Chapter 22—The Statement of Cash Flows Key
1. In a statement of cash flows, increases or decreases in noncurrent assets are most closely associated with
2. What is the primary purpose of a company’s statement of cash flows?
3. In a statement of cash flows, which of the following events would be classified as a financing activity?
4. Which of the following events would be classified as an investing activity on a statement of cash flows?
5. In a statement of cash flows, the payment of a cash dividend on common stock outstanding should be
classified as cash outflows for
6. In a statement of cash flows, which of the following events would not be classified as an operating activity?
7. Which of the following events would be classified as an operating activity in a statement of cash flows?
8. According to current GAAP, cash flow per share statistics
9. Which statement is not true? Current GAAP
10. Which statement best defines a company’s operating cash inflows?
11. The Robinson Company reported net income of $90,000 in 2010. Additional information follows:
Depreciation expense
$18,000
Loss on sale of equipment
10,000
Gain on sale of land
17,000
Given just this information, what was the Robinson Company’s net cash provided by operating activities in 2010?
12. The following information relates to the Jordan, Inc:
Depreciation expense
$ 500
Increase in salaries payable
50
Purchased operating equipment
700
Net income
3,000
Paid long term note payable
600
Paid dividends
900
Increase in accounts receivable
400
What is the net cash provided by operating activities?
13. The following information relates to the Stockton Company:
Paid note payable
$ 150
Bought equipment
260
Depreciation expense
500
Net income
6,000
Paid dividends
500
Issued bonds payable
1,100
Issued common stock
900
Sold land
2,400
What is the net cash provided by financing activities?
14. Which of the following statements is true regarding the Financial Accounting Standards Board (FASB) and
reporting operating activities on the statement of cash flows?
15. Which of the following would be added to net income in computing cash flows from operating activities?
16. Selected accounting information regarding the Jabbar Corporation in 2010 follows:
Net cash provided by operating activities
$900,000
Common stock issued as a result of a stock dividend
(fair value)
100,000
Common stock issued for cash
400,000
Proceeds from sale of building
300,000
In 2010, Jabbar should report a net increase in cash of
17. A company sold equipment for $5,000. The equipment originally cost $15,000 and had accumulated
depreciation of $11,000. Which of the following statements is correct regarding the statement of cash flows
prepared using the indirect method to report operating activities?
18. Which of the following events would not result in a cash inflow?
19. Information regarding the Martin Company in 2010 appears below:
Net income
$140,000
Dividends paid
20,000
Decrease in inventory
15,000
Increase in accounts payable
30,000
Proceeds from issue of common stock
70,000
Depreciation expense
10,000
What was Martin’s net increase in cash?
20. The content of the statement of cash flows would not include which one of the following items?
21. Which statement is not true?
22. The following information relates to the Fowler Company for 2010:
Sales discounts
$ 700
Beginning accounts receivable
5,000
Collections on accounts receivable
20,000
Total sales reported on income statement
82,500
Ending accounts receivable
7,000
What was the amount of cash sales?
23. In a statement of cash flows prepared by the indirect method, which of the following events would be
deducted from net income?
24. In a statement of cash flows prepared by the indirect method, an increase in accounts receivable should be
25. In a statement of cash flows prepared by the indirect method, which of the following events would be added
to net income?
26. When preparing a statement of cash flows under the indirect method, an increase in ending accounts
receivable over beginning accounts receivable will result in an adjustment to net income in the operating
activities section because
27. Which of the following items would be deducted from net income to determine net cash provided by
operating activities using the indirect method?
28. Magnolia Company’s statement of cash flows showed net cash provided by operating activities of $47,000
in 2010. Magnolia reported an increase in accounts payable of $6,000, an increase in inventory of $2,000,
depreciation expense of $3,000, and dividends paid of $8,000. Magnolia’s net income for 2010 was
29. Which of the following items would be deducted from net income to determine the net cash provided by
operating activities using the indirect method?
30. Angelina Heating Co. reported $72,000 of net income. Additional information is listed below:
Account
Change
Prepaid assets
$400 increase
Inventory
700 decrease
Accounts payable
250 decrease
Dividends payable
50 increase
The net cash provided by operating activities was
31. Selected information for Mercer Company during 2010 follows:
Jan. 1
Dec. 31
Accounts payable
$ 45
$ 52
Accounts receivable
60
68
Common stock
400
412
Patent amortization
30
27
Inventory
70
60
If Mercer reported net income of $320, what was the net cash provided by operating activities for 2010?
32. Bertrand, Inc. prepares a statement of cash flows. In 2010, Bertrand had net income of $45,000. In addition,
the following information is available:
Gain on sale of land
$16,000
Decrease in inventories
10,000
Amortization of patents
4,000
Increase in prepaid expenses
3,000
What net cash provided by operating activities should Bertrand report in 2010?
33. Exhibit 22-1
Walters Company provided the following information relating to patents for 2010:
Balance, 1/1/2010
$4,800
Purchase of 10-year life patent for cash
2,000
Sale of patent at book value
(1,400)
Amortization of patents
(290)
Balance, 12/31/2010
$5,110
Refer to Exhibit 22-1. The Cash Flows from Operating Activities section prepared using the indirect method would include which of the following
deductions or add-back amounts related to patents?
34. Exhibit 22-1
Walters Company provided the following information relating to patents for 2010:
Balance, 1/1/2010
$4,800
Purchase of 10-year life patent for cash
2,000
Sale of patent at book value
(1,400)
Amortization of patents
(290)
Balance, 12/31/2010
$5,110
Refer to Exhibit 22-1. The Cash Flows from Investing Activities section would include a net change related to patents of
35. Exhibit 22-2
The Rollins Corporation reported $11,000 of net income for the current year. The following additional
information relates to Rollins for the year:
Subsidiary gain included in investment income under the
equity method
$ 370
Decrease in inventory
80
Loss on disposal of equipment
900
Proceeds from disposal of equipment
1,400
Depreciation expense
1,200
Acquisition of treasury stock
650
Increase in accounts payable
290
Acquisition of new securities (accounted for using the
equity method)
500
Decrease in deferred income taxes
210
Early retirement of bonds payable at book value
1,000
Increase in interest receivable
30
Refer to Exhibit 22-2. What is Rollins’ net cash provided by operating activities?
36. Exhibit 22-2
The Rollins Corporation reported $11,000 of net income for the current year. The following additional
information relates to Rollins for the year:
Subsidiary gain included in investment income under the
equity method
$ 370
Decrease in inventory
80
Loss on disposal of equipment
900
Proceeds from disposal of equipment
1,400
Depreciation expense
1,200
Acquisition of treasury stock
650
Increase in accounts payable
290
Acquisition of new securities (accounted for using the
equity method)
500
Decrease in deferred income taxes
210
Early retirement of bonds payable at book value
1,000
Increase in interest receivable
30
Refer to Exhibit 22-2. What is Rollins’ net cash provided by investing activities?
37. Exhibit 22-2
The Rollins Corporation reported $11,000 of net income for the current year. The following additional
information relates to Rollins for the year:
Subsidiary gain included in investment income under the
equity method
$ 370
Decrease in inventory
80
Loss on disposal of equipment
900
Proceeds from disposal of equipment
1,400
Depreciation expense
1,200
Acquisition of treasury stock
650
Increase in accounts payable
290
Acquisition of new securities (accounted for using the
equity method)
500
Decrease in deferred income taxes
210
Early retirement of bonds payable at book value
1,000
Increase in interest receivable
30
Refer to Exhibit 22-2. What is Rollins’ net cash used ( ) by financing activities?
D. $(2,150)
38. The following information relates to the Red Rocket Company:
Increase in accounts receivable
$ 80
Increase in bonds payable
1,000
Decrease in inventory
75
Net income
10,000
Amortization of premium on bonds payable
260
Increase in income taxes payable
60
Depreciation expense
2,000
Decrease in accounts payable
380
What is the net cash provided by operating activities?
39. Exhibit 22-3
The balance sheet accounts and other information related to those accounts are presented below for Tony
Company:
December 31
Assets
2011
2010
Cash
$ 140,000
$ 100,000
Accounts Receivable, net
200,000
240,000
Inventory
160,000
140,000
Long-Term Investments
60,000
150,000
Plant Assets
500,000
450,000
Accumulated Depreciation
(300,000)
(290,000)
Patents
8,000
10,000
Total Assets
$ 768,000
$ 800,000
Equities
Accounts Payable
$ 100,000
$ 80,000
Bonds Payable, due 2015
180,000
240,000
Common Stock, $10 par
200,000
160,000
Additional Paid-in Capital
160,000
140,000
Retained Earnings
128,000
180,000
Total Equities
$ 768,000
$ 800,000
Additional information related to 2011 activities:
1.
Net loss for 2011 was $40,000.
2.
Cash dividends of $12,000 were declared and paid in 2011.
3.
4,000 shares of common stock were issued to bondholders converting bonds payable into common stock.
4.
A long-term investment was sold for $100,000 cash.
5.
Equipment costing $100,000 and having accumulated depreciation of $30,000 was sold for $50,000 cash.
Refer to Exhibit 22-3. Net cash provided (used) in the financing activities section of Tony’s 2011 statement of cash flows was
40. Exhibit 22-3
The balance sheet accounts and other information related to those accounts are presented below for Tony
Company:
December 31
Assets
2011
2010
Cash
$ 140,000
$ 100,000
Accounts Receivable, net
200,000
240,000
Inventory
160,000
140,000
Long-Term Investments
60,000
150,000
Plant Assets
500,000
450,000
Accumulated Depreciation
(300,000)
(290,000)
Patents
8,000
10,000
Total Assets
$ 768,000
$ 800,000
Equities
Accounts Payable
$ 100,000
$ 80,000
Bonds Payable, due 2015
180,000
240,000
Common Stock, $10 par
200,000
160,000
Additional Paid-in Capital
160,000
140,000
Retained Earnings
128,000
180,000
Total Equities
$ 768,000
$ 800,000
Additional information related to 2011 activities:
1.
Net loss for 2011 was $40,000.
2.
Cash dividends of $12,000 were declared and paid in 2011.
3.
4,000 shares of common stock were issued to bondholders converting bonds payable into common stock.
4.
A long-term investment was sold for $100,000 cash.
5.
Equipment costing $100,000 and having accumulated depreciation of $30,000 was sold for $50,000 cash.
Refer to Exhibit 22-3. Net cash provided (used) in the investing activities section of Tony’s 2011 statement of cash flows was
41. Exhibit 22-3
The balance sheet accounts and other information related to those accounts are presented below for Tony
Company:
December 31
Assets
2011
2010
Cash
$ 140,000
$ 100,000
Accounts Receivable, net
200,000
240,000
Inventory
160,000
140,000
Long-Term Investments
60,000
150,000
Plant Assets
500,000
450,000
Accumulated Depreciation
(300,000)
(290,000)
Patents
8,000
10,000
Total Assets
$ 768,000
$ 800,000
Equities
Accounts Payable
$ 100,000
$ 80,000
Bonds Payable, due 2015
180,000
240,000
Common Stock, $10 par
200,000
160,000
Additional Paid-in Capital
160,000
140,000
Retained Earnings
128,000
180,000
Total Equities
$ 768,000
$ 800,000
Additional information related to 2011 activities:
1.
Net loss for 2011 was $40,000.
2.
Cash dividends of $12,000 were declared and paid in 2011.
3.
4,000 shares of common stock were issued to bondholders converting bonds payable into common stock.
4.
A long-term investment was sold for $100,000 cash.
5.
Equipment costing $100,000 and having accumulated depreciation of $30,000 was sold for $50,000 cash.
Refer to Exhibit 22-3. Net cash provided (used) in the operating activities section of Tony’s 2011 statement of cash flows was
42. When preparing a statement of cash flows using a worksheet, it is best to begin the worksheet with
43. The following information relates to the Davenport Company:
Accrued interest payable, beginning of period
$ 60
Prepaid interest, end of period
40
Accrued interest payable, end of period
10
Prepaid interest, beginning of period
70
44. Which of the following should be presented in a statement of cash flows?
Stock Dividends
Stock Splits
I.
Yes
Yes
II.
Yes
No
III.
No
Yes
IV.
No
No
45. A company had an increase in interest payable during the year and also amortized discount on bonds
payable. Under the direct method, the amount of interest paid during the year to be reflected in the statement of
cash flows is
46. A company’s unearned rental revenue account increased from the beginning to the end of the year. In the
statement of cash flows using the direct method, the cash collected from tenants would be
47. When reading the Cash Inflows from Operating Activities portion of the statement of cash flows using the
direct method, you would expect to find which of the following?
I.
Collections from customers
II.
Interest and dividends collected
III.
Other operating receipts
IV.
Receipts from stockholders
48. When reading the Cash Outflows from Operating Activities portion of the statement of cash flows, you
would expect to find which of the following?
I.
Payments to suppliers
II.
Payments to customers
III.
Payments to employees
IV.
Payments of interest
V.
Payments for income taxes
VI.
Other operating payments
49. A cash flow statement is one of the basic financial statements that is required under
IFRS
GAAP
I.
No
Yes
II.
No
No
III.
Yes
No
IV.
Yes
Yes
50. The IFRS categories of cash flows are
51. One area of difference between GAAP and IFRS cash flow reporting is the
52. Treatments of items in the cash flow statement that differ between IFRS and GAAP include all of the
following except the allowed treatment of
53. Unlike GAAP, IFRS encourage the disclosure of all of the following except
54. Companies are allowed to report cash flow per share under
IFRS
GAAP
I.
Yes
No
II.
Yes
Yes
III.
No
No
IV.
No
Yes
55. A statement of cash flows contains the following sections:
a.
net cash flow from operating activities
b.
cash flows from investing activities
c.
cash flows from financing activities
d.
investing and financing activities not affecting cash
A list of items that appear on the statement is provided below:
____
1.
Depreciation expense
____
2.
Proceeds from sale of land at a gain
____
3.
Decrease in accounts payable
____
4.
Conversion of bonds to common stock
____
5.
Payment of dividends, declared last fiscal year
____
6.
Proceeds from issuance of short-term note payable,
not relating to operating activities
____
7.
Loss on cash sale of equipment
____
8.
Payment for purchase of a building
____
9.
Bond premium amortization using the effective interest method
____
10.
Issuance of common stock to convert bonds payable
Required:
In the space provided, using the letters (a-d), indicate in which section(s) of the statement of cash flows (or accompanying schedule) the preceding
items would most likely be classified. After each item affecting cash, indicate with a plus sign (+) or a minus sign (-) whether the item would be
reported as an increase (inflow) or a decrease (outflow).
56. Several items to be considered in converting net income to the net cash flow from operating activities under
the indirect method are listed below:
____
a.
Increase in inventory
____
b.
Amortization of discount on investment in bonds
____
c.
Decrease in accounts payable
____
d.
Amortization of discount on bonds payable
____
e.
Increase in salaries payable
____
f.
Increase in prepaid expenses
____
g.
Subsidiary loss under the equity method
____
h.
Gain on disposal of equipment
____
i.
Decrease in accounts receivable
____
j.
Increase in deferred tax liability
1.
a +
5.
8.
3.
7.
a +, b +
10.
d
4.
d
Required:
Fill in the blanks by using a plus sign (+) or a minus sign (-) to indicate whether each item should be added to or subtracted from net income to arrive
at the net cash flow from operating activities.
57. The following information relates to the Marshall Company for 2010:
Gain on sale of land
$ 800
Bond premium amortization
300
Decrease in accounts payable
700
Increase in prepaid expenses
100
Net income
9,000
Purchased equipment
10,000
Increase in salaries payable
400
Proceeds from sale of land
5,000
Decrease in inventories
1,100
Payment of dividends
600
Depreciation expense
1,000
Required:
Compute net cash provided by operating activities for the Marshall Company for 2010.
Net income
$9,000
Gain on sale of land
(800)
Bond premium amortization
(300)
Accounts payable decrease
(700)
Prepaid expenses increase
(100)
Salaries payable decrease
Inventory decrease
1,100
Depreciation expense
1,000
Total
$9,600
–
+
h.
–
b.
–
–
+
–
g.
+
+
d.
+
58. Selected accounting information for the Zingaro Company for 2010 follows:
Increase in prepaid expenses
$ 7,000
Increase in wages payable
2,500
Net income
200,000
Amortization of premium on bonds payable
2,000
Depreciation expense
25,000
Increase in accounts payable
10,000
Decrease in inventories
15,000
Increase in deferred income taxes
4,000
Decrease in accounts receivable
4,500
Issuance of long-term note
100,000
Gain on sale of land
10,000
Declaration of cash dividends
8,000
Patent amortization expense
10,000
Proceeds from sale of land
20,000
Required:
Prepare the 2010 Net Cash Flow from Operating Activities section of Zingaro’s statement of cash flows, using the indirect method.
Net income
$200,000
Add:
Increase in wages payable
2,500
Depreciation expense
25,000
Increase in accounts payable
10,000
Decrease in inventories
15,000
Increase in deferred income taxes
4,000
Decrease in accounts receivable
4,500
Patent amortization expense
10,000
Less:
Increase in prepaid expenses
(7,000)
Amortization of premium on bonds payable
(2,000)
Gain on sale of land
(10,000)