Exam 12: Reporting and Analyzing Cash Flows

Northwest Corporation's salaries expense was $18.0 million.What is the amount of cash that the company paid for salaries if the Salaries Payable account increased by $4.0 million?

Cash flows from selling trading securities are reported in the statement of cash flows as part of:

The purchase of long-term assets by issuing a note payable for the entire amount is reported on the statement of cash flows in the:

Cash flows from interest received are reported in the statement of cash flows as part of:

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

To be classified as a cash equivalent, an investment must be readily convertible to an unknown amount of cash because the market value may be affected by interest rate changes.

Based on the information provided below, complete the following worksheet to be used to prepare the statement of cash flows: (a)Net income for the year was $30,000. (b)Dividends of $10,000 were declared and paid. (c)Stylish's only noncash expense was depreciation, which totaled $50,000. (d)The company purchased plant assets for $70,000. (e)Notes payable in the amount of $40,000 were issued during the year for cash. (f)Merchandise inventory increased $30,000. (g)Accounts payable decreased $10,000, STYLISH CORPORATION Spreadsheet for Statement of Cash Flows - Indirect Method For Year Ended December 31, 2013 Analysis of Changes 12/31/12 Debit Credit 12/31/13 Balance Sheet - Debits Cash \ 70,000 \ 60,000 Accounts receivable 180,000 190,000 Merchandise inventory 200,000 230,000 Plant assets Statement of Cash Flows Accumulated depreciation \ 100,000 \ 150,000 Accounts payable 170,000 160,000 Notes payable 350,000 390,000 Capital stock 200,000 200,000 Retained earnings 130,000 150,000 Statement of Cash Flows Operating activities Net income Increase in accounts receivable Increase in merchandise inventory Decrease in accounts payable Depreciation expense Investing activities Cash paid to purchase plant assets Financing activities Cash paid for dividends Cash received from note payable

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

The FASB requires a reconciliation of net income to net cash provided or used by operating activities when the ______________ method is used.

The reporting of financing activities is identical under either the direct and indirect methods for preparing the statement of cash flows.

The payment of cash dividends to shareholders is classified as a financing activity.

A company's inventory balance was $200,000 at 12/31/11 and $188,000 at 12/31/12.Its accounts payable balance was $80,000 at 12/31/11 and $84,000 at 12/31/12, and its cost of goods sold for 2012 was $720,000.The company's total amount of cash payments for merchandise in 2012 equals:

The cash flow on total assets ratio:

When preparing the operating section of the statement of cash flows using the indirect method, an increase in income taxes payable is added back to net income.

Selected information from Jet Company's 2013 financial statements is shown below (in millions): Inventory decreased $\$ 6.0 \quad$ Accounts payable increased by $\$ 7.0$ Cost of goods sold $\$ 36.50 \quad$ Salaries expense $\$ 24.0$ Salaries payable decreased $\$ 6.0 \quad$ Accounts receivable increased by $\$ 10.0$ Sales $\$ 56.4$ -What is the amount of cash paid for salaries by Jet during 2013?

Depreciation expense is not reported on the statement of cash flows when the direct method is used.

Water Girl Corp.'s 2013 income statement follows: WATER GIRL CORP. Income Statement For Year Ended December 31, 2013 Sales \ 248,000 Cost of goods sold 116,000 Gross profit \ 132,000 Operating expenses Wages and salaries expense \ 44,000 Rent expense 16,000 Depreciation expense 30,000 Amortization expense 12,000 Other expenses 18,000 120,000 Income from operations \ 12,000 Gain on sale of equipment 26,000 Income before taxes \ 38,000 Income tax expense Net Income \ 24,700 The company also experienced the following during 2013: Increase in accourts receivable Increase in accounts payable (all accourtspayable trarsactions are for inventory) 16,000 Increase in income taxes payable Decrease in prepaid expenses 10,000 Decrease in merchardise irventory 14,000 Decrease in lone-tem notes payable Required: Calculate the company's net cash provided or used by operating activities using the direct method.

Spirit Company, a merchandiser, recently completed its 2013 calendar year.For the year, (1)all sales are credit sales, (2)all credits to Accounts Receivable reflect cash receipts from customers, (3)all purchases of inventory are on credit, (4)all debits to Accounts Payable reflect cash payments for inventory, and (5)Other Expenses are paid in advance and are initially debited to Prepaid Expenses.The company's balance sheet and income statement follow: SPIRIT COMPANY Comparative Balance Sheet December 31, 2013 and 2012 2013 2012 Assets Cash \ 49,200 \ 73,500 Accounts receivable 65,830 51,000 Merchandise inventory 276,000 252,500 Prepaid expenses 1,000 1,600 Equipment 159,000 106,500 Accum. depreciation-Equipment (31,000) (40,000) Total assets \ 520,030 \ 445,100 Liabilities and Equity Accounts payable \ 58,555 \ 112,000 Short-term notes payable 9,000 7,000 Long-term notes payable 65,000 48,500 Common stock, \5 par value 162,750 150,750 Paid-in capital in excess of par, common 36,000 0 tock Retained earnings 188,725 126,850 Total liabilities and equity \ 520,030 \ 445,100 SPIRIT COMPANY Income Statement For Year Ended December 31, 2013 Sales \ 584,000 Cost of goods sold Gross profit 301,000 Operating expenses Depreciation expense \ 20,000 Other expenses 152,400 Other gains (losses) Loss on sale of equipment Income before taxes \ 142,725 Income taxes expense Net income Additional information on year 2013 transactions: a.The loss on the cash sale of equipment was $5,875 (details in b). b.Sold equipment costing $46,500, for a loss of $5,875. c.Purchased equipment costing $99,000 by paying $35,000 cash and signing a long-term note payable for the balance. d.Borrowed $2,000 cash by signing a nonsales-related short-term note payable. e.Paid $47,500 cash to reduce the long-term notes payable. f.Issued 2,400 shares of common stock for $20 cash per share. g.Net income and dividends were the only items that affected retained earnings. -Required: Compute the net cash flows provided (used)by operating activities using the indirect method.

A spreadsheet can help organize the information needed to prepare a statement of cash flows.

Wessen Company reports net income of $180,000 for the year ended December 31, 2013.It also reports $45,800 depreciation expense, $21,410 amortization expense, and a $15,000 gain on the sale of machinery.Its comparative balance sheets reveal a $28,300 increase in accounts receivable, $20,400 decrease in accounts payable, $10,470 increase in prepaid expenses, and $33,140 decrease in wages payable.What net cash flows are provided (used)by operating activities using the indirect method?