Chapter 16: Statement of Cash Flows
116.
On the statement of cash flows, the cash flows from operating activities section would include
a.
receipts from the issuance of capital stock
b.
payment for interest on short-term notes payable
c.
payments for the purchase of investments
d.
payments for cash dividends
117.
Firefly Inc. sold land for $225,000 cash. The land had been purchased five years earlier for $275,000. The loss on
the sale was reported on the income statement. On the statement of cash flows, what amount should Firefly report
as an investing activity from the sale of the land?
a. $225,000
b. $275,000
c. $50,000
d. $500,000
118.
The cost of merchandise sold during the year was $50,000. Merchandise inventories were $12,500 and $10,500
at
the beginning and end of the year, respectively. Accounts payable were $6,000 and $5,000 at the beginning
and
end of the year, respectively. Using the direct method of reporting cash flows from operating activities, cash
payments for merchandise total
a. $49,000
b. $47,000
c. $51,000
d. $53,000
Chapter 16: Statement of Cash Flows
119.
Sales for the year were $600,000. Accounts receivable were $100,000 and $80,000 at the beginning and end of the
year, respectively. Cash received from customers to be reported on the statement of cash flows using the direct
method is
a. $700,000
b. $600,000
c. $580,000
d. $620,000
The following selected account balances appeared on the financial statements of the Washington Company:
Accounts receivable, Jan. 1
$13,000
Accounts receivable, Dec. 31
9,000
Accounts payable, Jan. 1
4,000
Accounts payable, Dec. 31
7,000
Merchandise inventory, Jan. 1
10,000
Merchandise inventory, Dec. 31
15,000
Sales
56,000
Cost of merchandise sold
31,000
The Washington Company uses the direct method to calculate net cash flow from operating activities.
120.
Cash collections from customers were
a. $56,000
b. $52,000
c. $60,000
d. $45,000
Chapter 16: Statement of Cash Flows
121.
Cash payments for merchandise were
a. $39,000
b. $33,000
c. $29,000
d. $23,000
122.
Income tax was $175,000 for the year. Income tax payable was $30,000 and $40,000 at the beginning and end
of
the year, respectively. Cash payments for income tax reported on the statement of cash flows using the direct
method is
a. $175,000
b. $165,000
c. $205,000
d. $215,000
123.
Free cash flow is
a.
all cash in the bank
b.
cash from operations
c.
cash from financing less cash used to purchase fixed assets to maintain productive capacity and cash used
for dividends
d.
cash flow from operations less cash used to purchase fixed assets to maintain productive capacity
Chapter 16: Statement of Cash Flows
124.
Free cash flow is flow cash from operations less cash used for
a.
investments in PP&E needed to maintain current production
b.
dividends and cash to redeem bonds payable
c.
investments in PP&E needed to achieve desired future production
d.
fixed assets needed to maintain productivity and cash to redeem bonds payable
125.
The operating cash flow available for company use after purchasing the fixed assets that are necessary to maintain
current productive capacity is called the
a.
free cash flow
b.
modified cash flow
c.
PPE cash flow
d.
restricted cash flow
126.
The cost of merchandise sold during the year was $45,000. Merchandise inventories were $13,500 and $10,500
at
the beginning and end of the year, respectively. Accounts payable were $7,000 and $5,000 at the beginning
and
end of the year, respectively. Using the direct method of reporting cash flows from operating activities, cash
payments for merchandise total
a. $46,000
b. $44,000
c. $50,000
d. $40,000
Chapter 16: Statement of Cash Flows
127.
When using the Spreadsheet (work sheet) method to analyze noncash accounts, it is best to start with
a.
cash
b.
net income
c.
retained earnings
d.
revenue
128.
When using the spreadsheet (work sheet) for the statement of cash flows, indirect method, entries made on the
spreadsheet are
a.
not recorded in the journal or posted to the ledger
b.
recorded in the journal and posted to the ledger
c.
recorded in the journal but not posted to the ledger
d.
not recorded in to the journal but are posted to the ledger
Chapter 16: Statement of Cash Flows
129.
For each of the following, identify whether it would be disclosed as an operating (O), financing (F), or investing
(I)
activity on the statement of cash flows under the indirect method.
a. _____purchased buildings
b. _____sold patents
c. _____net income
d. _____issued common stock
e. _____paid cash dividends
f. _____depreciation expense
Chapter 16: Statement of Cash Flows
130.
State the section(s) of the statement of cash flows prepared by the indirect method (operating activities,
investing
activities, financing activities, or not reported) and the amount that would be reported for each of the
following
transactions:
(a)
Received $120,000 from the sale of land costing $70,000.
(b)
Purchased investments for $75,000.
(c)
Declared $35,000 cash dividends on stock. $5,000 dividends were payable at the
beginning
of the year, and $6,000 were payable at the end of the year.
(d)
Acquired equipment for $64,000 cash.
(e)
Declared and issued 100 shares of $20 par common stock as a stock dividend, when the
market price of the stock was $32 a share.
(f)
Recognized depreciation for the year, $37,000.
(g)
Issued 85,000 shares of $10 par common stock for $25 a share, receiving cash.
(h)
Issued $500,000 of 20-year, 10% bonds payable at 99.
(i)
Borrowed $43,000 from Regional Bank, issuing a 5-year, 8% note for that amount.
Chapter 16: Statement of Cash Flows
131.
Identify which section the statement of cash flows (using the indirect method) would present information
regarding
the following activities. (Use O for operating, I for investing, or F for financing).
a.
Issued common stock
b.
Redeemed bonds
c.
Issued preferred stock
d.
Purchased patents
e.
Net income
f.
Paid cash dividends
g.
Purchased treasury stock
h.
Sold long-term investment
i.
Sold equipment
j.
Purchased buildings
k.
Issued bonds
Chapter 16: Statement of Cash Flows
132.
For each of the following, identify whether it would be disclosed as an operating (O), financing (F), or investing
(I)
activity on the statement of cash flows under the indirect method.
a. ____purchased treasury stock
b. ____sold equipment at book value
c. ____net income
d. ____sold long-term investments
e. ____issued common stock
f. ____depreciation expense
Chapter 16: Statement of Cash Flows
133.
The net income reported on the income statement for the current year was $210,000. Depreciation recorded on
equipment and a building amount to $62,500 for the year. Balances of the current asset and current liabilities
accounts at the beginning and end of the year are as follows:
End of Year
Beginning of Year
Cash
$ 56,000
$ 59,500
Accounts receivable (net)
71,000
73,400
Inventories
140,000
126,500
Prepaid expenses
7,800
8,400
Accounts payable (merchandise creditors)
62,600
66,400
Salaries payable
9,000
8,250
Required:
(1)
Prepare the cash flows from operating activities section of the statement of
cash flows, using the indirect method.
(2)
If the direct method had been used, would the net cash flow from
operating
activities have been the same? Explain.
Chapter 16: Statement of Cash Flows
134.
The income statement disclosed the following items for the current year:
$ 36,000
21,000
317,500
Balances of the current assets and current liabilities accounts changed between December 31, last year, and
December 31, this year, as follows:
Increase in accounts receivable
$5,600
Decrease in inventory
3,200
Decrease in prepaid insurance
1,200
Decrease in account payable
3,800
Increase in income taxes payable
1,200
Increase in dividends payable
850
Required:
Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect
method.
Chapter 16: Statement of Cash Flows
135.
Indicate whether each of the following would be added to or deducted from net income in determining net
cash
flow from operating activities by the indirect method:
(a)
Increase in prepaid expenses
(b)
Amortization of patents
(c)
Increase in salaries payable
(d)
Gain on sale of fixed assets
(e)
Decrease in accounts receivable
(f)
Increase in notes receivable due in 60 days
(g)
Amortization of discount on bonds payable
(h)
Decrease in merchandise inventory
(i)
Depreciation of fixed assets
(j)
Loss on retirement of long-term debt
(k)
Decrease in accounts payable
(l)
Increase in notes payable due in 30 days
(m)
Increase in income taxes payable
Chapter 16: Statement of Cash Flows
136.
For each of the following, identify whether it would be disclosed as an operating (O), financing (F), or investing
(I)
activity on the statement of cash flows under the indirect method.
a. ____received dividends
b. ____paid of dividends
c. ____purchased of equipment
d. ____net income
e. ____issued company’s common stock
f. ____amortization expense
Chapter 16: Statement of Cash Flows
137.
Each of the events below may have an effect on the statement of cash flows. Designate how the event should be
reported within the statement of cash flows using the codes provided below. Codes may be used more than once,
or not at all.
Codes
I + investing activity; cash inflow
I – investing activity; cash outflow
F + financing activity; cash inflow
F – financing activity; cash outflow
O + operating activity; cash inflow
O – operating activity; cash outflow
NC noncash investing and financing activity
Events
_____ 1. Paid the weekly payroll
_____ 2. Paid an account payable
_____ 3. Issued bonds payable for cash
_____ 4. Declared and paid a cash dividend
_____ 5. Paid cash for a new piece of equipment
_____ 6. Purchased treasury stock for cash
_____
7.
Paid cash for stock in another company
_____
8.
Received interest on a long-term bond investment
_____
9.
Received cash for sales
_____
10.
Sold a long-term stock investment for cash at book value
Chapter 16: Statement of Cash Flows
138. Indicate the section (operating activities, investing activities, financing activities, or none) in which each of the
following would be reported on the statement of cash flows prepared by the indirect method:
(a)
gain on sale of fixed assets
(b)
net income
(c)
retirement of long-term debt
(d)
sale of capital stock
(e)
distribution of stock dividends
(f)
payment of cash dividends
(g)
purchase of fixed assets
(h)
sale of fixed assets
(i)
receipt of interest revenue
(j)
Payment of interest expense
139.
Durrand Corporation’s accumulated depreciation increased by $12,000, while patents decreased by $2,200
between
consecutive balance sheet dates. There were no purchases or sales of depreciable or intangible assets
during the
year. In addition, the income statement showed a gain of $4,300 from sale of land. Reconcile a net
income of $65,000 to net cash flow from operating activities.
Chapter 16: Statement of Cash Flows
140.
Fortune Corporation’s comparative balance sheet for current assets and liabilities was as follows:
Dec. 31, Year 2
Dec. 31, Year 1
Accounts receivable
$ 7,500
$ 5,200
Inventory
11,500
16,000
Accounts payable
4,300
5,200
Dividends payable
4,000
3,000
Adjust Year 2 net income of $65,000 for changes in operating assets and liabilities to arrive at cash flows from
operating activities using the indirect method.
Chapter 16: Statement of Cash Flows
141.
Kennedy, Inc. reported the following data:
Net income
$118,000
Depreciation expense
15,000
Loss on disposal of equipment
(10,000)
Gain on sale of building
20,000
Increase in accounts receivable
7,000
Decrease in accounts payable
(2,000)
Prepare the cash flows from operating activities section of the statement of cash flows using the indirect method.
Chapter 16: Statement of Cash Flows
142.
Lamar Corporation purchased land for $150,000. Later in the year, the company sold land with a book value of
$190,000 for $200,000. Show how the effects of these transactions are reported on the statement of cash flows
using the indirect method.
143.
Samuel Company’s accumulated depreciation—equipment increased by $6,000, while patents decreased by
$2,200
between balance sheet dates. There were no purchases or sales of depreciable or intangible assets during
the
year. In addition, the income statement showed a loss of $3,200 from the sale of investments. Assume no
changes
in noncash current assets and liabilities.
Reconcile a net income of $92,000 to net cash flow from operating activities.
Chapter 16: Statement of Cash Flows
144.
Dorman Company reported the following data:
Net income
$225,000
Depreciation expense
25,000
Gain on disposal of equipment
20,500
Decrease in accounts receivable
14,000
Decrease in account payable
3,600
Prepare the cash flows from operating activities section of the statement of cash flows using the indirect method.
Chapter 16: Statement of Cash Flows
145.
The board of directors declared cash dividends total $168,000 during the year. The comparative balance sheet
indicated dividends payable of $46,000 at the beginning of the year and $42,000 at the end of the year. What
was
the amount of cash payments to stockholders during the year?
146.
The following two scenarios are independent of one another.
(1)
An analysis of the general ledger accounts indicates that office equipment was
sold for $39,600 during the year. The equipment originally cost $68,000 and
had
accumulated depreciation of $22,500 on the date of sale. Indicate how the
elements of this transaction would be reported on the statement of cash flows
using the indirect method.
(2)
An analysis of the general ledger accounts indicates that delivery equipment,
which cost $97,000 and on which accumulated depreciation totaled $42,100
on
the date of sale, was sold for $57,500 during the year. Using this
information,
indicate the items to be reported on the statement of cash flows.