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Exam 11: The Statement of Cash Flows

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Question 101

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Company P Company P completed the following transactions involving investments during Year 2: $\begin{array}{llr} \text {Purchased money market funds for } &\$50,000\\ \text {Sold available-for-sale securities (cost \$ 60,000 ) for } &\$70,000\\ \text { Purchased trading securities for } &\$55,000\end{array}$ -Refer to the Company P figure.Company P uses the indirect method to prepare the operating activities section of the statement of cash flows.The following statements describe how the company reported the cash flow effects of the above transactions.Which of the following has been reported incorrectly?

A) Payments of $50,000 for money market funds were reported as a cash outflow in the investing activities section.
B) Proceeds of $70,000 were reported as a cash inflow in the investing activities section.
C) Payments of $55,000 for trading securities were reported as a cash outflow in the operating activities section.
D) A gain of $10,000 on the sale of available-for-sale securities was deducted from net income in the operating activities section.

E) A) and B)
F) A) and C)

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Question 102

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Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. (Choices may be used more than once.) -paid employee insurance expense

A) inflow from operating activity
B) outflow from operating activity
C) inflow from investing activity
D) outflow from investing activity
E) inflow from financing activity
F) outflow from financing activity
G) noncash investing and financing activity
H) not reported on statement of cash flows

I) F) and H)
J) B) and F)

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Question 103

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When the direct method is used to determine operating cash flows,how are salaries paid to employees reported on the statement of cash flows?

When the indirect method is used to determine operating cash flows,where is the gain from selling a long-term investment recognized? (The proceeds from selling the investment are considered separately.)

Because the cash received from the sale of long-term assets is reported in the investing activities section of the statement of cash flows,any gain or loss is ignored when reporting the cash flow from operating activities under the indirect method.

Company J A company reported the following information: $\begin{array}{llr} \text { Salaries payable, December 31 , Year 2 } &\$20,000\\ \text { Salaries payable, December 31, Year 1} &15,000\\ \text { Salaries expense for Year 2 } &80,000\end{array}$ -Refer to the figure Company J.How much cash was paid for salaries during Year 2?

Match these terms with their correct definition. -determines operating cash flow that begins with net income and then adjusts it for noncash items

Selected data from the financial statements for the years ended December 31, Year 2 and Year 1, are presented below: $\begin{array} { l r r } & \text { Year 2 } & \text { Year 1 } \\ \text { Property, plant, and equipment }& \$ 14,100 & \$ 12,200 \\\text { Accumulated depreciation }& 4,900 & 4,700 \\\text { Investments } & 450 & 240 \\\text { Short-term debt } & 55 & 57 \\ \text { Lang-term debt }& 1,500 & 1,200 \\\text { Common shares } & 597 & 567 \\\text { Share Repurchase--common shares } & ( 21 ) & ( 21 ) \\\text { Retained earnings } & 3,522 & 3,426 \\\text { Net income } &770&713\end{array}$ The following additional information was obtained from the company's records: 1. Cash addituns to property, plant, and equpment during Year 2 were $2,300. An additional \$250 of plant assets were acquired through debt in anoncash transaction. Depreciation expense for Year 2 was $400. Gains an disposals of property, plant and equipment during Year 2 were $40. 2. The cash proceeds from the sale of investments in Year 2 were $\$ 120$ . There was a $\$ 30$ gain an the sale of the investments. 3. Praceeds fram lang-term debt issued during Year 2 were $\$ 200$ . 4. The issuance of common shares totalled $\$ 30$ in Year 2. -Refer to Maritime Marine Services.What was the cost of investments purchased during Year 2?

During Year 2,the operations of a shipping company provided net cash flows of $600,000.The company made capital expenditures of $270,000 and paid dividends of $130,000. A) Compute the company's free cash flow. B) Compute the compary's cash flow adequacy ratio assuming the average maturity value of its long-term debt over the next five years is $\$ 650,000$ .

A company reported the following information in its Year 1 annual report: cash flows from operating activities,$295,000; additions to property,plant,and equipment,$110,000; proceeds from disposals of property,plant,and equipment,$57,000; and total payments expected to retire long-term debt over the next five years,$250,000.What is the cash flow adequacy ratio for Year 1?

When the indirect method is used to determine operating cash flows,how is the purchase of equipment for cash shown on the statement of cash flows?

How are cash flows from acquiring and disposing of long-term assets classified?

A company reported a net loss of $30,000 for Year 1,but its cash balance increased during the year.Which financial statement should management refer to for an explanation of this situation?

Which method of preparing the operating section of the statement of cash flows is used by most companies?

How are cash flows from borrowing and paying off a 90-day bank loan classified?

In terms of the statement of cash flows,cash includes actual cash items minus certain cash equivalents such as commercial paper,money market funds,and treasury bills.

What section is completed first when preparing the statement of cash flows?

Under the indirect method,a gain from the sale of land is subtracted from ___________ in the operating activities section of the statement of cash flows.

Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. (Choices may be used more than once.) -sold common shares for cash

Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. (Choices may be used more than once.) -sold office building for cash