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Exam 12: Statement of Cash Flows

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Question 1

True/False

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The direct method of preparing the operating activities section of the statement of cash flows is preferred by the Financial Accounting Standards Board.

A) True
B) False

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Question 2

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Which of the following would not be a cash flow from financing activities?

A) Borrowing on a long-term note payable
B) Repayment of principal on bonds payable
C) Payment of interest on bonds payable
D) Payment of a cash dividend

E) C) and D)
F) A) and D)

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Question 3

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How is the cash paid to purchase land reported in the statement of cash flows?

Statler Corporation has beginning and ending accounts payable balances of $500 and $950, respectively. Inventory had beginning and ending balances of $800 and $650, respectively. If cost of goods sold was $3,800, how much cash was spent to purchase inventory?

Which of the following cash transactions is not classified as an operating activity?

Warren Corporation's balance sheet reports equipment that originally cost $78,000. The accumulated depreciation for the equipment is $29,600. Warren sells the equipment for $41,600. What would the effect be on its income statement and statement of cash flows?

TheFASB requires that companies report cash flow per share in their audited financial statements.

Which method of reporting cash flows from operating activities is used by most businesses in preparing the statement of cash flows?

The following data is supplied from the comparative balance sheets and income statement information from Moreno, Incorporated Net income for Year 2 was $40,000. No long-term assets were sold and no new notes were issued during Year 2. During Year 2, Moreno paid dividends of $24,000. Consider the information provided. Required:Prepare the operating activities section of Moreno's statement of cash flows using the indirect method.

On August 1, Year 1, Jackson Company issued a one-year $44,000 face value interest-bearing note with a stated interest rate of 9% to Galaxy Bank. Jackson accrues interest expense on December 31, Year 1, its calendar year-end. What is the amount of interest expense and the total cash outflow related to the note during the year ending December 31, Year 2? (Do not round your intermediate calculations.)

The investing activities section of the statement of cash flows distinguishes between acquisitions of long-term assets that expand operating capacity and those that replace old, worn-out assets.

Hilliard Company, a small consulting firm, charges all of its operating expenses on Accounts Payable. On January 1, Year 2, Hilliard's Accounts Payable balance was $24,000 and, during Year 2, an additional $216,000 of operating expenses were charged on account. On December 31, Year 2, the Accounts Payable balance was $72,000. What is the amount of cash paid for expenses during Year 2?

Oglethorpe Corporation reported a beginning balance of $12,400 in its Prepaid Insurance account. During the year, Oglethorpe paid a total of $42,000 to purchase insurance, and the Prepaid Insurance account had an ending balance of $13,100. What was the amount of insurance expense for the year?

Can a company report net cash used in operating activities (that is, a negative cash flow amount)for the year even though it reports net income on its income statement? Explain.

Manhattan Corporation provided the following partial list of account balances for Year 2: The following additional information is also available for Year 2:The company recognized a gain of $8,000 on sale of land that occurred when land that had cost $16,000 was sold for $24,000.The company recognized a loss of $10,000 on the sale of marketable securities.No additional marketable securities were purchased during the year.The company also sold equipment originally costing $6,000 with accumulated depreciation of $4,000 for $3,600.All purchases of land and equipment were made with cash. Required:Prepare the investing activities section of the statement of cash flows.

Which of the following is an incorrect statement of one of the rules for converting net income to the cash flow from operating activities using the indirect method?

What are the two methods used to prepare the operating activities section of the statement of cash flows?

Investing activities on the statement of cash flows always involve long-term assets, including marketable securities.

Ervin Company began the accounting period with $64,000 in accounts receivable. The ending balance in accounts receivable was $40,000. If the credit sales during the period were $588,000, what is the amount of cash received from customers?

What is the major advantage of using the indirect method of preparing the operating activities section of the statement of cash flows?