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Exam 12: Reporting and Analyzing Cash Flows

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Question 111

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When preparing the operating activities section of the statement of cash flows using the indirect method,decreases in current operating liabilities are subtracted from net income.

A) True
B) False

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Question 112

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The primary purpose of the statement of cash flows is to report all major cash receipts (inflows)and cash payments (outflows)during a period.

A) True
B) False

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Question 113

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When preparing the operating activities section of the statement of cash flows using the indirect method,depreciation is subtracted from net income.

When using a spreadsheet to prepare the statement of cash flows,an increase in accounts payable is entered in the Analysis of Changes columns with a debit in the statement of cash flows section and a credit in the balance sheet section.

On a spreadsheet used to prepare the operating activities section of the statement of cash flows,depreciation expense does not require an entry in the Analysis of Changes columns because it is a noncash item.

A purchase of land in exchange for a long-term note payable must be disclosed as a noncash investing and financing activity.

Keita Co.reported net income of $213.4 million,net cash provided by operating activities of $151.3 million,total cash flows of $187.7 million,and average total assets of 2,314.8 million at the end of the year.Calculate the cash flow on total assets ratio for Keita.

Explain the purpose and format of the statement of cash flows.Also describe its relevance to decision makers.

The first line item in the operating activities section of a spreadsheet for a statement of cash flows prepared using the indirect method is:

The direct method for the preparation of the operating activities section of the statement of cash flows:

Use the following information about the current year's operations of a company to calculate the cash paid for merchandise.

Use the following information to calculate cash paid for wages and salaries: $\begin{array}{lr}\text {Salaries expense }&\$168,000\\\text {Salaries payable, January 1 }&6,400\\\text {Salaries payable, December 31 }&10,600\\\end{array}$

The cash flows from operating activities section of an indirect method of cash flows begins with net income or loss.

In preparing Marjorie Company's statement of cash flows for the most recent year,the following information is available: Net cash flows from investing activities for the year were:

Use the following financial statements and additional information to (1)prepare a statement of cash flows for the year ended December 31,20X2 using the indirect method,and (2)compute the company's cash flow on total assets ratio for 20X2. Additional Information a.A $20,000 note payable is retired at its carrying value in exchange for cash. b.The only changes affecting retained earnings are net income and cash dividends paid. c.New equipment is acquired for $120,000 cash. d.Received cash for the sale of equipment that had cost $85,000,yielding a gain of $4,700. e.Prepaid expenses relate to Other Expenses on the income statement. f.All purchases and sales of merchandise inventory are on credit.

When analyzing the changes on a spreadsheet used to prepare a statement of cash flows,the cash flows from investing activities generally affect:

Financing activities include (a)the purchase and sale of long-term assets,(b)the purchase and sale of short-term investments,and (c)lending and collecting on loans.

The statement of cash flows reports and proves the net change in cash for a reporting period.

Since it is recommended by the FASB,the direct method of preparing the statement of cash flows is most frequently used.

Financing activities include receiving cash from issuing debt and paying cash dividends to shareholders.