUE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: HardLearning Objective: C2

13.The full disclosure principle requires that noncash investing and financing activities be disclosed as part of the statement of cash flows.TRUE

AACSB: CommunicationsAICPA BB: IndustryAICPA FN: ReportingDifficulty: MediumLearning Objective: C314.Conversion of preferred stock to common stock is disclosed in the financing section of the statement of cash flows.FALSE

AACSB: CommunicationsAICPA BB: IndustryAICPA FN: ReportingDifficulty: MediumLearning Objective: C315.A purchase of land in exchange for a long-term note payable is reported in the investing section of the statement of cash flows.FALSE

AACSB: CommunicationsAICPA BB: IndustryAICPA FN: ReportingDifficulty: MediumLearning Objective: C316.A noncash investing transaction should be disclosed as either a footnote or small schedule attached to the statement of cash flows.TRUE

AACSB: CommunicationsAICPA BB: IndustryAICPA FN: ReportingDifficulty: MediumLearning Objective: C3

17.A company purchased equipment for $150,000 by paying $50,000 and signing a $100,000 note payable. The entire transaction is disclosed to users on the statement of cash flows and/or in its notes.TRUE

AACSB: CommunicationsAICPA BB: IndustryAICPA FN: ReportingDifficulty: HardLearning Objective: C318.A purchase of land in exchange for shares of stock is disclosed on the statement of cash flows or in a note to the statement.TRUE

AACSB: CommunicationsAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: HardLearning Objective: C319.Accounting standards require companies to include a statement of cash flows in a complete set of financial statements.TRUE

AACSB: CommunicationsAICPA BB: IndustryAICPA FN: ReportingDifficulty: EasyLearning Objective: C420.The statement of cash flows explains how transactions and events impact the end-of-period cash balance to produce the end-of-period net income balance.FALSE

AACSB: CommunicationsAICPA BB: IndustryAICPA FN: ReportingDifficulty: EasyLearning Objective: C4

21.Most managers stress the importance of understanding and predicting cash flows for business decisions.TRUE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: Decision MakingDifficulty: EasyLearning Objective: A122.Managers only use the cash flow statement to evaluate the net cash increase or decrease, and do not pay much attention to the details of cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities.FALSE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: Decision MakingDifficulty: MediumLearning Objective: A123.A cash-based measure to help business decision makers estimate the amount and timing of cash flows is the cash flow on total assets ratio.TRUE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: Decision MakingDifficulty: EasyLearning Objective: A224.The cash flow on total assets ratio can be used as an indicator of earnings quality.TRUE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: Decision MakingDifficulty: EasyLearning Objective: A2

25.Cash flow amounts and their timing should be considered when planning and analyzing operating activities.TRUE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: Decision MakingDifficulty: EasyLearning Objective: A226.The cash flow on total assets ratio is defined as cash flows from operations divided by average total assets.TRUE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: Decision MakingDifficulty: MediumLearning Objective: A227.The cash flow on total assets ratio is defined as average total assets divided by operating income.FALSE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: Decision MakingDifficulty: MediumLearning Objective: A228.The cash flow on total assets ratio reflects actual cash flows and is therefore affected by the accounting constraints of recognition and measurement for net income.FALSE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: Decision MakingDifficulty: HardLearning Objective: A2

29.A cash coverage ratio of less than 1 indicates cash inadequacy to meet asset growth.TRUE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: Decision MakingDifficulty: HardLearning Objective: A230.The usual first step in preparing the statement of cash flows is computing the net increase or net decrease in cash.TRUE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: EasyLearning Objective: P131.Both the direct and indirect methods yield the identical net cash flow amount provided or used by operating activities.TRUE

AACSB: CommunicationsAICPA BB: IndustryAICPA FN: ReportingDifficulty: EasyLearning Objective: P132.The reporting of financing activities is identical under either the direct and indirect methods for preparing the statement of cash flows.TRUE

AACSB: CommunicationsAICPA BB: IndustryAICPA FN: ReportingDifficulty: EasyLearning Objective: P133.The FASB recommends that the operating section of the statement of cash flows be reported using the direct method.TRUE

AACSB: AnalyticAICPA BB: IndustryAICPA FN: ReportingDifficulty: MediumLearning Objective: P134.Since it is recommended by the FASB, the direct method of preparing the statement of cash flows is most frequently used.FALSE

AACSB: AnalyticAICPA BB: IndustryAICPA FN: ReportingDifficulty: MediumLearning Objective: P135.Information to prepare the statement of cash flows usually comes from (a) comparative balance sheets, (b) current income statement, and (c) additional information.TRUE

AACSB: AnalyticAICPA BB: IndustryAICPA FN: ReportingDifficulty: MediumLearning Objective: P136.The direct method for preparing and reporting the statement of cash flows reports net income and then adjusts it for items necessary to calculate net cash provided or used by operating activities.FALSE

AACSB: AnalyticAICPA BB: IndustryAICPA FN: ReportingDifficulty: MediumLearning Objective: P1

37.The indirect method reports individual operating cash outflows and cash inflows by activity.FALSE

AACSB: AnalyticAICPA BB: IndustryAICPA FN: ReportingDifficulty: MediumLearning Objective: P138.Companies have the option of using either the direct or indirect method to prepare the operating section of the statement of cash flows.TRUE

AACSB: AnalyticAICPA BB: IndustryAICPA FN: ReportingDifficulty: MediumLearning Objective: P139.When preparing the operating section of the statement of cash flows using the indirect method, noncash operating expenses are added back to net income.TRUE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: MediumLearning Objective: P240.When preparing the operating section of the statement of cash flows using the indirect method, nonoperating gains are added to net income.FALSE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: HardLearning Objective: P2

41.When preparing the operating section of the statement of cash flows using the indirect method, a decrease in accounts receivable is subtracted from net income.FALSE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: HardLearning Objective: P242.When preparing the operating section of the statement of cash flows using the indirect method, an increase in income taxes payable is added to net income.TRUE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: HardLearning Objective: P243.Financing activities include receiving cash dividends from investments in other companies' stocks.FALSE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: EasyLearning Objective: P344.Investing activities include: (a) the purchase and sale of long-term assets, (b) lending and collecting on notes receivable, (c) the purchase and sale of short-term investments other than cash equivalents.TRUE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: MediumLearning Objective: P3

45.Financing activities include receiving cash from issuing debt and receiving cash dividends from investments in other companies' stocks.FALSE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: MediumLearning Objective: P346.The payment of cash dividends never changes the balance of retained earnings.FALSE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: HardLearning Objective: P347.Equipment costing $100,000 with accumulated depreciation of $40,000 is sold at a loss of $10,000. This implies that $40,000 cash was received from the sale.FALSE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: HardLearning Objective: P3

48.A spreadsheet can help organize the information needed to prepare a statement of cash flows.TRUE

AACSB: TechnologyAICPA BB: Leveraging TechnologyAICPA FN: Leveraging TechnologyDifficulty: EasyLearning Objective: P449.On a spreadsheet used to prepare the operating section of the statement of cash flows, depreciation expense does not require an entry in the Analysis of Changes columns because it is a noncash item.FALSE

AACSB: TechnologyAICPA BB: Leveraging TechnologyAICPA FN: Leveraging TechnologyDifficulty: MediumLearning Objective: P450.When using a spreadsheet to prepare the statement of cash flows, a decrease in accounts payable is entered in the Analysis of Changes columns with a debit in the statement of cash flows section and a credit in the balance sheet section.FALSE

AACSB: TechnologyAICPA BB: Leveraging TechnologyAICPA FN: Leveraging TechnologyDifficulty: HardLearning Objective: P451.Depreciation expense is not reported on the statement of cash flows when prepared using the direct method.TRUE

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: MediumLearning Objective: P5

52.The FASB requires a reconciliation of net income to net cash provided or used by operating activities when the direct method is used.TRUE

AACSB: CommunicationsAICPA BB: IndustryAICPA FN: ReportingDifficulty: HardLearning Objective: P553.The gain or loss from retirement of debt is reported under cash flows from operations on the statement of cash flows using the direct method.FALSE

AACSB: CommunicationsAICPA BB: IndustryAICPA FN: ReportingDifficulty: HardLearning Objective: P5

Multiple Choice Questions

54.The statement of cash flows reports:A.Assets, liabilities, and equity.B.Revenues, gains, expenses, and losses.C.Cash inflows and cash outflows for an accounting period.D.Equity, net income, and dividends.E.Changes in equity.

AACSB: CommunicationsAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: EasyLearning Objective: C1

55.The statement of cash flows reports:A.Cash flows from operating activities.B.Cash flows from financing activities.C.Cash flows from investing activities.D.Significant noncash financing and investing activities.E.All of these.

AACSB: CommunicationsAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: EasyLearning Objective: C156.The statement of cash flows is:A.Another name for the statement of financial position.B.A financial statement that presents information about changes in equity during a period.C.A financial statement that reports the cash inflows and cash outflows for an accounting period, and that classifies those cash flows as operating activities, investing activities, or financing activities.D.A financial statement that lists the types and amounts of assets, liabilities, and equity of a business on a specific date.E.A financial statement that lists the types and amounts of the revenues and expenses of a business for an accounting period.


57.A cash equivalent is an investment that:A.Is readily convertible to a known amount of cash.B.Is sufficiently close to its maturity date so its market value is unaffected by interest rate changes.C.Generally is within 3 months of its maturity date.D.Is highly liquid.E.All of these.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: MediumLearning Objective: C158.An investment that is readily convertible to a known amount of cash and that is sufficiently close to its maturity date so that its market value is relatively insensitive to interest rate changes is a(n):A.Short-term marketable equity security.B.Operating activity.C.Common stock.D.Cash equivalent.E.Financing activity.


59.Activities that involve the production or purchase of merchandise and the sale of goods and services to customers, including expenditures related to administering the business, are classified as:A.Financing activities.B.Investing activities.C.Operating activities.D.Direct activities.E.Indirect activities.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: EasyLearning Objective: C260.The appropriate section in the statement of cash flows for reporting the purchase of equipment for cash is:A.Operating activities.B.Financing activities.C.Investing activities.D.Schedule of noncash investing or financing activity.E.None of these. This is not reported on the statement of cash flows.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: MediumLearning Objective: C261.Which of the following items is reported on the statement of cash flows under financing activities?A.Declaration of a cash dividend.B.Payment of a cash dividend.C.Declaration of a stock dividend.D.Payment of a stock dividend.E.Stock split.


62.Investing activities include the:A.Purchase of plant assets.B.Lending and collecting on notes receivable.C.Sale of short-term investments other than cash equivalents.D.Sale of plant assets.E.All of these.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: MediumLearning Objective: C263.The appropriate section in the statement of cash flows for reporting the cash payment of wages is:A.Operating activities.B.Financing activities.C.Investing activities.D.Schedule of noncash investing or financing activity.E.None of these. This is not reported on the statement of cash flows.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: MediumLearning Objective: C264.The appropriate section in the statement of cash flows for reporting the issuance of common stock for cash is:A.Operating activities.B.Financing activities.C.Investing activities.D.Schedule of noncash investing or financing activity.E.None of these. This is not reported on the statement of cash flows.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: MediumLearning Objective: C2

65.A company's transactions with its creditors to borrow money and/or to repay the principal amounts of loans are reported as cash flows from:A.Operating activities.B.Investing activities.C.Financing activities.D.Direct activities.E.Indirect activities.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: MediumLearning Objective: C266.The appropriate section in the statement of cash flows for reporting the receipt of cash dividends from investments in securities is:A.Operating activities.B.Financing activities.C.Investing activities.D.Schedule of noncash investing or financing activity.E.None of these. This is not reported on the statement of cash flows.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: MediumLearning Objective: C267.Which one of the following is representative of typical cash flows from operating activities?A.Proceeds from collecting the principal amount of loans.B.Repayment of principal on loans.C.Proceeds from the issuance of bonds and notes payable.D.Payments by a merchandiser to acquire equity securities of other companies.E.Receipts of cash sales.


68.Typical cash flows from investing activities include:A.Payments to purchase property, plant and equipment or other productive assets (excluding inventory).B.Proceeds from the sale (discounting) of notes receivable made by the company.C.Proceeds from collecting the principal amount of notes receivable.D.Payments to acquire held-to maturity securities of other entities, except cash equivalents.E.All of these.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: MediumLearning Objective: C269.If a company borrows money from a bank, the interest paid on this loan should be reported on the statement of cash flows as a(n):A.Operating activity.B.Investing activity.C.Financing activity.D.Noncash investing and financing activity.E.None of these. This is not reported in the statement of cash flows.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: MediumLearning Objective: C270.Cash flows from selling trading securities are usually reported in the statement of cash flows as part of:A.Operating activities.B.Financing activities.C.Investing activities.D.Noncash activities.E.None of these. This is not reported in the statement of cash flows.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: HardLearning Objective: C2

71.Which of the following is included in the cash flows from financing activities section of the statement of cash flows?A.Interest revenue.B.Sale of equipment.C.Interest expense.D.Purchase of treasury stock.E.Purchase of stock in another company.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: HardLearning Objective: C272.Cash flows from interest received are reported in the statement of cash flows as part of:A.Operating activities.B.Financing activities.C.Investing activities.D.Noncash activities.E.None of these. This is not reported in the statement of cash flows.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: HardLearning Objective: C273.The accounting principle that requires significant noncash financing and investing activities be reported on the statement of cash flows is the:A.Historical cost principle.B.Materiality principle.C.Full disclosure principle.D.Going concern principle.E.Business entity principle.


74.The appropriate section in the statement of cash flows for reporting the purchase of land in exchange for common stock is:A.Operating activities.B.Financing activities.C.Investing activities.D.Schedule of noncash investing or financing activity.E.None of these. This is not reported on the statement of cash flows.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: MediumLearning Objective: C375.The purchase of long-term assets by issuing a note payable for the entire amount is reported on the statement of cash flows in the:A.Operating activities.B.Financing activities.C.Investing activities.D.Schedule of noncash financing and investing activities.E.None of these. This is not reported on the statement of cash flows.

AACSB: CommunicationsAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: MediumLearning Objective: C376.An example of a transaction that must be disclosed as a noncash investing and financing activity includes:A.The retirement of debt by issuance of equity.B.The purchase of long-term assets financed by a cash down payment and a note payable to the seller for the balance.C.The leasing of assets in a transaction that qualifies as a capital lease.D.The purchase of noncash assets in exchange for equity or debt securities.E.All of these.


77.Noncash investing and financing activities may be disclosed in:A.A note to the statement of cash flows.B.A separate schedule attached to the statement of cash flows.C.The investing activities section of the statement of cash flows.D.The financing activities section of the statement of cash flows.E.Both a and b.

AACSB: CommunicationsAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: HardLearning Objective: C378.Accounting standards:A.Allow companies to omit the statement of cash flows from a complete set of financial statements if cash is an insignificant asset.B.Require that companies omit the statement of cash flows from a complete set of financial statements if the company has no investing activities.C.Require that companies include a statement of cash flows in a complete set of financial statements.D.Allow companies to include the statement of cash flows in a complete set of financial statements if the cash balance makes up more than 50% of the current assets.E.Allow companies to omit the statement of cash flows from a complete set of financial statements if the company has no financing activities.

AACSB: CommunicationsAICPA BB: IndustryAICPA FN: ReportingDifficulty: MediumLearning Objective: C4

79.The statement of cash flows helps analysts evaluate the:A.Source of cash for debt repayments.B.Source of cash for plant expansion.C.Differences between net income and net operating cash flow.D.Means used to finance investing activities.E.All of these.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: Decision MakingDifficulty: MediumLearning Objective: A180.The statement of cash flows helps address questions such asA.How is the increase in investments financed?B.What is the source of cash for new plant assets?C.How much cash is generated from or used in operations?D.Why is cash flow from operations different from income?E.All of these.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: Decision MakingDifficulty: MediumLearning Objective: A181.The cash flow on total assets ratio:A.Is the same as return on assets.B.Is the same as profit margin.C.Can be an indicator of earnings quality.D.Is highly affected by accounting principles of income recognition and measurement.E.Is average net assets divided by cash flows from operations.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: MediumLearning Objective: A2

82.The cash flow on total assets ratio is calculated by:A.Dividing cash flows from operations by average total assets.B.Dividing total cash flows by average total assets.C.Dividing average total assets by cash flows from investing activities.D.Dividing average total assets by total cash flows.E.Total cash flows divided by average total assets times 365.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: MediumLearning Objective: A283.A company had net cash flows from operations of $120,000, total cash flows of $500,000, and average total assets of $2,500,000. The cash flow on total assets ratio equals:A.4.8%.B.5.0%.C.20.0%.D.20.8%.E.24.0%.

$120,000/$2,500,000 = 4.8%


84.A company had total assets of $1,760,000, total cash flows of $1,320,000, and cash flows from operations of $205,000. This implies its cash flow on total assets ratio equals:A.1.33%.B.8.58%.C.11.65%.D.15.5%.E.75%.

$205,000/$1,760,000 = 11.65%

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: MediumLearning Objective: A285.Preparation of the statement of cash flows involves:A.Computing the net increase or decrease in cash.B.Computing and reporting net cash provided or used by operations.C.Computing and reporting net cash provided or used by investing activities.D.Computing and reporting net cash provided or used by financing activities.E.All of these.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: EasyLearning Objective: P1

86.The reporting of net cash provided or used by operating activities that lists the major items of operating cash receipts, such as receipts from customers, and subtracts the major items of operating cash disbursements, such as cash paid for merchandise, is referred to as the:A.Direct method of reporting net cash provided or used by operating activities.B.Cash basis of accounting.C.Classified statement of cash flows.D.Indirect method of reporting net cash provided or used by operating activities.E.Net method of reporting cash flows from operating activities.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: EasyLearning Objective: P187.A statement of cash flows should reconcile the differences between the beginning and ending balances of:A.Net income.B.Equity.C.Cash and cash equivalents.D.Working capital.E.Cash, cash equivalents, and short-term investments.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: EasyLearning Objective: P1

88.The direct method for the preparation of the operating activities section of the statement of cash flows:A.Separately lists each major item of operating cash receipts and cash payments.B.Reports adjustments to reconcile net income to net cash provided or used by operating activities in the statement.C.Reports a different amount of cash flows from operations than if the indirect method is used.D.Is required if the company is a merchandiser.E.Is required by the FASB.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: MediumLearning Objective: P189.The indirect method for the preparation of the operating activities section of the statement of cash flows:A.Separately lists each major item of operating cash receipts.B.Separately lists each major item of operating cash payments.C.Reports net income and then adjusts it for items necessary to determine net cash provided or used by operating activities.D.Is required if the company is a merchandiser.E.Must not be used in all circumstances.


90.The direct method of reporting operating cash flows:A.Is recommended but not required by the FASB.B.Must be used by all companies.C.Is used by most companies.D.Is considered supplementary disclosure.E.Is not recommended by the FASB, but is commonly used.

AACSB: CommunicationsAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: MediumLearning Objective: P191.Of the following, which one affects cash during a period?A.The declaration of a stock dividend.B.Writing off an uncollectible account receivable.C.The declaration of a cash dividend.D.An adjusting entry recognizing the expiration of prepaid insurance.E.The payment of interest expense accrued in a previous accounting period.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: MediumLearning Objective: P192.When using the indirect method to calculate and report the net cash provided or used by operating activities, net income is adjusted for:A.Gains and losses from nonoperating items.B.Revenues and expenses that did not provide or use cash.C.Changes in noncash current assets and current liabilities related to operating activities.D.Changes in current liabilities related to operating activities.E.All of these.


93.When using the indirect method to calculate and report net cash provided or used by operating activities, which of the following is subtracted from net income?A.Decrease in income taxes payable.B.Depreciation expense.C.Amortization of intangible assets.D.Bad debts expense.E.Decrease in merchandise inventory.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: MediumLearning Objective: P294.The first line item in the operating activities section of a spreadsheet for a statement of cash flows prepared using the indirect method is:A.Cash.B.Cash received from customers.C.Increase (decrease) in accounts receivable.D.Net income.E.Adjustments to net income.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: MediumLearning Objective: P295.When preparing a statement of cash flows on the indirect method, each of the following should be classified as an operating activity cash flow except:A.An increase in accounts receivable.B.A decrease in accounts payable.C.A gain from disposal of a long-term assetD.An increase in prepaid expenses.E.A decrease in accrued expenses payable.


96.A company's Inventory balance at 12/31/09 was $200,000 and was $188,000 at 12/31/08. Its Accounts Payable balance at 12/31/09 was $80,000 and was $84,000 at 12/31/08, and its cost of goods sold for 2010 was $720,000. The company's total amount of cash payments for merchandise in 2010 equals:A.$704,000.B.$712,000.C.$720,000.D.$728,000.E.$736,000.

Decrease in merchandise = $200,000 - $188,000 = $12,000Purchases = $720,000 - $12,000 = $708,000Increase in Accounts Payable = $84,000 - $80,000 = $4,000Cash paid for merchandise = $708,000 - $4,000 = $704,000

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: HardLearning Objective: P297.Use the following information to calculate cash paid for wages and salaries:

A.$157,400.B.$163,800.C.$168,000.D.$172,200.E.$174,400.

Increase in Salaries Payable = $10,600 - $6,400 = $4,200Cash paid for salaries = $168,000 - $4,200 = $163,800


98.Use the following information about the current year's operations of a company to calculate the cash paid for merchandise.

A.$218,000.B.$223,200.C.$220,000.D.$228,800.E.$234,000.

Increase in inventory = $57,400 - $54,800 = $2,600Purchases = $226,000 + $2,600 = $228,600Increase in Accounts payable = $59,800 - $54,400 = $5,400Cash paid for Merchandise = $228,600 - $5,400 = $223,200

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: HardLearning Objective: P299.When preparing a statement of cash flows on the indirect method, which of the following is correct?A.Proceeds from the sale of equipment should be added to net income in the operating activities section.B.A loss on the sale of land should be added to net income in the operating activities section.C.The declaration of a cash dividend should be a use of cash in the financing activities section.D.The issuance of a stock dividend should be a use of cash in the financing activities section.E.The purchase of land and a building by issuing a long-term note payable should be a source of cash in the financing activities section.


100.A company's income statement showed the following: net income, $124,000; depreciation expense, $30,000; and gain on sale of plant assets, $14,000. An examination of the company's current assets and current liabilities showed the following changes as a result of operating activities: accounts receivable decreased $9,400; merchandise inventory increased $18,000; prepaid expenses decreased $6,200; accounts payable increased $3,400. Calculate the net cash provided or used by operating activities.A.$139,000.B.$141,000.C.$145,800.D.$155,000.E.$167,000.


101.Use the following information and the indirect method to calculate the net cash provided or used by operating activities:

A.$12,700.B.$13,900.C.$20,900.D.$28,400.E.$35,900.


102.In preparing a company's statement of cash flows for the most recent year on the indirect method, the following information is available:

Net cash provided by operating activities was:A.$120,000.B.$44,000.C.$70,000.D.$84,000.E.$30,000.


103.A machine with a cost of $130,000 and accumulated depreciation of $85,000 is sold for $50,000 cash. The amount that should be reported as a source of cash under cash flows from investing activities is:A.$50,000.B.$5,000.C.$45,000.D.Zero. This is an operating activity.E.Zero. This is a financing activity.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: EasyLearning Objective: P3104.A company reported that its bonds with a par value of $50,000 and a carrying value of $57,000 are retired for $60,000 cash, resulting in a loss of $3,000. The amount to be reported under cash flows from financing activities is:A.$ (3,000).B.$(60,000).C.$(57,000).D.Zero. This is an operating activity.E.Zero. This is an investing activity.


105.Becker Corporation paid cash dividends totaling $75,000 during its most recent fiscal year. How should this information be reported on Becker's statement of cash flows?A.In operating activities as a source of funds.B.In investing activities as a source of funds.C.In investing activities as a use of funds.D.In financing activities as a source of funds.E.In financing activities as a use of funds.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: MediumLearning Objective: P3106.Use the following information to calculate cash received from dividends:

A.$26,400.B.$29,000.C.$29,800.D.$30,600.E.$32,400.

Increase in Dividends Receivable = $3,400 - $2,600 = $800Cash received from dividends = $29,800 - $800 = $29,000


107.Analysis reveals that a company had a net decrease in cash of $4,000 for the current year. Net cash provided by operating activities was $18,000; net cash used in investing activities was $10,000 and net cash used in financing activities was $12,000. If the year-end cash balance is $21,000, the beginning cash balance was:A.$ 3,000.B.$ 7,000.C.$17,000.D.$25,000.E.$39,000.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: HardLearning Objective: P3108.Stojko Corporation had a net decrease in cash of $10,000 for the current year. Net cash used in investing activities was $52,000 and net cash used in financing activities was $38,000. What amount of cash was provided (used) in operating activities?A.$ 100,000 provided.B.$(100,000) used.C.$ 80,000 provided.D.$ (80,000) used.E.$ (10,000) used.

$10,000 - $52,000 - $38,000 = $80,000


109.The accountant for Robinson Company is preparing the company's statement of cash flows for the fiscal year just ended. The following information is available:

What is the ending balance for retained earnings?A.$276,000.B.$202,000.C.$254,000.D.$248,000.E.$174,000.


110.The accountant for Robinson Company is preparing the company's statement of cash flows for the fiscal year just ended. The following information is available:

The amount of cash dividends paid during the year would be:A.$70,000.B.$46,000.C.$22,000.D.$39,000.E.$24,000.


111.In preparing a company's statement of cash flows for the most recent year, the following information is available:

Net cash flows from investing activities for the year were:A.$134,000 of net cash used by investing activities.B.$134,000 of net cash provided by investing activities.C.$120,000 of net cash used by investing activities.D.$252,000 of net cash used by investing activities.E.$221,000 of net cash provided by investing activities.


112.In preparing a company's statement of cash flows for the year just ended, the following information is available:

Net cash flows from financing activities for the year were:A.$130,000 of net cash used by financing activities.B.$165,000 of net cash used by financing activities.C.$222,000 of net cash used by financing activities.D.$88,000 of net cash used by financing activities.E.$206,000 of net cash used by financing activities.


113.When analyzing the changes on a spreadsheet used to prepare a statement of cash flows, the cash flows from operating activities generally affect:A.Net income, current assets, and current liabilities.B.Noncurrent assets.C.Noncurrent liability and the equity accounts.D.Both noncurrent assets and noncurrent liabilities.E.Equity accounts only.

AACSB: TechnologyAICPA BB: Leveraging TechnologyAICPA FN: Leveraging TechnologyDifficulty: MediumLearning Objective: P4114.When analyzing the changes on a spreadsheet used to prepare a statement of cash flows, the cash flows from investing activities generally affect:A.Net income, current assets, and current liabilities.B.Noncurrent assets.C.Noncurrent liability and the equity accounts.D.Both noncurrent assets and noncurrent liabilities.E.Equity accounts only.

AACSB: TechnologyAICPA BB: Leveraging TechnologyAICPA FN: Leveraging TechnologyDifficulty: MediumLearning Objective: P4115.When analyzing the changes on a spreadsheet used to prepare a statement of cash flows, the cash flows from financing activities generally affectA.Net income, current assets, and current liabilities.B.Noncurrent assets.C.Noncurrent liability and the equity accounts.D.Both noncurrent assets and noncurrent liabilities.E.Equity accounts only.

AACSB: TechnologyAICPA BB: Leveraging TechnologyAICPA FN: Leveraging TechnologyDifficulty: MediumLearning Objective: P4

116.Which of the following transactions or events should be reported as a source of cash from operating activities when using the direct method?A.Credit sales.B.Cash collections from customers.C.Depreciation expense.D.Cash received from the sale of a building.E.Cash received from the sale of treasury stock.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: EasyLearning Objective: P5117.When the operating activities section of the statement of cash flows is reported using the direct method, the FASB requires:A.The preparation of the statement of cash flows under the indirect method be completed and reported with the statement of cash flows prepared using the direct method.B.A reconciliation of net income to net cash provided or used by operating activities.C.Footnotes to the financial statements disclosing the difference between net income and the cash provided or used by financing activities.D.The income statement to be prepared under the cash basis of accounting.E.Noncash investing and financing activities be included in the statement of cash flows.


Matching Questions

118.Match each of the following items with the appropriate definitions.

1.Indirect methodA calculation that reports net income and then adjusts the net income amount by adding and subtracting items that are necessary to yield net cash provided (used) by operating activities.1

2.Statement of cash flowsActivities that involve the production or purchase of merchandise and the sale of goods or services to customers, including expenditures related to administering the business.5

3.Direct methodA financial statement that reports the cash inflows and cash outflows for an accounting period, and classifies those cash flows as operating, investing, or financing activities.2

4.Investing activitiesTransactions with a company's owners and creditors that include obtaining cash from issuing debt and repaying the amounts borrowed, and obtaining cash from or distributing cash to owners.6

5.Operating activitiesA calculation of the net cash provided (used) by operating activities that lists the major items of operating cash receipts, and then subtracts the major items of operating cash payments.3

6.Financing activitiesTransactions that include making and collecting notes receivable or purchasing and selling plant assets, or investments in other than cash equivalents and trading securities.4

AACSB: CommunicationsAICPA BB: IndustryAICPA FN: MeasurementDifficulty: MediumLearning Objective: C1Learning Objective: P1

119.For each of the following items, indicate whether it would be classified as an (O) operating activity, an (I) investing activity, a (F) financing activity, or a significant (N) noncash financing and investing activity.

1.Issued bonds payable for cash.O8

2.Purchases of land for cash.O3

3.Collected accounts receivable from customers.F1

4.Paid wages to employees.O4

5.Purchased land in exchange for a note payable.F7

6.Paid cash dividends.I9

7.Issued stock for cash.N5

8.Received cash dividends from investments in trading securities.F6

9.Sold equipment for cash.O10

10.Received interest from investments in trading securities.I2

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: MediumLearning Objective: C2Learning Objective: C3120.For each of the following items, indicate whether it would be classified as either an (O) operating activity, an (I) investing activity, a (F) financial activity, or a significant (N) noncash financing and investing activity.

1.Signed a note payable in exchange for cash.O9

2.Paid cash to settle an account payable.I5

3.Reissued its own treasury stock.F1

4.Purchased supplies for cash.O4

5.Sale of land for cash.O2

6.Purchased a warehouse in exchange for shares of its stock.N6

7.Purchased equipment in exchange for a 6-month note payable.O10

8.Purchased equipment for cash.F3

9.Cash sales of merchandise.I8

10.Paid interest on a note payable.N7

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: MediumLearning Objective: C2Learning Objective: C3

Short Answer Questions

121.Explain the purpose and format of the statement of cash flows. Also describe its relevance to decision makers.

The purpose of the statement of cash flows is to report the cash inflows and cash outflows for an accounting period. The cash flows are classified as either operating, financing or investing activities. Decisions using the evaluation of cash flows include those by both internal and external decision makers. External decision makers decide whether to invest in or lend money to a company. Internal decision makers evaluate the impact of cash flows for decisions such as keeping or ending a product line, outsourcing a product, or downsizing a division.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: Decision MakingDifficulty: MediumLearning Objective: C1122.Define and discuss the differences between operating, investing, and financing activities.

Operating activities involve the day-to-day business activities that generate operating income. Examples are production and purchase of merchandise, the sale of goods to customers, and the expenditures to administer the business. Investing activities generally include those transactions that affect long-term assets. They also include the purchase and sale of short-term investments other than cash equivalents and trading securities, and lending and collecting from notes receivable. Financing activities include those transactions and events that affect long-term liabilities and equity. They also include borrowing and repaying principle amounts of both long- and short-term notes.


123.Define and explain significant noncash investing and financing activities and the method of reporting them on the statement of cash flows.

Noncash investing and financing activities involve the purchase or sale of assets which are financed via noncash sources, such as borrowing funds or exchanging stock for assets. These activities are disclosed in either a note to the statement of cash flows or in a separate schedule reported with the statement of cash flows.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: MediumLearning Objective: C3124.Describe the format of the statement of cash flows, including the reporting of significant noncash investing and financing activities.

The statement of cash flows involves reporting cash receipts and cash payments organized into three categories: operating, financing, and investing. Noncash financing and investing items are reported in a note or in a separate schedule with the statement. The statement reconciles the beginning and ending cash and cash equivalents balances and explains the amount of net increase or decrease in this balance.


125.Explain the value of separating cash flows into operating activities, investing activities, and financing activities to financial statement users in analyzing cash flows and the company's financial performance and condition.

By separating cash flows into three categories, the statement of cash flows allows users to focus their analysis on specific areas of importance. The operating section of the statement reveals the net effect of cash inflows and cash outflows from the core activities of a business which directly affect its operating income. Operating cash flows indicate the health of a business. A business with a declining or negative amount of cash from operating activities may be in financial difficulty. Analysis of the financing section reveals to financial statement users how a business raises funds from the outside. Analysis of the investing activity section reveals whether or not a firm is acquiring new assets and disposing of existing assets and thus investing in the future of the company.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: HardLearning Objective: A1126.An analysis of Hamilton Company's cash flows revealed that net cash used in investing activities was $52,000 and net cash used in financing activities was $38,000. These uses led to an overall decrease in the company's cash position of $10,000. Provide an analysis of this company's overall cash performance.

At first glance, the net decrease in the cash position may seem to indicate negative performance. However, the use of cash in investing activities and financing activities could actually indicate strong performance. The cash used in investing activities could have been used for the purchase of newer, more efficient plant assets which will in turn increase the company's production efficiency. The cash used in investing activities might also indicate that excess cash has been placed in higher-yield investments. The cash used in financing activities was most likely used to reduce debt thus reducing the company's debt risk.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: HardLearning Objective: A1

127.Define the cash flow on total assets ratio and explain how it is used to evaluate cash flows and to assess company performance.

The cash flow on total assets ratio is defined as cash flows from operations divided by average total assets. The ratio can be used as a measure of the quality of earnings. The analysis of this ratio is commonly performed over time to determine trends in operating cash flows, especially as compared with operating income.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: MediumLearning Objective: A2128.What are the five usual steps involved in the preparation of the statement of cash flows?

The preparation of the statement of cash flows involves five common steps: (1) compute the net increase or decrease in cash; (2) compute the net cash used or provided by operating activities; (3) compute the net cash provided or used by investing activities (4) compute net cash provided or used by financing activities; (5) prove and report beginning and ending cash balance.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: MediumLearning Objective: P1129.Explain how the cash flows from operating activities section of the statement of cash flows is prepared using the indirect method.

The indirect method for preparing the operating section of the statement of cash flows is the most widely used method. The indirect method starts with net income and then adjusts net income for (1) changes in non-cash current assets and current liabilities, (2) operating items not providing or using cash, (3) nonoperating gains and losses.


130.Explain how cash flows from investing and financing activities are determined.

Cash flows from investing activities are determined by identifying changes in all noncurrent asset accounts, the current accounts for both notes receivable and investments in securities (excluding trading securities). Cash flows from financing activities are determined by identifying changes in all noncurrent liability accounts and the equity accounts.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: MediumLearning Objective: P3131.Explain the use of a spreadsheet in the preparation of the statement of cash flows.

The spreadsheet provides an analytical framework for the preparation of the statement of cash flows. The upper portion of the spreadsheet is used to analyze the changes in balance sheet accounts for the accounting period. The lower portion of the spreadsheet is organized into the statement of cash flows activities of operating, financing, investing, and noncash. Changes in the balances analyzed in the top section are then entered into the appropriate section of the cash flows in the lower section of the spreadsheet.

AACSB: TechnologyAICPA BB: Leveraging TechnologyAICPA FN: Leveraging TechnologyDifficulty: HardLearning Objective: P4

132.Explain how the cash flows from operating activities section of the statement of cash flows is prepared using the direct method.

The direct method for reporting cash flows provided or used by operations (which is recommended by the FASB) involves listing separately the major items of operating cash inflows and cash outflows. The operating cash outflows are then subtracted from operating cash inflows to obtain the net inflow or net outflow of cash. A separate schedule reporting the reconciliation between net income and net cash provided or used by operating activities is required.


Problems

133.Use the following company information to prepare a schedule of significant noncash investing and financing activities: (a) Sold a building with a book value of $125,000 for $195,000 cash and land with a book value of $32,000 for $65,000 cash.(b) Issued 10,000 shares of $10 par value common stock in exchange for equipment with a market value of $135,000.(c) Retired a $100,000, 10% bond by issuing another $100,000, 12% bond issue.(d) Acquired land by issuing a ten-year, 9%, $44,000 note payable.


134.Based on the following information provided about a company's operations, calculate its cost of goods purchased and its cash paid for merchandise.


135.Use the following income statement and information about selected current assets and current liabilities to calculate the net cash provided or used by operating activities using the direct method.

Selected beginning and ending balances of current asset and current liability accounts, all of which relate to operating activities, are as follows:


136.Based on the following income statement and balance sheet for Rashid Corporation, determine the cash flows from operating activities using the indirect method.


137.Martin, Inc.'s, income statement is shown below. Based on this income statement and the other information provided, calculate the net cash provided by operations using the indirect method.


138.The following information is available for the Ehrens Corporation:

Additional information:(1) There was no gain or loss on the sales of the long-term investments, nor on the bonds retired.(2) Old equipment with an original cost of $37,550 was sold for $2,100 cash.(3) New equipment was purchased for $67,550 cash.(4) Cash dividends of $33,600 were paid.(5) Additional shares of stock were issued for cash.

Prepare a complete statement of cash flows for calendar-year 2009 using the indirect method.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: HardLearning Objective: P2Learning Objective: P3

139.The following information is available for the Eldridge Company:

Additional information:(1) There was no gain or loss on the sales of the long-term investments, nor on the bonds retired.(2) Old machinery with an original cost of $45,060 was sold for $2,520 cash.(3) New machinery was purchased for $81,060 cash.(4) Cash dividends of $40,320 were paid.(5) Additional shares of stock were issued for cash.

Prepare a complete statement of cash flows for calendar-year 2009 using the indirect method.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: HardLearning Objective: P2Learning Objective: P3

140.Use the following company information to calculate its net cash provided or used by investing activities: (a) Equipment with a book value of $125,000 and an original cost of $220,000 was sold at a gain of $22,000.(b) Paid $49,000 cash for a new truck.(c) Sold land costing $30,000 for $26,000 cash, realizing a $4,000 loss.(d) Purchased treasury stock for $53,000 cash.(e) Long-term investments in stock are sold for $41,000 cash, realizing a gain of $3,500.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: MediumLearning Objective: P3141.Use the following information to calculate the net cash provided or used by financing activities for the Brooks Corporation: (a) Net income, $10,000(b) Sold common stock for $4,000 cash(c) Paid cash dividend of $3,000(d) Paid bond payable, $8,000(e) Purchased equipment for $12,000 cash


142.Based on the information provided below, complete the following worksheet to be used to prepare the statement of cash flows. (a) Net income for the year was $30,000.(b) Dividends of $10,000 were declared and paid.(c) Stylish's only noncash expense was depreciation which totaled $50,000.(d) The company purchased plant assets for $70,000.(e) Notes payable in the amount of $40,000 were issued during the year for cash.

AACSB: AnalyticAICPA BB: Leveraging TechnologyAICPA FN: MeasurementDifficulty: MediumLearning Objective: P4

143.The following selected account balances are taken from a merchandising company's records:

(a) Calculate the cash payments made during 2010 for merchandise. Assume all of the company's accounts payable balances result from merchandise purchases.(b) Calculate the cash receipts from customer sales during 2010.(c) Calculate the cash payments for salaries during 2010.


144.Use the following calendar-year information to prepare David Company's statement of cash flows using the direct method:


145.For each of the following separate cases, use the information provided to calculate the missing cash inflow or cash outflow:


146.Use the following information about the calendar-year cash flows of MacArthur Company to prepare a statement of cash flows (direct method) and a schedule of noncash investing and financing activities.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: MediumLearning Objective: C3Learning Objective: P5

147.For each of the following independent cases, use the information provided to calculate the missing cash inflow or cash outflow:


148.Water Girl Corp.'s 2009 income statement follows:

Required:Calculate the company's net cash provided or used by operating activities using the direct method.


149.Based on the following income statement and balance sheet for Montego Bay Corporation, determine the cash flows from operating activities using the direct method.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: MediumLearning Objective: P5150.A company reported operating cash flows of $57,000 and average total assets of $962,000. Calculate its cash flow on total assets ratio.

$57,000/$962,000 = 5.9%.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: EasyLearning Objective: A2151.Polaroid reported net cash provided by operating activities of $131.4 million. Assets at the beginning of the year totaled $2,197.7 million and totaled $2,040.0 million at the end of the year. Calculate the cash flow on total assets ratio for Polaroid.

$131.4/[($2,197.7 + $2,040.0)/2] = 6.2%


152.Kodak reported assets of $13,362 million at January 1 and $13,369 million as of December 31 of the current year. Kodak's net cash flows from operations were $2,204 million. Calculate the cash flow on total assets ratio for Kodak.

$2,204/[($13,362 + $13,369)/2] = 16.5%

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: MediumLearning Objective: A2153.A company reported operating cash flows in Year 1 of $23,400 and $26,220 in Year 2. Its average total assets in Year 1 were $262,000 and $285,000 in Year 2. Calculate the cash flow on total assets ratio for both years. Comment on the results.

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: HardLearning Objective: A2154.A corporation reported average total assets in Year 1 of $397,350 and $440,800 in Year 2. Its net operating cash flow for Year 1 was $35,667 and $35,790 for Year 2. Calculate the cash flow on total assets ratio for both years. Comment on the results.


155.A company reported average total assets of $496,000 in Year 1 and $604,000 in Year 2. Its net operating cash flow in Year 1 was $41,150 and $55,500 in Year 2. Calculate its cash flow on total assets ratio for both years. Comment on the results.


Fill in the Blank Questions

156.A main purpose of the statement of cash flows is to report all the major cash ________ and cash _______________.Receipts (or inflows); payments (or outflows).

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: EasyLearning Objective: C1157.Investments that are readily convertible to a known amount of cash and are sufficiently close to their maturity so that the market value is unaffected by interest rate changes are ______________________________.Cash equivalents


158._____________ activities include the cash effects of transactions and events that determine net income.Operating

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: EasyLearning Objective: C2159.___________________ activities generally include those transactions and events that affect long-term assets.Investing

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: MediumLearning Objective: C2160.___________________ activities include those transactions that affect long-term liabilities and equity.Financing

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: MediumLearning Objective: C2161.Noncash financing and investing activities are disclosed in the ____________ or in a separate ______________________________.Notes; schedule included with the statement of cash flows.


162.The statement of cash flows is divided into three sections called the _____________, _____________, and _______________ sections.Operating, investing, financing

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: EasyLearning Objective: C4163.Probably the most important section of the statement of cash flows in analyzing the financial performance of a company's ongoing business is the ____________ section.Operating activities

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: HardLearning Objective: A1164.The cash flow on total assets ratio is computed by dividing _____________ by ____________.Cash flows from operations; average total assets

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: MediumLearning Objective: A2165.Information to prepare the statement of cash flows usually comes from three sources: (1) __________________________, (2) _______________________, and (3) ____________________.Comparative balance sheets; current income statement; additional information


166.All cash transactions eventually affect noncash ___________ accounts.Balance sheet

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: HardLearning Objective: P1167.When preparing the operating section of the statement of cash flows using the indirect method, noncash expenses are _____________ net income.Added to

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: MediumLearning Objective: P2168.The reporting of investing and financing activities is _________________ under the direct and indirect methods of preparing the statement of cash flows.Identical

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: MeasurementDifficulty: EasyLearning Objective: P3169.The use of a spreadsheet for analysis is especially useful when preparing the statement of cash flows using the _____________ method.Indirect

AACSB: TechnologyAICPA BB: Leveraging TechnologyAICPA FN: Leveraging TechnologyDifficulty: MediumLearning Objective: P4

170.The FASB requires a reconciliation of net income to net cash provided or used by operating activities when the ______________ method is used.Direct

AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: HardLearning Objective: P516-55

Chapter 16

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