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Exam 12: Statement of Cash Flows

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Question 31

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During 2014, Eva's Enterprises cash paid for property, plant and equipment was $755 million and cash flow from operating activities was $5,968 million. The average property, plant, and equipment from the comparative balance sheets were $6,094 million. Eva's capital acquisitions ratio for 2014 is closest to:

A) 1.0
B) 5.3
C) 7.9
D) 6.0

E) All of the above
F) A) and C)

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Question 32

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A company's 2014 income statement reported total sales revenue of $1,200,000; accounts receivable increased by $25,000 and the unearned sales revenue account decreased $15,000 during 2014. How much cash was collected from customers during 2014?

A) $1,225,000.
B) $1,160,000.
C) $1,175,000.
D) $1,185,000.

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

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Question 33

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Which of the following transactions increases the quality of income ratio?

Milliken Company paid $2.2 million to purchase stock in another company, $1.0 million to repurchase treasury shares, $.5 million to buy short-term investments, sold used equipment for $.8 million when its book value was $.6 million, and purchased new equipment for $3.4 million. What was the net cash flow from investing activities?

During 2014, Edna Enterprises had a capital acquisitions ratio of 8.0. During 2014, Carlos' Corporation had a capital acquisitions ratio of 3.4. The amount of cash flow from operating activities was $5,968,000 for Edna's and $5,054,000 for Carlos. Which of the following statements is incorrect?

Atkins Corporation has provided the following information for the year ended December 31, 2014: • The equipment account balance increased $200,000. • The equipment accumulated depreciation account increased $35,000. • Equipment costing $50,000 was sold during the year resulting in a $10,000 gain. • Depreciation expense recorded on the equipment during the year was $65,000. Which of the following statements is incorrect with respect to preparation of the statement of cash flows? Assume that the equipment purchase and sale resulted in cash flows.

Brice Corporation reported the following information: Required: Compute Brice's cash paid for income taxes in 2014.

Hill Company reported net income of $10,000 for 2014. Additional 2014 information is as follows: $\begin{array} { l r } \text { Expenditures for productive assets } & \$ 6,000 \\\text { Depreciation expense on productive assets } & 2,000 \\\text { Dividends paid on common stock } & 900 \\\text { Increase in accounts payable } & 400 \\\text { Decrease in inventory } & 200 \\\text { Amortization of patent } & 100 \\\text { Decrease in accounts receivable } & 300\end{array}$ Required: Calculate net cash flows from operating activities, using the indirect method.

Which of the following is not reported as a cash flow from investing activities?

When a company borrows $150 million during the year and also repays $120 million of debt, the company can disclose the $30 million net amount as excess of borrowings over repayments in the financing activities section of the statement of cash flows.

The following information has been provided to you by RKJ Company: $\begin{array} { l r } \text { Net income } & \$ 300,000 \\\text { Decrease in accounts payable } & \$ 114,000 \\\text { Increase in inventory } & \$ 22,000 \\\text { Increase in accounts receivable } & \$ 24,000 \\\text { Decrease in bonds payable } & \$ 25,000 \\\text { Loss on sale of a depreciable asset } & \$ 19,000 \\\text { Depreciation expense } & \$ 40,000 \\\text { Decrease in income taxes payable } & \$ 12,000\end{array}$ Using the indirect method, what is the net cash provided by operating activities?

The quality of income ratio can only be interpreted based on knowledge of a company's business operations and strategies.

Which of the following transactions increases the quality of income ratio?

Use the following information to prepare a statement of cash flows (direct method) for Ames Corporation for the year ended December 31, 2015. $\begin{array}{lr}\text { Cash and cash equivalent balances: }\\12-31-2014 & \$ 26,000 \\12-31-2015 & 18,000 \\\text { Cash paid for purchase of treasury stock } & 50,000\\\text { Accepted note receivable in exchange for a computer }\\\text { that had been used in business operations } & 10,000 \\\text { Depreciation expense } & 15,000 \\\text { Cash received from customers } & 200,000 \\\text { Cash paid for operating expenses } & 75,000 \\\text { Cash paid for merchandise } & 130,000 \\\text { Cash received from dividends } & 2,000 \\\text { Cash paid for dividends } & 5,000 \\\text { Cash paid for office building } & 75,000 \\\text { Cash borrowed on a 6-month note payable } & 40,000 \\\text { Cash received from issuance of bonds payable } & 90,000 \\\text { Cash paid for bond interest expense } & 5,000\end{array}$

The quality of income ratio decreases when cash is used to pay accounts payable.

Use the following information to prepare a statement of cash flows for Stable Equipment Company for the year ended December 31, 2014 if using the indirect method: Net income for the year 2014 was $5,000. Accounts receivable decreased $2,000, while inventories increased $4,000, and accounts payable decreased $7,000. Depreciation expense included in net income was $8,000. During the year, a piece of land held for future expansion was sold for its book value of $8,000 and a new service truck was purchased for $14,000. The company borrowed $18,000 on a two-year note from the bank. Dividends of $6,000 were paid in cash. Preferred stock was issued to retire $7,000 of long-term notes payable. The beginning cash balance was $22,000 and the ending balance was $32,000.

Lab Industries, Inc., issued $50,000 of bonds, paid cash dividends of $8,000, sold long-term investments for $12,000, received $5,000 of dividend revenue, purchased treasury stock for $15,000, and purchased new equipment for $19,000. What is the net cash flow from financing activities?

Which of the following statements about the quality of income ratio is correct?

Which statement regarding the indirect method is false?

Marissa Company is preparing a statement of cash flows using the indirect method. The following data are available: $\begin{array}{lr}\text { Net income } & \$ 30,000 \\\text { Depreciation expense } & 18,000 \\\text { Inventory increase } & 5,000 \\\text { Wages payable decrease } & 10,000 \\\text { Accounts receivable decrease } & 10,000 \\\text { Accounts payable decrease } & 7,000\end{array}$ Required: Calculate net cash flows from operating activities.