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Exam 16: The Statement of Cash Flows

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Question 61

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Which of the following sections of the statement of cash flows is presented differently between the direct method and indirect method?

A) investing activities
B) financing activities
C) operating activities
D) non-cash activities

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

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Question 62

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When preparing the statement of cash flows using the indirect method, a decrease in current liabilities is added to the net income to arrive at net cash flow from operating activities.

A) True
B) False

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Question 63

Multiple Choice

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Which of the following is true of the statement of cash flows?

Which of the following sections of the statement of cash flows includes activities that create revenue and expenses of the business?

Which of the following transactions would be shown in the non-cash investing and financing activities section of the statement of cash flows?

The three sections of the statement of cash flows report only activities that involve cash.

Which of the following will be shown under the investing activities section of the statement of cash flows?

Wellesley, Inc. uses the indirect method to prepare the statement of cash flows. Refer to the following section of the comparative balance sheet: The change in Merchandise Inventory is shown as a negative cash flow in the adjustments to net income.

The non-cash investing and financing activities section of the statement of cash flows appears as a separate schedule of the statement of cash flows or in the notes to the financial statements.

Issuing preferred stock to stockholders in exchange for cash is shown under the financing activities section of the statement of cash flows.

A company purchased machinery by issuing a long-term note payable. This is an example of a non-cash investing and financing activity for the statement of cash flows.

Jewel Tone Paints Company uses the direct method for preparing its statement of cash flow. Jewel Tone reports the following information regarding 2017: From the income statement: Sales Revenues, $267,000 Cost of Goods Sold, $214,000 Operating Expenses, $35,000 From the balance sheet: What amount will be shown for payments to suppliers for Merchandise Inventory purchases? (Assume that Accounts Payable are for purchases of merchandise inventory only.)

Brown, Inc. owed one of its creditors $350,000, but it did not have enough cash to repay the debt. Following lengthy negotiations, the parties agreed that Brown, Inc. would issue 50,000 shares of common stock to settle the debt. On the statement of cash flows, this transaction is shown in the ________.

Walker, Inc. uses the indirect method to prepare the statement of cash flows. Refer to the following section of the comparative balance sheet: The change in Accounts Receivable is shown as a negative cash flow in the adjustments to net income.

For the year ending December 31, 2017, Rodgers Electric expects net cash provided by operations of $327,000, net cash used by investing activities of $135,000, and net cash provided by financing activities of $49,000. Rodgers plans to spend $254,000 to add a warehouse for its operations and pays $32,000 in cash dividends. What is the amount of free cash flow?

The direct method of reporting cash flows from operating activities provides clearer information about the sources and uses of cash than does the indirect method.

Nelson Corp. uses the indirect method to prepare the statement of cash flows. Refer to the following section of the comparative balance sheet: The change in Accounts Payable is as a negative cash flow in the adjustments to net income.

Buying property, plant, and equipment for cash is considered a cash outflow for the financing activities section of the statement of cash flows.

What does free cash flow represent? How is it used to evaluate business performance?

Lopez Corp. uses the indirect method to prepare its statement of cash flows. Refer to the following information for 2017: 1. Long-Term Notes Payable, beginning balance, $80,000 2) Long-Term Notes Payable, ending balance, $75,000 3) Common Stock, beginning balance, $3,200 4) Common Stock, ending balance, $26,000 5) Retained Earnings, beginning balance, $79,000 6) Retained Earnings, ending balance, $116,000 7) Treasury Stock, beginning balance, $5,900 8) Treasury Stock, ending balance, $10,000 9) No stock was retired. 10) No treasury stock was sold. 11) During 2016, the company repaid $37,000 of long-term notes payable. 12) During 2016, the company borrowed $42,000 on a new note payable. 13) Net income for the year was $55,000. 14) Assume all dividends declared during the year were paid. What is the net cash flow from financing activities?