Exam 16: Reporting the Statement of Cash Flows

A company purchased equipment for $150,000 by paying $50,000 and signing a $100,000 note payable. The entire transaction is disclosed to users in the financing section of the statement of cash flows.

The statement of cash flows reports all but which of the following:

A cash dividend payment to shareholders during the year should be reported on the statement of cash flows as:

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.

Investing activities include: (a)the purchase and sale of long-term assets, (b)lending and collecting on notes receivable, and (c)the purchase and sale of short-term investments in the securities of other entities, other than cash equivalents and trading securities.

A decrease in the inventory account during the year should be reported on the indirect method statement of cash flows as:

Define the cash flow on total assets ratio and explain how it is used to evaluate cash flows and to assess company performance.

A statement of cash flows explains the differences between the beginning and ending balances of:

The cash flow on total assets ratio is computed by dividing average total assets by operating income.

Define and discuss the differences between operating, investing, and financing activities.

The full disclosure principle requires that noncash investing and financing activities be disclosed in the financial statements.

Use the following information about the current year's operations of a company to calculate the cash paid for merchandise. Cost of goods sold. \5 00,000 Merchandise inventory, January 1. 85,000 Merchandise inventory, December 31 97,000 Accounts payable, January 1. 68,000 Accounts payable, December 31. 60,000

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

Financing activities include receiving cash from issuing debt and receiving cash dividends from investments in other companies' stocks.

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).

Most managers stress the importance of understanding and predicting cash flows for business decisions.

In preparing a company's statement of cash flows for the most recent year using the indirect method, the following information is available: Net income for the year was \ 52,000 Accounts payable increased by 18,000 Accounts receivable decreased by 25,000 Inventories decreased by 5,000 Cash dividends paid were 14,000 Depreciation expense was 20,000 Net cash provided by operating activities was: A) $\$ 120,000$ . B) $\$ 110,000$ . C) $\$ 71,000$ . D) $\$ 70,000$ . E) $\$ 24,000$ .

Bagwell's net income for the year ended December 31, Year 2 was $175,000. Information from Bagwell's comparative balance sheets is given below. Compute the cash paid for dividends during Year 2. At December 31 Y ear 2 Y ear 1 Common Stock, \ 5 par value \ 500,000 \ 450,000 Paid-in capital in excess of par 948,000 853,000 Retained earnings 688,000 582,000

Addams Corporation paid cash dividends totaling $75,000 during its most recent fiscal year. How should this information be reported on Addams's statement of cash flows?

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