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Exam 16: Statement of Cash Flows

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Question 1

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Cash flows from investing activities, as part of the statement of cash flows, include receipts from the issuance of bonds payable.

A) True
B) False

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Question 2

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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.

A) True
B) False

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Question 3

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Which of the following can be found on the statement of cash flows?

The declaration and issuance of a stock dividend would be reported on the statement of cash flows.

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.

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.

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.

Under the indirect method, expenses that do not affect cash are added to net income in the operating activities section of the statement of cash flows.

Cash flows from operating activities, as part of the statement of cash flows, include cash transactions that enter into the determination of net income.

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.

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.

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.

The cash flows from operating activities are reported by the direct method on the statement of cash flows. Determine the following:

Sales reported on the income statement were $690,000. The accounts receivable balance declined $39,000 over the year. Determine the amount of cash received from customers.

Cost of merchandise sold reported on the income statement was $155,000. The accounts payable balance increased $5,000, and the inventory balance increased by $11,000 over the year. Determine the amount of cash paid for merchandise.

Cash, as the term is used for the statement of cash flows, could indicate either cash or cash equivalents.

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.

Under the direct method of reporting cash flows from operations, the major source of cash is cash received from customers.

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.

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.