Exam 14: How Well Am I Doing Cash Flow Statement Online

Since depreciation expense is added back to net income in the operating section of an indirect method cash flow statement, if depreciation expense increases cash flows will similarly increase.

Using the indirect method, the operating activities section of the cash flow statement is constructed starting with net income and adjusting it to a cash basis.

The total of wage expense to employees for the year was $500,000. Wages payable to employees at the beginning of the year were $10,000 and at the end of the year $15,000. Wage expense resulted in cash outflows of?

Short-term highly liquid investments such as treasury bills which may be included on the balance sheet within marketable securities will be considered cash in preparation of the cash flow statement.

If the direct method to prepare the operating section of the cash flow statement is used instead of the indirect method, changes will be required in the financing and investing sections too.

During the year sales to customers were $300,000. Accounts receivable from customers at the beginning of the year were $75,000 and at the end of the year $100,000. As a result cash inflows from sales to customers totalled?

A business bought some land for future expansion at a cost of $100,000 and paid for it in full by issuing additional shares of capital stock. of the cash flow statement?

Reference: 14-01 Financial statements for Larned Company appear below: Larned Company Balance Sheet December 31, 20X6 and 20X5 (dollars in thousands) 20X6 20X5 Current assets: Cash and marketable securities \ 130 \ 100 Accounts receivable, net 150 130 Inventory 100 100 Prepaid expenses 20 20 Total current assets 400 350 Noncurrent assets: Plant \& equipment, net 1,640 1,600 Total assets \ 2,040 \ 1,950 Current liabilities: Accounts payable \ 290 \ 280 Accrued liabilities 80 Total current liabilities 400 360 Stockholders' equity: Preferred stock, \2 0 par, 10\% 120 120 Common stock, \1 0 par 660 690 Retained earnings 860 780 Total stockholders' equity 1,640 1,590 Total liabilities \& stockholders' equity \ 2,040 \ 1,950 Larned Company Income Statement For the Year Ended December 31, 20X6 (dollars in thousands) Sales (all on account) \ 2,930 Cost of goods sold 2,050 Gross margin 880 Operating expenses 350 Net operating income 530 Net operating income 530 Interest expense 40 Net income before taxes 490 Income taxes (30\%) 147 Net income \ 343 Dividends during 20X6 totalled $263 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $160. Included in operating expenses was depreciation expense of $20,000. No non-current assets were sold. -In which section of the cash flow statement will dividends payable be reported

A business sold equipment for $8,000 in cash proceeds which had an original cost of $50,000 and accumulated depreciation at the date of sale of $40,000. Which of the statements below is true?

Reference: 14-01 Financial statements for Larned Company appear below: Larned Company Balance Sheet December 31, 20X6 and 20X5 (dollars in thousands) 20X6 20\times5 Current assets: Cash and marketable securities \ 130 \ 100 Accounts receivable, net 150 130 Inventory 100 100 Prepaid expenses 20 20 Total current assets 400 350 Noncurrent assets: Plant \& equipment, net 1,640 1,600 Total assets Current liabilities: Accounts payable \ 290 \ 280 Accrued liabilities 80 Total current liabilities 400 360 Stockholders' equity: Preferred stock, \2 0 par, 10\% 120 120 Common stock, \1 0 par 660 690 Retained earnings 860 780 Total stockholders' equity 1,640 1,590 Total liabilities \& stockholders' equity Larned Company Income Statement For the Year Ended December 31, 20X6 (dollars in thousands) Sales (all on account) \ 2,930 Cost of goods sold 2,050 Gross margin 880 Operating expenses 350 Net operating income 530 Interest expense 40 Net income before taxes 490 Income taxes (30\%) 147 Net income \ 343 Dividends during 20X6 totalled $263 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $160. Included in operating expenses was depreciation expense of $20,000. No non-current assets were sold. -The total of wage expense to employees for the year was $500,000. Wages payable to employees at the beginning of the year were $15,000 and at the end of the year $10,000. Wage expense resulted in cash outflows of?

If an entity acquires a capital asset and pays for it in full with the issuance of long-term debt, a use of cash will be reported under investing activities and a source of cash of the same amount will be reported under financing activities.

Reference: 14-01 Financial statements for Larned Company appear below: Larned Company Balance Sheet December 31, 20X6 and 20X5 (dollars in thousands) 20X6 20X5 Current assets: Cash and marketable securities \ 130 \ 100 Accounts receivable, net 150 130 Inventory 100 100 Prepaid expenses 20 20 Total current assets 400 350 Noncurrent assets: Plant \& equipment, net 1,640 1,600 Total assets \ 2,040 \ 1,950 Current liabilities: Accounts payable \ 290 \ 280 Accrued liabilities 80 Total current liabilities 400 360 Stockholders' equity: Preferred stock, \2 0 par, 10\% 120 120 Common stock, \1 0 par 660 690 Retained earnings 860 780 Total stockholders' equity 1,640 1,590 Total liabilities \& stockholders' equity \ 2,040 \ 1,950 Larned Company Income Statement For the Year Ended December 31, 20X6 (dollars in thousands) Sales (all on account) \ 2,930 Cost of goods sold 2,050 Gross margin 880 Operating expenses 350 Net operating income 530 Net operating income 530 Interest expense 40 Net income before taxes 490 Income taxes (30\%) 147 Net income \ 343 Dividends during 20X6 totalled $263 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $160. Included in operating expenses was depreciation expense of $20,000. No non-current assets were sold. -Long-term debt on the balance sheet increased by $50,000 and $100,000 in cas? dividends were paid. What will be the net result in cash flow?

Reference: 14-01 Financial statements for Larned Company appear below: Larned Company Balance Sheet December 31, 20X6 and 20X5 (dollars in thousands) 20X6 20\times5 Current assets: Cash and marketable securities \ 130 \ 100 Accounts receivable, net 150 130 Inventory 100 100 Prepaid expenses 20 20 Total current assets 400 350 Noncurrent assets: Plant \& equipment, net 1,640 1,600 Total assets Current liabilities: Accounts payable \ 290 \ 280 Accrued liabilities 80 Total current liabilities 400 360 Stockholders' equity: Preferred stock, \2 0 par, 10\% 120 120 Common stock, \1 0 par 660 690 Retained earnings 860 780 Total stockholders' equity 1,640 1,590 Total liabilities \& stockholders' equity Larned Company Income Statement For the Year Ended December 31, 20X6 (dollars in thousands) Sales (all on account) \ 2,930 Cost of goods sold 2,050 Gross margin 880 Operating expenses 350 Net operating income 530 Interest expense 40 Net income before taxes 490 Income taxes (30\%) 147 Net income \ 343 Dividends during 20X6 totalled $263 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $160. Included in operating expenses was depreciation expense of $20,000. No non-current assets were sold. -Accounts payable decreased by $75,000 and accounts receivable increased by $75,000. What will be the net result in terms of cash flow?

Reference: 14-01 Financial statements for Larned Company appear below: Larned Company Balance Sheet December 31, 20X6 and 20X5 (dollars in thousands) 20X6 20X5 Current assets: Cash and marketable securities \ 130 \ 100 Accounts receivable, net 150 130 Inventory 100 100 Prepaid expenses 20 20 Total current assets 400 350 Noncurrent assets: Plant \& equipment, net 1,640 1,600 Total assets \ 2,040 \ 1,950 Current liabilities: Accounts payable \ 290 \ 280 Accrued liabilities 80 Total current liabilities 400 360 Stockholders' equity: Preferred stock, \2 0 par, 10\% 120 120 Common stock, \1 0 par 660 690 Retained earnings 860 780 Total stockholders' equity 1,640 1,590 Total liabilities \& stockholders' equity \ 2,040 \ 1,950 Larned Company Income Statement For the Year Ended December 31, 20X6 (dollars in thousands) Sales (all on account) \ 2,930 Cost of goods sold 2,050 Gross margin 880 Operating expenses 350 Net operating income 530 Net operating income 530 Interest expense 40 Net income before taxes 490 Income taxes (30\%) 147 Net income \ 343 Dividends during 20X6 totalled $263 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $160. Included in operating expenses was depreciation expense of $20,000. No non-current assets were sold. -Long-term debt on the balance sheet increased by $100,000 and dividends payabl? increased by $50,000. What will be the net result in cash flow?

Reference: 14-01 Financial statements for Larned Company appear below: Larned Company Balance Sheet December 31, 20X6 and 20X5 (dollars in thousands) 20X6 20\times5 Current assets: Cash and marketable securities \ 130 \ 100 Accounts receivable, net 150 130 Inventory 100 100 Prepaid expenses 20 20 Total current assets 400 350 Noncurrent assets: Plant \& equipment, net 1,640 1,600 Total assets Current liabilities: Accounts payable \ 290 \ 280 Accrued liabilities 80 Total current liabilities 400 360 Stockholders' equity: Preferred stock, \2 0 par, 10\% 120 120 Common stock, \1 0 par 660 690 Retained earnings 860 780 Total stockholders' equity 1,640 1,590 Total liabilities \& stockholders' equity Larned Company Income Statement For the Year Ended December 31, 20X6 (dollars in thousands) Sales (all on account) \ 2,930 Cost of goods sold 2,050 Gross margin 880 Operating expenses 350 Net operating income 530 Interest expense 40 Net income before taxes 490 Income taxes (30\%) 147 Net income \ 343 Dividends during 20X6 totalled $263 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $160. Included in operating expenses was depreciation expense of $20,000. No non-current assets were sold. -In which section of the cash flow statement will the cash outflow from purchasing land be reported?

Reference: 14-01 Financial statements for Larned Company appear below: Larned Company Balance Sheet December 31, 20X6 and 20X5 (dollars in thousands) 20X6 20\times5 Current assets: Cash and marketable securities \ 130 \ 100 Accounts receivable, net 150 130 Inventory 100 100 Prepaid expenses 20 20 Total current assets 400 350 Noncurrent assets: Plant \& equipment, net 1,640 1,600 Total assets Current liabilities: Accounts payable \ 290 \ 280 Accrued liabilities 80 Total current liabilities 400 360 Stockholders' equity: Preferred stock, \2 0 par, 10\% 120 120 Common stock, \1 0 par 660 690 Retained earnings 860 780 Total stockholders' equity 1,640 1,590 Total liabilities \& stockholders' equity Larned Company Income Statement For the Year Ended December 31, 20X6 (dollars in thousands) Sales (all on account) \ 2,930 Cost of goods sold 2,050 Gross margin 880 Operating expenses 350 Net operating income 530 Interest expense 40 Net income before taxes 490 Income taxes (30\%) 147 Net income \ 343 Dividends during 20X6 totalled $263 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $160. Included in operating expenses was depreciation expense of $20,000. No non-current assets were sold. -The non-current asset section of a business's balance sheet is below. End of Current Year End of Prior Year Equipment \ 50,000 \ 60,000 Less accumulated depreciation These were the only depreciable assets owned by the business. During the current year the business sold equipment which it had purchased five years previously at a cost of $10,000. The accumulated depreciation on the equipment sold was $8,000 and the cash received from the sale was $3,000. There were no additions of equipment during the year. What was the depreciation expense recorded during the current year?

If an entity receives cash from the issuance of long-term debt during a year and also pays out cash to reduce a long-term debt, both a cash inflow and a cash outflow will be reported in the financing activities section of the cash flow statement.

Reference: 14-01 Financial statements for Larned Company appear below: Larned Company Balance Sheet December 31, 20X6 and 20X5 (dollars in thousands) 20X6 20\times5 Current assets: Cash and marketable securities \ 130 \ 100 Accounts receivable, net 150 130 Inventory 100 100 Prepaid expenses 20 20 Total current assets 400 350 Noncurrent assets: Plant \& equipment, net 1,640 1,600 Total assets Current liabilities: Accounts payable \ 290 \ 280 Accrued liabilities 80 Total current liabilities 400 360 Stockholders' equity: Preferred stock, \2 0 par, 10\% 120 120 Common stock, \1 0 par 660 690 Retained earnings 860 780 Total stockholders' equity 1,640 1,590 Total liabilities \& stockholders' equity Larned Company Income Statement For the Year Ended December 31, 20X6 (dollars in thousands) Sales (all on account) \ 2,930 Cost of goods sold 2,050 Gross margin 880 Operating expenses 350 Net operating income 530 Interest expense 40 Net income before taxes 490 Income taxes (30\%) 147 Net income \ 343 Dividends during 20X6 totalled $263 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $160. Included in operating expenses was depreciation expense of $20,000. No non-current assets were sold. -During the year sales to customers were $300,000. at the beginning of the year were $50,000 and at the end of the year $25,000. As a result cash inflows from sales to customers totalled?

The operating activities section of the cash flow statement will exclude changes in all noncurrent balance sheet accounts.

Reference: 14-01 Financial statements for Larned Company appear below: Larned Company Balance Sheet December 31, 20X6 and 20X5 (dollars in thousands) 20X6 20\times5 Current assets: Cash and marketable securities \ 130 \ 100 Accounts receivable, net 150 130 Inventory 100 100 Prepaid expenses 20 20 Total current assets 400 350 Noncurrent assets: Plant \& equipment, net 1,640 1,600 Total assets Current liabilities: Accounts payable \ 290 \ 280 Accrued liabilities 80 Total current liabilities 400 360 Stockholders' equity: Preferred stock, \2 0 par, 10\% 120 120 Common stock, \1 0 par 660 690 Retained earnings 860 780 Total stockholders' equity 1,640 1,590 Total liabilities \& stockholders' equity Larned Company Income Statement For the Year Ended December 31, 20X6 (dollars in thousands) Sales (all on account) \ 2,930 Cost of goods sold 2,050 Gross margin 880 Operating expenses 350 Net operating income 530 Interest expense 40 Net income before taxes 490 Income taxes (30\%) 147 Net income \ 343 Dividends during 20X6 totalled $263 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $160. Included in operating expenses was depreciation expense of $20,000. No non-current assets were sold. -Inventory increased by $50,000 and wages payable increased by $75,000. What will be the net result in terms of cash flow?