Exam 16: Statement of Cash Flows: Another Look

For each of the following items: 1. identify whether the adjustment is an addition or a subtraction in preparing the statement of cash flows using the indirect method, and 2. state which section of the statement of cash flows the addition or subtraction should be reported. a. amortization of patent b. bond premium amortization c. increase in deferred taxes (hint: a liability) d. sale of equipment

Firms typically report cash flows from operations using the indirect method.The indirect method starts with net income, then adds any expense amount that does not use cash, and subtracts any revenue amount that does not provide cash.The adjustments to convert net income to cash flow from operations generally does not involve

In the preparation of a statement of cash flows, adjustments to net income to reconcile net income to cash from operating activities include

A gain on the sale of a plant assets should be included in which of the following sections of a statement of cash flows prepared using the indirect method?

The extent to which a firm adjusts net income for changes in noncurrent assets and noncurrent liabilities in deriving cash flow from operations under the indirect method depends on the nature of its operations.Capital-intensive firms will likely show a substantial

The extent to which a firm adjusts net income for changes in noncurrent assets and noncurrent liabilities in deriving cash flow from operations depends on the nature of its operations._____ will likely show a substantial addback to net income for depreciation expense, whereas _____will show a smaller amount.

Amortization of the premium on bonds payable is subtracted from net income in the reconciliation of net income to cash flows from operations because

During Year 6, Delta Company had a net $4,000 increase in customer advances.The T-account work sheet for preparing the statement of cash flows

The adjustment for changes in operating working capital accounts depends in part on a firm's rate of growth.Some firms use short- or long-term borrowing or equity financing, which is

At the beginning of the year, a firm leased equipment on a capital lease, capitalizing $60,000 in its lease receivable account.The contract calls for December 31 payments of $15,000.The lessor's annual reporting period ends December 31 and the contract reflects 10% interest.The lessee made the first payment as required.The direct method statement of cash flows for the lessor should reflect which of the following in the first year of the lease contract (ignore noncash disclosures)?

In determining cash flows from operations under the indirect method, the adjustments to convert net income to cash flow from operations generally involve _____ the amount by which an expense exceeds the related cash expenditure for the period (for depreciation, the entire amount).

Which of the following is/are true?

Firms typically report cash flows from operations using the direct method.

The proper interpretation of information in the statement of cash flows requires an understanding of the economic characteristics of the industries in which a firm conducts operations and a multi-period view.

Some investing and financing transactions do not involve cash but appear on the statement of cash flows.

Which method of preparing the statement of cash flows starts with the components of income, the individual revenues and expenses, but not gains and losses, then adds or subtracts the same balance sheet changes involving the same operating accounts?

Under the direct method, cash paid to suppliers can be computed as cost of goods sold for the period

Jamison Corporation issued preferred stock totaling $10,000,000 during Year 4.The statement of cash flows classifies the transaction as a(n)

During the maturity phase, cash outflow typically exceeds cash inflow from operations because operations are not earning profits while the firm must invest in accounts receivable and inventories.

The product life-cycle concept from microeconomics and marketing provides useful insights into the relations between cash flows from operating, investing, and financing activities.When a product matures