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Exam 12: Statement of Cash Flows

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Question 61

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Which statement regarding the indirect method is false?

A) Depreciation expense is added to net income.
B) An increase in accounts receivable is added to net income.
C) An increase in accounts payable is added to net income.
D) An increase in merchandise inventory is subtracted from net income.

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

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Question 62

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A company reported an increase in accounts payable and a decrease in inventory during 2016. 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.

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

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Question 63

True/False

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

Below is the 2017 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. Required: Prepare the operating activities section of the statement of cash flows using the indirect method for the year ended December 31, 2017.

Sagaworth Inc. reported the following information: Required: Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2017 using the indirect method.

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?

Which of the following transactions is not reported in the statement of cash flows as a cash flow from investing activities?

During 2016, 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. What is the 2016 net cash flow from financing activities?

Which of the following statements about the statement of cash flows is correct?

Amortization of a patent reduces cash flows from investing activities.

Aaron Inc. reported operating expenses during 2017 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 2017?

Flow Company has provided the following information for the year ended December 31, 2016: • 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 issuance of common stock, $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 • Payment of a $100,000 note payable by exchanging used machinery with a $77,000 book value and $100,000 fair value How much was Flow's net cash flow from financing activities?

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 within the statement of cash flows because cash was neither received nor disbursed.

Significant noncash financing and investing activities:

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 Using the indirect method, how much was GJ's net cash provided by operating activities?

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

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

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 Using the indirect method, how much was RM's net cash provided by operating activities?

KJ Company, a manufacturer, uses the indirect method for preparing its statement of cash flows. The company 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?

For the year ended December 31, 2016, Kennel Company 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, purchase of treasury shares of $500,000, cash dividends declared of $1,100,000, and cash dividend payments of $800,000. Kennel also issued its common stock in exchange for a building costing $400,000. Required: A.Prepare the financing activities section of the Kennel Company cash flow statement for the year ended December 31, 2016. B.Is the net cash flow for investing activities a net cash inflow, or a net cash outflow? Briefly describe the reason for your answer.