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Exam 12: Reporting and Analyzing Cash Flows

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Question 71

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Assume the following information was available for the current year's operations of the shoe company founded by Blake Mycoskie,TOMS.Use these data to calculate the cash paid for merchandise.

A) $218,000
B) $223,200
C) $220,000
D) $228,800
E) $234,000

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

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Question 72

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The cash flow on total assets ratio:

A) Is the same as return on assets.
B) Is the same as profit margin.
C) Can be an indicator of earnings quality.
D) Is highly affected by accounting principles of income recognition and measurement.
E) Is average net assets divided by cash flows from operations.

F) A) and E)
G) A) and B)

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Question 73

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The cash flow on total assets ratio can be used as an indicator of earnings quality.

Spirit Company,a merchandiser,recently completed the 2013 calendar year.For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory,and (5) Other Expenses are paid in advance and are initially debited to Prepaid Expenses.The company's balance sheet and income statement follow: Additional information on year 2013 transactions: Additional information on year 2013 transactions: a.The loss on the cash sale of equipment was $5,875 (details in b) . b.Sold equipment costing $46,500, for a loss of $5,875. c.Purchased equipment costing $99,000 by paying $35,000 cash and signing a long-term note payable for the balance. d.Borrowed $2,000 cash by signing a non-sales related short-term note payable. e.Paid $47,500 cash to reduce the long-term notes payable. f.Issued 2,400 shares of common stock for $20 cash per share. g.Net income and dividends were the only items that affected retained earnings. -Required: Determine the cash received by Spirit for the equipment sold in item B above.

The direct method of reporting operating cash flows:

The gain or loss from retirement of debt is reported under cash flows from operations on the statement of cash flows using the direct method.

Net income of Lucky Company was $52,000.The accounting records reveal depreciation expense of $99,000 as well as increases in prepaid rent,salaries payable,and income taxes payable of $74,000,$15,700,and $14,000,respectively.What is the net cash flow provided (used) by operating activities?

The payment of cash dividends to shareholders is classified as a financing activity.

What are the five usual steps involved in the preparation of the statement of cash flows?

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

Which of the following transactions or events should be reported as a source of cash from operating activities when using the direct method?

Cash flow amounts and their timing should be examined when planning and analyzing operating activities.

Spirit Company,a merchandiser,recently completed the 2013 calendar year.For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory,and (5) Other Expenses are paid in advance and are initially debited to Prepaid Expenses.The company's balance sheet and income statement follow: Additional information on year 2013 transactions: Additional information on year 2013 transactions: a.The loss on the cash sale of equipment was $5,875 (details in b) . b.Sold equipment costing $46,500, for a loss of $5,875. c.Purchased equipment costing $99,000 by paying $35,000 cash and signing a long-term note payable for the balance. d.Borrowed $2,000 cash by signing a non-sales related short-term note payable. e.Paid $47,500 cash to reduce the long-term notes payable. f.Issued 2,400 shares of common stock for $20 cash per share. g.Net income and dividends were the only items that affected retained earnings. -Required: Calculate the net cash flows provided (used) by financing activities.

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

Investments that are readily convertible to a known amount of cash and are sufficiently close to their maturity so that the market value is unaffected by interest rate changes are ______________________________.

The appropriate section in the statement of cash flows for reporting the purchase of equipment for cash is:

Depreciation expense is not reported on the statement of cash flows when the direct method is used.

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

A company had net cash flows from operations of $120,000,total cash flows of $500,000,and average total assets of $2,500,000.The cash flow on total assets ratio equals:

The indirect method for the preparation of the operating activities section of the statement of cash flows: