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Exam 21: The Statement of Cash Flows

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Question 71

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Cash paid to suppliers under the direct method is computed as:

A) Cost of goods sold plus a decrease in inventory and minus an increase in accounts payable.
B) Cost of goods sold plus an increase in inventory and minus an increase in accounts payable.
C) Cost of goods sold minus a decrease in inventory and plus an increase in accounts payable.
D) Cost of goods sold minus an increase in inventory and plus an increase in accounts payable.

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

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Question 72

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Which of the following is not true regarding the statement of cash flows?

A) The indirect method derives cash flows indirectly by starting with sales revenue and "working backwards" to convert that amount to a cash basis.
B) Noncash transactions sometimes are reported also in conjunction with the statement.
C) Either the direct or the indirect method can be used to calculate and report the net cash increase or decrease from operating activities.
D) The statement of cash flows provides information about cash flows that the other statements either do not provide or provide only indirectly.The indirect method derives cash flows indirectly by starting with net income and "working backwards" to convert that amount to a cash basis.

E) All of the above
F) C) and D)

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Question 73

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If bond interest expense is $800,000, bond interest payable increased by $8,000 and bond discount decreased by $2,000, cash paid for bond interest is:

The accounting records of Eastlake Industries provided the data below. Required: Prepare a reconciliation of net income to net cash flows from operating activities. $\begin{array} { l r } \text { Net income } & \$ 300,000 \\\text { Depreciation expense } & 15,000 \\\text { Increase in inventory } & 2,000 \\\text { Increase in accounts receivable } & 1,400 \\\text { Decrease in interest payable } & 1,600 \\\text { Amortization of bond premium } & 3,000 \\\text { Increase in accounts payable } & 7,000 \\\text { Cash dividends paid } & 20,000\end{array}$

Cost of goods sold as reported in the income statement will be less than cash paid to suppliers if:

A statement of cash flows and its related disclosure note typically do not report:

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

Which of the following would be added to net income when determining cash flows from operating activities under the indirect method?

Which of the following is reported as a financing activity in the statement of cash flows?

Why are "cash equivalents" included as part of cash in the statement of cash flows?

Kinney reported cost of goods sold of $168,114,150 in its fiscal 2008 income statement. Compute its net inventory purchases during the year.

Property dividends distributed are reported in connection with a statement of cash flows as:

Prepare the summary entries necessary to determine the amount of cash paid to suppliers for each of the four independent situations below. $\begin{array} { c c c c c } \text { Situation } & \begin{array} { c } \text { Cost of } \\\text { goods sold }\end{array} & \begin{array} { c } \text { Inventory } \\\text { inc (dec) }\end{array} & \begin{array} { c } \text { Account } \\\text { payable } \\\text { inc (dec) }\end{array} & \begin{array} { c } \text { Cash paid } \\\text { to suppliers }\end{array} \\1 & 400,000 & 6,000 & 0 & \\2 & 400,000 & 0 & 7,000 & \\3 & 100,000 & 6,000 & 7,000 & \\4 & 100,000 & ( 6,000 ) & ( 7,000 ) &\end{array}$

In its 2009 income statement, WME reported $58,000 for insurance expense. WME paid $72,000 in insurance premiums during 2009. In its reconciliation schedule, WME should:

Assuming the decrease in accrued expenses during fiscal year 2008 included a $20,000 reduction due to taxes, compute the income tax expense for Kinney in that year.

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

During 2009, T Company engaged in the following activities: In T's statement of cash flows, what were net cash outflows from financing activities for 2009?

Partial balance sheets and additional information are listed below for Sowell Company. Additional information for 2009: Net income was $88,000. Depreciation expense was $19,000. Required: Prepare the operating activities section of the statement of cash flows for 2009 using the indirect method. Sowell Company Partial Balance Sheets as of December 31 $\begin{array} { l r r } \text { Assets } & \mathbf { 2 0 0 9 } & \mathbf { 2 0 0 8 } \\ \text { Cash } & \$ 40,000 & \$ 20,000 \\ \text { Accounts receivable } & 70,000 & 85,000 \\ \text { Inventory } & 40,000 & 35,000 \\ \text { Liabilities } & & \\ \text { Accounts payable } & \$ 54,000 & \$ 62,000 \end{array}$

Pickering Company's prepaid insurance was $8,000 at December 31, 2008, and $10,000 at December 31, 2009. Pickering reported insurance expense of $15,000 on the 2009 income statement. What amount would be reported in the statement of cash flows as insurance paid using the direct method?

Transactions that involve merely purchases or sales of cash equivalents generally are not reported on a statement of cash flows. Describe an exception to this generalization. What is the essential characteristic of the transaction that qualifies as an exception?