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ch13 Student: ___________________________________________________________________________

1.

The statement of cash flows explains how the cash balance changed during a particular period of time. True

2.

Only highly liquid investments with original maturities of less than six months at the date of purchase qualify as cash equivalents. True

3.

False

Cash flows associated with property, plant, and equipment acquisition and disposition are reported as cash flows from investing activities. True

9.

False

Cash collected from customers is a cash flow from operating activities, which is calculated using the indirect method in preparing the statement of cash flows True

8.

False

The difference between the indirect and direct methods of cash flow determination only affects the determination of investing activities cash flows. True

7.

False

Most companies use the direct method for disclosing their cash flows from operating activities rather than the indirect method. True

6.

False

Collection of principal on a note receivable is a cash flow from financing activities. True

5.

False

The payment of interest on a note payable is a cash flow from a financing activity. True

4.

False

False

Cash flows associated with issuance and retirement of long-term debt and equity are reported as cash flows from investing activities. True

False

10. When accrued liabilities increase from the beginning to the end of the year, it means accrued expenses were greater than cash payment of such expenses so the increase would be added to net income to convert to cash flow from operating activities under the indirect method. True

False

11. Under the indirect method, an increase in accounts receivable during the year will be added to net income. True

False

12. If sales revenue was $1,800,000 and accounts receivable decreased $40,000 while unearned revenue increased $10,000 during the year, then cash collected from customers equals $1,850,000. True

False

13. Under the indirect method, depreciation expense is added to net income, because it decreases net income but doesn't consume a cash flow. True

False

14. Under the indirect method, a decrease in inventory is deducted from net income, because inventory purchases are less than cost of goods sold. True

False

15. Under the indirect method, an increase in prepaid expenses is deducted from net income, because the cash prepayments exceed the related expenses. True

False

16. The quality of income ratio can only be interpreted based on knowledge of a company's business operations and strategies. True

False

17. The quality of income ratio increases when depreciation expense is recorded. True

False

18. The quality of income ratio decreases when cash is used to pay accounts payable. True

False

19. A higher quality of income ratio implies that operations tend to be more self-supporting. True

False

20. The quality of income ratio measures the portion of net income that generated cash flow from operating activities. True

False

21. When a company purchases equipment using common stock, the equipment purchase is reported as a financing activity. True

False

22. When a company sells equipment for cash at a loss, cash flows from investing activities decreases. True

False

23. Amortization of a patent reduces cash flows from investing activities. True

False

24. Canadian Beer had a capital acquisitions ratio of 7.49, which means its net income exceeded its cash investment in property, plant and equipment by almost 7.5 times. True

False

25. The capital acquisitions ratio represents the portion of property, plant, and equipment purchases which could have been financed with cash flow from operations. True

False

26. Free cash flow measures the sufficiency of cash flow from operating activities to cover both capital expenditures for property, plant and equipment as well as the payment of dividends. True

False

27. When a company both borrows $150 million during the year and repays $120 million of notes, the company can disclose the $30 million net amount as excess of borrowings over repayments in the financing activities section of the statement of cash flows. True

False

28. Cash flows from financing activities include those cash flows with respect to issuing and retiring long-term debt and equity. True

False

29. Cash flows from financing activities include those cash flows with respect to paying previously declared dividends. True

False

30. Wish Corporation acquired a computer for $15,000 and paid for it in full by issuing 1,000 shares of its own common stock, par $10 (current market price $15 share). This transaction should not be reported on the statement of cash flows because cash was neither paid out nor received. True

False

31. Which of the following transactions would not create a cash flow? A. B. C. D.

A company purchased some of its own stock from a stockholder. Amortization of a patent. Payment of a cash dividend. Sale of equipment at book value.

32. Which of the following transactions would not create a cash flow from operating activities? A. B. C. D.

Collecting cash from a customer. Paying cash to a supplier. Paying cash to stockholders for dividends. Paying cash for a utility bill.

33. Which of the following transactions would not be reported as a cash flow from investing activities? A. B. C. D.

Selling a depreciable asset for cash at a loss. Purchasing a patent using cash. Purchasing land in exchange for stock. Purchasing shares of stock of another company using cash.

34. Which of the following transactions would be reported as a cash flow from financing activities? A. B. C. D.

The cash payment of interest expense. Acquiring land by signing a note payable. Paying cash to stockholders for dividends. Purchasing shares of stock of another company using cash.

35. Which of the following statements regarding use of the direct and indirect methods of determining cash flows from operating activities is incorrect? A. B. C. D.

The indirect method starts with net income. The direct method calculates cash collected from customers. The majority of U.S. companies use the indirect method. The FASB recommends use of the indirect method.

36. Which of the following would be deducted from net income when determining cash flows from operating activities under the indirect method? A. B. C. D.

An increase in accounts payable. Depreciation expense. A decrease in prepaid insurance. A gain on the sale of a depreciable asset.

37. Which of the following would be added to net income when determining cash flows from operating activities under the indirect method? A. B. C. D.

A decrease in accounts payable. Patent amortization expense. An increase in prepaid insurance. A gain on the sale of a depreciable asset.

38. Which of the following would be deducted from net income when determining cash flows from operating activities under the indirect method? A. B. C. D.

A decrease in utilities payable. Patent amortization expense. A decrease in prepaid rent. A loss on the sale of a depreciable asset.

39. Rice Company, a retailer, has provided the following information pertaining to its recent year of operation: • Net income, $100,000; • Accounts receivable increased $9,000; • Prepaid insurance decreased $3,000; • Depreciation expense was $15,000; • Gain on sale of land, $2,000; • Wages payable decreased $7,000; • Unearned revenue increased $11,000. How much was Rice's net cash inflow from operating activities? A. B. C. D.

$89,000 $115,000 $125,000 $111,000

40. Darwin Company, a manufacturer, has provided the following information pertaining to its recent year of operation: • Net income, $200,000; • Accounts receivable increased $18,000; • Prepaid insurance increased $7,000; • Depreciation expense was $25,000; • Loss on sale of a building was $22,000; • Wages payable increased $14,000; • Unearned revenue decreased $21,000. How much was Darwin's net cash inflow from operating activities? A. B. C. D.

$227,000 $215,000 $171,000 $257,000

41. RM Company, a manufacturer, has provided the following information pertaining to its recent year of operation: • Net income, $300,000; • Accounts payable increased $24,000; • Prepaid rent decreased $10,000; • Depreciation expense was $35,000; • Accounts receivable increased $34,000; • Gain on sale of a building was $11,000; • Wages payable decreased $21,000; • Unearned revenue increased $44,000. How much was RM's net cash inflow from operating activities? A. B. C. D.

$259,000 $327,000 $347,000 $358,000

42. GJ Company, a manufacturer, has provided the following information pertaining to its recent year of operation: • Net income, $500,000; • Accounts payable decreased $42,000; • Prepaid assets increased $31,000; • Depreciation expense was $53,000; • Accounts receivable decreased $41,000; • Loss on sale of a depreciable asset was $31,000; • Wages payable increased $19,000; • Unearned revenue decreased $31,000; • Patent amortization expense was $5,000. How much was GJ's net cash inflow from operating activities? A. B. C. D.

$545,000 $607,000 $514,000 $463,000

43. DJ Company, a manufacturer, has provided the following information pertaining to its recent year of operation: • Cash flow from operating activities, $272,000; • Accounts payable decreased $21,000; • Prepaid assets increased $15,000; • Depreciation expense was $27,000; • Accounts receivable decreased $21,000; • Loss on sale of a depreciable asset was $16,000; • Wages payable increased $10,000; • Unearned revenue decreased $16,000; • Patent amortization expense was $10,000. How much was DJ's net income? A. B. C. D.

$256,000 $210,000 $198,000 $240,000

44. KJ Company, a manufacturer, has provided the following information pertaining to its recent year of operation: • Cash flow from operating activities, $136,000; • Accounts payable increased $11,000; • Prepaid assets decreased $8,000; • Depreciation expense was $12,000; • Accounts receivable increased $23,000; • Loss on sale of a depreciable asset was $6,000; • Wages payable decreased $9,000; • Unearned revenue decreased $19,000; • Patent amortization expense was $3,000. How much was KJ's net income? A. B. C. D.

$185,000 $135,000 $147,000 $131,000

45. Which of the following would not be a cash flow from investing activities? A. B. C. D.

Purchase of long-term investments. Sale of a patent. Collection of principal on a long-term note receivable. Collection of interest revenue on a long-term note receivable.

46. Which of the following would not be a cash flow from financing activities? A. B. C. D.

Issuance of common stock for cash. Borrowing cash on a long-term note payable. Collection of a cash dividend. Repayment of principal on a long-term note payable.

47. Which of the following would not be considered a cash equivalent? A. B. C. D.

A 30-day certificate of deposit. A ten-year treasury note purchased over nine years ago, which matures in two months. A three-month Treasury bill. A ten-year Treasury note purchased two months before maturity.

48. Which of the following statements about the statement of cash flows is correct? A. A company with a net loss on the income statement will always have a net cash outflow from operating activities. B. A purchase of equipment is classified as a cash inflow from investing activities. C. Cash dividends received on stock investments are classified as cash flows from operating activities. D. Cash dividends paid are classified as cash flows from operating activities. 49. Which of the following items about the statement of cash flows is correct? A Non-cash expenses such as depreciation are deducted from net income with the indirect method in . computing cash flows from operating activities. B. Cash equivalents are highly liquid investments with maturities at the date of purchase of less than three months. C. The acquisition of land by issuing bonds payable would not appear on the statement of cash flows. D. Cash paid for interest would be classified as a financing cash flow. 50. Allen Company's 2010 income statement reported total revenues, $850,000 and total expenses (including $40,000 depreciation) of $720,000. The 2009 balance sheet reported the following: accounts receivable— beginning balance, $50,000 and ending balance, $40,000; accounts payable—beginning balance, $22,000 and ending balance, $28,000. Therefore, based only on this information, how much was the 2010 net cash inflow from operating activities? A. B. C. D.

$126,000 $166,000 $174,000 $186,000

51. Which statement regarding the indirect method is false? A. B. C. D.

Depreciation expense is added to net income. An increase in accounts receivable is added to net income. An increase in accounts payable is added to net income. An increase in merchandise inventory is subtracted from net income.

52. Which of the following statements about the quality of income ratio is correct? A. When sales are growing, receivables and inventory normally increase faster than accounts payable so the ratio increases. B. Seasonal variations in sales have no impact on the quality of income ratio. C. Failure to accrue appropriate expenses will inflate net income and reduce the quality of income ratio. D. The quality of income ratio is computed by dividing net income by cash flow from operating activities. 53. Which of the following statements about the quality of income ratio is incorrect? A. An increase in operating assets and a decrease in liabilities will reduce operating cash flows, thereby reducing the ratio. B. Seasonal variations in sales and purchases of inventory can cause wide deviations in the quality of income ratio. C When sales are growing, receivables and inventory normally increase at a faster rate than accounts . payable often causing operating cash flows to be less than income. D. Aggressive revenue recognition tends to increase the ratio. 54. During 2010, Boogle reported net income of $785 million and net cash inflow from operations of $1,196 million. During 2009, their net income was $563 million and net cash inflow from operations was $1,237 million. Which of the following is incorrect about their quality of income ratios? A. In 2009 the ratio was 2.2 and in 2010 it was 1.5. B. Their ratio in 2009 was better than their ratio in 2010. C. Boogle's quality of income ratios indicates poor performance because net income is less than cash flow. D. The ratio in both years shows the company's ability to generate good cash flow from its operating activities. 55. Which of the following is not reported as a cash flow from investing activities? A. B. C. D.

Sale of a depreciable asset for cash. Purchasing land in exchange for common stock. Selling a long-term investment at a loss for cash. Purchase of a patent in exchange for cash.

56. Which of the following is reported as a cash flow from investing activities? A. B. C. D.

Cash received from dividends earned. Purchasing land in exchange for common stock. Selling a long-term investment at a loss for cash. Cash received from interest earned.

57. KAJ Incorporated purchased a machine costing $100,000 by paying $20,000 and signing an $80,000 note payable. How would this transaction be reported within the cash flow from investing activities section of the cash flow statement? A. B. C. D.

An outflow of $100,000. An outflow of $80,000. An outflow of $20,000. It would have no effect.

58. KAJ Incorporated purchased a machine costing $100,000 by paying $20,000 cash and signing an $80,000 note payable. How would this transaction be reported within the cash flow from financing activities section of the cash flow statement? A. B. C. D.

An outflow of $100,000. An outflow of $80,000. An outflow of $20,000. It would have no effect.

59. Flow Company has provided the following information for the year ended December 31, 2010: • Cash paid for interest, $20,000; • Cash paid for dividends, $6,000; • Cash dividends received, $4,000; • Cash proceeds from bank loan, $29,000; • Cash purchase of treasury stock, $11,000; • Cash paid for equipment purchase, $27,000; • Cash received from common stock sale, $37,000; • Cash received from sale of land with a $32,000 book value, $25,000; • Acquisition of land costing $51,000 in exchange for preferred stock issuance. • Paid a $100,000 note payable by exchanging used machinery with a $77,000 book value. How much was Flow's net cash flow from investing activities? A. B. C. D.

A net outflow of $2,000. A net inflow of $2,000. A net outflow of $53,000 A net inflow of $49,000

60. Flow Company has provided the following information for the year ended December 31, 2010: • Cash paid for interest, $20,000; • Cash paid for dividends, $6,000; • Cash dividends received, $4,000; • Cash proceeds from bank loan, $29,000; • Cash purchase of treasury stock, $11,000; • Cash paid for equipment purchase, $27,000; • Cash received from common stock sale, $37,000; • Cash received from sale of land with a $32,000 book value, $25,000; • Acquisition of land costing $51,000 in exchange for preferred stock issuance. • Paid a $100,000 note payable by exchanging used machinery with a $77,000 book value. How much was Flow's net cash flow from financing activities? A. B. C. D.

A net outflow of $51,000. A net inflow of $29,000. A net outflow of $53,000. A net inflow of $49,000.

61. Which of the following statements about the capital acquisitions ratio is correct? A. A high ratio indicates less need for outside financing of property, plant and equipment. B. The ratio is computed by dividing cash flow from operations by the average net property, plant and equipment. C A low ratio may indicate a failure to update property, plant and equipment which can limit a company's . ability to compete in the future. D. The ratio is comparable across industries. 62. Which of the following statements about the capital acquisitions ratio is incorrect? A. The ratio is computed by dividing cash flow from operations by cash paid for property, plant and equipment. BBecause the need for investment in property, plant and equipment differs dramatically across industries, a . firm's ratio should only be compared with its prior years' ratio or with firms in the same industry. C. A high ratio indicates more need for outside financing of current and future purchases of property, plant and equipment. D. It increases when an account receivable is collected. 63. During 2010, Eva's Enterprises cash paid for property, plant and equipment was $755 million and cash flow from operations was $5,968 million. The average property, plant and equipment from the comparative balance sheets were $6,094 million. Compute Eva's Enterprises capital acquisitions ratio for 2010. A. B. C. D.

1.0 5.3 7.9 6.0

64. During 2010, Edna Enterprises had a capital acquisitions ratio of 7.9. During 2010, Carlos' Corporation had a capital acquisitions ratio of 3.6. The amount of cash flow from operations was $5,968,000 for Edna's and $5,054,000 for Carlos. Which of the following statements is incorrect? A. Edna used less cash for investments in property, plant and equipment during 2010 than did Carlos. B Edna has less need for external financing of its investments in property, plant and equipment indicated by . its higher capital acquisitions ratio compared to Carlos. C. Edna invested approximately $755,000 in property, plant and equipment during 2010. D. Carlos invested approximately $182,000 in property, plant and equipment during 2010. 65. A company's 2010 income statement reported total sales revenue of $1,200,000; accounts receivable increased by $25,000 and the unearned revenue account decreased $15,000 during 2010. How much cash was collected from customers during 2010? A. B. C. D.

$1,225,000 $1,160,000 $1,175,000 $1,185,000

66. Bold Company's 2010 income statement reported total sales revenue of $250,000. During 2010, accounts receivable decreased by $20,000 and accounts payable increased $10,000. How much cash was collected from customers during 2010? A. B. C. D.

$230,000 $270,000 $250,000 $280,000

67. The financial statements for World Company show the following: Cost of goods sold, $725,000.

How much cash was paid to suppliers? A. B. C. D.

$731,000 $736,000 $719,000 $714,000

68. Madison Company had sales of $154,000. Additional information from the balance sheet is below:

How much cash was collected from customers? A. B. C. D.

$148,000 $150,000 $154,000 $160,000

69. Amanda Company reported income tax expense of $250,000. Beginning income taxes payable was $30,000, while ending income taxes payable was $25,000, and accounts payable decreased $10,000. How much cash was paid for taxes? A. B. C. D.

$280,000 $255,000 $245,000 $265,000

70. Aaron Inc. reported operating expenses during 2011 of $765,000 (including $80,000 of depreciation expense). Prepaid expenses increased $25,000 while accrued liabilities increased $43,000. How much cash was paid for operating expenses during 2011? A. B. C. D.

$702,000 $622,000 $667,000 $703,000

71. Canadian Beer reported they sold equipment for $222 million cash and purchased $1,515 million of new equipment using cash. The equipment sold had a net book value of $150 million. Cash flow from investing activities would show A. B. C. D.

an inflow of $222 million and outflow of $1,515 million. an inflow of $222 million and outflow of $150 million. cash paid for equipment of $1,293 million. a net outflow of $1,365 million.

72. Milliken Company paid $2.2 million to purchase stock in another company, $1.0 million to repurchase treasury shares, $.5 million to buy short-term investments, sold used equipment for $.8 million when its book value was $.6 million, and purchased new equipment for $3.4 million. How much will be reported as net investing cash flow? A. B. C. D.

$6.3 million net cash outflow. $5.3 million net cash outflow. $5.1 million net cash outflow. $4.8 million net cash outflow.

73. Roberts Company sold equipment for $250,000, purchased a building for $6,500,000, sold short-term investments for $280,000, repaid principal on a note payable for $2,300,000 plus $230,000 of interest, and paid cash dividends of $20,000. How much was the net cash flow from investing activities? A. B. C. D.

$6,250,000 outflow $8,320,000 outflow $8,270,000 outflow $5,970,000 outflow

74. Roberts Company sold equipment for $250,000, purchased a building for $6,500,000, sold short-term investments for $280,000, repaid principal on a note payable for $2,300,000 plus $230,000 of interest, and paid cash dividends of $20,000. How much was the net cash flow from financing activities? A. B. C. D.

$2,300,000 outflow $2,320,000 outflow $2,530,000 outflow $2,550,000 outflow

75. During 2010, Tommy's Toys reported the following: long-term debt repayments, $503 million; interest paid, $143 million; proceeds from exercise of stock options, $27 million, and issue of common stock in exchange for land costing $10 million. How much is the 2010 net cash flow from financing activities? A. B. C. D.

$476 million net cash outflow. $530 million net cash outflow. $673 million net cash outflow. $76 million net cash outflow.

76. Burich Co. reported short-term borrowings of $2.5 million, long-term borrowings of $6.8 million, repayments of long-term borrowings of $3.5 million, interest payments of $780,000, repurchase of treasury shares of $.5 million and cash dividends declared of $1.1 million. What is the cash flow from financing activities? A. B. C. D.

$5,300,000 net cash inflow $4,200,000 net cash inflow $1,700,000 net cash inflow $2,800,000 net cash inflow

77. Which of the following is correct? A. Repayments of principal and interest reduce financing activities cash flows. B. Repurchase of treasury shares is a cash outflow connected to investing activities. CIf a company borrows $450 million in long-term notes and repays $380 million of long-term notes, and . then these items must both be disclosed and not netted against each other in the financing section. D.Issuing common stock in exchange for the purchase of a building creates both a financing activity and investing activity cash flow. 78. Which of the following would be a financing activities cash flow? A. B. C. D.

Common stock dividends distributed. Interest payments. Repurchase of treasury shares. Purchase of a building by signing a note payable.

79. Which of the following would not be a financing activities cash flow? A. B. C. D.

Issuing common stock for cash. Cash dividend payments. Purchasing treasury stock. Purchase of a building by signing a note payable.

80. Lab Industries, Inc., issued $50,000 of bonds, paid cash dividends of $8,000, sold long-term investments for $12,000, received $5,000 of dividend revenue, purchased treasury stock for $15,000, and purchased new equipment for $19,000. What is the net cash flow from financing activities? A. B. C. D.

$70,000 inflow $27,000 inflow $80,000 inflow $20,000 outflow

81. Non-cash financing and investing activities A. B. C. D.

must be reported in the notes to the financial statements. are not separately disclosed within the financial statements. are disclosed in a separate schedule as a supplement to the statement of cash flows. are reported as cash flows because of their significance.

82. A company acquired some land (independently appraised at $12,000) and paid for it by issuing 1,000 shares of its common stock (par $10 per share; no market price was quoted). How should this be reported on the statement of cash flows? A. B. C. D.

Report $12,000 as inflow and outflow of cash. Report $12,000 as an inflow of cash. Should not be reported on the statement of cash flows. Report in the schedule of significant noncash transactions.

83. Slipper Company sold a productive asset, a machine, for cash. It originally cost $20,000. The accumulated depreciation at the date of disposal was $15,000. A gain on the disposal of $2,000 was reported. What was the asset's selling price? A. B. C. D.

$7,000 $3,000 $4,000 $5,000

84. Halbur Company reported the following for its recent year of operation:

No new equipment was purchased during the year. What was the selling price of the equipment? A. B. C. D.

$3,900 $1,000 $900 $600

85. A Company reported net income of $200,000 during 2010. The company reported depreciation expense of $35,000, patent amortization of $10,000 and a $5,000 loss on the sale of equipment. Based on the information provided, how much is the company's cash flow from operating activities? A. B. C. D.

$245,000 $250,000 $240,000 $235,000

86. Which of the following statements does not correctly describe an adjustment to net income when determining cash flows from operating activities when using the indirect method? A. B. C. D.

An increase in accounts receivable will be deducted from net income. A loss on the sale of a depreciable asset will be added to net income. An increase in accrued liabilities will be deducted from net income. An increase in accounts payable will be added to net income.

87. The following information has been provided to you by RKJ Company: Net income $300,000 Decrease in accounts payable $114,000 Increase in inventory $22,000 Increase in accounts receivable $24,000 Decrease in bonds payable $25,000 Loss on sale of a depreciable asset $19,000 Depreciation expense $40,000 Decrease in income taxes payable $12,000 What is the net cash flow from operating activities? A. B. C. D.

$231,000 $187,000 $206,000 $168,000

88. Which of the following transactions would be reported within the investing section of the cash flow statement? A. B. C. D.

The cash sale of land at a loss. The purchase of a building in exchange for common stock. The receipt of a stock dividend from a stock investment. The cash receipt of a dividend from a stock investment.

89. Which of the following transactions would not be reported within the investing section of the cash flow statement? A. B. C. D.

The cash sale of land at a gain. The purchase of a building for cash. The purchase of a stock investment for cash. The cash receipt of a dividend from a stock investment.

90. Which of the following statements does not correctly describe an adjustment to net income when determining cash flows from operating activities when using the indirect method? A. B. C. D.

An increase in wages payable will be added to net income. A gain on the sale of a depreciable asset will be deducted from net income. An increase in prepaid expenses will be deducted from net income. An increase in income taxes payable will be deducted from net income.

91. Atkins Corporation has provided the following information for the year ended December 31, 2010: • The equipment account balance increased $200,000. • The equipment accumulated depreciation account increased $35,000. • Equipment costing $50,000 was sold during the year resulting in a $10,000 gain. • Depreciation expense on the equipment recorded during the year was $65,000. Which of the following statements is correct with respect to cash flow from operating activities determination? A. Using the indirect method, net income is increased by the $35,000 increase in accumulated depreciation. B. Using the indirect method, net income is decreased by the $60,000 sales price of the equipment. C. Using the indirect method, net income is increased by the $65,000 depreciation expense. D. Using the indirect method, net income is increased by the $10,000 gain on the sale of the equipment.

92. Atkins Corporation has provided the following information for the year ended December 31, 2010: • The equipment account balance increased $200,000. • The equipment accumulated depreciation account increased $35,000. • Equipment costing $50,000 was sold during the year resulting in a $10,000 gain. • Depreciation expense on the equipment recorded during the year was $65,000. Which of the following statements is correct with respect to cash flow from investing activities determination? Assume that the equipment purchase and sale resulted in cash flows. A. B. C. D.

A $60,000 cash inflow is reported from the equipment sale. A $200,000 cash outflow is reported for equipment purchases. A $50,000 cash outflow is reported for the equipment sale. A $250,000 cash outflow is reported for equipment purchases.

93. Atkins Corporation has provided the following information for the year ended December 31, 2010: • The equipment account balance increased $200,000. • The equipment accumulated depreciation account increased $35,000. • Equipment costing $50,000 was sold during the year resulting in a $10,000 gain. • Depreciation expense on the equipment recorded during the year was $65,000. Which of the following statements is incorrect with respect to preparation of the statement of cash flows? Assume that the equipment purchase and sale resulted in cash flows. A. A $30,000 cash inflow is reported from the equipment sale. B. Using the indirect method, net income is increased by the $65,000 depreciation expense. C. Using the indirect method, net income is decreased by the $10,000 gain on the sale of the equipment. D. A $60,000 cash inflow is reported from the equipment sale. 94. Atkins Corporation has provided the following information for the year ended December 31, 2010: • The equipment account balance increased $200,000. • The equipment accumulated depreciation account increased $35,000. • Equipment costing $50,000 was sold during the year resulting in a $10,000 gain. • Depreciation expense on the equipment recorded during the year was $65,000. How much was the investing activities cash inflow from the sale of the equipment? Assume that the equipment purchase and sale resulted in cash flows. A. B. C. D.

$30,000 $60,000 $40,000 $50,000

95. A company reported an increase in accounts payable and a decrease in inventory during 2010. Which of the following statements is correct? A. Cash paid to suppliers equals cost of goods sold plus both the increase in accounts payable and the decrease in inventory. B. Cash paid to suppliers equals cost of goods sold minus both the increase in accounts payable and the decrease in inventory. C. Cash paid to suppliers equals cost of goods sold minus the increase in accounts payable, plus the decrease in inventory. D. Cash paid to suppliers equals cost of goods sold plus the increase in accounts payable, minus the decrease in inventory.

96. A company reported an increase in accounts receivable and an increase in unearned revenues during 2010. Which of the following statements is correct? A Cash collected from customers equals sales revenues plus both the increase in accounts receivable and . the increase in unearned revenues. B Cash collected from customers equals sales revenues minus both the increase in accounts receivable and . the increase in unearned revenues. C Cash collected from customers equals sales revenues plus the increase in accounts receivable, minus the . increase in unearned revenues. D Cash collected from customers equals sales revenues minus the increase in accounts receivable, plus the . increase in unearned revenues. 97. A company reported an increase in prepaid rent and an increase in accrued liabilities during 2010. Which of the following statements is correct? A When determining cash paid for operating expenses, both the increase in prepaid rent and the increase in . accrued liabilities are deducted from operating expenses. B When determining cash paid for operating expenses, both the increase in prepaid rent and the increase in . accrued liabilities are added to operating expenses. CWhen determining cash paid for operating expenses, the increase in prepaid rent is added to operating . expenses and the increase in accrued liabilities is deducted from operating expenses. DWhen determining cash paid for operating expenses, the increase in prepaid rent is deducted from . operating expenses and the increase in accrued liabilities is added to operating expenses. 98. A company reported an increase in accrued revenues and a decrease in unearned revenues during 2010. Which of the following statements is correct? A When determining cash collected from customers, both the increase in accrued revenues and the decrease . in unearned revenues are deducted from sales revenues. B When determining cash collected from customers, both the increase in accrued revenues and the decrease . in unearned revenues are added to sales revenues. CWhen determining cash collected from customers, the increase in accrued revenues is deducted from sales . revenues and the decrease in unearned revenues is added to sales revenues. DWhen determining cash collected from customers, the increase in accrued revenues is added to sales . revenues and the decrease in unearned revenues is deducted from sales revenues. 99. Which of the following transactions increases the quality of income ratio? A. B. C. D.

The accrual of revenue. The accrual of an expense. The cash payment of an account payable. The payment of a cash dividend.

100.Which of the following transactions decreases the quality of income ratio? A. B. C. D.

The cash purchase of equipment. The issue of stock in exchange for cash. Collecting cash for services to be provided in the future. Earning revenue which was previously recorded as unearned revenue.

101.For each of the following items, indicate whether it would appear in the operating, investing, or financing activities section of the statement of cash flows or is not reported in one of these three categories. Assume the indirect method is used for reporting.

102.Use the following information to prepare a statement of cash flows for Stable Equipment Company for the year ended December 31, 2010: Net income for the year 2010 was $5,000. Accounts receivable decreased $2,000, while inventories increased $4,000, and accounts payable decreased $7,000. Depreciation expense included in net income was $8,000. During the year, a piece of land held for future expansion was sold for its book value of $8,000 and a new service truck was purchased for $14,000. The company borrowed $18,000 on a two-year note from the bank. Dividends of $6,000 were paid in cash. Preferred stock was issued to retire $7,000 of long-term notes payable. The beginning cash balance was $10,000 and the ending balance was $20,000.

103.Use the following information to prepare a statement of cash flows (direct method) for Ames Corporation for the year ended December 31, 2011.

104.Marissa Company is preparing a statement of cash flows using the indirect method. The following data are available:

Calculate cash flows from operating activities.

105.Hill Company reported net income of $10,000 for 2010. Additional 2010 information is as follows:

Calculate cash flows from operating activities.

106.Brooks Company reported net income of $40,000 which included depreciation expense and depletion expense of $21,000 and $18,000, respectively. The following changes also occurred during 2009:

Calculate cash flows from operating activities.

107.Sagaworth Inc. reported the following information:

Determine Sagaworth's net cash flow from operating activities for 2011 under the indirect method.

108.Below is the 2011 income statement for the Critters Corporation.

Additional Information: Accounts receivable increased by $8,000 Merchandise inventory increased by $4,000 Accounts payable increased by $6,000 Prepaid expenses decreased by $2,000 Accrued liabilities decreased by $5,000 Interest payable increased by $1,000 Prepare the operating activities section of the statement of cash flows using the indirect method.

109.Brice Corporation reported the following information:

Compute Brice Corporation's cash collected from customers for 2010.

110.Brice Corporation reported the following information:

Compute Brice's cash paid to suppliers for inventory for 2010.

111.Brice Corporation reported the following information:

Compute Brice's cash paid for operating expenses for 2010.

112.Brice Corporation reported the following information:

Compute Brice's cash paid for income taxes in 2010.

113.The following information was reported from the statement of cash flows for Landlover's Restaurants for the years 2008 through 2010 (in millions of dollars):

Requirements: A. Calculate the quality of income ratio for the years 2008 through 2010. B. Interpret the quality of income ratio for Landlover's for the three year period.

114.Blythe Company paid $2.2 million to purchase stock in another company, $1.0 million to repurchase treasury shares, $.5 million to buy short-term investments, sold used equipment for $.8 million when its book value was $.6 million, and purchased new equipment for $3.4 million. How much will be reported as net cash flow from investing activities?

115.The following information was available from the financial statements of Collateral, Inc. for the years 2010 and 2009 (in millions of dollars):

Requirements: A. Calculate the capital acquisitions ratio for each of the two years. B. Comment on the sufficiency of the capital acquisitions ratio for the two years.

116.While preparing a statement of cash flows, you encountered the following transaction: February 1, 2011: Battles Corporation acquired a small office building in exchange for 5,000 shares of its own common stock; par value $10 per share; market value $15 per share. Should this transaction be shown on the statement of cash flows? Why or why not?

117.Complete the following statement of cash flows using the indirect method:

118.During 2011, Tommy's Toys reported the following: short-term borrowings of $419 million; long-term borrowings of $147 million; long-term debt repayments of $45 million; interest paid, $128 million; treasury shares repurchased $632 million; and exercise of stock options by employees, $2 million. How much is net cash flow from financing activities during 2011?

119.Kennel Co. reported short-term borrowings of $2,500,000, long-term borrowings of $6,800,000, repayments of long-term borrowings of $3,500,000, interest payments of $780,000, repurchase of treasury shares of $500,000, cash dividends declared of $1,100,000, and cash dividend payments of $800,000. Kennel also issued their common stock in exchange for a building costing $400,000. How much is the net cash flow from financing activities?

120.Describe the three cash flow classifications that are reported within a statement of cash flows.

ch13 Key 1.

The statement of cash flows explains how the cash balance changed during a particular period of time. TRUE An objective of the statement of cash flows is to explain the change in the cash balance from the beginning of a period to the end of a period. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 13-01 Classify cash flow statement items as part of net cash flows from operating; investing; and financing activities. Libby - Chapter 13 #1 Topic Area: Classifications On The Statement Of Cash Flows

2.

Only highly liquid investments with original maturities of less than six months at the date of purchase qualify as cash equivalents. FALSE Only highly liquid investments with original maturities of less than three months at the date of purchase qualify as cash equivalents. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 13-01 Classify cash flow statement items as part of net cash flows from operating; investing; and financing activities. Libby - Chapter 13 #2 Topic Area: Classifications On The Statement Of Cash Flows

3.

The payment of interest on a note payable is a cash flow from a financing activity. FALSE Interest payments are operating cash flows. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 13-01 Classify cash flow statement items as part of net cash flows from operating; investing; and financing activities. Libby - Chapter 13 #3 Topic Area: Classifications On The Statement Of Cash Flows

4.

Collection of principal on a note receivable is a cash flow from financing activities. FALSE Cash flows associated with lending activities are investing cash flows. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 13-01 Classify cash flow statement items as part of net cash flows from operating; investing; and financing activities. Libby - Chapter 13 #4 Topic Area: Classifications On The Statement Of Cash Flows

5.

Most companies use the direct method for disclosing their cash flows from operating activities rather than the indirect method. FALSE Most companies use the indirect method. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 13-01 Classify cash flow statement items as part of net cash flows from operating; investing; and financing activities. Libby - Chapter 13 #5 Topic Area: Classifications On The Statement Of Cash Flows

6.

The difference between the indirect and direct methods of cash flow determination only affects the determination of investing activities cash flows. FALSE The direct and indirect methods are options with respect to determining operations cash flows. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 13-01 Classify cash flow statement items as part of net cash flows from operating; investing; and financing activities. Libby - Chapter 13 #6 Topic Area: Classifications On The Statement Of Cash Flows

7.

Cash collected from customers is a cash flow from operating activities, which is calculated using the indirect method in preparing the statement of cash flows FALSE The direct method calculates cash collected from customers. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 13-01 Classify cash flow statement items as part of net cash flows from operating; investing; and financing activities. Libby - Chapter 13 #7 Topic Area: Classifications On The Statement Of Cash Flows

8.

Cash flows associated with property, plant, and equipment acquisition and disposition are reported as cash flows from investing activities. TRUE Cash flows from investing activities include those cash flows associated with investments and property, plant, and equipment acquisition and disposal. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 13-01 Classify cash flow statement items as part of net cash flows from operating; investing; and financing activities. Libby - Chapter 13 #8 Topic Area: Classifications On The Statement Of Cash Flows

9.

Cash flows associated with issuance and retirement of long-term debt and equity are reported as cash flows from investing activities. FALSE Cash flows associated with issuance and retirement of long-term debt and equity are reported as cash flows from financing activities. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 13-01 Classify cash flow statement items as part of net cash flows from operating; investing; and financing activities. Libby - Chapter 13 #9 Topic Area: Classifications On The Statement Of Cash Flows

10.

When accrued liabilities increase from the beginning to the end of the year, it means accrued expenses were greater than cash payment of such expenses so the increase would be added to net income to convert to cash flow from operating activities under the indirect method. TRUE Accrued liabilities increase when accrued expenses exceed the cash payment of such expenses. Therefore, the increase in accrued liabilities is added to net income. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. Libby - Chapter 13 #10 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

11.

Under the indirect method, an increase in accounts receivable during the year will be added to net income. FALSE Under the indirect method, an increase in accounts receivable during the year will be deducted from net income, because sales were greater than cash collections. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. Libby - Chapter 13 #11 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

12.

If sales revenue was $1,800,000 and accounts receivable decreased $40,000 while unearned revenue increased $10,000 during the year, then cash collected from customers equals $1,850,000. TRUE Cash collected from customers ($1,850,000) = Sales ($1,800,000) + Accounts receivable decrease ($40,000) + Unearned revenue increase ($10,000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Apply Difficulty: Hard Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. Libby - Chapter 13 #12 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

13.

Under the indirect method, depreciation expense is added to net income, because it decreases net income but doesn't consume a cash flow. TRUE Under the indirect method, depreciation expense is added to net income, because it is a noncash expense. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. Libby - Chapter 13 #13 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

14.

Under the indirect method, a decrease in inventory is deducted from net income, because inventory purchases are less than cost of goods sold. FALSE A decrease in inventory is added to net income, because inventory purchases are less than cost of goods sold. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. Libby - Chapter 13 #14 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

15.

Under the indirect method, an increase in prepaid expenses is deducted from net income, because the cash prepayments exceed the related expenses. TRUE An increase in prepaid expenses is deducted from net income, because the cash payments exceed the related expenses. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. Libby - Chapter 13 #15 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

16.

The quality of income ratio can only be interpreted based on knowledge of a company's business operations and strategies. TRUE As is true for most ratios, an understanding of the business allows one to more effectively and efficiently assess the quality of income ratio. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Remember Difficulty: Easy Learning Objective: 13-03 Analyze and interpret the quality of income ratio. Libby - Chapter 13 #16 Topic Area: Key Ratio Analysis

17.

The quality of income ratio increases when depreciation expense is recorded. TRUE The quality of income ratio is calculated by dividing cash flow from operating activities by net income. Recording depreciation expense reduces net income and therefore increases the ratio. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Understand Difficulty: Medium Learning Objective: 13-03 Analyze and interpret the quality of income ratio. Libby - Chapter 13 #17 Topic Area: Key Ratio Analysis

18.

The quality of income ratio decreases when cash is used to pay accounts payable. TRUE The quality of income ratio is calculated by dividing cash flow from operating activities by net income. Paying an account payable reduces cash flow from operating activities and therefore decreases the ratio. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Understand Difficulty: Medium Learning Objective: 13-03 Analyze and interpret the quality of income ratio. Libby - Chapter 13 #18 Topic Area: Key Ratio Analysis

19.

A higher quality of income ratio implies that operations tend to be more self-supporting. FALSE A higher quality of income ratio implies that operating cash flows are more sufficient to finance operating needs. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Remember Difficulty: Easy Learning Objective: 13-03 Analyze and interpret the quality of income ratio. Libby - Chapter 13 #19 Topic Area: Key Ratio Analysis

20.

The quality of income ratio measures the portion of net income that generated cash flow from operating activities. TRUE The quality of income ratio is calculated by dividing cash flow from operating activities by net income. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Remember Difficulty: Easy Learning Objective: 13-03 Analyze and interpret the quality of income ratio. Libby - Chapter 13 #20 Topic Area: Key Ratio Analysis

21.

When a company purchases equipment using common stock, the equipment purchase is reported as a financing activity. FALSE Purchasing equipment using common stock doesn't involve a cash flow and is therefore not reported within the investing or financing section of the cash flow statement. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Remember Difficulty: Easy Learning Objective: 13-04 Report and interpret cash flows from investing activities. Libby - Chapter 13 #21 Topic Area: Reporting And Interpreting Cash Flows From Investing Activities

22.

When a company sells equipment for cash at a loss, cash flows from investing activities decreases. FALSE Investing cash flows increase by the selling price of the equipment. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Remember Difficulty: Easy Learning Objective: 13-04 Report and interpret cash flows from investing activities. Libby - Chapter 13 #22 Topic Area: Reporting And Interpreting Cash Flows From Investing Activities

23.

Amortization of a patent reduces cash flows from investing activities. FALSE Patent amortization is a noncash expense and therefore doesn't affect cash flows. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Remember Difficulty: Easy Learning Objective: 13-04 Report and interpret cash flows from investing activities. Libby - Chapter 13 #23 Topic Area: Reporting And Interpreting Cash Flows From Investing Activities

24.

Canadian Beer had a capital acquisitions ratio of 7.49, which means its net income exceeded its cash investment in property, plant and equipment by almost 7.5 times. FALSE The capital acquisitions ratio is calculated by dividing cash flow from operating activities by cash paid for property, plant, and equipment. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Remember Difficulty: Easy Learning Objective: 13-05 Analyze and interpret the capital acquisitions ratio. Libby - Chapter 13 #24 Topic Area: Key Ratio Analysis

25.

The capital acquisitions ratio represents the portion of property, plant, and equipment purchases which could have been financed with cash flow from operations. TRUE The capital acquisitions ratio is calculated by dividing cash flow from operating activities by cash paid for property, plant, and equipment. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Remember Difficulty: Easy Learning Objective: 13-05 Analyze and interpret the capital acquisitions ratio. Libby - Chapter 13 #25 Topic Area: Key Ratio Analysis

26.

Free cash flow measures the sufficiency of cash flow from operating activities to cover both capital expenditures for property, plant and equipment as well as the payment of dividends. TRUE Free cash flow = Cash flow from operating activities - Dividends - Capital expenditures AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Remember Difficulty: Easy Learning Objective: 13-05 Analyze and interpret the capital acquisitions ratio. Libby - Chapter 13 #26 Topic Area: Key Ratio Analysis

27.

When a company both borrows $150 million during the year and repays $120 million of notes, the company can disclose the $30 million net amount as excess of borrowings over repayments in the financing activities section of the statement of cash flows. FALSE Borrowing related cash inflows and outflows should be separately reported and not netted. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Remember Difficulty: Medium Learning Objective: 13-06 Report and interpret cash flows from financing activities. Libby - Chapter 13 #27 Topic Area: Reporting And Interpreting Cash Flows From Financing Activities

28.

Cash flows from financing activities include those cash flows with respect to issuing and retiring longterm debt and equity. TRUE The financing section of the cash flow statement reports on cash flows pertaining to equity and longterm debt transactions. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Remember Difficulty: Easy Learning Objective: 13-06 Report and interpret cash flows from financing activities. Libby - Chapter 13 #28 Topic Area: Reporting And Interpreting Cash Flows From Financing Activities

29.

Cash flows from financing activities include those cash flows with respect to paying previously declared dividends. TRUE The financing section of the cash flow statement includes the payment of dividends. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Remember Difficulty: Easy Learning Objective: 13-06 Report and interpret cash flows from financing activities. Libby - Chapter 13 #29 Topic Area: Reporting And Interpreting Cash Flows From Financing Activities

30.

Wish Corporation acquired a computer for $15,000 and paid for it in full by issuing 1,000 shares of its own common stock, par $10 (current market price $15 share). This transaction should not be reported on the statement of cash flows because cash was neither paid out nor received. FALSE Noncash investing and financing activities are reported as a supplement to the statement of cash flows. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Understand Difficulty: Medium Learning Objective: 13-07 Understand the format of the cash flow statement and additional cahs flow disclosures. Libby - Chapter 13 #30 Topic Area: Completing The Statement And Additional Disclosures

31.

Which of the following transactions would not create a cash flow? A. B. C. D.

A company purchased some of its own stock from a stockholder. Amortization of a patent. Payment of a cash dividend. Sale of equipment at book value.

Patent amortization is a noncash expense. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 13-01 Classify cash flow statement items as part of net cash flows from operating; investing; and financing activities. Libby - Chapter 13 #31 Topic Area: Classifications On The Statement Of Cash Flows

32.

Which of the following transactions would not create a cash flow from operating activities? A. B. C. D.

Collecting cash from a customer. Paying cash to a supplier. Paying cash to stockholders for dividends. Paying cash for a utility bill.

Payments of cash dividends are reported as cash flows from financing activities. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 13-01 Classify cash flow statement items as part of net cash flows from operating; investing; and financing activities. Libby - Chapter 13 #32 Topic Area: Classifications On The Statement Of Cash Flows

33.

Which of the following transactions would not be reported as a cash flow from investing activities? A. B. C. D.

Selling a depreciable asset for cash at a loss. Purchasing a patent using cash. Purchasing land in exchange for stock. Purchasing shares of stock of another company using cash.

Purchasing the land using stock doesn't involve a cash flow and is therefore not considered to be an investing cash flow. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 13-01 Classify cash flow statement items as part of net cash flows from operating; investing; and financing activities. Libby - Chapter 13 #33 Topic Area: Classifications On The Statement Of Cash Flows

34.

Which of the following transactions would be reported as a cash flow from financing activities? A. B. C. D.

The cash payment of interest expense. Acquiring land by signing a note payable. Paying cash to stockholders for dividends. Purchasing shares of stock of another company using cash.

Payments of cash dividends are considered to be financing cash flows. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 13-01 Classify cash flow statement items as part of net cash flows from operating; investing; and financing activities. Libby - Chapter 13 #34 Topic Area: Classifications On The Statement Of Cash Flows

35.

Which of the following statements regarding use of the direct and indirect methods of determining cash flows from operating activities is incorrect? A. B. C. D.

The indirect method starts with net income. The direct method calculates cash collected from customers. The majority of U.S. companies use the indirect method. The FASB recommends use of the indirect method.

The FASB recommends use of the direct method. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 13-01 Classify cash flow statement items as part of net cash flows from operating; investing; and financing activities. Libby - Chapter 13 #35 Topic Area: Classifications On The Statement Of Cash Flows

36.

Which of the following would be deducted from net income when determining cash flows from operating activities under the indirect method? A. B. C. D.

An increase in accounts payable. Depreciation expense. A decrease in prepaid insurance. A gain on the sale of a depreciable asset.

A gain on the sale of a depreciable asset would be deducted from net income because the transaction is an investing cash flow. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Medium Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. Libby - Chapter 13 #36 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

37.

Which of the following would be added to net income when determining cash flows from operating activities under the indirect method? A. B. C. D.

A decrease in accounts payable. Patent amortization expense. An increase in prepaid insurance. A gain on the sale of a depreciable asset.

Patent amortization expense is a noncash charge and is therefore added to net income. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Medium Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. Libby - Chapter 13 #37 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

38.

Which of the following would be deducted from net income when determining cash flows from operating activities under the indirect method? A. B. C. D.

A decrease in utilities payable. Patent amortization expense. A decrease in prepaid rent. A loss on the sale of a depreciable asset.

A decrease in utilities payable means that cash payments exceed utilities expense for the period, resulting in a deduction from net income. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Medium Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. Libby - Chapter 13 #38 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

39.

Rice Company, a retailer, has provided the following information pertaining to its recent year of operation: • Net income, $100,000; • Accounts receivable increased $9,000; • Prepaid insurance decreased $3,000; • Depreciation expense was $15,000; • Gain on sale of land, $2,000; • Wages payable decreased $7,000; • Unearned revenue increased $11,000. How much was Rice's net cash inflow from operating activities? A. B. C. D.

$89,000 $115,000 $125,000 $111,000

Net cash inflow from operating activities ($111,000) = Net income ($100,000) - Accounts receivable increase ($9,000) + Prepaid insurance decrease ($3,000) + Depreciation expense ($15,000) - Gain on sale of land ($2,000) - Wages payable decrease ($7,000) + Unearned revenue increase ($11,000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Hard Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. Libby - Chapter 13 #39 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

40.

Darwin Company, a manufacturer, has provided the following information pertaining to its recent year of operation: • Net income, $200,000; • Accounts receivable increased $18,000; • Prepaid insurance increased $7,000; • Depreciation expense was $25,000; • Loss on sale of a building was $22,000; • Wages payable increased $14,000; • Unearned revenue decreased $21,000. How much was Darwin's net cash inflow from operating activities? A. B. C. D.

$227,000 $215,000 $171,000 $257,000

Net cash inflow from operating activities ($215,000) = Net income ($200,000) - Accounts receivable increase ($18,000) - Prepaid insurance increase ($7,000) + Depreciation expense ($25,000) + Loss on sale of building ($22,000) + Wages payable increase ($14,000) - Unearned revenue decrease ($21,000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Hard Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. Libby - Chapter 13 #40 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

41.

RM Company, a manufacturer, has provided the following information pertaining to its recent year of operation: • Net income, $300,000; • Accounts payable increased $24,000; • Prepaid rent decreased $10,000; • Depreciation expense was $35,000; • Accounts receivable increased $34,000; • Gain on sale of a building was $11,000; • Wages payable decreased $21,000; • Unearned revenue increased $44,000. How much was RM's net cash inflow from operating activities? A. B. C. D.

$259,000 $327,000 $347,000 $358,000

Net cash inflow from operating activities ($347,000) = Net income ($300,000) + Accounts payable increase ($24,000) + Prepaid rent decrease ($10,000) + Depreciation expense ($35,000) - Accounts receivable increase ($34,000) - Gain on sale of building ($11,000) - Wages payable decrease ($21,000) + Unearned revenue increase ($44,000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Hard Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. Libby - Chapter 13 #41 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

42.

GJ Company, a manufacturer, has provided the following information pertaining to its recent year of operation: • Net income, $500,000; • Accounts payable decreased $42,000; • Prepaid assets increased $31,000; • Depreciation expense was $53,000; • Accounts receivable decreased $41,000; • Loss on sale of a depreciable asset was $31,000; • Wages payable increased $19,000; • Unearned revenue decreased $31,000; • Patent amortization expense was $5,000. How much was GJ's net cash inflow from operating activities? A. B. C. D.

$545,000 $607,000 $514,000 $463,000

Net cash inflow from operating activities ($545,000) = Net income ($500,000) - Accounts payable decrease ($42,000) - Prepaid asset increase ($31,000) + Depreciation expense ($53,000) + Accounts receivable decrease ($41,000) + Loss on sale of depreciable asset ($31,000) + Wages payable increase ($19,000) - Unearned revenue decrease ($31,000) + Patent amortization expense ($5,000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Hard Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. Libby - Chapter 13 #42 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

43.

DJ Company, a manufacturer, has provided the following information pertaining to its recent year of operation: • Cash flow from operating activities, $272,000; • Accounts payable decreased $21,000; • Prepaid assets increased $15,000; • Depreciation expense was $27,000; • Accounts receivable decreased $21,000; • Loss on sale of a depreciable asset was $16,000; • Wages payable increased $10,000; • Unearned revenue decreased $16,000; • Patent amortization expense was $10,000. How much was DJ's net income? A. B. C. D.

$256,000 $210,000 $198,000 $240,000

Net cash inflow from operating activities ($272,000) = Net income (X = $240,000) - Accounts payable decrease ($21,000) - Prepaid asset increase ($15,000) + Depreciation expense ($27,000) + Accounts receivable decrease ($21,000) + Loss on sale of depreciable asset ($16,000) + Wages payable increase ($10,000) - Unearned revenue decrease ($16,000) + Patent amortization expense ($10,000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Hard Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. Libby - Chapter 13 #43 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

44.

KJ Company, a manufacturer, has provided the following information pertaining to its recent year of operation: • Cash flow from operating activities, $136,000; • Accounts payable increased $11,000; • Prepaid assets decreased $8,000; • Depreciation expense was $12,000; • Accounts receivable increased $23,000; • Loss on sale of a depreciable asset was $6,000; • Wages payable decreased $9,000; • Unearned revenue decreased $19,000; • Patent amortization expense was $3,000. How much was KJ's net income? A. B. C. D.

$185,000 $135,000 $147,000 $131,000

Net cash inflow from operating activities ($136,000) = Net income (X = $147,000) + Accounts payable increase ($11,000) + Prepaid asset decrease ($8,000) + Depreciation expense ($12,000) Accounts receivable increase ($23,000) + Loss on sale of depreciable asset ($6,000) - Wages payable decrease ($9,000) - Unearned revenue decrease ($19,000) + Patent amortization expense ($3,000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Hard Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. Libby - Chapter 13 #44 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

45.

Which of the following would not be a cash flow from investing activities? A. B. C. D.

Purchase of long-term investments. Sale of a patent. Collection of principal on a long-term note receivable. Collection of interest revenue on a long-term note receivable.

Collection of interest is an operations cash flow. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 13-01 Classify cash flow statement items as part of net cash flows from operating; investing; and financing activities. Libby - Chapter 13 #45 Topic Area: Classifications On The Statement Of Cash Flows

46.

Which of the following would not be a cash flow from financing activities? A. B. C. D.

Issuance of common stock for cash. Borrowing cash on a long-term note payable. Collection of a cash dividend. Repayment of principal on a long-term note payable.

Collection of a cash dividend is an operations cash flow. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 13-01 Classify cash flow statement items as part of net cash flows from operating; investing; and financing activities. Libby - Chapter 13 #46 Topic Area: Classifications On The Statement Of Cash Flows

47.

Which of the following would not be considered a cash equivalent? A. B. C. D.

A 30-day certificate of deposit. A ten-year treasury note purchased over nine years ago, which matures in two months. A three-month Treasury bill. A ten-year Treasury note purchased two months before maturity.

The ten-year note purchased over nine years ago will not become a cash equivalent. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 13-01 Classify cash flow statement items as part of net cash flows from operating; investing; and financing activities. Libby - Chapter 13 #47 Topic Area: Classifications On The Statement Of Cash Flows

48.

Which of the following statements about the statement of cash flows is correct? A. A company with a net loss on the income statement will always have a net cash outflow from operating activities. B. A purchase of equipment is classified as a cash inflow from investing activities. C. Cash dividends received on stock investments are classified as cash flows from operating activities. D. Cash dividends paid are classified as cash flows from operating activities. Receipt of cash dividends are reported as operating cash flows. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 13-01 Classify cash flow statement items as part of net cash flows from operating; investing; and financing activities. Libby - Chapter 13 #48 Topic Area: Classifications On The Statement Of Cash Flows

49.

Which of the following items about the statement of cash flows is correct? A Non-cash expenses such as depreciation are deducted from net income with the indirect method in . computing cash flows from operating activities. B. Cash equivalents are highly liquid investments with maturities at the date of purchase of less than three months. C. The acquisition of land by issuing bonds payable would not appear on the statement of cash flows. D. Cash paid for interest would be classified as a financing cash flow. Cash equivalents are highly liquid and have maturities at the date of purchase of three months or less. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 13-01 Classify cash flow statement items as part of net cash flows from operating; investing; and financing activities. Libby - Chapter 13 #49 Topic Area: Classifications On The Statement Of Cash Flows

50.

Allen Company's 2010 income statement reported total revenues, $850,000 and total expenses (including $40,000 depreciation) of $720,000. The 2009 balance sheet reported the following: accounts receivable—beginning balance, $50,000 and ending balance, $40,000; accounts payable—beginning balance, $22,000 and ending balance, $28,000. Therefore, based only on this information, how much was the 2010 net cash inflow from operating activities? A. B. C. D.

$126,000 $166,000 $174,000 $186,000

Net cash inflow from operating activities ($136,000) = Net income ($850,000 - $720,000) + Depreciation expense ($40,000) + Accounts receivable decrease ($10,000) + Accounts payable increase ($6,000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Hard Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. Libby - Chapter 13 #50 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

51.

Which statement regarding the indirect method is false? A. B. C. D.

Depreciation expense is added to net income. An increase in accounts receivable is added to net income. An increase in accounts payable is added to net income. An increase in merchandise inventory is subtracted from net income.

An increase in accounts receivable is deducted from net income, because sales exceed cash collections. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Understand Difficulty: Medium Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. Libby - Chapter 13 #51 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

52.

Which of the following statements about the quality of income ratio is correct? A. When sales are growing, receivables and inventory normally increase faster than accounts payable so the ratio increases. B. Seasonal variations in sales have no impact on the quality of income ratio. C. Failure to accrue appropriate expenses will inflate net income and reduce the quality of income ratio. D. The quality of income ratio is computed by dividing net income by cash flow from operating activities. Failure to accrue (incurred but unpaid) expenses increases net income (the denominator) and therefore decreases the ratio. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Understand Difficulty: Easy Learning Objective: 13-03 Analyze and interpret the quality of income ratio. Libby - Chapter 13 #52 Topic Area: Key Ratio Analysis

53.

Which of the following statements about the quality of income ratio is incorrect? A. An increase in operating assets and a decrease in liabilities will reduce operating cash flows, thereby reducing the ratio. B. Seasonal variations in sales and purchases of inventory can cause wide deviations in the quality of income ratio. C When sales are growing, receivables and inventory normally increase at a faster rate than accounts . payable often causing operating cash flows to be less than income. D. Aggressive revenue recognition tends to increase the ratio. Aggressive revenue recognition increases net income, the denominator, and therefore decreases the ratio. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Understand Difficulty: Medium Learning Objective: 13-03 Analyze and interpret the quality of income ratio. Libby - Chapter 13 #53 Topic Area: Key Ratio Analysis

54.

During 2010, Boogle reported net income of $785 million and net cash inflow from operations of $1,196 million. During 2009, their net income was $563 million and net cash inflow from operations was $1,237 million. Which of the following is incorrect about their quality of income ratios? A. In 2009 the ratio was 2.2 and in 2010 it was 1.5. B. Their ratio in 2009 was better than their ratio in 2010. C. Boogle's quality of income ratios indicates poor performance because net income is less than cash flow. D. The ratio in both years shows the company's ability to generate good cash flow from its operating activities. Having operating cash flows greater than net income tends to indicate good operations cash management. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: Medium Learning Objective: 13-03 Analyze and interpret the quality of income ratio. Libby - Chapter 13 #54 Topic Area: Key Ratio Analysis

55.

Which of the following is not reported as a cash flow from investing activities? A. B. C. D.

Sale of a depreciable asset for cash. Purchasing land in exchange for common stock. Selling a long-term investment at a loss for cash. Purchase of a patent in exchange for cash.

Purchasing land using common stock doesn't involve a cash flow and is therefore not reported within the investing cash flows section of the cash flow statement. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Remember Difficulty: Easy Learning Objective: 13-04 Report and interpret cash flows from investing activities. Libby - Chapter 13 #55 Topic Area: Reporting And Interpreting Cash Flows From Investing Activities

56.

Which of the following is reported as a cash flow from investing activities? A. B. C. D.

Cash received from dividends earned. Purchasing land in exchange for common stock. Selling a long-term investment at a loss for cash. Cash received from interest earned.

The investing cash flows section of the cash flow statement includes cash flows from the sale of investments. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Remember Difficulty: Easy Learning Objective: 13-04 Report and interpret cash flows from investing activities. Libby - Chapter 13 #56 Topic Area: Reporting And Interpreting Cash Flows From Investing Activities

57.

KAJ Incorporated purchased a machine costing $100,000 by paying $20,000 and signing an $80,000 note payable. How would this transaction be reported within the cash flow from investing activities section of the cash flow statement? A. B. C. D.

An outflow of $100,000. An outflow of $80,000. An outflow of $20,000. It would have no effect.

The investing cash flows section of the cash flow statement would include the $20,000 cash payment. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Understand Difficulty: Easy Learning Objective: 13-04 Report and interpret cash flows from investing activities. Libby - Chapter 13 #57 Topic Area: Reporting And Interpreting Cash Flows From Investing Activities

58.

KAJ Incorporated purchased a machine costing $100,000 by paying $20,000 cash and signing an $80,000 note payable. How would this transaction be reported within the cash flow from financing activities section of the cash flow statement? A. B. C. D.

An outflow of $100,000. An outflow of $80,000. An outflow of $20,000. It would have no effect.

There isn't a cash flow from a financing activity. The signing of the note payable did not involve a cash flow. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Understand Difficulty: Easy Learning Objective: 13-06 Report and interpret cash flows from financing activities. Libby - Chapter 13 #58 Topic Area: Reporting And Interpreting Cash Flows From Financing Activities

59.

Flow Company has provided the following information for the year ended December 31, 2010: • Cash paid for interest, $20,000; • Cash paid for dividends, $6,000; • Cash dividends received, $4,000; • Cash proceeds from bank loan, $29,000; • Cash purchase of treasury stock, $11,000; • Cash paid for equipment purchase, $27,000; • Cash received from common stock sale, $37,000; • Cash received from sale of land with a $32,000 book value, $25,000; • Acquisition of land costing $51,000 in exchange for preferred stock issuance. • Paid a $100,000 note payable by exchanging used machinery with a $77,000 book value. How much was Flow's net cash flow from investing activities? A. B. C. D.

A net outflow of $2,000. A net inflow of $2,000. A net outflow of $53,000 A net inflow of $49,000

Net cash outflow from investing activities (-$2,000) = Cash paid for equipment purchase (-$27,000) + Cash received from land sale ($25,000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 13-04 Report and interpret cash flows from investing activities. Libby - Chapter 13 #59 Topic Area: Reporting And Interpreting Cash Flows From Investing Activities

60.

Flow Company has provided the following information for the year ended December 31, 2010: • Cash paid for interest, $20,000; • Cash paid for dividends, $6,000; • Cash dividends received, $4,000; • Cash proceeds from bank loan, $29,000; • Cash purchase of treasury stock, $11,000; • Cash paid for equipment purchase, $27,000; • Cash received from common stock sale, $37,000; • Cash received from sale of land with a $32,000 book value, $25,000; • Acquisition of land costing $51,000 in exchange for preferred stock issuance. • Paid a $100,000 note payable by exchanging used machinery with a $77,000 book value. How much was Flow's net cash flow from financing activities? A. B. C. D.

A net outflow of $51,000. A net inflow of $29,000. A net outflow of $53,000. A net inflow of $49,000.

Net cash outflow from financing activities (-$2,000) = Cash paid for dividends (-$6,000) + Cash received from bank loan ($29,000) + Cash purchase of treasury stock (-$11,000) + Cash received from common stock sale ($37,000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 13-06 Report and interpret cash flows from financing activities. Libby - Chapter 13 #60 Topic Area: Reporting And Interpreting Cash Flows From Financing Activities

61.

Which of the following statements about the capital acquisitions ratio is correct? A. A high ratio indicates less need for outside financing of property, plant and equipment. B. The ratio is computed by dividing cash flow from operations by the average net property, plant and equipment. C. A low ratio may indicate a failure to update property, plant and equipment which can limit a company's ability to compete in the future. D. The ratio is comparable across industries. The capital acquisitions ratio is calculated by dividing cash flow from operating activities by cash paid for property, plant, and equipment. A high ratio implies the ability to finance fixed asset acquisitions from operations cash flows. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Understand Difficulty: Medium Learning Objective: 13-05 Analyze and interpret the capital acquisitions ratio. Libby - Chapter 13 #61 Topic Area: Key Ratio Analysis

62.

Which of the following statements about the capital acquisitions ratio is incorrect? A. The ratio is computed by dividing cash flow from operations by cash paid for property, plant and equipment. BBecause the need for investment in property, plant and equipment differs dramatically across . industries, a firm's ratio should only be compared with its prior years' ratio or with firms in the same industry. C. A high ratio indicates more need for outside financing of current and future purchases of property, plant and equipment. D. It increases when an account receivable is collected. The capital acquisitions ratio is calculated by dividing cash flow from operating activities by cash paid for property, plant, and equipment. A high ratio demonstrates less need for outside financing. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Remember Difficulty: Medium Learning Objective: 13-05 Analyze and interpret the capital acquisitions ratio. Libby - Chapter 13 #62 Topic Area: Key Ratio Analysis

63.

During 2010, Eva's Enterprises cash paid for property, plant and equipment was $755 million and cash flow from operations was $5,968 million. The average property, plant and equipment from the comparative balance sheets were $6,094 million. Compute Eva's Enterprises capital acquisitions ratio for 2010. A. B. C. D.

1.0 5.3 7.9 6.0

The capital acquisitions ratio (7.9) is calculated by dividing cash flow from operating activities ($5,968) by cash paid for property, plant, and equipment ($755). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: Medium Learning Objective: 13-05 Analyze and interpret the capital acquisitions ratio. Libby - Chapter 13 #63 Topic Area: Key Ratio Analysis

64.

During 2010, Edna Enterprises had a capital acquisitions ratio of 7.9. During 2010, Carlos' Corporation had a capital acquisitions ratio of 3.6. The amount of cash flow from operations was $5,968,000 for Edna's and $5,054,000 for Carlos. Which of the following statements is incorrect? A. Edna used less cash for investments in property, plant and equipment during 2010 than did Carlos. B Edna has less need for external financing of its investments in property, plant and equipment indicated . by its higher capital acquisitions ratio compared to Carlos. C. Edna invested approximately $755,000 in property, plant and equipment during 2010. D. Carlos invested approximately $182,000 in property, plant and equipment during 2010. Carlos' capital acquisitions ratio (3.6) is calculated by dividing cash flow from operating activities ($5,054,000) by cash paid for property, plant, and equipment ($1,403,889). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: Medium Learning Objective: 13-05 Analyze and interpret the capital acquisitions ratio. Libby - Chapter 13 #64 Topic Area: Key Ratio Analysis

65.

A company's 2010 income statement reported total sales revenue of $1,200,000; accounts receivable increased by $25,000 and the unearned revenue account decreased $15,000 during 2010. How much cash was collected from customers during 2010? A. B. C. D.

$1,225,000 $1,160,000 $1,175,000 $1,185,000

Cash collected from customers ($1,160,000) = Sales revenue ($1,200,000) - Accounts receivable increase ($25,000) - Unearned revenue decrease ($15,000). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: S-1 Libby - Chapter 13 #65 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

66.

Bold Company's 2010 income statement reported total sales revenue of $250,000. During 2010, accounts receivable decreased by $20,000 and accounts payable increased $10,000. How much cash was collected from customers during 2010? A. B. C. D.

$230,000 $270,000 $250,000 $280,000

Cash collected from customers ($270,000) = Sales revenue ($250,000) + Accounts receivable decrease ($20,000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: S-1 Libby - Chapter 13 #66 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

67.

The financial statements for World Company show the following: Cost of goods sold, $725,000.

How much cash was paid to suppliers? A. B. C. D.

$731,000 $736,000 $719,000 $714,000

Cash paid to suppliers ($731,000) = Cost of goods sold ($725,000) + Inventory increase ($11,000) Accounts payable increase ($5,000). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: S-1 Libby - Chapter 13 #67 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

68.

Madison Company had sales of $154,000. Additional information from the balance sheet is below:

How much cash was collected from customers? A. B. C. D.

$148,000 $150,000 $154,000 $160,000

Cash collected from customers ($148,000) = Sales ($154,000) - Accounts receivable increase ($6,000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: S-1 Libby - Chapter 13 #68 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

69.

Amanda Company reported income tax expense of $250,000. Beginning income taxes payable was $30,000, while ending income taxes payable was $25,000, and accounts payable decreased $10,000. How much cash was paid for taxes? A. B. C. D.

$280,000 $255,000 $245,000 $265,000

Cash paid for taxes ($255,000) = Income tax expense ($250,000) + Income taxes payable decrease ($5,000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: S-1 Libby - Chapter 13 #69 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

70.

Aaron Inc. reported operating expenses during 2011 of $765,000 (including $80,000 of depreciation expense). Prepaid expenses increased $25,000 while accrued liabilities increased $43,000. How much cash was paid for operating expenses during 2011? A. B. C. D.

$702,000 $622,000 $667,000 $703,000

Cash paid for operating expenses ($667,000) = Operating expenses ($765,000) - Depreciation expense ($80,000) + Prepaid expense increase ($25,000) - Accrued liability increase ($43,000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: S-1 Libby - Chapter 13 #70 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

71.

Canadian Beer reported they sold equipment for $222 million cash and purchased $1,515 million of new equipment using cash. The equipment sold had a net book value of $150 million. Cash flow from investing activities would show A. B. C. D.

an inflow of $222 million and outflow of $1,515 million. an inflow of $222 million and outflow of $150 million. cash paid for equipment of $1,293 million. a net outflow of $1,365 million.

The cash outflow ($1,515) and cash inflow ($222) are reported separately. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 13-04 Report and interpret cash flows from investing activities. Libby - Chapter 13 #71 Topic Area: Reporting And Interpreting Cash Flows From Investing Activities

72.

Milliken Company paid $2.2 million to purchase stock in another company, $1.0 million to repurchase treasury shares, $.5 million to buy short-term investments, sold used equipment for $.8 million when its book value was $.6 million, and purchased new equipment for $3.4 million. How much will be reported as net investing cash flow? A. B. C. D.

$6.3 million net cash outflow. $5.3 million net cash outflow. $5.1 million net cash outflow. $4.8 million net cash outflow.

Net investing cash outflow ($5.3 million) = Purchase stock in another company (-$2.2) + Short-term investment purchase (-$.5) + Equipment sale ($.8) + Equipment purchase (-$3.4) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 13-04 Report and interpret cash flows from investing activities. Libby - Chapter 13 #72 Topic Area: Reporting And Interpreting Cash Flows From Investing Activities

73.

Roberts Company sold equipment for $250,000, purchased a building for $6,500,000, sold short-term investments for $280,000, repaid principal on a note payable for $2,300,000 plus $230,000 of interest, and paid cash dividends of $20,000. How much was the net cash flow from investing activities? A. B. C. D.

$6,250,000 outflow $8,320,000 outflow $8,270,000 outflow $5,970,000 outflow

Net investing cash outflow ($5,970,000) = Equipment sale ($250,000) + Building purchase ($6,500,000) + Short-term investment sale ($280,000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 13-04 Report and interpret cash flows from investing activities. Libby - Chapter 13 #73 Topic Area: Reporting And Interpreting Cash Flows From Investing Activities

74.

Roberts Company sold equipment for $250,000, purchased a building for $6,500,000, sold short-term investments for $280,000, repaid principal on a note payable for $2,300,000 plus $230,000 of interest, and paid cash dividends of $20,000. How much was the net cash flow from financing activities? A. B. C. D.

$2,300,000 outflow $2,320,000 outflow $2,530,000 outflow $2,550,000 outflow

Net financing cash outflow (-$2,320,000) = Note payable principal payment (-$2,300,000) + Cash dividend payment (-$20,000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 13-06 Report and interpret cash flows from financing activities. Libby - Chapter 13 #74 Topic Area: Reporting And Interpreting Cash Flows From Financing Activities

75.

During 2010, Tommy's Toys reported the following: long-term debt repayments, $503 million; interest paid, $143 million; proceeds from exercise of stock options, $27 million, and issue of common stock in exchange for land costing $10 million. How much is the 2010 net cash flow from financing activities? A. B. C. D.

$476 million net cash outflow. $530 million net cash outflow. $673 million net cash outflow. $76 million net cash outflow.

Net financing cash outflow (-$476 million) = Long-term debt payment (-$503) + Stock option proceeds ($27) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 13-06 Report and interpret cash flows from financing activities. Libby - Chapter 13 #75 Topic Area: Reporting And Interpreting Cash Flows From Financing Activities

76.

Burich Co. reported short-term borrowings of $2.5 million, long-term borrowings of $6.8 million, repayments of long-term borrowings of $3.5 million, interest payments of $780,000, repurchase of treasury shares of $.5 million and cash dividends declared of $1.1 million. What is the cash flow from financing activities? A. B. C. D.

$5,300,000 net cash inflow $4,200,000 net cash inflow $1,700,000 net cash inflow $2,800,000 net cash inflow

Net financing cash inflow ($5.3 million) = Short-term borrowings ($2.5 million) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 13-06 Report and interpret cash flows from financing activities. Libby - Chapter 13 #76 Topic Area: Reporting And Interpreting Cash Flows From Financing Activities

77.

Which of the following is correct? A. Repayments of principal and interest reduce financing activities cash flows. B. Repurchase of treasury shares is a cash outflow connected to investing activities. CIf a company borrows $450 million in long-term notes and repays $380 million of long-term notes, . and then these items must both be disclosed and not netted against each other in the financing section. D. Issuing common stock in exchange for the purchase of a building creates both a financing activity and investing activity cash flow. Cash inflows and outflows can't be netted against each other. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Understand Difficulty: Medium Learning Objective: 13-06 Report and interpret cash flows from financing activities. Libby - Chapter 13 #77 Topic Area: Reporting And Interpreting Cash Flows From Financing Activities

78.

Which of the following would be a financing activities cash flow? A. B. C. D.

Common stock dividends distributed. Interest payments. Repurchase of treasury shares. Purchase of a building by signing a note payable.

Financing activities cash flows include treasury stock transactions AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 13-06 Report and interpret cash flows from financing activities. Libby - Chapter 13 #78 Topic Area: Reporting And Interpreting Cash Flows From Financing Activities

79.

Which of the following would not be a financing activities cash flow? A. B. C. D.

Issuing common stock for cash. Cash dividend payments. Purchasing treasury stock. Purchase of a building by signing a note payable.

Purchasing a building by signing a note payable doesn't involve a cash flow. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 13-06 Report and interpret cash flows from financing activities. Libby - Chapter 13 #79 Topic Area: Reporting And Interpreting Cash Flows From Financing Activities

80.

Lab Industries, Inc., issued $50,000 of bonds, paid cash dividends of $8,000, sold long-term investments for $12,000, received $5,000 of dividend revenue, purchased treasury stock for $15,000, and purchased new equipment for $19,000. What is the net cash flow from financing activities? A. B. C. D.

$70,000 inflow $27,000 inflow $80,000 inflow $20,000 outflow

Net financing cash inflow ($27,000) = Bond issue ($50,000) + Cash dividend payment (-$8,000) + Treasury stock purchase (-$15,000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 13-06 Report and interpret cash flows from financing activities. Libby - Chapter 13 #80 Topic Area: Reporting And Interpreting Cash Flows From Financing Activities

81.

Non-cash financing and investing activities A. B. C. D.

must be reported in the notes to the financial statements. are not separately disclosed within the financial statements. are disclosed in a separate schedule as a supplement to the statement of cash flows. are reported as cash flows because of their significance.

Noncash investing and financing activities are reported as a supplement to the statement of cash flows. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Understand Difficulty: Medium Learning Objective: 13-07 Understand the format of the cash flow statement and additional cahs flow disclosures. Libby - Chapter 13 #81 Topic Area: Completing The Statement And Additional Disclosures

82.

A company acquired some land (independently appraised at $12,000) and paid for it by issuing 1,000 shares of its common stock (par $10 per share; no market price was quoted). How should this be reported on the statement of cash flows? A. B. C. D.

Report $12,000 as inflow and outflow of cash. Report $12,000 as an inflow of cash. Should not be reported on the statement of cash flows. Report in the schedule of significant noncash transactions.

Noncash investing and financing activities are reported as a supplement to the statement of cash flows. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Understand Difficulty: Medium Learning Objective: 13-07 Understand the format of the cash flow statement and additional cahs flow disclosures. Libby - Chapter 13 #82 Topic Area: Completing The Statement And Additional Disclosures

83.

Slipper Company sold a productive asset, a machine, for cash. It originally cost $20,000. The accumulated depreciation at the date of disposal was $15,000. A gain on the disposal of $2,000 was reported. What was the asset's selling price? A. B. C. D.

$7,000 $3,000 $4,000 $5,000

Book value ($5,000) = Cost of equipment sold ($20,000) - Accumulated depreciation on equipment sold ($15,000). Gain on sale ($2,000) means book value ($5,000) is less than selling price ($7,000). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: Medium Learning Objective: S-2 Libby - Chapter 13 #83 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

84.

Halbur Company reported the following for its recent year of operation:

No new equipment was purchased during the year. What was the selling price of the equipment? A. B. C. D.

$3,900 $1,000 $900 $600

Cost of equipment sold ($4,500) = Beginning balance ($12,500) - Ending balance ($8,000). Ending balance ($2,400) = Beginning balance ($2,000) + Depreciation expense ($1,000) - Accumulated depreciation on equipment sold ($600). Book value ($3,900) = Cost of equipment sold ($4,500) - Accumulated depreciation on equipment sold ($600). Loss on sale ($3,000) means book value ($3,900) is greater than selling price ($900). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: Hard Learning Objective: S-2 Libby - Chapter 13 #84 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

85.

A Company reported net income of $200,000 during 2010. The company reported depreciation expense of $35,000, patent amortization of $10,000 and a $5,000 loss on the sale of equipment. Based on the information provided, how much is the company's cash flow from operating activities? A. B. C. D.

$245,000 $250,000 $240,000 $235,000

Cash flow from operating activities ($250,000) = Net income ($200,000) + Depreciation expense ($35,000) + Patent amortization ($10,000) + Loss on equipment sale ($5,000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: Medium Learning Objective: 13-2 Libby - Chapter 13 #85 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

86.

Which of the following statements does not correctly describe an adjustment to net income when determining cash flows from operating activities when using the indirect method? A. B. C. D.

An increase in accounts receivable will be deducted from net income. A loss on the sale of a depreciable asset will be added to net income. An increase in accrued liabilities will be deducted from net income. An increase in accounts payable will be added to net income.

Under the indirect method, an increase in accrued liabilities will be added to net income, because accrued expenses were greater than the related cash payments. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Medium Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. Libby - Chapter 13 #86 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

87.

The following information has been provided to you by RKJ Company: Net income $300,000 Decrease in accounts payable $114,000 Increase in inventory $22,000 Increase in accounts receivable $24,000 Decrease in bonds payable $25,000 Loss on sale of a depreciable asset $19,000 Depreciation expense $40,000 Decrease in income taxes payable $12,000 What is the net cash flow from operating activities? A. B. C. D.

$231,000 $187,000 $206,000 $168,000

Cash flow from operating activities ($187,000) = Net income ($300,000) - Decrease in accounts payable ($114,000) - Increase in inventory ($22,000) - Increase in accounts receivable ($24,000) + Loss on sale of depreciable asset ($19,000) + Depreciation expense ($40,000) - Decrease in income taxes payable ($12,000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: Medium Learning Objective: 13-2 Libby - Chapter 13 #87 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

88.

Which of the following transactions would be reported within the investing section of the cash flow statement? A. B. C. D.

The cash sale of land at a loss. The purchase of a building in exchange for common stock. The receipt of a stock dividend from a stock investment. The cash receipt of a dividend from a stock investment.

The investing section of the cash flow statement would include the cash sale of the land regardless of whether the sale was at a gain or loss. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 13-04 Report and interpret cash flows from investing activities. Libby - Chapter 13 #88 Topic Area: Reporting And Interpreting Cash Flows From Investing Activities

89.

Which of the following transactions would not be reported within the investing section of the cash flow statement? A. B. C. D.

The cash sale of land at a gain. The purchase of a building for cash. The purchase of a stock investment for cash. The cash receipt of a dividend from a stock investment.

Cash dividends are reported as operating cash flows. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 13-04 Report and interpret cash flows from investing activities. Libby - Chapter 13 #89 Topic Area: Reporting And Interpreting Cash Flows From Investing Activities

90.

Which of the following statements does not correctly describe an adjustment to net income when determining cash flows from operating activities when using the indirect method? A. B. C. D.

An increase in wages payable will be added to net income. A gain on the sale of a depreciable asset will be deducted from net income. An increase in prepaid expenses will be deducted from net income. An increase in income taxes payable will be deducted from net income.

Under the indirect method, an increase in income taxes payable will be added to net income, because income tax expense was greater than the related cash payments. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Understand Difficulty: Medium Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. Libby - Chapter 13 #90 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

91.

Atkins Corporation has provided the following information for the year ended December 31, 2010: • The equipment account balance increased $200,000. • The equipment accumulated depreciation account increased $35,000. • Equipment costing $50,000 was sold during the year resulting in a $10,000 gain. • Depreciation expense on the equipment recorded during the year was $65,000. Which of the following statements is correct with respect to cash flow from operating activities determination? A. Using the indirect method, net income is increased by the $35,000 increase in accumulated depreciation. B. Using the indirect method, net income is decreased by the $60,000 sales price of the equipment. C. Using the indirect method, net income is increased by the $65,000 depreciation expense. D. Using the indirect method, net income is increased by the $10,000 gain on the sale of the equipment. Depreciation expense is added to net income when determining cash flow from operating activities under the indirect method. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Hard Learning Objective: 13-2 Libby - Chapter 13 #91 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

92.

Atkins Corporation has provided the following information for the year ended December 31, 2010: • The equipment account balance increased $200,000. • The equipment accumulated depreciation account increased $35,000. • Equipment costing $50,000 was sold during the year resulting in a $10,000 gain. • Depreciation expense on the equipment recorded during the year was $65,000. Which of the following statements is correct with respect to cash flow from investing activities determination? Assume that the equipment purchase and sale resulted in cash flows. A. B. C. D.

A $60,000 cash inflow is reported from the equipment sale. A $200,000 cash outflow is reported for equipment purchases. A $50,000 cash outflow is reported for the equipment sale. A $250,000 cash outflow is reported for equipment purchases.

Equipment purchases ($250,000) = Equipment account increase ($200,000) + The cost of the equipment sold ($50,000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Hard Learning Objective: 13-4 Libby - Chapter 13 #92 Topic Area: Reporting And Interpreting Cash Flows From Investing Activities

93.

Atkins Corporation has provided the following information for the year ended December 31, 2010: • The equipment account balance increased $200,000. • The equipment accumulated depreciation account increased $35,000. • Equipment costing $50,000 was sold during the year resulting in a $10,000 gain. • Depreciation expense on the equipment recorded during the year was $65,000. Which of the following statements is incorrect with respect to preparation of the statement of cash flows? Assume that the equipment purchase and sale resulted in cash flows. A. B. C. D.

A $30,000 cash inflow is reported from the equipment sale. Using the indirect method, net income is increased by the $65,000 depreciation expense. Using the indirect method, net income is decreased by the $10,000 gain on the sale of the equipment. A $60,000 cash inflow is reported from the equipment sale.

The sale of the equipment resulted in a cash flow of $30,000. The selling price ($30,000) exceeded the equipment book value* ($20,000) by the gain ($10,000). *Cost ($50,000) - Accumulated depreciation ($65,000 - $35,000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Hard Learning Objective: 13-2 Learning Objective: 13-4 Libby - Chapter 13 #93 Topic Area: Reporting And Interpreting Cash Flows From Investing & Financing Activities

94.

Atkins Corporation has provided the following information for the year ended December 31, 2010: • The equipment account balance increased $200,000. • The equipment accumulated depreciation account increased $35,000. • Equipment costing $50,000 was sold during the year resulting in a $10,000 gain. • Depreciation expense on the equipment recorded during the year was $65,000. How much was the investing activities cash inflow from the sale of the equipment? Assume that the equipment purchase and sale resulted in cash flows. A. B. C. D.

$30,000 $60,000 $40,000 $50,000

The sale of the equipment resulted in a cash flow of $30,000. The selling price ($30,000) exceeded the equipment book value* ($20,000) by the gain ($10,000). *Cost ($50,000) - Accumulated depreciation ($65,000 - $35,000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Hard Learning Objective: 13-4 Libby - Chapter 13 #94 Topic Area: Reporting And Interpreting Cash Flows From Investing Activities

95.

A company reported an increase in accounts payable and a decrease in inventory during 2010. Which of the following statements is correct? A. Cash paid to suppliers equals cost of goods sold plus both the increase in accounts payable and the decrease in inventory. B. Cash paid to suppliers equals cost of goods sold minus both the increase in accounts payable and the decrease in inventory. C. Cash paid to suppliers equals cost of goods sold minus the increase in accounts payable, plus the decrease in inventory. D. Cash paid to suppliers equals cost of goods sold plus the increase in accounts payable, minus the decrease in inventory. An increase in accounts payable is deducted because some inventory purchases weren't paid for; a decrease in inventory is deducted because cost of goods sold exceeds inventory purchases. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Understand Difficulty: Medium Learning Objective: S-1 Libby - Chapter 13 #95 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

96.

A company reported an increase in accounts receivable and an increase in unearned revenues during 2010. Which of the following statements is correct? A Cash collected from customers equals sales revenues plus both the increase in accounts receivable . and the increase in unearned revenues. B.Cash collected from customers equals sales revenues minus both the increase in accounts receivable and the increase in unearned revenues. C. Cash collected from customers equals sales revenues plus the increase in accounts receivable, minus the increase in unearned revenues. D Cash collected from customers equals sales revenues minus the increase in accounts receivable, plus . the increase in unearned revenues. An increase in accounts receivable is deducted because sales revenues exceed cash collections; an increase in unearned revenues is added because cash collections exceed revenues earned. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Understand Difficulty: Medium Learning Objective: S-1 Libby - Chapter 13 #96 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

97.

A company reported an increase in prepaid rent and an increase in accrued liabilities during 2010. Which of the following statements is correct? A When determining cash paid for operating expenses, both the increase in prepaid rent and the increase . in accrued liabilities are deducted from operating expenses. B When determining cash paid for operating expenses, both the increase in prepaid rent and the increase . in accrued liabilities are added to operating expenses. CWhen determining cash paid for operating expenses, the increase in prepaid rent is added to operating . expenses and the increase in accrued liabilities is deducted from operating expenses. DWhen determining cash paid for operating expenses, the increase in prepaid rent is deducted from . operating expenses and the increase in accrued liabilities is added to operating expenses. An increase in prepaid rent is added because rent cash payments exceed rent expense; an increase in accrued liabilities is deducted because accrued expenses exceed the related cash payments. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Understand Difficulty: Medium Learning Objective: S-1 Libby - Chapter 13 #97 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

98.

A company reported an increase in accrued revenues and a decrease in unearned revenues during 2010. Which of the following statements is correct? A When determining cash collected from customers, both the increase in accrued revenues and the . decrease in unearned revenues are deducted from sales revenues. B When determining cash collected from customers, both the increase in accrued revenues and the . decrease in unearned revenues are added to sales revenues. C When determining cash collected from customers, the increase in accrued revenues is deducted from . sales revenues and the decrease in unearned revenues is added to sales revenues. DWhen determining cash collected from customers, the increase in accrued revenues is added to sales . revenues and the decrease in unearned revenues is deducted from sales revenues. An increase in accrued revenues is deducted because revenues exceed cash collections; a decrease in unearned revenues is deducted because revenues exceed cash collections. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Understand Difficulty: Medium Learning Objective: S-1 Libby - Chapter 13 #98 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

99.

Which of the following transactions increases the quality of income ratio? A. B. C. D.

The accrual of revenue. The accrual of an expense. The cash payment of an account payable. The payment of a cash dividend.

The quality of income ratio is cash flow from operating activities divided by net income. Accruing (incurred but unpaid) expenses decreases net income (the denominator) and therefore increases the ratio. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Understand Difficulty: Easy Learning Objective: 13-03 Analyze and interpret the quality of income ratio. Libby - Chapter 13 #99 Topic Area: Key Ratio Analysis

100.

Which of the following transactions decreases the quality of income ratio? A. B. C. D.

The cash purchase of equipment. The issue of stock in exchange for cash. Collecting cash for services to be provided in the future. Earning revenue which was previously recorded as unearned revenue.

The quality of income ratio is cash flow from operating activities divided by net income. Earning revenue increases net income (the denominator) and therefore decreases the ratio. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Understand Difficulty: Easy Learning Objective: 13-03 Analyze and interpret the quality of income ratio. Libby - Chapter 13 #100 Topic Area: Key Ratio Analysis

101.

For each of the following items, indicate whether it would appear in the operating, investing, or financing activities section of the statement of cash flows or is not reported in one of these three categories. Assume the indirect method is used for reporting.

Answers will vary

Feedback: AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 13-01 Classify cash flow statement items as part of net cash flows from operating; investing; and financing activities. Libby - Chapter 13 #101 Topic Area: Classifications On The Statement Of Cash Flows

102.

Use the following information to prepare a statement of cash flows for Stable Equipment Company for the year ended December 31, 2010: Net income for the year 2010 was $5,000. Accounts receivable decreased $2,000, while inventories increased $4,000, and accounts payable decreased $7,000. Depreciation expense included in net income was $8,000. During the year, a piece of land held for future expansion was sold for its book value of $8,000 and a new service truck was purchased for $14,000. The company borrowed $18,000 on a two-year note from the bank. Dividends of $6,000 were paid in cash. Preferred stock was issued to retire $7,000 of long-term notes payable. The beginning cash balance was $10,000 and the ending balance was $20,000. Answers will vary

Feedback: Schedule of Non-cash Investing and Financing Activities: Issued preferred stock to retire long-term notes payable, $7,000 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement, Reporting Blooms: Apply Difficulty: Hard Learning Objective: 13-01 Classify cash flow statement items as part of net cash flows from operating; investing; and financing activities. Libby - Chapter 13 #102 Topic Area: Classifications On The Statement Of Cash Flows

103.

Use the following information to prepare a statement of cash flows (direct method) for Ames Corporation for the year ended December 31, 2011.

Answers will vary

Feedback: AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 13-01 Classify cash flow statement items as part of net cash flows from operating; investing; and financing activities. Libby - Chapter 13 #103 Topic Area: Classifications On The Statement Of Cash Flows

104.

Marissa Company is preparing a statement of cash flows using the indirect method. The following data are available:

Calculate cash flows from operating activities. Answers will vary Feedback: Cash flow from operating activities ($36,000) = Net income ($30,000) + Depreciation expense ($18,000) - Inventory increase ($5,000) - Wages payable decrease ($10,000) + Accounts receivable decrease ($10,000) - Accounts payable decrease ($7,000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. Libby - Chapter 13 #104 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

105.

Hill Company reported net income of $10,000 for 2010. Additional 2010 information is as follows:

Calculate cash flows from operating activities. Answers will vary Feedback: Cash flow from operating activities ($13,000) = Net income ($10,000) + Depreciation expense ($2,000) + Increase in accounts payable ($400) + Decrease in inventory ($200) + Patent amortization ($100) + Decrease in accounts receivable ($300) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. Libby - Chapter 13 #105 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

106.

Brooks Company reported net income of $40,000 which included depreciation expense and depletion expense of $21,000 and $18,000, respectively. The following changes also occurred during 2009:

Calculate cash flows from operating activities. Answers will vary Feedback: Cash flow from operating activities ($91,000) = Net income ($40,000) + Depreciation expense ($21,000) + Depletion expense ($18,000) + Inventory increase ($10,000) + Accounts payable increase ($5,000) + Income tax payable increase ($7,000) - Accounts receivable increase ($10,000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. Libby - Chapter 13 #106 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

107.

Sagaworth Inc. reported the following information:

Determine Sagaworth's net cash flow from operating activities for 2011 under the indirect method. Answers will vary Feedback: Cash flow from operating activities (-$160,000) = Net loss (-$380,000) + Depreciation expense ($150,000) + Amortization expense ($25,000) + Decrease in accounts receivable ($30,000) + Decrease in inventory ($20,000) - Increase in prepaid expenses ($10,000) + Increase in accounts payable ($10,000) + Increase in accrued liabilities ($5,000) - Decrease in taxes payable ($10,000). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Hard Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. Libby - Chapter 13 #107 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

108.

Below is the 2011 income statement for the Critters Corporation.

Additional Information: Accounts receivable increased by $8,000 Merchandise inventory increased by $4,000 Accounts payable increased by $6,000 Prepaid expenses decreased by $2,000 Accrued liabilities decreased by $5,000 Interest payable increased by $1,000 Prepare the operating activities section of the statement of cash flows using the indirect method. Answers will vary

Feedback: AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. Libby - Chapter 13 #108 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

109.

Brice Corporation reported the following information:

Compute Brice Corporation's cash collected from customers for 2010. Answers will vary Feedback: Cash collected from customers ($7,900,000) = Sales revenue ($8,200,000) - Increase in accounts receivable (200,000) - Decrease in unearned revenue ($100,000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. (S) Libby - Chapter 13 #109 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

110.

Brice Corporation reported the following information:

Compute Brice's cash paid to suppliers for inventory for 2010. Answers will vary Feedback: Cash paid to suppliers ($6,410,000) = Cost of goods sold ($6,400,000) + Increase in inventory ($40,000) - Accounts payable increase ($30,000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. (S) Libby - Chapter 13 #110 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

111.

Brice Corporation reported the following information:

Compute Brice's cash paid for operating expenses for 2010. Answers will vary Feedback: Operating expenses ($1,050,000) = Operating expenses ($1,250,000) - Depreciation expense ($200,000) - Decrease in prepaid expenses ($10,000) + Decrease in accrued liabilities ($10,000 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. (S) Libby - Chapter 13 #111 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

112.

Brice Corporation reported the following information:

Compute Brice's cash paid for income taxes in 2010. Answers will vary Feedback: Cash paid for income taxes ($180,000) = Income tax expense ($165,000) + Decrease in income taxes payable ($15,000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. Libby - Chapter 13 #112 Topic Area: Reporting And Interpreting Cash Flows From Operating Activities

113.

The following information was reported from the statement of cash flows for Landlover's Restaurants for the years 2008 through 2010 (in millions of dollars):

Requirements: A. Calculate the quality of income ratio for the years 2008 through 2010. B. Interpret the quality of income ratio for Landlover's for the three year period. Answers will vary Feedback: A. 2010 Quality of income ratio (2.71) = Operations cash flow ($122) ÷ Net income ($45) 2009 Quality of income ratio (2.67) = Operations cash flow ($112) ÷ Net income ($42) 2008 Quality of income ratio (3.30) = Operations cash flow ($89) ÷ Net income ($27) B. Landlover's had a strong quality of income ratio for all three years. They were able to generate positive cash flow from operating activities in excess of net income in all three years. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: Medium Learning Objective: 13-03 Analyze and interpret the quality of income ratio. Libby - Chapter 13 #113 Topic Area: Key Ratio Analysis

114.

Blythe Company paid $2.2 million to purchase stock in another company, $1.0 million to repurchase treasury shares, $.5 million to buy short-term investments, sold used equipment for $.8 million when its book value was $.6 million, and purchased new equipment for $3.4 million. How much will be reported as net cash flow from investing activities? Answers will vary Feedback: Net cash outflow from investing activities (-$5.3 million) = Stock investment (-$2.2 million) - Short-term investment ($.5 million) + Equipment sale ($.8 million) - New equipment purchase ($3.4 million) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 13-4 Libby - Chapter 13 #114 Topic Area: Reporting And Interpreting Cash Flows From Investing Activities

115.

The following information was available from the financial statements of Collateral, Inc. for the years 2010 and 2009 (in millions of dollars):

Requirements: A. Calculate the capital acquisitions ratio for each of the two years. B. Comment on the sufficiency of the capital acquisitions ratio for the two years. Answers will vary Feedback: A. 2009 Capital acquisitions ratio (7.90) = Operations cash flows ($5,968) ÷ PP&E purchases ($755). 2010 Capital acquisitions ratio (6.72) = Operations cash flows ($5,456) ÷ PP&E purchases ($812) B. The ratio appears to be more than sufficient in both years. Collateral, Inc. is generating $7.90 of cash flow from operations for every $1 they are investing in new property, plant and equipment in 2009 and $6.72 in 2010. This indicates they do not need to borrow or issue stock to secure external financing for their expansion of plant and equipment assets. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: Medium Learning Objective: 13-05 Analyze and interpret the capital acquisitions ratio. Libby - Chapter 13 #115 Topic Area: Key Ratio Analysis

116.

While preparing a statement of cash flows, you encountered the following transaction: February 1, 2011: Battles Corporation acquired a small office building in exchange for 5,000 shares of its own common stock; par value $10 per share; market value $15 per share. Should this transaction be shown on the statement of cash flows? Why or why not? Answers will vary Feedback: Yes, because it is a direct exchange, it is reported on the statement of cash flows in the Schedule of Non-cash Investing and Financing Transactions as "Office building, acquired for 5,000 shares of Battle's common stock, $75,000. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Understand Difficulty: Medium Learning Objective: 13-07 Understand the format of the cash flow statement and additional cahs flow disclosures. Libby - Chapter 13 #116 Topic Area: Completing The Statement And Additional Disclosures

117.

Complete the following statement of cash flows using the indirect method:

Answers will vary

Feedback: AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium

118.

During 2011, Tommy's Toys reported the following: short-term borrowings of $419 million; long-term borrowings of $147 million; long-term debt repayments of $45 million; interest paid, $128 million; treasury shares repurchased $632 million; and exercise of stock options by employees, $2 million. How much is net cash flow from financing activities during 2011? Answers will vary Feedback: Net cash outflow from financing activities (-$109 million) = Short-term borrowings ($419 million) + Long-term borrowing ($147 million) - Long-term debt repayments ($45 million) - Treasury share purchase ($632 million) + Stock option exercise ($2 million). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 13-06 Report and interpret cash flows from financing activities. Libby - Chapter 13 #118 Topic Area: Reporting And Interpreting Cash Flows From Financing Activities

119.

Kennel Co. reported short-term borrowings of $2,500,000, long-term borrowings of $6,800,000, repayments of long-term borrowings of $3,500,000, interest payments of $780,000, repurchase of treasury shares of $500,000, cash dividends declared of $1,100,000, and cash dividend payments of $800,000. Kennel also issued their common stock in exchange for a building costing $400,000. How much is the net cash flow from financing activities? Answers will vary Feedback: Net cash flow from financing activities ($4,500,000) = Short-term borrowings ($2,500,000) + Long-term borrowings ($6,800,000) - Repayment of long-term borrowings ($3,500,000) - Treasury stock purchase ($500,000) - Cash dividend payment ($800,000) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 13-06 Report and interpret cash flows from financing activities. Libby - Chapter 13 #119 Topic Area: Reporting And Interpreting Cash Flows From Financing Activities

120.

Describe the three cash flow classifications that are reported within a statement of cash flows. Answers will vary Feedback: The cash flow statement classifications include operating, investing, and financing activities. The operating classification reports those cash flows related to an entity's everyday profit seeking activities. The investing classification reports those cash flows related to acquisition and disposition of investments as well as the acquisitions of long-term assets such as property, plant, and equipment and intangible assets. The financing classification reports those cash flows related to issuance and retirement of debt and equity. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Medium Learning Objective: 13-01 Classify cash flow statement items as part of net cash flows from operating; investing; and financing activities. Libby - Chapter 13 #120 Topic Area: Classifications On The Statement Of Cash Flows

ch13 Summary Category AACSB: Analytic AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Measurement, Reporting AICPA FN: Reporting AICPA FN: Reporting, Measurement Blooms: Apply Blooms: Remember Blooms: Understand Difficulty: Easy Difficulty: Hard Difficulty: Medium Learning Objective: 13-01 Classify cash flow statement items as part of net cash flows from operating; investing; and financing activities. Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. Learning Objective: 13-02 Report and interpret cash flows from operating activities using the indirect method. (S) Learning Objective: 13-03 Analyze and interpret the quality of income ratio. Learning Objective: 13-04 Report and interpret cash flows from investing activities. Learning Objective: 13-05 Analyze and interpret the capital acquisitions ratio. Learning Objective: 13-06 Report and interpret cash flows from financing activities. Learning Objective: 13-07 Understand the format of the cash flow statement and additional cahs flow disclosures. Learning Objective: 13-2 Learning Objective: 13-4 Learning Objective: 13-6 Learning Objective: S-1 Learning Objective: S-2 Libby - Chapter 13 Topic Area: Classifications On The Statement Of Cash Flows Topic Area: Completing The Statement And Additional Disclosures Topic Area: Key Ratio Analysis Topic Area: Reporting And Interpreting Cash Flows From Financing Activities Topic Area: Reporting And Interpreting Cash Flows From Investing & Financing Activities Topic Area: Reporting And Interpreting Cash Flows From Investing Activities Topic Area: Reporting And Interpreting Cash Flows From Operating Activities Topic Area: Reporting And Interpreting Cash Flows From Operating, Investing, and Financing Activities

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