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Exam 12: The Statement of Cash Flows

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Question 61

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Most experts now agree that there has been a tendency to rely far too heavily on net income and its companion, earnings per share, and in many cases to ignore a company's cash flows.

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Question 62

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When using the direct method, how is the sale of long-term investments for cash reported on the statement of cash flows?

A) Operating activity
B) Investing activity
C) Financing activity
D) Noncash investing and financing activity

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Question 63

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Where would you tell someone to find the information needed to compute the cash flow adequacy ratio?

Under the direct method, depreciation expense is treated as an outflow in the Investing Activities section of the statement of cash flows.

The work sheet used to prepare a statement of cash flows (indirect method to determine cash flows from operating activities) should have a total in the Changes column equal to total assets.

Upon review of Young's Garden Center statement of cash flows, the following was noted: $\begin{array}{lr}\text { Cash flows from operating activities } & \$ 15,000 \\\text { Cash flows from investing activities } & 80,000 \\\text { Cash flows from financing activities } & (60,000) \end{array}$ From this information, the most likely explanation is that Young's is

Each of the following transactions would be classified as either an investing or a financing activity except

Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. -Recorded depreciation for the year.

Use the following codes to indicate how the cash flow effect, if any, of each transaction would be reported on a statement of cash flows if the operating activities section is prepared using the direct method. -Repaid a long-term bank loan.

In place of _____________, a worksheet is a useful device to help in the preparation of a statement of cash flows.

A work sheet is an alternative to T accounts to help in the preparation of a statement of cash flows.

When using the direct method, how are salaries paid to employees reported on the statement of cash flows?

For each of the following items, indicate whether it would appear on a statement of cash flows prepared using the Direct method (a) or the Indirect method (b) . -Decrease in accounts payable

Cash flow per share is computed by dividing cash on the balance sheet by the number of shares outstanding.

If the balance of prepaid insurance was the same on January 1, 2016, and December 31, 2016, then the insurance expense would ____________________ the cash payments made for insurance during the year.

Eduardo's Texas Cantina had the following results for December 31, 2016 and 2017, respectively: $\begin{array} { l r r } & 2016 & 2017 \\\text { Cash } & \$ 42,000 & \$ 49,000 \\\text { Noncash current assets } & 162,000 & 175,000 \\\text { Cash flows from financing activities } & & 313,000 \\\text { Cash flows from operating activities } & & 72,000\end{array}$ What was the amount of cash flows from investing activities for 2017?

Assuming the indirect method for preparing the statement of cash flows is used, indicate whether these items should be added to net income (A) , deducted from net income (D) , or not be reported in the operating section of the statement under the indirect method (NR) . -Purchase of new factory equipment

Which of the following is not a financing activity?

The following items were reported on the balance sheets and income statement for Centerton Inc., a service company: $\begin{array}{lr}\text { Accounts payable, December 31, 2016 } & \$ 64,000 \\\text { Accounts payable, December 31, 2017 } & 48,000 \\\text { Operating expenses-2017 } & 170,000\end{array}$ What amount would be reported in the operating activities section of the statement of cash flows for payments for operating expenses under the direct method?

Assuming the indirect method for preparing the statement of cash flows is used, indicate whether these items should be added to net income (A) , deducted from net income (D) , or not be reported in the operating section of the statement under the indirect method (NR) . -Decrease in prepaid insurance