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Exam 11: Statement of Cash Flows

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Question 21

Multiple Choice

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In preparing a statement of cash flows under the indirect method, an increase in accounts payable would be reported as a(n) :

A) Addition to net income in the operating activities section.
B) Deduction from net income in the operating activities section.
C) Financing activity.
D) Investing activity.

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

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Question 22

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To maximize cash flow from operations, a company strives to increase both cash flows per dollar of sales and sales per dollar of assets invested.

A) True
B) False

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Question 23

Multiple Choice

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The balance sheet of Storage Solutions reports total assets of $300,000 and $350,000 at the beginning and end of the year, respectively. The cash return on assets for the year is 10%. What is Storage Solutions' net cash flows from operating activities for the year?

The three primary categories of cash flows are cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities.

Operating activities are both inflows and outflows of cash resulting from the external financing of a business. Financing activities are both inflows and outflows of cash resulting from the external financing of a business.

Arrow Printers paid $2,000 interest on short-term notes payable, $10,000 interest on long-term bonds, and $6,000 in dividends on its common stock. Arrow would report cash outflows from activities, as follows:

Cash return on assets indicates the amount of operating cash flow generated for each dollar invested in assets.

Schneider Inc. purchases its inventory from suppliers on account. During the year, its Inventory account increased by $10 million and its accounts payable to suppliers decreased by $3 million. Cost of goods sold was $440 million, its cash outflows to inventory suppliers totaled:

Which of the following would be classified as an investing cash flow?

Wireless Technologies reports operating expenses of $2 million. Operating expenses include rent expense. Prepaid rent at the beginning and end of the year are $20,000 and $70,000, respectively. All other operating expenses were paid in cash as incurred. What is the amount of cash paid for operating expenses?

A gain on the sale of long-term assets is added to net income to arrive at net cash flows from operating activities under the indirect method. A gain on the sale of long-term assets is subtracted from net income to arrive at net cash flows from operating activities under the indirect method.

Nathan Herrmann has completed the basic format to be used in preparing the statement of cash flows (indirect method) for CEO Consultants. Listed below in random order are line items to be included in the statement of cash flows. Prepare the statement of cash flows for CEO Consultants using the indirect method.

Under the indirect method, an increase in prepaid rent is added to net income to arrive at net cash flows from operating activities. We would subtract an increase in prepaid rent from net income to arrive at net cash flows from operating activities under the indirect method.

Transactions that don't increase or decrease cash, but that result in significant investing and financing activities, are reported either directly after the cash flow statement or in a separate note to the financial statements as noncash activities.

The long-term assets section of the balance sheet is the place to look for investing activities.

Cash flows from investing activities do not include:

Given the items below, which of the following is a subtraction from net income to arrive at Operating Cash Flows using the indirect method? I. Loss on sale of assets II. Increase in Supplies III. Increase in Accounts Payable IV. Depreciation expense

Lense Laboratories' net income was $250,000. Given the account information below, what is the net operating cash flows for Lense Laboratories? $\begin{array} { | l | r | } \hline \text { Increase in Accounts Receivable } & \$ 60,000 \\\hline \text { Increase in Salaries Payable } & \$ 50,000 \\\hline \text { Decrease in Inventory } & \$ 30,000 \\\hline \text { Depreciation Expense } & \$ 45,000 \\\hline \text { Increase in Prepaid Insurance } & \$ 3,000 \\\hline\end{array}$

Wireless Technologies reports cost of goods sold of $40 million. Inventory at the beginning and end of the year are $4 million and $3 million, respectively. Accounts payable at the beginning and end of the year are $3 million and $6 million, respectively. What is the amount of cash paid to suppliers?

We can identify operating activities from income statement information and changes in