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Exam 12: Reporting and Analyzing Cash Flows

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Question 61

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The cash flow on total assets ratio:

A) Is the same as return on assets
B) Is the same as profit margin
C) Can be an indicator of earnings quality
D) Is highly affected by accounting principles of income recognition and measurement
E) Is average net assets divided by cash flows from operations

F) A) and C)
G) A) and B)

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Question 62

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When using a spreadsheet to prepare the statement of cash flows,a decrease in accounts payable is entered in the Analysis of Changes column with a debit in the statement of cash flows section and a credit in the balance sheet section.

A) True
B) False

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Question 63

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The cash flow on total assets ratio can be used as an indicator of earnings quality.

Accounting standards:

Assume the following information was available for the current year's operations of Jungle Jim's International Market.Use these data to calculate the cash paid for merchandise. $\begin{array}{|l|r|}\hline \text { Cost of good sold } & \$ 226,000 \\\hline \text { Merchandise inventory, January 1 } & 54,800 \\\hline \text { Merchandise inventory, December 31 } & 57,400 \\\hline \text { Accounts payable, January 1 } & 54,400 \\\hline \text { Accounts payable, December 31 } & 59,800\\\hline\end{array}$

The direct method of preparing the statement of cash flows is usually viewed as user friendly since it requires less accounting knowledge to understand it.

A company had total assets of $1,760,000,total cash flows of $1,320,000 and cash flows from operations of $205,000.The cash flow on total assets ratio is equal to:

For each of the following independent cases,use the information provided to calculate the missing cash inflow or cash outflow: (a.) $\begin{array}{|l|r|}\hline \text { Interest payable, beginning-year } & \$ 4,200 \\\hline \text { Interest expense } & 26,700 \\\hline \text { Interest payable, year-end } & 3,000 \\\hline \text { Cash paid for interest } & \$ \\\hline\end{array}$ (b.) $\begin{array}{|l|r|}\hline \text { Prepaid insurance, beginning-year } & \$ 7,000 \\\hline \text { Insurance expense } & 16,800 \\\hline \text { Prepaid insurance, year-end } & 3,400 \\\hline \text { Cash paid for insurance } & \$ \\\hline\end{array}$ (c.) $\begin{array}{|l|r|}\hline \text { Interest receivable, beginning-year } & \$ 800 \\\hline \text { Interest revenue } & 12,600 \\\hline \text { Interest receivable, year-end } & 1,200 \\\hline \text { Cash received for interest } & \$ \\\hline\end{array}$ (d.) $\begin{array}{|l|r|}\hline \text { Accounts payable, beginning-year } & \$ 60,000 \\\hline \text { Cost of goods sold } & 244,000 \\\hline \text { Merchandise inventory, beginning-year } & 35,000 \\\hline \text { Merchandise inventory, year-end } & 40,500 \\\hline \text { Accounts payable, year-end } & 64,800 \\\hline \text { Cash paid for merchandise } & \$ \\\hline\end{array}$

The gain or loss from retirement of debt is reported under cash flows from operations on the statement of cash flows using the direct method.

A cash equivalent must be readily convertible to a known amount of cash and must be sufficiently close to its maturity so its market value is unaffected by interest rate changes.

Investments that are readily convertible to a known amount of cash and are sufficiently close to their maturity so that the market value is unaffected by interest rate changes are ______________________________.

Explain how the cash flows from operating activities section of the statement of cash flows is prepared when using the indirect method.

The direct method for the preparation of the operating activities section of the statement of cash flows:

Walker Company reports net income of $420,000 for the year ended December 31,2010.It also reports $75,600 depreciation expense and a gain of $11,000 on the sale of machinery.Its comparative balance sheets reveal a $33,600 decrease in accounts receivable,$17,220 increase in accounts payable,$9,240 increase in prepaid expenses,and $13,020 increase in wages payable.What is the net cash flows provided (used) by operating activities using the indirect method?

Both cash dividends received and interest received are considered to be investing inflows.

Selected information from Doodle Company's for 2010 is below (in millions) :

A corporation reported average total assets in 2009 of $397,350 and $440,800 in 2010.Its net operating cash flow for 2009 was $35,667 and $35,790 for 2010.Calculate the cash flow on total assets ratio for both years.Comment on the results.

Given the following information,determine the amount of cash flows from investing and financing activities. $\begin{array} { | l | r | } \hline \text { Net income } & \$ 70,000 \\\hline \text { Loss on sale of plant assets } & 25,000 \\\hline \text { Cash received from sale of plant assets } & 3 6 , 0 0 0\\\hline \text { Cash received from issuing stock } &8 0 , 0 0 0 \\\hline \text { Increase in income taxes payable } & 2 0 , 0 0 0 \\\hline\end{array}$

Wessen Company reports net income of $200,000 for the year ended December 31,2010.It also reports $40,000 depreciation expense,$22,500 amortization expense and a $15,000 loss on the sale of machinery.Its comparative balance sheets reveal a $225,700 increase in accounts receivable,$31,600 decrease in accounts payable,$15,000 decrease in prepaid expenses,and $48,100 decrease in wages payable.What is the net cash flows provided (used) by operating activities using the indirect method?

The purchase of long-term assets by issuing a note payable for the entire amount is reported on the statement of cash flows in the: