34) Mary Andrews, Inc. had the following transactions:
Cash proceeds on sale of land
$440,000
Cash proceeds on sale of equipment
170,000
Purchase of treasury stock with cash
46,000
Purchase of equipment with cash
54,000
Issuance of common stock for cash
70,000
On a statement of cash flows prepared under the indirect method, Net cash provided by investing
activities is:
A) $510,000.
B) $580,000.
C) $556,000.
D) $610,000.
35) On the statement of cash flows prepared under the indirect method, activities that affect stockholders’
equity and long-term debt are classified as:
A) operating activities.
B) investing activities.
C) financing activities.
D) free cash flows.
36) Land was purchased by issuing common stock. This transaction would 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.
37) On the statement of cash flows, cash used for financing activities include:
A) issuing stock for property.
B) sale of treasury stock.
C) payment of notes payable.
D) purchase of plant assets.
38) During the year, Lady Liberty Corporation’s Treasury Stock account increased $55,000 due to a cash
purchase, cash dividends of $45,000 were paid and the company reported net income of $180,000. On the
statement of cash flows (indirect method), Net cash used by financing activities is:
A) ($100,000).
B) ($80,000).
C) ($125,000).
D) ($135,000).
39) Which statement about the statement of cash flows is FALSE?
A) The statement of cash flows is based on information from several financial statements.
B) The statement of cash flows is based on information from a company’s balance sheet only.
C) The change in the Cash account on the comparative balance sheets is the check figure for the statement
of cash flows.
D) The indirect method of preparing the statement of cash flows is used by the vast majority of
companies in the United States.
40) On a statement of cash flows prepared with the indirect method, adjustments to reconcile net income
to net cash provided by operating activities do NOT include:
A) gain on sale of equipment.
B) patent amortization expense.
C) depletion expense.
D) changes in all of the current assets.
41) On a statement of cash flows prepared with the indirect method, financing activities do NOT include:
A) payment of principal amounts of long-term debt.
B) payment of interest on long-term debt.
C) payment of dividends.
D) sale of treasury stock.
42) On a statement of cash flows prepared with the indirect method, investing activities do NOT include:
A) sale of investments that are not cash equivalents.
B) receipt of interest on investments.
C) collection of note receivable.
D) lending money to an employee.
43) A company is adjusting net income to determine Net cash provided by operating activities for the
statement of cash flows. The indirect method is used. Which statement is INCORRECT?
A) An increase in a noncash current asset is subtracted from net income.
B) A decrease in a noncash current asset is added to net income.
C) A decrease in a current liability is added to net income.
D) An increase in a current liability is added to net income.
44) Depreciation expense is added to net income when reconciling net income to net cash provided by
operating activities because it:
A) represents a cash inflow.
B) is a tax deduction that reduces the payment of taxes.
C) conserves cash outflows for taxes.
D) reduces net income but has no effect on cash, so we add depreciation expense to net income to cancel
the deduction.
45) On January 1, 2017, plant assets, net are $200,000. On December 31, 2017, plant assets, net are
$260,000. Depreciation expense for the year is $19,000. During the year, plant assets were acquired for
$146,000 with cash. There is a Gain on sale of plant asset of $8000. What is the book value of the plant
asset sold during the year?
A) $0
B) $59,000
C) $67,000
D) $86,000
46) On January 1, 2017, plant assets, net are $180,000. On December 31, 2017, plant assets, net are
$290,000. Depreciation expense for the year is $20,000. During the year, plant assets were acquired for
$150,000 with cash. There is a Gain on sale of plant asset of $9000. What are the cash proceeds from the
sale of the plant asset?
A) $0
B) $11,000
C) $20,000
D) $29,000
47) On January 1, 2017, plant assets, net are $180,000 and on December 31, 2017, plant assets, net are
$290,000. Depreciation expense for the year is $120,000. No plant assets were sold or exchanged during
the year. What is the cost of the plant assets acquired during the year?
A) $0
B) $60,000
C) $110,000
D) $230,000
48) On January 1, 2017, the Notes Receivable account has a balance of $12,000. On December 31, 2017, the
Notes Receivable account has a balance of $80,000. No collections on notes receivable occurred in 2017.
What amount of long-term notes were made in 2017?
A) $12,000
B) $68,000
C) $80,000
D) $92,000
49) On January 1, 2017, the Bonds Payable account has a balance of $690,000. On December 31, 2017, the
Bonds Payable account has a balance of $810,000. During 2017, one bond of $10,000 was retired. No
discounts or premiums were amortized in 2017. What amount of new bonds were issued in 2017?
A) $0
B) $110,000
C) $120,000
D) $130,000
50) A company reports the following balances:
12/31/2017
12/31/2018
Common Stock
$15,000
$156,000
Paid-in Capital in Excess of Par
98,000
107,000
Retained Earnings
66,000
76,000
What is reported on the statement of cash flows prepared with the indirect method for the year ended
December 31, 2018? Assume there were no retirements of common stock during 2018. No dividends were
declared in 2018.
A) Financing Activity: Sale of Common Stock, $141,000
B) Financing Activity: Sale of Common Stock, $150,000
C) Operating Activity: Net Income $10,000
D) B and C
51) A company reports the following balances:
12/31/2016
12/31/2017
Common Stock
$14,000
$162,000
Paid-in Capital in Excess of Par
97,000
109,000
Retained Earnings
64,000
79,000
During 2017, dividends of $17,000 were declared and paid. What is net income for 2017?
A) $2000
B) $15,000
C) $17,000
D) $32,000
52) A company reports the following balances:
12/31/2017
12/31/2018
Common Stock
$15,000
$158,000
Paid-in Capital in Excess of Par
96,000
106,000
Retained Earnings
68,000
77,000
Treasury Stock
12,000
16,000
During 2018, net income of $32,000 was reported. No treasury stock was sold during 2018. No common
stock was retired during 2018. What financing activities are reported on the statement of cash flows
prepared with the indirect method for the year ending December 31, 2018?
A) sale of treasury stock $4000 and Payment of dividends $23,000
B) purchase of treasury stock $4000, Payment of dividends $23,000 and Sale of common stock $153,000
C) sale of treasury stock $4000, Sale of common stock $143,000
D) payment of dividends $9000, Sale of common stock $143,000, and Purchase of treasury stock $4000
53) Serfleck Company reports the following data for the year ending December 31, 2017:
December 31,
2017
December 31,
2016
Common Stock
$100,000
$51,000
Additional paid-in Capital
55,000
39,000
Retained Earnings
194,000
219,000
Treasury Stock
10,000
0
Dividends Declared and Paid
7000
7000
There were no retirements of common stock in 2017. On the statement of cash flows (indirect method),
what is the net cash provided by financing activities for the year ending December 31, 2017?
A) $48,000
B) $42,000
C) $49,000
D) $39,000
54) Anew Health Care Company reports net income of $190,000 and Depreciation Expense of $25,000 for
the year ending December 31, 2017. No long-term assets were sold or exchanged during 2017. They also
have the following data available:
December 31,
2017
December 31,
2016
Current Assets:
Cash
$29,000
$84,000
Accounts Receivable
$159,000
104,000
Inventory
$95,000
70,000
Total Current Assets
$283,000
$258,000
Current Liabilities:
Accounts Payable
$49,000
$39,000
Salaries Payable
40,000
87,000
Total Current Liabilities
$89,000
$126,000
Using the indirect method, what is the net cash provided (or used) from operating activities for the year
ending December 31, 2017?
A) $48,000
B) $98,000
C) $123,000
D) $190,000
55) Cinderella Company reports net income of $100,000 and Depreciation Expense of $50,000 for the year
ending December 31, 2017. There were no gains or losses from the sale of long-term assets. They also have
the partial comparative balance sheet shown below:
December 31,
2017
December 31,
2016
Current Assets:
Cash
$30,000
$80,000
Accounts Receivable
160,000
100,000
Inventory
100,000
70,000
Prepaid Rent
20,000
10,000
Total Current Assets
$310,000
$260,000
Current Liabilities:
Accounts Payable
$50,000
$40,000
Salaries Payable
40,000
90,000
Total Current Liabilities
$90,000
$130,000
Using the indirect method, prepare the operating activities section of the statement of cash flows for the
year ending December 31, 2017.
Cash flows from operating activities:
Net income
net cash provided by operating activities:
Depreciation expense
Increase in Accounts Receivable
Increase in Inventory
Increase in Prepaid Rent
Increase in Accounts Payable
Decrease in Salaries Payable
Net cash provided by operating activities
56) Prince Charming Inc. has the following accounts available at December 31, 2017:
December 31,
2017
December 31,
2016
Notes Receivable, Long-term
$200,000
$100,000
Plant Assets, net
300,000
150,000
Common Stock
300,000
100,000
Additional Paid-in Capital
50,000
0
Retained Earnings
200,000
150,000
Dividends Declared and Paid
20,000
18,000
Depreciation Expense(annual)
50,000
50,000
Additional information:
1. No plant assets were sold or exchanged during 2017. New plant assets were acquired with cash.
2. No notes receivable were collected during 2017.
3. No common stock was retired during 2017.
Using the indirect method, prepare the investing and financing sections of the statement of cash flows for
the year ending December 31, 2017.
Cash Flows From Investing Activities:
Cash loaned with notes receivable
Plant assets purchased
Net cash used by investing activities
Cash Flows From Financing Activities:
Dividends paid
Sale of common stock
Net cash provided by financing activities
31
57) Scheeler Company has the following comparative balance sheet data available:
12/31/2018
12/31/2017
Cash
$30,000
$80,000
Accounts Receivable, net
160,000
100,000
Inventory
100,000
70,000
Prepaid Rent
20,000
10,000
Total Current Assets
$310,000
$260,000
Equipment
$400,000
$200,000
Accumulated Depreciation
(60,000)
(50,000)
Total Assets
$650,000
$410,000
Accounts Payable
$50,000
$40,000
Salaries Payable
40,000
40,000
Bonds Payable
0
50,000
Common Stock, $10 par
300,000
100,000
Additional Paid-in Capital
50,000
0
Retained Earnings
210,000
180,000
Total Liabilities & Stockholders’
Equity
$650,000
$410,000
Additional information:
1. The company reports net income of $100,000 and depreciation expense of $20,000 for the year ending
December 31, 2018.
2. Dividends declared and paid in 2018, $70,000.
3. Equipment with a cost of $20,000 and accumulated depreciation of $10,000 was sold for $3,000.
4. New equipment was purchased for cash.
5. No common stock was retired during 2018.
Using the indirect method, prepare the statement of cash flows for the year ending December 31, 2018.
4 Learning Objective 12-4
1) Only the financing activities section of a statement of cash flows differs between the direct and indirect
methods.
2) During 2017, ABC Corporation’s income tax expense totaled $20,000 and income tax payable increased
by $3,000; therefore, the cash paid for income taxes was $17,000.
3) The indirect method of preparing the statement of cash flows provides the clearest picture of the cash
inflows and cash outflows from investing activities.
4) Depreciation expense is listed on the direct method statement of cash flows because it affects income.
5) An increase in interest payable during the reporting period indicates that the cash paid for interest
exceeded interest expense on the income statement.