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Exam 12: Reporting and Analyzing Cash Flows

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Question 1

True/False

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Companies have the option of using either the direct or indirect method to prepare the operating section of the statement of cash flows.

A) True
B) False

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Question 2

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Cash flows from interest received are reported in the statement of cash flows as part of:

A) Operating activities.
B) Financing activities.
C) Investing activities.
D) Noncash activities.
E) None of these as this is not reported in the statement of cash flows.

F) D) and E)
G) A) and B)

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Question 3

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The statement of cash flows explains the difference between the beginning and ending balances of cash and cash equivalents.

When using the indirect method to calculate and report net cash provided or used by operating activities,which of the following is subtracted from net income?

A company had cost of goods sold of $150,000 during a given period.Compute cash paid for merchandise during this period given the following data:

Noncash financing and investing activities are disclosed in the ____________ or in a separate ______________________________.

The accounting principle that requires significant noncash financing and investing activities be reported on the statement of cash flows is the:

Spirit Company,a merchandiser,recently completed the 2013 calendar year.For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory,and (5) Other Expenses are paid in advance and are initially debited to Prepaid Expenses.The company's balance sheet and income statement follow: Additional information on year 2013 transactions: Additional information on year 2013 transactions: a.The loss on the cash sale of equipment was $5,875 (details in b). b.Sold equipment costing $46,500, for a loss of $5,875. c.Purchased equipment costing $99,000 by paying $35,000 cash and signing a long-term note payable for the balance. d.Borrowed $2,000 cash by signing a non-sales related short-term note payable. e.Paid $47,500 cash to reduce the long-term notes payable. f.Issued 2,400 shares of common stock for $20 cash per share. g.Net income and dividends were the only items that affected retained earnings. -Required: Compute the net cash flows provided (used) by investing activities. A.($23,375) B.$23,375 C.$46,500 D.($35,000) E.$35,000

_____________ activities include the cash effects of transactions and events that determine net income.

Both the direct and indirect methods yield the identical net cash flow amount provided or used by operating activities.

When preparing the operating section of the statement of cash flows using the indirect method,noncash expenses are _____________ net income.

The usual first step in preparing the statement of cash flows is computing the net increase or net decrease in cash.

Explain how the cash flows from operating activities section of the statement of cash flows is prepared when using the direct method.

If a company borrows money from a bank,the interest paid on this loan should be reported on the statement of cash flows as a(n) :

___________________ activities include those transactions that affect long-term liabilities and equity.

The full disclosure principle requires that noncash investing and financing activities be disclosed as part of the statement of cash flows.

Water Girl Corp.'s 2013 income statement follows: The company also experienced the following during 2013: Required: Calculate the company's net cash provided or used by operating activities using the direct method.

A company purchased equipment for $150,000 by paying $50,000 and signing a $100,000 note payable.The entire transaction is disclosed to users on the statement of cash flows and/or in its notes.

Use the following information to calculate cash paid for wages and salaries:

Explain how to determine cash flows from investing and financing activities.