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Exam 12: Statement of Cash Flows

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Question 81

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Assume a company uses the indirect method to prepare its statement of cash flows. If the Supplies account increases and Salaries and Wages Payable decreases during an accounting period, what does the company do with the changes in these accounts to calculate cash flows from operating activities?

A) Both are added to net income.
B) The change in Salaries and Wages Payable is added to net income; the change in Supplies is subtracted from net income.
C) Both are subtracted from net income.
D) The change in Supplies is added to net income; the change in Salaries and Wages Payable is subtracted from net income.

E) All of the above
F) None of the above

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Question 82

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

A) True
B) False

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Question 83

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Which of the following statements about the statement of cash flows is not correct?

Brighton, Inc. uses the indirect method to determine its net cash flows from operating activities. During the course of the year, the company's Accounts Receivable increased by $10,000 and its Accounts Payable decreased by $5,000. If these are the only two adjustments required to convert net income to net cash provided by operating activities, the combined effect will be a(n) :

Selected balance sheet information and the income statement for Fountainhead Corporation for the current year are presented below. Required: Prepare the cash flows from operating activities section of the statement of cash flows using the indirect method.

A company issues $1 million of new stock and pays $200,000 in cash dividends during the year. In addition, the company took advantage of falling interest rates to borrow $1.5 million in a new bond issue and paid off existing bonds with a face value of $2 million. The company bought 500 of another company's $1,000 bonds at a $100,000 premium. The net cash flow provided by financing activities is:

Two years ago, your company bought $40,000 in bonds from another company. This month, it sold half of those bonds for $20,640 and purchased the common stock of another company for $1,000. On the statement of cash flows for this accounting period, your company would report a net cash:

The repayment of the principal of a loan which had been used to finance the purchase of equipment should be reported on the statement of cash flows as a:

A corporation prepared its statement of cash flows for the year. The following information is taken from that statement: What is the amount of net cash provided by (used in) financing activities?

Using the T-account approach:

The Extra Surplus Company's Balance Sheet for December 31, 2015 and the Income Statement for 2016 are shown below. Additional data: • Sales were $13,000; $8,000 in cash was received from customers. • Bought new land for cash, $10,000. • Sold other land for its book value of $5,000. • Paid $1,000 principal on the long-term note payable and $1,000 in interest. • Issued new shares of stock for $10,000 cash. • Cash dividends of $1,000 were declared and paid to stockholders. • Paid $5,500 on accounts payable. • No inventory purchases were made; other expenses were incurred on account. • All wages were paid in cash. • Other expenses were on account. Required: Part a. Prepare a balance sheet at December 31, 2016. Part b. Prepare the statement of cash flows using the direct method.

Supplemental disclosures required by companies using the indirect method include all of the following except:

Choose the appropriate letter to match the account balance change with the type of adjustment made to net income when using the indirect method to determine net cash flow provided by operating activities. Account Balance Change _____ Decrease in Property, Plant, and Equipment _____ Increase in Accounts Receivable _____ Decrease in Inventory _____ Decrease in Prepaid Expenses _____ Increase in Accounts Payable _____ Decrease in Accrued Liabilities _____ Decrease in Income Tax Payable _____ Increase in Dividends Payable _____ Gain on Sales of Property, Plant and Equipment _____ Depreciation Type of Adjustment A - Add item to net income S - Subtract item from net income N - No adjustment necessary

The information below was obtained from the financial statements of Faraday Corp. Based on this information, what was the amount of the net cash provided by operating activities during the current year?

Negative operating cash flow may indicate all of the following except:

The company would report net cash provided by (used in) investing activities of:

Indicate whether each of the following would be added to or subtracted from net income when using the indirect method to reconcile net income to cash flows from operating activities.

If a company uses the indirect method to determine cash flows from operating activities, gains:

Which of the following would be classified as an investing activity on the statement of cash flows?

A company purchased money market funds with cash during the current year. Which of the following statement is correct?