Chapter 12 2 A Operating Activity B Investing Activity A

Document Type
Test Prep
Book Title
Financial Accounting-- Binder Ready Version: Tools for Business Decision Making 8th Edition
Authors
Donald E. Kieso, Jerry J. Weygandt, Paul D. Kimmel
Statement of Cash Flows
12-21
102. Accounts receivable arising from sales to customers amounted to $120,000 and $105,000
at the beginning and end of the year, respectively. Income reported on the income
statement for the year was $457,000. Exclusive of the effect of other adjustments, the cash
flows from operating activities to be reported on the statement of cash flows is
a. $457,000.
b. $472,000.
c. $562,000.
d. $442,000.
103. Accounts receivable arising from sales to customers amounted to $35,000 and $40,000 at
the beginning and end of the year, respectively. Income reported on the income statement
for the year was $223,000. Exclusive of the effect of other adjustments, the cash flows
from operating activities to be reported on the statement of cash flows is
a. $223,000.
b. $228,000.
c. $258,000.
d. $218,000.
104. Accounts receivable arising from sales to customers amounted to $80,000 and $70,000 at
the beginning and end of the year, respectively. Income reported on the income statement
for the year was $252,000. Exclusive of the effect of other adjustments, the cash flows
from operating activities to be reported on the statement of cash flows is
a. $252,000.
b. $242,000.
c. $262,000.
d. $332,000.
105. If accounts payable have increased during a period
a. revenues on an accrual basis are less than revenues on a cash basis.
b. expenses on an accrual basis are less than expenses on a cash basis.
c. expenses on an accrual basis are greater than expenses on a cash basis.
d. expenses on an accrual basis are the same as expenses on a cash basis.
106. Which one of the following affects cash during a period?
a. Recording depreciation expense.
b. Declaration of a cash dividend.
c. Write-off of an uncollectible account receivable.
d. Payment of an accounts payable.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
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107. In calculating cash flows from operating activities using the indirect method, a gain on the
sale of equipment is
a. added to net income.
b. deducted from net income.
c. ignored because it does not affect cash.
d. not reported on a statement of cash flows.
FSA
108. In calculating cash flows from operating activities using the indirect method, a loss on the
sale of equipment is
a. added to net income.
b. deducted from net income.
c. ignored because it does not affect cash.
d. not reported on a statement of cash flows.
109. Peninsula Company reported net income of $290,000 for the year. During the year,
accounts receivable increased by $21,000, accounts payable decreased by $9,000 and
depreciation expense of $45,000 was recorded. Net cash provided by operating activities
for the year is
a. $305,000.
b. $275,000.
c. $257,000.
d. $290,000.
110. LKN Company reported net income of $90,000 for the year. During the year, accounts
receivable increased by $6,000, accounts payable decreased by $4,000 and depreciation
expense of $10,000 was recorded. Net cash provided by operating activities for the year is
a. $100,000.
b. $80,000.
c. $82,000.
d. $90,000.
111. Catalina Company reported a net loss of $15,000 for the year ended December 31, 2017.
During the year, accounts receivable decreased $7,500, inventory increased $12,000,
accounts payable increased by $15,000, and depreciation expense of $9,000 was
recorded. During 2017, operating activities
a. used net cash of $4,500.
b. used net cash of $10,500.
c. provided net cash of $4,500.
d. provided net cash of $10,500.
Statement of Cash Flows
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112. Hunter Company reported a net loss of $12,000 for the year ended December 31, 2017.
During the year, accounts receivable decreased $28,000, inventory increased $20,000,
accounts payable increased by $30,000, and depreciation expense of $24,000 was
recorded. During 2017, operating activities
a. used net cash of $14,000.
b. used net cash of $50,000.
c. provided net cash of $50,000.
d. provided net cash of $74,000.
113. Starting with net income and adjusting it for items that affected reported net income but
which did not affect cash is called the
a. direct method.
b. indirect method.
c. working capital method.
d. cost-benefit method.
114. In calculating net cash provided by operating activities using the indirect method, an
increase in prepaid expenses during a period is
a. deducted from net income.
b. added to net income.
c. ignored because it does not affect income.
d. ignored because it does not affect expenses.
115. Using the indirect method, patent amortization expense for the period
a. is deducted from net income.
b. causes cash to increase.
c. causes cash to decrease.
d. is added to net income.
116. In developing the cash flows from operating activities, most companies in the United States
a. use the direct method.
b. use the indirect method.
c. present both the indirect and direct methods in their financial reports.
d. prepare the operating activities section on the accrual basis.
117. Which of the following would be subtracted from net income using the indirect method?
a. Depreciation expense.
b. An increase in accounts receivable.
c. An increase in accounts payable.
d. A decrease in prepaid expenses.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
FOR INSTRUCTOR USE ONLY
12-24
118. Which of the following would be added to net income using the indirect method?
a. An increase in accounts receivable.
b. An increase in prepaid expenses.
c. Depreciation expense.
d. A decrease in accounts payable.
119. Which of the following would not be an adjustment to net income using the indirect
method?
a. Depreciation Expense.
b. An increase in Prepaid Insurance.
c. Amortization Expense.
d. An increase in Land.
120. In calculating cash flows from operating activities using the indirect method, a loss on the
sale of equipment will appear as a(n)
a. subtraction from net income.
b. addition to net income.
c. addition to cash flow from investing activities.
d. subtraction from cash flow from investing activities.
121. Using the indirect method, which of the following adjustments to convert net income to net
cash provided by operating activities is correct?
Add to Net Income Deduct from Net Income
a. Accounts Receivable increase decrease
b. Prepaid Expenses increase decrease
c. Inventory decrease increase
d. Taxes Payable decrease increase
122. Using the indirect method, which of the following adjustments to convert net income to net
cash provided by operating activities is incorrect?
Add to Net Income Deduct from Net Income
a. Accounts Receivable decrease increase
b. Prepaid Expenses increase decrease
c. Inventory decrease increase
d. Accounts Payable increase decrease
123. Which of the following adjustments to convert net income to net cash provided by
operating activities is not added to net income?
a. Gain on Disposal of Equipment.
b. Depreciation Expense.
c. Patent Amortization Expense.
d. Depletion Expense.
124. Using the indirect method, if equipment is sold at a gain, the
Statement of Cash Flows
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a. sale proceeds received are deducted in the operating activities section.
b. sale proceeds received are added in the operating activities section.
c. amount of the gain is added in the operating activities section.
d. amount of the gain is deducted in the operating activities section.
125. On the statement of cash flows using the indirect method, patent amortization expense will
a. be added to net income in the operating section.
b. be deducted from net income in the operating section.
c. appear as an inflow of cash in the investing section.
d. appear as an outflow of cash in the investing section.
126. A company had net income of $890,000. Depreciation expense is $110,000. During the
year, accounts receivable and inventory increased $60,000 and $160,000, respectively.
Prepaid expenses and accounts payable decreased $8,000 and $16,000, respectively.
There was also a loss on the sale of equipment of $12,000. How much cash was provided
by operating activities?
a. $760,000.
b. $784,000.
c. $1,080,000.
d. $1,128,000.
127. A company had net income of $282,000. Depreciation expense is $26,000. During the
year, accounts receivable and inventory increased $15,000 and $40,000, respectively.
Prepaid expenses and accounts payable decreased $2,000 and $14,000, respectively.
There was also a loss on the sale of equipment of $17,000. How much cash was provided
by operating activities?
a. $258,000.
b. $241,000.
c. $318,000.
d. $339,000.
128. The net income reported on the income statement for the current year was $1,360,000.
Depreciation recorded on plant assets was $257,000. Accounts receivable and inventories
increased by $72,000 and $48,000, respectively. Prepaid expenses and accounts payable
decreased by $6,000 and $66,000, respectively. How much cash was provided by
operating activities?
a. $1,380,000.
b. $1,500,000.
c. $1,437,000.
d. $1,797,000.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
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129. The net income reported on the income statement for the current year was $510,000.
Depreciation recorded on plant assets was $76,000. Accounts receivable and inventories
increased by $40,000 and $16,000, respectively. Prepaid expenses and accounts payable
decreased by $2,000 and $32,000, respectively. How much cash was provided by
operating activities?
a. $480,000.
b. $500,000.
c. $464,000.
d. $672,000.
130. The net income reported on the income statement for the current year was $480,000.
Depreciation was $62,000. Accounts receivable and inventories decreased by $20,000 and
$32,000, respectively. Prepaid expenses and accounts payable increased, respectively, by
$2,000 and $16,000. How much cash was provided by operating activities?
a. $536,000.
b. $608,000.
c. $576,000.
d. $476,000.
131. The net income reported on the income statement for the current year was $240,000.
Depreciation was $52,000. Accounts receivable and inventories decreased by $5,000 and
$15,000, respectively. Prepaid expenses and accounts payable increased, respectively, by
$500 and $14,000. How much cash was provided by operating activities?
a. $307,500.
b. $317,500.
c. $325,500.
d. $258,500.
132. The indirect and direct methods of preparing the statement of cash flows are identical
except for the
a. significant noncash activity section.
b. operating activities section.
c. investing activities section.
d. financing activities section.
Statement of Cash Flows
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133. If $2,500,000 of bonds are issued during the year but $4,000,000 of old bonds are retired
during the year, the statement of cash flows will show a(n)
a. net increase in cash of $1,500,000.
b. net decrease in cash of $1,500,000.
c. increase in cash of $2,500,000 and a decrease in cash of $4,000,000.
d. net loss on retirement of bonds of $1,500,000.
134. If $1,200,000 of bonds are issued during the year but $2,500,000 of old bonds are retired
during the year, the statement of cash flows will show a(n)
a. net increase in cash of $1,300,000.
b. net decrease in cash of $1,200,000.
c. increase in cash of $1,200,000 and a decrease in cash of $2,500,000.
d. net loss on retirement of bonds of $1,300,000.
135. Which of the following changes in retained earnings during a period will be reported in the
financing activities section of the statement of cash flows?
1. Declaration and payment of a cash dividend during the period.
2. Net income for the period.
a. 1.
b. 2.
c. Neither 1 nor 2.
d. Both 1 and 2.
136. The statement of cash flows
a. is prepared instead of an income statement under generally accepted accounting
principles.
b. is used to assess an entity's ability to pay dividends and meet obligations.
c. is prepared from comparative income statements.
d. reflects earnings per share figures on a cash basis and on an accrual basis in the body
of the statement.
137. In preparing the statement of cash flows, determining the net increase or decrease in cash
requires the use of
a. the adjusted trial balance.
b. the current period's retained earnings statement.
c. a comparative balance sheet.
d. a comparative income statement.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
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138. To determine the net cash provided (used) by operating activities, it is necessary to
analyze
a. the current year's income statement.
b. a comparative balance sheet.
c. additional information.
d. All of these answer choices are correct.
139. Which of the following would not be needed to determine net cash provided by operating
activities?
a. Depreciation expense.
b. Change in accounts receivable.
c. Payment of cash dividends.
d. Change in prepaid expenses.
140. When equipment is sold for cash, the amount received is reflected as a cash
a. inflow in the operating section.
b. inflow in the financing section.
c. inflow in the investing section.
d. outflow in the operating section.
141. The statement of cash flows will not provide insight into
a. why dividends were not increased.
b. whether cash flow is greater than net income.
c. the exact proceeds of a future bond issue.
d. how the retirement of debt was accomplished.
142. If a gain of $225,000 is incurred in selling (for cash) a building having a book value of
$900,000, the total amount reported in the cash flows from investing activities section of
the statement of cash flows is
a. $675,000.
b. $900,000.
c. $1,125,000.
d. $225,000.
143. If a loss of $108,000 is realized when selling (for cash) a building having a book value of
$800,000, the total amount reported in the cash flows from investing activities section of
the statement of cash flows is
a. $692,000.
b. $800,000.
c. $908,000.
d. $108,000.
Statement of Cash Flows
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144. If a gain of $81,000 is realized when selling (for cash) a building having a book value of
$600,000, the total amount reported in the cash flows from investing activities section of
the statement of cash flows is
a. $519,000.
b. $681,000.
c. $600,000.
d. $81,000.
145. If a loss of $9,000 is incurred in selling (for cash) office equipment having a book value of
$90,000, the total amount reported in the cash flows from investing activities section of the
statement of cash flows is
a. $81,000.
b. $90,000.
c. $99,000.
d. $9,000.
146. Land costing $125,000 was sold for $355,000 cash. The gain on the sale was reported on
the income statement as other income. On the statement of cash flows, what amount
should be reported as an investing activity from the sale of land?
a. $155,000.
b. $355,000.
c. $310,000.
d. $230,000.
147. When using the indirect method to compute cash provided by operating activities
a. income taxes payable may be ignored.
b. amortization expense is added to net income.
c. decreases in inventory are subtracted from net income.
d. increases in accounts receivable are added to net income.
148. A transaction involving a gain on the sale of equipment affects cash provided (used) by
a. financing and investing activities.
b. operating and financing activities.
c. operating and investing activities.
d. operating, financing, and investing activities.
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149. Minette Company reported net income of $200,000 for the year ended December 31,
2017. During the year, inventories decreased by $40,000, accounts payable decreased by
$60,000, depreciation expense was $45,000 and a gain on disposal of equipment of
$15,000 was recorded. Net cash provided by operating activities in 2017 using the indirect
method was
a. $280,000.
b. $210,000.
c. $245,000.
d. $240.000.
150. All of the following adjustments are added to net income in computing net cash provided by
operating activities except
a. amortization expense.
b. a decrease in accounts receivable.
c. an increase in accounts payable.
d. an increase in prepaid expenses.
151. All of the following adjustments would be deducted in determining net cash provided by
operating activities except a(n)
a. increase in inventories.
b. depreciation expense.
c. gain on disposal of plant assets.
d. decrease in accrued expenses payable.
152. Each of the following is an adjustment to convert net income to net cash provided by
operating activities except
a. adding back noncash expenses.
b. adding gains and deducting losses.
c. analyzing changes to noncash current asset and current liability accounts.
d. All of these answer choices are adjustments.
153. Free cash flow provides an indication of a company’s ability to
a. generate cash to invest in capital expenditures.
b. generate net income.
c. generate cash to pay dividends.
d. generate cash to invest in capital expenditures and to pay dividends.
Statement of Cash Flows
12-31
154. During 2017, Ecuyer Industries reported cash provided by operations of $794,000, cash
used in investing of $686,000, and cash used in financing of $190,000. In addition, cash
spent for fixed assets during the period was $276,000. Average current liabilities were
$650,000 and average total liabilities were $1,716,000. No dividends were paid. Based on
this information, what was Ecuyer's free cash flow?
a. ($144,000).
b. $108,000.
c. $518,000.
d. ($604,000).
155. Authentic Exposure Company had the following transactions that took place during the
year:
I. Recorded credit sales of $2,500
II. Collected $1,500 from customers
III. Recorded sales returns of $500 and credited the customer's account.
What is the total effect of these transactions on free cash flow?
Cash Flow
a. Increase
b. Decrease
c. No Effect
d. Cannot be determined
156. Authentic Exposure Company had the following transactions that took place during the
year:
I. Paid amount owing to suppliers $2,750.
II. Purchased new equipment for $5,000 by signing a long-term note payable.
III. Purchased a patent and paid $15,000 cash for the asset.
How what is the total effect of these transactions on free cash flow?
Cash Flow
a. Increase
b. Decrease
c. No Effect
d. Cannot be determined
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157. All of the following statements about free cash flow are false except
a. significant free cash flow indicates less potential to finance new investment.
b. free cash flow is most commonly calculated by subtracting capital expenditures from
cash provided by operations and then adding cash dividends.
c. free cash flow is not reported on the statement of cash flows.
d. significant free cash flow indicates less potential to pay additional dividends.
*158. Brad Ford Company reports a $48,000 increase in inventory and a $12,000 increase in
accounts payable during the year. Cost of goods sold for the year was $285,000. Using the
direct method of reporting cash flows from operating activities, cash payments made to
suppliers were
a. $285,000.
b. $321,000.
c. $249,000.
d. $237,000.
*159. The cost of goods sold during the year was $305,000. Inventory decreased by $10,000
during the year and accounts payable decreased by $12,000 during the year. Using the
direct method of reporting cash flows from operating activities, cash payments for inventory
total
a. $317,000.
b. $307,000.
c. $283,000.
d. $327,000.
*160. Tito Company reports a $20,000 increase in inventory and a $5,000 decrease in accounts
payable during the year. Cost of Goods Sold for the year was $282,000. Using the direct
method of reporting cash flows from operating activities, cash payments made to suppliers
were
a. $282,000.
b. $262,000.
c. $307,000.
d. $257,000.
Statement of Cash Flows
FOR INSTRUCTOR USE ONLY
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*161. The cost of goods sold during the year was $380,000. Inventory increased by $12,000
during the year and accounts payable decreased by $19,000 during the year. Using the
direct method of reporting cash flows from operating activities, cash payments for inventory
total
a. $399,000.
b. $361,000.
c. $387,000.
d. $411,000.
*162. Anjili Company had credit sales of $1,600,000. The beginning accounts receivable balance
was $165,000 and the ending accounts receivable balance was $280,000. Using the direct
method of reporting cash flows from operating activities, what were the cash collections
from customers during the period?
a. $1,815,000.
b. $1,600,000.
c. $1,485,000.
d. $1,765,000.
*163. During 2017, Bronze Company had $130,000 in cash sales and $1,020,000 in credit sales.
The accounts receivable balances were $180,000 and $212,000 at December 31, 2016
and 2017, respectively. Using the direct method of reporting cash flows from operating
activities, what was the total cash collected from all customers during 2017?
a. $1,418,000.
b. $1,642,000.
c. $1,182,000.
d. $1,118,000.
*164. The following information relates to Layline Company:
Prepaid Insurance, December 31, 2016 $302,000
Prepaid Insurance, December 31, 2017 280,000
Insurance expense for 2017 1,600,000
Using the direct method of reporting cash flows from operating activities, what was the
amount of cash paid for insurance premiums by Layline during 2017?
a. $1,578,000.
b. $1,622,000.
c. $1,880,000.
d. $1,622,000.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
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*165. Cash receipts from customers are greater than sales revenues when there is a(n)
a. increase in accounts receivable.
b. decrease in accounts receivable.
c. increase in cost of goods sold.
d. decrease in cost of goods sold.
*166. Colie Company had an increase in inventory of $120,000. The cost of goods sold was
$560,000. There was a $30,000 decrease in accounts payable from the prior period. Using
the direct method of reporting cash flows from operating activities, what were Colie's cash
payments to suppliers?
a. $710,000.
b. $650,000.
c. $440,000.
d. $380,000.
*167. Which of the following items does not appear in the statement of cash flows under the
direct method?
a. Cash payments to suppliers.
b. Cash collections from customers.
c. Depreciation Expense.
d. Cash from the sale of equipment.
*168. North Company has other operating expenses of $360,000. There has been a decrease in
prepaid expenses of $16,000 during the year, and accrued liabilities are $24,000 larger
than in the prior period. Using the direct method of reporting cash flows from operating
activities, what were North's cash payments for operating expenses?
a. $368,000.
b. $352,000.
c. $320,000.
d. $400,000.
*169. Westwind Corporation shows income tax expense of $270,000. There has been a $30,000
decrease in federal income taxes payable and a $42,000 increase in state income taxes
payable during the year. Using the direct method of reporting cash flows from operating
activities, what was Westwind 's cash payment for income taxes?
a. $270,000.
b. $258,000.
c. $198,000.
d. $342,000.
Statement of Cash Flows
FOR INSTRUCTOR USE ONLY
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*170. Which of the following would not appear in the operating activities section of a statement of
cash flows prepared under the direct method?
a. Cash receipts from customers.
b. Cash paid for income taxes.
c. Gain on sale of equipment.
d. Cash paid to employees.
*171. Which of the following statements concerning the statement of cash flows is true?
a. The statement of cash flows is usually more accurate when using the indirect method.
b. If the direct method is used, a supplementary schedule reconciling the net income to
net cash from operating activities must still be provided.
c. The statement of cash flows reflects both earnings per share and cash per share.
d. The statement of cash flows is an optional financial statement for external reporting
purposes.
*172. Seachest Company reports the following:
End of Year Beginning of Year
Inventory $25,000 $40,000
Accounts Payable 30,000 10,000
If cost of goods sold for the year is $240,000, the amount of cash paid to suppliers using
the direct method is
a. $245,000.
b. $235,000.
c. $205,000.
d. $280,000.
*173. During the year, Salaries Payable decreased by $12,000. Using the direct method of
reporting cash flows from operating activities, if Salaries Expense amounted to $450,000
for the year, the cash paid to employees (including deductions from gross pay) is
a. $462,000.
b. $438,000.
c. $450,000.
d. $454,000.
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Statement of Cash Flows
FOR INSTRUCTOR USE ONLY
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BRIEF EXERCISES
Be. 174
Selected transactions of the Carolina Company are listed below.
1. Common stock is sold for cash above par value.
2. Bonds payable are issued for cash at a discount.
3. Interest on a short-term note receivable is collected.
4. Merchandise is sold to customers for cash.
5. Cash is paid to purchase inventory.
6. Equipment is purchased by signing a 3-year, 10% note payable.
7. Cash dividends on common stock are declared and paid.
8. One hundred shares of Amazon.com common stock are purchased for cash.
9. Land is sold for cash at book value.
10. Bonds payable are converted into common stock.
Instructions
Classify each transaction as either (a) an operating activity, (b) an investing activity, (c) a financing
activity, or (d) a noncash investing and financing activity.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
FOR INSTRUCTOR USE ONLY
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Be. 175
Selected transactions for the Hamiltion Company are listed below.
1. Collected accounts receivable.
2. Declared and paid dividends on common stock.
3. Sold long-term investments for cash.
4. Issued stock for equipment.
5. Repaid five year note payable.
6. Paid employee wages.
7. Converted bonds payable to common stock.
8. Acquired long-term investment with cash.
9. Sold buildings and equipment for cash.
10. Sold merchandise to customers.
Instructions
Classify each transaction as either (a) an operating activity, (b) an investing activity, (c) a financing
activity, or (d) a noncash investing and financing activity.
Be. 176
(a) Identify the alternatives for presenting significant noncash activities in financial statements.
(b) Give three examples of significant noncash activities.
Statement of Cash Flows
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Be. 177
Lake Norman Company reported net income of $225,000 for the current year. Depreciation
recorded on buildings and equipment amounted to $75,000 for the year. Balances of the current
asset and current liability accounts at the beginning and end of the year are as follows:
End of Year Beginning of Year
Cash $20,000 $15,000
Accounts receivable 22,000 32,000
Inventory 50,000 60,000
Accounts payable 12,000 18,000
Instructions
Prepare the cash flows from the operating activities section of the statement of cash flows using
the indirect method.
Be. 178
Assume the indirect method is used to compute cash flows from operations. For each item listed
below, indicate the effect on net income in arriving at cash flows from operations by choosing one
of the following code letters.
Code
Add to Net Income A
Deduct from Net Income D
1. Increase in accounts receivable
2. Increase in inventory
3. Decrease in prepaid expenses
4. Decrease in accounts payable
5. Increase in accrued liabilities
6. Increase in income taxes payable
7. Depreciation expense
8. Loss on sale of investment
9. Gain on disposal of equipment
10. Amortization expense
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
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Be. 179
Assuming a statement of cash flows is prepared using the indirect method, indicate the reporting
of the transactions and events listed below by major categories on the statement. Use the
following code letters to indicate the appropriate category under which the item would appear on
the statement of cash flows.
Code
Cash Flows From Operating Activities
Add to Net Income A
Deduct from Net Income D
Cash Flows From Investing Activities IA
Cash Flows From Financing Activities FA
Category
1. Common stock is issued for cash at an amount above par value _____
2. Inventory increased during the period _____
3. Depreciation expense recorded for the period _____
4. Building was purchased for cash _____
5. Bonds payable were acquired and retired at their carrying value _____
6. Accounts payable decreased during the period _____
7. Prepaid expenses decreased during the period _____
8. Treasury stock was acquired for cash _____
9. Land is sold for cash at an amount equal to book value _____
10. Patent amortization expense recorded for a period _____

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