Chapter Fourteen Questions

Chapter Fourteen Questions - Chapter Fourteen Questions 1....

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Chapter Fourteen Questions 1. Define the term cash equivalents. Cash equivalents are low risk investments that can be converted into known amounts of cash within 90 days. [See text page 515.] 2. Why do companies have cash equivalents? The primary reason companies have cash equivalents is that such investments earn higher rates of interest than bank checking accounts or savings accounts. [See text page 515.] 3. Give two examples of cash equivalents. Certificates of deposit and treasury bills. [See text page 515.] 4. What is reported in a statement of cash flows? A statement of cash flows reports major cash receipts and cash payments during a specific period of time. [See text page 516.] 5. List the three main sections of a statement of cash flows. Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities [See text page 519.] 6. Define the term operating activities. Operating activities are income-related activities. They are concerned with management's day-to-day activities of using resources to generate additional resources, primarily through providing produces and services to customers. [See text page 519.] 7. Define the term investing activities.
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Investing activities are those events that involve the purchase and sale of noncash resources such as property, plant, and equipment. [See text page 519.] 8. Define the term financing activities. Financing activities are those events that involve the obtaining of and payment for resources through borrowing and from owners. Examples include issuing and paying for bonds payable, issuing preferred and common stock, and paying cash dividends. [See text page 519.] 9. Under the indirect method, what is the first item reported in the operating activities section of the statement of cash flows? Net income. [See text page 525.] 10. In which section of the statement of cash flows do changes in accounts receivable appear? Cash flows from operating activities section. [See text page 526.] 11. Indicate whether an increase in accounts receivable would increase or decrease cash flows. An increase in accounts receivable would appear as an adjustment to reduce net income, which means that it would decrease cash flows. [See text page 526.] 12. In which section of the statement of cash flows do changes in merchandise inventory appear? Cash flows from operating activities section. [See text page 528.] 13. Indicate whether an increase in merchandise inventory would increase or decrease cash flows. An increase in merchandise inventory would appear as an adjustment to reduce net income, which means that it would reduce cash flows. [See text page 528.] 14. In which section of the statement of cash flows does depreciation appear?
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Cash flows from operating activities section. [See text page 531.] 15. Indicate whether depreciation would increase or decrease cash flows. Depreciation expense appears an adjustment to increase net
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This note was uploaded on 10/09/2011 for the course ACCT 60.201 taught by Professor Monty during the Spring '11 term at UMass Lowell.

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Chapter Fourteen Questions - Chapter Fourteen Questions 1....

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