Exam 12: How Is the Statement of Cash Flows Prepared and Used

Exhibit 12-1 Ellie Inc.has the following cash flows to account for: (1)Cash receipts from the sale of long-term bonds. (2)Cash receipts from the sale of equipment. (3)Cash payments for income taxes. (4)Cash receipts from the sale of stock. (5)Cash payments for the purchase of a factory building. -Refer to Exhibit 12-1.Which of these items would appear in the operating activities section of the statement of cash flows?

Exhibit 12-5 Myers Inc.uses the indirect method to prepare the statement of cash flows.The following amounts are shown in its December 31,2017,financial statements. December 31, 2017 December 31,2016 Accourts receivable \ 442,000 \ 502,000 Cost of goods sold \ 1,200,000 Sales reveruse \ 1,600,000 Accourts payable \ 170,000 \ 210,000 Irventory \ 180,000 \ 130,000 Salaries payable \ 30,000 \ 38,000 Salaries expense \ 110,000 \ 96,000 -Refer to Exhibit 12-5.How will the change in accounts payable be reported in the operating activities section of the statement of cash flows?

Cash payments to reduce long-term debt are included in the operating activities section of the statement of cash flows.

When using the indirect method to prepare the statement of cash flows,the financing activities section begins with net income,followed by several adjustments to net income.

Nickels Inc.prepares its statement of cash flows using the direct method.If Nickels sells equipment for a gain of $35,000 when the book value is $100,000,what amount will be reported on the statement of cash flows operating activities section related to this gain?

The operating activities section of the statement of cash flows includes all activities that affect long-term liabilities and owners' equity.

Exhibit 12-5 Myers Inc.uses the indirect method to prepare the statement of cash flows.The following amounts are shown in its December 31,2017,financial statements. December 31, 2017 December 31,2016 Accourts receivable \ 442,000 \ 502,000 Cost of goods sold \ 1,200,000 Sales reveruse \ 1,600,000 Accourts payable \ 170,000 \ 210,000 Irventory \ 180,000 \ 130,000 Salaries payable \ 30,000 \ 38,000 Salaries expense \ 110,000 \ 96,000 -Refer to Exhibit 12-5.How will the change in inventory be reported in the operating activities section of the statement of cash flows?

When using the direct method to prepare the statement of cash flows,two adjustments must be made to cost of goods sold to calculate cash paid to suppliers.Which of the following correctly explains the two adjustments?

The information below is for Vail Corporation for the most recent fiscal year. Current assets \ 200,000 Current liabilities 600,000 Cash provided by operating activities 2,400,000 Net income 1,200,000 Capital expenditures 800,000 What is Vail's capital expenditure ratio?

Exhibit 12-3 Stalwart Inc. accounting records show the following changes during the company's most recent fiscal year. 1.Gain on sale of 2.Loss on sale of long-term investments 3.Decrease in prepaid expenses 4.Increase in accounts receivable 5.Decrease in merchandise inventory 6.Decrease in wages payable 7.Increase in accounts payable 8.Payment of cash dividends 9.Purchase of machinery 10.Payments of principal on bonds payable 11.Proceeds from sale of long-term investments -Refer to Exhibit 12-3.Which of these would be deducted as part of the cash flows from financing activities section,when preparing the statement of cash flows?

Exhibit 12-4 Manning Company uses the indirect method to prepare the statement of cash flows.The following amounts are shown in its December 31,2017,financial statements. December 31, 2017 December 31, 2016 Accourts receivable \ 663,000 \ 600,000 Cost of goods sold \ 1,800,000 Sales reveruse \ 2,400,000 Accourts payable \ 255,000 \ 195,000 Irventory \ 270,000 \ 375,000 Salaries payable \ 45,000 \ 30,000 Salaries expense \ 165,000 \ 144,000 -Refer to Exhibit 12-4.How will the change in inventory be reported in the operating activities section of the statement of cash flows?

When using the indirect method for the statement of cash flows,depreciation expense is added to net income to obtain cash provided by operating activities.

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

The following information is from the noncurrent asset portion of Randle Company's balance sheet. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { December } 31$ 2017 2016 Property, plant, and equipment \ 140,000 \ 125,000 Accumulated depreciation (69,500) (57,000) Long-term investments 27,000 15,000 The following activities occurred during 2017: Sold equipment with an original cost of $8,000 and a book value of $2,500 for $2,000 cash. Depreciation expense for the year totaled $18,000. Purchased property for $23,000 cash. Purchased long-term investments for $12,000 cash. What is the amount of cash used by investing activities?

The direct method of preparing a statement of cash flows results in the same cash provided by operating activities than the indirect method.

Exhibit 12-4 Manning Company uses the indirect method to prepare the statement of cash flows.The following amounts are shown in its December 31,2017,financial statements. December 31, 2017 December 31, 2016 Accourts receivable \ 663,000 \ 600,000 Cost of goods sold \ 1,800,000 Sales reveruse \ 2,400,000 Accourts payable \ 255,000 \ 195,000 Irventory \ 270,000 \ 375,000 Salaries payable \ 45,000 \ 30,000 Salaries expense \ 165,000 \ 144,000 -Refer to Exhibit 12-4.How will the change in accounts receivable be reported in the operating activities section of the statement of cash flows?

The issuance of common stock would be included in the financing activities section when preparing a statement of cash flows.

During Benson Company's most recent fiscal year,beginning plant assets,net of depreciation,totaled $150,000,and ending plant assets totaled $187,500.Depreciation expense of $10,500 and a loss on sale of equipment of $1,125 was reported on the income statement.The company purchased plant assets for $60,050 during the year.How much will be reported as cash received from the sale of equipment in the investing activities section of the statement of cash flows?

The operating cash flow ratio is calculated as cash provided by operating activities divided by current liabilities.

When using the indirect method,losses related to investing activities are adjusted by adding them to net income in the operating activities section of the statement of cash flows.