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Exam 12: Reporting and Analyzing Cash Flows

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Question 51

True/False

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Financing activities include (a) the purchase and sale of long-term assets, (b) the purchase and sale of short-term investments and (c) lending and collecting on loans.

A) True
B) False

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Question 52

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The direct method of reporting operating cash flows:

A) Is recommended but not required by the FASB
B) Must be used by all companies
C) Is used by most companies
D) Is considered supplementary disclosure
E) Is not recommended by the FASB, but is commonly used

F) C) and D)
G) A) and E)

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Question 53

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When preparing the operating section of the statement of cash flows using the indirect method, non-cash operating expenses are added back to net income.

Use the following calendar-year information to prepare David Company's statement of cash flows using the direct method:

Based on the information provided below, complete the following worksheet to be used to prepare the statement of cash flows. (a) Net income for the year was $30,000. (b) Dividends of $10,000 were declared and paid. (c) Stylish's only noncash expense was depreciation, which totaled $50,000. (d) The company purchased plant assets for $70,000. (e) Notes payable in the amount of $40,000 were issued during the year for cash. (f) Merchandise inventory increased $30,000 (g) Accounts payable decreased $10,000

A company's cash flow on total assets ratio equals 16%. If average total assets equal $2,937,500 and total cash flows equal $600,000, what is the amount of cash flows from operations?

The FASB requires a reconciliation of net income to net cash provided or used by operating activities when the direct method is used.

Given the following information, determine the amount of cash flows from investing and financing activities.

Selected information from Doodle Company's for 2010 is below (in millions) : What is the amount of cash paid for salaries by Doodle during 2010?

Fabulous Furniture's inventory increased during the year by $6.0 million. Its accounts payable increased by $4.0 million during the same period. What is the amount of cash Fabulous Furniture paid to suppliers of merchandise during the reporting period if its cost of goods sold was $26.0 million?

Wessen Company reports net income of $200,000 for the year ended December 31, 2010. It also reports $40,000 depreciation expense, $22,500 amortization expense and a $15,000 loss on the sale of machinery. Its comparative balance sheets reveal a $225,700 increase in accounts receivable, $31,600 decrease in accounts payable, $15,000 decrease in prepaid expenses, and $48,100 decrease in wages payable. What is the net cash flows provided (used) by operating activities using the indirect method?

The reporting of investing and financing activities is _________________ under the direct and indirect methods of preparing the statement of cash flows.

Define and explain significant noncash investing and financing activities and the method of reporting them on the statement of cash flows.

Describe the format of the statement of cash flows, including the reporting of significant noncash investing and financing activities.

The purchase of stock in another company is considered to be a financing activity.

The direct method of preparing the statement of cash flows is usually viewed as user friendly since it requires less accounting knowledge to understand it.

A company reported that its bonds with a par value of $50,000 and a carrying value of $57,000 are retired for $60,000 cash, resulting in a loss of $3,000. The amount to be reported under cash flows from financing activities is:

The reporting of financing activities is identical under either the direct and indirect methods for preparing the statement of cash flows.

On a spreadsheet used to prepare the operating section of the statement of cash flows, depreciation expense does not require an entry in the Analysis of Changes column as it is a noncash item.

To be classified as a cash equivalent, an investment must be readily convertible to an unknown amount of cash, because the market value may be affected by interest rate changes.