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Exam 14: Statement of Cash Flows

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Question 21

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Which of the following statements best explains the correct handling of depreciation on the statement of cash flows when using the indirect method?

A) Depreciation is subtracted from net income because it causes a loss when the related plant asset is sold.
B) Depreciation expense is a non-cashnoncash expense that was subtracted to derive the accrual-basis net income,hence added to net income in the cash flows from operating activities section.
C) Depreciation is subtracted in the cash flows from investing activities section because it reduces the book value of the corresponding plant asset.
D) Depreciation adds to the company's cash account to help pay for new equipment.

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

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Question 22

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Increases in long-term asset balances indicate cash outflows to purchase assets.

A) True
B) False

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Question 23

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Under the direct method,cash payments to suppliers would be reported in the operating section of a cash flow statement.

Erie Company began the accounting period with $27,000 in accounts receivableAccounts Receivable.The ending balance in accounts receivableAccounts Receivable was $10,000.If the credit sales during the period were $44,000,what is the amount of cash received from customers?

Under the indirect method,which of the following is not an item that is added back to net income in determining net cash flow from operating activities?

How is the direct method of preparing the statement of cash flows different from the indirect method?

The indirect method for preparing the statement of cash flows begins with the amount of sales revenue reported on the income statement.

Depreciation for the year was $80,000 and net income was $323,000.Assume the rest of the company's transactions were cash transactions.How much was net cash from operating activities?

Bertram,Inc.had a beginning and ending accounts payableAccounts Payable balances of $400 and $450,respectively.Inventory had beginning and ending balances of $450 and $425,respectively.All inventory purchases are made on account.If cost of goods sold was cost of goods sold equaled $350,how much cash was spent to obtain purchase inventory?

Diaz Company had the following comparative balance sheet information for 2014 and 2013at the end of Year 2 and Year 1: $\begin{array}{l}\hline \quad \quad \quad \quad \quad \quad \quad \quad \quad \text {Diaz Company } \\\hline \quad \quad \quad \quad \quad \quad \text {Comparative Balance Sheets } \\\begin{array}{|l}\hline \\\hline \\\hline \text { Cash}\\\hline \text { Accounts receivable}\\\hline \text { Inventory}\\\hline \text { Prepaid insurance}\\\hline \text { Property, plant and equipment}\\\hline \text { Accumulated depreciation}\\\hline \text { Total}\\\hline \\\hline \text { Accounts payable}\\\hline \text { Bonds payable}\\\hline \text { Common stock}\\\hline \text { Retained earnings}\\\hline \text { Total}\\\hline \end{array}\begin{array}{|l|}\hline 2014\\\hline\\\hline \$ 30,000 \\\hline 48,000 \\\hline 158,000 \\\hline 10,000 \\\hline 70,000 \\\hline\underline {(14,000) }\\ \hline \underline {\$ 302,000 }\\ \hline \\\hline \$14,000 \\\hline 90,000 \\\hline 140,000 \\\hline \underline {58,000} \\ \hline \underline {\$ 302,000 }\\\hline\end{array}\begin{array}{l|}\hline 2013 \\\hline \\\hline 28,000 \\\hline 50,000 \\\hline 156,000 \\\hline 8,000 \\\hline 60,000 \\\hline\underline { (10,000)} \\\hline \underline { 292,000} \\\hline \\\hline 18,000 \\\hline 120,000 \\\hline 120,000 \\\hline \underline { 34,000} \\\hline \underline { 292,000} \\\hline\end{array}\end{array}$ Diaz reported net income for 2014 Year 2 of $40,000.No property,plant,& equipment was disposed of during the year.Diaz uses the indirect method to prepare the statement of cash flows.

On January 1,2014,,the balance of Fink Corporation's accounts receivableAccounts Receivable was $10,000.Sales on account for 2014 amounted to $80,000 during the year.The and the ending balance of accounts receivableAccounts Receivable was $16,000.What is the amount of cash collected from customers?

During 2014the year,the Abbot Company had the following changes in account balances: 1) The accumulated depreciation accountAccumulated Depreciation account had a beginning balance of $25,000 and an ending balance of $35,000.The increase was due to depreciation expense. 2) The long-term notes payableNotes Payable account had a beginning balance of $40,000 and an ending balance of $15,000.The decrease was due to repayment of debt. 3) The accounts receivableAccounts Receivable account had a beginning balance of $60,000 and an ending balance of $50,000. 4) The equipmentEquipment account had a beginning balance of $25,000 and an ending balance of $92,500.The increase was due to the purchase of equipment for cash. 5) The long term investments account (marketable securities) had a beginning balance of $18,000 and an ending balance of $12,500.The decrease was due to the sale of investments at cost. 6) The amount of cash dividends declared and paid during the year was $22,000. 7) The interest payable account had a beginning balance of $2,250 and an ending balance of $1,250. What is the net cash flow from financing activities?

Pierce Corporation reported a $3,600 balance in accounts receivableAccounts Receivable on January 1,2014,Year 2.During the year,$24,800 of sales on account in the amount of $24,800 were made.During the year,Price wrote off accounts receivable of $1,700 as uncollectible.If the ending balance of accounts receivableAccounts Receivable is $2,000$3,700,what is the amount of cash received from customers?

During the year,the Property,Plant and Equipment account increased by $25,000 and the Accumulated Depreciation account increased by $2,000.In addition,the company sold equipment,which originally cost $12,000 and had $9,000 of accumulated depreciation,for $4,500.What was the cash inflow from the sale of property,plant,and equipmentMoyers Company reported the following in 2014: property,plant and equipment account increased by $25,000;accumulated depreciation account increased by $2,000.During the year,the company sold equipment that originally cost $12,000,and had $9,000 of accumulated depreciation for $4,500. What will Moyers Company report as proceeds from the sale of property,plant,and equipment on its 2014 statement of cash flows?

The following information was drawn from the year-end balance sheets of White,Inc. $\begin{array}{l}\begin{array}{|l}\hline\\\hline \text { Bonds payable}\\\hline \text {Common stock}\\\hline \text {Treasury stock}\\\hline \text {Retained earnings}\\\hline\end{array}\begin{array}{|l}\hline 2014 \\\hline \$ 200,000 \\\hline 112,500 \\\hline 17,500 \\\hline 35,000 \\\hline\end{array}\begin{array}{|l|}\hline 2013 \\\hline \$ 275,000 \\\hline 87,500 \\\hline 12,500 \\\hline 27,500 \\\hline\end{array}\end{array}$ White,Inc.uses the cost method to account for treasury stock.No treasury stock was sold during the year.What is the amount of cash outflows for the purchase of treasury stock?

The following information was drawn from the year-end balance sheets of White,Inc. $\begin{array}{l}\begin{array}{|l}\hline\\\hline \text { Bonds payable}\\\hline \text {Common stock}\\\hline \text {Treasury stock}\\\hline \text {Retained earnings}\\\hline\end{array}\begin{array}{|l}\hline 2014 \\\hline \$ 200,000 \\\hline 112,500 \\\hline 17,500 \\\hline 35,000 \\\hline\end{array}\begin{array}{|l|}\hline 2013 \\\hline \$ 275,000 \\\hline 87,500 \\\hline 12,500 \\\hline 27,500 \\\hline\end{array}\end{array}$ White,Inc. ,. ,issued $30,000 in bonds during 2014Year 2.The bonds were issued at face value.All bonds were retired at face value.What is the amount of cash outflow for the payment of bond liabilities?

WWhen hich section of the preparing a statement of cash flows may be prepared using ,in which section is it permitted to use either the direct method or the indirect method?

Can a company have a negative cash flow from operationsoperating activities for the year on the statement of cash flows but still have a net income on the income statement? Explain.

The following information was prepared for Standard Corporation: $\begin{array}{|l|r|}\hline \text {Net income } &\$ 650,000 \\\hline \text {Gain on sale of equipment } &30,000 \\\hline \text {Dividends paid } &80,000 \\\hline \text {Decrease in prepaid expenses } &16,000 \\\hline \text {Increase in accounts receivable } &8,000 \\\hline\end{array}$ Net cash provided byflow from operating activities is:equals:

Hansen Corporation reported net income of $328,000 for the current year.In addition,accounts payableAccounts Payable increased $24,000 during the year,inventory increased by $15,000,and accounts receivableAccounts Receivable decreased by $20,000.Using the indirect method,what is the net cash provided byflow from operationsoperating activities?