Test bank accounting 25th chapter 16 statement of ca

Chapter 16 Statement of Cash Flows Student: _ The statement of cash flows is not one of the basic financial statements True False Cash, as the term is used for the statement of cash flows, could indicate either cash or cash equivalents True False The statement of cash flows is an optional financial statement True False The statement of cash flows shows the effects on cash of a company's operating, investing, and financing activities True False The statement of cash flows reports a firm's major sources of cash receipts and major uses of cash payments for a period True False Cash flows from operating activities, as part of the statement of cash flows, include cash transactions that enter into the determination of net income True False To arrive at cash flows from operations, it is necessary to convert the income statement from an accrual basis to the cash basis of accounting True False Cash flows from investing activities, as part of the statement of cash flows, include receipts from the sale of land True False Cash flows from financing activities, as part of the statement of cash flows, include payments for dividends True False 10 Cash flows from investing activities, as part of the statement of cash flows, include payments for the purchase of treasury stock True False 11 Cash flows from investing activities, as part of the statement of cash flows, include receipts from the issuance of bonds payable True False 12 There are two alternatives to reporting cash flows from operating activities in the statement of cash flows: (1) the direct method and (2) the indirect method True False 13 The direct method of preparing the operating activities section of the statement of cash flows reports major classes of gross cash receipts and gross cash payments True False 14 Under the direct method of reporting cash flows from operations, the major source of cash is cash received from customers True False 15 The main disadvantage of the direct method of reporting cash flows from operating activities is that the necessary data are often costly to accumulate True False 16 A major disadvantage of the indirect method of reporting cash flows from operating activities is that the difference between the net amount of cash flows from operating activities and net income is emphasized True False 17 Cash outflows from financing activities include the payment of cash dividends, the acquisition of treasury stock, and the repayment of amounts borrowed True False 18 Cash flows from investing activities, as part of the statement of cash flows, include payments for the acquisition of fixed assets True False 19 The acquisition of land in exchange for common stock is an example of noncash investing and financing activity True False 20 If a business issued bonds payable in exchange for land, the transaction would be reported in a separate schedule on the statement of cash flows True False 21 A cash flow per share amount should be reported on the statement of cash flows True False 22 When using the worksheet method to analyzing noncash accounts , no order of analysis is required, but it is more efficient to start with Retained Earnings and proceed upward in the account listing True False 23 Rarely would the cash flows from operating activities, as reported on the statement of cash flows, be the same as the net income reported on the income statement True False 24 Using the indirect method, if land costing $85,000 was sold for $145,000, the amount reported in the financing activities section of the statement of cash flows would be $85,000 True False 25 If land costing $145,000 was sold for $205,000, the $60,000 gain on the sale would be added to net income in of the operating activities section of the statement of cash flows (prepared by the indirect method) True False 26 In preparing the cash flows from operating activities section of the statement of cash flows by the indirect method, the net decrease in inventories from the beginning to the end of the period is added to net income for the period True False 27 In determining the cash flows from operating activities for the statement of cash flows by the indirect method, the depreciation expense for the period is added to the net income for the period True False 28 In preparing the cash flows from operating activities section of the statement of cash flows by the indirect method, the amortization of bond discount for the period is deducted from the net income for the period True False 29 If cash dividends of $135,000 were paid during the year and the company sold 1,000 shares of common stock at $30 per share, the statement of cash flows would report net cash flow from financing activities as $165,000 True False 30 The declaration and issuance of a stock dividend would be reported on the statement of cash flows True False 31 If 800 shares of $40 par common stock are sold for $43,000, the $43,000 would be reported in the cash flows from financing activities section of the statement of cash flows True False 32 If $475,000 of bonds payable are sold at 101, $475,000 would be reported in the cash flows from financing activities section of the statement of cash flows True False 33 Net income was $51,000 for the year The accumulated depreciation balance increased by $14,000 over the year There were no sales of fixed assets or changes in noncash current assets or liabilities Under the indirect method, the cash flow from operations is $37,000 True False 34 Net income for the year was $29,500 Accounts receivable increased $2,500, and accounts payable increased $5,400 Under the indirect method, the cash flow from operations is $32,400 True False 35 A building with a cost of $153,000 and accumulated depreciation of $42,000 was sold for a $11,000 gain When using the indirect method, the cash generated from this investing activity was $121,000 True False 36 Under the indirect method, expenses that not affect cash are added to net income in the operating activities section of the statement of cash flows True False 37 Cash paid to acquire treasury stock should be shown on the statement of cash flows from investing activities True False 38 Repayments of bonds would be shown as a cash outflow in the investing section of the statement of cash flows True False 39 Purchasing equipment by issuing a six-month note should be shown on the statement of cash flows under the investing activities section True False 40 In preparing the statement of cash flows, the correct order of reporting cash activities is Financing, Operating, Investing True False 41 Cash inflows and outflows are not netted in the investing or financing sections of the statement of cash flows but are separately disclosed to give the reader full information True False 42 There is no difference in the Investing and Financing sections of the statement of cash flows using the indirect and direct method True False 43 Under the direct method of preparing a Statement of Cash Flows, the gain on the sale of land is not adjusted or reported as part of cash flows from operating activities True False 44 The manner of reporting cash flows from investing and financing activities will be different under the direct method as compared to the indirect method True False 45 Sales reported on the income statement were $372,000 The accounts receivable balance declined $4,500 over the year The amount of cash received from customers was $367,500 True False 46 To determine cash payments for merchandise for the cash flow statement using the direct method, a decrease in accounts payable is added to the cost of merchandise sold True False 47 To determine cash payments for operating expenses for the cash flow statement using the direct method, a decrease in prepaid expenses is added to operating expenses other than depreciation True False 48 To determine cash payments for operating expenses for the cash flow statement using the direct method, a decrease in accrued expenses is added to operating expenses other than depreciation True False 49 To determine cash payments for income tax for the cash flow statement using the direct method, an increase in income taxes payable is added to the income tax expense True False 50 Free cash flow is cash flow from operations, less cash used to purchase fixed assets to maintain productive capacity and cash used for dividends True False 51 Free cash flow is the measure of operating cash flow available for corporate purposes after providing sufficient fixed asset additions to maintain current productive capacity and dividends True False 52 Which of the following is not one of the four basic financial statements? A balance sheet B statement of cash flows C statement of changes in financial position D income statement 53 Which of the following concepts of cash is not appropriate to use in preparing the statement of cash flows? A cash B cash and money market funds C cash and cash equivalents D cash and U.S treasury bonds 54 Which of the following can be found on the statement of cash flows? A cash flows from operating activities B total assets C total changes in stockholders' equity D changes in retained earnings 55 On the statement of cash flows, the cash flows from operating activities section would include A receipts from the issuance of capital stock B receipts from the sale of investments C payments for the acquisition of investments D cash receipts from sales activities 56 Preferred stock issued in exchange for land would be reported in the statement of cash flows in A the cash flows from financing activities section B the cash flows from investing activities section C a separate schedule D the cash flows from operating activities section 57 Cash paid to purchase long-term investments would be reported in the statement of cash flows in A the cash flows from operating activities section B the cash flows from financing activities section C the cash flows from investing activities section D a separate schedule 58 Which of the following would not be found in a Schedule of Noncash Investing and Financing Activities, reported at the end of a Statement of Cash Flows? A equipment acquired in exchange for a note payable B bonds payable exchanged for capital stock C purchase of treasury stock D capital stock issued to acquire fixed assets 59 Which of the following does not represent an outflow of cash and therefore would not be reported on the statement of cash flows as a use of cash? A purchase of noncurrent assets B purchase of treasury stock C discarding an asset that had been fully depreciated D payment of cash dividends 60 Which of the following represents an inflow of cash and therefore would be reported on the statement of cash flows? A retirement of bond payable B acquisition of treasury stock C declaration of stock dividends D issuance of long-term debt 61 A ten-year bond was issued at par for $250,000 cash This transaction should be shown on a statement of cash flows under A investing activities B financing activities C noncash investing and financing activities D operating activities 62 Cash paid for preferred stock dividends should be shown on the statement of cash flows under A investing activities B financing activities C noncash investing and financing activities D operating activities 63 The last item on the statement of cash flows prior to the schedule of noncash investing and financing activities reports A the increase or decrease in cash B cash at the end of the year C net cash flow from investing activities D net cash flow from financing activities 64 Which of the following is a noncash investing and financing activity? A payment of a cash dividend B payment of a six-month note payable C purchase of merchandise inventory on account D issuance of common stock to acquire land 65 Which of the following should be shown on a statement of cash flows under the financing activity section? A the purchase of a long-term investment in the common stock of another company B the payment of cash to retire a long-term note C the proceeds from the sale of a building D the issuance of a long-term note to acquire land 66 A company purchases equipment for $32,000 cash This transaction should be shown on the statement of cash flows under A investing activities B financing activities C noncash investing and financing activities D operating activities 67 Cash flow per share is A required to be reported on the balance sheet B required to be reported on the income statement C required to be reported on the statement of cash flows D not required to be reported on any statement 68 On the statement of cash flows prepared by the indirect method, the cash flows from operating activities section would include A receipts from the sale of investments B amortization of premium on bonds payable C payments for cash dividends D receipts from the issuance of capital stock 69 The statement of cash flows is not useful for: A planning future investing and financing activities B determining a company’s ability to pay its debts C determining a company’s ability to pay dividends D calculating the net worth of a company 70 Cash receipts received from the issuance of a mortgage notes payable would be classified as A investing activities B operating activities C either financing or investing activities D financing activities 71 The order of presentation of activities on the statement of cash flows is A operating, investing, and financing B operating, financing, and investing C financing, operating, and investing D financing, investing, and operating 72 Financing activities include A lending money B acquiring investments C issuing debt D acquiring long-lived assets 73 Investing activities include A collecting cash on loans made B obtaining cash from customers C obtaining capital from owners D repaying money previously borrowed 148 The net income reported on an income statement for the current year was $63,000 Depreciation recorded on fixed assets for the year was $24,000 Balances of the current asset and current liability accounts at the end and beginning of the year are listed below Prepare the cash flows from operating activities section of a statement of cash flows using the indirect method Cash Accounts receivable (net) Inventories Prepaid expenses Accounts payable (merchandise creditors) Cash dividends payable Salaries payable Cash flows from operating activities: Net income, per income statement Add: Depreciation Decrease in inventories Decrease in prepaid expenses Deduct: Increase in accounts receivable (net) Decrease in accounts payable Decrease in salaries payable Net cash flow from operating activities End $65,000 70,000 86,000 4,000 Beginning $ 70,000 57,000 102,000 4,500 51,000 4,500 6,000 58,000 6,500 7,500 $63,000 $24,000 16,000 500 $13,000 7,000 1,500 40,500 $103,500 21,500 $82,000 149 The board of directors declared cash dividends totaling $252,000 during the current year The comparative balance sheet indicates dividends payable of $48,000 at the beginning of the year and $63,000 at the end of the year What was the amount of cash payments to stockholders during the year? Dividends declared Less increase in dividends payable Dividends paid to stockholders during the year $252,000 15,000 $237,000 150 An analysis of the general ledger accounts indicates that equipment, with an original cost of $134,000 and accumulated depreciation of $105,000 on the date of sale, was sold for $20,000 during the year Using this information, indicate the items to be reported on the statement of cash flows using the indirect method Cash flows from operating activities: Loss on sale of equipment $9,000 Cash flows from investing activities: Cash received from sale of equipment $20,000 151 On the basis of the following data for Larson Co for the year ending December 31, 2011 and the preceding year ended December 31, 2010, prepare a statement of cash flows Use the indirect method of reporting cash flows from operating activities In addition to the balance sheet data, assume that: Equipment costing $125,000 was purchased for cash Equipment costing $85,000 with accumulated depreciation of $65,000 was sold for $15,000 The stock was issued for cash The only entries in the retained earnings account were net income of $51,000 and cash dividends declared of $13,000 Cash Accounts receivable (net) Inventories Equipment Accumulated depreciation Accounts payable (merchandise creditors) Cash dividends payable Common stock, $10 par Paid-in capital in excess of par-common stock Retained earnings Year 2011 $100,000 78,000 101,500 410,000 (150,000) $539,500 Year 2010 $ 78,000 85,000 90,000 370,000 (158,000) $465,000 $ 58,500 5,000 200,000 $ 55,000 4,000 170,000 62,000 214,000 $539,500 60,000 176,000 $465,000 Larson Co Statement of Cash Flows For Year Ended December 31, 2011 Cash flows from operating activities: Net income, per income statement Add: Depreciation Decrease in accounts receivable Increase in accounts payable Loss on sale of equipment $ 51,000 $57,000 7,000 3,500 5,000 Deduct: Increase in inventories Net cash flow from operating activities Cash flows from investing activities: Cash from sale of equipment Less: Cash paid for purchase of equipment Net cash flow used for investing activities Cash flows from financing activities: Cash received from sale of common stock Less: Cash paid for dividends Net cash flow provided by financing activities Increase in cash Cash at the beginning of the year Cash at the end of the year *$13,000 + $4,000 - $5,000 = $12,000 72,500 $ 123,500 11,500 $112,000 $ 15,000 125,000 (110,000) $32,000 12,000* 20,000 $ 22,000 78,000 $100,000 152 The comparative balance sheet of Posner Company, for 2011 and the preceding year ended December 31, 2010, appears below in condensed form: Cash Accounts receivable (net) Inventories Investments Equipment Accumulated depreciation-equipment Accounts payable Bonds payable, due 2011 Common stock, $10 par Paid-in capital in excess of par-common stock Retained earnings Year 2011 $ 53,000 37,000 108,500 573,200 (142,000) $629,700 Year 2010 $ 50,000 48,000 100,000 70,000 450,000 (176,000) $542,000 $ 62,500 325,000 $ 43,800 100,000 285,000 80,000 162,200 $629,700 55,000 58,200 $542,000 The income statement for the current year is as follows: Sales Cost of merchandise sold Gross profit Operating expenses: Depreciation expense Other operating expenses Income from operations Other income: Gain on sale of investment Other expense: Interest expense Income before income tax Income tax Net income $625,700 340,000 $285,700 $26,000 68,000 94,000 $191,700 $ 4,000 6,000 (2,000) $189,700 60,700 $129,000 Additional data for the current year are as follows: (a) (b) (c) (d) Fully depreciated equipment costing $60,000 was scrapped, no salvage, and equipment was purchased for $183,200 Bonds payable for $100,000 were retired by payment at their face amount 5,000 shares of common stock were issued at $13 for cash Cash dividends declared and paid, $25,000 Prepare a statement of cash flows, using the indirect method of reporting cash flows from operating activities Posner Company Statement of Cash Flows For the Year Ended December 31, 2011 Cash flows from operating activities: Net income, per income statement Add: Depreciation Decrease in accts rec Increase in accts pay Deduct: Increase in inventories Gain on sale of investments Net cash flow from operating activities Cash flows from investing activities: Cash from sale of investments Less: Cash paid for purchase of equipment Net cash flow used for investing activities Cash flows from financing activities: Cash from sale of common stock Less: Cash paid to retire bonds payable Cash paid for dividends Net cash flow used for financing activities Increase in cash Cash at the beginning of the year Cash at the end of the year $129,000 $26,000 11,000 18,700 $ 8,500 4,000 55,700 $184,700 12,500 172,200 $ 74,000 183,200 (109,200) $ 65,000 $100,000 25,000 125,000 (60,000) 3,000 50,000 $ 53,000 $ 153 The comparative balance sheet of Barry Company, for 2011 and the preceding year ended December 31, 2010, appears below in condensed form: Cash Accounts receivable (net) Inventories Investments Equipment Accumulated depreciation-equipment Accounts payable Bonds payable, due 2011 Common stock, $20 par Premium on common stock Retained earnings Year 2011 $ 72,000 61,000 121,000 515,000 (153,000) $616,000 Year 2010 $ 42,500 70,200 105,000 100,000 425,000 (175,000) $567,700 $ 59,750 375,000 50,000 131,250 $616,000 $ 47,250 75,000 325,000 25,000 95,450 $567,700 Additional data for the current year are as follows: (a) (b) (c) (d) (e) (f) (g) Net income, $75,800 Depreciation reported on income statement, $38,000 Fully depreciated equipment costing $60,000 was scrapped, no salvage, and equipment was purchased for $150,000 Bonds payable for $75,000 were retired by payment at their face amount 2,500 shares of common stock were issued at $30 for cash Cash dividends declared and paid, $40,000 Investments of $100,000 were sold for $125,000 Prepare a statement of cash flows using the indirect method Barry Company Statement of Cash Flows For the Year Ended December 31, 2011 Cash flows from operating activities: Net income, per income statement Add: Depreciation Decrease in accts rec Increase in accts pay Deduct: Increase in inventories Gain on sale of investments Net cash flow from operating activities Cash flows from investing activities: Cash from sale of investments Less: Cash paid for purchase of equipment Net cash flow used for investing activities Cash flows from financing activities: Cash from sale of common stock Less: Cash paid to retire bonds payable Cash paid for dividends Net cash flow used for financing activities $ 75,800 $38,000 9,200 12,500 $16,000 25,000 59,700 $135,500 41,000 $94,500 $125,000 150,000 (25,000) $ 75,000 $75,000 40,000 115,000 (40,000) Increase in cash Cash at the beginning of the year Cash at the end of the year $29,500 42,500 $72,000 154 The Dickinson Company reported net income of $155,000 for the current year Depreciation recorded on buildings and equipment amounted to $65,000 for the year In addition, a building with an original cost of $250,000 and accumulated depreciation of $190,000 on the date of the sale, was sold for $75,000 Balances of the current asset and current liability accounts at the beginning and end of the year are as follows: Cash Accounts receivable Inventories Accounts payable End of Year $20,000 19,000 50,000 12,000 Beginning of Year $15,000 32,000 65,000 18,000 Instructions Prepare the cash flows from the operating activities section of the statement of cash flows using the indirect method Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense Gain on sale of building Decrease in accounts receivable Decrease in inventories Decrease in accounts payable Net cash provided by operating activities $155,000 65,000 (15,000) 13,000 15,000 (6,000) $227,000 155 The net income reported on an income statement for the current year was $58,000 Depreciation recorded on fixed assets for the year was $24,000 In addition, equipment with an original cost of $130,000 and accumulated depreciation of $115,000 on the date of the sale, was sold for $20,000 Balances of the current asset and current liability accounts at the end and beginning of the year are listed below Prepare the cash flows from operating activities section of a statement of cash flows using the indirect method Cash Accounts receivable (net) Inventories Prepaid expenses Accounts payable (merchandise creditors) Cash dividends payable Salaries payable Cash flows from operating activities: Net income, per income statement Add: Depreciation Decrease in inventories Decrease in prepaid expenses Deduct: Gain on sale of equipment Increase in accounts receivable (net) Decrease in accounts payable Decrease in salaries payable Net cash flow from operating activities End $65,000 70,000 85,000 4,000 Beginning $ 70,000 63,000 102,000 4,500 50,000 4,500 6,000 58,000 6,500 7,500 $58,000 $24,000 17,000 500 41,500 $99,500 $ 5,000 7,000 8,000 1,500 21,500 $78,000 156 On the basis of the following data for Grant Co for 2011 and the preceding year ended December 31, 2010, prepare a statement of cash flows Use the indirect method of reporting cash flows from operating activities Assume that equipment costing $125,000 was purchased for cash and equipment costing $85,000 with accumulated depreciation of $65,000 was sold for $15,000; that the stock was issued for cash; and that the only entries in the retained earnings account were net income of $56,000 and cash dividends declared of $18,000 Cash Accounts receivable (net) Inventories Equipment Accumulated depreciation Accounts payable (merchandise creditors) Cash dividends payable Common stock, $10 par Paid-in capital in excess of par-common stock Retained earnings Year 2011 $90,000 78,000 106,500 410,000 (150,000) $534,500 Year 2010 $ 78,000 85,000 90,000 370,000 (158,000) $465,000 $ 53,500 5,000 200,000 $ 55,000 4,000 170,000 62,000 214,000 $534,500 60,000 176,000 $465,000 Grant Co Statement of Cash Flows For Year Ended December 31, 2011 Cash flows from operating activities: Net income, per income statement Add: Depreciation Decrease in accounts receivable Loss on sale of equipment Deduct: Increase in inventories Decrease in accounts payable Net cash flow from operating activities Cash flows from investing activities: Cash from sale of equipment Less: Cash paid for purchase of equipment Net cash flow used for investing activities Cash flows from financing activities: Cash received from sale of common stock Less: Cash paid for dividends Net cash flow provided by financing activities Increase in cash Cash at the beginning of the year Cash at the end of the year *$18,000 + $4,000 - $5,000 = $17,000 $ 56,000 $57,000 7,000 5,000 16,500 1,500 69,000 $125,000 18,000 $107,000 $ 15,000 125,000 (110,000) $32,000 17,000* 15,000 $ 12,000 78,000 $90,000 157 Balances of the current asset and current liability accounts at the end and beginning of the year are as follows: Cash Accounts receivable (net) Inventories Accounts payable (merchandise creditors) Salaries payable Sales (on account) Cost of merchandise sold Operating expenses other than depreciation End $ 62,000 75,000 54,000 Beginning $73,000 60,000 47,000 43,000 2,800 210,000 70,000 67,000 37,000 3,800 Use the direct method to prepare the cash flows from operating activities section of a statement of cash flows Cash flows from operating activities: Cash received from customers Less: Cash payments for merchandise Cash payments for operating expenses Net cash flow from operating activities $195,000 $71,000 68,000 139,000 $ 56,000 158 The comparative balance sheet of Colson Company, for 2011 and the preceding year ended December 31, 2010 appears below in condensed form: Cash Accounts receivable (net) Inventories Investments Equipment Accumulated depreciation-equipment Accounts payable Bonds payable, due 2014 Common stock, $10 par Paid-in capital in excess of par-common stock Retained earnings Year 2011 Year 2010 $ 45,000 51,300 147,200 493,000 (113,700) $622,800 $ 61,500 250,000 $ 53,500 58,000 135,000 60,000 375,000 (128,000) $553,500 $ 42,600 100,000 200,000 75,000 236,300 $622,800 50,000 160,900 $553,500 The income statement for the current year is as follows: Sales Cost of merchandise sold Gross profit Operating expenses: Depreciation expense Other operating expenses Income from operations Other income: Gain on sale of investment Other expense: Interest expense Income before income tax Income tax Net income $623,000 348,500 $274,500 $24,700 75,300 100,000 $174,500 $ 5,000 12,000 (7,000) $167,500 64,100 $103,400 Additional data for the current year are as follows: (a) (b) (c) (d) (e) Fully depreciated equipment costing $39,000 was scrapped, no salvage, and equipment was purchased for $157,000 Bonds payable for $100,000 were retired by payment at their face amount 5,000 shares of common stock were issued at $15 for cash Cash dividends declared were paid $28,000 All sales are on account Prepare a statement of cash flows, using the direct method of reporting cash flows from operating activities Colson Company Statement of Cash Flows For the Year Ended December 31, 2011 Cash flows from operating activities: Cash received from customers Deduct: Cash payments for merchandise Cash payments for operating expenses Cash payments for interest Cash payments for income taxes Net cash flow from operating activities $629,700 $341,800 75,300 12,000 64,100 $136,500 Cash flows from investing activities: Cash from sale of investments Less cash paid for purchase of equipment Net cash flow used for investing activities Cash flows from financing activities: Cash received from sale of common stock Less: Cash paid for dividends Cash paid to retire bonds payable Net cash flow used for financing activities Decrease in cash Cash at the beginning of the year Cash at the end of the year 493,200 $ 65,000 157,000 (92,000) $ 75,000 $ 28,000 100,000 128,000 (53,000) $ (8,500) 53,500 $ 45,000 159 The cash flows from operating activities are reported by the direct method on the statement of cash flows Determine the following: (a) (b) If sales for the current year were $475,000 and accounts receivable increased by $39,000 during the year, what was the amount of cash received from customers? If income tax for the current year was $39,000 and income tax payable decreased by $11,000 during the year, what was the amount of cash payments for income tax? (a) Sales Less increase in accounts receivable Cash received from customers $475,000 39,000 $436,000 (b) Income tax Add decrease in income taxes payable Cash payments for income tax $39,000 11,000 $50,000 160 Selected data for the current year ended December 31 are as follows: Accrued expenses (operating expenses) Accounts payable (merchandise creditors) Inventories Prepaid expenses Balance December 31 $29,500 90,000 42,500 23,000 Balance January $ 22,000 135,000 68,000 20,000 During the current year, the cost of merchandise sold was $620,000 and the operating expenses other than depreciation were $142,000 The direct method is used for presenting the cash flows from operating activities on the statement of cash flows Determine the amount reported on the statement of cash flows for (a) cash payments for merchandise and (b) cash payments for operating expenses (a) Cost of merchandise sold Add decrease in accounts payable Deduct decrease in inventories Cash payments for merchandise (b) Operating expenses other than depreciation Deduct increase in accrued expenses Add increase in prepaid expenses Cash payments for operating expenses $620,000 45,000 $665,000 25,500 $639,500 $142,000 7,500 $134,500 3,000 $137,500 161 Based on the following, what is free cash flow? Cash from Operations Cash from Investing Cash from Financing $155,000 $(30,000) $ 30,000 Operations includes $2,000 for depreciation Investing includes the purchase of a replacement asset for $100,000 and the sale of the one used in production, which is now obsolete, for $70,000 Financing is made up of $70,000 of borrowing and $25,000 of dividends paid $155,000 - $100,000 - $25,000 = $30,000 162 Balances of the current asset and current liability accounts at the end and beginning of the year are as follows: Cash Accounts receivable (net) Inventories Accounts payable (merchandise creditors) Salaries payable Sales (on account) Cost of merchandise sold Operating expenses other than depreciation End $ 67,000 73,000 54,000 Beginning $73,000 60,000 47,000 43,000 2,800 210,000 70,000 67,000 37,000 3,800 Use the direct method to prepare the cash flows from operating activities section of a statement of cash flows Cash flows from operating activities: Cash received from customers Less: Cash payments for merchandise Cash payments for operating expenses Net cash flow from operating activities $197,000 $71,000 68,000 139,000 $ 58,000 163 On the basis of the following data for Branch Co for the year ended December 31, 2011 and the preceding year, prepare a statement of cash flows using the indirect method of reporting cash flows from operating activities Assume that equipment costing $125,000 was purchased for cash and the land was sold for $15,000 The stock was issued for cash and the only entries in the retained earnings account were net income of $56,000 and cash dividends declared and paid of $18,000 Cash Accounts receivable (net) Inventories Land Equipment Accumulated depreciation Accounts payable (merchandise creditors) Common stock, $10 par Paid-in capital in excess of par-common stock Retained earnings Year 2011 $65,000 78,000 106,500 -495,000 (215,000) $529,500 Year 2010 $ 54,000 85,000 90,000 20,000 370,000 (158,000) $461,000 $ 53,500 200,000 $ 55,000 170,000 62,000 214,000 $529,500 60,000 176,000 $461,000 Branch Co Statement of Cash Flows For Year Ended December 31, 2011 Cash flows from operating activities: Net income, per income statement Add: Depreciation Decrease in accounts receivable Loss on sale of land Deduct: Increase in inventories Decrease in accounts payable Net cash flow from operating activities Cash flows from investing activities: Cash from sale of land Less: Cash paid for purchase of equipment Net cash flow used for investing activities Cash flows from financing activities: Cash received from sale of common stock Less: Cash paid for dividends Net cash flow provided by financing activities Increase in cash Cash at the beginning of the year Cash at the end of the year $ 56,000 $57,000 7,000 5,000 16,500 1,500 69,000 $125,000 18,000 $107,000 $ 15,000 125,000 (110,000) $32,000 18,000 14,000 $ 11,000 54,000 $65,000 164 On the basis of the following data for Breach Co for the year ended December 31, 2011 and the preceding year, prepare a statement of cash flows using the indirect method of reporting cash flows from operating activities Assume that equipment costing $25,000 was purchased for cash and no long term assets were sold during the period Stock was issued for cash - 3,200 shares at par Net income for 2010 was $76,000 Cash dividends declared and paid were $13,000 Cash Accounts receivable (net) Inventories Equipment Accumulated depreciation Accounts payable (merchandise creditors) Taxes payable Common stock, $10 par Retained earnings Year 2011 $170,000 78,000 106,500 395,000 (195,000) $554,500 Year 2010 $ 74,000 85,000 90,000 370,000 (158,000) $461,000 $ 51,000 2,500 262,000 239,000 $554,500 $ 50,000 5,000 230,000 176,000 $461,000 Breach Co Statement of Cash Flows For Year Ended December 31, 2011 Cash flows from operating activities: Net income, per income statement Add: Depreciation Decrease in accounts receivable Increase in accounts payable Deduct: Increase in inventories Decrease in taxes payable Net cash flow from operating activities Cash flows from investing activities: Cash paid for purchase of equipment Net cash flow used for investing activities Cash flows from financing activities: Cash received from sale of common stock Less: Cash paid for dividends Net cash flow provided by financing activities Increase in cash Cash at the beginning of the year Cash at the end of the year $ 76,000 $37,000 7,000 1,000 16,500 2,500 45,000 $121,000 19,000 $102,000 (25,000) (25,000) $32,000 13,000 19,000 $ 96,000 74,000 $170,000 165 Complete each of the columns on the table below, indicating in which section each item would be reported on the statement of cash flow (Operating, Investing, or Financing), the amount that would be reported, and whether the item would create an increase or decrease in cash For item that affect more than one section of the statement, indicate all affected Assume the indirect method of reporting cash flows operating activities The first item has been completed as an example Statement Section Item Depreciation of $20,000 for the period Issuance of common stock for $30,000 Increase in Accounts Payable of $7,000 Retirement of $100,000 Bonds Payable at 97 Purchase of long term investments for $76,500 Dividends declared and paid of $8,300 Increase in Prepaid Rent of $4,500 Decrease in Inventory of $5,300 Purchase of equipment for $17,600 cash Sale of land originally costing $60,000 for $66,000 Decrease in Taxes Payable for $2,100 Operating Statement Section Item Depreciation of $20,000 for the period Issuance of common stock for $30,000 Increase in Accounts Payable of $7,000 Retirement of $100,000 Bonds Payable at 97 Purchase of long term investments for $76,500 Dividends declared and paid of $8,300 Increase in Prepaid Rent of $4,500 Decrease in Inventory of $5,300 Purchase of equipment for $17,600 cash Sale of land originally costing $60,000 for $66,000 Decrease in Taxes Payable for $2,100 Operating Financing Operating Operating Financing Investing Financing Operating Operating Investing Operating Investing Operating Amount to Report $20,000 +/- Effect on Cash Increase Amount to Report $20,000 30,000 7,000 3,000 97,000 76,500 8,300 4,500 5,300 17,600 6,000 66,000 2,100 +/- Effect on Cash Increase Increase Increase Increase Decrease Decrease Decrease Decrease Increase Decrease Decrease Increase Decrease ... income statement 53 Which of the following concepts of cash is not appropriate to use in preparing the statement of cash flows? A cash B cash and money market funds C cash and cash equivalents D cash...9 Cash flows from financing activities, as part of the statement of cash flows, include payments for dividends True False 10 Cash flows from investing activities, as part of the statement of cash... reported on the statement of cash flows as a use of cash? A purchase of noncurrent assets B purchase of treasury stock C discarding an asset that had been fully depreciated D payment of cash dividends