TestBank financial accounting 2n spiceland ch11

Ch11 Student: _ A statement of cash flows provides a summary of cash inflows and cash outflows during the reporting period True The three primary categories of cash flows are cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities True False We record dividends received as a financing activity True False We report interest paid on bonds or notes payable with operating activities rather than financing activities True False We report interest and dividends received from investments with investing activities True False Operating activities are both inflows and outflows of cash resulting from the external financing of a business True False Investing activities include cash transactions involving the purchase and sale of long-term assets and current investments True False Financing activities include cash receipts and cash payments for transactions relating to revenue and expense activities True False False We record dividends paid as a financing activity True False 10 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 True False 11 The purchase of long-term assets by issuing debt is recorded as both an investing activity and a financing activity True False 12 The total net cash flows from operating activities differ between the direct and indirect methods True False 13 Using the indirect method, we begin with net income and then list adjustments to net income in order to arrive at operating cash flows True False 14 Using the direct method we adjust the items on the income statement to directly show the cash inflows and outflows from operations True False 15 Since depreciation expense reduces net income, companies will add depreciation expense back to net income as a step in arriving at net cash flows from operations under the indirect method True False 16 We need to add back to net income any loss on sale of long-term assets in the operating section of the statement of cash flows in order to eliminate the noncash component of net income True False 17 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 True False 18 Under the indirect method, a decrease in accounts receivable is added to net income to arrive at net cash flows from operating activities True False 19 Under the indirect method, an increase in prepaid rent is added to net income to arrive at net cash flows from operating activities True False 20 Under the indirect method, an increase in inventory is added to net income and a decrease in inventory is subtracted from net income to arrive at net cash flows from operating activities True False 21 When preparing a statement of cash flows using the indirect method, a decrease in accounts payable is subtracted from net income True False 22 Under the indirect method, an increase in accounts payable is added to net income to arrive at net cash flows from operating activities True False 23 Under the indirect method, a decrease in accounts payable is added to net income to arrive at net cash flows from operating activities True False 24 The long-term assets section of the balance sheet is the place to look for investing activities True False 25 The sale of land is reported in the operating section of the statement of cash flows True False 26 We report the purchase of stock in another corporation as a cash outflow from investing activities True False 27 We report the actual amount of cash proceeds received from the sale of land as a cash inflow from investing activities True False 28 If no cash was exchanged in the purchase of equipment financed entirely with a note payable, we represent this as both an investing activity and a financing activity in the statement of cash flows True False 29 We can find most financing activities by examining changes in long-term liabilities and stockholders' equity accounts True False 30 The inflow of cash received from issuing common stock is reported as an investing activity True False 31 The balance in Retained Earnings is increased by net income and is decreased by dividends True False 32 We report the payment of cash dividends as a cash outflow from investing activities True False 33 The total of the cash flows from operating, investing, and financing activities equals the net increase or decrease in cash for the year True False 34 We calculate cash return on assets as the change in cash divided by average total assets True False 35 Cash return on assets indicates the amount of operating cash flow generated for each dollar invested in assets True False 36 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 True False 37 Cash return on assets can be separated to examine two important business strategies: cash flow to sales and asset turnover True False 38 Income statement items that have no cash effect are still reported under the direct method True False 39 If accounts receivable decreases, this indicates that revenues exceed cash receipts from customers True False 40 When accounts payable decrease, cash paid to suppliers must have been more than purchases True False 41 If there are no current assets or liabilities associated with operating expenses, the amounts we report for these expenses in the income statement must equal the amount of cash we paid for these items True False 42 Depreciation expense is not reported on the statement of cash flows under the direct method True False 43 We add an increase in interest payable to interest expense in arriving at cash paid for interest under the direct method True False 44 We add a decrease in income tax payable to income tax expense to calculate cash paid for income taxes True False 45 The indirect method begins with net income, while the direct method considers each of the individual accounts that make up net income True False 46 The Statement of Cash Flows: A B C D Option a Option b Option c Option d 47 The purchase of landis classified in the statement of cash flows as a(n): A B C D Operating activity Investing activity Financing activity Noncash activity 48 The issuance of notes payable for borrowing is classified in the statement of cash flows as a(n): A B C D Operating activity Investing activity Financing activity Noncash activity 49 The purchase of treasury stock is classified in the statement of cash flows as a(n): A B C D Operating activity Investing activity Financing activity Noncash activity 50 Operating cash flows exclude: A B C D Interest received Interest paid Dividends received Dividends paid 51 The statement of cash flows reports cash flows from the activities of: A B C D Operating, purchasing, and investing Borrowing, paying, and investing Operating, investing, and financing Using, investing, and financing 52 Which one of the following is correct about the statement of cash flows? A B C D Option a Option b Option c Option d 53 Which of the following is correct about the statement of cash flows? A B C D Option a Option b Option c Option d 54 All classifications on the Balance Sheet have a general relationship with sections identified on the Statement of Cash Flows Indicate which relationships are correctly identified in the table below A B C D Option a Option b Option c Option d 55 Under what section of the Statement of Cash Flows would you classify dividends paid on common stock? A B C D Option a Option b Option c Option d 56 Under what section of the Statement of Cash Flows would you classify the purchase of equipment by issuing a long-term note payable? A B C D Option a Option b Option c Option d 57 Which of the following transactions would not create a cash flow? A B C D Option a Option b Option c Option d 58 Which of the following is an example of a noncash activity? A B C D Sale of land for less than its cost Purchase of land by issuing debt Sale of land for more than its cost Purchase of land using cash proceeds from issuance of common stock 59 Which of the following is not true regarding cash flows? A B C D Option a Option b Option c Option d 60 Dividends received from an investment is classified as a(an) cash flow, and paying dividends on stock issued is classified as a(an) cash flow on the Statement of Cash Flows A B C D Option a Option b Option c Option d 61 The collection of cash from customers would be classified as which type of cash flow on the Statement of Cash Flows? A B C D Option a Option b Option c Option d 62 The indirect and direct methods: A B C D are used by companies about equally in actual practice affect the presentations of operating, investing, and financing activities arrive at different amounts for net cash flows from operating activities are two allowable methods to present operating activities in the statement of cash flows 63 In the operating activities section of the statement of cash flows, we start with net income when using: A B C D the direct method the indirect method both the direct and the indirect method neither the direct nor the indirect method 64 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: A B C D Operating, $2,000; Financing $16,000 Operating, $0; Financing $18,000 Operating, $12,000; Financing $6,000 Operating, $18,000; Financing $0 Bad Brad's BBQ had cash flows for the year as follows ($ in millions): 65 Bad Brad's would report net cash inflows (outflows) from operating activities in the amount of: A B C D $(80) $120 $200 $420 66 Bad Brad's would report net cash inflows (outflows) from investing activities in the amount of: A B C D $(4,000) $100 $(3,900) $(1,900) 67 Bad Brad's would report net cash inflows (outflows) from financing activities in the amount of: A B C D $1,100 $(1,100) $820 $900 68 We can identify operating activities from income statement information and changes in A B C D Long-term asset accounts Long-term liability accounts Current asset and current liability accounts Stockholders' equity accounts 69 In preparing a statement of cash flows under the indirect method, a decrease in accounts receivable would be reported or included as a(n): A B C D Option a Option b Option c Option d 70 In preparing a statement of cash flows under the indirect method, an increase in accounts payable would be reported as a(n): A B C D Option a Option b Option c Option d 71 Which of the following is NOT a correct practice when adjusting net income to net operating cash flows? A B C D Option a Option b Option c Option d 72 Which of the following is added to net income as an adjustment under the indirect method of preparing the statement of cash flows? A B C D Salaries payable increase Gain on the sale of land Inventory increase Accounts receivable increase 73 Which of the following is deducted from net income as an adjustment under the indirect method of preparing the statement of cash flows? A B C D Salaries payable decrease Inventory decrease Depreciation expense Accounts receivable decrease 74 Given the items below, which of the following is a subtraction from net income to arrive at Operating Cash Flows using the indirect method? A B C D Option a Option b Option c Option d 75 Rachel's Recordings reported net income of $200,000 Beginning balances in Accounts Receivable and Accounts Payable were $15,000 and $20,000, respectively Ending balances in these accounts were $12,000 and $22,000, respectively Assuming that all relevant information has been presented, Rachel's cash flows from operating activities would be: A B C D $200,000 $195,000 $205,000 $199,000 142.Distinguish between the indirect method and the direct method for reporting net cash flows from operating activities Which method is more common in practice? Which method provides a more logical presentation of cash flows? 143.Highland Park Homes reports net income of $300,000, and yet its net cash flow from operating activities is a negative $200,000 during the same period Is this possible? Explain 144.A $10,000 investment on the books of the company is sold for $11,000 How does this transaction affect operating, investing, and financing activities under the indirect method? 145.Explain the difference in the calculation of return on assets and cash return on assets How can cash-based ratios supplement the analysis of ratios based on income statement and balance sheet information? 146.Listed below are ten terms followed by a list of phrases that describe or characterize the terms Match each phrase with the best term placing the letter designating the term in the space provided Indirect method _ _ Begins with net income and then list adjustments to net income_ in order to arrive at operating cash flows._ Investing activities _ _ Significant investing and financing activities that not affect_ cash._ Statement of cash flows _ _ Sales revenue divided by average total assets;_ measures the sales revenue generated per dollar of assets._ Noncash activities _ _ Includes cash receipts and cash payments for transactions_ relating to revenue and expense activities._ _ Net cash flows from operating activities divided by average_ Financing total assets; measures the operating cash flow generated per dollar_ activities of assets._ Cash return on assets _ A summary of cash inflows and cash outflows during the_ reporting period sorted by operating, investing, and financing_ activities._ Direct method _ Net cash flows from operating activities divided by sales_ revenue; measures the operating cash flow generated per dollar of_ sales._ Operating activities Cash flow to sales 10 Asset turnover _ _ Includes cash transactions resulting from the external financing_ of a business._ _ _ Includes cash transactions involving the purchase and sale of_ long-term assets and current investments._ _ Adjusts the items on the income statement to show items such_ as cash received from customers, and cash paid for inventory,_ salaries, rent, interest and taxes._ 147.For each of the following ten transactions, indicate by letter whether the cash effect of each transaction is reported in a statement of cash flows as an operating (O), investing (I), financing (F), or noncash (NC) activity Also, indicate whether the transaction is a cash inflow (CI), cash outflow (CO), or no effect on cash (NE) The first answer is provided as an example Answer: 148.For each of the following five transactions, indicate by letter whether the cash effect of each transaction is reported in a statement of cash flows as an operating (O), investing (I), financing (F), or noncash (NC) activity Answer: 149.For each of the following five transactions, indicate by letter whether the cash effect of each transaction is reported in a statement of cash flows as an operating (O), investing (I), financing (F), or noncash (NC) activity Answer: 150.For each of the following five transactions, indicate by letter whether the cash effect of each transaction is reported in a statement of cash flows as an operating (O), investing (I), financing (F), or noncash (NC) activity Answer: Ch11 Key TRUE TRUE FALSE TRUE FALSE FALSE TRUE FALSE TRUE 10 TRUE 11 FALSE 12 FALSE 13 TRUE 14 TRUE 15 TRUE 16 TRUE 17 FALSE 18 TRUE 19 FALSE 20 FALSE 21 TRUE 22 TRUE 23 FALSE 24 TRUE 25 FALSE 26 TRUE 27 TRUE 28 FALSE 29 TRUE 30 FALSE 31 TRUE 32 FALSE 33 TRUE 34 FALSE 35 TRUE 36 TRUE 37 TRUE 38 FALSE 39 FALSE 40 TRUE 41 TRUE 42 TRUE 43 FALSE 44 TRUE 45 TRUE 46 C 47 B 48 C 49 C 50 D 51 C 52 C 53 C 54 C 55 C 56 D 57 B 58 B 59 A 60 B 61 C 62 D 63 B 64 C 65 B 66 C 67 D 68 C 69 A 70 A 71 A 72 A 73 A 74 A 75 C 76 A 77 C 78 D 79 B 80 C 81 B 82 B 83 C 84 B 85 A 86 B 87 C 88 D 89 B 90 B 91 D 92 A 93 D 94 C 95 C 96 C 97 C 98 C 99 B 100 D 101 A 102 B 103 C 104 B 105 B 106 D 107 C 108 C 109 C 110 B 111 D 112 A 113 C 114 A 115 C 116 D 117 A 118 D 119 A 120 C 121 Financing Activity Operating Activity Investing Activity Operating Activity Financing Activity 122 Operating Activity Investing Activity Operating Activity Financing Activity Investing Activity 123 Cash inflow, Financing activity Cash outflow, Investing activity Cash inflow, Operating activity Cash outflow, Financing activity Cash outflow, Investing activity 124 Investing activities Investing activities Noncash activities Operating activities Financing activities Investing activities Operating activities Operating activities Financing activities 10 Operating activities 125 Operating activities Investing activities Financing activities Net increase (decrease) in cash Beginning cash balance Ending cash balance 126 127 128 129 130 131 132 133 Lowes has a better (higher) cash flow to sales ratio, while Home Depot has a better (higher) asset turnover 134 135 Operating Cash Flow = 10 * [($160,000 + $220,000) ¸ 2] = $19,000 136 137 138 139 140 141 The three categories of cash flows are operating activities, investing activities, and financing activities Operating activities include cash receipts and cash payments for transactions relating to revenue and expense activities, essentially the very same activities reported on the income statement Investing activities include cash transactions involving the purchase and sale of long-term assets and current investments Financing activities are cash flows resulting from the external financing of a business such as long-term liabilities and stockholders' equity 142 Using the indirect method, we begin with net income and then list adjustments to net income in order to arrive at operating cash flows Using the direct method, we adjust the items on the income statement to directly show the cash inflows and outflows from operations such as cash received from customers, and cash paid for inventory, salaries, rent, interest and taxes The indirect method is more common in practice, while the direct method provides a more logical presentation of cash flows 143 It is possible to report net income and negative operating cash flows at the same time Increases in current assets and decreases in current liabilities both result in net income that is higher than operating cash flows As one specific example, an increase in accounts receivable of $500,000 would result in net income exceeding operating cash flows by $500,000 144 The $1,000 gain on sale of the investment is subtracted from net income in arriving at net operating cash flows The sale of the investment is also reported as an $11,000 increase to cash flows from investing activities This transaction has no effect on financing activities 145 Return on assets has net income in the numerator while cash return on assets has cash flows from operations in the numerator Both ratios divide by average total assets Analysts often supplement their investigation of income statement and balance sheet amounts with cash flow ratios Some cash flow ratios are derived by substituting net cash flows from operating activities in place of net income Cash flow ratios offer additional insight in the evaluation of a company's profitability and financial strength 146 Indirect method :: Begins with net income and then list adjustments to net income in order to arrive at operating cash flows and Noncash activities :: Significant investing and financing activities that not affect cash and Asset turnover :: Sales revenue divided by average total assets; measures the sales revenue generated per dollar of assets and Operating activities :: Includes cash receipts and cash payments for transactions relating to revenue and expense activities and Cash return on assets :: Net cash flows from operating activities divided by average total assets; measures the operating cash flow generated per dollar of assets and Statement of cash flows :: A summary of cash inflows and cash outflows during the reporting period sorted by operating, investing, and financing activities and Cash flow to sales :: Net cash flows from operating activities divided by sales revenue; measures the operating cash flow generated per dollar of sales and Financing activities :: Includes cash transactions resulting from the external financing of a business and Investing activities :: Includes cash transactions involving the purchase and sale of long-term assets and current investments and Direct method :: Adjusts the items on the income statement to show items such as cash received from customers, and cash paid for inventory, salaries, rent, interest and taxes 147 148 149 150 Ch11 Summary Category AACSB: Analytic AACSB: Reflective Thinking AICPA: Critical Thinking AICPA: Decision Making AICPA: Measurement AICPA: Reporting Blooms: Analysis Blooms: Application Blooms: Comprehension Blooms: Knowledge Difficulty: Easy Difficulty: Hard Difficulty: Medium Learning Objective: 11-01 Classify cash transactions as operating; investing; or financing activities Learning Objective: 11-02 Prepare the operating activities section of the statement of cash flows using the indirect method Learning Objective: 11-03 Prepare the investing activities section and the financing activities section of the statement of cash flows Learning Objective: 11-04 Perform financial analysis using the statement of cash flows Learning Objective: 11-05 Prepare the operating activities section of the statement of cash flows using the direct method Spiceland - Chapter 11 # of Questions 50 100 18 20 110 50 75 22 27 19 104 48 33 28 19 27 151 ... receivable 124.Analysis of an income statement, balance sheets, and additional information from the accounting records of Gaming Strategies reveal the following items: Collection of notes receivable... (decrease) in cash Operating activities 126.Electronic Wonders reports net income of $95,000 The accounting records reveal Depreciation Expense of $50,000 as well as increases in Prepaid Rent,... respectively Calculate Alpha Computers' net cash flows from operating activities 130.Portions of the financial statements for Horizon Telecom are provided below Prepare the operating activities section