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Exam 12: Reporting Cash Flows

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Question 101

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Bagwell's net income for the year ended December 31,Year 2 was $185,000.Information from Bagwell's comparative balance sheets is given below.Compute the cash received from the sale of its common stock during Year 2. $\begin{array} { | l | r | r | } \hline \text { At December 31 } & \text { Year 2 } & \text { Year 1 } \\\hline \text { Common Stock, \$5 par value } & \$ 500,000 & \$ 450,000 \\\hline \text { Paid-in capital in excess of par } & 948,000 & 853,000 \\\hline \text { Retained earnings } & 688,000 & 582,000 \\\hline\end{array}$

A) $185,000.
B) $106,000.
C) $95,000.
D) $50,000.
E) $145,000.

F) None of the above
G) A) and B)

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Question 102

Multiple Choice

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A company's Inventory balance at the end of the year was $188,000 and $200,000 at the beginning of the year.Its Accounts Payable balance at the end of the year was $84,000 and $80,000 at the beginning of the year,and its cost of goods sold for the year was $720,000.The company's total amount of cash payments for merchandise during the year equals:

A) $704,000.
B) $712,000.
C) $720,000.
D) $728,000.
E) $736,000.

F) A) and B)
G) A) and C)

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Question 103

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Which of the following items is reported on the statement of cash flows under financing activities?

Tate Company's 20X2 income statement and changes in selected balance sheet accounts are given below.Calculate the company's net cash provided or used by operating activities using the direct method. $\begin{array} { | l | r | } \hline \text { Increase in accounts receivable } & \$ 4,000 \\\hline \text { Increase in accounts payable (all accounts } & \\\hline \text { payable transactions are for inventory) } & 16,000 \\\hline \text { Increase in income taxes payable } & 300 \\\hline \text { Decrease in prepaid expenses } & 10,000 \\\hline \text { Decrease in merchandise inventory } & 14,000 \\\hline \text { Decrease in long-term notes payable } & 20,000 \\\hline\end{array}$

A cash-based measure to help business decision makers estimate the amount and timing of cash flows is the cash flow on total assets ratio.

In preparing a company's statement of cash flows for the most recent year,Ransom Corp.reported the following information: $\begin{array}{lr}\text { Repayment of outstanding bonds } & \$ 107,000 \\\text { Purchase of treasury stock } & 62,000 \\\text { Issuance of common stock } & 46,000 \\\text { Payment of cash dividends } & 15,\end{array}$ Net cash flows from financing activities for the year were:

For each of the following items, indicate whether it would be classified as either an (O) operating activity, an (I) investing activity, a (F) financial activity, or a significant (N) noncash financing and investing activity. -Cash sales of merchandise.

Which of the following is included in the cash flows from financing activities section of the statement of cash flows?

The FASB requires a reconciliation of net income to net cash provided or used by operating activities when the direct method is used (which can be reported in the notes).

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.

Jamison Company reports depreciation expense of $35,000 for Year 2.Also,equipment costing $140,000 was sold for a $5,000 gain in Year 2.The following selected information is available for Jamison Company from its comparative balance sheet.Compute the cash received from the sale of the equipment. $\begin{array} { | l | r | r | } \hline \text { At December 31 } & \text { Year 2 } & \text { Year 1 } \\\hline \text { Equipment } & \$ 610,000 & \$ 750,000 \\\hline \text { Accumulated Depreciation-Equipment } & 428,000 & 500,000 \\\hline\end{array}$

A corporation reported average total assets in Year 1 of $397,350 and $440,800 in Year 2.Its net operating cash flow for Year 1 was $35,667 and $35,790 for Year 2.Calculate the cash flow on total assets ratio for both years.Comment on the results.

For each of the following items, indicate whether it would be classified as an (O) operating activity, an (I) investing activity, a (F) financing activity, or a significant (N) noncash financing and investing activity. -Paid wages to employees.

For each of the following items, indicate whether it would be classified as either an (O) operating activity, an (I) investing activity, a (F) financial activity, or a significant (N) noncash financing and investing activity. -Purchased equipment in exchange for a 6-month note payable.

For each of the following separate cases,use the information provided to calculate the missing cash inflow or cash outflow using the direct method. (a) $\begin{array}{|l|c|}\hline \text { Accounts receivable balances: } & \\\hline \text { Beginning of year } & \$ 60,000 \\\hline \text { End of year } & 63,000 \\\hline \text { Sales revenue (all on credit) } & 395,000 \\\hline \text { Cash received from customers } & \$ \\\hline\end{array}$ $\begin{array}{|c|l|c|}\hline \text { (b) } & \text { Accounts payable balances: } & \\\hline & \text { Beginning of year } & \$ 42,000 \\\hline & \text { End of year. } & 31,000 \\\hline & \text { Merchandise inventory balances: } & \\\hline & \text { Beginning of year } & 50,000 \\\hline & \text { End of year ...... } & 52,500 \\\hline & \text { Cost of goods sold. } & 250,000 \\\hline & \text { Cash paid for merchandise inventory } & \$\\\hline\end{array}$ (c) $\begin{array}{|c|c|}\hline \text { Interest payable balances:} & \\\hline \text { Beginning of year } & \$ 7,500 \\\hline \text { End of year } & 8,200 \\\hline \text { nterest expense } & 31,000 \\\hline\text { Cash paid for interest }&\$\\\hline\end{array}$

What are the five usual steps involved in the preparation of the statement of cash flows?

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

For each of the following items, indicate whether it would be classified as either an (O) operating activity, an (I) investing activity, a (F) financial activity, or a significant (N) noncash financing and investing activity. -Reissued treasury stock.

The cash flow on total assets ratio compared to the total assets ratio can be used as an indicator of earnings quality.

Match each of the following items with the appropriate definitions. -Transactions that include making and collecting notes receivable or purchasing and selling plant assets,or investments in other than cash equivalents and trading securities.