12) The following information is from ABC, Inc.’s December 31, 2011 annual report:
Income
statement
Balance sheet
12/31/11
12/31/10
Sales revenue
$800,000
Unearned revenue
$8,000
$10,000
Interest expense
$30,000
Interest payable
$1,000
$3,000
Note: ABC, Inc. does not sell to its customers on account; it collects cash from its customers in
advance.
Cash paid for interest on ABC, Inc.’s statement of cash flows equals ________.
A) $30,000
B) $28,000
C) $33,000
D) $32,000
13) The following information is from Cogs, Inc.’s December 31, 2011 annual report:
Income
statement
Balance sheet
12/31/11
12/31/10
Cost of goods sold
$100,000
Inventory
$8,000
$10,000
Accounts payable
$7,000
$5,000
Cash paid to vendors on Cogs, Inc.’s statement of cash flows equals ________.
A) $100,000
B) $110,000
C) $104,000
D) $96,000
14) The following information is from ABC, Inc.’s December 31, 2011 annual report:
Income
statement
Balance sheet
12/31/10
12/31/11
Cost of goods sold
$100,000
Inventory
$8,000
$10,000
Accounts payable
$7,000
$5,000
Cash paid to vendors on ABC, Inc.’s statement of cash flows equals ________.
A) $100,000
B) $110,000
C) $104,000
D) $96,000
15) The following information is from Ads, Inc.’s December 31, 2011 annual report:
Income
statement
Balance sheet
12/31/10
12/31/11
Sales
$250,000
Cost of goods sold
$100,000
Accounts receivable
$15,000
$20,000
Inventory
$8,000
$10,000
Accounts payable
$7,000
$5,000
Cash collected from customers on Ads, Inc.’s statement of cash flows equals ________.
A) $250,000
B) $220,000
C) $255,000
D) $245,000
16) The following information is from Ads, Inc.’s December 31, 2011 annual report:
Income
statement
Balance sheet
12/31/10
12/31/11
Sales
$250,000
Cost of goods sold
$110,000
Accounts receivable
$15,000
$20,000
Inventory
$5,000
$10,000
Accounts payable
$7,000
$5,000
Cash paid to vendors on Ads, Inc.’s statement of cash flows equals ________.
A) $100,000
B) $110,000
C) $117,000
D) $103,000
17) The following information is from Daffy Duct, Inc.’s December 31, 2011 annual report:
Income
statement
Balance sheet
12/31/11
12/31/10
Sales revenue
$100,000
Accounts receivable
$8,000
$10,000
Salary expense
$60,000
Salary payable
$2,000
$4,000
Supplies expense
$10,000
Supplies
$1,000
$2,000
Net cash from operating activities on Daffy Duct’s statement of cash flows equals ________.
A) $30,000
B) $29,000
C) $33,000
D) $31,000
18) Clean Dirt, Inc. had $8,000 of salaries payable at December 31, 2010. During 2011, Clean
Dirt’s salary expense was $60,000. At December 31, 2011, Clean Dirt’s statement of cash flows
showed cash paid for salaries of $(63,000). How much was Clean Dirt’s salaries payable balance
on its December 31, 2011 balance sheet?
A) $5,000
B) $11,000
C) $13,000
D) $3,000
19) Clean Dirt, Inc. had $10,000 of accounts receivable at December 31, 2010. During 2011,
Clean Dirt’s sales were $100,000. At December 31, 2011, Clean Dirt’s statement of cash flows
showed cash collected from customers of $102,000. How much was Clean Dirt’s accounts
receivable balance on its December 31, 2011 balance sheet?
A) $12,000
B) $10,000
C) $8,000
D) $2,000
20) A statement of cash flows based on the direct method is prepared by converting every
number on the income statement to its cash amount.
21) A statement of cash flows based on the indirect method is prepared by converting every
number on the income statement to its cash amount.
22) Match the income statement and related balance sheet line items that are used to determine
the amount of cash on the statement of cash flows:
A. Sales H. Accounts receivable
B. Cost of goods sold I. Prepaid insurance
C. Salaries expense J. Interest payable
D. Supplies expense K. Supplies
E. Insurance expense L. Salary payable
F. Interest expense M. Inventory
G. Cash N. Accounts payable
Income
Statement
Balance Sheet
1.
2.
3.
4.
5.
6.
23) How is the statement of cash flows prepared when using the direct method?
Statement of Cash Flows Line Items:
1.
Cash collected from customers
2.
Cash paid to vendors
3.
Cash paid for supplies
4.
Cash paid for interest
5.
Cash paid for insurance
6.
Cash paid for salaries
24) Team Shirts, Inc. had a beginning balance in Accounts receivable of $4,000 on November 1.
The balance on November 30 was $5,100. Total credit sales were $63,000. What amount of cash
was collected from customers for November?
25) Team Shirts, Inc. paid $1,050 worth of interest to a Swiss bank. How is this amount reported
on the statement of cash flows?
26) College TV, Inc. had supplies of $20,000 on hand at December 31, 2010 and $25,000 on
hand at December 31, 2011. Supplies used during 2011 were $50,000. No supplies were
purchased on account. For each item, first select the column of the 2011 financial statement
where the line item appears, and then fill in the correct amount:
Income
Statement
Statement of
Cash Flows
Balance Sheet
1. Supplies
2. Supplies expense
3. Cash paid for supplies
Income
Statement
Statement of
Cash Flows
Balance Sheet
1. Supplies
2. Supplies expense
3. Cash paid for supplies
$(55,000)
27) Jill, Inc. earned $950,000 on account during 2011. Customers owed Jill, Inc. $40,000 at
December 31, 2010 and $50,000 at December 31, 2011. For each item, first select the column of
the 2011 financial statement where the line item appears, and then fill in the correct dollar
amount:
Income
Statement
Statement of
Cash Flows
Balance Sheet
1. Sales
2. Cash collected from customers
3. Accounts receivable
Income
Statement
Statement of
Cash Flows
Balance Sheet
1. Sales
2. Cash collected from customers
3. Accounts receivable
28) Use the following information from Artizan, Inc.’s computerized accounting information
system to prepare the operating activities section of the statement of cash flows for May using
the DIRECT method.
Beginning cash balance
$15,375
Ending cash balance
39,669
Cash payments for supplies
10,400
Cash paid for rent
1,200
Cash paid for salaries
3,750
Cash received from customers
17,868
Cash paid for interest
150
Cash paid for dividends
200
Cash received from a loan
10,000
Issuance of stock
25,000
Cash paid for studio equipment
12,874
29) The income statement for Lilly’s, Inc. for the year ended June 30, 2011 showed sales of
$50,000. During the year, the balance in accounts receivable increased by $7,500. Cash
collected from customers equals 1. $________ and is 2. a(n) ________ activity.
30) The income statement for Sharp, Inc. for the month of May showed insurance expense of
$250. The beginning and ending balance sheets for the month showed an increase of $50 in
prepaid insurance. There were no payables related to insurance.
The cash paid for insurance is 1. $________ and is 2. a(n)________ activity.
31) During 2011, Cable Direct, Inc. incurred salary expense of $37,500. Salaries payable showed
$10,450 at December 31, 2010 and $15,200 at December 31, 2011.
The cash paid to employees is 1. $________ and is 2. a(n) ________ activity.
32) Team Shirts, Inc. recognized $8,144 of supplies expense for the year. At the beginning of the
year, the balance in Supplies was $1,625. At the end of the year, the balance was $2,035. All
supplies have been paid for in cash. How is the accounting information for these items reported
on the statement of cash flows using the DIRECT method?
33) Team Shirts, Inc. had $12,000 of insurance expense and $1,000 of prepaid insurance at the
end of the year. The cash paid for insurance was $12,800. Calculate the amount of prepaid
insurance at the beginning of the year.
34) Team Shirts, Inc. had $80,000 of salaries expense and $10,000 of salary payable at the
beginning of the year. The cash paid for salaries was $78,000. Calculate the amount of salary
payable at the end of the year.
Learning Objective 9-5
1) The direct method for the preparation of the statement of cash flows ________.
A) starts with net income and makes adjustments for all the items that are not cash.
B) starts by converting every number on the income statement to its cash amount.
C) starts by estimating the sources of cash and the uses of cash.
D) all of these
2) The indirect method for the preparation of the statement of cash flows starts ________.
A) with net income and makes adjustments for all the items that are not cash
B) by converting every number on the income statement to its cash amount
C) by estimating the sources of cash and the uses of cash
D) with cash collected from customers
3) The statement of cash flows is designed to ________.
A) reconcile the differences between the beginning and ending balances in the cash account
B) reconcile the differences between net income and the ending cash balance
C) explain the difference between the sources and uses of cash
D) explain the changes in assets
4) The indirect method of preparing the statement of cash flows ________.
A) is preferred by business over the direct method
B) provides greater clarity for users than the direct method
C) reports a greater amount of cash than the direct method
D) starts by converting net income into an accrual-based number
5) To prepare the statement of cash flows using the indirect method ________.
A) net income is added to cash
B) depreciation expense is added to net income
C) an increase in accounts receivable is added to net income
D) net income is subtracted from cash
6) To prepare the statement of cash flows using the indirect method ________ net income.
A) a decrease in inventory is subtracted from
B) a purchase of a machine is subtracted from
C) cash paid for dividends is added to
D) a decrease in accounts payable is subtracted from
7) To prepare the statement of cash flows using the indirect method, interest income is
________.
A) added to net income
B) subtracted from net income
C) already included in net income
D) included as an item in the financing section
8) Depreciation expense, using the indirect method of preparing the statement of cash flows, is
________.
A) added to net income
B) subtracted from net income
C) subtracted from investing activities
D) added to investing activities
9) To prepare the statement of cash flows using the indirect method, dividends paid are
________.
A) added to net income
B) subtracted from net income
C) already included in net income
D) included as an item in the financing section
10) To prepare the statement of cash flows using the indirect method, depreciation expense is
________.
A) added to net income
B) subtracted from net income
C) included as an item in the financing section
D) included as an item in the investing section
11) To prepare the statement of cash flows using the indirect method ________.
A) an increase in inventory is subtracted from net income
B) a purchase of a machine is added to net income
C) cash paid for dividends is subtracted from net income
D) an increase in accounts payable is subtracted from net income
12) The indirect method for the preparation of the statement of cash flows ________.
A) is recommended by the FASB
B) is not in conformity with GAAP
C) is the preferred method used by businesses
D) is not in conformity with IFRS
13) In applying the indirect method, depreciation expense is ________.
A) added to net income because it does not require a payment of cash
B) subtracted from net income because it is a non-cash expense
C) subtracted from cash from operating activities because it is a non-cash expense
D) not shown on the statement of cash flows prepared using the indirect method
14) In applying the direct method, depreciation expense is ________.
A) added to net income because purchases of the depreciable long-term assets are investing
activities
B) subtracted from net income because it is a non-cash expense
C) subtracted from cash from operating activities because it is a non-cash expense
D) not shown on the statement of cash flows prepared using the direct method
15) The indirect method is ________.
A) recommended by the FASB
B) considered easier to prepare than the direct method
C) used less than the direct method
D) not in conformity with IFRS
16) The preparation of the statement of cash flows using the indirect method involves the
conversion from the accrual basis to the cash basis.
17) The FASB requires that a company using the direct method must provide a reconciliation
between net income and cash from operating activities.
18) The FASB requires that a company using the indirect method must provide a reconciliation
between net income and cash from operating activities.
19) The Financial Accounting Standards Board prefers that companies use the indirect method of
reporting cash from operating activities.
20) Most companies use the indirect method of reporting cash from operating activities.
21) If a company uses the indirect method of calculating cash from operating activities, its
statement of cash flows begins with cash collected from customers.
22) If a company uses the indirect method of calculating cash from operating activities, net
income is adjusted for non-cash transactions.
23) If a company uses the direct method of calculating cash from operating activities, net income
is adjusted for non-cash transactions.
24) Janna Bronson is trying to decide whether or not to prepare the statement of cash flows using
the direct method. Explain to Janna the advantages and disadvantages of using this method.
25) Explain how the operating activities section of the statement of cash flows is prepared using
the indirect method.
26) Team Shirts, Inc. reported $5,000 of depreciation expense for the year. How is this amount
reported on the statement of cash flows prepared using the indirect method and the direct
method?
27) The beginning balance in accounts payable was $4,365. The ending balance was $2,995.
How is the accounting information for these items reported on the statement of cash flows using
the indirect method?
28) Team Shirts, Inc. recognized $8,144 of supplies expense for the year. At the beginning of
the year, the balance in Supplies was $1,625. At the end of the year, the balance was $2,035. All
supplies have been paid for in cash. How is the accounting information for these items reported
on the statement of cash flows using the INDIRECT method?
29) Team Shirts, Inc. recognized $13,880 in salaries and wages expense for the quarter. At the
beginning of the quarter, the balance in Salaries Payable was $2,300. At the end of the quarter,
the balance was $3,425. How is the accounting information for these items reported on the
statement of cash flows using the INDIRECT method?
30) Use the following information from Artizan, Inc., to prepare the operating activities section
of the statement of cash flows for May using the indirect method.
Beginning cash balance:
$21,470
Ending cash balance:
63,735
Net change in accounts receivable
1,800
Net change in inventory
(2,675)
Net change in accounts payable
(890)
Depreciation expense
8,000
Net income
23,450
Cash paid for dividends
625
Cash received from a loan
9,000
Purchase of treasury of stock
3,780
Cash received from sale of studio equipment
6,235
31) Team Shirts, Inc. recognized $4,690 of insurance expense for the year. At the beginning of
the year, the balance in Prepaid insurance was $400. At the end of the year, the balance was
$775. How is the accounting information for these items reported on the statement of cash flows
using the INDIRECT method?
32) Team Shirts, Inc. recognized $4,690 of insurance expense for the year. At the beginning of
the year, the balance in Prepaid insurance was $775. At the end of the year, the balance was
$400. How is the accounting information for these items reported on the statement of cash flows
using the INDIRECT method?
33) Use the following information from The Mane Event, Inc., to prepare the operating activities
section of the statement of cash flows for the year ended December 31, 2011 using the indirect
method.
Beginning cash balance
$40,000
Cash paid for dividends
(600)
Cash received from a loan
10,000
Depreciation expense
3,000
Net change in accounts receivable
(1,000)
Net change in inventory
2,000
Net change in accounts payable
900
Net income
10,000
Proceeds from sale of studio equipment
5,000
Purchase of treasury of stock
(4,000)
34) Use the following information from Artizan, Inc. to prepare the statement of cash flows for
May using the indirect method.
Beginning cash balance:
$21,470
Ending cash balance:
63,735
Net change in accounts receivable
1,800
Net change in inventory
(2,675)
Net change in accounts payable
(890)
Depreciation expense
8,000
Net income
23,450
Cash paid for dividends
625
Cash received from a loan
9,000
Purchase of treasury of stock
3,780
Cash received from sale of studio equipment
6,235
Learning Objective 9-6
1) A source of cash from operating activities is ________.
A) proceeds from a loan
B) collection of an account receivable
C) cash received from the sale of used equipment
D) cash received from the sale of treasury stock
2) A use of cash for operating activities is ________.
A) payment of an account payable
B) payment of dividends
C) cash used to buy equipment
D) cash used to purchase treasury stock
3) A source of cash from investing activities is ________.
A) proceeds from a loan
B) collection of an account receivable
C) cash received from the sale of used equipment
D) cash received from the sale of treasury stock
4) A use of cash for investing activities is ________.
A) payment of an account payable
B) payment of dividends
C) cash used to buy equipment
D) cash used to purchase treasury stock
5) Cash used for investing activities includes cash ________.
A) collected from customers
B) paid for land
C) paid for interest
D) paid for dividends
6) A use of cash for financing activities is ________.
A) payment of an account payable
B) payment of interest
C) cash used to buy equipment
D) cash used to purchase treasury stock
7) A source of cash from financing activities is ________.
A) issuing of a note receivable
B) collection of an account receivable
C) cash received from the sale of treasury stock
D) collection of a note receivable
8) Cash involved in financing activities includes cash ________.
A) collected from customers
B) paid for land
C) paid for interest
D) paid for dividends
9) Team Shirts, Inc. had net cash from operating activities of $50,000. It paid $40,000 to buy a
new computer system by signing a $30,000 note and paying the balance. Net cash from (or used
for) investing activities for the period was ________.
A) $(40,000)
B) $(10,000)
C) $40,000
D) $10,000