Exam 12: Reporting and Analyzing Cash Flows

Companies have the option of using either the direct or indirect method to prepare the operating section of the statement of cash flows.

A purchase of land in exchange for a long-term note payable is reported in the investing section of the statement of cash flows.

The statement of cash flows reports the total change in cash in the period.

A cash equivalent must be readily convertible to a known amount of cash and must be sufficiently close to its maturity so its market value is unaffected by interest rate changes.

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

Spirit Company, a merchandiser, recently completed its 2010 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: Additional Information on Year 2010 Transactions What is the net cash flows provided (used) by operating activities using the indirect method?

Equipment costing $100,000 with accumulated depreciation of $40,000 is sold at a loss of $10,000. This implies that $40,000 cash was received from the sale.

All cash transactions eventually affect noncash ___________ accounts.

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.

Walker Company reports net income of $420,000 for the year ended December 31, 2010. It also reports $75,600 depreciation expense and a gain of $11,000 on the sale of machinery. Its comparative balance sheets reveal a $33,600 decrease in accounts receivable, $17,220 increase in accounts payable, $9,240 decrease in prepaid expenses, and $13,020 increase in wages payable. What is the net cash flows provided (used) by operating activities using the indirect method?

The appropriate section in the statement of cash flows for reporting the issuance of common stock for cash is:

Accounting standards require that the statement of cash flows be included in a complete set of financial statements.

Under IFRS, interest revenue may be classified as an operating, investing or financing activity assuming that this classification is applied consistently across all periods.

An investment that is readily convertible to a known amount of cash and that is sufficiently close to its maturity date so that its market value is relatively insensitive to interest rate changes is a(n):

Net income of Lucky Company was $52,000. The accounting records reveal depreciation expense of $99,000 as well as increases in prepaid rent, salaries payable, and income taxes payable of $74,000, $15,700, and $14,000, respectively. What is the net cash flow provided (used) by operating activities?

Cash paid out for merchandise is considered to be an operating activity.

The cash flow on total assets ratio is calculated by:

When analyzing the changes on a spreadsheet used to prepare a statement of cash flows, the cash flows from operating activities generally affect:

A machine with a cost of $130,000 and accumulated depreciation of $85,000 is sold for $50,000 cash. The amount that should be reported as a source of cash under cash flows from investing activities is:

Use the following information about the calendar-year cash flows of MacArthur Company to prepare a statement of cash flows (direct method) and a schedule of noncash investing and financing activities.