ch14
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ch14

Course Number: ACC 220 , Winter 2008

College/University: South Central College

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CHAPTER 14 THE STATEMENT OF CASH FLOWS SUMMARY OF QUESTIONS BY OBJECTIVES AND BLOOM'S TAXONOMY Item 1. 2. 3. 4. 5. 6. 7. 8. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 123. 124. 125. 126. 127. 144. 145. 146. a SO 1 1 1 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 3 2 2 3 BT K K K K K C C K K K C C C K K C K K K C K C C C C C C C C AP AP K K K Item 9. 10. 11. 12. 13. 14. 15....

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14 THE CHAPTER STATEMENT OF CASH FLOWS SUMMARY OF QUESTIONS BY OBJECTIVES AND BLOOM'S TAXONOMY Item 1. 2. 3. 4. 5. 6. 7. 8. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 123. 124. 125. 126. 127. 144. 145. 146. a SO 1 1 1 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 3 2 2 3 BT K K K K K C C K K K C C C K K C K K K C K C C C C C C C C AP AP K K K Item 9. 10. 11. 12. 13. 14. 15. 16. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 128. 129. 130. 131. 132. 147. 148. 149. SO 2 2 2 2 2 2 2 2 2 2 2 2 2 2 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3,5 3 3 3 3 3 BT K K C C C C C C K C K C C C K C C C C C AP AP K C C K AP C AP AP AP K K K Item 17. 18. 19. 20. 21. 22. 23. 24. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90. 133. 134. 135. 136. 137. 150. 151. 152. SO 2 3 3 3 3 3 4 4 3 3 3 3 3 3 3 3 3 3 3 3 3 3,4 3,4 3,4 3,4 3,4 3 4 4 4 4 3 4 4 BT C C C C C C C K K C C C C C C C C AP C C K AP C C C C AP AP AP AP AP K K K Item 25. 26. 27. 28. 29. a 30. 31. 32. 91. 92. 93. 94. 95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. 106. 107. 108. 138. 139. 140. 141. a 142. 153. 154. 155. SO 4 4 4 5 5 6 2 2 3,4 3,4 3,4 3,4 4 4 4 4 4 4 4 4 4 4 4 4 4 5 4 4 4,5 5 6 4 4 4 BT C K K K K C Item 33. 34. 35. a 36. SO 2 3 4 6 BT True-False Statements Multiple Choice Questions C C C C C K AP AP AP AP AP AP AP C AP AP C K AP AP AP AP AP AN K K 109. 110. a 111. a 112. 113. 114. 115. 116. 117. 118. 119. 120. 121. a 122. a 5 6 6 6 1 2 2 2 2 3 3,4 4 4 6 C C C C Exercises a 143. 6 AP Completion Statements 156. 5 K This topic is dealt with in an Appendix to the chapter. 14 - 2 Test Bank for Financial Accounting, Fifth Edition Brief Exercises 163. 164. 3 3 AP AP 165. 166. 3 2 AP K 167. 168. 7 2 3,4 AP AP 169. 170. 4 4 AP AP 171. 172. 4 5 AP AP The Statement of Cash Flows 14 - 3 SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE Item 1. 2. 3. 8. 9. 10. 11. 12. 13. 18. 19. 20. 21. 22. 34. 61. 62. Type TF TF TF TF TF TF TF TF TF TF TF TF TF TF TF MC MC Item 4. 5. 6. 14. 15. 16. 17. 31. 32. 63. 64. 65. 66. 67. 68. 69. 70. Type TF TF TF TF TF TF TF TF TF MC MC MC MC MC MC MC MC Item 7. 37. 38. 33. 47. 48. 49. 50. 51. 71. 72. 73. 74. 75. 76. 77. 78. Type Item Type Item Type MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC Item 45. 46. 113. 117. 123. 124. 125. 126. 144. 118. 119. 127. 128. 129. 130. 131. 132. 133. Type MC MC MC MC Ex Ex Ex Ex C MC MC Ex Ex Ex Ex Ex Ex Ex 145. 166. 167. C BE BE Item Type Study Objective 1 TF 39. MC 42. MC 40. MC 43. MC 41. MC 44. Study Objective 2 TF 52. MC 58. MC 53. MC 59. MC 54. MC 60. MC 55. MC 114. MC 56. MC 115. MC 57. MC 116. Study Objective 3 MC 79. MC 87. MC 80. MC 88. MC 81. MC 89. MC 82. MC 90. MC 83. MC 91. MC 84. MC 92. MC 85. MC 93. MC 86. MC 94. 146. 147. 148. 149. 150. 163. 164. 165. 168. C C C C C BE BE BE BE 23. 24. 25. 26. 27. 35. 86. 28. 29. a a TF TF TF TF TF TF MC TF TF TF TF 87. 88. 89. 90. 91. 92. 93. 108. 109. a a MC MC MC MC MC MC MC MC MC MC MC 94. 95. 96. 97. 98. 99. 100. 130. 140. a a Study Objective 4 MC 101. MC 119. MC 102. MC 120. MC 103. MC 121. MC 104. MC 134. MC 105. MC 135. MC 106. MC 136. MC 107. MC 137. Study Objective 5 Ex 141. Ex 172. Ex 156. C Study Objective a6 a a MC MC MC Ex Ex Ex Ex BE 138. 139. 140. 151. 152. 153. 154. Ex Ex Ex C C C C 155. 168. 169. 170. 171. C BE BE BE BE 30. 36. 110. 111. 112. MC 122. MC 142. 143. Ex Ex BE = Brief Exercises Note: TF = True-False MC = Multiple Choice C = Completion Ex = Exercise The chapter also contains two sets of ten Matching questions and four Short-Answer Essay questions. 14 - 4 Test Bank for Financial Accounting, Fifth Edition CHAPTER STUDY OBJECTIVES 1. Indicate the usefulness of the statement of cash flows. The statement of cash flows provides information about the cash receipts and cash payments during a period. A secondary objective is to provide information about the operating, investing, and financing activities during the period. 2. Distinguish among operating, investing, and financing activities. Operating activities include the cash effects of transactions that enter into the determination of net income. Investing activities involve cash flows resulting from changes in investments and long-term asset items. Financing activities involve cash flows resulting from changes in long-term liability and stockholders' equity items. 3. Prepare a statement of cash flows using the indirect method. The preparation of a statement of cash flows involves three major steps: (1) Determine net cash provided/used by operating activities, by converting net income from an accrual basis to a cash basis. (2) Analyze changes in noncurrent asset and liability accounts and record as investing and financing activities or as significant noncash transactions. (3) Compare the net change in cash on the statement of cash flows with the change in the cash account reported on the balance sheet, to make sure the amounts agree. 4. Prepare a statement of cash flows using the direct method. The preparation of the statement of cash flows involves three major steps: (1) Determine net cash provided/used by operating activities, by converting net income from an accrual basis to a cash basis. (2) Analyze changes in noncurrent asset and liability accounts and record as investing and financing activities or as significant noncash transactions. (3) Compare the net change in cash on the statement of cash flows with the change in the cash account reported on the balance sheet, to make sure the amounts agree. 5. Analyze the statement of cash flows. The statement of cash flows can be used for cashbased ratio analysis. Free cash flow provides information about a company's cash-generating capabilities. It is calculated as cash from operations less capital expenditures and cash dividends. a 6. Explain the guidelines and procedural steps in using a work sheet to prepare the statement of cash flows using the indirect method. When there are numerous adjustments, a work sheet can be a helpful tool in preparing the statement of cash flows. Key guidelines for using a work sheet are (1) List accounts with debit balances separately from those with credit balances. (2) In the reconciling columns in the bottom portion of the work sheet, show cash inflows as debits and cash outflows as credits. (3) Do not enter reconciling items in any journal or account, but use them only to help prepare the statement of cash flows. The steps in preparing the work sheet are (1) Enter beginning and ending balances of balance sheet accounts. (2) Enter debits and credits in reconciling columns. (3) Enter the Cash increase or decrease in Cash as a balancing amount. The Statement of Cash Flows 14 - 5 TRUE-FALSE STATEMENTS 1. The statement of cash flows is a not a required statement, but may be prepared to supplement the income statement, balance sheet, and retained earnings statement. For external reporting, a company must prepare either an income statement or a statement of cash flows, but not both. A primary objective of the statement of cash flows is to show the income or loss on investing and financing transactions. A statement of cash flows indicates the sources and uses of cash during a period. In preparing a statement of cash flows, cash equivalents are subtracted from cash in order to compute the net change in cash during a period. Cash equivalents are highly-liquid investments that have maturities of less than three months. The use of cash to purchase highly liquid short-term investments (cash equivalents) would be reported on the statement of cash flows as an investing activity. In preparing a statement of cash flows, the issuance of debt as a cash inflow in the financing section. Noncash investing and financing activities must be reported in the body of a statement of cash flows. The statement of cash flows classifies cash receipts and payments as operating, nonoperating, financial, and extraordinary activities. Proceeds from the sale of inventory for cash would be classified as a cash inflow from an investing activity. Cash flow from investing activities is considered the most important category on the statement of cash flows because it is considered the best measure of expected income. The receipt of dividends from long-term investments in stock is classified as a cash inflow from investing activities. The payment of dividends is classified as a cash outflow from operating activities. Proceeds from the sale of plant and equipment will be reported as a cash inflow from investing activities. The acquisition of a building by issuing bonds would be considered an investing and financing activity that did not affect cash. Non-cash expenses such as depreciation and cost of goods sold are added back to net income in the operating section of a statement of cash flows prepared using the indirect method. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 14 - 6 18. 19. Test Bank for Financial Accounting, Fifth Edition Cash provided by operations is generally equal to operating income. Using the indirect method, an increase in accounts receivable during a period is deducted from net income in calculating cash provided by operations. Using the indirect method, an increase in accounts payable during a period is deducted from net income in calculating cash provided by operations. A loss on sale of equipment is added to net income in determining cash provided by operations under the indirect method. In preparing a statement of cash flows, an increase in the Common Stock or Treasury Stock accounts during a period would be an investing activity. During the year, Income Tax Expense amounted to $40,000 and Income Taxes Payable increased by $3,000; therefore, the cash paid for income taxes was $37,000. In preparing net cash flow from operating activities using the direct method, each item in the income statement is adjusted from the accrual basis to the cash basis. A gain on the sale of a long-term asset would be reported in the investing section of the statement of cash flows prepared using the indirect method. During a period, cost of goods sold + an increase in inventory + an increase in accounts payable = cash paid to suppliers. Operating expenses + an increase in prepaid expenses a decrease in accrued expenses payable = cash payments for operating expenses. Cash provided by operating activities fails to take into account that a company must invest in new fixed assets just to maintain its current level of operations. Free cash flow equals cash provided by operations less capital expenditures and cash dividends. The use of a work sheet to prepare a statement of cash flows is optional. The statement of cash flows classifies cash receipts and cash payments into two categories: operating activities and nonoperating activities. Financing activities include the obtaining of cash from issuing debt and repaying the amounts borrowed. Financing activities typically involve long-term debt and equity accounts. Investing activities typically involve long-term asset accounts. Under the direct method, the formula for computing cash collections from customers is sales revenues plus the increase in accounts receivable or minus the decrease in accounts receivable. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. a 30. 31. 32. 33. 34. 35. The Statement of Cash Flows a 14 - 7 36. The reconciling entry for depreciation expense in a work sheet is a credit to Accumulated Depreciation and a debit to Operating-Depreciation Expense. Answers to True-False Statements Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. 1. 2. 3. 4. 5. 6. F F F T F T 7. 8. 9. 10. 11. 12. F T F F F F 13. 14. 15. 16. 17. 18. F F T T T F 19. 20. 21. 22. 23. 24. T F T F T T 25. 26. 27. 28. 29. a 30. F F F T T T 31. 32. 33. 34. 35. a 36. F T T T F T MULTIPLE CHOICE QUESTIONS 37. The statement of cash flows should help investors and creditors assess each of the following except the a. entity's ability to generate future income. b. entity's ability to pay dividends. c. reasons for the difference between net income and net cash provided by operating activities. d. cash investing and financing transactions during the period. The statement of cash flows a. reports the changes in stockholders' equity for the year. b. reports the financial position of the company. c. is another name for the income statement. d. summarizes the operating, financing, and investing activities of an entity. Which one of the following items is not generally used in preparing a statement of cash flows? a. Adjusted trial balance b. Comparative balance sheets c. Current income statement d. Additional information The primary purpose of the statement of cash flows is to a. provide information about the investing and financing activities during a period. b. prove that revenues exceed expenses if there is a net income. c. provide information about the cash receipts and cash payments during a period. d. facilitate banking relationships. If a company reports a net loss, it a. may still have a net increase in cash. b. will not be able to pay cash dividends. c. will not be able to get a loan. d. will not be able to make capital expenditures. 38. 39. 40. 41. 14 - 8 42. Test Bank for Financial Accounting, Fifth Edition In addition to the three basic financial statements, which of the following is also a required financial statement? a. the Trial Balance b. the Statement of Cash Flows c. the Statement of Cash Inflows and Outflows d. the Capital Budget The statement of cash flows will not report the a. amount of checks outstanding at the end of the period. b. sources of cash in the current period. c. uses of cash in the current period. d. change in the cash balance for the current period. Cash equivalents do not include a. short-term corporate notes. b. treasury bills. c. money market funds. d. 2-year certificates of deposit. Which of the following characteristics does not apply to cash equivalents? a. Short-term b. Highly-liquid c. Readily convertible into cash d. Sensitive to interest rate changes Cash equivalents are generally investments with maturities of a. $1,000 or more. b. three months or less. c. at least six months. d. one year or the operating cycle, whichever is less. The best measure of a company's ability to generate sufficient cash to continue as a going concern is net cash provided by a. financing activities. b. investing activities. c. operating activities. d. processing activities. The acquisition of a building by signing a long-term note payable is a. a noncash transaction which is not reported in the body of a statement of cash flows. b. a cash transaction and would be reported in the body of a statement of cash flows. c. a noncash transaction and would be reported in the body of a statement of cash flows. d. only reported if the statement of cash flows is prepared using the direct method. The order of presentation of activities on the statement of cash flows is a. operating, investing, and financing. b. operating, financing, and investing. c. financing, operating, and investing. d. financing, investing, and operating. 43. 44. 45. 46. 47. 48. 49. The Statement of Cash Flows 50. Financing activities involve a. the day-to-day operations of the company. b. acquiring investments in the stocks and bonds of other companies. c. issuing debt and equity. d. acquiring long-lived assets. Investing activities include a. collecting cash on loans made. b. obtaining cash from creditors. c. obtaining capital from owners. d. repaying money previously borrowed. Generally, the most important category on the statement of cash flows is cash flows from a. operating activities. b. investing activities. c. financing activities. d. significant noncash activities. 14 - 9 51. 52. 53. The category that is generally considered the best measure of a company's ability to continue as a going concern is a. cash flows from operating activities. b. cash flows from investing activities. c. cash flows from financing activities. d. usually different from year to year. Cash receipts of interest and dividend revenue are classified as a. financing activities. b. investing activities. c. operating activities. d. noncash financing or investing activities. Each of the following is an example of a significant noncash activity except a. conversion of bonds into common stock. b. exchanges of plant assets. c. issuance of debt to purchase assets. d. stock dividends. If a company has both an inflow and outflow of cash related to property, plant, and equipment, the a. two cash effects can be netted and presented as one item in the investing activities section. b. cash inflow and cash outflow should be reported separately in the investing activities section. c. two cash effects can be netted and presented as one item in the financing activities section. d. cash inflow and cash outflow should be reported separately in the financing activities section. Of the items below, the one that appears first on the statement of cash flows is a. noncash investing and financing activities. b. net increase (decrease) in cash. c. cash at the end of the period. d. cash at the beginning of the period. Which of the following transactions does not affect cash during a period? a. Write-off of an uncollectible account b. Collection of an accounts receivable c. Sale of treasury stock d. Exercise of the call option on bonds payable 54. 55. 56. 57. 58. 14 - 10 Test Bank for Financial Accounting, Fifth Edition 59. Significant noncash transactions would not include a. conversion of bonds into common stock. b. asset acquisition through bond issuance. c. treasury stock acquisition. d. exchange of plant assets. In in a. b. c. d. preparing a statement of cash flows, a conversion of bonds into common stock will be reported the financing section. the "extraordinary" section. a separate schedule or note to the financial statements. the stockholders' equity section. 60. 61. The third (final) step in preparing the statement of cash flows is to a. analyze changes in noncurrent asset and liability accounts. b. compare the net change in cash with the change in the cash account reported on the balance sheet. c. determine net cash provided by operating activities. d. list the noncash activities. Which one of the following items is not necessary in preparing a statement of cash flows? a. Determine the change in cash b. Determine the cash provided by operations c. Determine cash from financing and investing activities d. Determine the cash in all bank accounts If accounts receivable have increased during the period, a. revenues on an accrual basis are less than revenues on a cash basis. b. revenues on an accrual basis are greater than revenues on a cash basis. c. revenues on an accrual basis are the same as revenues on a cash basis. d. expenses on an accrual basis are greater than expenses on a cash basis. If accounts payable have increased during a period, a. revenues on an accrual basis are less than revenues on a cash basis. b. expenses on an accrual basis are less than expenses on a cash basis. c. expenses on an accrual basis are greater than expenses on a cash basis. d. expenses on an accrual basis are the same as expenses on a cash basis. Which one of the following affects cash during a period? a. Recording depreciation expense b. Declaration of a cash dividend c. Write-off of an uncollectible account receivable d. Payment of an accounts payable In calculating cash flows from operating activities using the indirect method, a gain on the sale of equipment is a. added to net income. b. deducted from net income. c. ignored because it does not affect cash. d. not reported on a statement of cash flows. 62. 63. 64. 65. 66. The Statement of Cash Flows 67. 14 - 11 Meyer Company reported net income of $30,000 for the year. During the year, accounts receivable increased by $7,000, accounts payable decreased by $3,000 and depreciation expense of $5,000 was recorded. Net cash provided by operating activities for the year is a. $25,000. b. $45,000. c. $29,000. d. $30,000. Flynn Company reported a net loss of $10,000 for the year ended December 31, 2005. During the year, accounts receivable decreased $5,000, merchandise inventory increased $8,000, accounts payable increased by $10,000, and depreciation expense of $5,000 was recorded. During 2005, operating activities a. used net cash of $2,000. b. used net cash of $8,000. c. provided net cash of $2,000. d. provided net cash of $8,000. In calculating net cash provided by operating activities using the indirect method, an increase in accounts payable during a period is a. not included in the operating section. b. a noncash activity. c. added to net income. d. deducted from net income. In calculating net cash provided by operating activities using the indirect method, an increase in supplies during a period is a. deducted from net income. b. added to net income. c. ignored because it does not affect income. d. ignored because it does not affect expenses. Using the indirect method, copyright amortization expense for the period a. is deducted from net income. b. reported in the investing section. c. is reported as a noncash investing activity. d. is added to net income. In developing the cash flows from operating activities, most companies in the U. S. a. use the direct method. b. use the indirect method. c. present both the indirect and direct methods in their financial reports. d. prepare the operating activities section on the accrual basis. Each of the following is added to net income in computing net cash provided by operating activities except a. amortization expense. b. an increase in utilities payable. c. a gain on sale of land. d. a decrease in prepaid insurance. Which of the following would be subtracted from net income using the indirect method? a. Depreciation expense b. An increase in inventory c. An increase in salaries payable d. A decrease in supplies 68. 69. 70. 71. 72. 73. 74. 14 - 12 Test Bank for Financial Accounting, Fifth Edition 75. Which of the following would be added to net income using the indirect method? a. An increase in accounts receivable b. An increase in prepaid expenses c. Depreciation expense d. A decrease in accounts payable Which of the following would not be an adjustment to net income using the indirect method? a. Amotization Expense b. A decrease in inventory c. Issuance of Bonds Payable d. An increase in Common Stock In calculating cash flows from operating activities using the indirect method, a loss on the sale of equipment will appear as a(n) a. subtraction from net income. b. addition to net income. c. addition to cash flow from investing activities. d. subtraction from cash flow from investing activities. Which of the following adjustments to convert net income to net cash provided by operating activities is correct? a. b. c. d. 79. Inventory Prepaid Insurance Supplies Salaries Payable Add to Net Income increase increase decrease decrease Deduct from Net Income decrease decrease increase increase 76. 77. 78. Which of the following adjustments to convert net income to net cash provided by operating activities is incorrect? a. b. c. d. Merchandise Inventory Prepaid Rent Supplies Unearned Revenue Add to Net Income decrease increase decrease increase Deduct from Net Income increase decrease increase decrease 80. Which of the following adjustments to convert net income to net cash provided by operating activities is not added to net income? a. Gain on Sale of Equipment b. Depreciation Expense c. Patent Amortization Expense d. Depletion Expense Advising Company uses the indirect method. During 2005, the company sold equipment for $3,000. The equipment had a book value of $2,700. On the statement of cash flows, a. sale proceeds of $3,000 are deducted in the operating activities section. b. sale proceeds of $3,000 received are added in the investing activities section. c. the gain of $300 is deducted from net income in the operating activities section. d. both (b) and (c) are correct. 81. The Statement of Cash Flows 82. 14 - 13 A company had net income of $200,000. Amortization expense is $25,000. During the year, Accounts Receivable and Inventory increased $10,000 and $20,000, respectively. Prepaid Expenses and Accounts Payable decreased $3,000 and $6,000, respectively. There was also a gain on the sale of land of $12,000. How much cash was provided by operating activities? a. $124,000. b. $180,000. c. $200,000. d. $224,000. On the statement of cash flows using the indirect method, patent amortization expense will a. be added to net income in the operating section. b. be deducted from net income in the operating section. c. appear as an inflow of cash in the investing section. d. appear as an outflow of cash in the investing section. The indirect and direct methods of preparing the statement of cash flows are identical except for the a. significant noncash activity section. b. operating activities section. c. investing activities section. d. financing activities section. Land acquired from the issuance of common stock is reported a. as a financing activity. b. as an investing activity. c. as an operating activity. d. in a separate schedule at the bottom of the statement. If $200,000 of bonds are issued during the year but $120,000 of old bonds are retired during the year, the statement of cash flows will show a(n) a. net increase in cash of $80,000. b. net decrease in cash of $80,000. c. increase in cash of $200,000 and a decrease in cash of $120,000. d. net gain on retirement of bonds of $80,000. Which of the following changes in retained earnings during a period will be reported in the financing activities section of the statement of cash flows? a. b. c. d. net income Payment of cash dividends. Purchase of equipment in exchange for common stock. Receipt of dividends. 83. 84. 85. 86. 87. 88. The statement of cash flows a. is prepared instead of an income statement under generally accepted accounting principles. b. is used to assess an entity's ability to pay dividends and meet obligations. c. is prepared from comparative income statements. d. reflects earnings per share figures on a cash basis and on an accrual basis in the body of the statement. In preparing the statement of cash flows, determining the net increase or decrease in cash requires the use of a. the adjusted trial balance. b. the current period's balance sheet. c. a comparative balance sheet. d. a comparative income statement. 89. 14 - 14 Test Bank for Financial Accounting, Fifth Edition 90. To determine the net cash provided (used) by operating activities, it is necessary to analyze a. the current year's income statement. b. the stockholders' equity accounts. c. the long-term asset accounts. d. the long-term liability accounts. Which of the following would not be needed to determine net cash provided by operating activities? a. Depreciation expense b. Change in accounts receivable c. Payment of cash dividends d. Change in prepaid expenses To determine the net cash provided (used) by financing activities, it is necessary to analyze a. the current year's income statement. b. the long-term asset accounts. c. the long-term debt and stockholders' equity accounts. d. the current asset and liability accounts. To determine the net cash provided (used) by investing activities, it is necessary to analyze a. the current year's income statement. b. the long-term asset accounts. c. the long-term debt and stockholders' equity accounts. d. the current asset and liability accounts. Which of the following transactions would not be classified as a financing activity? a. Purchase of treasury stock b. Payment of dividends c. Issuance of bonds at a discount d. Purchase of a long-term investment in bonds During 2005, Kerry Company reported net income of $145,000, including a gain on the sale of equipment of $5,000. The equipment had a cost of $23,000, a book value of $12,000 and was sold for proceeds of $17,000. The company also purchased land for $25,000 during 2005. No other long-term asset account balances changed during the year. Cash flows from investing activities for 2005 total a. net cash inflow of $3,000. b. net cash outflow of $20,000. c. net cash inflow of $125,000. d. net cash outflow of $8,000. Which of the following statements concerning the statement of cash flows is true? a. The statement of cash flows is usually more accurate when using the indirect method. b. If the direct method is used, a supplementary schedule reconciling the net income to a net cash from operating activities must still be provided. c. The statement of cash flows reflects both earnings per share and cash per share. d. The statement of cash flows is an optional financial statement for external reporting purposes. Carter Company reports the following: Inventory Accounts Payable End of Year $25,000 30,000 Beginning of Year $40,000 10,000 91. 92. 93. 94. 95. 96. 97. If cost of goods sold for the year is $150,000, the amount of cash paid to suppliers is a. $155,000. b. $145,000. c. $115,000. d. $185,000. The Statement of Cash Flows 98. 14 - 15 During the year, Salaries Payable decreased by $6,000. If Salary Expense amounted to $160,000 for the year, the cash paid to employees (including deductions from gross pay) is a. $166,000. b. $160,000. c. $154,000. d. $172,000. Gary Company reports a $15,000 increase in inventory and a $5,000 increase in accounts payable during the year. Cost of Goods Sold for the year was $150,000. The cash payments made to suppliers were a. $150,000. b. $160,000. c. $130,000. d. $145,000. Rader Company had credit sales of $800,000. The beginning accounts receivable balance was $40,000 and the ending accounts receivable balance was $140,000. What were the cash collections from customers during the period? a. $900,000. b. $800,000. c. $700,000. d. $840,000. Foley Inc. had cash sales of $300,000 and credit sales of $1,050,000. The accounts receivable balance increased $15,000 during the year. How much cash did Foley receive from its customers during the year? a. $1,335,000. b. $1,365,000. c. $1,035,000. d. $1,065,000. Stone Company had a cost of purchases of $250,000. The comparative balance sheet analysis revealed a $10,000 decrease in inventory and a $20,000 increase in accounts payable. What were Stone's cash payments to suppliers? a. $230,000. b. $220,000. c. $260,000. d. $280,000. Utley Company had an increase in inventory of $40,000. The cost of goods sold was $90,000. There was a $5,000 decrease in accounts payable from the prior period. What were Utley's cash payments to suppliers? a. $135,000. b. $85,000. c. $125,000. d. $95,000. Which of the following items does not appear in the statement of cash flows under the direct method? a. Cash payments to suppliers b. Cash collections from customers c. Depreciation Expense d. Cash from the sale of equipment 99. 100. 101. 102. 103. 104. 14 - 16 Test Bank for Financial Accounting, Fifth Edition 105. Olson Company has other operating expenses of $80,000. There has been a decrease in prepaid expenses of $4,000 during the year, and accrued liabilities are $6,000 larger than in the prior period. What were Olson's cash payments for operating expenses? a. $82,000. b. $78,000. c. $70,000. d. $80,000. 106. Benton Corporation shows income tax expense of $70,000. There has been a $5,000 decrease in federal income taxes payable and a $7,000 increase in state income taxes payable during the year. What was Benton's cash payment for income taxes? a. $70,000. b. $68,000. c. $65,000. d. $72,000. Which of the following would not appear in the operating activities section of a statement of cash flows prepared under the direct method? a. Cash receipts from customers b. Cash paid for income taxes c. Gain on sale of equipment d. Cash paid to employees A measure that describes the cash remaining from operations after adjustment for capital expenditures and dividends is a. adjusted cash from operations. b. cash provided by operations. c. free cash flow. d. net cash provided by operating activities. Free cash flow equals cash provided by a. operations less capital expenditures and cash dividends. b. operations less cash dividends. c. investing activities less capital expenditures and cash dividends. d. operations less capital expenditures. When listing accounts in the statement of cash flows work sheet, the accumulated depreciation account is shown a. with accounts that have credit balances. b. with accounts that have debit balances. c. as a credit under the reconciling items. d. as a debit under the reconciling items. In the bottom portion of the statement of cash flows work sheet, a. inflows of cash are debits in the reconciling columns. b. outflows of cash are debits in the reconciling columns. c. information pertaining to investing and financing activities only is entered. d. only significant noncash transactions are entered. 107. 108. 109. a 110. a 111. The Statement of Cash Flows a 14 - 17 112. On the statement of cash flows work sheet, a. significant noncash investing and financing activities are not entered in the reconciling columns. b. a decrease in cash will be offset by a debit in the reconciling items columns at the bottom of the work sheet. c. an increase in cash will be offset by a debit in the reconciling items column at the bottom of the work sheet. d. income statement accounts are listed after balance sheet accounts in the top half of the work sheet under the indirect method. Whatley Company issued 5,000 shares of $1 par common stock for $25 per share during 2005. The company paid dividends of $12,000 and issued long-term notes payable of $110,000 during the year. What amount of cash flows from financing activities will be reported on the statement of cash flows? a. $3,000 net cash inflow. b. $113,000 net cash inflow. c. $235,000 net cash outflow. d. $223,000 net cash inflow. Edwards Company purchased treasury stock with a cost of $19,000 during 2005. During the year, the company paid dividends of $25,000 and issued bonds payable for proceeds of $1,020,000. Cash flows from financing activities for 2005 total a. $995,000 net cash inflow. b. $1,014,000 net cash inflow. c. $6,000 net cash outflow. d. $976,000 net cash inflow. The information needed to prepare the statement of cash flows includes each of the following except a. the comparative balance sheet. b. the retained earnings statement. c. additional information. d. the current income statement. Boxer Company issued common stock for proceeds of $124,000 during 2005. The company paid dividends of $22,000 and issued a long-term note payable for $30,000 in exchange for equipment during the year. The company also sold treasury stock that had a cost of $5,000 for $7,000. The financing section of the statement of cash flows will report a. net cash inflows of $109,000. b. net cash inflows of $139,000 c. net cash outflows of $107,000. d. net cash outflows of $191,000. The information in a statement of cash flows will not help investors to assess the entity's ability to a. generate future cash flows. b. obtain favorable borrowing terms at a bank. c. pay dividends. d. pay its obligations when they become due. 113. 114. 115. 116. 117. 14 - 18 Test Bank for Financial Accounting, Fifth Edition 118. During 2006, Camp Company sold equipment with a book value of $45,000 for proceeds of $52,000. The company purchased new equipment for $120,000 by signing a long-term note payable. No other transactions impacted long-term asset accounts during 2006. The investing section of the statement of cash flows will report a. net cash outflows of $113,000. b. net cash outflows of $68,000. c. net cash inflows of $52,000. d. net cash inflows of $7,000. In the Freyfogle Company, land decreased $90,000 because of a cash sale for $90,000, the equipment account increased $30,000 as a result of a cash purchase, and Bonds Payable increased $100,000 from an issuance for cash at face value. The net cash provided by investing activities is a. $90,000. b. $160,000. c. $60,000. d. $70,000. Under the direct method, cash payments for operating expenses equals operating expenses a. plus an increase in prepaid expenses and accrued expenses payable. b. minus a decrease in prepaid expenses and accrued expenses payable. c. minus a decrease in prepaid expenses and plus a decrease in accrued expenses payable. d. plus a decrease in prepaid expenses and minus an increase in accrued expenses payable. Bainbridge Company uses the direct method in determining net cash provided by operating activities. The income statement shows income tax expense $80,000. Income taxes payable were $25,000 at the beginning of the year and $18,000 at the end of the year. Cash payments for income taxes are a. $73,000. b. $80,000. c. $87,000. d. $98,000. When a work sheet is used, all but one of the following statements is correct. The incorrect statement is a. Reconciling items on the work sheet are not journalized or posted. b. The bottom portion of the work sheet shows the statement of cash flows effects. c. The balance sheet accounts portion of the work sheet is divided into two parts: assets, and liabilities and stockholders' equity. d. Each line pertaining to a balance sheet account should foot across. 119. 120. 121. 122. Answers to Multiple Choice Questions Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. a d a c a b A d d b 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. c a a a c d b b a c 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. b c d b a c c a d b 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. d b c b a d b a b d 89. 90. 91. 92. 93. 94. 95. 96. 97. 98. c a c b b d d b c a 102. 103. 104. 105. 106. 107. 108. 109. a 110. a 111. a a c c b c c a a a 115. 116. 117. 118. 119. 120. 121. a 122. b a a c c c c c The Statement of Cash Flows 47. 48. 49. c a a 60. 61. 62. c b d 73. 74. 75. c b c 86. 87. 88. c b b 99. 100. 101. b c a a 14 - 19 112. 113. 114. b d d EXERCISES Ex. 123 Classify each of the following as a(n): A. Operating Activity B. Investing Activity C. Financing Activity _____ 1 Issuance of long-term notes payable. _____ 2. Sale of land. _____ 3. Purchase of inventory. _____ 4. Issuance of common stock. _____ 5. Receipt of dividends on investment. _____ 6. Purchase of patent. Solution 123 1. C 2. B 3. A (3 min.) 4. C 5. A 6. B Ex. 124 Selected transactions of Melancon Company are listed below. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Treasury stock is sold for cash above cost. Long-term notes payable are issued for cash. Interest receivable on a short-term note receivable is collected. Investments are sold for cash at a gain. Salaries payable are paid in cash. A building is purchased by signing a 10-year, 10% mortgage payable. Cash dividends on preferred stock are declared and paid. Shares of Home Depot common stock are purchased for cash as a long-term investment. Merchandise is sold to customers for cash. Bonds payable are converted into common stock. 14 - 20 Test Bank for Financial Accounting, Fifth Edition Instructions Classify each transaction as either (a) an operating activity, (b) an investing activity, (c) a financing activity, or (d) a noncash investing and financing activity. Solution 124 1. 2. 3. 4. 5. (c) (c) (a) (b) (a) (811 min.) 6. 7. 8. 9. 10. (d) (c) (b) (a) (d) Noncash activity Financing activity Investing activity Operating activity Noncash activity Financing activity Financing activity Operating activity Investing activity Operating activity Ex. 125 (a) Identify several alternatives for presenting significant noncash activities in financial statements. (b) Give three examples of significant noncash transactions. Solution 125 (a) (812 min.) Significant noncash transactions may appear at the bottom of the statement of cash flows as a separate schedule under the heading "Noncash investing and financing activities." They may also be presented in a separate note or supplementary schedule to the financial statements. 1. 2. 3. 4. Issuance of stock for assets Issuance of stock to liquidate debt Issuance of bonds or notes for assets Noncash exchanges of property, plant, and equipment (b) Ex. 126 The following information is available for Snider Company: Receipts from customers Dividends from stock investments Proceeds from sale of equipment Proceeds from issuance of stock Payments for goods Payments for operating expenses Interest paid Taxes paid Dividends paid $180,000 3,000 18,000 100,000 90,000 70,000 5,000 4,000 20,000 Instructions Based on the preceding information, compute the net cash provided by operating activities. The Statement of Cash Flows Solution 126 (7 min.) $180,000 3,000 183,000 $90,000 70,000 5,000 4,000 14 - 21 Receipts from customers Dividends from stock investments Payments for goods Payments for operating expenses Interest paid Taxes paid Net cash provided by operating activities 169,000 $ 14,000 Ex. 127 Raja Company reported net income of $221,000 for the current year. Depreciation recorded on buildings and equipment amounted to $63,000 for the year. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows: Cash Accounts receivable Inventories Prepaid expenses Accounts payable Income taxes payable End of Year $22,000 29,000 42,000 7,800 11,200 2,600 Beginning of Year $17,000 32,000 55,000 5,300 16,000 2,100 Instructions Prepare the net cash provided by operating activities section of the statement of cash flows using the indirect method. Solution 127 (1015 min.) $221,000 63,000 3,000 13,000 (2,500) (4,800) 500 $293,200 Net income.......................................................................................................... Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense ................................................................................. Decrease in accounts receivable ................................................................ Decrease in inventories .............................................................................. Increase in prepaid expenses ..................................................................... Decrease in accounts payable.................................................................... Increase in income taxes payable .............................................................. Net cash provided by operating activities ................................................... Ex. 128 P. Parker Company reported net income of $112,000. For 2005, depreciation was $22,000, and the company reported a gain on sale of investments of $4,000. Accounts receivable increased $12,000 and accounts payable decreased $5,000. Instructions Compute net cash provided by operating activities using the indirect method. 14 - 22 Test Bank for Financial Accounting, Fifth Edition Solution 128 (6 min.) $112,000 Net income Adjustments to reconcile net income to net cash provided by operating activities Depreciation expense Gain on sale investments of Increase in accounts receivable Decrease in accounts payable Net cash provided by operating activities $22,000 (4,000) (12,000) (5,000) 1,000 $113,000 Ex. 129 Assuming a statement of cash flows is prepared, indicate the reporting of the transactions and events listed below by major categories on the statement. Use the following code letters to indicate the appropriate category under which the item would appear on the statement of cash flows. Code Cash Flows From Operating Activities Add to Net Income Deduct from Net Income Cash Flows From Investing Activities Cash Flows From Financing Activities A D IA FA Category 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Common stock is issued for cash at an amount above par value. Merchandise inventory increased during the period. Depreciation expense recorded for the period. Building was purchased for cash. Bonds payable were acquired and retired at their carrying value. Accounts payable decreased during the period. Prepaid expenses decreased during the period. Treasury stock was acquired for cash. Land is sold for cash at an amount equal to book value. Patent amortization expense recorded for a period. _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ The Statement of Cash Flows Solution 129 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. (812 min.) Category FA D A IA FA D A FA IA A 14 - 23 Common stock is issued for cash at an amount above par value. Merchandise inventory increased during the period. Depreciation expense recorded for the period. Building was purchased for cash. Bonds payable were acquired and retired at their carrying value. Accounts payable decreased during the period. Prepaid expenses decreased during the period. Treasury stock was acquired for cash. Land is sold for cash at an amount equal to book value. Patent amortization expense recorded for a period. Ex. 130 The comparative balance sheets for Kohl Company appear below: KOHL COMPANY Comparative Balance Sheet Dec. 31, 2005 Assets Cash Accounts receivable Prepaid expenses Inventory Long-term investments Equipment Accumulated depreciation--equipment Total assets $ 23,000 18,000 6,000 27,000 -060,000 (18,000) $116,000 $12,000 14,000 9,000 18,000 18,000 30,000 (14,000) $87,000 Dec. 31, 2004 Liabilities and Stockholders' Equity Accounts payable Bonds payable Common stock Retained earnings Total liabilities and stockholders' equity $ 21,000 37,000 40,000 18,000 $116,000 $ 9,000 45,000 23,000 10,000 $87,000 Additional information: 1. Net income for the year ending December 31, 2005 was $20,000. 2. Cash dividends of $12,000 were declared and paid during the year. 3. Long-term investments that had a cost of $18,000 were sold for $16,000. Instructions Prepare a statement of cash flows for the year ended December 31, 2005, using the indirect method. 14 - 24 Test Bank for Financial Accounting, Fifth Edition Solution 130 (2530 min.) KOHL COMPANY Statement of Cash Flows For the Year Ended December 31, 2005 Cash flows from operating activities Net income ................................................................................. Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense ........................................................ Loss on sale of long-term investments ................................ Increase in accounts receivable ......................................... Decrease in prepaid expenses ........................................... Increase in inventories ....................................................... Increase in accounts payable ............................................. Net cash provided by operating activities ........................... Cash flows from investing activities Sale of long-term investments .................................................... Purchase of equipment ............................................................... Net cash used by investing activities .................................. Cash flows from financing activities Issuance of common stock ......................................................... Retirement of bonds payable ...................................................... Payment of cash dividends ......................................................... Net cash used by financing activities .................................. Net increase in cash ............................................................................ Cash at beginning of period ................................................................. Cash at end of period .......................................................................... $20,000 $ 4,000 2,000 (4,000) 3,000 (9,000) 12,000 8,000 28,000 16,000 (30,000) (14,000) 17,000 (8,000) (12,000) (3,000) 11,000 12,000 $23,000 The Statement of Cash Flows Ex. 131 A comparative balance sheet for Isaac Corporation is presented below: ISAAC CORPORATION Comparative Balance Sheet 2005 Assets Cash Accounts receivable (net) Prepaid insurance Land Equipment Accumulated depreciation Total Assets $ 39,000 80,000 22,000 18,000 70,000 (20,000) $209,000 14 - 25 2004 $ 31,000 60,000 17,000 40,000 60,000 (13,000) $195,000 Liabilities and Stockholders' Equity Accounts payable $ 11,000 Bonds payable 27,000 Common stock 140,000 Retained earnings 31,000 Total liabilities and stockholders' equity $209,000 Additional information: 1. Net loss for 2005 is $20,000. 2. Cash dividends of $4,000 were declared and paid in 2005. $ 6,000 19,000 115,000 55,000 $195,000 3. Land was sold for cash at a loss of $10,000. This was the only land transaction during the year. 4. Equipment with a cost of $15,000 and accumulated depreciation of $10,000 was sold for $5,000 cash. 5. $12,000 of bonds were retired during the year at carrying (book) value. 6. Equipment was acquired for common stock. The fair market value of the stock at the time of the exchange was $25,000. Instructions Prepare a statement of cash flows for the year ended 2005, using the indirect method. 14 - 26 Test Bank for Financial Accounting, Fifth Edition Solution 131 (22-27 min.) ISAAC CORPORATION Statement of Cash Flows For the Year Ended December 31, 2005 -------------------------------------------------------------------------------------- Cash flows from operating activities Net loss ....................................................................................... $(20,000) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation (a) ................................................................. $17,000 Loss on sale of land (b) ...................................................... 10,000 Increase in accounts receivable ......................................... (20,000) Increase in prepaid insurance ............................................ (5,000) Increase in accounts payable ............................................. 5,000 7,000 Net cash used by operating activities ................................. (13,000) Cash flows from investing activities Proceeds from the sale of land (b) .............................................. 12,000 Proceeds from the sale of equipment ......................................... 5,000 Net cash provided by investing activities ............................ 17,000 Cash flows from financing activities Retirement of bonds payable ...................................................... (12,000) Issuance of bonds payable ......................................................... 20,000 Payment of dividends ................................................................. (4,000) Net cash provided by financing activities ............................ 4,000 Increase in cash .................................................................................. 8,000 Cash at beginning of period ................................................................. 31,000 Cash at end of period .......................................................................... $39,000 Noncash investing and financing activities Purchase of equipment through issuance of common stock ....... (a) Accumulated Depreciation 12/31/04 Accumulated Depreciation 12/31/05 Difference Add: Accumulated depreciation on equipment sold Depreciation expense Cost of land sold ($40,000 $18,000) Less: Loss on sale of land Proceeds from sale of land $13,000 20,000 7,000 10,000 $17,000 $22,000 (10,000) $12,000 $25,000 (b) The Statement of Cash Flows Ex. 132 14 - 27 The following information is available for Hardy Corporation for the year ended December 31, 2005: Collection of principal on long-term loan to a supplier Acquisition of equipment for cash Proceeds from the sale of long-term investment at book value Issuance of common stock for cash Depreciation expense Redemption of bonds payable at carrying (book) value Payment of cash dividends Net income Purchase of land by issuing bonds payable $35,000 10,000 27,000 20,000 25,000 24,000 9,000 30,000 40,000 In addition, the following information is available from the comparative balance sheet for Hardy at the end of 2004 and 2005: 2005 $102,000 20,000 17,000 $139,000 $ 25,000 4,000 $ 29,000 2004 $14,000 15,000 13,000 $42,000 $19,000 7,000 $26,000 Cash Accounts receivable (net) Prepaid insurance Total current assets Accounts payable Salaries payable Total current liabilities Instructions Prepare Hardy's statement of cash flows for the year ended December 31, 2005 using the indirect method. 14 - 28 Test Bank for Financial Accounting, Fifth Edition Solution 132 (22-27 min.) HARDY CORPORATION Statement of Cash Flows For the Year Ended December 31, 2005 -------------------------------------------------------------------------------------- Cash flows from operating activities Net income .................................................................................. $ 30,000 Adjustments to reconcile net income to net cash provided by operating activities Depreciation ........................................................................ $25,000 Increase in accounts receivable .......................................... (5,000) Increase in prepaid insurance ............................................. (4,000) Increase in accounts payable .............................................. 6,000 Decrease in salaries payable .............................................. (3,000) 19,000 Net cash provided by operating activities ............................ 49,000 Cash flows from investing activities Collection of long-term loan ......................................................... 35,000 Proceeds from the sale of investments ........................................ 27,000 Purchase of equipment ................................................................ (10,000) Net cash provided by investing activities ............................. 52,000 Cash flows from financing activities Issuance of common stock .......................................................... 20,000 Redemption of bonds................................................................... (24,000) Payment of dividends .................................................................. (9,000) Net cash used by financing activities................................... (13,000) Increase in cash ................................................................................... 88,000 Cash at beginning of period .................................................................. 14,000 Cash at end of period ........................................................................... $102,000 Noncash investing and financing activities Purchase of land by issuing bonds .............................................. Ex. 133 Trent Company prepared the tabulation below at December 31, 2005. Net Income ............................................................................................................ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense, $35,000 .................................................................... Increase in accounts receivable, $80,000 ..................................................... Decrease in inventory, $13,000 .................................................................... Amortization of patent, $4,000 ...................................................................... Increase in accounts payable, $5,600 ........................................................... Decrease in interest receivable, $4,000 ........................................................ Increase in prepaid expenses, $6,000 .......................................................... Decrease in income taxes payable, $1,500 .................................................. Gain on sale of land, $5,000 ......................................................................... Net cash provided (used) by operating activities ........................................... $400,000 ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ $40,000 Instructions Show how each item should be reported in the statement of cash flows. Use parentheses for deductions. The Statement of Cash Flows Solution 133 (10-14 min.) 14 - 29 Net Income ............................................................................................................ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense .................................................................................... Increase in accounts receivable .................................................................... Decrease in inventory .................................................................................... Amortization of patent ................................................................................... Increase in accounts payable ........................................................................ Decrease in interest receivable ..................................................................... Increase in prepaid expenses ........................................................................ Decrease in income taxes payable ................................................................ Gain on sale of land ...................................................................................... Net cash provided (used) by operating activities ................................... $400,000 35,000 (80,000) 13,000 4,000 5,600 4,000 (6,000) (1,500) (5,000) $369,100 Ex. 134 Dolan Company's income statement showed revenues of $270,000 and operating expenses of $160,000. Accounts receivable decreased by $60,000 and accounts payable increased by $50,000 during the year. Instructions Compute (a) cash receipts from customers and (b) cash payments for operating expenses using the direct method. Solution 134 (a) (b) (5 min.) Cash receipts from customers = $330,000 ($270,000 + $60,000) Cash payments for operating expenses = $110,000 ($160,000 $50,000) Ex. 135 Banner Company had total operating expenses of $120,000 in 2005, which included Depreciation Expense of $20,000. Also, during 2005, prepaid expenses increased by $5,000 and accrued expenses decreased by $6,700. Instructions Calculate the amount of cash payments for operating expenses in 2005 using the direct method. Solution 135 (5-8 min.) $120,000 (20,000) 5,000 6,700 $111,700 Operating expenses ............................................................ Less: Noncash depreciation expense .................................. Add: Increase in prepaid expenses ..................................... Add: Decrease in accrued liabilities..................................... Cash payments for operating expenses .............................. 14 - 30 Test Bank for Financial Accounting, Fifth Edition Ex. 136 The general ledger of Lopez Company provides the following information: Accounts Receivable Inventory Accounts Payable End of Year $ 55,000 350,000 40,000 Beginning of Year $ 94,000 210,000 65,000 The company's net sales for the year was $2,000,000 and cost of goods sold amounted to $1,700,000. Instructions Compute the following: (a) Cash receipts from customers. (b) Cash payments to suppliers. Solution 136 (a) (8-12 min.) Cash receipts from customers Sales + Decrease in Accounts Receivable $2,000,000 + $39,000 = $2,039,000 Cash payments to suppliers First calculate the amount of purchases: Beginning inventory Add: Purchases Less: Ending inventory Cost of goods sold $210,000 + Purchases $350,000 = $1,700,000 Purchases = $1,840,000 Amount of cash payments to suppliers = Purchases + Decrease in accounts payable = $1,840,000 + $25,000 = $1,865,000 (b) $ 210,000 ? ? 350,000 $1,700,000 Ex. 137 The income statement of Quayle Inc. for the year ended December 31, 2005, reported the following condensed information: Service revenue Operating expenses Income from operations Income tax expense Net income $600,000 360,000 240,000 60,000 $180,000 Quayle's balance sheet contained the following comparative data at December 31: Accounts receivable Accounts payable Income taxes payable 2005 $50,000 35,000 6,000 2004 $45,000 41,000 3,000 Quayle has no depreciable assets. Accounts payable pertains to operating expenses. The Statement of Cash Flows Ex. 137 (cont.) 14 - 31 Instructions Prepare the operating activities section of the statement of cash flows using the direct method. Solution 137 (9-14 min.) QUAYLE INC. Statement of Cash Flows For the Year Ending December 31, 2005 Cash flows from operating activities Cash receipts from customers ($600,000 $5,000) Cash payments: For operating expenses ($360,000 + $6,000) For income taxes ($60,000 $3,000) Net cash provided by operating activities $595,000 $366,000 57,000 423,000 $172,000 Ex. 138 The income statement of Stover Company is shown below: STOVER COMPANY Income Statement For the Year Ended December 31, 2005 Sales Cost of goods sold Gross profit Operating expenses Selling expenses Administrative expense Depreciation expense Amortization expense Net income $8,000,000 5,400,000 2,600,000 $500,000 700,000 90,000 30,000 1,320,000 $1,280,000 Additional information: 1. Accounts receivable increased $400,000 during the year. 2. Inventory increased $250,000 during the year. 3. Prepaid expenses increased $200,000 during the year. 4. Accounts payable to merchandise suppliers increased $100,000 during the year. 5. Accrued expenses payable increased $180,000 during the year. Instructions Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2005, for Stover Company, using the direct method. 14 - 32 Test Bank for Financial Accounting, Fifth Edition Solution 138 (15-20 min.) STOVER COMPANY Statement of Cash Flows For the Year Ended December 31, 2005 Cash flows from operating activities Cash receipts from customers Cash payments: To suppliers For operating expenses Net cash provided by operations (1) Sales Deduct: Increase in accounts receivable Cash receipts from customers Cost of goods sold Add: Increase in inventory Purchases Deduct: Increase in accounts payable Cash payments to suppliers $7,600,000 (1) $5,550,000 (2) 1,220,000 (3) 6,770,000 $ 830,000 $8,000,000 400,000 $7,600,000 $5,400,000 250,000 5,650,000 100,000 $5,550,000 $1,200,000 200,000 (180,000) $1,220,000 (2) (3) Operating expenses exclusive of depreciation and amortization Add: Increase in prepaid expenses Deduct: Increase in accrued expenses payable Cash payments for operating expenses Ex. 139 The financial statements of Nixon Company appear below: NIXON COMPANY Comparative Balance Sheet December 31 2005 Assets Cash Accounts receivable Merchandise inventory Property, plant, and equipment Accumulated depreciation Total Liabilities and Stockholders' Equity Accounts payable Income taxes payable Bonds payable Common stock Retained earnings Total $ 15,000 13,000 7,000 41,000 44,000 $120,000 $ 23,000 8,000 33,000 24,000 38,000 $126,000 $ 39,000 26,000 25,000 50,000 (20,000) $120,000 $ 23,000 34,000 15,000 78,000 (24,000) $126,000 2004 The Statement of Cash Flows Ex. 139 (cont.) NIXON COMPANY Income Statement For the Year Ended December 31, 2005 Sales Cost of goods sold Gross profit Selling expenses Administrative expenses Income from operations Interest expense Income before income taxes Income tax expense Net income 14 - 33 $350,000 280,000 70,000 $20,000 16,000 36,000 34,000 4,000 30,000 10,000 $ 20,000 The following additional data were provided: 1. Dividends declared and paid were $14,000. 2. During the year, equipment was sold for $12,000 cash. This equipment cost $28,000 originally and had a book value of $12,000 at the time of sale. 3. All depreciation expense is in the selling expense category. 4. All sales and purchases are on account. 5. Accounts payable pertain to merchandise suppliers. 6. All operating expenses except for depreciation were paid in cash. Instructions Prepare a statement of cash flows for Nixon Company using the direct method. Solution 139 (22-28 min.) NIXON COMPANY Statement of Cash Flows For the Year Ended December 31, 2005 Cash flows from operating activities Cash receipts from customers ($350,000 + $8,000) Cash payments: To suppliers For operating expenses For interest expense For income taxes ($10,000 $5,000) Net cash provided by operating activities Cash flows from investing activities Sale of equipment Net cash provided by investing activities Cash flows from investing activities Redemption of bonds payable Issuance of common stock Payment of cash dividend Net cash used by financing activities Net increase in cash Cash at beginning of period Cash at end of period $358,000 $298,000 (1) 24,000 (2) 4,000 5,000 331,000 27,000 12,000 12,000 (26,000) 17,000 (14,000) (23,000) 16,000 23,000 $ 39,000 14 - 34 Test Bank for Financial Accounting, Fifth Edition Solution 139 (1) (cont.) $280,000 10,000 290,000 8,000 $298,000 $36,000 (12,000)* $24,000 Cost of goods sold Add: Increase in inventory Purchases Add: Decrease in accounts payable Cash payments to suppliers Operating expenses Less: Depreciation expense Cash payments for operating expenses (2) *$24,000 $16,000 = $8,000 balance in accumulated depreciation after sale. Ending balance, $20,000 $8,000 = $12,000 depreciation expense. Ex. 140 Condensed financial data of Penny Company appear below: PENNY COMPANY Comparative Balance Sheet December 31 2005 Assets Cash Accounts receivable Inventories Prepaid expenses Investments Plant assets Accumulated depreciation Total Liabilities and Stockholders' Equity Accounts payable Accrued expenses payable Bonds payable Common stock Retained earnings Total $ 93,000 29,000 130,000 245,000 144,000 $641,000 PENNY COMPANY Income Statement For the Year Ended December 31, 2005 Sales Less: Cost of goods sold Operating expenses (excluding depreciation) Depreciation expense Income taxes Interest expense Loss on sale of plant assets Net income $490,000 $290,000 60,000 17,000 15,000 18,000 3,000 $ 75,000 24,000 160,000 170,000 81,000 $510,000 $ 82,000 85,000 120,000 19,000 90,000 310,000 (65,000) $641,000 $ 35,000 53,000 132,000 25,000 75,000 250,000 (60,000) $510,000 2004 403,000 $ 87,000 The Statement of Cash Flows Ex. 140 (cont.) 14 - 35 Additional information: 1. New plant assets costing $85,000 were purchased for cash in 2005. 2. Old plant assets costing $25,000 were sold for $10,000 cash when book value was $13,000. 3. Bonds with a face value of $30,000 were converted into $30,000 of common stock. 4. A cash dividend of $24,000 was declared and paid during the year. 5. Accounts payable pertain to merchandise purchases. Instructions Prepare a statement of cash flows for the year using the direct method. Solution 140 (2530 min.) PENNY COMPANY Statement of Cash Flows For the Year Ended December 31, 2005 Cash flows from operating activities Cash receipts from customers ($490,000 $32,000) Cash payments: To suppliers For operating expenses For income taxes For interest Net cash provided by operating activities Cash flows from investing activities Purchase of investments Purchase of plant assets Sale of plant assets Net cash used by investing activities Cash flows from financing activities Issuance of common stock Payment of cash dividends Net cash provided by financing activities Net increase in cash Cash at beginning of period Cash at end of period Noncash investing and financing activities Conversion of bonds payable into common stock (1) Cost of goods sold Deduct: Decrease in inventory Purchases Deduct: Increase in accounts payable Cash payments to suppliers Operating expenses Deduct: Decrease in prepaid expenses Deduct: Increase in accrued expenses payable Cash payments for operating expenses $458,000 $260,000 (1) 49,000 (2) 15,000 18,000 342,000 116,000 (15,000) (85,000) 10,000 (90,000) 45,000 (24,000) 21,000 47,000 35,000 $ 82,000 $ 30,000 $290,000 (12,000) 278,000 (18,000) $260,000 $60,000 (6,000) (5,000) $49,000 (2) 14 - 36 Test Bank for Financial Accounting, Fifth Edition Ex. 141 The income statement for Javier Company showed cost of goods sold of $85,000 and operating expenses of $50,000. The comparative balance sheets for the year show that inventory decreased $3,000, prepaid expenses increased $2,000, accounts payable increased $4,000, and accrued expenses payable decreased $5,000. Instructions Compute (a) cash payments to suppliers and (b) cash payments for operating expenses using the direct method. Solution 141 (5 min.) (a) Cash payments to suppliers = $78,000 ($85,000 - $3,000 - $4,000) (b) Cash payments for operating expenses = $57,000 ($50,000 + $2,000 + $5,000) a Ex. 142 Kotter Company has begun a work sheet for preparing a statement of cash flows. The following additional information is provided: 1. Cash dividends of $10,000 were paid during the year. 2. Land which originally cost $60,000 was sold for $52,000. 3. Common stock was issued at par value for cash. Instructions Complete the work sheet for Kotter Company. KOTTER COMPANY Work Sheet Statement of Cash Flows For the Year Ended December 31, 2005 Balance Sheet Accounts Debits Cash Accounts receivable Inventory Land Equipment Total Credits Accounts payable Bonds payable Accumulated depreciation-- equipment Common stock Retained earnings Total Statement of Cash Flows Effects Operating activities Net income Balance 12/31/04 30,000 40,000 90,000 60,000 131,000 351,000 15,000 25,000 81,000 170,000 60,000 351,000 Reconciling Items Debits Credits Balance 12/31/05 65,000 53,000 110,000 -0140,000 368,000 12,000 10,000 95,000 180,000 71,000 368,000 21,000 The Statement of Cash Flows a 14 - 37 Solution 142 (2732 min.) KOTTER COMPANY Work Sheet Statement of Cash Flows For the Year Ended December 31, 2005 Balance 12/31/04 30,000 40,000 90,000 60,000 131,000 351,000 Reconciling Items Debits Credits (k) 35,000 (c) 13,000 (d) 20,000 (g) 60,000 (h) 9,000 Balance 12/31/05 65,000 53,000 110,000 -0140,000 368,000 Balance Sheet Accounts Debits Cash Accounts receivable (net) Inventory Land Equipment Total Credits Accounts payable Bonds payable Accumulated depreciation-- equipment Common stock Retained earnings Total Statement of Cash Flows Effects Operating activities Net income Depreciation expense Loss on sale of land Increase in accounts receivable Increase in inventory Decrease in accounts payable Investing activities Sale of land Purchase of equipment Financing activities Issuance of common stock Retirement of bonds Payment of dividend Increase in cash 15,000 25,000 81,000 170,000 60,000 351,000 (e) 3,000 (i) 15,000 (f) 14,000 (j) 10,000 (a) 21,000 12,000 10,000 95,000 180,000 71,000 368,000 (b) 10,000 (a) 21,000 (f) 14,000 (g) 8,000 (c) 13,000 (d) 20,000 (e) 3,000 (g) 52,000 (h) 9,000 (j) 10,000 (i) 15,000 (b) 10,000 175,000 (k) 35,000 210,000 210,000 210,000 14 - 38 Test Bank for Financial Accounting, Fifth Edition Ex. 143 The following information is available for Wilton Corporation: Capital expenditures Cash dividends Cash provided by operations Net income Sales $100,000 65,000 200,000 130,000 500,000 Instructions Compute Wilton Corporation's free cash flow. Solution 143 (3 min.) Free cash flow = $35,000 ($200,000 - $100,000 - $65,000) The Statement of Cash Flows 14 - 39 COMPLETION STATEMENTS 144. A statement of cash flows summarizes the operating, ____________, and ___________ activities of an entity. 145. Cash inflows from selling goods and services are reported in the ______________ activities section of a statement of cash flows. 146. The operating activities section of the statement of cash flows may be prepared using the ______________ method or the ______________ method. 147. Net income from operations is generally not the same as cash provided from operations because revenues and expenses are recognized in the income statement on the ______________ basis. 148. The financing section of the statement of cash flows reports purchases and sales of ______________________ for cash. 149. Payment of dividends is reported as a cash outflow in the ______________ activities section of the statement of cash flows. 150. The sale of equipment at less than its book value is an ______________ of cash that is reported in the ______________ activities section. The loss will be _______________ to net income in the __________________ activities section. 151. Under the direct method, noncash charges, such as depreciation, are _______________ in the statement of cash flows. 152. Under the direct method, the two largest classes of items in the operating activities section for a merchandising company are cash ________________________ and cash _________________________. 153. Cost of goods sold for the year amounted to $120,000, and during the year, accounts payable ______________ by $8,000 and inventory ______________ by $7,000 resulting in cash paid to suppliers of $105,000. 154. In computing cash payments for operating expenses, a decrease in prepaid expenses is ______________ and an increase in accrued expenses payable is ______________ to (from) operating expenses, exclusive of depreciation. 155. In computing cash payments for income taxes, a decrease in income taxes payable is ______________ to (from) income tax expense. 156. Free _______________ equals cash provided by operations less capital expenditures and cash dividends. Answers to Completion Statements 144. 145. 146. 147. 148. 149. 150. investing, financing operating indirect, direct (or vice versa) accrual long-term assets financing inflow, investing, added, operating 151. 152. 153. 154. 155. 156. not reported receipts from customers, payments to suppliers increased, decreased deducted, deducted added cash flow 14 - 40 Test Bank for Financial Accounting, Fifth Edition MATCHING Set 1 -- Indirect Method 157. For each of the following items, indicate by using the appropriate code letter, how the item should be reported in the statement of cash flows, using the indirect method. A. B. C. D. E. F. G. Added to net income Deducted from net income Cash outflow--investing activity Cash inflow--investing activity Cash outflow--financing activity Cash inflow--financing activity Significant noncash investing and financing activity ____ ____ ____ ____ ____ ____ ____ ____ ____ 1. Decrease in utilities payable during a period 2. Declaration and payment of a cash dividend. 3. Loss on sale of equipment. 4. Decrease in inventory during a period. 5. Redemption of bonds for cash. 6. Proceeds from sale of building at book value. 7. Sale of treasury stock. 8. Purchase of land for cash. 9. Acquisition of equipment in exchange for common stock. ____ 10. Increase in prepaid expenses during a period. Answers to Matching 1. 2. 3. 4. 5. B E A A E 6. 7. 8. 9. 10. D F C G B The Statement of Cash Flows 14 - 41 Set 2 -- Direct Method 158. For each of the following items, indicate by using the appropriate code letter, how the item should be reported in the statement of cash flows, using the direct method. A. B. C. D. E. F. G. H. I. J. Added in determining cash receipts from customers Deducted in determining cash receipts from customers Added in determining cash payments to suppliers Deducted in determining cash payments to suppliers Cash outflow--investing activity Cash inflow--investing activity Cash outflow--financing activity Cash inflow--financing activity Significant noncash investing and financing activity Is not shown ____ 1. Decrease in accounts payable during a period. ____ 2. Declaration and payment of a cash dividend. ____ 3. Decrease in accounts receivable during a period. ____ 4. Depreciation expense. ____ 5. Conversion of bonds payable into common stock. ____ 6. Decrease in merchandise inventory during a period. ____ 7. Sale of equipment for cash at book value. ____ 8. Issuance of preferred stock for cash. ____ 9. Purchase of land for cash. ____ 10. Loss on sale of a plant asset. Answers to Matching 1. 2. 3. 4. 5. C G A J I 6. 7. 8. 9. 10. D F H E J 14 - 42 Test Bank for Financial Accounting, Fifth Edition SHORT-ANSWER ESSAY QUESTIONS S-A E 159 The statement of cash flows is the only required financial statement that is not prepared from an adjusted trial balance. What are the sources of information for preparing a statement of cash flows? Explain how the accrual basis of accounting affects the statement of cash flows. Solution 159 The information used to prepare the statement of cash flows usually comes from three sources. These sources are (1) a comparative balance sheet, (2) current income statement, and (3) additional information. The accrual basis of accounting requires that revenues be recorded when earned and that expenses be recorded when incurred. Thus, net income may include earned revenues for which cash has not yet been collected and include incurred expenses which have not yet been paid for in cash. These noncash revenues and noncash expenses do not affect the cash balance. Therefore, the noncash revenues and noncash expenses must be eliminated to determine the net cash provided by operating activities. S-A E 160 Cash flows from operating activities can be calculated using the indirect or direct method. Briefly describe how the two methods differ yet arrive at the same information about the net cash flows from operating activities. Solution 160 The indirect method (or reconciliation method) starts with net income and converts it to the net cash provided by operating activities. There are two types of adjustments: (1) changes in current assets and current liabilities and (2) noncash charges and credits. For example, an increase in accounts receivable is deducted from net income and an increase in accounts payable is added to net income. Similarly, a noncash charge for depreciation expense is added to net income. The adjustments are the difference between net income and the net cash provided by operating activities. Under the direct method, net cash provided by operating activities is computed by adjusting each item in the income statement from the accrual to the cash basis. Within the operating activities section, only major classes of operating cash receipts and cash payments are reported. The classes include cash receipts from customers and cash payments to suppliers. The difference between these major classes is the net cash provided by operating activities. The Statement of Cash Flows S-A E 161 (Ethics) 14 - 43 Flint Hills Company's most recent financial statements showed dismal performance. There was a net loss of $10,000 and the statement of cash flows showed a net cash decrease in all categories. The company president called all the managers together and asked them to do all they could to make sure the next quarter's performance was better. Ken Nye, manager of the manufacturing division, sold off old manufacturing equipment. He also reclassified several workers to part time (30 hours per week) and hired additional temporary workers to take up the slack. This saved the company money, since part-time workers do not have the same insurance and other benefits as full-time workers. Fred Long, financial manager, immediately suspended payments on all accounts except those on which interest would accrue. He also instituted aggressive collection procedures. Required: 1. Were Ken Nye's actions ethical? Explain. 2. Were Fred Long's actions ethical? Explain. 3. Were the company president's actions ethical? Explain. Solution 161 1. There is a valid question as to whether Ken Nye's actions are ethical or not. Either answer could be considered correct. On the one hand, he was probably within his legal rights to reclassify the workers. He also might be commended for allowing more workers to have a job than was previously the case. On the other hand, however, he has removed a very real benefit from the former full-time workers, and he has done it fairly arbitrarily. He may have harmed morale, and harmed the company if the workers quit and new workers have to be hired. 2. Fred Long's actions all appear to be ethical. 3. The company president may have placed undue pressure on the employees to show better results. The managers may feel that they need to sacrifice the long-term goals of the firm for short-term benefits. S-A E 162 (Communication) You are the accountant for a small manufacturing firm. Your company is privately held, so there is no current requirement to issue financial statements using GAAP. You were hired four years ago, and at that time you instituted a cash budgeting system. Presently, you present a schedule of predicted cash sources and cash needs at the end of each week for the following week. Jay Golden, the company's president, has asked whether a statement of cash flows would also be useful. Required: Prepare a short memorandum to the president indicating whether you believe such an addition to the financial statements to be useful. Include in your memo the benefits that might be expected from a statement of cash flows and whether those are different from the benefits of a cash sources and cash needs listing. 14 - 44 Test Bank for Financial Accounting, Fifth Edition Solution 162 TO: Jay Golden FROM: Nancy Jenks RE: Statement of Cash Flows vs. Cash Sources and Needs You asked whether a Statement of Cash Flows would be useful, in addition to the Cash Sources and Needs statement. In my opinion, the statement of cash flows would be extremely useful. It gives different information than the Cash Sources and Needs does. A Statement of Cash Flows would provide historical information about where we got the funds for operating, financing, and investing activities, as well as how we used the funds. It is a summary of our performance. The Cash Sources and Needs statement, on the other hand, is a prediction of the cash we will need and the source from which it will be obtained. One is our plan, the other is our result. Please let me know if you'd like more details about the Statement of Cash Flows. (signed) Brief Exercises BE 163 Bertucci Company had net income of $204,000 in 2005. Depreciation expense for the year is $45,000. During the year, Accounts Receivable increased $9,000 and Prepaid Expenses decreased $1,000. The company also sold equipment at a loss of $2,000. Calculate net cash flows from operating activities using the indirect method. Solution 163 Net Income Add: Depreciation Loss on sale of equipment Increase in Prepaid Expenses Deduct: Increase in Accounts Receivable Net cash flows from operating activities $204,000 45,000 2,000 1,000 (9,000) $243,000 BE 164 During 2005, Baxter Company sold a building with a book value of $145,000 for proceeds of $132,000. The company also sold long-term investments for proceeds of $45,000. The company purchased land and a new building for $320,000 by signing a long-term note payable. No other transactions impacted long-term asset accounts during 2005. Compute net cash flows from investing activities. Solution 164 Net cash flows from investing = $132,000 + $45,000 = $177,000 The Statement of Cash Flows 14 - 45 BE 165 Mover Company issued common stock for proceeds of $14,000 during 2005. The company paid dividends of $2,000. The company also issued a long-term note payable for $30,000 in exchange for equipment during the year. The company sold treasury stock that had a cost of $2,000 for $4,000. Compute net cash flows from financing activities. Solution 165 Net cash flows from financing activities = $14,000 - $2,000 + $4,000 = $16,000 BE 166 Classify each of the following as a(n): A. Operating Activity B. Investing Activity C. Financing Activity _____ 1 Issuance of common stock. _____ 2. Sale of treasury stock. _____ 3. Purchase of supplies. _____ 4. Issuance of bonds payable. _____ 5. Sale of equipment. Solution 166 1. F 2. F 3. O 4. F 5. I BE 167 Classify each of the following as a cash inflow (I) or a cash outflow (O). _____ 1. _____ 2. _____ 3. _____ 4. _____ 5. Increase in inventory. Increase in accounts payable. Purchase of equipment. Issuance of common stock. Payment of cash dividends. 14 - 46 Test Bank for Financial Accounting, Fifth Edition Solution 167 1. O 2. I 3. O 4. I 5. O BE 168 At January 1, 2005, Bergman Enterprises reported a balance in the Equipment account of $45,000. During the year the company purchased equipment with a cost of $60,000 and sold equipment with a book value of $30,000. The company reported a loss on the sale of equipment of $2,000. What amount will be reported in (a) the operating activities section and (b) the investing activities section with regard to the purchase and sale of equipment? Solution 168 (a) Loss on Sale of Equipment, $2,000 (b) Proceeds from the Sale of Equipment, $28,000 ($30,000 - $2,000) Purchase of Equipment, $60,000 BE 169 Halo Company reported sales revenue of $80,000 on its 2005 income statement. Accounts receivable at January 1, 2005 was $12,000. The balance at December 31, 2005 was $8,000. Compute cash receipts from customers. Solution 169 Revenues from sales Add: decrease in accounts receivable Cash receipts from customers $80,000 4,000 $84,000 BE 170 Schick Company reported Cost of Goods Sold of $192,000 on its 2005 income statement. The company's beginning inventory was $35,000. The ending inventory was valued at $40,000. The Accounts Payable balance at January 1 was $25,000. The December 31 balance in Accounts Payable was $22,000. Compute cash payments to suppliers. Solution 170 Cost of goods sold Add: Increase in inventory Purchases Add: Decrease in accounts payable Cash payments to suppliers $192,000 5,000 197,000 3,000 $200,000 BE 171 The income statement of Bellagio Inc. reported income tax expense of $3,600,000 for 2006. The comparative balance sheet reported Income taxes payable of $1,200,000 and $1,300,000 at 12/31/2005 and 12/31/2006, respectively. Compute cash payments for income taxes. Solution 171 Income tax expense Deduct: Increase in income taxes payable Cash payments for income taxes $3,600,000 100,000 $3,500,000 The Statement of Cash Flows 14 - 47 BE 172 Daimler Enterprises reported cash flow from operations of $342,000. The company made capital expenditures of $112,000 and paid dividends of $34,000. Compute free cash flow. Solution 172 Free cash flow = $342,000 - $112,000 - $34,000 = $196,000

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South Central College - ACC - 220
CHAPTER 15FINANCIAL STATEMENT ANALYSISSUMMARY OF QUESTIONS BY OBJECTIVES AND BLOOM'S TAXONOMYItem 1. 2. 3. 4. 5. 6. 7. 8. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 137. 138. 139. 140. 141. 142. 163. 164. 165.
South Central College - ACC - 220
Achievement Test 1: Chapters 1 and 2 Financial Accounting, 5eName _ Instructor _ Section # _ Date _Part Points ScoreI 54II 26III 10IV 10Total 100PART I - MULTIPLE CHOICE (54 points) Instructions: Designate the best answer for each of
South Central College - ACC - 220
Achievement Test 2: Chapters 3 and 4 Financial Accounting, 5eName _ Instructor _ Section # _ Date _Part Points ScoreI 39II 12III 24IV 8V 17Total 100PART I - MULTIPLE CHOICE (39 points) Instructions: Designate the best answer for eac
South Central College - ACC - 220
Achievement Test 3: Chapters 5 and 6 Financial Accounting, 5eName _ Instructor _ Section # _ Date _Part Points ScoreI 36II 26III 18IV 10V 10Total 100PART I - MULTIPLE CHOICE (36 points) Instructions: Designate the best answer for ea
South Central College - ACC - 220
Achievement Test 4: Chapters 7 and 8 Financial Accounting, 5eName _ Instructor _ Section # _ Date _Part Points ScoreI 30II 10III 20IV 10V 10VI 10VII 10Total 100PART I - MULTIPLE CHOICE (30 points) Instructions: Designate the bes
South Central College - ACC - 220
Achievement Test 5: Chapters 9 and 10 Financial Accounting, 5eName _ Instructor _ Section # _ Date _Part Points ScoreI 24II 18III 5IV 10V 13VI 15VII 15Total 100PART I - MULTIPLE CHOICE (24 points) Instructions: Designate the bes
South Central College - ACC - 220
Achievement Test 6: Chapters 11-13 Financial Accounting, 5eName _ Instructor _ Section # _ Date _Part Points ScoreI 40II 14III 6IV 12V 6VI 6VII 16Total 100PART I - MULTIPLE CHOICE (40 points) Instructions: Designate the best ans
South Central College - ACC - 220
Achievement Test 7 Chapters 14-15 Financial Accounting, Fifth EditionName _ Instructor _ Section # _ Date _Part Points ScoreI 32II 12III 20IV 24V 12Total 100PART I -- MULTIPLE CHOICE (32 points) Instructions Designate the best answe
South Central College - ACC - 220
South Central College - ACC - 220
South Central College - ACC - 220
South Central College - ACC - 220
Berkeley - PEIS - 100
9.26.06 Lecture Writers all had some aspect of morality in their writings.even if it was different from ours Mercantile system: grew up requiring that government maintained favorable balance of trade.import few goods and protect their own wealth, and
Berkeley - PEIS - 100
m10.19.06 Lecture Mill, Tocqueville, Veblen All deal with industrialization Mill p. 16 "No society in which these liberties are not on the whole respected is free." Freedom is pursuing our own good in our own way, not impeding others to do the same.
Berkeley - PEIS - 100
10.31.06 Karl Marx Dont really think of him in the same category as other liberal political economists. Makes a critique of liberalism, even though his own idea of political economy has elements of it. Proposes the solution (communist manifesto) befo
Berkeley - PEIS - 100
"Challenges to and critiques of Euro-centric conceptions of capitalism" historical context and the problem of generalization the problem of the unit of analysis: from national to global perspective Historical context and the problem of generalization
Berkeley - PEIS - 100
Marxist Debates about "imperialism" in the run-up to the Bolshevik Revolution (1917-18) 1. The emergence of social reformism and Marxist defense of "imperialism" a. R. Hilferding, E. Bernstein, K. Kautsky) - ultraimperialsm 2. The radicals and the op
Berkeley - PEIS - 100
Malthus: Took a very practical perspective on political atmosphere Very violent time in Europe from 1780s-1815. Govnt was spending a lot of money to finance the war, therefore increasing inflation. France embargoed british isles, which made it diffic
Berkeley - PEIS - 100
12-7-06 Final: three short answers.answer 2 from last midterm to present and two essay questions.whole course. CURRENT EVENTS. Schumpeter-pg. 90.a purely capitalist world can offer no fertile soil to imperialist impulses. That does not mean it cannot
Berkeley - PEIS - 100
9/7/06 Lecture Regicide led to commonwealth Interregnum an effort to rewrite the English constitution by the parliament to deal with competing interests between monarchy and army. A protectorate is created till 1659. Hobbes-is this a return to the st
Berkeley - PEIS - 100
Marx's thinking on value: Original idea of the value of an object or a commodity consists of: the natural contribution, as well as the labor expended to make the raw material into the object. Now that there is capitalism, is the way that value is det
Berkeley - PEIS - 100
Dec. 14 5-8 PM 100 GPB-final Keynes-probably the most influential economist in the 1900s, after Milton Friendman Bridge between classical economists and contemporary theories. "The general theory of employment, theory, and money" Three questions: 1.
Santa Clara - FNCE - 125
Solutions to Chapter 7 Net Present Value and Other Investment Criteria NPV = $6,750 + $4,500 + $18,000 = $15,750 NPV= $6,750 NPV= $6,75015.a.r = 0% r = 50% r = 100%$4,500 1.50 $4,500 2.00$18,000 1.502 $18,000 2.002$4,250 $0b.IRR = 100
Santa Clara - FNCE - 125
Solutions to Chapter 6 Valuing Stocks 1. No, this does not invalidate the dividend discount model. The dividend discount model allows for the fact that firms may not currently pay dividends. As the market matures, and Amazon's growth opportunities mo
Santa Clara - FNCE - 125
Solutions to Chapter 5 Valuing Bonds1.a.Coupon rate = 6%, which remains unchanged. The coupon payments are fixed at $60 per year. When the market yield increases, the bond price will fall. The cash flows are discounted at a higher rate. At a lo
Santa Clara - FNCE - 125
Solutions to Chapter 1 The Corporation and the Financial Manager1.Investment decisions: Should a new computer be purchased? Should the firm develop a new drug? Should the firm shut down an unprofitable factory? Financing decisions: Should the fir
Santa Clara - MGMT - 80
CHAPTER 4 SUMMARY 1. The term ethics refers to accepted principles of right or wrong that govern the conduct of a person, the members of a profession, or the actions of an organization. Business ethics are the accepted principles of right or wrong go
Santa Clara - MGMT - 80
CHAPTER 2 SUMMARY 1. Political systems can be assessed according to 2 dimensions: a. The degree to which they emphasize collectivism as opposed to individualism b. The degree to which they are democratic or totalitarian 2. Collectivism is an ideology
Santa Clara - FNCE - 125
Solutions to Chapter 2 Why Corporations Need Financial Markets and Institutions 1. The story of Apple Computer provides three examples of financing sources: equity investments by the founders of the company, trade credit from suppliers and investment
Santa Clara - MGMT - 80
Chapter SixThe Political Economy of International Trade6-3Opening Case Since 1974, international trade in the textile industry has been governed by a system of quotas known as the MultiFiber Agreement- Designed to protect textile producers in
Santa Clara - FNCE - 125
Solutions to Chapter 4 The Time Value of Money $100/(1.08)10 = $46.32 $100/(1.08)20 = $21.45 $100/(1.04)10 = $67.56 $100/(1.04)20 = $45.64 (1.08)10 = $215.89 (1.08)20 = $466.10 (1.04)10 = $148.02 (1.04)20 = $219.111.a. b. c. d.2.a. b. c. d.
Santa Clara - MGMT - 80
CHAPTER 3 SUMMARY 1. Culture is a complex whole that includes knowledge, beliefs, art, morals, law, customs, and other capabilities acquired by people as members of society. 2. Values and norms are the central components of a culture. Values are abst
Santa Clara - MGMT - 80
CHAPTER 1 SUMMARY 1. Over the past two decades, we have witnessed the globalization of markets and production. 2. The globalization of markets implies that national markets are merging into one hug marketplace. However, it is important not to push th
Santa Clara - MGMT - 80
Chapter SevenForeign Direct Investment7-3Foreign Direct Investment in the World Economy The flow of FDI refers to the amount of FDI undertaken over a given time period The stock of FDI refers to the total accumulated value of foreign owned ass
Santa Clara - MGMT - 80
Chapter FiveInternational Trade Theory5-3Overview of Trade Theory Free Trade occurs when a government does not attempt to influence, through quotas or duties, what its citizens can buy from another country or what they can produce and sell to a
Santa Clara - MGMT - 80
Chapter FourEthics in International Business4-3Introduction Business ethics are the accepted principles of right or wrong governing the conduct of business people An ethical strategy is a strategy or course of action that does not violate the
Santa Clara - MGMT - 80
Chapter ThreeDifferences in Culture3-4What is Culture?"Culture is that complex whole which includes knowledge, belief, art, morals, law, custom, and other capabilities acquired by man as a member of society." - Edward TylorMcGraw-Hill/Irwin
Santa Clara - MGMT - 80
Chapter TwoNational Differences in Political Economy2-3Political Economy A term that stresses that the political, economic, and legal systems of a country are interdependent; they interact and influence each other, and in doing so they affect t
Oklahoma State - AGEC - 5403
AGEC 5403 Production Economics Topic 1: A Historical Perspective I. Evolution of the neoclassical theory of the firm.A. Classical period - Adam Smith (1723-1790) and David Ricardo (1772-1823) 1. Smith 1776 An Inquiry into the Nature and Causes of th
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Topic 2: Physical Properties of Single Variable Factor Production Functions I. Output is measured in physical rather then money terms and is referred to as total physical product (TPP). We will use y to represent TPP. A. y = f(x1|x2,.,xn) 1. Called e
Ouachita Baptist - ENG - 101
Ruth Bryan Doug Sonheim English Studies February 1, 2008Sigmund Freud, "The Destiny of Oedipus" Freud's whole response to Oedipus is that there must be something within it that the contemporary audience, us, can identify with and understand. He say
Ouachita Baptist - ENG - 101
Ruth Bryan Dr. Doug Sonheim English Studies February 4, 2008 "My Papa's Waltz" Response Roethke's My Papa's Waltz can be viewed in two very distinct ways, either as child abuse, or an intimate moment between father and son. Rovelli's response discuss
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Ruth Bryan Intro to Chr. Miss. Franklin April 14, 2008 Destiny of the Unevangelized Paper I have read 100% of this book. The view that I can identify most with from the book "What About Those Who Have Never Heard" by Fackre, Nash, and Sanders is Incl
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"New Life in Christ"An Exegetical Paper on Ephesians 4:25-32By Ruth BryanInterpreting the Bible Dr. Ray Franklin Spring 2008Ephesians 4:25-32: Paul gives an explanation of the new self which Christians are to take on, and examples of the Chri
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La teologa de la liberacin de Latinoamrica concentra en reconstruyendo el infraestructura de la economa, detestando la influencia de otras pases, y uniendo las personas de la pas para evitar servidumbre. La teologa de la liberacin junta todos los cri
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Chapter 1: The Essence of Anthropology 1. The Development of Anthropology 2. The Anthropological Perspective 3. Anthropology and Its Fields a. Physical Anthropology i. Paleoanthropology ii. Human Growth, Adaptation, and Variation iii. Forensic Anthro
Baylor - SPA - 2320
Review for Spanish Exam 1 El Eclipse by Augusto Monterroso About the author: From Guatemala Short, satirical fiction About the story: 500th anniversary of the arrival of the Spaniards in the Americas Envisions the meeting of the indigenous American a
Baylor - SPA - 2320
Spanish Exam 3 ReviewEl indulto-Emilia Pardo BaznEmilia Pardo Bazn was passionate about love for the countryside, landscape, customs, and the typical language of her region. She utilizes the characters in her works and their circumstances in order
Baylor - SPA - 2320
Spanish Exam 2 ReviewLa Chusma-Ana Mara MatuteElementos del Cuento: o o o o o o Plot-el trama Characters-los personajes (principal o secundario) Tone-el tono Theme-el tema Setting-el ambiente, el trasfondo Argument-el argumento (premise, inferred
Baylor - SPA - 2320
El Eclipse by Augusto Monterroso From Guatemala Short, satirical fiction 500th anniversary of the arrival of the Spaniards in the Americas Envisions the meeting of the indigenous American and Western European cultures Main character: Fray Bartolom Ar
Baylor - BIO - 2306
Genetics NotesThe Method of Reasoning (Logic) of Genetics*8 elements of genetic reasoning -Purpose: to figure out how genetics operates through systematic observation and experimentation -Questions: What can be figured out? -Information: Facts tha
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Chapter 22 Notes-Quantitative Genetics & Transgressive Variation Quantitative Genetics 1. Study of Inheritance of Continuous Characteristics a. Crop Yield b. Some plant disease resistances c. Weight gain in animals d. Fat content of meat e. Milk prod
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Odes to the Death of His FatherO let the soul her slumbers break, Let thought be quickened, and awake; Awake to see How soon this life is past and gone, And death comes softly stealing on, How silently!Swiftly our pleasures glide away, Our hearts
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Chapter 15: Translation1. C-value paradox a. Why does genome size vary so much? b. Numbers of genes i. Humans 24,000 genes ii. Fruit fly 13,525 genes iii. Nematode 20, 598 genes iv. Mustard 25, 706 genes v. Mouse 26 ,762 genes c. Nobrega i. Deleted
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Apocalipsis Marco DeneviMarco Denevi is an Argentinian fiction writer who writes extremely short stories. An important theme that appears in his works is his concern with the effects of technology on human life. Cuestionario 1. 2. 3. 4. 5. 6. 7. La
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Extranuclear DNA & Population GeneticsChapter 20 Notes Extranuclear DNA1. DNA outside of nucleus a. Mitochondrial DNA [mtDNA] b. Chloroplast DNA [cpDNA] 2. Exhibits cytoplasmic inheritance 3. Endosymbiotic Theory a. Origin of membrane-bound organe
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One omniscient God created all races. This singular statement forms the basis for Dr. Martin Luther King Jr.'s "Letter from a Birmingham Jail." In it, he defends his call of nonviolent direct action using Thomas Aquinas's natural law theory. Natural
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Mann 1 Martyrs of Logic and Reason The Last Days of Socrates by Plato told the story of Socrates' trial, conviction, and death. In it, Socrates dealt with the subject of piety while defending himself against men who had accused him of not believing i
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APRIL 3, 2008 INTRODUCTION TO HUMAN SEXUALITY A. Course Requirements a) Class attendance b) Book: "Guide to Getting it On" 5th edition c) Access to webCT d) Midterm & Final B. "Sex" in the News a) 86, 171 results for April 1, 2008 in Google News C. T
UCSD - PSYC - 172
SEXUAL AROUSAL AND RESPONSE A. History a) Da Vinci: 1943 i. Breast is attached to uterus ii. Semen thought to be coming from spinal column iii. Angle of penetration: gradual upward b) Magnetic resonance imaging of male and female genitals during coit