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Exam 21: The Statement of Cash Flows

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Question 21

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Partial balance sheets and additional information are listed below for Monaco Company. Additional information for 2009: Net income was $270,000. Depreciation expense was $30,000. Sales totaled $800,000. Cost of goods sold totaled $305,000. Required: Calculate the amount of cash paid to merchandise suppliers during 2009. Monaco Company Partial Balance Sheets as of December 31 $\begin{array} { l r r } \text { Assets } & \mathbf { 2 0 0 9 } & \mathbf { 2 0 0 8 } \\ \text { Cash } & \$ 40,000 & \$ 20,000 \\ \text { Accounts receivable } & 60,000 & 90,000 \\ \text { Inventory } & 25,000 & 40,000 \\ \text { Liabilities } & & \\ \text { Accounts payable } & \$ 60,000 & \$ 72,000 \end{array}$

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Question 22

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In its 2009 income statement, WME reported a $40,000 loss on the sale of equipment. In its reconciliation schedule, WME should:

A) Report a $40,000 cash outflow for the direct method.
B) Show a $40,000 positive adjustment to net income under the indirect method.
C) Show a $40,000 negative adjustment to net income under the indirect method.
D) None of these is correct.This loss reduces net income, but has no effect on cash flow.

E) A) and B)
F) A) and D)

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Question 23

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Is depreciation a source of cash? Explain.

When a transfer is made between cash and cash equivalents with no gain or loss, how is the transaction treated in the statement of cash flows?

Which of the following is reported as an operating activity in the statement of cash flows?

Why is the statement of cash flows required as part of the set of external financial statements?

Creditors and investors would generally find the statement of cash flows least useful for assessing the:

The accounting records of Westlake Industries provided the data below. Required: Prepare a reconciliation of net income to net cash flows from operating activities. $\begin{array} { l r } \text { Net income } & \$ 200,000 \\\text { Depreciation expense } & 15,000 \\\text { Decrease in inventory } & 12,000 \\\text { Increase in accounts receivable } & 1,400 \\\text { Increase in interest payable } & 1,600 \\\text { Amortization of bond discount } & 3,000 \\\text { Increase in accounts payable } & 7,000 \\\text { Cash dividends paid } & 20,000\end{array}$

The primary objective of the statement of cash flows is to provide information about a company's:

Creble Company reported net income for 2009 in the amount of $40,000. The company's financial statements also included the following: In the statement of cash flows what is net cash provided by operating activities under the indirect method?

Generally speaking, cash flows from operating activities include the elements of net income reported on a cash basis.

How is the amortization of patents reported in a statement of cash flows that is prepared using the indirect method?

S Company reported net income for 2009 in the amount of $400,000. The company's financial statements also included the following: What is net cash provided by operating activities under the indirect method?

Partial balance sheets and additional information are listed below for Ensign Company. Additional information for 2009: Net income was $170,000. Depreciation expense was $30,000. Sales totaled $400,000. Cost of goods sold totaled $145,000. Required: Calculate the amount of cash paid to merchandise suppliers during 2009. Ensign Company Partial Balance Sheets as of December 31 $\begin{array} { l r r } \text { Assets } & \mathbf { 2 0 0 9 } & \mathbf { 2 0 0 8 } \\ \text { Cash } & \$ 20,000 & \$ 40,000 \\ \text { Accounts receivable } & 90,000 & 60,000 \\ \text { Inventory } & 20,000 & 25,000 \\ \text { Liabilities } & & \\ \text { Accounts payable } & \$ 72,000 & \$ 58,000 \end{array}$

When a company purchases a security it considers a cash equivalent, the cash outflow is:

Dooling Corporation reported balances in the following accounts for the current year: Cost of goods sold was $7,500. What was the amount of cash paid to suppliers?

In a statement of cash flows in which operating activities are reported by the direct method, which of the following would increase reported cash flows from operating activities?

Which of the following never requires an outflow of cash?

What was most responsible for the positive cash flow from financing activities during 2008? What amount was received?

The accounting records of Harrison Company provided the data below. Required: Prepare a reconciliation of net income to net cash flows from operating activities. $\begin{array} { l r } \text { Net loss } & \$ 10,000 \\\text { Depreciation expense } & 12,000 \\\text { Increase in salaries payable } & 1,000 \\\text { Decrease in accounts receivable } & 4,000 \\\text { Increase in inventory } & 4,800 \\\text { Amortization of patent } & 700 \\\text { Decrease in discount on bonds } & 500\end{array}$