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If the calculation of net cash flows from operating activities starts with net income, the company:


A) is using the net income method.
B) will remove the effects of all noncash items included in the calculation of net income.
C) is using the direct method.
D) will add all noncash items not included in the calculation of net income.

E) A) and B)
F) A) and C)

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The retained earnings account has a beginning balance of $321,975 and an ending balance of $356,413. Net income is $40,251. Which of the following statements is true?


A) $5,813 would be subtracted when determining cash flows from financing activities.
B) $40,251 would be added when determining cash flows from financing activities.
C) $34,438 would be added when determining cash flows from financing activities.
D) $321,975 would be added when determining cash flow from operating activities.

E) A) and C)
F) All of the above

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The Extra Surplus Company's Balance Sheet for December 31, 2010 and the Income Statement for 2011 are shown below. The Extra Surplus Company's Balance Sheet for December 31, 2010 and the Income Statement for 2011 are shown below. Additional Data for 2011: 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. $1,000 of dividends were declared and paid. 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. a. Prepare the statement of cash flows for the year ended December 31, 2011 using the indirect method. b. Prepare the statement of cash flows for the year ended December 31, 2011 using the direct method. c. Interpret the statement of cash flows by explaining the main sources and uses of cash during the year. Additional Data for 2011: 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. $1,000 of dividends were declared and paid. 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. a. Prepare the statement of cash flows for the year ended December 31, 2011 using the indirect method. b. Prepare the statement of cash flows for the year ended December 31, 2011 using the direct method. c. Interpret the statement of cash flows by explaining the main sources and uses of cash during the year. The Extra Surplus Company's Balance Sheet for December 31, 2010 and the Income Statement for 2011 are shown below. Additional Data for 2011: 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. $1,000 of dividends were declared and paid. 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. a. Prepare the statement of cash flows for the year ended December 31, 2011 using the indirect method. b. Prepare the statement of cash flows for the year ended December 31, 2011 using the direct method. c. Interpret the statement of cash flows by explaining the main sources and uses of cash during the year.

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a. Using the Indirect Method: blured image b. Using ...

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Cash equivalents are assets that are easily converted to cash regardless of their time to maturity.

A) True
B) False

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Which of the following statements regarding the capital acquisitions ratio is true?


A) The capital acquisitions ratio is often calculated as an average over a number of years for better comparison between companies in the same industry.
B) The calculation of the capital acquisit ions ratio uses the cash expenditures for property, plant and equipment that, all else equal, are reported in the financing activities section of the Statement of Cash Flows.
C) A ratio greater than 1.0 indicates that outside financing was needed to replace equipment in the current period.
D) The higher the ratio, the more likely external financing will be needed to fund future expansion.

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

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When using the spreadsheet approach for the indirect method to calculate net cash flows from operating activities, net income would be found as:


A) a debit to the Retained Earnings account.
B) the difference between revenues and expenses.
C) a credit to the Retained Earnings.
D) the difference between gains and losses.

E) A) and B)
F) None of the above

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A change in a company's cash account is equal to the:


A) changes in liabilities, stockholders' equity, and noncash assets.
B) changes in liabilities minus the changes in stockholders' equity and noncash assets.
C) sum of the changes in liabilities, stockholders' equity and noncash assets.
D) change in noncash assets minus the changes in liabilities and stockholders' equity.

E) B) and D)
F) All of the above

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Which of the following would be included in cash flows from financing activities?


A) Cash proceeds from sales.
B) Cash received from a sale of land.
C) Dividends paid to stockholders.
D) Cash used to purchases of equipment.

E) C) and D)
F) None of the above

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Depreciation expense is $20,000 and the beginning and ending accumulated depreciation balances are $150,000 and $155,000, respectively. What is the cash paid for depreciation?


A) $20,000
B) $5,000
C) $0
D) $25,000

E) A) and B)
F) A) and C)

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B. Darin Company loaned $3,000,000 at 7% interest to S. Dee Company. S. Dee Company would report this as an investing activity on the statement of cash flows. FALSE

A) True
B) False

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For each letter in the T-accounts below, calculate the missing amount and explain (in words) what each item represents.

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If a company's sales revenue was $171,356 and cash collected from customers was $167,803, which of the following would be consistent with this difference?


A) Accounts receivable could have decreased.
B) Cash payments could have been larger than the expense accounts.
C) Accounts receivable could have increased.
D) Cash payments could have been smaller than the expense accounts.

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

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Given this information, what is the amount of cash collected for rent?


A) $21,000
B) $19,000
C) $23,000
D) $14,000

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

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Assume a company uses the direct method to prepare its statement of cash flows. If the company's inventory and accounts payable both increase during the accounting period, how would these changes affect cash flow calculations?


A) The changes in each account are both added to net income.
B) The change in inventory is subtracted from cost of goods sold and the change in accounts payable is added to cost of goods sold to find the cash paid to suppliers.
C) The changes in each account are both subtracted from net income.
D) The change in inventory is added to cost of goods sold and the change in accounts payable is subtracted from

E) B) and C)
F) None of the above

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Which of the following would be included in cash flows from investing activities?


A) Cash proceeds from sales.
B) Cash received from an issuance of bonds.
C) Dividends paid to stockholders.
D) Cash used to purchases of equipment.

E) None of the above
F) B) and C)

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Which of the following would be included in cash flows from operating activities?


A) Cash proceeds from sales.
B) Cash received from an issuance of bonds.
C) Dividends paid to stockholders.
D) Cash used for purchases of equipment.

E) B) and D)
F) All of the above

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A company purchased money market funds with cash during the current year. Choose the TRUE statement.


A) This transaction will result in a decrease in cash from operating activities.
B) This transaction will result in a decrease in cash from investing activities.
C) This transaction will result in a decrease in cash from financing activities.
D) This transaction will not cause a change in cash from operating, investing, or financing activities.

E) A) and B)
F) A) and C)

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Which of the following would be reported on the statement of cash flows, using the direct method, as a cash flow from operating activities?


A) Payment of income taxes
B) Payment of dividends.
C) Purchase of a building.
D) Purchase of treasury stock.

E) All of the above
F) C) and D)

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If a company's Cost of goods sold is $158,000 for the period, beginning and ending Inventory balances are $18,000 and $13,000, respectively, and the beginning and ending Accounts Payable balances are $19,000 and $7,500, respectively, the cash paid to suppliers is:


A) $157,000
B) $163,500
C) $164,500
D) $151,500

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

Correct Answer

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The company would report net cash inflows (outflows) from financing activities of:


A) $(2,500)
B) $2,000
C) $5,000
D) $6,000

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

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