Deck 9: Statement of Cash Flows

Question 1

Which of the following is a financing activity?

A)Collection of accounts receivable.
B)Collection of loans receivable
C)Receipt of bank loan.
D)Sale of a machine.

Answer 1

C

Question 2

Which statement is correct?

A)A security that meets the criteria of cash equivalent must be classified as cash such.
B)A security that meets the criteria of cash equivalent can be classified as cash such.
C)A security that meets the criteria of cash equivalent must be presented as cash such.
D)A security that meets the criteria of cash equivalent must be cash.

Answer 2

B

Question 3

Which statement is not correct?

A)Comparative cash flow statements explain the company's ongoing need for cash.
B)Cash flow statement explains why the change in cash is the same as reported income.
C)Standardized categories are required for the cash flow statement.
D)The cash flow statement provides information not available in the balance sheet.

Answer 3

B

Question 4

Which statement about "cash and cash equivalents" is correct?

A)Exchanges of "cash and cash equivalents" for items that are not "cash and cash equivalents" result in cash flows for the cash flow statement.
B)Changes in the composition of "cash and cash equivalents" is considered a cash flow for purposes of the cash flow statement.
C)Changes in the composition of "cash and cash equivalents" is considered an operating activity on the cash flow statement.
D)Cash equivalents include investment in long-term bonds.

Question 5

What is included in "cash and cash equivalents"?

A)Cash restricted for plant expansion.
B)Term deposits.
C)Treasury bills maturing in 120 days.
D)US dollar chequing account.

Question 6

Which is not a purpose of the cash flow statement?

A)To explain the sources and uses of cash in a company's operations.
B)To explain the economic performance of a company year over year.
C)To explain cash inflows and outflows used for operations,investing and financing.
D)To explain the ability to generate sufficient cash to meet the obligations when due.

Question 7

Which category is used on the cash flow statement?

A)Non-current.
B)Operating.
C)Non-operating.
D)Discontinued.

Question 8

Which statement is not correct?

A)The cash flow statement explains the ability to generate sufficient cash to meet obligations.
B)The cash flow statement explains the timing of future cash flows.
C)The cash flow statement explains the uncertainty of future cash flows.
D)The cash flow statement explains the ability of a company to generate future dividends.

Question 9

Which statement is correct?

A)Net income equals the cash generated by the company's operations.
B)Net income seldom reflects the change in cash during the period.
C)Net income is the most important metric to measure the financial performance of a company.
D)Cash flow is the most important metric to measure the financial performance of a company.

Question 10

What is cash management?

A)Cash management includes the investment of excess cash in cash equivalents.
B)Cash management excludes the investment of excess cash in cash equivalents.
C)Cash management includes the investment of excess cash in equipment.
D)Cash management includes the investment of excess cash in joint ventures.

Question 11

Which statement is correct?

A)Managers are more interested in the net income than the cash generated by the company
B)Under GAAP,only the income statement is required by investors,creditors and managers.
C)All companies must have a treasury department to manage their cash resources.
D)The cash flow statement shows the capacity of the company to sustain its operations.

Question 12

Identify if the following investments meet the requirements to be classified as cash and cash equivalents.
$$\begin{array} { | l | l | l | l | } \hline & \begin{array} { c } \text { Cash and } \\\text { cash } \\\text { equivalents } \\\text { (Yes/No) }\end{array} & \begin{array} { c } \text { Readily } \\\text { convertible } \\\text { to cash? } \\\text { (Yes/No) }\end{array} & \begin{array} { c } \text { Risk of change } \\\text { in cash value? } \\\text { (High/Med/Low) }\end{array} \\\hline \text { Chequing account in US dollars. } & & & \\\hline \text { Investment in long-term government bonds. } & & & \\\hline \begin{array} { l } \text { Cash in a sinking fund account for a future } \\\text { re-purchase of common shares. }\end{array} & & \\\hline \begin{array} { l } \text { Investment in a mutual fund that invests in } \\\text { common shares of public corporations. }\end{array} & & \\\hline \begin{array} { l } \text { Term deposit maturing } 100 \text { days after the } \\\text { year-end. }\end{array} & & & \\\hline\end{array}$$

Question 13

Discuss how the cash flow statement helps evaluate a company's quality of earnings.

Question 14

Which is not a cash management activity?

A)Purchase of inventory.
B)Purchase of land.
C)Payment of taxes.
D)Receipt of interest on cash equivalents.

Question 15

What is included in "cash and cash equivalents"?

A)Cash on hand.
B)Term deposits.
C)Treasury bills maturing in 120 days.
D)Bonds of a publically traded company.

Question 16

Which statement is correct?

A)A held for trading security can be classified as cash.
B)A held to maturity security can be classified as cash.
C)A held for trading security can be classified as cash equivalent
D)A held for trading security can be classified as cash equivalent.

Question 17

What criterion is required for a "cash equivalent"?

A)Convertibility into cash or insignificant risk of change in value.
B)Insignificant risk of change in value.
C)Convertibility into cash and insignificant risk of change in value.
D)Convertibility into cash.

Question 18

If a company has gaps between the change in cash and the net income for the year,

A)the income statement provides sufficient explanation for the sources of these changes.
B)the financial statement notes provide explanation for the sources of these changes.
C)the statement of cash flow provides explanation of the sources of these changes.
D)the statement of cash flow and balance sheet provide explanation for these changes.

Question 19

Which statement about "cash and cash equivalents" is correct?

A)The definition for "cash and cash equivalents" used on the balance sheet differs from the definition for "cash and cash equivalents" used on the cash flow statement.
B)Changes in the composition of "cash and cash equivalents" is considered a financing activity on the cash flow statement.
C)Changes in the composition of "cash and cash equivalents" is considered a cash flow for purposes of the cash flow statement.
D)The definition for "cash and cash equivalents" used on the balance sheet is the same as the definition for "cash and cash equivalents" used on the cash flow statement.

Question 20

Which statement is not correct?

A)Cash is an idle asset for a business.
B)Bank overdrafts cannot be considered cash equivalents.
C)Cash equivalents are readily convertible to cash.
D)Cash and cash equivalents is reconciled in the cash flow statement.

Question 21

Select transactions of Irene Accounting Inc. (IAI)are listed below. IAI uses the indirect method to determine cash flows from operating activities.
1. IAI sells a held-to-maturity investment for $28,000. The investment's amortized cost is $20,000.
2. IAI's income tax expense totaled $30,000. Its income tax payable account increased $5,000,while its deferred income tax liability account decreased $18,000.
3. IAI declares a cash dividend of $3,000. The dividends payable account increases $1,000.
4. At year-end IAI increases its allowance for bad debts by $15,000.
Required:
Discuss how the activities listed above would be reported in the statement of cash flows. For items with multiple reporting options,identify all available options. For items not reported on the statement of cash flows,indicate the disclosure requirements,if any.

Question 22

Recon Cile Ltd.'s policy is to report all cash flows arising from interest and dividends in the operating section. Recon Cile's activities for the year ended December 31,2018 included the following:
• Sold a held-for-trading investment for $16,000. The book value of this investment,which was not designated as a cash equivalent,was $13,000.
• Purchased an available-for-sale investment for $20,000.
• Borrowed $25,000 from the bank for investment purposes.
• Sold equipment for $21,000 that originally cost $45,000. The net book value of this item at time of sale was $25,000.
• Purchased inventory costing $4,000 for cash.
• Received $6,000 in interest and $2,500 in dividends on sundry investments.
• Acquired a forklift costing $22,000 under a finance lease.
• Acquired land and buildings valued at $400,000 by issuing ordinary shares.
• Bought $300,000 in bonds at a discount,paying $285,000 cash.
Required:
a. Prepare the cash flows from investing activities section of the statement of cash flows.
b. Identify how the activities listed above that are not investing activities would be reported in the statement of cash flows assuming that the statement is prepared using the indirect method.

Question 23

What is an investing activity?

A)Activities that do not involve cash.
B)Activities involving the acquisition of investments not included in cash equivalents.
C)Activities involving the principal revenue-producing activities of the entity.
D)Activities involving changes in the size and composition of the equity's borrowings.

Question 24

Select transactions of SimBis Accounting Inc. (SAI)are listed below. SAI uses the indirect method to determine cash flows from operating activities.
1. SAI purchases a $200,000,45-day treasury bill held-for-trading investment.
2. SAI amortizes $32,000 of the discount on bonds payable.
3. At year-end SAI increases its allowance for bad debts by $10,000.
4. SAI's income tax expense totaled $40,000. Its income tax payable account increased $5,000,while its deferred income tax liability account decreased $8,000.
5. SAI acquires equipment valued at $80,000 under a finance lease.
6. SAI makes payments of $15,000 on an operating lease.
7. SAI declares and distributes a stock dividend valued at $33,000.
8. SAI declares a cash dividend of $30,000. The dividends payable account increases $15,000.
9. SAI's comprehensive income for the year totaled $200,000 consisting of $150,000 net income and $50,000 other comprehensive income.
10. SAI sells a held-to-maturity investment for $22,000. The investment's amortized cost is $20,000.
Required:
Discuss how the activities listed above would be reported in the statement of cash flows. For items with multiple reporting options,identify all available options. For items not reported on the statement of cash flows,indicate the disclosure requirements,if any.

Question 25

Jamie Bleay Law Ltd.'s policy is to report all cash inflows from interest and dividends in the investing section and cash outflows arising from interest and dividends in the financing section. Jamie Bleay Law's activities for the year ended December 31,2016 included the following:
• Sold a held-for-trading investment for $11,000. The book value of this investment,which was designated as a cash equivalent,was $11,000.
• Sold an available-for-sale investment for $14,000. The book value of the investment was $14,000.
• Borrowed $120,000 from the bank for investment purposes.
• Sold equipment for $26,000 that originally cost $20,000. The net book value of this item at time of sale was $14,000.
• Received $9,000 in interest and $7,000 in dividends on sundry investments.
• Paid $4,000 interest on the investment loan.
• Acquired land and buildings valued at $700,000 by paying $200,000 cash and issuing ordinary shares for the balance.
• Bought $550,000 in bonds at a premium,paying $560,000 cash.
Required:
a. Prepare the cash flows from investing activities section of the statement of cash flows.
b. Identify how the activities listed above that are not investing activities would be reported in the statement of cash flows assuming that the statement is prepared using the indirect method.

Question 26

The opening balance in the computer account for Adara Corp for fiscal 2017 was $100,000; the closing balance was $107,000. The corresponding balances in the accumulated depreciation accounts were $63,000 and $67,500. During the year Adara scrapped a computer originally costing $13,000 having a remaining net book value of $3,500 and purchased a replacement machine for cash.
Requirements:
a. Prepare the underlying journal entries to record the foregoing transactions and record events stemming from the transactions (e.g.,the accrual of interest at year-end).
b. For each entry identify the cash flow effects,if any,under both the direct and indirect methods of presentation and classify the cash flow according to its nature.

Question 27

What is a financing activity?

A)Activities involving the acquisition and disposal of long-term assets.
B)Activities involving redemption of the contributed equity of an entity.
C)Activities involving the principal revenue-producing activities of the entity.
D)Activities that do not involve cash.

Question 28

Tub Time Corp.'s policy is to report all cash flows arising from interest and dividends in the operating activities section. Tub Time's activities for the year ended December 31,2018 included the following:
• 2018's net income after taxes totaled $220,000.
• Declared and issued a stock dividend valued at $40,000.
• Accounts receivable decreased $44,000 in 2018.
• Sold a held-for-trading investment for $13,000. The book value was $11,000. (Assume this held-for-trading investment was not designated as a cash equivalent.)
• Interest revenue for the period was $6,000. The interest receivable account decreased $4,000.
• Declared a $10,000 dividend payable. The dividends payable account decreased $19,000 in 2018.
• Sold an available-for-sale investment for $9,000. The book value was $14,000.
• Tub Time recorded a $15,000 goodwill impairment loss during the year.
• Depreciation expense for the year was $14,000.
Requirements:
a. Prepare the cash flows from operating activities section of the statement of cash flows using the indirect method.
b. Identify how the activities listed above that are not operating activities would be required in the statement of cash flows.

Question 29

What is an operating activity?

A)Activities involving the acquisition and disposal of long-term assets.
B)Activities involving changes in the size and composition of the contributed equity.
C)Activities involving the principal revenue-producing activities of the entity.
D)Activities that do not involve cash.

Question 30

Crete Ltd.'s policy is to report all cash flows arising from interest and dividends in the operating section. Crete's activities for the year ended December 31,2018 included the following:
• Income tax expense for the year was $30,000.
• Sold an available-for-sale investment for $45,000. The book value was $52,000.
• Depreciation expense for the year was $19,000
• Sales for the year were $1,030,000.
• Selling and administration expenses for the year totaled $240,000.
• Mamie's cost of goods sold in 2018 was $315,000.
• Interest expense for the period was $12,000. The interest payable account increased $5,000.
• Accounts payable increased $20,000 in 2018.
• Accounts receivable decreased $36,000 in 2018.
• Mamie's inventory increased $13,000 during the year.
• Dividends were not declared during the year; however,the dividends payable account increased $5,000.
Requirements:
a. Prepare the cash flows from operating activities section of the statement of cash flows using the direct method.
b. Identify how the activities listed above that are not operating activities would be reported in the statement of cash flows.

Question 31

Which of the following is an operating activity?

A)Receipt of customer deposit.
B)Proceeds from mortgage issue.
C)Purchase of land.
D)Redemption of preferred shares.

Question 32

On January 1,2017,Adara acquired equipment under a finance lease. The lease calls for fifteen annual payments of $10,000 due at the beginning of the year. Adara must return the equipment to the lessor at the end of the lease. The January 1,2017 payment was made as agreed. The implicit rate in the lease is 7%; the present value of the lease payments is $97,455.
Requirements:
a. Prepare the underlying journal entries to record the foregoing transactions and record events stemming from the transactions (e.g.,the accrual of interest at year-end).
b. For each entry identify the cash flow effects,if any,under both the direct and indirect methods of presentation and classify the cash flow according to its nature.

Question 33

What is not a "non-cash" transaction?

A)Exchange of land with another company.
B)Conversion of preferred shares.
C)Payment of cash dividends.
D)Payment of stock dividends.

Question 34

Angela's Angels Corp.'s policy is to report all cash inflows from interest and dividends in the investing section and cash outflows arising from interest and dividends in the financing section. Angela's activities for the year ended December 31,2016 included the following:
• Declared and issued a stock dividend valued at $15,000.
• Issued $300,000 in ordinary shares.
• Accounts payable decreased $38,000 during the year.
• Paid $910,000 to repurchase bonds. The book value of the bonds was $1,000,000.
• Made a $25,000 principal payment on a bank loan.
• Interest expense for the period was $12,000. The interest payable account increased $2,000.
• Declared a $12,000 cash dividend payable on January 15,2017.
• Acquired an automobile costing $30,000 under a finance lease.
Required:
a. Prepare the cash flows from financing activities section of the statement of cash flows.
b. Identify how the activities listed above that are not financing activities would be reported in the statement of cash flows assuming that the statement is prepared using the indirect method.

Question 35

Select transactions of June Bowen Inc. (JBI)are listed below. JBI uses the indirect method to determine cash flows from operating activities.
1. JBI amortizes $12,000 of the discount on bonds payable.
2. At year-end JBI increases its allowance for bad debts by $18,000.
3. JBI's income tax expense totaled $50,000. Its income tax payable account increased $5,000,while its deferred income tax liability account decreased $8,000.
4. JBI makes payments of $25,000 on an operating lease.
5. JBI declares and distributes a stock dividend valued at $33,000.
6. JBI declares a cash dividend of $30,000. The dividends payable account increases $10,000.
7. JBI sells a held-to-maturity investment for $28,000. The investment's amortized cost is $20,000.
Required:
Discuss how the activities listed above would be reported in the statement of cash flows. For items with multiple reporting options,identify all available options. For items not reported on the statement of cash flows,indicate the disclosure requirements,if any.

Question 36

The opening balance in the land account for Adara Corp for fiscal 2017 was $500,000; the closing balance was $610,000. During the year land costing $130,000 was given to a creditor in full settlement of a $152,000 loan. The fair value of the land at the time of the exchange was $152,000. The company also purchased a separate parcel of land for cash during the year.
Required:
a. Prepare the underlying journal entries to record the foregoing transactions and record events stemming from the transactions (e.g.,the accrual of interest at year-end).
b. For each entry identify the cash flow effects,if any,under both the direct and indirect methods of presentation and classify the cash flow according to its nature.
c. Why does the IASB require that companies classify cash flows as arising from operations,investing,or financing activities?

Question 37

Which of the following is an investing activity?

A)Payment of salaries.
B)Purchase of inventory.
C)Sale of held for trading investment.
D)Collection of loan receivable.

Question 38

What is an investing activity?

A)Activities involving the acquisition and disposal of long-term assets.
B)Activities involving changes in the size and composition of the contributed equity.
C)Activities involving the principal revenue-producing activities of the entity.
D)Activities that do not involve cash.

Question 39

Mamie K. Ltd.'s policy is to report all cash flows arising from interest and dividends in the operating section. Mamie's activities for the year ended December 31,2018 included the following:
• Income tax expense for the year was $36,000.
• Sales for the year were $730,000.
• Accounts payable decreased $20,000 in 2018.
• Selling and administration expenses for the year totaled $140,000.
• Accounts receivable increased $6,000 in 2018.
• Mamie's cost of goods sold in 2018 was $315,000.
• Mamie's inventory decreased $13,000 during the year.
• Interest expense for the period was $17,000. The interest payable account increased $5,000.
• Dividends were not declared during the year; however,the dividends payable account decreased $2,000.
• Sold an available-for-sale investment for $45,000. The book value was $52,000.
• Depreciation expense for the year was $19,000.
Requirements:
a. Prepare the cash flows from operating activities section of the statement of cash flows using the direct method.
b. Identify how the activities listed above that are not operating activities would be reported in the statement of cash flows.

Question 40

Sherya Inc.'s policy is to report all cash flows arising from interest and dividends in the operating section. Sherya's activities for the year ended December 31,2018 included the following:
• Interest expense for the period was $10,000. The interest payable account decreased $4,000.
• Made a $110,000 principal payment on a bank loan.
• Declared a $15,000 cash dividend payable on January 15,2019.
• Declared and issued a stock dividend valued at $50,000.
• Paid $55,000 to repurchase ordinary shares and cancelled them. The book value was $40,000.
• Accounts payable increased $23,000 during the year.
• Issued $1,500,000 in bonds. The cash proceeds were $1,380,000.
Required:
a. Prepare the cash flows from financing activities section of the statement of cash flows.
b. Identify how the activities listed above that are not financing activities would be reported in the statement of cash flows assuming that the statement is prepared using the indirect method.

Question 41

The Company's activities for the year ended December 31,2018 included the following:
• Income tax expense for the year was $30,000.
• Sales for the year were $650,000.
• Accounts payable decreased $10,000 in 2018.
• Selling and administration expenses for the year totaled $200,000.
• Accounts receivable increased $20,000 in 2018.
• The Company's cost of goods sold in 2018 was $325,000.
• The Company's inventory decreased $15,000 during the year.
What is the cash receipts from customers under the direct method?

A)$110,000
B)$320,000
C)$325,000
D)$630,000

Question 42

The Company's activities for the year ended December 31,2018 included the following:
• Income tax expense for the year was $30,000.
• Sales for the year were $650,000.
• Accounts payable decreased $10,000 in 2018.
• Selling and administration expenses for the year totaled $200,000.
• Accounts receivable increased $20,000 in 2018.
• The Company's cost of goods sold in 2018 was $325,000.
• The Company's inventory increased $15,000 during the year.
• Depreciation expense for the year was $13,000.
What is the cash payments under the direct method?

A)$307,000
B)315,000
C)$320,000
D)$350,000

Question 43

Hoboken's activities for the year ended December 31,2018 included the following:
• Sold a held-for-trading investment for $12,000. The book value was $10,000.
• Sold an available-for-sale investment for $8,000. The book value was $9,000.
How much would be presented as cash flow from operations for the "held for trading" investment?

A)Proceeds from sale of held for trading investment in the amount of 12,000.
B)Disposal of held for trading investment in the amount 10,000.
C)Gain on sale of held for trading investment in the amount 2,000.
D)Loss on sale of held for trading investment in the amount 2,000.

Question 44

Green Leaf 's activities for the year ended December 31,2016 included the following:
• Comprehensive income totaled $538,000 including $88,000 in other comprehensive income.
• Paid a cash dividend of $80,000 that was declared in 2015.
• Interest expense for the year was $29,000; the opening and closing balances in the interest payable account were $26,000 and $17,000,respectively.
• Accounts receivable increased $33,000 and accounts payable decreased $24,000 during the year.
• The company paid $56,000 cash for equipment.
• The company sold held-to-maturity investments for $26,000. The book value of the investment was $27,000.
• Depreciation expense for the year totaled $19,000.
• Suffered an impairment loss on patents of $10,000.
• Declared and issued a 2-for-l stock split. There were 400,000 ordinary shares outstanding before the split with a collective market value of $100,000,000.
Requirement:
Prepare the cash flows from operating activities section of the statement of cash flows using the indirect method.

Question 45

Which statement is correct?

A)Cash flows are grouped by operating,investing and financing activities.
B)Cash inflows and outflows are netted against each other.
C)Net interest received or paid can be offset in the cash flow statement.
D)Income tax paid does not need to be presented separately.

Question 46

Reuse It Inc.'s (RII)policy is to report all cash flows arising from interest and dividends in the operating section. The company's activities for the year ended December 31,2016 included the following:
• Comprehensive income totaled $468,000 including $88,000 in other comprehensive income.
• Paid a cash dividend of $30,000 that was declared in 2015.
• Interest expense for the year was $14,000; the opening and closing balances in the interest payable account were $28,000 and $19,000,respectively.
• Accounts receivable increased $63,000 and accounts payable decreased $19,000 during the year.
• RII paid $51,000 cash for equipment.
• RII sold held-to-maturity investments for $36,000. The book value of the investment was $39,000.
• Depreciation expense for the year totaled $9,000.
• Suffered an impairment loss on patents of $1 0,000.
• Declared and issued a 2-for-l stock split. There were 20,000 ordinary shares outstanding before the split with a collective market value of $3,000,000.
Requirements:
a. Prepare the cash flows from operating activities section of the statement of cash flows using the indirect method.
b. Identify how the activities detailed above that are not operating activities would be reported in the statement of cash flows.

Question 47

Financial information for Fesone Inc.'s balance sheet for fiscal 2013 and 2014 follows:
$\begin{array}{lll}\text { Accounts payable } & 260,000 & 80,000 \\\text { Bank loan } & 2,226,000 & 2,850,000 \\\text { Bonds payable } & 187,800 & 185,000 \\\text { Preferred shares } & 0 & 15,000 \\\text { Common shares } & 597,000 & 450,000 \\\text { Retained earnings } & 584,000 & 350,000 \\\text { Total } & \mathbf{3 , 8 5 4 , 8 0 0} & \mathbf{3 , 9 3 0 , 0 0 0}\end{array}$ Additional information:
1. Preferred shares were converted to common shares during the year at their book value.
2. The face value of the bonds is $200,000; they pay a coupon rate of 6% per annum. The effective interest rate of interest is 8% per annum.
3. Net income was $290,000.
4. There was an ordinary stock dividend valued at $12,000 and cash dividends were also paid.
5. Interest expense for the year was $130,000. Income tax expense was $116,000.
6. Fesone arranged for a $200,000 bank loan to finance the purchase of the held-to-maturity investments.
7. Fesone has adopted a policy of reporting cash flows arising from the payment of interest and dividends as operating and financing activities,respectively.
8. The held-for-trading investments are not cash equivalents.
Requirements:
a. Prepare a statement of cash flows for the year ended December 31,2014 using the indirect method.
b. Discuss how the transaction(s)above that are not reported on the statement of cash flows are reported in the financial statements.

Question 48

Which item will be presented on the "investing section" of the cash flow statement?

A)Proceeds from sale of sale of inventory.
B)Net investment in property,plant and equipment.
C)Proceeds from sale of equipment.
D)Proceeds from sale of preferred shares.

Question 49

Which of the following is not correct?

A)The payment of stock dividends would be recorded in the cash flow statement.
B)Activities that do not involve cash are recorded in the cash flow statement.
C)The direct method of presentation for the cash flow statement can be used under ASPE.
D)The indirect method of presentation for the cash flow statement can be used under IFRS.

Question 50

The activities for the year ended December 31,2015 included the following:
• 2018's net income after taxes totaled $125,000.
• Accounts receivable Increased $32,000
• Recorded a $10,000 goodwill impairment loss during the year
• Inventory decreased $8,000
How much would be presented as cash flow from operations?

A)$85,000
B)$95,000
C)$127,000
D)$135,000

Question 51

Suzanne Inc.'s policy is to report all cash flows arising from interest and dividends in the operating activities section. The activities for the year ended December 31,2018 included the following:
• Interest revenue for the period was $12,000. The interest receivable account decreased $3,000.
• Sold an available-for-sale investment for $10,000. The book value was $5,000.
How much would be presented as cash flow from operating activities?

A)Proceeds from disposal in the amount of 10,000 + Interest received in the amount of 12,000.
B)Proceeds from disposal in the amount of 10,000 + Interest received in the amount of 15,000.
C)Gain on sale in the amount 5,000 + Interest received in the amount of 12,000.
D)Gain on sale in the amount 5,000 + Interest received in the amount of 15,000.

Question 52

A company's activities for the year ended December 31,2016 included the following:
• Declared and issued a stock dividend valued at $50,000.
• Paid $975,000 to repurchase bonds. The book value of the bonds was $1,000,000.
• Made a $20,000 principal payment on a bank loan.
How much will be presented as cash flow from financing activities?

A)$955,000
B)$975,000
C)$980,000
D)$1,030,000

Question 53

Which is a correct statement?

A)The direct method of presentation for the cash flow statement must be used under ASPE.
B)The direct method of presentation for the cash flow statement must be used under IFRS.
C)The statement of cash flows explains the change between opening and closing cash.
D)The balance of the cash flow statement does not have to equal the balance sheet amount.

Question 54

Financial information for Fesone Inc.'s balance sheet for fiscal 2013 and 2014 follows:
$\begin{array}{lll}&2014&2013\\\text { Cash } & 32,300 & 350,000 \\\text { Accounts receivable } & 1,670,000 & 1,800,000 \\\text { Inventory } & 710,000 & 450,000 \\\text { Investments - held for trading } & 350,000 & 0 \\\text { Investments - held to maturity } & 150,000 & 0 \\\text { Property plant and equipment } & 4,000,000 & 4,000,000 \\\text { Accumulated depreciation } & (1,935,000) & (1,660,000) \\\text { Total } & \mathbf{4 , 9 7 7 , 3 0 0} & \mathbf{4 , 9 4 0 , 0 0 0}\end{array}$
$\begin{array}{lll}\text { Accounts payable } & 220,000 & 40,000 \\\text { Bank loan } & 2,601,000 & 3,000,000 \\\text { Bonds payable } & 595,300 & 590,000 \\\text { Preferred shares } & 0 & 20,000 \\\text { Common shares } & 473,000 & 350,000 \\\text { Retained earnings } & 1,088,000 & 940,000 \\\text { Total } & \mathbf{4 , 9 7 7 , 3 0 0} & \mathbf{4 , 9 4 0 , 0 0 0}\end{array}$
Additional information:
1. Preferred shares were converted to common shares during the year at their book value.
2. The face value of the bonds is $600,000; they pay a coupon rate of 6% per annum. The effective interest rate of interest is 7% per annum.
3. Net income was $205,000.
4. There was an ordinary stock dividend valued at $13,000 and cash dividends were also paid.
5. Interest expense for the year was $115,000. Income tax expense was $61,500.
6. Fesone arranged for a $425,000 bank loan to finance the purchase of the held-to-maturity investments.
7. Fesone has adopted a policy of reporting cash flows arising from the payment of interest and dividends as operating and financing activities,respectively.
8. The held-for-trading investments are not cash equivalents.
9. Sales = 2,000,000; cost of goods sold = 300,000; and,sales and administration expenses = 1,043,500
Requirement:
Prepare the cash flows from operating activities section of the statement of cash flows using the direct method.

Question 55

Financial information for Fesone Inc.'s balance sheet for fiscal 2013 and 2014 follows:
$\begin{array}{lll}&2014&2013\\\text { Cash } & 204,800 & 550,000 \\\text { Accounts receivable } & 1,150,000 & 1,300,000 \\\text { Inventory } & 410,000 & 250,000 \\\text { Investments - held for trading } & 400,000 & \\\text { Investments - held to maturity } & 150,000 & \\\text { Property plant and equipment } & 3,400,000 & 3,400,000 \\\text { Accumulated depreciation } & (1,860,000) & (1,570,000 \\\text { Total } & \underline{3,854,800} & \underline{3 , 9 3 0 , 0 0 0}\end{array}$
$\begin{array}{lll}\text { Accounts payable } & 260,000 & 80,000 \\\text { Bank loan } & 2,226,000 & 2,850,000 \\\text { Bonds payable } & 187,800 & 185,000 \\\text { Preferred shares } & 0 & 15,000 \\\text { Common shares } & 597,000 & 450,000 \\\text { Retained earnings } & 584,000 & 350,000 \\\text { Total } & \mathbf{3 , 8 5 4 , 8 0 0} & \mathbf{3 , 9 3 0 , 0 0 0}\end{array}$
Additional information:
1. Preferred shares were converted to common shares during the year at their book value.
2. The face value of the bonds is $200,000; they pay a coupon rate of 6% per annum. The effective interest rate of interest is 8% per annum.
3. Net income was $290,000.
4. There was an ordinary stock dividend valued at $12,000 and cash dividends were also paid.
5. Interest expense for the year was $130,000. Income tax expense was $116,000.
6. Fesone arranged for a $200,000 bank loan to finance the purchase of the held-to-maturity investments.
7. Fesone has adopted a policy of reporting cash flows arising from the payment of interest and dividends as operating and financing activities,respectively.
8. The held-for-trading investments are not cash equivalents.
9. Sales = 1,600,000; cost of goods sold = 600,000; and,sales and administration expenses = 525,000
Requirements:
a. Prepare the cash flows from operating activities section of the statement of cash flows using the direct method.
b. Compare and contrast the cash flows from operating activities prepared under the indirect method versus the direct method. Which statement do you feel provides investors and other users of the financial statements with more useful information? Why?

Question 56

Answer the following:
a. What are the similarities and differences between the direct and indirect methods of preparing the statement of cash flows?
b. In practice,which method of preparation is used for the statement of cash flows and why?
c. Is the indirect method of presenting the statement of cash flows required by the IASB?
d. Briefly discuss how unrealized gains and losses arising from held-for-trading investments that are not designated as cash equivalents are reported on the statement of cash flows.

Question 57

The activities for the year ended December 31,2018 included the following:
• Sold a held-for-trading investment for $10,000. The book value was $15,000.
• Sold an available-for-sale investment for $10,000. The book value was $5,000.
How much would be presented as cash flow from operating activities?

A)Proceeds from disposal in the amount of 10,000.
B)Proceeds from disposal in the amount of 20,000.
C)Loss on sale in the amount 5,000.
D)Loss of 5,000 + Gain of 5,000.

Question 58

Larry Corp.'s policy is to report all cash flows arising from interest and dividends in the operating activities section. The activities for the year ended December 31,2018 included the following:
• Sold a held-for-trading investment for $14,000. The book value was $15,000.
• Sold an available-for-sale investment for $10,000. The book value was $5,000.
How much would be presented as cash flow from investing activities?

A)Proceeds from disposal in the amount of 10,000.
B)Proceeds from disposal in the amount of 24,000.
C)Gain on sale in the amount 5,000.
D)Gain on sale in the amount 4,000.

Question 59

Complete the following:
a. List the three primary sources of information required to prepare a statement of cash flows.
b. A company may report its accounts receivable at the gross amount less an allowance for bad debts. Contrast the direct and indirect methods of adjusting for accounts receivable reported at the gross amount.
c. Briefly discuss how cash flows arising from the purchase and sale of treasury shares are reported on the statement of cash flows.
d. Briefly discuss how other comprehensive income is reported on the statement of cash flows.
e. Briefly discuss how cash flows arising from investments in associates are reported on the statement of cash flows.
f. Briefly discuss the alternatives for reporting discontinued operations in the statement of cash flows.

Question 60

Green Leaf 's activities for the year ended December 31,2016 included the following:
• Comprehensive income totaled $538,000 including $88,000 in other comprehensive income.
• Paid a cash dividend of $80,000 that was declared in 2015.
• Interest expense for the year was $29,000; the opening and closing balances in the interest payable account were $26,000 and $17,000,respectively.
• Accounts receivable increased $33,000 and accounts payable decreased $24,000 during the year.
• The company paid $56,000 cash for equipment.
• The company sold held-to-maturity investments for $26,000. The book value of the investment was $27,000.
• Depreciation expense for the year totaled $19,000.
• Suffered an impairment loss on patents of $10,000.
• Declared and issued a 2-for-l stock split. There were 400,000 ordinary shares outstanding before the split with a collective market value of $100,000,000.
Requirement:
Prepare the cash flows from operating activities section of the statement of cash flows using the indirect method assuming that the company's policy is to report interest and dividends received as an investing activity and interest and dividends paid as a financing activity.

Question 61

George Corp.'s policy is to report all cash inflows from interest and dividends in the investing section and cash outflows arising from interest and dividends in the financing section. Angela's activities for the year ended December 31,2016 included the following:
• Declared a $12,000 cash dividend payable on January 15,2017.
• Acquired an automobile costing $30,000 under a finance lease.
• Declared and issued a stock dividend valued at $15,000.
• Issued $330,000 in ordinary shares.
• Accounts payable increased $18,000 during the year.
• Paid $980,000 to repurchase bonds. The book value of the bonds was $1,010,000.
• Made a $15,000 principal payment on a bank loan.
• Interest expense for the period was $8,000. The interest payable account increased
$2,000.
Required:
a. Prepare the cash flows from financing activities section of the statement of cash flows.
b. Identify how the activities listed above that are not financing activities would be reported in the statement of cash flows assuming that the statement is prepared using the indirect method.

Question 62

Rusabh Ltd.'s policy is to report all cash flows arising from interest and dividends in the operating section. Rusabh's activities for the year ended December 31,2018 included the following:
• Sold a held-for-trading investment for $16,000. The book value of this investment,which was not designated as a cash equivalent,was $13,000.
• Purchased an available-for-sale investment for $51,000.
• Borrowed $100,000 from the bank for investment purposes.
• Sold equipment for $23,000 that originally cost $55,000. The net book value of this item at time of sale was $35,000.
• Purchased inventory costing $84,000 for cash.
• Received $8,000 in interest and 5,500 in dividends on sundry investments.
• Acquired a forklift costing $32,000 under a finance lease.
• Acquired land and buildings valued at $100,000 by issuing ordinary shares.
• Bought $400,000 in bonds at a discount,paying $375,000 cash.
Required:
a. Prepare the cash flows from investing activities section of the statement of cash flows.
b. Identify how the activities listed above that are not investing activities would be reported in the statement of cash flows assuming that the statement is prepared using the indirect method.

Question 63

Boboto Inc.'s policy is to report all cash flows arising from interest and dividends in the operating section. Boboto's activities for the year ended December 31,2018 included the following:
• Declared and issued a stock dividend valued at $50,000.
• Paid $46,000 to repurchase ordinary shares and cancelled them. The book value was $33,000.
• Accounts payable decreased $23,000 during the year.
• Issued $1,500,000 in bonds. The cash proceeds were $1,410,000.
• Interest expense for the period was $10,000. The interest payable account decreased $4,000.
• Made a $75,000 principal payment on a bank loan.
• Declared a $15,000 cash dividend payable on January 15,2019.
Required:
a. Prepare the cash flows from financing activities section of the statement of cash flows.
b. Identify how the activities listed above that are not financing activities would be reported in the statement of cash flows assuming that the statement is prepared using the indirect method.

Question 64

Reuse It Inc.'s activities for the year ended December 31,2016 included the following:
• Comprehensive income totaled $468,000 including $88,000 in other comprehensive income.
• Paid a cash dividend of $30,000 that was declared in 2015.
• Interest expense for the year was $14,000; the opening and closing balances in the interest payable account were $28,000 and $19,000,respectively.
• Accounts receivable increased $63,000 and accounts payable decreased $19,000 during the year.
• RII paid $51,000 cash for equipment.
• RII sold held-to-maturity investments for $36,000. The book value of the investment was $39,000.
• Depreciation expense for the year totaled $9,000.
• Suffered an impairment loss on patents of $1 0,000.
• Declared and issued a 2-for-l stock split. There were 20,000 ordinary shares outstanding before the split with a collective market value of $3,000,000.
Requirement:
Prepare the cash flows from operating activities section of the statement of cash flows using the indirect method,assuming that the company's policy is to report interest and dividends received as an investing activity,and interest and dividends paid as a financing activity.

Question 65

ABC Inc.'s policy is to report all cash flows arising from interest and dividends in the operating activities section. Tub Time's activities for the year ended December 31,2017 included the following:
• Net income after taxes totaled $400,000.
• The company recorded a $4000 goodwill impairment loss during the year.
• Depreciation expense for the year was $24,000.
• Declared and issued a stock dividend valued at $10,000.
• Accounts receivable increased $33,000 in the year.
• Sold a held-for-trading investment for $23,000. The book value was $18,000. (Assume this held-for-trading investment was not designated as a cash equivalent.)
• Interest revenue for the period was $6,000. The interest receivable account decreased $4,000.
• Declared a $10,000 dividend payable. The dividends payable account decreased $19,000 in the year.
• Sold an available-for-sale investment for $19,000. The book value was $14,000.
Requirements:
a. Prepare the cash flows from operating activities section of the statement of cash flows using the indirect method.
b. Identify how the activities listed above that are not operating activities would be required in the statement of cash flows.

Question 66

Soorya Law Ltd.'s policy is to report all cash inflows from interest and dividends in the investing section and cash outflows arising from interest and dividends in the financing section. Soorya Law's activities for the year ended December 31,2016 included the following:
• Sold a held-for-trading investment for $11,000. The book value of this investment,which was designated as a cash equivalent,was $11,000.
• Sold an available-for-sale investment for $27,000. The book value of the investment was $27,000.
• Borrowed $120,000 from the bank for investment purposes.
• Sold equipment for $63,000 that originally cost $80,000. The net book value of this item at time of sale was $54,000.
• Received $5,000 in interest and $5,000 in dividends on sundry investments.
• Paid $4,000 interest on the investment loan.
• Acquired land and buildings valued at $450,000 by paying $150,000 cash and issuing ordinary shares for the balance.
• Bought $350,000 in bonds at a premium,paying $305,000 cash.
Required:
a. Prepare the cash flows from investing activities section of the statement of cash flows.
b. Identify how the activities listed above that are not investing activities would be reported in the statement of cash flows assuming that the statement is prepared using the indirect method.

Question 67

Katie Ltd.'s policy is to report all cash flows arising from interest and dividends in the operating section. Katie's activities for the year ended December 31,2018 included the following:
• Income tax expense for the year was $30,000.
• Sales for the year were $1,030,000.
• Accounts payable decreased $20,000 in 2018.
• Selling and administration expenses for the year totaled $240,000.
• Accounts receivable decreased $36,000 in 2018.
• Mamie's cost of goods sold in 2018 was $315,000.
• Mamie's inventory increased $13,000 during the year.
• Interest expense for the period was $12,000. The interest payable account increased $5,000.
• Dividends were not declared during the year; however,the dividends payable account increased $5,000.
• Sold an available-for-sale investment for $45,000. The book value was $52,000.
• Depreciation expense for the year was $19,000.
Requirements:
a. Prepare the cash flows from operating activities section of the statement of cash flows using the direct method.
b. Identify how the activities listed above that are not operating activities would be reported in the statement of cash flows.

Question 68

Financial information for Fesone Inc.'s balance sheet for fiscal 2013 and 2014 follows:
$\begin{array}{lll}&2014&2013\\\text { Cash } & 204,800 & 550,000 \\\text { Accounts receivable } & 1,150,000 & 1,300,000 \\\text { Inventory } & 410,000 & 250,000 \\\text { Investments - held for trading } & 400,000 & \\\text { Investments - held to maturity } & 150,000 & \\\text { Property plant and equipment } & 3,400,000 & 3,400,000 \\\text { Accumulated depreciation } & (1,860,000) & (1,570,000) \\\text { Total } & \mathbf{3 , 8 5 4 , 8 0 0} & \mathbf{3 , 9 3 0 , 0 0 0}\end{array}$ $\begin{array}{lll}\text { Accounts payable } & 260,000 & 80,000 \\\text { Bank loan } & 2,226,000 & 2,850,000 \\\text { Bonds payable } & 187,800 & 185,000 \\\text { Preferred shares } & 0 & 15,000 \\\text { Common shares } & 597,000 & 450,000 \\\text { Retained earnings } & 584,000 & 350,000 \\\text { Total } & \mathbf{3 , 8 5 4 , 8 0 0} & \mathbf{3 , 9 3 0 , 0 0 0}\end{array}$
Additional information:
1. Preferred shares were converted to common shares during the year at their book value.
2. The face value of the bonds is $200,000; they pay a coupon rate of 6% per annum. The effective interest rate of interest is 8% per annum.
3. Net income was $290,000.
4. There was an ordinary stock dividend valued at $12,000 and cash dividends were also paid.
5. Interest expense for the year was $130,000. Income tax expense was $116,000.
6. Fesone arranged for a $200,000 bank loan to finance the purchase of the held-to-maturity investments.
7. Fesone has adopted a policy of reporting cash flows arising from the payment of interest and dividends as operating and financing activities,respectively.
8. Assume that Fesone designates the held-for-trading investment as a cash equivalent.
Requirements:
a. Prepare a statement of cash flows for the year ended December 31,2014 using the indirect method.
b. Discuss how the transaction(s)above that are not reported on the statement of cash flows are reported in the financial statements.