A decrease in current operating assets and an increase in current operating

A decrease in current operating assets and an

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accounts payable of $3,000 must be subtracted from net income. A decrease in current operating assets and an increase in current operating liabilities must be added to net income. Therefore, the decrease in receivables of $6,000 must be added to net income. A gain on sale of equipment is a gain whose cash effect is related to investing activities. Thus, the gain on sale of equipment of $10,000 must be subtracted from net income. The depreciation expense for the year of $20,000 ($83,000 ending accumulated depreciation + $7,000 accumulated depreciation on equipment sold – $70,000 beginning accumulated depreciation) is a noncash expense included in net income. Thus, it must be added to net income to determine the net cash flow from operating activities. D. $93,000 Question: 45 A mail order supplier of camping gear is putting together its current-year statement of cash flow. A comparison of the firm’s year-end balance sheet with the prior year’s balance sheet shows the following changes from a year ago. Assets Cash & marketable securities $ (600) Accounts receivable 200 Inventories (100) Gross fixed assets 4,600 Accumulated depreciation (500) Total $3,600 Liabilities & Net Worth Accounts payable $ 250 Accruals 50 Long-term note (300) Long-term debt 1,400 Common stock 0 Retained earnings 2,200 Total $3,600 The firm’s payout ratio is 20%. During the current year, net cash provided by operations amounted to
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ﻝﻭﺩ ﻥﻳﺗﺎﻧﻘﻟﺍ ﻰﻠﻋ ﺎﻫﻭﻗﻼﺗﺣ ﺎﻫﻭﺟﺎﺗﺣﺗ ﻲﻠﻟﺍ ﻪﻠﺋﺳﻻﺍﻭ ﺏﺗﻛﻟﺍ ﻝﻛ A. $2,900 B. $3,050 C. $3,450 Answer (C) is correct . The net profit after taxes equals the change in retained earnings divided by 1 minus the dividend payout ratio, or $2,750 [$2,200 ÷ (1.0 – 0.2)]. Adjusting this amount for noncash items yields the net cash provided by operations. Depreciation is a noncash expense that should be added. To adjust for the difference between cost of goods sold and purchases, the inventory decrease is added (COGS exceeded purchases). To adjust for the difference between purchases and cash paid to suppliers, the increase in accounts payable is also added (purchases exceeded cash paid to suppliers). The increase in accounts receivable is subtracted because it indicates that accrued revenues were greater than cash collections. Finally, the increase in accrued liabilities is added. Thus, the net cash provided by operations is $3,450 ($2,750 + $500 + $100 + $250 – $200 + $50). D. $4,050 Question: 46 For a manufacturing firm, which of the following would be included in cash outflows from financing activities on the Statement of Cash Flows? A. Payments of salaries and wages. B. Repayment of the principal portion of firm debt. Answer (B) is correct . Cash repayments of an amount borrowed are cash outflows from financing activities on the statement of cash flows. C. Issuance of new stock. D. Interest payments on firm debt. Question: 47 Below are the balances for the following accounts on the balance sheet of a company as of the end of Year 20X2 and Year 20X1.
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