Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows True/False Questions 1. An increase in inventory is classified as a “use” of cash for purposes of constructing the statement of cash flows. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 2. In the statement of cash flows, dividend payments to the company's stockholders are treated as a “use” rather than as a “source” of cash. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 3. Under the indirect method of determining the net cash flow from operating activities on the statement of cash flows, a gain on the sale of equipment would be added to net income. Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Hard 4. Under the indirect method of determining the net cash provided by operating activities on the statement of cash flows, increases in current liabilities such as accounts payable are added to net income. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 15-5
204
Embed
“How Well Am I Doing?”--Statement of Cash Flows · Web viewSolution: Decrease in cash ($ 4,000) Less: Net cash provided by investing activities ( 31,000) Add: Net cash used in
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
True/False Questions
1. An increase in inventory is classified as a “use” of cash for purposes of constructing the statement of cash flows.
3. Under the indirect method of determining the net cash flow from operating activities on the statement of cash flows, a gain on the sale of equipment would be added to net income.
4. Under the indirect method of determining the net cash provided by operating activities on the statement of cash flows, increases in current liabilities such as accounts payable are added to net income.
5. Under the indirect method of determining the net cash provided by operating activities on the statement of cash flows, dividends are added to net income.
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
7. The net cash provided by operating activities on the statement of cash flows would include interest paid to creditors and dividends paid to the company's own shareholders.
11. Under the direct method of determining the net cash provided by operations on the statement of cash flows, the cost of goods sold is converted to a cash basis by adjusting it for changes in inventories and changes in accounts payable during the period.
12. Under the direct method of determining the net cash provided by operating activities on the statement of cash flows, an increase in inventory would be added to cost of goods sold to convert cost of goods sold to a cash basis.
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
13. Under the direct method of determining the net cash provided by operating activities on the statement of cash flows, an increase in prepaid expenses would be added to selling and administrative expenses to convert selling and administrative expenses to a cash basis.
15. The Financial Accounting Standards Board (FASB) recommends that companies use the direct method rather than the indirect method in preparing their statement of cash flows.
16. Which of the following would be considered a “use” of cash for purposes of constructing a statement of cash flows?A) a decrease in accounts receivable.B) an increase in accounts payable.C) an increase in common stock.D) a decrease in bonds payable.
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
17. Which of the following would be considered a “source” of cash for purposes of constructing a statement of cash flows?A) an increase in accounts payable.B) dividends paid to the company's own shareholders.C) a decrease in accrued liabilities.D) an increase in accounts receivable.
Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
18. Evita Corporation prepares its statement of cash flows using the indirect method. Evita's statement showed “Net cash provided by operating activities” to be $46,000. Under the direct method, this number would have been:A) $0.B) $46,000.C) greater than $46,000.D) less than $46,000 but greater than $0.
19. Under the indirect method, which item would be deducted from net income as part of the process of arriving at cash provided by operating activities on the statement of cash flows?A) Patent amortization expenseB) Increase in accounts payableC) Increase in prepaid expensesD) Decrease in accounts receivable
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
20. A decrease in the prepaid expenses account of $1,000 over the course of a year would be shown on the company's statement of cash flows prepared under the indirect method as:A) an addition to net income of $1,000 in order to arrive at net cash provided by
operating activities.B) a deduction from net income of $1,000 in order to arrive at net cash provided by
operating activities.C) an addition of $1,000 under financing activities.D) a deduction of $1,000 under financing activities.
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
21. An increase in the taxes payable account of $1,000 over the course of a year would be shown on the company's statement of cash flows prepared under the indirect method as:A) an addition to net income of $1,000 in order to arrive at net cash provided by
operating activities.B) a deduction from net income of $1,000 in order to arrive at net cash provided by
operating activities.C) an addition of $1,000 under financing activities.D) a deduction of $1,000 under financing activities.
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
22. Luella Corporation prepares its statement of cash flows using the indirect method. Which of the following would be added to net income in the operating activities section of the statement?
Depreciation Loss on SaleExpense of Equipment
A) Yes YesB) Yes NoC) No YesD) No No
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
23. Gioja Corporation prepares its statement of cash flows using the indirect method. Which of the following would be deducted from net income in the operating activities section of the statement?
Increase in Taxes Payable Increase in Dividends PayableA) Yes YesB) Yes NoC) No YesD) No No
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Hard
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
24. Olaf Corporation prepares its statement of cash flows using the direct method. The following items were listed on Olaf's income statement. Which of these items would also be listed in the operating activities section of Olaf's statement of cash flows?
Depreciation Expense Gain on Sale of EquipmentA) Yes YesB) Yes NoC) No YesD) No No
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Medium
25. During the year the balance in the prepaid expenses account increased by $6,000. In order to adjust the company's net income to a cash basis using the direct method on the statement of cash flows, it would be necessary to:A) deduct the $6,000 from the operating expenses reported on the income
statement.B) add the $6,000 to the operating expenses reported on the income statement.C) deduct the $6,000 from the cost of goods sold reported on the income statement.D) add the $6,000 to the cost of goods sold reported on the income statement.
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Hard
26. In a statement of cash flows, all of the following would be classified as operating activities except:A) interest paid to creditors.B) dividends received on stock in another company held as an investment.C) dividends paid to the company's own common stockholders.D) interest received on a long-term note receivable.
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
27. In a statement of cash flows, a change in accounts payable account would be classified as:A) an operating activity.B) a financing activity.C) an investing activity.D) a noncash item that need not appear on the statement of cash flows.
28. A decrease in the plant and equipment account of $100,000 over the course of a year would be shown on the company's statement of cash flows prepared under the indirect method as:A) an addition to net income of $100,000 in order to arrive at net cash provided by
operating activities.B) a deduction from net income of $100,000 in order to arrive at net cash provided
by operating activities.C) an addition of $100,000 under investing activities.D) a deduction of $100,000 under investing activities.
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium
29. Which of the following should be classified as an investing activity on a statement of cash flows?A) cash received from the sale of office equipment that was sold at a loss.B) cash used to purchase a long-term investment in bonds of another corporation.C) cash received from the issuance of Iguato Corporation common stock.D) both A and B aboveE) all of the above
30. Which of the following should be classified as an investing activity on a statement of cash flows?A) cash paid for income taxes.B) cash paid for dividends to stockholders.C) cash paid to employees for services rendered.D) none of the above
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
31. A company declared and paid a cash dividend. The dividend would appear on the company's statement of cash flows as:A) an addition to net income in order to arrive at net cash provided by operating
activities under the indirect method.B) a deduction from net income in order to arrive at net cash provided by operating
activities under the indirect method.C) a deduction under investing activities.D) a deduction under financing activities.
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium
32. Dividends paid to a company's own stockholders of $80,000 would be shown on the company's statement of cash flows prepared under the indirect method as:A) an addition of $80,000 under investing activities.B) a deduction of $80,000 under investing activities.C) an addition of $80,000 under financing activities.D) a deduction of $80,000 under financing activities.
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium
33. Which of the following should be classified as a financing activity on a statement of cash flows?A) cash used to retire bonds payable.B) an increase in deferred income taxes.C) cash dividends received on an investment in stock.D) both A and C aboveE) none of the above
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Hard
34. Which of the following sections of the statement of cash flows will be prepared differently if the direct method is used instead of the indirect method?A) operating activities sectionB) investing activities sectionC) financing activities sectionD) all of the above
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
35. In the statement of cash flows, the sum total of the net cash provided by operating activities, investing activities, and financing activities would be equal to:A) zero.B) the beginning balance of cash and cash equivalents.C) the ending balance of cash and cash equivalents.D) the increase or decrease in cash and cash equivalents.
Which of the following classifications of changes in balance sheet accounts as sources and uses is correct?A) The change in Accounts Receivable is a source; The change in Inventory is a
source.B) The change in Accounts Receivable is a use; The change in Inventory is a use.C) The change in Accounts Receivable is a source; The change in Inventory is a
use.D) The change in Accounts Receivable is a use; The change in Inventory is a
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
37. Excerpts from Deblois Corporation's comparative balance sheet appear below:
Ending Balance Beginning BalanceCash and cash equivalents................... $22,000 $28,000Accounts payable................................. $18,000 $17,000Accrued wages and salaries payable.... $34,000 $37,000
Which of the following classifications of changes in balance sheet accounts as sources and uses is correct?A) The change in Accounts Payable is a source; The change in Accrued Wages and
Salaries payable is a source.B) The change in Accounts Payable is a use; The change in Accrued Wages and
Salaries payable is a source.C) The change in Accounts Payable is a source; The change in Accrued Wages and
Salaries payable is a use.D) The change in Accounts Payable is a use; The change in Accrued Wages and
38. Excerpts from Aultman Corporation's comparative balance sheet appear below:
Ending Balance Beginning BalanceCash and cash equivalents................... $62,000 $29,000Property, plant, and equipment............ $371,000 $345,000Long-term debt..................................... $75,000 $73,000
Which of the following classifications of changes in balance sheet accounts as sources and uses is correct?A) The change in Property, Plant, and Equipment is a use; The change in Long-
Term Debt is a source.B) The change in Property, Plant, and Equipment is a source; The change in Long-
Term Debt is a use.C) The change in Property, Plant, and Equipment is a use; The change in Long-
Term Debt is a use.D) The change in Property, Plant, and Equipment is a source; The change in Long-
Total current assets....................................... 136,000 117,000 Property, plant, and equipment..................... 356,000 338,000
Less accumulated depreciation.................. 184,000 161,000 Net property, plant, and equipment.............. 172,000 177,000 Total assets.................................................... $308,000 $294,000
Liabilities and Stockholders’ EquityCurrent liabilities:
Accounts payable....................................... $ 17,000 $ 16,000Accrued wages and salaries payable......... 32,000 31,000Accrued income taxes payable.................. 25,000 27,000Notes payable............................................ 11,000 13,000
Total current liabilities.................................. 85,000 87,000Long-term debt............................................. 83,000 80,000Deferred income taxes.................................. 38,000 34,000 Total liabilities.............................................. 206,000 201,000 Stockholders’ equity:
Common stock........................................... 27,000 24,000Retained earnings...................................... 75,000 69,000
Total stockholders’ equity............................ 102,000 93,000 Total liabilities and stockholders’ equity...... $308,000 $294,000
The company's net income (loss) for the year was $10,000 and its cash dividends were $4,000. The total dollar amount of all of the items that would be classified as sources when compiling a simplified statement of cash flows is:A) $29,000B) $16,000C) $45,000D) $25,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Solution:
SourcesNet income............................................................. $10,000Increases in liabilities (and contra asset accounts):
Increase in accumulated depreciation................. 23,000Increase in accounts payable............................... 1,000Increase in accrued wages and salaries payable.. 1,000Increase in long-term debt................................... 3,000Increase in deferred income taxes....................... 4,000
Increases in capital stock accounts:Increase in common stock................................... 3,000
Total sources.......................................................... $45,000
Total current assets....................................... 126,000 123,000 Property, plant, and equipment..................... 358,000 339,000
Less accumulated depreciation.................. 156,000 132,000 Net property, plant, and equipment............... 202,000 207,000 Total assets.................................................... $328,000 $330,000
Liabilities and Stockholders’ EquityCurrent liabilities:
Accounts payable....................................... $ 18,000 $ 19,000Accrued wages and salaries payable.......... 35,000 37,000Accrued income taxes payable.................. 23,000 19,000Notes payable............................................. 19,000 22,000
Total current liabilities.................................. 95,000 97,000Long-term debt.............................................. 82,000 86,000Deferred income taxes.................................. 25,000 23,000 Total liabilities.............................................. 202,000 206,000 Stockholders’ equity:
Common stock........................................... 23,000 22,000Retained earnings....................................... 103,000 102,000
Total stockholders’ equity............................. 126,000 124,000 Total liabilities and stockholders’ equity...... $328,000 $330,000
The company's net income (loss) for the year was $5,000 and its cash dividends were $4,000. The total dollar amount of all of the items that would be classified as uses when compiling a simplified statement of cash flows is:A) $7,000B) $40,000C) $29,000D) $33,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Solution:
UsesIncreases in noncash assets:
Increase in property, plant, and equipment.......... $19,000Decreases in liabilities:
Decrease in accounts payable............................... 1,000Decrease in accrued wages and salaries payable.. 2,000Decrease in notes payable.................................... 3,000Decrease in long-term debt................................... 4,000
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
41. The following information relates to Penha, Inc. for last year:
Net income............................................................. $117,000Net increase in all current assets except cash........ $31,000Net increase in current liabilities........................... $45,000Dividends paid on common stock.......................... $20,000Depreciation expense............................................. $8,000Gain on sale of investments................................... $3,000
What is Penha's net cash provided by operating activities for last year on the statement of cash flows? (Assume that current liabilities do not contain any notes payable.)A) $108,000B) $116,000C) $136,000D) $139,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
Net income............................................................................ $117,000Adjustments needed to convert net income to a cash basis:
Depreciation charges.......................................................... 8,000Add (deduct) changes in current asset accounts affecting
revenue or expense:Increase in all current assets except cash........................... ( 31,000)
Add (deduct) changes in current liability accounts affecting revenue or expense:Increase in current liabilities.............................................. 45,000
Add (deduct) gains or losses on sale of assets:Gain on sale of investments............................................... ( 3,000)
Net cash provided by operating activities............................. $136,000
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
42. Morey Company's net income last year was $27,000 and cash dividends declared and paid to the company's stockholders totaled $13,000. Changes in selected balance sheet accounts for the year appear below:
Based solely on this information, the net cash provided by operations under the indirect method on the statement of cash flows would be:A) $16,000B) $45,000C) $38,000D) $25,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Hard
Solution:
Net income......................................................................... $27,000Adjustments needed to convert net income to cash basis:
Depreciation charges....................................................... 18,000Add (deduct) changes in current asset accounts
affecting revenue or expense:Increase in accounts receivable................................... ( 8,000)Decrease in inventory.................................................. 3,000Increase in prepaid expenses....................................... ( 4,000)
Add (deduct) changes in current liability accounts affecting revenue or expense:Increase in accounts payable....................................... 6,000Decrease in taxes payable............................................ ( 4,000)
Net cash provided by operating activities.......................... $38,000
Based solely on this information, the net cash provided by operations under the indirect method on the statement of cash flows would be:A) $63,000B) $36,000C) $7,000D) $35,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Solution:
Net income......................................................................... $21,000Adjustments needed to convert net income to cash basis:
Depreciation charges....................................................... 15,000Add (deduct) changes in current asset accounts
affecting revenue or expense:Increase in accounts receivable................................... ( 8,000)Increase in inventory.................................................... ( 9,000)Decrease in prepaid expenses...................................... 3,000
Add (deduct) changes in current liability accounts affecting revenue or expense:Decrease in accounts payable...................................... ( 5,000)Increase in accrued liabilities....................................... 11,000Increase in taxes payable............................................. 7,000
Net cash provided by operating activities.......................... $35,000
44. Alaric Corporation recently sold equipment for $16,000. The equipment was purchased five years ago for $100,000. The accumulated depreciation on the equipment on the date of sale was $75,000. Alaric uses the indirect method to prepare its statement of cash flows. What net effect will this sale have on the investing activities section of Alaric's statement of cash flows for the current year?A) no effectB) $7,000 increaseC) $9,000 decreaseD) $16,000 increase
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Income StatementSales........................................................... $1,485Cost of goods sold...................................... 989 Gross margin.............................................. 496Selling and administrative expense............ 172 Net operating income................................. 324Gain on sale of plant and equipment.......... 19 Income before taxes................................... 343Income taxes.............................................. 103 Net income................................................. $ 240
Cash dividends were $62. The company sold equipment for $19 that was originally purchased for $5 and that had accumulated depreciation of $5. The net cash provided by (used by) operations for the year was:A) $255B) $236C) $324D) $298
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Solution:
Net income.................................................................................. $240Adjustments needed to convert net income to cash basis:
Depreciation charges................................................................ 13Add (deduct) changes in current asset accounts affecting
revenue or expense:Increase in accounts receivable............................................ ( 4)Decrease in inventory........................................................... 2
Add (deduct) changes in current liability accounts affecting revenue or expense:Decrease in accounts payable............................................... ( 1)Increase in wages payable.................................................... 2Increase in taxes payable...................................................... 4
Add (deduct) gains or losses on sales of assets:Gain on sale of plant and equipment.................................... ( 19)
Add (deduct) changes in the Deferred Income Taxes account:Decreases in deferred taxes liability..................................... ( 1)
Net cash provided by operating activities................................... $236
Income StatementSales........................................................... $386Cost of goods sold...................................... 239 Gross margin.............................................. 147Selling and administrative expense............ 185 Net operating income................................. ( 38)Gain on sale of plant and equipment.......... 8 Income before taxes................................... (30)Income taxes.............................................. 0 Net income................................................. ($ 30 )
Cash dividends were $1. The company sold equipment for $19 that was originally purchased for $15 and that had accumulated depreciation of $4. The net cash provided by (used by) investing activities for the year was:A) ($18)B) ($1)C) $1D) $19
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Solution:
Additions to plant and equipment.............. ($18) *Proceeds from sale of equipment............... 19Net cash provided by investing activities. . $ 1
*$443 + $15 − $440 = $18
47. Daubenspeck Corporation's balance sheet and income statement appear below:
Income StatementSales........................................................... $1,093Cost of goods sold...................................... 671 Gross margin.............................................. 422Selling and administrative expense............ 145 Net operating income................................. 277Gain on sale of plant and equipment.......... 20 Income before taxes................................... 297Income taxes.............................................. 89 Net income................................................. $ 208
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Cash dividends were $45. The company sold equipment for $20 that was originally purchased for $12 and that had accumulated depreciation of $12. The net cash provided by (used by) financing activities for the year was:A) ($74)B) ($33)C) ($45)D) $4
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
Financing ActivitiesDecrease in bonds payable......................... ($33)Increase in common stock.......................... 4 Cash dividends paid................................... ( 45)Net cash used in financing activities.......... ($74)
Income StatementSales........................................................... $532Cost of goods sold...................................... 324 Gross margin.............................................. 208Selling and administrative expense............ 137 Net operating income................................. 71Income taxes.............................................. 21 Net income................................................. $ 50
Cash dividends were $9. The net cash provided by (used by) operations for the year was:A) $46B) $71C) $54D) $4
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
The net income for the year was $159. Cash dividends were $34. The net cash provided by (used by) investing activities for the year was:A) ($159)B) ($113)C) $159D) $113
The net income for the year was $26. Cash dividends were $6. The net cash provided by (used by) financing activities for the year was:A) $2B) $8C) $12D) ($6)
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Solution:
Financing ActivitiesIncrease in bonds payable.......................... $12Increase in common stock.......................... 2Cash dividends paid................................... ( 6)Net cash used in financing activities.......... $ 8
52. Chain Corporation's most recent balance sheet appears below:
Liabilities and stockholders’ equity:Accounts payable....................................... $ 51 $ 46Long-term debt........................................... 77 110Common stock........................................... 22 20Retained earnings....................................... 299 208 Total liabilities and stockholders’ equity... $449 $384
The net income for the year was $121. Cash dividends were $30. The net cash provided by (used by) operations for the year was:A) $173B) $138C) $17D) $104
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Solution:
Net income............................................................. $121Adjustments to convert net income to cash basis:
Depreciation charges........................................... 5Decrease in accounts receivable......................... 1Decrease in inventory......................................... 6Increase in accounts payable............................... 5
Net cash provided by operating activities.............. $138
53. La Corporation's most recent balance sheet appears below:
The net income for the year was $91. Cash dividends were $24. The net cash provided by (used by) investing activities for the year was:A) $26B) $62C) ($26)D) ($62)
The net income for the year was $84. Cash dividends were $21. The net cash provided by (used by) financing activities for the year was:A) ($9)B) $1C) ($21)D) $11
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Solution:
Financing ActivitiesIncrease in long-term debt......................... $11Increase in common stock.......................... 1Cash dividends paid................................... ( 21)Net cash used by financing activities......... ($ 9)
55. Last year Cummins Company reported a cost of goods sold of $50,000. Inventories increased by $10,000 during the year, and accounts payable increased by $2,000. The company uses the direct method to determine the net cash provided by operating activities on the statement of cash flows. The cost of goods sold adjusted to a cash basis would be:A) $42,000B) $58,000C) $48,000D) $60,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Medium
Solution:
Cost of goods sold (as reported)................ $50,000Adjustments to a cash basis:
Increase in inventory............................... 10,000Increase in accounts payable................... ( 2,000)
Cost of goods sold (adjusted)..................... $58,000
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
56. Last year Lawmond Company reported sales of $120,000 on its income statement. During the year, accounts receivable increased by $20,000 and accounts payable decreased by $10,000. The company uses the direct method to determine the net cash provided by operating activities on the statement of cash flows. The sales revenue adjusted to a cash basis for the year would be:A) $100,000B) $90,000C) $130,000D) $150,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Hard
Solution:
Sales revenue (as reported)........................ $120,000Adjustments to a cash basis:
Increase in accounts receivable............... ( 20,000)Sales revenue (adjusted)............................ $100,000
57. Cridge Company's selling and administrative expenses for last year totaled $170,000. During the year the company's prepaid expense account balance increased by $9,000 and accrued liabilities decreased by $13,000. Depreciation charges for the year were $15,000. Based on this information, selling and administrative expenses adjusted to a cash basis under the direct method on the statement of cash flows would be:A) $177,000B) $207,000C) $133,000D) $163,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Medium
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Solution:
Selling and administrative expenses (as reported)......................................... $170,000
Adjustments to a cash basis:Increase in prepaid expenses................ 9,000Decrease in accrued liabilities............. 13,000Period’s depreciation charges.............. ( 15,000)
Selling and administration expenses (adjusted)............................................. $177,000
Income StatementSales........................................................... $1,264Cost of goods sold...................................... 828 Gross margin.............................................. 436Selling and administrative expense............ 152 Net operating income................................. 284Gain on sale of plant and equipment.......... 13 Income before taxes................................... 297Income taxes.............................................. 89 Net income................................................. $ 208
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Cash dividends were $57. The company sold equipment for $18 that was originally purchased for $11 and that had accumulated depreciation of $6. The net cash provided by (used by) operations for the year was:A) $213B) $257C) $284D) $200
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Medium
Solution:
Sales revenue (as reported).................................... $1,264Adjustments to a cash basis:
Decrease in accounts receivable...................... 1Total....................................................................... $1,265
Cost of goods sold (as reported)............................ 828Adjustments to a cash basis:
Increase in inventory........................................ 6Increase in accounts payable........................... ( 2)
Income StatementSales........................................................... $920Cost of goods sold...................................... 606 Gross margin.............................................. 314Selling and administrative expense............ 157 Net operating income................................. 157Income taxes.............................................. 47 Net income................................................. $110
Cash dividends were $20. The net cash provided by (used by) operations for the year was:A) $125B) $95C) $15D) $157
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 15 LO: 2,4 Level: Medium
Income StatementSales........................................................... $883Cost of goods sold...................................... 580 Gross margin.............................................. 303Selling and administrative expense............ 164 Net operating income................................. 139Income taxes.............................................. 42 Net income................................................. $ 97
Cash dividends were $21. The net cash provided by (used by) operations for the year was:A) $139B) $153C) $41D) $56
Income tax expense (as reported)............................. 42
Net cash provided by operating activities................. $153
61. Last year Martson Company sold equipment with a net book value of $110,000 for $130,000 in cash. This equipment was originally purchased for $200,000. What will be the net effect of this transaction on the net cash provided by investing activities on the statement of cash flows?A) A net deduction of $70,000 from cash.B) A net addition of $70,000 to cash.C) A net deduction of $20,000 from cash.D) A net addition of $20,000 to cash.
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Hard
Solution:
Investing ActivitiesDisposal of equipment............................... ($200,000)Proceeds from sale of equipment............... 130,000Net cash used in investing activities.......... ($ 70,000)
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
62. The following transactions occurred last year at Jobb Company:
Issuance of shares of the company’s own common stock................ $100,000Dividends paid to the company’s own shareholders......................... $7,000Dividends received from investments in other companies’ shares... $2,000Interest paid on the company’s own bonds....................................... $25,000Repayment of principal on the company’s own bonds..................... $90,000Proceeds from sale of the company’s used equipment..................... $9,000Purchase of land................................................................................ $120,000
Based solely on the above information, the net cash provided by financing activities for the year on the statement of cash flows would be:A) $3,000B) $(131,000)C) $(22,000)D) $353,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Hard
Solution:
Financing ActivitiesIncrease in common stock.......................... $100,000Cash dividends paid................................... ( 7,000)Decrease in bonds payable......................... ( 90,000)Net cash provided by financing activities. . $ 3,000
63. Last year Burdic Company's cash account decreased by $4,000. Net cash provided by investing activities was $31,000. Net cash used in financing activities was $38,000. On the statement of cash flows, the net cash flow provided by (used in) operating activities was:A) $(4,000)B) $(11,000)C) $(7,000)D) $3,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Solution:
Decrease in cash.................................................. ($ 4,000)Less: Net cash provided by investing activities. . ( 31,000)Add: Net cash used in financing activities.......... 38,000Net cash provided by operating activities........... $ 3,000
Total current assets...................................... 119,000 114,000 Property, plant, and equipment.................... 374,000 354,000
Less accumulated depreciation................. 190,000 165,000 Net property, plant, and equipment............. 184,000 189,000 Total assets.................................................. $303,000 $303,000
Liabilities and Stockholders’ EquityCurrent liabilities:
Accounts payable..................................... $ 13,000 $ 9,000Accrued wages and salaries payable........ 31,000 33,000Accrued income taxes payable................. 28,000 29,000Notes payable........................................... 21,000 20,000
Total current liabilities................................ 93,000 91,000Long-term debt............................................ 76,000 73,000Deferred income taxes................................. 39,000 40,000 Total liabilities............................................. 208,000 204,000 Stockholders’ equity:...................................
Common stock.......................................... 28,000 26,000Retained earnings..................................... 67,000 73,000
Total stockholders’ equity........................... 95,000 99,000 Total liabilities and stockholders’ equity... . $303,000 $303,000
The company's net income (loss) for the year was ($3,000) and its cash dividends were $3,000.
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
64. Which of the following classifications of changes in balance sheet accounts as sources and uses is correct?A) The change in Accounts Receivable is a source; The change in Inventory is a
sourceB) The change in Accounts Receivable is a source; The change in Inventory is a
useC) The change in Accounts Receivable is a use; The change in Inventory is a useD) The change in Accounts Receivable is a use; The change in Inventory is a
65. Which of the following classifications of changes in balance sheet accounts as sources and uses is correct?A) The change in Accounts Payable is a use; The change in Accrued Wages and
Salaries payable is a sourceB) The change in Accounts Payable is a source; The change in Accrued Wages and
Salaries payable is a useC) The change in Accounts Payable is a source; The change in Accrued Wages and
Salaries payable is a sourceD) The change in Accounts Payable is a use; The change in Accrued Wages and
66. Which of the following classifications of changes in balance sheet accounts as sources and uses is correct?A) The change in Property, Plant, and Equipment is a source; The change in Long-
Term Debt is a sourceB) The change in Property, Plant, and Equipment is a use; The change in Long-
Term Debt is a useC) The change in Property, Plant, and Equipment is a source; The change in Long-
Term Debt is a useD) The change in Property, Plant, and Equipment is a use; The change in Long-
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
67. The total dollar amount of all of the items that would be classified as sources when compiling a simplified statement of cash flows is:A) $34,000B) $3,000C) $28,000D) $37,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
Solution:
SourcesDecreases in noncash assets:
Decrease in accounts receivable............................ $ 2,000Increases in liabilities (and contra asset accounts):
Increase in accumulated depreciation.................... 25,000Increase in accounts payable................................. 4,000Increase in notes payable....................................... 1,000Increase in long-term debt..................................... 3,000
Increases in capital stock accounts:Increase in common stock..................................... 2,000
Total sources............................................................. $37,000
68. The total dollar amount of all of the items that would be classified as uses when compiling a simplified statement of cash flows is:A) $34,000B) $3,000C) $37,000D) $28,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Solution:
UsesNet loss $ 3,000Increases in noncash assets:
Increase in inventory.............................................. 4,000Increase in property, plant, and equipment............ 20,000
Decreases in liabilities:Decrease in accrued wages and salaries payable... 2,000Decrease in accrued income taxes payable............ 1,000Decrease in deferred income taxes........................ 1,000
Total current assets....................................... 127,000 121,000 Property, plant, and equipment..................... 424,000 399,000
Less accumulated depreciation.................. 231,000 200,000 Net property, plant, and equipment............... 193,000 199,000 Total assets.................................................... $320,000 $320,000
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Liabilities and Stockholders’ EquityCurrent liabilities:
Accounts payable....................................... $ 19,000 $ 17,000Accrued wages and salaries payable.......... 36,000 33,000Accrued income taxes payable.................. 21,000 18,000Notes payable............................................. 22,000 18,000
Total current liabilities.................................. 98,000 86,000Long-term debt.............................................. 77,000 80,000Deferred income taxes.................................. 26,000 24,000 Total liabilities.............................................. 201,000 190,000 Stockholders’ equity:
Common stock........................................... 31,000 30,000Retained earnings....................................... 88,000 100,000
Total stockholders’ equity............................. 119,000 130,000 Total liabilities and stockholders’ equity...... $320,000 $320,000
69. Which of the following classifications of changes in balance sheet accounts as sources and uses is correct?A) The change in Accounts Receivable is a source; The change in Inventory is a
sourceB) The change in Accounts Receivable is a source; The change in Inventory is a
useC) The change in Accounts Receivable is a use; The change in Inventory is a
sourceD) The change in Accounts Receivable is a use; The change in Inventory is a use
70. Which of the following classifications of changes in balance sheet accounts as sources and uses is correct?A) The change in Accounts Payable is a source; The change in Accrued Wages and
Salaries payable is a useB) The change in Accounts Payable is a use; The change in Accrued Wages and
Salaries payable is a useC) The change in Accounts Payable is a source; The change in Accrued Wages and
Salaries payable is a sourceD) The change in Accounts Payable is a use; The change in Accrued Wages and
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
71. Which of the following classifications of changes in balance sheet accounts as sources and uses is correct?A) The change in Property, Plant, and Equipment is a use; The change in Long-
Term Debt is a sourceB) The change in Property, Plant, and Equipment is a source; The change in Long-
Term Debt is a sourceC) The change in Property, Plant, and Equipment is a use; The change in Long-
Term Debt is a useD) The change in Property, Plant, and Equipment is a source; The change in Long-
Total current assets....................................... 130,000 119,000 Property, plant, and equipment..................... 401,000 377,000
Less accumulated depreciation.................. 207,000 177,000 Net property, plant, and equipment............... 194,000 200,000 Total assets.................................................... $324,000 $319,000
Liabilities and Stockholders’ EquityCurrent liabilities:
Accounts payable....................................... $ 15,000 $ 17,000Accrued wages and salaries payable.......... 33,000 29,000Accrued income taxes payable.................. 24,000 28,000Notes payable............................................. 12,000 9,000
Total current liabilities.................................. 84,000 83,000 Long-term debt.............................................. 83,000 81,000Deferred income taxes.................................. 29,000 33,000 Total liabilities.............................................. 196,000 197,000 Stockholders’ equity:
Common stock........................................... 27,000 28,000Retained earnings....................................... 101,000 94,000
Total stockholders’ equity............................. 128,000 122,000 Total liabilities and stockholders’ equity...... $324,000 $319,000
The company's net income (loss) for the year was $11,000 and its cash dividends were $4,000.
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
72. The total dollar amount of all of the items that would be classified as sources when compiling a simplified statement of cash flows is:A) $11,000B) $39,000C) $43,000D) $54,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
Solution:
SourcesNet income $11,000
Decreases in noncash assets:Decrease in inventory............................................ 4,000
Increases in liabilities (and contra asset accounts):Increase in accumulated depreciation.................... 30,000Increase in wages and salaries payable.................. 4,000Increase in notes payable....................................... 3,000Increase in long-term debt..................................... 2,000
Total sources................................................................ $54,000
73. The total dollar amount of all of the items that would be classified as uses when compiling a simplified statement of cash flows is:A) $11,000B) $39,000C) $54,000D) $43,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Solution:
UsesIncreases in noncash assets:
Increase in accounts receivable................................. $ 4,000Increase in property, plant, and equipment............... 24,000
Decreases in liabilities:Decrease in accounts payable................................... 2,000Decrease in accrued income taxes payable............... 4,000Decrease in deferred income taxes........................... 4,000
Decrease in capital stock accounts:Decrease in common stock....................................... 1,000
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
74. The net cash provided by (used in) operating activities last year was:A) $56,000B) $79,000C) $86,000D) $33,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
Operating ActivitiesNet income................................................................ $56,000Adjustments to convert net income to a cash basis:
Depreciation charges............................................. $30,000Decrease in accounts receivable............................ 4,000Increase in inventory............................................. ( 12,000)Increase in prepaid expenses................................. ( 3,000)Increase in accounts payable................................. 10,000Decrease in accrued liabilities............................... ( 5,000)Decrease in taxes payable...................................... ( 3,000)Increase in deferred taxes...................................... 2,000 23,000
Net cash provided by operating activities................. $79,000
75. The net cash provided by (used in) investing activities last year was:A) $(40,000)B) $40,000C) $(30,000)D) $30,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
Investing ActivitiesIncrease in long-term investments............. ($40,000)Net cash used in investing.......................... ($40,000)
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
76. The net cash provided by (used in) financing activities last year was:A) $10,000B) $(10,000)C) $(34,000)D) $34,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
Financing ActivitiesDecrease in bonds payable......................... ($20,000)Increase in common stock.......................... 10,000Cash dividends paid................................... ( 24,000)Net cash used in financing activities.......... ($34,000)
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Solution:
Operating ActivitiesNet income............................................................. $183,000Adjustments to convert net income to a cash basis:
Depreciation charges........................................... $56,000Decrease in accounts receivable......................... 8,000Increase in inventory........................................... ( 13,000)Decrease in prepaid expenses............................. 9,000Increase in accounts payable............................... 3,000Increase in accrued liabilities.............................. 8,000Decrease in taxes payable................................... ( 2,000)Increase in deferred income taxes....................... 6,000 75,000
Net cash provided by operating activities.............. $258,000
78. The net cash provided by (used in) investing activities last year was:A) $(105,000)B) $105,000C) $(85,000)D) $85,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
Investing ActivitiesAdditions to plant and equipment.............. ($ 45,000)Additions to long-term investments........... ( 60,000)Net cash used by investing activities......... ($105,000)
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
79. The net cash provided by (used in) financing activities last year was:A) $40,000B) $(40,000)C) $157,000D) $(157,000)
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
Financing ActivitiesDecrease in bonds payable......................... ($ 60,000)Increase in common stock.......................... 20,000Cash dividends paid................................... ( 117,000)Net cash used in financing activities.......... ($157,000)
Use the following to answer questions 80-81:
Sparks Company recorded the following events last year:
Issuance of shares of the company’s own common stock............. $170,000Purchase of bonds issued by other companies............................... $90,000Dividends paid to the company’s own shareholders..................... $33,000Dividends received from investments in other companies’ shares $13,000Repayment of principal on the company’s own bonds.................. $370,000Interest paid on the company’s own bonds.................................... $5,000Collection of the principal amount of a loan made to another
company..................................................................................... $210,000Purchase of equipment................................................................... $430,000
On the statement of cash flows, some of these events are classified as operating activities, some are classified as investing activities, and some are classified as financing activities.
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
80. Based solely on the information above, the net cash provided by (used in) financing activities on the statement of cash flows would be:A) $(39,000)B) $1,321,000C) $(233,000)D) $(238,000)
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Hard
Solution:
Financing ActivitiesIssuance of common stock......................... $170,000Cash dividends paid................................... ( 33,000)Repayment of bonds.................................. ( 370,000)Net cash used by financing activities......... ($233,000)
81. Based solely on the information above, the net cash provided by (used in) investing activities on the statement of cash flows would be:A) $(310,000)B) $(1,321,000)C) $(520,000)D) $(890,000)
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Hard
Solution:
Investing ActivitiesPurchase of bonds...................................... ($ 90,000)Collection of loan....................................... 210,000Purchase of equipment............................... ( 430,000)Net cash used by investing activities......... ($310,000)
Income StatementSales........................................................... $1,196Cost of goods sold...................................... 786 Gross margin.............................................. 410Selling and administrative expense............ 189 Net operating income................................. 221Gain on sale of plant and equipment.......... 12 Income before taxes................................... 233Income taxes.............................................. 70 Net income................................................. $ 163
Cash dividends were $40. The company sold equipment for $14 that was originally purchased for $9 and that had accumulated depreciation of $7.
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
82. The net cash provided by (used by) operations for the year was:A) $180B) $168C) $208D) $221
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
Operating ActivitiesNet income............................................................. $163Adjustments to convert net income to a cash basis:
Depreciation charges.......................................... $25Increase in accounts receivable.......................... ( 8)Decrease in inventory......................................... 9Increase in accounts payable.............................. 3Decrease in wages payable................................. ( 4)Decrease in taxes payable................................... ( 2)Decrease in deferred income taxes..................... ( 6)Gain on sale of plant and equipment.................. ( 12) 5
Net cash provided by operating activities.............. $168
83. The net cash provided by (used by) investing activities for the year was:A) ($88)B) $14C) ($74)D) $74
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
Investing ActivitiesProceeds from sale of equipment............... $14 Purchase of plant and equipment............... ( 88) *Net cash used by investing activities......... ($74)
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
84. The net cash provided by (used by) financing activities for the year was:A) $1B) ($40)C) ($50)D) ($89)
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
Financing ActivitiesDecrease in bonds payable......................... ($50)Increase in common stock.......................... 1Cash dividends paid................................... ( 40)Net cash used by financing activities......... ($89)
Income StatementSales........................................................... $677Cost of goods sold...................................... 431 Gross margin.............................................. 246Selling and administrative expense............ 175 Net operating income................................. 71Income taxes.............................................. 21 Net income................................................. $ 50
Cash dividends were $9.
85. The net cash provided by (used by) operations for the year was:A) $71B) $65C) $35D) $15
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Solution:
Operating ActivitiesNet income............................................................... $50Adjustments to convert net income to a cash basis:
Depreciation charges............................................ $20Decrease in accounts receivable.......................... 3Increase in inventory............................................ ( 6)Decrease in accounts payable.............................. ( 7)Increase in wages payable.................................... 2Increase in income taxes payable......................... 1Increase in deferred income taxes payable.......... 2 15
Net cash provided by operating activities............... $65
86. The net cash provided by (used by) investing activities for the year was:A) ($8)B) $8C) $28D) ($28)
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Solution:
Investing ActivitiesAdditions to plant and equipment.............. ($28)Net cash used by investing activities......... ($28)
87. The net cash provided by (used by) financing activities for the year was:A) ($36)B) ($32)C) $5D) ($9)
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Solution:
Financing ActivitiesDecrease in bonds payable......................... ($32)Increase in common stock.......................... 5Cash dividends paid................................... ( 9)Net cash used by financing activities......... ($36)
Use the following to answer questions 88-90:
Karner Corporation's most recent balance sheet appears below:
Operating ActivitiesNet income................................................................ $76Adjustments to convert net income to a cash basis:
Depreciation charges............................................. $32Increase in accounts receivable............................. ( 10)Increase in inventory............................................. ( 7)Decrease in accounts payable............................... ( 7)Decrease in wages payable................................... ( 1)Decrease in income taxes payable......................... ( 1)Decrease in deferred income taxes payable.......... ( 4) 2
Net cash provided by operating activities................. $78
89. The net cash provided by (used by) investing activities for the year was:A) ($27)B) $27C) $59D) ($59)
Financing ActivitiesIncrease in bonds payable.......................... $ 4Increase in common stock.......................... 1Cash dividends paid................................... ( 19)Net cash used by financing activities......... ($14)
Liabilities and stockholders’ equity:Accounts payable....................................... $ 31 $ 26Long-term debt........................................... 112 150Common stock........................................... 82 80Retained earnings....................................... 154 76 Total liabilities and stockholders’ equity... $379 $332
Income StatementSales........................................................... $941Cost of goods sold...................................... 598 Gross margin.............................................. 343Selling and administrative expense............ 193 Net operating income................................. 150Income taxes.............................................. 45 Net income................................................. $105
Cash dividends were $27.
91. The net cash provided by (used by) operations for the year was:A) $134B) $29C) $76D) $150
Financing ActivitiesDecrease in long-term debt........................ ($38)Increase in common stock.......................... 2Cash dividends paid................................... ( 27)Net cash used by financing activities......... ($63)
Financing ActivitiesDecrease in long-term debt........................ ($2)Increase in common stock.......................... 1Cash dividends paid................................... ( 6)Net cash used by financing activities......... ($7)
Income StatementSales........................................................... $900,000Cost of goods sold...................................... 490,000 Gross margin.............................................. 410,000Selling and administrative expense............ 270,000 Net operating income................................. 140,000Income taxes.............................................. 42,000 Net income................................................. $ 98,000
The company declared and paid $20,000 in cash dividends during the year. The company uses the direct method to determine the net cash provided by operating activities.
98. On the statement of cash flows, the cost of goods sold adjusted to a cash basis would be:A) $494,000B) $490,000C) $486,000D) $512,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Hard
Solution:
Cost of goods sold (as reported)................ $490,000Adjustments to a cash basis:Decrease in inventory............................. ( 18,000)Decrease in accounts payable................. 22,000
Cost of goods sold (adjusted)..................... $494,000
100. On the statement of cash flows, the income tax expense adjusted to a cash basis would be:A) $42,000B) $36,000C) $49,000D) $32,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Hard
Solution:
Income tax expense (as reported).............. $42,000Adjustments to a cash basis:Decrease in accrued taxes payable......... 7,000Decrease in deferred income taxes......... ( 17,000)
Income tax expense (adjusted)................... $32,000
The company’s income statement for the year appears below:
Sales..................................................... $970,000Cost of goods sold................................ 530,000 Gross margin........................................ 440,000Selling and administrative expense...... 290,000 Net operating income........................... 150,000Income taxes........................................ 45,000 Net income........................................... $105,000
The company declared and paid $4,000 in cash dividends during the year. The company uses the direct method to determine the net cash provided by operating activities.
102. On the statement of cash flows, the cost of goods sold adjusted to a cash basis would be:A) $514,000B) $544,000C) $546,000D) $530,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Hard
Solution:
Cost of goods sold (as reported)................ $530,000Adjustments to a cash basis:Increase in inventory.............................. 2,000Decrease in accounts payable................. 14,000
Cost of goods sold (adjusted)..................... $546,000
104. On the statement of cash flows, the income tax expense adjusted to a cash basis would be:A) $40,000B) $42,000C) $45,000D) $46,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Hard
Solution:
Income tax expense (as reported).............. $45,000Adjustments to a cash basis:Increase in accrued taxes payable.......... ( 7,000)Decrease in deferred income taxes......... 7,000
Income tax expense (adjusted)................... $45,000
Income StatementSales........................................................... $690Cost of goods sold...................................... 456 Gross margin.............................................. 234Selling and administrative expense............ 150 Net operating income................................. 84Gain on sale of plant and equipment.......... 9 Income before taxes................................... 93Income taxes.............................................. 28 Net income................................................. $ 65
Cash dividends were $15. The company sold equipment for $11 that was originally purchased for $3 and that had accumulated depreciation of $1.
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
105. The net cash provided by (used by) operations for the year was:A) $73B) $84C) $64D) $79
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Medium
Solution:
Sales revenue (as reported).................................... $690Adjustments to a cash basis:Increase in accounts receivable.......................... ( 2)
Cost of goods sold (as reported)............................ 456Adjustments to a cash basis:Increase in inventory.......................................... 5Increase in accounts payable.............................. ( 7)
Selling and administrative expenses (as reported) 150Adjustments to a cash basis:Increase in wages payable.................................. ( 3)Period’s depreciation charges............................. ( 10)
Income tax expense................................................ 28Adjustments to a cash basis:Decrease in accrued taxes payable..................... 2Decrease in deferred income taxes..................... 3
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
106. The net cash provided by (used by) investing activities for the year was:A) ($56)B) $11C) ($67)D) $56
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Medium
Solution:
Investing ActivitiesAdditions to plant and equipment.............. ($67) *Proceeds from sale of equipment............... 11Net cash used by investing activities......... ($56)
*($564 + $3) − $500
107. The net cash provided by (used by) financing activities for the year was:A) $3B) $4C) ($15)D) ($8)
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Medium
Solution:
Financing ActivitiesIncrease in bonds payable.......................... $ 4Increase in common stock.......................... 3Cash dividends paid................................... ( 15)Net cash used by financing activities......... ($ 8)
Income StatementSales........................................................... $722Cost of goods sold...................................... 465 Gross margin.............................................. 257Selling and administrative expense............ 146 Net operating income................................. 111Income taxes.............................................. 33 Net income................................................. $ 78
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
108. The net cash provided by (used by) operations for the year was:A) $28B) $111C) $106D) $50
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Medium
Solution:
Sales revenue (as reported)................................... $722Adjustments to a cash basis:Increase in accounts receivable......................... ( 1)
Cost of goods sold (as reported)........................... 465Adjustments to a cash basis:Decrease in inventory....................................... ( 11)Decrease in accounts payable........................... 1
Selling and administrative expenses (as reported) 146Adjustments to a cash basis:Increase in wages payable................................. ( 3)Period’s depreciation charges........................... ( 14)
Income tax expense.............................................. 33Adjustments to a cash basis:Increase in accrued taxes payable..................... ( 1)Increase in deferred income taxes..................... ( 1)
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
109. The net cash provided by (used by) investing activities for the year was:A) ($34)B) $48C) ($48)D) $34
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Medium
Solution:
Investing ActivitiesAdditions to plant and equipment.............. ($48)Net cash used by investing activities......... ($48)
110. The net cash provided by (used by) financing activities for the year was:A) ($50)B) ($34)C) $5D) ($21)
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,4 Level: Medium
Solution:
Financing ActivitiesDecrease in bonds payable......................... ($34)Increase in common stock.......................... 5Cash dividends paid................................... ( 21)Net cash used by financing activities......... ($50)
Liabilities and stockholders’ equity:Accounts payable....................................... $ 55 $ 56Long-term debt........................................... 15 20Common stock........................................... 74 70Retained earnings....................................... 281 183 Total liabilities and stockholders’ equity... $425 $329
Income StatementSales........................................................... $1,087Cost of goods sold...................................... 724 Gross margin.............................................. 363Selling and administrative expense............ 179 Net operating income................................. 184Income taxes.............................................. 55 Net income................................................. $ 129
Cash dividends were $31.
111. The net cash provided by (used by) operations for the year was:A) $34B) $184C) $95D) $163
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Solution:
Sales revenue (as reported)................................... $1,087Adjustments to a cash basis:Increase in accounts receivable......................... ( 9)
Cost of goods sold (as reported)........................... 724Adjustments to a cash basis:Decrease in inventory....................................... ( 2)Decrease in accounts payable........................... 1
Financing ActivitiesDecrease in bonds payable......................... ($ 5)Increase in common stock.......................... 4Cash dividends paid................................... ( 31)Net cash used by financing activities......... ($32)
Total current assets.................................... 141,000 127,000 Property, plant, and equipment.................. 340,000 315,000
Less accumulated depreciation............... 218,000 187,000 Net property, plant, and equipment............ 122,000 128,000 Total assets................................................. $263,000 $255,000
Liabilities and Stockholders’ EquityCurrent liabilities:
Total current liabilities............................... 89,000 92,000Long-term debt........................................... 77,000 78,000Deferred income taxes............................... 28,000 25,000 Total liabilities........................................... 194,000 195,000 Stockholders’ equity:
Common stock........................................ 28,000 24,000Retained earnings.................................... 41,000 36,000
Total stockholders’ equity.......................... 69,000 60,000 Total liabilities and stockholders’ equity... $263,000 $255,000
The company's net income (loss) for the year was $7,000 and its cash dividends were $2,000.
Required:
Classify the change for the year in each balance sheet account as a source, use, or neither a source nor a use. (Do this only for the individual accounts-not for totals or subtotals.)
*The change in retained earnings consists of two elements: net income (loss) and dividends. The net income of $7,000 is classified as a source and the dividends of $2,000 are classified as a use.
*The change in retained earnings consists of two elements: net income (loss) and dividends. The net income of $1,000 is classified as a source and the dividends of $4,000 are classified as a use.
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Ans:
a. Operating activitiesNet income.................................................... $119,000Adjustments:
Depreciation charges.................................. $26,000Decrease in accounts receivable................ 21,000Increase in inventory.................................. (12,000)Decrease in prepaid expenses.................... 8,000Increase in accounts payable...................... 23,000Increase in accrued liabilities..................... 14,000Decrease in taxes payable.......................... (9,000)Increase in deferred taxes.......................... 4,000 75,000
Net cash provided by operating activities..... $194,000
b. Investing activities:Increase in long-term investments................ $(80,000)Increase in plant & equipment...................... (10,000 )Net cash used for investing activities............ $(90,000)
c. Financing activities:Decrease in bonds payable............................ $(50,000)Increase in common stock............................. 20,000Cash dividends.............................................. (45,000 )Net cash used in financing activities............. $(75,000)
Income StatementSales........................................................... $620Cost of goods sold...................................... 381 Gross margin.............................................. 239Selling and administrative expense............ 103 Net operating income................................. 136Gain on sale of plant and equipment.......... 20 Income before taxes................................... 156Income taxes.............................................. 47 Net income................................................. $109
Cash dividends were $31. The company sold equipment for $20 that was originally purchased for $14 and that had accumulated depreciation of $14.
Required:
Prepare a statement of cash flows for the year using the indirect method.
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Ans:
Net income...................................................................... $109Adjustments to convert net income to a cash basis:
Depreciation charges.................................................... 17Increase in accounts receivable.................................... (5)Increase in inventory.................................................... (9)Decrease in accounts payable...................................... (6)Increase in wages payable............................................ 2Increase in taxes payable............................................. 1Increase in deferred taxes............................................ 1Gain on sale of plant and equipment........................... (20 )
Net cash provided by operations..................................... 90 Investing activities:
Proceeds from sale of plant and equipment................. 20Increase in plant and equipment.................................. (64 )
Net cash used for investing activities.............................. (44 )Financing activities:
Decrease in bonds payable........................................... (13)Increase in common stock............................................ 3Cash dividends............................................................. (31 )
Net cash used by financing activities.............................. (41 )Net increase (decrease) in cash and cash equivalents..... 5Cash balance, beginning................................................. 30 Cash balance, end............................................................ $35
Income StatementSales........................................................... $546Cost of goods sold...................................... 363 Gross margin.............................................. 183Selling and administrative expense............ 134 Net operating income................................. 49Gain on sale of plant and equipment.......... 8 Income before taxes................................... 57Income taxes.............................................. 17 Net income................................................. $ 40
Cash dividends were $8. The company sold equipment for $12 that was originally purchased for $9 and that had accumulated depreciation of $5.
Required:
Determine the net cash provided by (used by) operating activities for the year using the indirect method.
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Ans:
Net income....................................................................... $40Adjustments to convert net income to a cash basis:
Depreciation charges.................................................... 48Decrease in accounts receivable................................... 5Decrease in inventory................................................... 9Decrease in accounts payable....................................... (12)Decrease in wages payable........................................... (2)Increase in taxes payable.............................................. 3Decrease in deferred taxes............................................ (3)Gain on sale of plant and equipment............................ ( 8 )
Net cash provided by operations..................................... $80
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
119. NOTES TO THE INSTRUCTOR:* The problem requirement does not indicate whether the indirect or direct method must be used to determine the net cash provided by operating activities. You can, if you choose, specify that either (or even both) methods be used. The solution contains solutions for both methods.* Due to the length of the problem, you may want to eliminate one or more of the requirements.---------------------------------------------------------------------
Dano Company's comparative balance sheet and income statement for last year appear below:
Statement of Financial PositionEnding BeginningBalance Balance
Income StatementSales........................................................... $540,000Cost of goods sold...................................... 220,000 Gross margin.............................................. 320,000Selling and administrative expense............ 200,000 Net operating income................................. 120,000Income taxes.............................................. 36,000 Net income................................................. $ 84,000
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
The company declared and paid $34,000 in cash dividends during the year.
Required:
a. Construct in good form the operating activities section of the company's statement of cash flows for the year.
b. Construct in good form the investing activities section of the company's statement of cash flows for the year.
c. Construct in good form the financing activities section of the company's statement of cash flows for the year.
Ans:
a. Operating activities
INDIRECT METHOD
Net income..................................................... $84,000Adjustments:
Depreciation charges................................... $29,000Decrease in accounts receivable................. 14,000Increase in inventory................................... (13,000)Increase in prepaid expenses....................... (3,000)Increase in accounts payable....................... 18,000Decrease in accrued liabilities.................... (5,000)Increase in taxes payable............................ 17,000Increase in deferred taxes........................... 4,000 61,000
Net cash provided by operating activities...... $145,000
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
DIRECT METHOD
Sales............................................................... $540,000Adjustments to a cash basis:
Decrease in accounts receivable................. +14,000 $554,000
Cost of goods sold.......................................... 220,000Adjustments to a cash basis:
Increase in inventory................................... +13,000Increase in accounts payable....................... -18,000 215,000
Selling and administrative expense................ 200,000Adjustments to a cash basis:
Increase in prepaid expenses....................... +3,000Decrease in accrued liabilities.................... +5,000Depreciation charges................................... -29,000 179,000
Income tax expense........................................ 36,000Adjustments to a cash basis:
Increase in taxes payable............................ -17,000Increase in deferred taxes........................... -4,000 15,000
Net cash provided by operating activities...... $145,000
b. Investing activities:Increase in long-term investments............. $(70,000)Net cash used for investing activities......... $(70,000)
c. Financing activities:Decrease in bonds payable......................... $(40,000)Increase in common stock.......................... 20,000Cash dividends........................................... ( 34,000 )Net cash used in financing activities.......... $(54,000)
Income StatementSales........................................................... $895Cost of goods sold...................................... 557 Gross margin.............................................. 338Selling and administrative expense............ 177 Net operating income................................. 161Income taxes.............................................. 48 Net income................................................. $113
Cash dividends were $28.
Required:
Prepare a statement of cash flows in good form using the indirect method.
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Ans:
Net income.................................................................... $113Adjustments to convert net income to a cash basis:
Depreciation charges.................................................. 49Increase in accounts receivable.................................. (4)Increase in inventory.................................................. (7)Decrease in accounts payable.................................... (9)Decrease in wages payable........................................ (4)Decrease in taxes payable.......................................... (3)Decrease in deferred taxes......................................... ( 4 )
Net cash provided by operations................................... 131 Investing activities:
Increase in plant and equipment................................ ( 105 )Net cash used for investing activities............................ ( 105 )Financing activities:
Increase in bonds payable.......................................... 1Increase in common stock.......................................... 2Cash dividends........................................................... ( 28 )
Net cash used by financing activities............................ ( 25 )Net change in cash and cash equivalents...................... 1Cash balance, beginning............................................... 26 Cash balance, end.......................................................... $ 27
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Ans:
Net income................................................................... $108Adjustments to convert net income to a cash basis:
Depreciation charges................................................. 39Increase in accounts receivable................................. (13)Increase in inventory................................................. (2)Increase in accounts payable..................................... 10Increase in wages payable......................................... 3Decrease in taxes payable......................................... (3)Increase in deferred taxes......................................... 1
Net cash provided by operations.................................. 143 Investing activities:
Increase in plant and equipment............................... ( 37 )Net cash used for investing activities........................... ( 37 )Financing activities:
Decrease in bonds payable........................................ (74)Increase in common stock......................................... 2Cash dividends.......................................................... ( 28 )
Net cash used by financing activities........................... ( 100 )Net change in cash and cash equivalents..................... 6Cash balance, beginning.............................................. 38 Cash balance, end......................................................... $ 44
Income StatementSales............................................................... $737Cost of goods sold.......................................... 454 Gross margin.................................................. 283Selling and administrative expense................ 173 Net operating income..................................... 110Income taxes.................................................. 33 Net income..................................................... $ 77
Cash dividends were $20.
Required:
Prepare a statement of cash flows in good form using the indirect method.
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Ans:
Net income................................................................ $77Adjustments to convert net income to a cash basis:
Depreciation charges.............................................. 4Increase in accounts receivable.............................. (5)Decrease in inventory............................................ 6Decrease in accounts payable................................ ( 10 )
Net cash provided by operations............................... 72 Investing activities:
Increase in plant and equipment............................ ( 12 )Net cash used for investing activities........................ ( 12 )Financing activities:
Decrease in long-term debt.................................... ( 41)Increase in common stock...................................... 4Cash dividends....................................................... ( 20 )
Net cash used by financing activities........................ ( 57 )Net cash flow............................................................ 3Cash balance, beginning........................................... 33 Cash balance, end...................................................... $36
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Ans:
Net income..................................................................... $105Adjustments to convert net income to a cash basis:
Depreciation charges.................................................. 32Decrease in accounts receivable................................. 4Decrease in inventory................................................. 7Decrease in accounts payable..................................... ( 6 )
Net cash provided by operations................................... 142 Investing activities:
Increase in plant and equipment................................. ( 104 )Net cash used for investing activities............................ ( 104 )Financing activities:
Decrease in long-term debt......................................... (16)Increase in common stock.......................................... 1Cash dividends........................................................... ( 21 )
Net cash used by financing activities............................ ( 36 )Net cash flow................................................................. 2Cash balance, beginning................................................ 27 Cash balance, end.......................................................... $ 29
Income StatementSales........................................................... $610,000Cost of goods sold...................................... 310,000 Gross margin.............................................. 300,000Selling and administrative expense............ 190,000 Net operating income................................. 110,000Income taxes.............................................. 33,000 Net income................................................. $ 77,000
The company declared and paid $8,000 in cash dividends during the year.
Required:
Construct in good form the operating activities section of the company's statement of cash flows for the year using the direct method.
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Ans:
Sales................................................................. $610,000Adjustments to a cash basis:Increase in accounts receivable........................ -24,000 $586,000
Cost of goods sold 310,000Adjustments to a cash basis:Decrease in inventory -18,000Decrease in accounts payable +22,000 314,000
Selling and administrative expense 190,000Adjustments to a cash basis:Decrease in prepaid expenses -8,000Increase in accrued liabilities -9,000Depreciation charges -48,000 125,000
Income tax expense 33,000Adjustments to a cash basis:Decrease in taxes payable +7,000Increase in deferred taxes -13,000 27,000
Net cash provided by operating activities $120,000
Income StatementSales........................................................... $954Cost of goods sold...................................... 606 Gross margin.............................................. 348Selling and administrative expense............ 162 Net operating income................................. 186Gain on sale of plant and equipment.......... 10 Income before taxes................................... 196Income taxes.............................................. 59 Net income................................................. $137
Cash dividends were $24. The company sold equipment for $10 that was originally purchased for $4 and that had accumulated depreciation of $4.
Required:
Using the direct method, determine the net cash provided by (used by) operating activities.
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Ans:
Sales.............................................................. $954Increase in accounts receivable..................... ( 5 ) $949
Cost of sales.................................................. 606Decrease in inventory................................... (6)Increase in accounts payable......................... ( 1 ) 599
Selling and administrative expense............... 162Decrease in wages payable........................... 4Depreciation charges..................................... ( 28 ) 138
Income taxes................................................. 59Increase in taxes payable.............................. (1)Decrease in deferred taxes............................ 4 62
Net cash provided by operating activities..... $150
Income StatementSales........................................................... $606Cost of goods sold...................................... 396 Gross margin.............................................. 210Selling and administrative expense............ 174 Net operating income................................. 36Income taxes.............................................. 11 Net income................................................. $ 25
Cash dividends were $7.
Required:
Prepare the operating activities section of the statement of cash flows using the direct method. In other words, determine the net cash provided by or used by operating activities using the direct method.
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Ans:
Sales................................................................. $606Decrease in accounts receivable...................... 1 $607
Cost of goods sold............................................ 396Decrease in inventory...................................... (5)Decrease in accounts payable.......................... 7 398
Selling and administrative expense.................. 174Decrease in wages payable.............................. 2Depreciation charges........................................ ( 24 ) 152
Income taxes.................................................... 11Increase in taxes payable................................. (2)Decrease in deferred taxes............................... 1 10
Net cash provided by operating activities........ $ 47
Income StatementSales........................................................... $618Cost of goods sold...................................... 398 Gross margin.............................................. 220Selling and administrative expense............ 156 Net operating income................................. 64Income taxes.............................................. 19 Net income................................................. $ 45
Cash dividends were $10.
Required:
Prepare the operating activities section of the statement of cash flows in good form using the direct method.
Chapter 15 “How Well Am I Doing?”--Statement of Cash Flows
Ans:
Sales.............................................................. $618Decrease in accounts receivable................... 3 $621
Cost of goods sold......................................... 398Increase in inventory..................................... 1Increase in accounts payable......................... ( 2 ) 397
Selling and administrative expense............... 156Depreciation charges..................................... ( 39 ) 117
Income taxes................................................. 19
Net cash provided by operating activities..... $ 88