Exam 14: The Statement of Cash Flows

If an investor wants to know how much cash a company can free up for new opportunities, such as expanding into a new sales region, they would most likely look at:

The financing activities section of the statement of cash flows reflects the cash flows that affect current assets and liabilities.

A payment of interest on a loan would be considered a:

Starfire Company uses the indirect method to prepare the statement of cash flows. Please refer to the following income statement: Sales revenue \ 140,000 Interest revenue 5,000 Loss on sale of plant assets (4,000) Total revenues and (losses) \ 141,000 Cost of goods sold 100,000 Salary expense 23,000 Depreciation expense 8,000 Other operating expenses 9,000 Interest expense 2,000 Income tax expense 5,000 Total expenses \ 147,000 Net income/(loss) \ (6,000) Other information provided: • Current assets other than cash decrease by $4,000. • Current liabilities increase by $1,000. - Please prepare the operating activities section of the statement of cash flows using the following format: Operating activities: Net income Adjustments Net cash from operating activities

Which of the following are the three major categories included on the statement of cash flows?

Companies sometimes obtain financing other than cash. Although such transactions do not directly involve cash, they still must be reported in the financing section of the cash flow statement.

Transnational Company just started in business and was looking for additional capital in order to purchase a property to build their headquarters. They found an investor who was willing to sell them land worth $500,000 in exchange for stock in the company. How would this transaction be shown on the statement of cash flows?

Avatar Company uses the indirect method to prepare its statement of cash flows. Please refer to the following information for the year 2014: Long-term notes payable, beginning balance \ 90,000 Long-term notes payable, ending balance 84,000 Common stock, beginning balance 2,000 Common stock, ending balance 30,000 Retained earnings, beginning balance 74,000 Retained earnings, ending balance 113,000 Treasury stock, beginning balance 5,000 Treasury stock, ending balance 8,000 • No stock was retired. • No treasury stock was sold. • During 2014, the company repaid $40,000 of long-term notes payable. • During 2014, the company borrowed $34,000 on a new note payable. • Net income for the year was $49,000. How much was the net cash flow from financing activities?

Avatar Company uses the indirect method to prepare the statement of cash flows. Please refer to the following section of the comparative balance sheet: 2014 2013 Increase/decrease Accounts payable \ 4,000 \ 6,000 \ (2,000) Accrued liabilities 2,000 1,000 1,000 Long-term notes payable 84,000 90,000 (6,000) Total liabilities \ 90,000 \ 97,000 \ (7,000) - The change in accounts payable will be shown as a positive cash flow in the adjustments to Net income.

The statement of cash flows can be prepared using two different methods-the direct method and the indirect method. Although the indirect method is easier to use, the direct method is considered to be a more favorable method of presenting the data.

Financing activities include activities that affect current assets and liabilities on the balance sheet.

Which of the following sections from the statement of cash flows includes activities that create revenue, expenses, gains and losses?

Sonesta Company owed one of its creditors $250,000, but did not have enough cash to repay the debt. Following lengthy negotiations, the parties agreed that Sonesta would issue 100,000 shares of common stock to settle the debt. This transaction would be reported in the financing section of the statement of cash flows.

The Sonesta Company uses the indirect method for the statement of cash flows. In 2013, they sold equipment for $4,800 cash. The net book value of the asset prior to sale was $4,000. Which of the following statements is true?

Avatar Company uses the indirect method to prepare its statement of cash flows. Please refer to the following information for the year 2014. Additional information provided: • Equipment costing $52,000 was purchased for cash. • Equipment with a net asset value of $10,000 was sold for $14,000 • Depreciation expense of $12,000 was recorded during the year. • During 2014, the company repaid $40,000 of long-term notes payable. • During 2014, the company borrowed $34,000 on a new note payable • There were no stock retirements during the year. • There were no sales of treasury stock during the year. - Please prepare a complete statement of cash flows using the following format: Avatar Company Statement of Cash Flows Year Ended December 31, 2014 Operating activities: Net income Adjustments Depreciation expense Gain or loss on sale Increase/decrease in current assets Increase/decrease in current liabilities Net cash from operating activities Investing activities: Proceeds from sale of assets Acquisition of assets Net cash from investing activities Financing activities: Issuance of stock Purchase of treasury stock Borrowing on notes payable Repayments of notes payable Payment of dividends Net cash from financing activities Net change in cash Cash balance, December 31, 2013 Cash balance, December 31, 2014

Which of the following sections from the statement of cash flows includes purchases and sales of long-term assets?

The total net amount of cash flow from operating activities will be the same, whether you use the direct or the indirect method of preparing the statement of cash flow.

Avatar Company uses the indirect method to prepare its statement of cash flows. Please refer to the following portion of the comparative balance sheet: 2014 2013 Increase/decrease Common stock \ 30,000 000 \ 28,000 Retained earnings 113,000 74,000 39,000 Treasury stock (8,000) (5,000) (3,000) Total equity \ 135,000 \ 71,000 \ 64,000 Note: Net income for the year was $49,000. Dividends of $10,000 will be shown as a positive cash flow in the financing section of the statement of cash flows.

For purposes of the statement of cash flows, cash includes cash on hand, cash in the bank and cash equivalents.

The Sonesta Company sold equipment for cash. The income statement shows a gain on sale of $800. The net book value of the asset prior to sale was $4,000. Which of the following statements describes the cash effect of the transaction?