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Exam 16: Reporting the Statement of Cash Flows

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Question 61

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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.

F) A) and B)
G) A) and C)

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Question 62

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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.

F) All of the above
G) A) and B)

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Question 63

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A company reported net income of $318,000, operating cash flows of $218,000, total cash flows of $184,000, and average total assets of $898,000. Calculate its cash flow on total assets ratio.

The payment of cash dividends never changes the balance of retained earnings.

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.

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:

All cash transactions eventually affect noncash ___________ accounts.

The appropriate section in the statement of cash flows for reporting the cash payment of wages is:

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

The appropriate section in the statement of cash flows for reporting the receipt of cash dividends from investments in securities is:

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:

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

Companies have the option of using either the direct or indirect method to prepare the operating section of the statement of cash flows.

For each of the following independent cases, use the information provided to calculate the missing cash inflow or cash outflow using the direct method.

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

The reporting of investing and financing activities is _________________ under the direct and indirect methods of preparing the statement of cash flows.

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

The indirect method for the preparation of the operating activities section of the statement of cash flows:

The cash flow on total assets ratio is computed by dividing _____________ by __________.

The statement of cash flows explains the difference between the beginning and ending balances of cash and cash equivalents.