Deck 4: Reporting and Analyzing Cash Flows

Question 1

The statement of cash flows separates cash flows into operating, nonoperating, and investing categories.

Answer 1

False

Question 2

Cash received from the sale of one of a company's warehouses is classified as a cash flow from investing activities in a statement of cash flows.

Answer 2

True

Question 3

Cash paid as dividends to stockholders is classified as a cash flow from investing activities in a statement of cash flows.

Answer 3

False

Question 4

Cash received from customers for services rendered is classified as a cash flow from operating activities in a statement of cash flows.

Question 5

Information about noncash investing and financing activities must be disclosed in a schedule that is separate from the statement of cash flows.

Question 6

The direct method of presenting the net cash flow from operating activities shows the major categories of operating cash receipts and payments.

Question 7

If accounts payable increase during an accounting period, then the cash paid for merchandise purchased is less than the merchandise purchases for the period.

Question 8

If prepaid insurance decreases during an accounting period, then the cash paid for insurance is less than the period's insurance expense.

Question 9

If accounts receivable increase during an accounting period, then the cash received from customers is more than the sales revenue for the period.

Question 10

The operating cash flow to capital expenditures ratio in excess of 1.0 means that the firms' current operating activities are providing cash in excess of the amount needed to provide the desired level of plant capacity.

Question 11

A typical example of a cash equivalent is an investment in:

A) Treasury stock
B) Commercial paper
C) Stock of other companies selling on an exchange
D) All of the above

Question 12

A firm's net cash flow from operating activities includes:

A) Cash received from sale of equipment
B) Cash received from issuance of common stock
C) Cash received from sale of merchandise
D) Cash received as payment of loan from a borrower

Question 13

A firm's cash flows from investing activities include:

A) Cash received from the sale of a plant asset
B) Cash paid as dividends
C) Cash received from the rendering of services to customers
D) Cash paid to retire bonds payable

Question 14

Which of the following is disclosed separately in a statement of cash flows using the indirect method?

A) Net income
B) Cash received from customers
C) Cash paid to employees and other suppliers
D) Increase in retained earnings for the period

Question 15

Nichole Company has an accrual basis net income of $260,000 and the following related items:
How much is Nichole's net cash flow from operating activities?

A) $248,000
B) $324,000
C) $174,000
D) $320,000

Question 16

Quechua Inc. has an accrual basis net loss of $56,000 and the following related items:
How much is Quechua Inc.'s net cash flow from operating activities?

A) ($26,000)
B) $26,000
C) $14,000
D) $28,000

Question 17

Rachel's Modeling School has an accrual basis net income of $128,000 and the following related items:
What is Rachel's Modeling School's net cash flow from operating activities?

A) $162,000
B) $252,000
C) $248,000
D) $150,000

Question 18

A company reported annual sales revenue of $1,800,000. During the year, accounts receivable decreased from a $56,000 beginning balance to a $48,000 ending balance. Accounts payable decreased from a $44,000 beginning balance to a $32,000 ending balance.
How much is cash received from customers for the year?

A) $1,964,000
B) $1,808,000
C) $1,796,000
D) $1,820,000

Question 19

A company reported annual sales revenue of $2,580,000. During the year accounts receivable increased from a $56,000 beginning balance to a $76,000 ending balance. Accounts payable decreased from a $52,000 beginning balance to a $24,000 ending balance.
How much is cash received from customers for the year?

A) $2,588,000
B) $2,560,000
C) $2,600,000
D) $2,552,000

Question 20

A company reported cost of goods sold of $1,760,000 for the year. During the year, inventory increased from a $92,000 beginning balance to a $140,000 ending balance, and accounts payable increased from a $48,000 beginning balance to a $56,000 ending balance.
How much is the cash paid for merchandise purchased during the year?

A) $1,660,000
B) $1,800,000
C) $1,808,000
D) $1,704,000

Question 21

A company reported annual income tax expense of $328,000. During the year, income tax payable increased from a $24,800 beginning balance to a $35,200 ending balance.
How much is cash paid for income taxes during the year?

A) $294,800
B) $338,400
C) $317,600
D) $292,800

Question 22

With reference to the reporting of net cash flow from operating activities, which method do most companies use and why?

A) Indirect method because it provides better information for decision making
B) Direct method because it is based on the accrual basis of accounting
C) Direct method because it requires a supplemental indirect method section
D) Indirect method because it is less expensive to prepare

Question 23

The following amounts have been taken from the recent financial statements for Bright Star Industries:
To the closest hundredth, which of the following amounts is Bright Star's operating cash flow to current liabilities ratio?

A) 2.62
B) 1.09
C) 2.09
D) 1.75

Question 24

The following amounts have been taken from the recent financial statements for Lumos Enterprises:
Which of the following amounts is the free cash flow for Lumos Industries?

A) $3,100,000
B) $1,320,000
C) $4,100,000
D) $1,060,000

Question 25

The direct method of presenting net cash flow from operating activities:

A) Must be used in a statement of cash flows
B) Reconciles accrual basis net income to a cash basis amount
C) Shows the major categories of operating cash receipts and cash payments
D) Is used when there are no cash flows from investing and financing activities

Question 26

Which of the following is a required separate disclosure for firms using the direct method in the statement of cash flows?

A) A reconciliation of net income to net cash flows from operating activities
B) A list of all noncash investing and financing transactions
C) The policy for determining which highly liquid, short-term investments are treated as cash equivalents
D) All of the above

Question 27

In which of the three activity categories of a statement of cash flows would each of the following items appear and do they represent a cash inflow or cash outflow?
Use the following abbreviations:

-Cash dividends received

A) Op Out = Operating Cash Outflow
B) Op In = Operating Cash Inflow
C) Inv Out = Investing Cash Outflow
D) Inv In = Investing Cash Inflow
E) Fin Out = Financing Cash Outflow F) Fin In = Financing Cash Inflow

Question 28

In which of the three activity categories of a statement of cash flows would each of the following items appear and do they represent a cash inflow or cash outflow?
Use the following abbreviations:

-Cash interest received

A) Op Out = Operating Cash Outflow
B) Op In = Operating Cash Inflow
C) Inv Out = Investing Cash Outflow
D) Inv In = Investing Cash Inflow
E) Fin Out = Financing Cash Outflow F) Fin In = Financing Cash Inflow

Question 29

In which of the three activity categories of a statement of cash flows would each of the following items appear and do they represent a cash inflow or cash outflow?
Use the following abbreviations:

-Cash receipts from customers

A) Op Out = Operating Cash Outflow
B) Op In = Operating Cash Inflow
C) Inv Out = Investing Cash Outflow
D) Inv In = Investing Cash Inflow
E) Fin Out = Financing Cash Outflow F) Fin In = Financing Cash Inflow

Question 30

In which of the three activity categories of a statement of cash flows would each of the following items appear and do they represent a cash inflow or cash outflow?
Use the following abbreviations:

-Cash collection on loans

A) Op Out = Operating Cash Outflow
B) Op In = Operating Cash Inflow
C) Inv Out = Investing Cash Outflow
D) Inv In = Investing Cash Inflow
E) Fin Out = Financing Cash Outflow F) Fin In = Financing Cash Inflow

Question 31

In which of the three activity categories of a statement of cash flows would each of the following items appear and do they represent a cash inflow or cash outflow?
Use the following abbreviations:

-Cash proceeds from the issuance of stock

A) Op Out = Operating Cash Outflow
B) Op In = Operating Cash Inflow
C) Inv Out = Investing Cash Outflow
D) Inv In = Investing Cash Inflow
E) Fin Out = Financing Cash Outflow
F) Fin In = Financing Cash Inflow

Question 32

In which of the three activity categories of a statement of cash flows would each of the following items appear and do they represent a cash inflow or cash outflow?
Use the following abbreviations:

-Cash interest paid

A) Op Out = Operating Cash Outflow
B) Op In = Operating Cash Inflow
C) Inv Out = Investing Cash Outflow
D) Inv In = Investing Cash Inflow
E) Fin Out = Financing Cash Outflow F) Fin In = Financing Cash Inflow

Question 33

In which of the three activity categories of a statement of cash flows would each of the following items appear and do they represent a cash inflow or cash outflow?
Use the following abbreviations:

-Cash purchase of equipment

A) Op Out = Operating Cash Outflow
B) Op In = Operating Cash Inflow
C) Inv Out = Investing Cash Outflow
D) Inv In = Investing Cash Inflow
E) Fin Out = Financing Cash Outflow F) Fin In = Financing Cash Inflow

Question 34

In which of the three activity categories of a statement of cash flows would each of the following items appear and do they represent a cash inflow or cash outflow?
Use the following abbreviations:

-Cash dividends paid

A) Op Out = Operating Cash Outflow
B) Op In = Operating Cash Inflow
C) Inv Out = Investing Cash Outflow
D) Inv In = Investing Cash Inflow
E) Fin Out = Financing Cash Outflow
F) Fin In = Financing Cash Inflow

Question 35

Cloud Industries acquired a $1,800,000 building by issuing a $1,800,000 note payable due to Square Bank.
a. In terms of cash flow reporting, what type of transaction is this?
b. What special disclosure is required for this transaction?

Question 36

Write an X in the appropriate column to show whether each of the following cash flows should be classified as an operating, investing, or financing.

Question 37

Put an X in the appropriate column to show whether each of the following cash flows should be classified as an operating, investing, or financing cash flow.

Question 38

Caritech had the following income statement for 2016:
Additional information about the company follows:
Calculate Caritech's cash flows provided by operating activities for 2016 using the indirect method.

Question 39

The following information relates to Kailey Company for 2016, in which the company reported a $264,000 net income.
Calculate the 2016 net cash flow from operating activities using the indirect method.

Question 40

Consider the following 2016 data for two manufacturing firms ($ in millions):
a. Compute the operating cash flow to current liabilities ratio for each firm for 2016.
b. Compute the operating cash flow to capital expenditures ratio for 2016.
c. Comment on the results of your computations.

Question 41

Consider the following 2016 data for three manufacturing firms ($ in millions):
a. Compute the operating cash flow to capital expenditures ratio for each firm for 2016.
b. Compute the free cash flow for each firm for 2016.
c. Comment on the results of your computations.

Question 42

Brian Sports Co. had the following income statement for the current year:
Additional information about the company follows:
Calculate Brian Sports' net cash flow provided by operating activities for the current year using the direct method. Show a separate cash flow for each revenue and expense.

Question 43

Tara Company had the following income statement for the current year:
Additional information about the company follows:
Calculate Tara's net cash flow provided by operating activities for the current year using the direct method. Show a separate cash flow for each revenue and expense.

Question 44

The following account changes were presented in a recent balance sheet for Fred Company ($ in millions).
Determine whether the amount of change would be added to (+) or subtracted from (‒) Fred's net income for the period when calculating cash flow from operations using the indirect method.

Question 45

During 2016, Katie Company's long-term investments account (at cost) decreased $28,000, which was the net result of purchasing stock costing $204,000 and selling stocks costing $232,000 at a $24,000 loss. Katie's notes payable account decreased $44,000, the net result of issuing $96,000 of notes and paying $140,000 during year on notes. .
What items and amounts appear in the:
a. Cash flows from investing activities
b. Cash flows from financing activities sections of Katie Company's 2016 statement of cash flows

Question 46

Becky Company uses the indirect method. Selected information appears below. How much is Becky's net cash flow from operating activities?

Question 47

Megan Industries uses the indirect method. Selected information appears below. How much is its net cash flow from operating activities?

Question 48

Little Kerry Inc. had a $64,000 net loss from operations in 2016. Depreciation expense for 2016 was $126,400 and a 2016 cash dividend of $144,000 was declared and paid. Balances of the current asset and current liability accounts at the beginning and end of 2016 follow.
Did Little Kerry's 2016 operating activities provide or use cash and by what amount? Use the indirect method to determine your answer and show your work.

Question 49

Green St., Inc. reported the following amounts during 2016 and 2015:
a. How much is the net increase or decrease in cash during 2016?
b. How much will the company report on its balance sheet at December 31, 2016 as 'cash'?

Question 50

The information below was provided by Lion Company for 2016 and 2015:
During 2016, Lion sold equipment with a cost of $100,000 and accumulated depreciation of $76,000. A loss of $4,000 was recognized on the sale of the equipment.
Prepare the investing activities section of the statement of cash flows for 2016.

Question 51

Sail Boats, Inc. provided the following information for 2016 and 2015:
No new loans were taken out during 2016. Prepare the financing activities section of the statement of cash flows for 2016.

Question 52

During 2016, Donald T. Duck, Inc. issued common stock for cash and borrowed $240,000 from the bank on a long-term loan. Donald T. Duck, Inc. provided the following:
How much cash was received from issuing common stock?

Question 53

Construction Hats purchased equipment for $248,000 cash, sold equipment costing $144,000 with a book value of $88,000 at a loss, and declared dividends during 2016. No new notes payable were issued during the year. Financial data follows:
Calculate cash flows from operations using the indirect method for 2016.

Question 54

The following schedule of cash receipts and payments relates to Design Elements for the year 2016:
Design had $104,000 cash to start 2016 and ended the year with $288,000 cash. In good form, prepare a 2016 statement of cash flows for Design Elements using the direct method.

Question 55

The following schedule of information relates to Penelope Products for the year, 2016:
The cash balance was $48,000 at the beginning of 2016. In good form, prepare a 2016 statement of cash flows for Penelope Products using the indirect method.

Question 56

The following schedule of information relates to Atom Ant, LLC for the year 2016:
The cash balance was $44,000 at the beginning of 2016.
In good form, prepare a 2016 statement of cash flows for Atom Ant, LLC using the indirect method.

Question 57

TPG Industries, a company that manufactures athletic equipment, began business in September 2016. Below is the operating section of the company's statement of cash flows. Although management has not disclosed a sales forecast, they forecast an increase in sales next year. Because of this, management plans to add $1,600,000 to inventory. However, at the end of the year, the company has less than $80,000 in cash.
You have just taken the position of financial analyst with a major investment bank. Your supervisor, John Denbear, has asked you to write a short memo about problems facing TPG. You know that losses and negative cash flow during start-up phases of businesses are common. In your memo, include discussion about the typical sources of financing that may or may not be available to support TPG's inventory expansion.

Question 58

Researchers have noted a reported growth in free cash flow over the past few years as company management, financial analysts, and investors are increasingly focusing on cash flows to validate reported earnings. Explain what is problematic about this and what might be responsible for this growth?

Question 59

You took a job as the new accountant for Pauline Company, a small company with significant overdrafts in a checking account. The previous accountant prepared the financial statements for last period and classified the overdrafts as a vendor accounts payable. He also reported the overdraft as a cash inflow in the operating section of the statement of cash flows.
Briefly discuss the issues surrounding this treatment of the overdraft.