Chapter 12
REPORTING CASH FLOWS
True/False Questions
1. The primary purpose of the statement of cash flows is to report all major cash receipts
(inflows) and cash payments (outflows) during a period.
2. The statement of cash flows reports and proves the net change in cash for a reporting
period.
3. To be classified as a cash equivalent, the only criterion an item must meet is that it must be
readily convertible to a known amount of cash.
4. The statement of cash flows explains the difference between the beginning and ending
balances of cash and cash equivalents.
5. Internal users of the statement of cash flows often use cash flow information to plan day-to-
day operating activities and make long-term investment and financing decisions.
6. A cash equivalent must be readily convertible to a known amount of cash, and must be
sufficiently close to its maturity so its market value is unaffected by interest rate changes.
7. Business activities that generate or use cash are classified as operating, investing, or
financing activities on the statement of cash flows.
8. Financing activities include (a) the purchase and sale of long-term assets, (b) the purchase
and sale of short-term investments, and (c) lending and collecting on loans.
9. Cash paid for merchandise is an operating activity.
10. The purchase of stock in another company is classified as a financing activity.
11. Receipts of cash dividends and interest earned on loans are classified as investing
activities.
12. The payment of cash dividends to shareholders is classified as a financing activity.
13. The full disclosure principle requires that noncash investing and financing activities be
disclosed in the financial statements.
14. Conversion of preferred stock to common stock is disclosed in the financing section of the
statement of cash flows.
15. A purchase of land in exchange for a long-term note payable is reported in the investing
section of the statement of cash flows.
16. A noncash investing transaction should be disclosed in either a footnote or at the bottom
of the statement of cash flows.
17. A company purchased equipment for $150,000 by paying $50,000 and signing a $100,000
note payable. The entire transaction is disclosed to users in the financing section of the
statement of cash flows.
18. A purchase of land in exchange for shares of stock is disclosed at the bottom of the
statement of cash flows or in a note to the statement.
19. Accounting standards require companies to include a statement of cash flows in a
complete set of financial statements.
20. The statement of cash flows explains how transactions and events impact the end-of-
period cash balance to produce the end-of-period net income.
21. Most managers stress the importance of understanding and predicting cash flows for
business decisions.
22. Managers only use the cash flow statement to evaluate the net cash increase or decrease,
and do not pay much attention to the details of cash flows from operating activities, cash
flows from investing activities, and cash flows from financing activities.
23. A cash-based measure to help business decision makers estimate the amount and timing
of cash flows is the cash flow on total assets ratio.
24. The cash flow on total assets ratio compared to the total assets ratio can be used as an
indicator of earnings quality.
25. Cash flow amounts and their timing should be considered when planning and analyzing
operating activities.
26. The cash flow on total assets ratio is computed by dividing cash flows from operations by
average total assets.
27. The cash flow on total assets ratio is computed by dividing average total assets by
operating income.
28. The cash flow on total assets ratio reflects actual cash flows and is therefore affected by
income recognition and measurement.
29. A cash coverage of growth ratio of less than 1 indicates cash inadequacy to meet asset
growth.
30. The usual first step in preparing the statement of cash flows is computing the net increase
or net decrease in cash.
31. Both the direct and indirect methods yield the identical net cash flow amount provided or
used by operating activities.
32. The reporting of financing activities in the statement of cash flows is identical under either
the direct or indirect methods.
33. The FASB recommends that the operating section of the statement of cash flows be
reported using the direct method.
34. Since it is recommended by the FASB, the direct method of preparing the statement of
cash flows is most frequently used.
35. Information to prepare the statement of cash flows usually comes from (a) comparative
balance sheets, (b) current income statement, and (c) additional information.
36. The direct method for computing and reporting net cash flows from operating activities
involves adjusting the net income figure to obtain net cash provided or used by operating
activities.
37. The indirect method separately lists each major item of operating cash receipts and cash
payments.
38. Companies have the option of using either the direct or indirect method to prepare the
operating section of the statement of cash flows.
39. Cash flows are essentially the same as net income because they are both measured using
accrual accounting principles.
40. When preparing the operating activities section of the statement of cash flows using the
indirect method, expenses with no cash outflows are added back to net income.
41. When preparing the operating activities section of the statement of cash flows using the
indirect method, non-operating gains are added to net income.
42. When preparing the operating activities section of the statement of cash flows using the
indirect method, a decrease in accounts receivable is subtracted from net income.
43. When preparing the operating activities section of the statement of cash flows using the
indirect method, an increase in income taxes payable is added to net income.
44. When preparing the operating activities section of the statement of cash flows using the
indirect method, depreciation is subtracted from net income.
45. Financing activities include receiving cash dividends from investments in other
companies’ stocks.
46. Investing activities include: (a) the purchase and sale of long-term assets, (b) lending and
collecting on notes receivable, and (c) the purchase and sale of short-term investments in the
securities of other entities, other than cash equivalents and trading securities.
47. Financing activities include receiving cash from issuing debt and receiving cash dividends
from investments in other companies’ stocks.
48. The payment of cash dividends never changes the balance of retained earnings.
49. Equipment costing $100,000 with accumulated depreciation of $40,000 is sold at a loss of
$10,000. This implies that $40,000 cash was received from the sale.
50. A spreadsheet can help organize the information needed to prepare a statement of cash
flows.
51. On a spreadsheet used to prepare the operating activities section of the statement of cash
flows, depreciation expense does not require an entry in the Analysis of Changes columns
because it is a noncash item.
52. When using a spreadsheet to prepare the statement of cash flows, a decrease in accounts
payable is entered in the Analysis of Changes columns with a debit in the statement of cash
flows section and a credit in the balance sheet section.
53. Depreciation expense is not reported on a statement of cash flows prepared under the
direct method.
54. The FASB requires a reconciliation of net income to net cash provided or used by
operating activities when the direct method is used (which can be reported in the notes).
55. The gain or loss from retirement of debt is reported under cash flows from operating
activities on the statement of cash flows using the direct method.
56. The statement of cash flows reports:
A. Assets, liabilities, and equity.
B. Revenues, gains, expenses, and losses.
C. Cash inflows and cash outflows for an accounting period.
D. Equity, net income, and dividends.
E. Changes in equity.
57. The statement of cash flows reports all but which of the following:
A. Cash flows from operating activities.
B. Cash flows from financing activities.
C. Cash flows from investing activities.
D. Significant noncash financing and investing activities.
E. The financial position of the company at the end of the accounting period.
58. The statement of cash flows is:
A. Another name for the statement of financial position.
B. A financial statement that presents information about changes in equity during a period.
C. A financial statement that reports the cash inflows and cash outflows for an accounting
period, and that classifies those cash flows as operating activities, investing activities, or
financing activities.
D. A financial statement that lists the types and amounts of assets, liabilities, and equity of a
business on a specific date.
E. A financial statement that lists the types and amounts of the revenues and expenses of a
business for an accounting period.
59. A cash equivalent is :
A. An investment readily convertible to a known amount of cash.
B. Close to its maturity date but its market value may still be affected by interest rate changes.
C. Generally is within 12 months of its maturity date.
D. Is not considered highly liquid.
E. Another name for cash.
60. An investment that is readily convertible to a known amount of cash and that is
sufficiently close to its maturity date so that its market value is unaffected by interest rate
changes is a(n):
A. Short-term marketable equity security.
B. Operating activity.
C. Common stock.
D. Cash equivalent.
E. Financing activity.
61. Activities that involve the production or purchase of merchandise and the sale of goods
and services to customers, including expenditures related to administering the business, are
classified as:
A. Financing activities.
B. Investing activities.
C. Operating activities.
D. Direct activities.
E. Indirect activities.
62. The appropriate section in the statement of cash flows for reporting the purchase of
equipment for cash is:
A. Operating activities.
B. Financing activities.
C. Investing activities.
D. Schedule of noncash investing or financing activity.
E. This is not reported on the statement of cash flows.
63. Which of the following items is reported on the statement of cash flows under financing
activities?
A. Declaration of a cash dividend.
B. Payment of a cash dividend.
C. Declaration of a stock dividend.
D. Payment of a stock dividend.
E. Stock split.
64. Investing activities do not include the:
A. Purchase of plant assets.
B. Lending and collecting on notes receivable.
C. Issuance of common stock
D. Sale of plant assets.
E. Sale of short-term investments other than cash equivalents.
65. The appropriate section in the statement of cash flows for reporting the cash payment of
wages is:
A. Operating activities.
B. Financing activities.
C. Investing activities.
D. Schedule of noncash investing or financing activity.
E. This is not reported on the statement of cash flows.
66. The appropriate section in the statement of cash flows for reporting the issuance of
common stock for cash is:
A. Operating activities.
B. Financing activities.
C. Investing activities.
D. Schedule of noncash investing or financing activity.
E. This is not reported on the statement of cash flows.
67. A company’s transactions with its creditors to borrow money and/or to repay the principal
amounts of both short- and long-term debt are reported as cash flows from:
A. Operating activities.
B. Investing activities.
C. Financing activities.
D. Direct activities.
E. Indirect activities.
68. The appropriate section in the statement of cash flows for reporting the receipt of cash
dividends from investments in securities is:
A. Operating activities.
B. Financing activities.
C. Investing activities.
D. Schedule of noncash investing or financing activity.
E. This is not reported on the statement of cash flows.
69. Which one of the following is representative of typical cash flows from operating
activities?
A. Proceeds from collecting the principal amounts of loans.
B. Repayment of principals on loans.
C. Proceeds from the issuance of bonds and notes payable.
D. Payments by a merchandiser to acquire equity securities of other companies.
E. Receipts of cash sales.
70. Typical cash flows from investing activities include each of the following except:
A. Payments to purchase property, plant and equipment or other productive assets (excluding
inventory).
B. Proceeds from collecting the principal amount of accounts receivable arising from
customer sales.
C. Payments to buy intangible assets.
D. Payments to acquire held-to maturity securities of other entities, except cash equivalents.
E. Proceeds from the sale of equipment.
71. If a company borrows money from a bank, the interest paid on this loan should be
reported on the statement of cash flows as a(n):
A. Operating activity.
B. Investing activity.
C. Financing activity.
D. Noncash investing and financing activity.
E. This is not reported in the statement of cash flows.
72. Cash flows from selling trading securities are usually reported in the statement of cash
flows as part of:
A. Operating activities.
B. Financing activities.
C. Investing activities.
D. Noncash activities.
E. This is not reported in the statement of cash flows.
73. Which of the following is included in the cash flows from financing activities section of
the statement of cash flows?
A. Interest revenue.
B. Sale of equipment.
C. Interest expense.
D. Purchase of treasury stock.
E. Purchase of stock in another company.
74. Cash flows from interest received on loans are reported in the statement of cash flows as
part of:
A. Operating activities.
B. Financing activities.
C. Investing activities.
D. Noncash activities.
E. This is not reported in the statement of cash flows.
75. The accounting principle that requires important noncash financing and investing
activities be reported on the statement of cash flows or in a footnote is the:
A. Historical cost principle.
B. Materiality principle.
C. Full disclosure principle.
D. Going concern principle.
E. Business entity principle.
76. The appropriate section in the statement of cash flows for reporting the purchase of land in
exchange for common stock is:
A. Operating activities.
B. Financing activities.
C. Investing activities.
D. Schedule of noncash investing or financing activity.
E. Reconciliation of cash balance.
77. The purchase of long-term assets by issuing a note payable for the entire amount is
reported on the statement of cash flows in the:
A. Operating activities.
B. Financing activities.
C. Investing activities.
D. Schedule of noncash financing and investing activities.
E. Reconciliation of cash balance.
78. An example of a transaction that must be disclosed as a noncash investing and financing
activity includes all but which of the following?
A. The retirement of debt by issuing equity stock.
B. A transaction exchanging cash equivalents for cash.
C. The leasing of assets in a transaction that qualifies as a capital lease.
D. The purchase of noncash assets in exchange for equity or debt securities.
E. The purchase of long-term assets financed by a cash down payment and a note payable to
the seller for the balance.
79. Noncash investing and financing activities may be disclosed in:
A. A note in the financial statements or a schedule attached to the statement of cash flows.
B. The operating activities section of the statement of cash flows.
C. The investing activities section of the statement of cash flows.
D. The financing activities section of the statement of cash flows.
E. The reconciliation of cash balance section.
80. Accounting standards:
A. Allow companies to omit the statement of cash flows from a complete set of financial
statements if cash is an insignificant asset.
B. Require that companies omit the statement of cash flows from a complete set of financial
statements if the company has no investing activities.
C. Require that companies include a statement of cash flows in a complete set of financial
statements.
D. Allow companies to include the statement of cash flows in a complete set of financial
statements if the cash balance makes up more than 50% of the current assets.
E. Allow companies to omit the statement of cash flows from a complete set of financial
statements if the company has no financing activities.
81. Common uses of the statement of cash flows include all but which of the following?
A. Management prediction of future cash flows for decision making.
B. Investor assessment of cash flows before buying and selling stock.
C. Creditor evaluation of a company’s ability to generate cash to cover debt.
D. Government assessment of whether company is able to pay taxes as they become due.
E. Management determination of the specific sources and uses of cash.
82. The statement of cash flows helps analysts evaluate all but which of the following?
A. Ability of the company to generate profit.
B. Source of cash used for plant expansion.
C. Differences between net income and net operating cash flow.
D. Source of cash used to finance investing activities.
E. Source of cash used for debt repayments..
83. The statement of cash flows cannot help address questions such as
A. How is the increase in investments financed?
B. What is the source of cash for new plant assets?
C. How much cash is generated from or used in operations?
D. How much of the company’s revenues have been retained as profit?
E. Why is cash flow from operations different from income?
84. The cash flow on total assets ratio:
A. Is the same as return on assets.
B. Is the same as profit margin.
C. Can be an indicator of earnings quality.
D. Is highly affected by accounting principles of income recognition and measurement.
E. Is average net assets divided by cash flows from operations.
85. The cash flow on total assets ratio is calculated by:
A. Dividing cash flows from operations by average total assets.
B. Dividing total cash flows by average total assets.
C. Dividing average total assets by cash flows from investing activities.
D. Dividing average total assets by total cash flows.
E. Total cash flows divided by average total assets times 365.
86. A company had net cash flows from operations of $341,000, net income of $286,000 and
average total assets of $1,850,000. The cash flow on total assets ratio equals:
A. 83.9%
B. 542.5%
C. 15.5%
D. 18.4%
E. 646.9%
87. A company had net cash flows from operations of $120,000, cash flows from financing of
$330,000, total cash flows of $500,000, and average total assets of $2,500,000. The cash flow
on total assets ratio equals:
A. 4.8%.
B. 5.0%.
C. 20.0%.
D. 20.8%.
E. 24.0%.
88. A company had average total assets of $1,660,000, total cash flows of $1,320,000, cash
flows from operations of $205,000, and cash flows from financing of $750,000. The cash
flow on total assets ratio equals:
A. 45.2%.
B. 22.0%.
C. 11.65%.
D. 12.3%.
E. 79.5%.
89. Preparation of the statement of cash flows does not involve:
A. Computing the net increase or decrease in cash.
B. Computing and reporting net cash provided or used by operations.
C. Computing the profit compared to the net increase or decrease in cash.
D. Computing and reporting net cash provided or used by financing activities.
E. Computing and reporting net cash provided or used by investing activities.
90. The reporting of net cash provided or used by operating activities that lists the major items
of operating cash receipts, such as receipts from customers, and subtracts the major items of
operating cash disbursements, such as cash paid for merchandise, is referred to as the:
A. Direct method of reporting net cash provided or used by operating activities.
B. Cash basis of accounting.
C. Classified statement of cash flows.
D. Indirect method of reporting net cash provided or used by operating activities.
E. Net method of reporting cash flows from operating activities.
92. The direct method for the preparation of the operating activities section of the statement of
cash flows:
A. Separately lists each major item of operating cash receipts and cash payments.
B. Reports adjustments to reconcile net income to net cash provided or used by operating
activities in the statement.
C. Reports a different amount of cash flows from operations than if the indirect method is
used.
D. Is required if the company is a merchandiser.
E. Is required by the FASB.
93. The indirect method for the preparation of the operating activities section of the statement
of cash flows:
A. Separately lists each major item of operating cash receipts.
B. Separately lists each major item of operating cash payments.
C. Reports net income and then adjusts it for items necessary to determine net cash provided
or used by operating activities.
D. Is required if the company is a merchandiser.
E. Must not be used in all circumstances.
94. The direct method of reporting operating cash flows:
A. Is recommended but not required by the FASB.
B. Must be used by all companies.
C. Is used by most companies.
D. Is considered supplementary disclosure.
E. Is not recommended by the FASB, but is commonly used.
95. 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.
96. When using the indirect method to calculate and report the net cash provided or used by
operating activities, net income is adjusted for all but which of the following?
A. Gains and losses from nonoperating items.
B. Revenues and expenses that did not provide or use cash.
C. Changes in noncurrent assets and noncurrent liabilities.
D. Changes in current liabilities related to operating activities.
E. Depreciation and amortization expense.
97. When using the indirect method to calculate and report net cash provided or used by
operating activities, which of the following is subtracted from net income?
A. Decrease in income taxes payable.
B. Depreciation expense.
C. Amortization of intangible assets.
D. Bad debts expense.
E. Decrease in merchandise inventory.
98. The first line item in the operating activities section of a spreadsheet for a statement of
cash flows prepared using the indirect method is:
A. Cash.
B. Cash received from customers.
C. Increase (decrease) in accounts receivable.
D. Net income.
E. Adjustments to net income.
99. When preparing a statement of cash flows using the indirect method, each of the following
should be classified as an operating cash flow except:
A. An increase in accounts receivable.
B. A decrease in accounts payable.
C. Proceeds from the disposal of a long-term asset with no gain or loss.
D. An increase in prepaid expenses.
E. A decrease in accrued expenses payable.
100. A company’s Inventory balance at 12/31/16 was $188,000 and $200,000 at 12/31/15. Its
Accounts Payable balance at 12/31/16 was $84,000 and $80,000 at 12/31/15, and its cost of
goods sold for 2016 was $720,000. The company’s total amount of cash payments for
merchandise in 2016 equals:
A. $704,000.
B. $712,000.
C. $720,000.
D. $728,000.
E. $736,000.
101. Use the following information to calculate cash paid for wages and salaries:
Salaries expense…..…….…….…….…............….... $168,000
Salaries payable, January 1…………......….......... 6,400
Salaries payable, December 31.….…..........….... 10,600
A. $157,400.
B. $163,800.
C. $168,000.
D. $172,200.
E. $174,400.
102. Use the following information to calculate cash paid for income taxes:
Income tax expense…….…….…….……........…..... $43,000
Income tax payable, January 1……….….........…. 9,100
Income tax payable, December 31….…..…........ 10,200
A. $23,700.
B. $52,100.
C. $53,200.
D. $41,900.
E. $43,000.
103. Use the following information about the current year’s operations of a company to
calculate the cash paid for merchandise.
Cost of goods sold……………………………….. $ 226,000
Merchandise inventory, January 1………………. 54,800
Merchandise inventory, December 31…………… 57,400
Accounts payable, January 1……………………. 54,400
Accounts payable, December 31……………….. 59,800
A. $218,000.
B. $223,200.
C. $220,000.
D. $228,800.
E. $234,000.
104. Use the following information about the current year’s operations of a company to
calculate the cash paid for merchandise.
Cost of goods sold……………………………….. $ 735,000
Merchandise inventory, January 1………………. 84,700
Merchandise inventory, December 31…………… 82,400
Accounts payable, January 1……………………. 54,500
Accounts payable, December 31……………….. 60,200
A. $727,000.
B. $726,300.
C. $732,700.
D. $737,300.
E. $737,700.
105. When preparing a statement of cash flows using 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.
106. A company’s income statement showed the following: net income, $134,000;
depreciation expense, $30,000; and gain on sale of plant assets, $4,000. An examination of the
company’s current assets and current liabilities showed the following changes as a result of
operating activities: accounts receivable decreased $9,400; merchandise inventory increased
$18,000; prepaid expenses increased $6,200; accounts payable increased $3,400. Calculate
the net cash provided or used by operating activities.
A. $156,600.
B. $141,000.
C. $96,600.
D. $148,600.
E. $88,600.
107. A company’s income statement showed the following: net income, $124,000 and
depreciation expense, $30,000. An examination of the company’s current assets and current
liabilities showed the following changes as a result of operating activities: accounts receivable
decreased $9,400; merchandise inventory increased $18,000; and accounts payable increased
$3,400. Calculate the net cash provided or used by operating activities.
A. $118,000.
B. $159,200.
C. $123,200.
D. $148,800.
E. $178,000.
108. Use the following information and the indirect method to calculate the net cash provided
or used by operating activities:
Net income………….…….…….….…..........…........ $85,300
Depreciation expense……………………………….… 12,000
Gain on sale of land…………………………………… 7,500
Increase in merchandise inventory..........…...... 2,050
Increase in accounts payable………....…............ 6,150
A. $69,900.
B. $108,900.
C. $93,900.
D. $85,700.
E. $81,600.
109. In preparing a company’s statement of cash flows for the most recent year using the
indirect method, the following information is available:
Net income for the year was $52,000
Accounts payable decreased by $18,000
Accounts receivable increased by $25,000
Inventories increased by $ 5,000
Cash dividends paid were $14,000
Depreciation expense was $20,000
Net cash provided by operating activities was:
A. $120,000.
B. $71,000.
C. $70,000.
D. $24,000.
E. $110,000.
110. In preparing a company’s statement of cash flows for the most recent year using the
indirect method, the following information is available:
Net income for the year was $52,000
Accounts payable increased by $18,000
Accounts receivable decreased by $25,000
Inventories increased by $ 5,000
Depreciation expense was $30,000
Net cash provided by operating activities was:
A. $120,000.
B. $60,000.
C. $70,000.
D. $80,000.
E. $130,000.
111. A machine with a cost of $130,000 and accumulated depreciation of $85,000 is sold for
$50,000 cash. The amount that should be reported as a source of cash under cash flows from
investing activities is:
A. $50,000.
B. $5,000.
C. $45,000.
D. Zero. This is an operating activity.
E. Zero. This is a financing activity.
112. A machine with a cost of $130,000, accumulated depreciation of $85,000, and current
year depreciation expense of $17,000 is sold for $40,000 cash. The amount that should be
reported as a source of cash under cash flows from investing activities is:
A. $45,000.
B. $5,000.
C. $17,000.
D. $28,000.
E. $40,000.
113. A machine with a cost of $130,000, current year depreciation expense of $17,000 and
accumulated depreciation of $85,000 is sold for $40,000 cash. The amount(s) that should be
reported in the operating section of the statement of cash flows is:
A. $17,000.
B. $4,000.
C. $57,000.
D. $21,000.
E. $22,000.
114. A company reported that its bonds with a par value of $50,000 and a carrying value of
$57,000 are retired for $60,000 cash, resulting in a loss of $3,000. The amount to be reported
under cash flows from financing activities is:
A. $ (3,000).
B. $ 60,000.
C. $(57,000).
D. $7,000.
E. ($7,000).
115. Addams Corporation paid cash dividends totaling $75,000 during its most recent fiscal
year. How should this information be reported on Addam’s statement of cash flows?
A. In operating activities as a source of funds.
B. In investing activities as a source of funds.
C. In investing activities as a use of funds.
D. In financing activities as a source of funds.
E. In financing activities as a use of funds.
116. Use the following information to calculate cash received from dividends:
Dividends revenue………….…………………….. $29,800
Dividends receivable, January 1 ………….…. 2,600
Dividends receivable, December 31 ..…...... 3,400
A. $26,400.
B. $29,000.
C. $29,800.
D. $30,600.
E. $32,400.
117. Use the following information to calculate cash received from dividends:
Dividends revenue………….…………………….. $63,500
Dividends receivable, January 1 ………….…. 3,600
Dividends receivable, December 31 ..…...... 3,100
A. $63,500.
B. $63,000.
C. $64,000.
D. $67,100.
E. $60,400.
118. Analysis reveals that a company had a net increase in cash of $20,000 for the current
year. Net cash provided by operating activities was $18,000; net cash used in investing
activities was $10,000 and net cash provided by financing activities was $12,000. If the year-
end cash balance is $24,000, the beginning cash balance was:
A. $4,000.
B. $16,000.
C. $44,000.
D. $40,000.
E. $39,000.
119. Stormer Company reports the following amounts on its statement of cash flow: Net cash
provided by operating activities was $28,000; net cash used in investing activities was
$10,000 and net cash used in financing activities was $12,000. If the beginning cash balance
is $5,000, what is the ending cash balance?
A. $55,000.
B. $45,000.
C. $31,000.
D. $ 6,000.
E. $11,000.
120. Bagrov Corporation had a net decrease in cash of $10,000 for the current year. Net cash
used in investing activities was $52,000 and net cash used in financing activities was $38,000.
What amount of cash was provided (used) in operating activities?
A. $ 100,000 provided.
B. $(100,000) used.
C. $ 80,000 provided.
D. $ (80,000) used.
E. $ (10,000) used.
121. The accountant for Crusoe Company is preparing the company’s statement of cash flows
for the fiscal year just ended. The following information is available:
Retained earnings balance at the beginning of the year $126,000
Cash dividends declared for the year $ 46,000
Proceeds from the sale of equipment $ 81,000
Gain on the sale of equipment $ 7,000
Cash dividends payable at the beginning of the year $ 18,000
Cash dividends payable at the end of the year $ 20,000
Net income for the year $ 92,000
What is the ending balance for retained earnings?
A. $218,000.
B. $170,000.
C. $352,000.
D. $172,000.
E. $179,000.
122. The accountant for Crusoe Company is preparing the company’s statement of cash flows
for the fiscal year just ended. The following information is available:
Retained earnings balance at the beginning of the year
$126,00
0
Cash dividends declared for the year
$
46,000
Proceeds from the sale of equipment
$
81,000
Gain on the sale of equipment $ 7,000
Cash dividends payable at the beginning of the year
$
18,000
Cash dividends payable at the end of the year
$
20,000
Net income for the year
$
92,000
The amount of cash dividends paid during the year would be:
A. $48,000.
B. $46,000.
C. $8,000.
D. $64,000.
E. $44,000.
123. The accountant for Huckleberry Company is preparing the company’s statement of cash
flows for the fiscal year just ended. The following information is available:
Retained earnings balance at the beginning of the year $151,000
Cash dividends declared for the year $ 46,000
Net income for the year $ 92,000
What is the ending balance for retained earnings?
A. $264,000.
B. $13,000.
C. $243,000.
D. $197,000.
E. $105,000.
124. The accountant for Mandarin Company is preparing the company’s statement of cash
flows for the fiscal year just ended. The following information is available:
Retained earnings balance at the beginning of the year $819,000
Net income for the year $230,000
Cash dividends declared for the year $ 42,000
Retained earnings balance at the end of the year $1,007,000
Cash dividends payable at the beginning of the year $ 10,000
Cash dividends payable at the end of the year $ 11,000
What is the amount of cash dividends paid that should be reported in the financing section of
the statement of cash flows?
A. $42,000.
B. $43,000.
C. $63,000.
D. $1,000.
E. $41,000.
125. In preparing a company’s statement of cash flows for the most recent year, the following
information is available:
Loss on the sale of equipment $ 14,000
Purchase of equipment $225,000
Proceeds from the sale of equipment $106,000
Repayment of outstanding bonds $ 87,000
Purchase of treasury stock $ 25,000
Issuance of common stock $ 96,000
Purchase of land $115,000
Increase in accounts receivable during the year $ 33,000
Decrease in accounts payable during the year $ 75,000
Payment of cash dividends $ 35,000
Net cash flows from investing activities for the year were:
A. $234,000 of net cash used.
B. $120,000 of net cash provided.
C. $340,000 of net cash used.
D. $259,000 of net cash used.
E. $280,000 of net cash provided.
126. In preparing a company’s statement of cash flows for the year just ended, the following
information is available:
Loss on the sale of equipment $ 14,000
Purchase of equipment $225,000
Proceeds from the sale of equipment $106,000
Repayment of outstanding bonds $ 87,000
Purchase of treasury stock $ 25,000
Issuance of common stock $ 96,000
Purchase of land $115,000
Increase in accounts receivable during the year $ 33,000
Decrease in accounts payable during the year $ 75,000
Payment of cash dividends $ 35,000
Net cash flows from financing activities for the year were:
A. $147,000 of net cash used .
B. $ 26,000 of net cash used .
C. $347,000 of net cash used .
D. $51,000 of net cash used .
E. $340,000 of net cash used .
127. In preparing Marjorie Company’s statement of cash flows for the most recent year, the
following information is available:
Purchase of equipment $260,000
Proceeds from the sale of equipment $87,000
Purchase of land $91,000
Net cash flows from investing activities for the year were:
A. $438,000 of net cash used.
B. $438,000 of net cash provided.
C. $264,000 of net cash used.
D. $351,000 of net cash used.
E. $264,000 of net cash provided.
128. In preparing a company’s statement of cash flows for the most recent year, Ransom Corp.
reported the following information:
Repayment of outstanding bonds $ 107,000
Purchase of treasury stock $ 62,000
Issuance of common stock $ 46,000
Payment of cash dividends $ 15,000
Net cash flows from financing activities for the year were:
A. $230,000 of net cash used.
B. $230,000 of net cash provided.
C. $108,000 of net cash used.
D. $138,000 of net cash used.
E. $138,000 of net cash provided.
129. When analyzing the changes on a spreadsheet used to prepare a statement of cash flows,
the cash flows from operating activities generally affect:
A. Net income, current assets, and current liabilities.
B. Noncurrent assets.
C. Noncurrent liability and equity accounts.
D. Both noncurrent assets and noncurrent liabilities.
E. Equity accounts only.
130. When analyzing the changes on a spreadsheet used to prepare a statement of cash flows,
the cash flows from investing activities generally affect:
A. Net income, current assets, and current liabilities.
B. Noncurrent assets.
C. Noncurrent liability and equity accounts.
D. Both noncurrent assets and noncurrent liabilities.
E. Equity accounts only.
131. When analyzing the changes on a spreadsheet used to prepare a statement of cash flows,
the cash flows from financing activities generally affect
A. Net income, current assets, and current liabilities.
B. Noncurrent assets.
C. Noncurrent liability and equity accounts.
D. Both noncurrent assets and noncurrent liabilities.
E. Equity accounts only.
132. Which of the following transactions or events should be reported as a source of cash
from operating activities when using the direct method?
A. Credit sales.
B. Cash collections from customers.
C. Depreciation expense.
D. Cash received from the sale of a building.
E. Cash received from the sale of treasury stock.
133. When the operating activities section of the statement of cash flows is reported using the
direct method, the FASB requires:
A. The preparation of the statement of cash flows under the indirect method be completed and
reported with the statement of cash flows prepared using the direct method.
B. A reconciliation of net income to net cash provided or used by operating activities.
C. Footnotes to the financial statements disclosing the difference between net income and the
cash provided or used by financing activities.
D. The income statement to be prepared under the cash basis of accounting.
E. Noncash investing and financing activities be included in the statement of cash flows.
134. All of the following statements related to reporting cash flows from operating activities
under U.S. GAAP and IFRS are true except:
A. The definition of cash and cash equivalents is similar for U.S. GAAP and IFRS.
B. U.S. GAAP requires cash flows from interest revenue and dividend revenue be classified
as operating activities.
C. IFRS permits classification of interest revenue and dividend revenue under operating or
investing activities.
D. U. S. GAAP requires cash outflows for interest expense to be classified as financing
activities.
E. IFRS permits classification of interest expense under operating or financing activities.
135. All of the following statements related to preparation of the statement of cash flows
under U.S. GAAP and IFRS are true except:
A. Both U.S. GAAP and IFRS permit the reporting of cash flows from operating activities
using either the direct or indirect method.
B. IFRS permits classification of cash outflows for interest expense under operating or
financing based on which one results in better cash flows from operating activities.
C. U. S. GAAP requires cash outflows for income tax be classified as operating activities.
D. IFRS permits the splitting of income tax cash flows among operating, investing, and
financing depending on the sources of that tax.
E. IFRS permits classification of interest expense under operating or financing activities
provided it is consistently applied across periods.
136. Mercury Company reports depreciation expense of $40,000 for Year 2. Also, equipment
costing $150,000 was sold for its book value in Year 2. The following selected information is
available for Mercury Company from its comparative balance sheet. Compute the cash
received from the sale of the equipment.
At December 31 Year 2 Year 1
Equipment $600,000 $750,000
Accumulated Depreciation-Equipment 428,000 500,000
A. $32,000.
B. $68,000.
C. $38,000.
D. $40,000.
E. $36,000.
137. Jamison Company reports depreciation expense of $35,000 for Year 2. Also, equipment
costing $140,000 was sold for a $5,000 gain in Year 2. The following selected information is
available for Jamison Company from its comparative balance sheet. Compute the cash
received from the sale of the equipment.
At December 31 Year 2 Year 1
Equipment $610,000 $750,000
Accumulated Depreciation-Equipment 428,000 500,000
A. $23,000.
B. $35,000.
C. $38,000.
D. $40,000.
E. $67,000.
138. Jeffreys Company reports depreciation expense of $40,000 for Year 2. Also, equipment
costing $240,000 was sold for a $10,000 loss in Year 2. The following selected information is
available for Jeffreys Company from its comparative balance sheet. Compute the cash
received from the sale of the equipment.
At December 31 Year 2 Year 1
Equipment $510,000000 $750,000
Accumulated Depreciation-Equipment 328,000 500,000
A. $62,000.
B. $38,000.
C. $28,000.
D. $18,000.
E. $58,000.
138. Bagwell’s net income for the year ended December 31, Year 2 was $185,000.
Information from Bagwell’s comparative balance sheets is given below. Compute the cash
received from the sale of its common stock during Year 2.
At December 31 Year 2 Year 1
Common Stock, $5 par value $500,000 $450,000
Paid-in capital in excess of par 948,000 853,000
Retained earnings 688,000 582,000
A. $185,000.
B. $106,000.
C. $95,000.
D. $50,000.
E. $145,000.
139. Bagwell’s net income for the year ended December 31, Year 2 was $175,000.
Information from Bagwell’s comparative balance sheets is given below. Compute the cash
paid for dividends during Year 2.
At December 31 Year 2 Year 1
Common Stock, $5 par value $500,000 $450,000
Paid-in capital in excess of par 948,000 853,000
Retained earnings 688,000 582,000
A. $79,000.
B. $201,000.
C. $95,000.
D. $50,000.
E. $69,000.
140. Scranton, Inc. reports net income of $230,000 for the year ended December 31. It also
reports $87,700 depreciation expense and a $5,000 gain on the sale of equipment. Its
comparative balance sheet reveals a $35,500 decrease in accounts receivable, a $15,750
increase in accounts payable, and a $12,500 decrease in wages payable. Calculate the cash
provided (used) in operating activities using the indirect method.
A. $376,450.
B. $351,450.
C. $356,450.
D. $319,950.
E. $263,750.
141. Alvez Company reports net income of $305,000 for the year ended December 31. It also
reports $93,700 depreciation expense and a $10,000 loss on the sale of equipment. Its
comparative balance sheet reveals a $40,200 increase in accounts receivable, a $10,200
decrease in prepaid expenses, a $15,200 increase in accounts payable, a $12,500 decrease in
wages payable, and a $100,000 decrease in notes payable. Calculate the cash provided (used)
in operating activities using the indirect method.
A. $461,800.
B. $371,400.
C. $381,400.
D. $351,000.
E. $361,000.
142. Alvez reports net income of $305,000 for the year ended December 31. It also reports
$93,700 depreciation expense and a $10,000 loss on the sale of equipment. Its comparative
balance sheet reveals a $40,200 increase in accounts receivable, a $10,200 decrease in prepaid
expenses, a $15,200 increase in accounts payable, a $12,500 decrease in wages payable, a
$75,000 increase in equipment, and a $100,000 decrease in notes payable. Calculate the net
increase in cash for the year.
A. $216,400.
B. $281,400.
C. $381,400.
D. $206,400.
E. $406,400.
143. Fernwood Company is preparing the company’s statement of cash flows for the fiscal
year just ended. The following information is available:
Retained earnings balance at the beginning of the year $233,000
Cash dividends declared for the year $ 50,000
Proceeds from the sale of equipment $ 85,000
Gain on the sale of equipment $ 4,500
Cash dividends payable at the beginning of the year $ 22,000
Cash dividends payable at the end of the year $ 30,000
Net income for the year $110,000
The ending balance in retained earnings is:
A. $343,000.
B. $213,000.
C. $293,000.
D. $297,500.
E. $301,000.
144. Fernwood Company is preparing the company’s statement of cash flows for the fiscal
year just ended. The following information is available:
Retained earnings balance at the beginning of the year $233,000
Cash dividends declared for the year $ 50,000
Proceeds from the sale of equipment $ 85,000
Gain on the sale of equipment $ 4,500
Cash dividends payable at the beginning of the year $ 22,000
Cash dividends payable at the end of the year $ 30,000
Net income for the year $110,000
The amount of cash paid for dividends was:
A. $52,000.
B. $60,000.
C. $58,000.
D. $50,000.
E. $42,000.
145. Marshland Company is preparing the company’s statement of cash flows for the fiscal
year just ended. The following information is available:
Cash dividends declared for the year $ 40,000
Cash dividends payable at the beginning of the year $ 17,000
Cash dividends payable at the end of the year $ 13,000
The amount of cash paid for dividends was:
A. $44,000.
B. $40,000.
C. $57,000.
D. $53,000.
E. $36,000.
146. An increase in the accounts receivable account during the year should be reported on the
statement of cash flows as:
A. An increase in cash flows from operating activities
B. An increase in cash flows from investing activities
C. A decrease in cash flows from operating activities
D. A decrease in cash flows from investing activities
E. An increase in cash flows from financing activities
147. A decrease in the inventory account during the year should be reported on the statement
of cash flows as:
A. An increase in cash flows from operating activities
B. An increase in cash flows from investing activities
C. A decrease in cash flows from operating activities
D. A decrease in cash flows from investing activities
E. An increase in cash flows from financing activities
148. A dividend payment to shareholders during the year should be reported on the statement
of cash flows as:
A. An increase in cash flows from financing activities
B. An increase in cash flows from investing activities
C. A decrease in cash flows from operating activities
D. A decrease in cash flows from investing activities
E. An decrease in cash flows from financing activities
149. Northington, Inc. is preparing the company’s statement of cash flows for the fiscal year
just ended. Using the following information, determine the amount of cash flows from
operating activities using the indirect method:
Net income $182,000
Gain on the sale of equipment 12,300
Proceeds from the sale of equipment 92,300
Depreciation expense – equipment 50,000
Payment of bonds at maturity 100,000
Purchase of land 200,000
Issuance of common stock 300,000
Increase in merchandise inventory 35,400
Decrease in accounts receivable 28,800
Increase in accounts payable 23,700
Payment of cash dividends 32,000
A. $332,200.
B. $236,800.
C. $261,400.
D. $186,800.
E. $189,400.
150. Northington, Inc. is preparing the company’s statement of cash flows for the fiscal year
just ended. Using the following information, determine the amount of cash flows from
investing activities:
Net income $182,000
Gain on the sale of equipment 12,300
Proceeds from the sale of equipment 92,300
Depreciation expense – equipment 50,000
Payment of bonds at maturity 100,000
Purchase of land 200,000
Issuance of common stock 300,000
Increase in merchandise inventory 35,400
Decrease in accounts receivable 28,800
Increase in accounts payable 23,700
Payment of cash dividends 32,000
A. $(107,700).
B. $107,700.
C. $(200,000).
D. $(139,700).
E. $(207,700).
151. Northington, Inc. is preparing the company’s statement of cash flows for the fiscal year
just ended. Using the following information, determine the amount of cash flows from
financing activities:
Net income $182,000
Gain on the sale of equipment 12,300
Proceeds from the sale of equipment 92,300
Depreciation expense – equipment 50,000
Payment of bonds at maturity 100,000
Purchase of land 200,000
Issuance of common stock 300,000
Increase in merchandise inventory 35,400
Decrease in accounts receivable 28,800
Increase in accounts payable 23,700
Payment of cash dividends 32,000
A. $(168,000).
B. $200,000.
C. $168,000.
D. $(191,700).
E. $191,700.
152. A company had average total assets of $3,216,000, total cash flows of $1,320,000, cash
flows from operations of $554,000, and cash flows for plant assets of $850,000. The cash
flow on total assets ratio equals:
A. 41.04%.
B. 41.97%.
C. 26.43%.
D. 17.23%.
E. 64.39%.
153. Match each of the following items with the appropriate definitions.
(A) Financing activities
(B) Investing activities
(C) Statement of cash flows
(D) Indirect method
(E) Direct method
(F) Operating activities
__________ (1) A method of computing and reporting that involves adjusting the net income
amount by adding and subtracting items that are necessary to yield net cash provided (used)
by operating activities.
__________ (2) A financial statement that reports the cash inflows and cash outflows for an
accounting period, and classifies those cash flows as operating, investing, or financing
activities.
__________ (3) A method of computing and reporting the net cash provided (used) by
operating activities that lists the major items of operating cash receipts, and then subtracts the
major items of operating cash payments.
__________ (4) Transactions that include making and collecting notes receivable or
purchasing and selling plant assets, or investments in other than cash equivalents and trading
securities.
__________ (5) Transactions with a company’s owners and creditors that include obtaining
cash from issuing debt and repaying the amounts borrowed, and obtaining cash from or
distributing cash to owners.
__________ (6) Activities that involve the production or purchase of merchandise and the sale
of goods or services to customers, including expenditures related to administering the
business.
1. D; 2. C; 3. E; 4. B; 5. A; 6. F
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 1 Easy
Learning Objective: 12-C1
Learning Objective: 12-P1
Topic: Classification of Cash Flows
Topic: Preparing the Statement of Cash Flows
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
12-79
154. For each of the following items, indicate whether it would be classified as an (O)
operating activity, an (I) investing activity, a (F) financing activity, or a significant (N)
noncash financing and investing activity.
__________ (1) Received cash dividends from investments in trading securities.
__________ (2) Collected accounts receivable from customers.
__________ (3) Issued bonds payable for cash.
__________ (4) Paid wages to employees.
__________ (5) Issued stock for cash.
__________ (6) Sold equipment for cash.
__________ (7) Purchased land in exchange for a note payable.
__________ (8) Paid cash dividends.
__________ (9) Received interest from investments in trading securities.
_________ (10) Purchases of land for cash.
1. O; 2. O; 3. F; 4. O; 5. F; 6. I; 7. N; 8. F; 9. O; 10. I
Blooms: Understand
AACSB: Analytic
AICPA BB: Resource Management
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 12-C1
Topic: Classification of Cash Flows
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
12-80
155. For each of the following items, indicate whether it would be classified as either an (O)
operating activity, an (I) investing activity, a (F) financial activity, or a significant (N) noncash
financing and investing activity.
__________ (1) Cash sales of merchandise.
__________ (2) Sale of land for cash.
__________ (3) Signed a note payable in exchange for cash.
__________ (4) Purchased supplies for cash.
__________ (5) Paid cash to settle an account payable.
__________ (6) Purchased a warehouse in exchange for shares of its stock.
__________ (7) Paid interest on a note payable.
__________ (8) Reissued treasury stock.
__________ (9) Purchased equipment for cash.
_________ (10) Purchased equipment in exchange for a 6-month note payable.
1. O; 2. I; 3. F; 4. O; 5. O; 6. N; 7. O; 8. F; 9. I; 10. N
Blooms: Understand
AACSB: Analytic
AICPA BB: Resource Management
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: 12-C1
Topic: Classification of Cash Flows
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
12-81
Short Answer Questions
156. Explain the purpose and format of the statement of cash flows. Also describe its
relevance to decision makers.
157. Define and discuss the differences between operating, investing, and financing activities.
158. Define and explain significant noncash investing and financing activities and the method
of reporting them on the statement of cash flows.
159. Describe the format of the statement of cash flows, including the reporting of significant
noncash investing and financing activities.
160. Explain the value of separating cash flows into operating activities, investing activities,
and financing activities to financial statement users in analyzing cash flows and the
company’s financial performance and condition.
161. Define the cash flow on total assets ratio and explain how it is used to evaluate cash
flows and to assess company performance.
162. What are the five usual steps involved in the preparation of the statement of cash flows?
163. Explain how the cash flows from operating activities section of the statement of cash
flows is prepared using the indirect method.
164. Explain how cash flows from investing and financing activities are determined.
165. Explain the use of a spreadsheet in the preparation of the statement of cash flows.
166. Explain how the cash flows from operating activities section of the statement of cash
flows is prepared using the direct method.
167. 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 $300,000 for $225,000 cash and sold land with a
book value of $40,000 for $65,000 cash.
(b) Issued 15,000 shares of $10 par value common stock in exchange for equipment with a
market value of $175,000.
(c) Retired a $100,000, 8% bond by issuing another $100,000, 7% bond issue.
(d) Acquired land by issuing a twenty-year, 5%, $73,000 note payable.
168. Based on the following information provided about a company’s operations, calculate its
cost of goods purchased and its cash paid for merchandise.
Cost of goods sold…………………………………… $522,000
Merchandise inventory, beginning year…………….. 70,000
Accounts payable, beginning year………………….. 53,000
Merchandise inventory, end-of-year………………... 57,000
Accounts payable, end-of-year……………………… 48,000
169. 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
indirect method.
PULLMAN COMPANY
Income Statement
For Year Ended December 31, 2015
Sales……………………………………………………..…. $180,000
Cost of goods sold…………………………………..…. 104,000
Gross profit from sales…..…….…….……......….... $ 76,000
Operating expenses:
Salaries and wages expense…..…….…….…..… $25,000
Depreciation expense………….….........…........ 7,000
Rent expense…………………………………………. 7,200
Interest expense……………………………………… 1,900 41,100
Income from operations………….........…............ $34,900
Loss on sale of land……………………………………. 3,500
Net income…………………………………………..…… $31,400
Selected beginning and ending balances of current asset and current liability accounts, all of
which relate to operating activities, are as follows:
Balance
Dec. 31, 2015 Dec. 31, 2014
Accounts receivable………….…….…....…............ $27,600 $24,000
Merchandise inventory…..…….…….…….…....….. 22,300 20,000
Prepaid rent…………………………………….………… 550 400
Accounts payable…….…….…….…….….........…... 27,100 26,000
Salaries and wages payable…..…….…......…....... 10,400 9,000
Interest payable…..…….…….…….……....….......... 300 250
170. Use the following income statement and information about selected current assets and
current liabilities for Kimberline Industries to calculate the net cash provided or used by
operating activities using the indirect method.
KIMBERLINE INDUSTRIES
Income Statement
For Year Ended December 31, 2015
Sales……………………………………………………..…. $280,000
Cost of goods sold…………………………………..…. 124,000
Gross profit from sales…..…….…….……......….... $156,000
Operating expenses:
Salaries and wages expense…..…….…….…..… $35,000
Depreciation expense………….….........…........ 11,000
Rent expense…………………………………………. 27,200
Interest expense……………………………………… 3,900 77,100
Income from operations………….........…............ $78,900
Loss on sale of land……………………………………. 4,700
Net income…………………………………………..…… $74,200
Increases and decreases of current asset and current liability accounts, all of which relate to
operating activities, are as follows:
Change
Accounts receivable increase….….......…........... $3,600
Merchandise inventory decrease....…............…. 1,700
Accounts payable increase…..…….…..........….... 1,100
Salaries and wages payable decrease.…............ 2,600
171. Based on the following income statement and balance sheet for Bankowski Corporation,
determine the cash flows from operating activities using the indirect method.
Bankowski Corporation
Income Statement
For Year Ended December 31, 2015
Sales……………………………………………………..…. $504,000
Cost of goods sold…………………………………..…. $327,600
Depreciation expense………….…….…....….......... 33,000
Other operating expenses………….….......…........ 125,500 (486,100)
Other gains (losses):
Gain on sale of equipment…………………….….. 5,200
Income before taxes………….…….…..….............. $ 23,100
Income tax expense……………………………………. (4,800)
Net income…………………………………………..…… $ 18,300
Bankowski Corporation
Balance Sheets
At December 31
Assets 2015 2014
Cash…………………………………..…………………. $ 62,650 $ 55,800
Accounts receivable…..…….…..…..........…...... 21,000 29,000
Inventory……………………………………………….. 58,000 52,100
Equipment……………………………………..…….… 240,000 222,000
Accumulated depreciation………….….......….... (97,000) ( 96,000)
Total assets….…….…….…….…….….…..........… $284,650 $262,900
Liabilities:
Accounts payable………….…….........…............ $ 28,400 $ 23,700
Income taxes payable…..…….……...…..........… 1,050 1,200
Total liabilities………………………………………... $ 29,450 $ 24,900
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Equity:
Common stock…….…….…….……........…......... $106,000 $106,000
Paid-in Capital in excess of par value............ 18,000 18,000
Retained earnings………….…….…….…….......... 131,200 114,000
Total equity……….…….…….….......…..........….. $255,200 $238,000
Total liabilities and equity……….…….…..…........ $284,650 $262,900
172. Rowan, Inc.’s, income statement is shown below. Based on this income statement and the
other information provided, calculate the net cash provided by operations using the indirect
method.
Rowan, Inc.
Income Statement
For Year Ended December 31, 2015
Sales……………………………………………………..…. $248,000
Cost of goods sold…………………………………..…. 116,000
Gross profit………………………………..…………….. $132,000
Operating expenses
Wages and salaries expense…..…….……...….... $ 44,000
Rent expense……………………………….…….…… 16,000
Depreciation expense…..…….…......…..........… 30,000
Other operating expenses…..……......…........... 18,000 108,000
Income from operations………….........…............ $ 24,000
Gain on sale of equipment…………………………... 26,000
Income before income taxes….…….…….……...... $ 50,000
Income taxes expense…………………………………. 17,500
Net income…………………………………………..…… $ 32,500
Additional information:
Increase in accounts receivable……....…............ $ 4,000
Increase in accounts payable….…….….......…..... 16,000
Increase in income taxes payable….........…....... 300
Decrease in prepaid expenses……….…….…..…... 10,000
Decrease in merchandise inventory….…….…..... 14,000
Decrease in long-term notes payable….……...…. 20,000
173. The following information is available for the Aarons Corporation:
Aarons Corporation
Balance Sheets
At December 31
2015 2014
Assets:
Cash……………………………………………………………………….. $ 24,640 $ 23,040
Accounts receivable………………………………………………….. 32,180 29,400
Merchandise inventory………….…….…….…….…..............… 73,125 61,710
Long-term investments……………………………………………... 55,900 56,400
Equipment……………………………………………….…….……….. 175,500 145,500
Accumulated depreciation………….…….……...........…......... (33,550) (31,200)
Total assets…………………………………………………..……….…… $327,795 $284,850
Liabilities:
Accounts payable……………………………………………………... $ 65,000 $ 40,380
Income taxes payable…..…….…….…….…....…............…..... 10,725 10,200
Bonds payable………………………………………………….……… 48,750 66,000
Total liabilities……………………………………………………………. $124,475 $116,580
Equity:
Common stock…………………………………………………………. 117,000 96,000
Paid-in capital in excess of par…..…….…….…….............…. 13,000 9,000
Retained earnings……………………………………….….………… 73,320 63,270
Total equity………………………………………………………………… $203,320 $168,270
Total liabilities and equity……….…….…….……......…..........… $327,795 $284,850
Aarons Corporation
Income Statement
For Year Ended December 31, 2013
Sales……………………………………………………..…. $240,000
Cost of goods sold…………………………………..…. $80,900
Depreciation expense………….…….…....….......... 29,400
Other operating expenses………….….......…........ 48,000
Interest expense…………………………………………. 2,000 (160,300)
Other gains (losses):
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Loss on sale of equipment…..…….……............ (8,400)
Income before taxes………….…….…..….............. 71,300
Income taxes expense…………………………………. 27,650
Net income…………………………………………..…… $ 43,650
Additional information:
(1) There was no gain or loss on the sales of the long-term investments, nor on the bonds
retired.
(2) Old equipment with an original cost of $37,550 was sold for $2,100 cash.
(3) New equipment was purchased for $67,550 cash.
(4) Cash dividends of $33,600 were paid.
(5) Additional shares of stock were issued for cash.
Prepare a complete statement of cash flows for calendar-year 2015 using the indirect method.
174. The following information is available for the Brookstone Company:
Brookstone Company
Balance Sheets
At December 31
2015 2014
Assets:
Cash……………………………………………………………………….. $ 29,568 $ 27,648
Accounts receivable………………………………………………….. 38,616 35,280
Merchandise inventory………….…….…….…….…..............… 87,750 74,052
Long-term investments……………………………………………... 67,080 67,680
Machinery…………………………………………..….………………. 210,600 174,600
Accumulated depreciation………….…….……...........…......... (40,260) (37,440)
Total assets…………………………………………………..……….…… $393,354 $341,820
Liabilities:
Accounts payable……………………………………………………... $ 78,000 $ 48,456
Income taxes payable…..…….…….…….…....…............…..... 12,870 12,240
Bonds payable………………………………………………….……… 58,500 79,200
Total liabilities……………………………………………………………. $149,370 $139,896
Equity:
Common stock…………………………………………………………. 140,400 115,200
Paid-in capital in excess of par…..…….…….…….............…. 15,600 10,800
Retained earnings……………………………………….….………… 87,984 75,924
Total equity………………………………………………………………… $243,984 $201,924
Total liabilities and equity……….…….…….……......…..........… $393,354 $341,820
Brookstone Company
Income Statement
For Year Ended December 31, 2015
Sales……………………………………………………..…. $288,000
Cost of goods sold…………………………………..…. $97,080
Depreciation expense………….…….…....….......... 35,280
Other operating expenses………….….......…........ 57,600
Interest expense…………………………………………. 2,400 (192,360)
Other gains (losses):
Loss on sale of equipment…..…….……............ (10,080)
Income before taxes………….…….…..….............. 85,560
Income taxes expense…………………………………. 33,180
Net income…………………………………………..…… $ 52,380
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Additional information:
(1) There was no gain or loss on the sales of the long-term investments, nor on the bonds
retired.
(2) Old machinery with an original cost of $45,060 was sold for $2,520 cash.
(3) New machinery was purchased for $81,060 cash.
(4) Cash dividends of $40,320 were paid.
(5) Additional shares of stock were issued for cash.
Prepare a complete statement of cash flows for calendar-year 2013 using the indirect method.
175. Use the following company information to calculate net cash provided or used by
investing activities:
(a) Equipment with a book value of $175,000 and an original cost of $300,000 was sold at a
loss of $17,000.
(b) Paid $62,000 cash for a new truck.
(c) Sold land costing $32,000 for $36,000 cash, realizing a $4,000 gain.
(d) Purchased treasury stock for $61,000 cash.
(e) Long-term investments in stock are sold for $41,000 cash, realizing a gain of $3,500.
176. Use the following information to calculate the net cash provided or used by financing
activities for the Streams Corporation:
(a) Net income, $10,000
(b) Sold common stock for $40,000 cash
(c) Paid cash dividend of $13,000
(d) Paid bond payable, $28,000
(e) Purchased equipment for $12,000 cash
177. Based on the information provided below for Krackle Corp., complete the following
worksheet to be used to prepare the statement of cash flows using the indirect method.
(a) Net income for the year was $30,000.
(b) Dividends of $10,000 were declared and paid.
(c) Krackle’s only noncash expense was depreciation which totaled $50,000.
(d) The company purchased plant assets for $70,000.
(e) Notes payable in the amount of $40,000 were issued during the year for cash.
Krackle Corporation
Spreadsheet for Statement of Cash Flows—Indirect Method
For Year Ended December 31, 2015
Analysis of Changes
12/31/14 Debit Credit 12/31/15
Balance Sheet—Debits
Cash………………………………………………………... 70,000 60,000
Accounts receivable…………………………………... 180,000 190,000
Merchandise inventory………….…….…....…....... 200,000 230,000
Plant assets………….…….…….…….….......…........ 500,000 570,000
950,000 1,050,000
Balance Sheet—Credits
Accumulated depreciation………....…..........…... 100,000 150,000
Accounts payable………………………………………. 170,000 160,000
Notes payable………………………………….….……. 350,000 390,000
Capital stock………………………………………….…. 200,000 200,000
Retained earnings………….…….……...…............. 130,000 150,000
950,000 1,050,000
Statement of Cash Flows
Operating activities…..…….….........…............….
Net income…….…….…….…............…...........
Increase in accounts receivable……….……....
Increase in merchandise inventory……….…..
Decrease in accounts payable
Depreciation expense…………………………..…
Investing activities
Cash paid to purchase plant assets...….........
Financing activities
Cash paid for dividends…….…......…............
Cash received from note payable…....….......
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Krackle Corporation
Spreadsheet for Statement of Cash Flows—Indirect Method
For Year Ended December 31, 2015
Analysis of Changes
12/31/14 Debit Credit 12/31/15
Balance Sheet—Debits
Cash…………………………………………………….…. 70,000 60,000
Accounts receivable………….…….…….…......…... 180,000 f 10,000 190,000
Merchandise inventory..…….…….…....…........... 200,000 g 30,000 230,000
Plant assets…..…….…….…….........…............….. 500,000 d 70,000 570,000
950,000 1,050,000
Balance Sheet—Credits
Accumulated depreciation…..……....….............. 100,000 c 50,000 150,000
Accounts payable………………………………………. 170,000 h 10,000 160,000
Notes payable…….…….…….…….…….…....…...... 350,000 e 40,000 390,000
Capital stock…………………………………………….. 200,000 200,000
Retained earnings………………………………….….. 130,000 b 10,000 a 30,000 150,000
950,000 1,050,000
Statement of Cash Flows
Operating activities………………………….………...
Net income……………………………………….….. a 30,000
Increase in accounts receivable…...........….. f 10,000
Increase in merchandise inventory.............. g 30,000
Decrease in accounts payable h 10,000
Depreciation expense…………………………….. c 50,000
Investing activities
Cash paid to purchase plant assets..…..….... d 70,000
Financing activities
Cash paid for dividends…..…….……......….... b 10,000
Cash received from note payable….........….. e 40,000
250,000 250,000
178. The following selected account balances are taken from a merchandising company’s
records:
Dec. 31 Dec. 31, For the
2015 2014 Year 2015
Merchandise inventory…….…….…….…….…....... $ 15,600 $ 21,200
Accounts receivable………….…….…....…............ 42,000 36,000
Accounts payable…….…….…….…….….........…... 32,400 27,400
Salaries payable………….…….…....…..........…..... 4,400 3,000
Total assets………………………………………..……… 234,000 286,000
Sales………………………………………………………... $312,000
Cost of goods sold…………………………………..…. 165,600
Salaries expense………………………………..………. 48,000
(a) Calculate the cash payments made during 2015 for merchandise. Assume all of the
company’s accounts payable balances result from merchandise purchases.
(b) Calculate the cash receipts from customer sales during 2015.
(c) Calculate the cash payments for salaries during 2015.
179. Use the following calendar-year information to prepare Adam Company’s statement of
cash flows using the direct method.
Cash paid to purchase machinery………………………… $ 124,000
Cash paid for merchandise inventory…………………….. 220,000
Cash paid for operating expenses………………………… 280,000
Cash paid for interest……………………………………… 4,000
Cash received for interest………………………………… 10,000
Cash proceeds from sale of land………………………….. 100,000
Cash balance at beginning of year……………………….. 15,000
Cash balance at end of year………………………………. 77,000
Cash borrowed on a short-term note……………………… 25,000
Cash dividends paid………………………………………. 24,000
Cash received from stock issuance……………………….. 57,000
Cash collections from customers…………………………. 522,000
180. For each of the following separate cases, use the information provided to calculate the
missing cash inflow or cash outflow using the direct method.
(a) Accounts receivable balances:
Beginning of year ……………………… $ 60,000
End of year …………………………….. 57,000
Sales revenue (all on credit) …………….. 375,000
Cash received from customers $______
(b) Accounts payable balances:
Beginning of year ………………………. $ 42,000
End of year……………………………… 45,000
Merchandise inventory balances:
Beginning of year ……………………… 50,000
End of year …………………………….. 47,500
Cost of goods sold……………………….. 250,000
Cash paid for merchandise inventory……. $______
(c) Interest payable balances:
Beginning of year ……………………… $ 7,500
End of year ……………………………. 9,200
Interest expense ………………………… 35,000
Cash paid for interest …………………… $______
181. For each of the following separate cases, use the information provided to calculate the
missing cash inflow or cash outflow using the direct method.
(a) Accounts receivable balances:
Beginning of year ……………………… $ 60,000
End of year …………………………….. 63,000
Sales revenue (all on credit) …………….. 395,000
Cash received from customers $______
(b) Accounts payable balances:
Beginning of year ………………………. $ 42,000
End of year……………………………… 31,000
Merchandise inventory balances:
Beginning of year ……………………… 50,000
End of year …………………………….. 52,500
Cost of goods sold……………………….. 250,000
Cash paid for merchandise inventory……. $______
(c) Interest payable balances:
Beginning of year ……………………… $ 7,500
End of year ……………………………. 8,200
Interest expense ………………………… 31,000
Cash paid for interest …………………… $______
182. Use the following information about the calendar-year cash flows of Park Company to
prepare a statement of cash flows (direct method) and a schedule of noncash investing and
financing activities.
Cash and cash equivalents, beginning-year balance....... $ 18,000
Cash and cash equivalents, year-end balance…………….. 78,750
Cash payments for merchandise inventory…….……....... 75,750
Cash paid for store equipment…………………………..….…. 15,750
Cash borrowed on three-month note payable…………..… 22,500
Cash dividends paid……………………………………………….. 12,000
Cash paid for salaries……………………………………………... 39,000
Cash payments for other operating expenses..….…........ 48,000
Building purchased and financed by long-term note payable 78,000
Cash received from customers…………….….…….….…….. 220,500
Cash interest received ……………………………………..…….. 8,250
183. For each of the following independent cases, use the information provided to calculate
the missing cash inflow or cash outflow using the direct method.
(a.) Interest payable, beginning-year……………………… $ 4,200
Interest expense………………………………………. 26,700
Interest payable, year-end……………………………. 3,000
Cash paid for interest………………………………… $
(b.) Prepaid insurance, beginning-year…………………… $
7,00
0
Insurance expense…………………………………….. 16,800
Prepaid insurance, year-end…………………………… 3,400
Cash paid for insurance……………………………….. $
(c.) Interest receivable, beginning-year…………………… $
8
00
Interest revenue……………………………………….. 12,600
Interest receivable, year-end………………………….. 1,200
Cash received for interest…………………………….. $
(d.) Accounts payable, beginning-year……………………. $
60,00
0
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Cost of goods sold……………………………………..
244,00
0
Merchandise inventory, beginning-year………………. 35,000
Merchandise inventory, year–
end……………………… 40,500
Accounts payable, year-
end…………………………… 64,800
Cash paid for
merchandise…………………………….. $
184. Use the information provided below to calculate the cash paid for interest for the period.
Interest payable, beginning-year……………………… $ 4,200
Interest expense………………………………………. 26,700
Interest payable, year-end……………………………. 3,000
Cash paid for interest………………………………… $
185. Use the information provided to calculate the cash paid for insurance for the period
Prepaid insurance, beginning-year…………………… $
7,00
0
Insurance expense…………………………………….. 16,800
Prepaid insurance, year-end…………………………… 3,400
Cash paid for insurance……………………………….. $
186. Use the information provided to calculate the missing cash received for interest for the
period.
Interest receivable, beginning-year…………………… $
80
0
Interest revenue……………………………………….. 12,600
Interest receivable, year-end………………………….. 1,200
Cash received for interest…………………………….. $
187. Use the information provided to calculate the missing cash paid for merchandise for the
period.
Accounts payable, beginning-year……………………. $ 60,000
Cost of goods sold…………………………………….. 244,000
Merchandise inventory, beginning-year………………. 35,000
Merchandise inventory, year-end……………………… 40,500
Accounts payable, year-end…………………………… 64,800
Cash paid for merchandise…………………………….. $
188. Tate Company’s 2015 income statement and changes in selected balance sheet accounts
are given below. Calculate the company’s net cash provided or used by operating activities
using the direct method.
Tate Company
Income Statement
For Year Ended December 31, 2015
Sales……………………………………………………..…. $248,000
Cost of goods sold…………………………………..…. 116,000
Gross profit………………………………..…………….. $132,000
Operating expenses:
Wages and salaries expense………….……........ $44,000
Rent expense…………………………………………. 16,000
Depreciation expense………….….........…........ 30,000
Amortization expense…………………………..…. 12,000
Other expenses…….…….…….…….….......…..... 18,000 120,000
Income from operations………….........…............ $ 12,000
Gain on sale of equipment…………………………... 26,000
Income before taxes………….…….…..….............. $ 38,000
Income tax expense……………………………………. 13,300
Net Income……………………………………………….. $ 24,700
The company also experienced the following during 2015:
Increase in accounts receivable..….….…...... $ 4,000
Increase in accounts payable (all accounts
payable transactions are for inventory). . 16,000
Increase in income taxes payable………....... 300
Decrease in prepaid expenses…………….…… 10,000
Decrease in merchandise inventory……….… 14,000
Decrease in long-term notes payable……….. 20,000
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189. Based on the information in the following income statement and balance sheet for
Monterey Corporation, determine the cash flows from operating activities using the direct
method.
Monterey Corporation
Income Statement
For Year Ended December 31, 2015
Sales……………………………………………………..…. $504,000
Cost of goods sold…………………………………..…. 327,600
Depreciation……………………………………………… 42,000
Other operating expenses………….….......…........ 125,500 (495,100)
Other gains (losses):
Gain on sale of equipment…………………….….. 7,200
Income before taxes………….…….…..….............. 16,100
Income tax expense……………………………………. (4,800)
Net income…………………………………………..…… $ 11,300
Monterey Corporation
Balance Sheets
At December 31
2015 2014
Cash…………………………………..…………………. $64,650 $55,800
Accounts receivable…..…….…..…..........…...... 21,000 29,000
Inventory……………………………………………….. 58,000 52,100
Equipment……………………………………..…….… 240,000 222,000
Accumulated depreciation………….….......….... (106,000 ) (96,000)
Total assets……………………………………………….. $277,650 $262,900
Liabilities:
Accounts payable………….…….........…............ $28,400 $23,700
Income taxes payable…..…….……...…..........… 1,050 1,200
Total liabilities………………………………………... $29,450 $24,900
Equity:
Common stock…….…….…….……........…......... $106,000 $106,000
Paid-in Capital in Excess of Par………… 18,000 18,000
Retained earnings………….…….…….…….......... 124,200 114,000
Total equity……….…….…….….......…..........….. $248,200 $238,000
Total liabilities and equity……….…….…..…........ $277,650 $262,900
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190. A company reported net income of $132,000, operating cash flows of $87,000, total cash
flows of $112,000, and average total assets of $1,053,000. Calculate its cash flow on total
assets ratio.
191. Keita Co. reported net income of $213.4 million, net cash provided by operating
activities of $151.3 million, total cash flows of $187.7 million, and average total assets of
2,314.8 million at the end of the year. Calculate the cash flow on total assets ratio for Keita.
192. Faster Freight Co. reported net cash provided by operating activities of $142.7 million
and average total assets of 1,762.5 million at the end of the year. Calculate the cash flow on
total assets ratio for Faster Freight.
193. Babson reported assets of $13,362 million at January 1 and $13,369 million as of
December 31 of the current year. Babson’s net cash flows from operations were $2,204
million. Calculate the cash flow on total assets ratio for Babson.
194. A company reported operating cash flows in Year 1 of $33,100 and $26,220 in Year 2. Its
average total assets in Year 1 were $262,000 and $313,000 in Year 2. Calculate the cash flow
on total assets ratio for both years. Comment on the results.
195. A corporation reported average total assets in Year 1 of $397,350 and $440,800 in Year 2.
Its net operating cash flow for Year 1 was $35,667 and $35,790 for Year 2. Calculate the cash
flow on total assets ratio for both years. Comment on the results.
196. A company reported average total assets of $501,000 in Year 1 and $611,000 in Year 2.
Its net operating cash flow in Year 1 was $41,500 and $55,250 in Year 2. Calculate its cash
flow on total assets ratio for both years. Comment on the results.
197. 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.
198. Use the following income statement and information about changes in noncash current
assets and liabilities to (1) prepare only the cash flows from operating activities section of the
statement of cash flows using the indirect method and (2) compute the company’s cash flow
on total assets ratio for the year assuming that average total assets are $525,250.
Davey Company
Income Statement
For Year Ended December 31
Sales……………………………………………………..…. $880,000
Cost of goods sold…………………………………..…. 487,000
Gross profit………………………………..…………….. $393,000
Operating expenses:
Salaries expense…….…….…….…….............…. $144,00
0
Rent expense…………………………………………. 76,000
Depreciation expense………….….........…........ 45,000
Amortization expense…………………………..…. 22,000
Utilities expenses….…….……...…..........…...... 12,000 299,000
Income from operations………….........…............ $ 94,000
Loss on sale of equipment………….…….….......... 14,000
Income before taxes………….…….…..….............. $ 80,000
Income tax expense……………………………………. 28,500
Net Income……………………………………………….. $ 51,500
Changes in current asset and current liability accounts for the year that relate to operations
follow.
Increase in accounts receivable..….….…...... $ 32,000
Increase in accounts payable (all accounts
payable transactions are for inventory). . 13,500
Decrease in prepaid expenses…………….…… 9,200
Decrease in merchandise inventory……….… 14,000
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Decrease in long-term notes payable……….. 20,000
199. Use the following financial statements and additional information to (1) prepare a
statement of cash flows for the year ended December 31, 2015 using the indirect method, and
(2) compute the company’s cash flow on total assets ratio for 2015.
Derby Company
Balance Sheets
At December 31
2015 2014
Assets:
Cash……………………………………………………………………….. $ 85,600 $ 65,200
Accounts receivable, net……………………………………..…….. 72,850 56,750
Merchandise inventory………….…….…….…….…..............… 157,750 144,850
Prepaid expenses…..…….…….…….…….…….…..…............… 6,080 12,680
Equipment……………………………………………….…….……….. 280,600 245,600
Accumulated depreciation-Equipment….…….…….……....... (80,600) (97,600)
Total assets…………………………………………………..……….…… $522,280 $427,480
Liabilities:
Accounts payable……………………………………………………... $ 52,850 $ 45,450
Income taxes payable…..…….…….…….…....…............…..... 15,240 12,240
Notes payable (long term)….…….…….…….…..…............…. 59,200 79,200
Total liabilities……………………………………………………………. $127,290 $136,890
Equity:
Common stock…………………………………………………………. 200,000 150,000
Paid-in capital in excess of par…..…….…….…….............…. 53,000 40,000
Retained earnings……………………………………….….………… 141,990 100,590
Total equity………………………………………………………………… $394,990 $290,590
Total liabilities and equity……….…….…….……......…..........… $522,280 $427,480
Derby Company
Income Statement
For Year Ended December 31, 2015
Sales……………………………………………………..…. $488,000
Cost of goods sold…………………………………..…. $212,540
Depreciation expense………….…….…....….......... 43,000
Other operating expenses………….….......…........ 106,260
Interest expense…………………………………………. 6,400 (368,200)
Other gains (losses):
Gain on sale of equipment…………………….….. 4,700
Income before taxes………….…….…..….............. 124,500
Income taxes expense…………………………………. 41,100
Net income…………………………………………..…… $ 83,400
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Additional Information
a. A $20,000 note payable is retired at its carrying value in exchange for cash.
b. The only changes affecting retained earnings are net income and cash dividends paid.
c. New equipment is acquired for $120,000 cash.
d. Received cash for the sale of equipment that had cost $85,000, yielding a gain of $4,700.
e. Prepaid expenses relate to Other Expenses on the income statement.
f. All purchases and sales of merchandise inventory are on credit.
200. Use the following financial statements and additional information to (1) prepare a
complete statement of cash flows for the year ended December 31, 2013. The cash provided
or used by operating activities should be reported using the direct method, and (2) compute
the company’s cash flow on total assets ratio for 2015.
Derby Company
Balance Sheets
At December 31
2015 2014
Assets:
Cash……………………………………………………………………….. $ 85,600 $ 65,200
Accounts receivable, net……………………………………..…….. 72,850 56,750
Merchandise inventory………….…….…….…….…..............… 157,750 144,850
Prepaid expenses…..…….…….…….…….…….…..…............… 6,080 12,680
Equipment……………………………………………….…….……….. 280,600 245,600
Accumulated depreciation-Equipment….…….…….……....... (80,600) (97,600)
Total assets…………………………………………………..……….…… $522,280 $427,480
Liabilities:
Accounts payable……………………………………………………... $ 52,850 $ 45,450
Income taxes payable…..…….…….…….…....…............…..... 15,240 12,240
Notes payable (long term)….…….…….…….…..…............…. 59,200 79,200
Total liabilities……………………………………………………………. $127,290 $136,890
Equity:
Common stock…………………………………………………………. 200,000 150,000
Paid-in capital in excess of par…..…….…….…….............…. 53,000 40,000
Retained earnings……………………………………….….………… 141,990 100,590
Total equity………………………………………………………………… $394,990 $290,590
Total liabilities and equity……….…….…….……......…..........… $522,280 $427,480
Derby Company
Income Statement
For Year Ended December 31, 2015
Sales……………………………………………………..…. $488,000
Cost of goods sold…………………………………..…. $212,540
Depreciation expense………….…….…....….......... 43,000
Other operating expenses………….….......…........ 106,260
Interest expense…………………………………………. 6,400 (368,200)
Other gains (losses):
Gain on sale of equipment…………………….….. 4,700
Income before taxes………….…….…..….............. 124,500
Income taxes expense…………………………………. 41,100
Net income…………………………………………..…… $ 83,400
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Additional Information
a. A $20,000 note payable is retired at its carrying value in exchange for cash.
b. The only changes affecting retained earnings are net income and cash dividends paid.
c. New equipment is acquired for $120,000 cash.
d. Received cash for the sale of equipment that had cost $85,000, yielding a gain of $4,700.
e. Prepaid expenses relate to Other Expenses on the income statement.
f. All purchases and sales of merchandise inventory are on credit.
201. The following transactions and events occurred during the year. Assuming that this
company uses the indirect method to report cash provided by operating activities, indicate
where each item would appear on its statement of cash flows by placing an x in the
appropriate column.
Statement of Cash Flows (Indirect Method)
Noncash
Operating Investing Financing Investing &
Activities Activities Activities Financing
Paid cash for operating expenses…..…............…............
Issued common stock for land………………………………….
Accounts receivable decreased in the year………......…...
Recorded depreciation expense………….…….…….…........
Income taxes payable increased during the year............
Sold equipment for cash, yielding a gain........…............
Paid cash for interest expense………….……....…..........….
Purchased land by for cash………………………………………
Purchased long-term investment in bonds…..…….…....…
Paid cash for retirement of note payable……....…...........
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McGraw-Hill Education.
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202. A main purpose of the statement of cash flows is to report all the major cash ________
and cash _______________.
203. Investments that are readily convertible to a known amount of cash and are sufficiently
close to their maturity so that the market value is unaffected by interest rate changes are
______________________________.
204. _____________ activities include the cash effects of transactions and events that
determine net income.
205. ___________________ activities generally include those transactions and events that
affect long-term assets.
206. ___________________ activities include those transactions that affect long-term
liabilities and equity.
207. Noncash financing and investing activities are disclosed in a ____________ or in a
separate ______________________________.
208. The statement of cash flows is divided into three sections called the _____________,
_____________, and _______________ sections.
209. Probably the most important section of the statement of cash flows in analyzing the
financial performance of a company’s ongoing business is the ____________ section.
210. The cash flow on total assets ratio is computed by dividing _____________ by
____________.
211. Information to prepare the statement of cash flows usually comes from three sources: (1)
_______________, (2) _______________________, and (3) ____________________.
212. All cash transactions eventually affect noncash ___________ accounts.
213. When preparing the operating section of the statement of cash flows using the indirect
method, noncash expenses are _____________ net income.
214. The reporting of investing and financing activities is _________________ under the
direct and indirect methods of preparing the statement of cash flows.
215. The use of a spreadsheet for analysis is especially useful when preparing the statement of
cash flows using the _____________ method.
216. The FASB requires a reconciliation of net income to net cash provided or used by
operating activities when the ______________ method is used.