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Exam 11: Statement of Cash Flows

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Question 41

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Cash return on assets can be separated to examine two important business strategies: cash flow to sales and asset turnover.

A) True
B) False

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Question 42

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Which of the following is correct about the statement of cash flows?

A) A company with a net loss on the income statement will always have a net cash outflow from operating activities.
B) A purchase of equipment is classified as a cash inflow from investing activities.
C) Cash dividends received on stock investments are classified as cash flows from operating activities.
D) Cash dividends paid are classified as cash flows from operating activities.

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

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Question 43

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Freedom Wireless reports operating expenses of $255,000. Operating expenses include both rent expense and salaries expense. Prepaid rent decreases during the year by $10,000 and salaries payable increases by $25,000. What is the cash paid for operating expenses during the year?

In preparing a statement of cash flows under the indirect method, a decrease in accounts receivable would be reported or included as a(n) :

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.

Which of the following is deducted from net income as an adjustment under the indirect method of preparing the statement of cash flows?

The purchase of treasury stock is classified in the statement of cash flows as a(n) :

We report the actual amount of cash proceeds received from the sale of land as a cash inflow from investing activities.

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:

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. We represent this as a noncash activity either directly after the cash flow statement or in a note to the financial statements.

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.

Which of the following is NOT a correct practice when adjusting net income to net operating cash flows?

Under the indirect method, a decrease in accounts payable is added to net income to arrive at net cash flows from operating activities. We would subtract a decrease in accounts payable from net income to arrive at net cash flows from operating activities under the indirect method.

The balance sheet of Sound Designs reports total assets of $750,000 and $800,000 at the beginning and end of the year, respectively. Sales revenues are $1.5 million ($1.2 million in the previous year) , net income is $150,000, and net cash flows from operating activities are $175,000. What is Sound Designs' cash return on assets?

Mobile Video Systems sold land, investments, and issued their own common stock for $10 million, $15 million, and $20 million, respectively. Mobile Video also purchased treasury stock, equipment, and a patent for $2 million, $4 million, and $6 million, respectively. What amount should the company report as net cash flows from investing activities? What amount should the company report as net cash flows from financing activities?

The purchase of long-term assets by issuing debt is recorded as both an investing activity and a financing activity. Purchase of long-term assets by issuing debt is reported as a noncash activity either directly after the cash flow statement or in a separate note to the financial statements.

During 2012, Smithson Corp. had the following cash flows: receipt from customers, $10,000; receipt from the bank for long-term borrowing, $6,000; payment to suppliers, $5,000; payment of dividends, $1,000, payment to workers, $2,000; and payment for machinery, $8,000. What amount would be reported for investing cash flows on the Statement of Cash Flows?

Classify each of the following items as an operating, investing, or financing activity. 1. Payment of income taxes. 2. Sale of investments. 3. Receipt of interest. 4. Issuance of common stock. 5. Purchase of intangibles.

Which of the following is an example of a noncash activity?

Identify and briefly describe the three categories of cash flows reported in the statement of cash flows.