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Exam 11: The Statement of Cash Flows

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Question 1

True/False

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If the December 31,Year 1,balance of accounts payable is lower than the January 1,Year 2,balance,then the amount of cash payments will exceed the purchases on account for the year.

A) True
B) False

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Question 2

Multiple Choice

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How are cash flows from issuing and repurchasing shares or issuing and repaying debt classified?

A) as operating activities
B) as investing activities
C) as financing activities
D) as borrowing activities

E) None of the above
F) C) and D)

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C

Question 3

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Maytag Corporation's balance sheets for the last two years are provided below: The company's income statement for Year 2 is provided below: *The company sold equipment for $57 that had a cost of $60. A)Prepare the company's statement of cash flows for Year 2.Use the direct method of computing cash flows from operating activities. B)Prepare the Cash Flows from Operating Activities section of the cash flow statement using the indirect method.

Selected data and additional information from the company's records are presented below: $\begin{array}{lrr} \underline{\text { Balance Sheet Data }} & \underline{\text { Year 2 }} & \underline{\text { Year 1 }} \\\text { Cash } & \$ 235,000 & 246,000 \\\text { Accounts receivable } & \$ 120,000 & \$ 150,000 \\\text { Inventories } & 56,000 & 50,000 \\\text { Accounts payable } & 38,000 & 70,000 \\\text { Salaries payable } & 10,000 & 5,000 \\\text { Equipment } & 110,000 & 70,000 \\\text { Accumulated depreciation } & 28,000 & 32,000 \\\text { Bonds payable } & 100,000 & 200,000 \\\text { Common shares } & 300,000 & 200,000 \\\text { Retained earnings } & 76,000 & 40,000\end{array}$ $\begin{array}{lr} \underline{\text { Income Statement Data }} & \underline{ \text { Year 2 }} \\ \text { Net sales } & \$ 920,000 \\\text { Cost of goods sold } & 700,000 \\\text { Operating expenses (excluding depreciation expense) } & 160,000 \\\text { Net income (including depreciation expense and gain) } & 56,000 \\\text { Gain on sale of equipment } & 4,000\end{array}$ Additional information: 1. Equpment with a cost of $30,000 and abogk value of \$18,000 was sald for $22,000 during Year 2. 2. Common shares were issued to retire bonds payable during Year 2. 3. The only items affecting retained earnings in Year 2 were net income and dividends declared and paid. -Refer to Mary Kay Cosmetics.Prepare the financing activities section of the company's statement of cash flows for Year 2.

Which of the following transactions would NOT be classified as an investing activity?

Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. (Choices may be used more than once.) -issued shares to buy a building

Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. (Choices may be used more than once.) -repaid a long-term bonds payable

The issuance of common shares in exchange for a building would appear both as a cash inflow in the financing activities section of the cash flow statement and also as a cash outflow in the investing activities section.

A company reported net income of $950,000.What can be said of its cash from operations?

Which of the following measures can be used to evaluate a company's ability to meet future debt obligations after paying operating expenses and dividends and making capital expenditures?

When the indirect method is used to determine operating cash flows,how will the retirement of bonds payable at their maturity date be shown on the statement of cash flows?

Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. (Choices may be used more than once.) -received payments from accounts receivable

Merry Maids Company Merry Maids Company began Year 1 with a cash and cash equivalents balance of $7,670. Consolidated statements of cash flows for the years ended December 31, Year 2 and Year 1, are presented below: -Refer to Merry Maids Company.In Year 2,why are depreciation and amortization expenses added back to net income in the operating activities section of the statement of cash flows?

Match these terms with their correct definition. -represents both an investing and financing activity but does not involve the receipt or payment of cash.

Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. (Choices may be used more than once.) -received cash from the sale of securities

You are the Controller for McBride & Associates.Your accounting intern from the local university has been assigned the task of preparing your company's statement of cash flows.The intern has come to you with a question.She is not sure how to report some dividends the company had received during the year.She explains that,on first thought,it seems like dividends represent a financing activity since they are related to shares that companies issue to finance their businesses.But she is having second thoughts.Explain to your intern how dividends (both received and paid)should be classified on the cash flow statement.

How are cash flows from acquiring and selling products classified?

The collection of accounts receivable results in a cash ____________________ reported in the operating activities section of the statement of cash flows using the indirect method.

Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. (Choices may be used more than once.) -issued long term mortgage to acquire land and a building

Match these terms with their correct definition. -includes cash sales to customers and cash dividends received