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Exam 14: Statement of Cash Flows

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Question 21

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

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B) False

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Question 22

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What is the major advantage of using the direct method of preparing the statement of cash flows?

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The direct method is easier fo...

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Question 23

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During the year,the Abbot Company had the following changes in account balances: 1) The Accumulated Depreciation account had a beginning balance of $25,000 and an ending balance of $35,000.The increase was due to depreciation expense. 2) The long-term Notes Payable account had a beginning balance of $40,000 and an ending balance of $15,000.The decrease was due to repayment of debt. 3) The Accounts Receivable account had a beginning balance of $60,000 and an ending balance of $50,000. 4) The Equipment account had a beginning balance of $25,000 and an ending balance of $92,500.The increase was due to the purchase of equipment for cash. 5) The Long-Term Investments account (marketable securities) had a beginning balance of $18,000 and an ending balance of $12,500.The decrease was due to the sale of investments at cost. 6) The amount of cash dividends declared and paid during the year was $22,000. 7) The Interest Payable account had a beginning balance of $2,250 and an ending balance of $1,250. What is the net cash flow from investing activities?

In preparing the statement of cash flows by the indirect method,a decrease in prepaid expenses would be added to net income.

When using the indirect method to complete the cash flows from operating activities section,what is the proper treatment for an increase in the Inventory account?

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

Jennings Company issued a $250,000 note to purchase a building.Jennings would report the event as a noncash investing and financing activity.

The following information was drawn from the year-end balance sheets of White,Inc. $\begin{array} { l r r } & \text { Year } 2 & \text { Year } 1 \\ \text { Bonds payable }& \$ 200,000 & \$275,000 \\\text { Common stock } & 112,500 & 87,500 \\\text { Treasury stock } & 17,500 & 12,500 \\\text { Retained earnings }& 35,000 & 27,500\end{array}$ The amount of net income shown on the Year 2 income statement was $17,500.There was no beginning or ending balance in the Dividends Payable account.What is the amount of cash outflows for dividends?

When using the indirect method to complete the cash flows from operating activities section,what is the proper treatment for an increase in the accounts receivable balance?

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

Which of the following statements best explains the correct handling of depreciation on the statement of cash flows when using the indirect method?

What kinds of cash flows are reported as financing activities on the statement of cash flows?

The following information was drawn from the year-end balance sheets of White,Inc. $\begin{array} { l r r } & \text { Year } 2 & \text { Year } 1 \\ \text { Bonds payable }& \$ 200,000 & \$275,000 \\\text { Common stock } & 112,500 & 87,500 \\\text { Treasury stock } & 17,500 & 12,500 \\\text { Retained earnings }& 35,000 & 27,500\end{array}$ White,Inc.,uses the cost method to account for treasury stock.No treasury stock was sold during the year.What is the amount of cash outflows for the purchase of treasury stock?

All cash exchanges between a company and its owners are reported as investing activities in the statement of cash flows.

The following beginning and ending balances were drawn from the records of Grimes Company: $\begin{array} { l r r } & \text { Begirning } & \text { Ending } \\\text { Equipment } & \$ 1,400 & \$ 1,100 \\\text { Accurnulated Depreciation } & \$ 700 & \$ 400\end{array}$ If Grimes Company sold equipment that had an original cost of $600 and accumulated depreciation of $300 for $250,how much did Grimes pay for new equipment?

Which of the following is incorrect regarding the financing activities section of a statement of cash flows?

The following information is available for Kent Company Year 2. $\begin{array} { l r } \text { Net income, Year 2 } & \$ 280,000 \\\text { Inventory, } 1 / 1 / \text { Year 2 } & 300,000 \\\text { Inventory, } 12 / 31 / \text { Year 2 } & 260,000 \\\text { Cost of goods sold, Year 2 } & 1,500,000 \\\text { Accounts payable, } 1 / 1 / \text { Year 2 } & 180,000 \\\text { Accounts payable, } 12 / 31 / \text { Year 2 } & 230,000\end{array}$ Required: 1)What amount of cash was paid for the purchase of merchandise? 2)How will the above items be shown on the statement of cash flows using the indirect method? 3)How will the amount computed in 1)be shown on the statement of cash flows using the direct method?

In preparing the statement of cash flows by the indirect method,noncash revenues and gains are added to net income.

Cash from the sale of treasury stock would be classified as an investing cash flow.

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