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Exam 16: Statement of Cash Flows

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Question 1

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

A) Separately lists each major item of operating cash receipts and cash payments.
B) Reports adjustments to reconcile income to net cash provided or used by operating activities in the statement.
C) Reports a different amount of cash flows from operations than if the indirect method is used.
D) Is required if the company is a merchandiser.
E) Is required by the IASB.

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

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A

Question 2

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The primary purpose of the statement of cash flows is to report all major cash receipts (inflows) and cash payments (outflows) during a period.

A) True
B) False

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Question 3

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The appropriate section in the statement of cash flows for reporting the issuance of ordinary shares for cash is:

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 ____________________________.

Mansell reported net income of $233.4 million, net cash provided by operating activities of $131.4 million, total cash flows of $187.7 million, and average total assets of $2,040.8 million at the end of the year. Calculate the cash flow on total assets ratio for Mansell.

Use the following information to calculate cash received from dividends:

The cash flow on total assets ratio reflects actual cash flows and is therefore affected by the accounting constraints of recognition and measurement for net income.

The following information is available for the Ehrens Corporation: Additional information: (1) There was no gain or loss on the sales of the long-term investments, nor on the bonds retired. (2) Old equipment with an original cost of $37,550 was sold for $2,100 cash. (3) New equipment was purchased for $67,550 cash. (4) Cash dividends of $33,600 were paid. Management wishes to classify this under financing activities. (5) Additional shares were issued for cash. Prepare a complete statement of cash flows for year 2011 using the indirect method.

Use the following information to calculate the net cash provided or used by financing activities for the Brooks Corporation: (a) Net income, $10,000 (b) Sold ordinary shares for $4,000 cash (c) Paid cash dividend of $3,000 (classify under financing activities) (d) Paid bond payable, $8,000 (e) Purchased equipment for $12,000 cash

A noncash investing transaction should be disclosed in either a footnote or at the bottom of the statement of cash flows.

Internal users of the statement of cash flows often use cash flow information to plan day-to-day operating activities and make long-term investment and financing decisions.

The statement of cash flows reports:

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

A cash equivalent must be readily convertible to a known amount of cash, and must be sufficiently close to its maturity so its market value is unaffected by interest rate changes.

Use the following financial statements and additional information to (1) prepare a statement of cash flows for the year ended December 31, 2011 using the indirect method, and (2) compute the company's cash flow on total assets ratio for 2011. Additional Information a. A $20,000 note payable is retired at its carrying amount in exchange for cash. b. The only changes affecting retained earnings are net income and cash dividends paid. Cash dividends paid is to be classified under financing activities. c. New equipment is acquired for $120,000 cash. d. Received cash for the sale of equipment that had cost $85,000, yielding a gain of $4,700. e. Prepaid expenses relate to Other Expenses on the income statement. f. All purchases and sales of merchandise inventory are on credit.

Becker Corporation paid cash dividends totaling $75,000 during its most recent fiscal year. How should this information be reported on Becker's statement of cash flows?

Use the following information to calculate cash paid for wages and salaries:

Activities that involve the production or purchase of merchandise and the sale of goods and services to customers, including expenditures related to administering the business, are classified as:

All cash transactions eventually affect noncash ___________ accounts.

A company's transactions with its creditors to borrow money and/or to repay the principal amounts of both short- and long-term debt are reported as cash flows from: