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Exam 16: Reporting the Statement of Cash Flows

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Question 1

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In preparing Marjorie Company's statement of cash flows for the most recent year, the following information is available: $\begin{array}{llr} \text { Purchase of equipment } &\$260,000\\ \text { Proceeds from the sale of equipment } &87,000\\ \text { Purchase of land } &91,000\end{array}$ Net cash flows from investing activities for the year were:

A) $438,000 of net cash provided.
B) $264,000 of net cash provided.
C) $438,000 of net cash used.
D) $351,000 of net cash used.
E) $264,000 of net cash used.

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

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Question 2

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The statement of cash flows is divided into three sections called the ________, ________, and ________ sections.

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operating;...

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Question 3

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When the operating activities section of the statement of cash flows is reported using the direct method, the FASB requires:

A decrease in the inventory account during the year should be reported on the indirect method statement of cash flows as:

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) :

For each of the following items, indicate whether it would be classified as an (O) operating activity, an (I) investing activity, a (F) financing activity, or a significant (N) noncash financing and investing activity. ________ (1) Received cash dividends from investments in trading securities. ________ (2) Collected accounts receivable from customers. (3) Issued bonds payable for cash. ________ (4) Paid wages to employees. ________ (5) Issued stock for cash. ________ (6) Sold equipment for cash. ________ (7) Purchased land in exchange for a note payable. ________ (8) Paid cash dividends. (9) Received interest from investments in trading securities. (10) Purchases of land for cash.

Use the following information to calculate cash received from dividends: $\begin{array} { l l r } \text { Dividends revenue } & \$ 63,500 \\\text { Dividends receivable, January 1 } & 3,600 \\\text { Dividends receivable, December } 31 & 3,100\end{array}$

If a company is using the indirect method to prepare the statement of cash flows, identify where an increase in the accounts receivable account should be reported:

Accounting standards require companies to include a statement of cash flows in a complete set of financial statements.

Based on the following information provided about a company's operations, calculate its cost of goods purchased and its cash paid for merchandise. $\begin{array}{|l|c|}\hline \text {Cost of goods sold } & \$ 522,000 \\\hline \text { Merchandise inventory, beginning year } & 70,000 \\\hline \text { Accounts payable, beginning year. } & 53,000 \\\hline \text { Merchandise inventory, end-of-year } & 57,000 \\\hline\text { Accounts payable, end-of-year.. }&48,000\\ \hline\end{array}$

Tate Company's 20X2 income statement and changes in selected balance sheet accounts are given below. Calculate the company's net cash provided or used by operating activities using the direct method. Tate Company Income Statement For Year Ended December 31, 20X2 $\begin{array} { l | l | l } \hline \text { Sales } & & \$ 248,000 \\\hline \text { Cost of goods sold } & & 116,000 \\\hline \text { Gross profit } & & \$ 132,000 \\\hline \text { Operating expenses: } & & \\\hline \text { Wages and salaries expense } & \$ 44,000 & \\\hline \text { Rent expense } & 16,000 & \\\hline \text { Depreciation expense } & 30,000 & \\\hline \text { Amortization expens } & 12,000 & \\\hline \text { Other expenses } & 18,000 & 120,000 \\\hline \text { Income from operations } & & \$ 12,000 \\\hline \text { Gain on sale of equipment } & & 26,000 \\\hline\end{array}$ $\begin{array}{l|l|l|}\hline \text { Gain on sale of equipment } & \quad& 26,000 \\\hline \text { Income before taxes } & &\$ 38,000 \\\hline \text { Income tax expense } && 13,300 \\\hline \text { Net Income } && \$ 24,700 \\\hline\end{array}$ The company also experienced the following during 20X2: $\begin{array} { l | l } \text { Increase in accounts receivable } & \$ 4,000 \\\hline \text { Increase in accounts payable (all accounts } & \\\hline \text { payable transactions are for inventory) } & 16,000 \\\hline \text { Increase in income taxes payable } & 300 \\\hline \text { Decrease in prepaid expenses } & 10,000 \\\hline \text { Decrease in merchandise inventory } & 14,000 \\\hline \text { Decrease in long-term notes payable } & 20,000\end{array}$

Receipts of cash dividends and interest earned on loans are classified as investing activities.

Use the following company information to calculate net cash provided or used by investing activities: (a) Equipment with a book value of $175,000 and an original cost of $300,000 was sold at a loss of $17,000. (b) Paid $62,000 cash for a new truck. (c) Sold land costing $32,000 for $36,000 cash, realizing a $4,000 gain. (d) Purchased treasury stock for $61,000 cash. (e) Long-term investments in stock are sold for $41,000 cash, realizing a gain of $3,500.

Probably the most important section of the statement of cash flows in analyzing the financial performance of a company's ongoing business is the ________ section.

The cash flows from operating activities section of an indirect method of cash flows begins with net income or loss.

Internal users of the statement of cash flows often use cash flow information to plan day-to-day operating activities and make long-term investment and financing decisions.

For each of the following separate cases, use the information provided to calculate the missing cash inflow or cash outflow using the direct method. (a) $\begin{array}{|l|c|}\hline\text { Accounts receivable balances: }\\\hline \text { Beginning of year } & \$ 60,000 \\\hline \text { End of year } & 57,000 \\\hline \text { Sales revenue (all on credit) } & 375,000 \\\hline \text { Cash received from } & \$ \underline{\quad\quad}\\\hline\end{array}$ (b) $\begin{array}{|l|r|}\hline \text { Accounts payable balances: } & \\\hline \text { Beginning of year } & \$ 42,000 \\\hline \text { End of year} & 45, \\\hline \text { Merchandise inventory balances: } & \\\hline \text { Beginning of year } & 50,000 \\\hline \text { End of year } & 47,500 \\\hline \text { Cost of goods sold } & 250,000 \\\hline\text { Cash paid for merchandise inventory }& \$ \underline{\quad\quad}\\\hline\end{array}$ $\begin{array} { l | l | r } \hline & & \\\hline \text { (c) } & \text { Interest payable balances: } & \\\hline & \text { Beginging of year } & \$ 7 , 5 0 0 \\\hline & \text { End of year } &9 , 2 0 0 \\\hline & \text { Interest expense } & 3 5 , 0 0 0\\\hline & \text { Cash paid for interest } & \$ \underline{\quad\quad}\\\hline\end{array}$

Of the following, which one affects cash during a period?

A purchase of land in exchange for shares of stock is disclosed at the bottom of the statement of cash flows or in a note to the statement.

Cash flows are essentially the same as net income because they are both measured using accrual accounting principles.