You are on page 1of 53

Managerial Accounting, 2e Braun/Tietz/Harrison Test Item File

Chapter 13: Statement of Cash Flows 13.1-1 The statement of cash flows reflects cash flows on a particular date. Answer: False LO: 13-1 Diff: 1 EOC Ref: EOC Accounting Vocabulary AACSB: Reflective AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting 13.1-2 The statement of cash flows reports why cash increased or decreased during the period. Answer: True LO: 13-1 Diff: 1 EOC Ref: EOC Accounting Vocabulary AACSB: Reflective AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting 13.1-3 Investors and management use the statement of cash flows to evaluate a firm's profitability. Answer: False LO: 13-1 Diff: 1 EOC Ref: EOC Accounting Vocabulary AACSB: Reflective AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting 13.1-4 For purposes of the statement of cash flows, "cash" includes cash on hand, cash in the bank and cash equivalents. Answer: True LO: 13-1 Diff: 1 EOC Ref: EOC Accounting Vocabulary AACSB: Reflective AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

13.1-5

Cash equivalents include highly liquid investments that can be readily converted into cash. Answer: True LO: 13-1 Diff: 1 EOC Ref: EOC Accounting Vocabulary AACSB: Reflective AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-6

Operating activities include activities that affect long-term liabilities and owners' equity. Answer: False LO: 13-1 Diff: 1 EOC Ref: S13-2 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-7

The investing activities section of the statement of cash flows is the most important section. Answer: False LO: 13-1 Diff: 1 EOC Ref: S13-2 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-8

The financing activities section of the statement of cash flows includes paying dividends and paying off loans. Answer: True LO: 13-1 Diff: 1 EOC Ref: S13-2 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-9

Investing activities include activities that affect the long-term asset section of the balance sheet. Answer: True LO: 13-1 Diff: 1 EOC Ref: S13-3 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

13.1-10

Financing activities include activities that affect current assets and liabilities on the balance sheet. Answer: False LO: 13-1 Diff: 1 EOC Ref: S13-3 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-11

Which of the following is TRUE of the statement of cash flows? A) The statement of cash flows reports why cash increased or decreased during the period. B) The statement of cash flows covers a span of time and is dated "Year Ended Month Day, Year". C) The statement of cash flows shows where cash came from and how cash was spent. D) All of the above are true of the statement of cash flows. Answer: D LO: 13-1 Diff: 1 EOC Ref: S13-4 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-12

A statement of cash flows is generated to show: A) the revenues the company has earned. B) the expenses the company incurred during the time period. C) the inflow and outflow of cash during the time period. D) how profits were generated. Answer: C LO: 13-1 Diff: 1 EOC Ref: S13-1 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-13

For anything to be considered a cash equivalent, the investment must be: A) convertible to cash within 5 years. B) convertible to a known amount of cash. C) convertible to cash without loss of value. D) convertible to cash within 1 year. Answer: B LO: 13-1 Diff: 1 EOC Ref: EOC Accounting Vocabulary AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

13.1-14

Which of the following financial statements reports an entity's cash receipts and cash payments during the period? A) The statement of cash flows B) The statement of retained earnings C) The balance sheet D) The income statement Answer: A LO: 13-1 Diff: 1 EOC Ref: S13-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-15

Which of the following are created by operating activities? A) Revenues and expenses B) An increase in common stock C) An increase in long-term debt D) Both A and B Answer: A LO: 13-1 Diff: 1 EOC Ref: S13-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-16

Which of the following statements about the information included on a statement of cash flows is TRUE? A) The statement of cash flows contains information about the business's ability to generate positive cash flows in future periods. B) The statement of cash flows contains information about stock splits and stock dividends distributed by the company. C) The statement of cash flows contains information about the business's percentage change in each item of revenue and expense. D) The statement of cash flows contains information about the differences between net income and additions to retained earnings. Answer: A LO: 13-1 Diff: 1 EOC Ref: E13-15 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

13.1-17

Which of the following is TRUE about a statement of cash flows? A) The statement of cash flows is prepared at the option of management. B) The statement of cash flows is required by generally accepted accounting principles. C) The statement of cash flows may be combined with the income statement. D) The statement of cash flows does not have to be completed if an income statement is prepared. Answer: B LO: 13-1 Diff: 1 EOC Ref: S13-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-18

Which of the following is a purpose for the statement of cash flows? A) To evaluate board of directors' decisions B) To help predict management's future decisions C) To determine the ability to pay dividends to stockholders and interest and principle to creditors D) To report the earnings per share Answer: C LO: 13-1 Diff: 1 EOC Ref: S13-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-19

Which of the following is an acceptable basis for the preparation of the statement of cash flows? A) The sum of cash, inventory, and money market accounts B) The sum of cash and accounts receivable C) The sum of cash and cash equivalents D) Cash Answer: C LO: 13-1 Diff: 1 EOC Ref: S13-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

13.1-20

Which of the following is included in the statement of cash flows? A) Total changes in retained earnings B) Total changes in total liabilities C) Total changes in cash from investing activities D) Total changes in stockholder's equity Answer: C LO: 13-1 Diff: 1 EOC Ref: S13-1 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-21

Which of the following is TRUE if a corporation shows a net loss on its income statement? A) The company may still have a net increase in cash. B) The company will not be able to sell stock. C) The company will not be able to pay dividends. D) The company may still have an increase in retained earnings. Answer: A LO: 13-1 Diff: 1 EOC Ref: S13-1 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-22

Which of the following descriptions DO apply to cash equivalents? A) Cash equivalents' values change because of interest rate changes. B) Cash equivalents are invested in fixed assets. C) Cash equivalents are long-term. D) Cash equivalents are highly liquid. Answer: D LO: 13-1 Diff: 1 EOC Ref: S13-1 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

13.1-23

Which of the following is the correct order of the sections on a statement of cash flows? A) Operating, financing, investing B) Financing, investing, operating C) Investing, operating, financing D) Operating, investing, financing Answer: D LO: 13-1 Diff: 1 EOC Ref: S13-2 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-24

Which of the following are the three major categories included on the statement of cash flows? A) Investing, operating and financing activities B) Investing, capital and financing activities C) Investing, operating and capital activities D) Financial, operating and capital activities Answer: A LO: 13-1 Diff: 1 EOC Ref: S13-2 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-25

Which of the following are the activities that are included in the operating activities section of the statement of cash flows? A) Activities that obtain the cash needed to launch and sustain the business B) Activities that create revenue or expenses in the entity's major line of business C) Activities that increase or decrease long-term assets D) None of the above Answer: B LO: 13-1 Diff: 1 EOC Ref: S13-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

13.1-26

Which of the following sections from the statement of cash flows includes activities that create revenue, expenses, gains and losses? A) Investing section B) Financing section C) Operating section D) None of the above Answer: C LO: 13-1 Diff: 1 EOC Ref: S13-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-27

Which of the following sections from the statement of cash flows includes activities that affect net income on the income statement? A) Financing section B) Operating section C) Investing section D) None of the above Answer: B LO: 13-1 Diff: 1 EOC Ref: S13-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-28

Which of the following sections from the statement of cash flows includes activities that affect current assets and current liabilities on the balance sheet? A) Investing section B) Financing section C) Operating section D) None of the above Answer: C LO: 13-1 Diff: 1 EOC Ref: S13-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

13.1-29

Which of the following sections from the statement of cash flows is the most important section because it reflects the day-to-day operations that determine the future of an organization? A) The financing section B) The operating section C) The investing section D) None of the above Answer: B LO: 13-1 Diff: 1 EOC Ref: S13-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-30

Which of the following sections from the statement of cash flows includes activities that increase and decrease long-term assets? A) Financing section B) Operating section C) Investing section D) None of the above Answer: C LO: 13-1 Diff: 1 EOC Ref: S13-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-31

Which of the following sections from the statement of cash flows includes purchases and sales of longterm assets? A) Financing section B) Operating section C) Investing section D) None of the above Answer: C LO: 13-1 Diff: 1 EOC Ref: S13-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

13.1-32

Which of the following sections from the statement of cash flows includes activities that increase and decrease long-term liabilities and owners' equity? A) Financing section B) Operating section C) Investing section D) None of the above Answer: A LO: 13-1 Diff: 1 EOC Ref: S13-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-33

Which of the following sections from the statement of cash flows includes the issuance of stock and the payment of dividends? A) Investing section B) Financing section C) Operating section. D) None of the above Answer: B LO: 13-1 Diff: 1 EOC Ref: S13-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-34

Which of the following sections from the statement of cash flows includes the purchase and sale of treasury stock? A) Financing section B) Operating section C) Investing section D) None of the above Answer: A LO: 13-1 Diff: 1 EOC Ref: S13-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

10

13.1-35

Which of the following sections from the statement of cash flows includes borrowing money and paying off loans? A) Investing section B) Operating section C) Financing section D) None of the above Answer: C LO: 13-1 Diff: 1 EOC Ref: E13-16 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-36

Which of the following sections from the statement of cash flows would include the purchase of a building totally financed by a mortgage? A) Investing section B) Operating section C) Financing section D) None of the above Answer: D LO: 13-1 Diff: 1 EOC Ref: S13-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-37

Which of the following sections from the statement of cash flows would include the acquisition of a building by issuing common stock? A) Investing section B) Financing section C) Operating section D) None of the above Answer: D LO: 13-1 Diff: 1 EOC Ref: S13-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

11

13.1-38

Which of the following sections from the statement of cash flows includes loans to others and collections on loans? A) Financing section B) Investing section C) Operating section D) None of the above Answer: B LO: 13-1 Diff: 2 EOC Ref: S13-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-39

Which of the following sections from the statement of cash flows would include the payment of a note payable by issuing common stock? A) Investing section B) Financing section C) Operating section D) None of the above Answer: D LO: 13-1 Diff: 1 EOC Ref: S13-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-40

Paying cash dividends would be: A) a cash outflow from financing. B) a cash outflow from operations. C) a cash outflow from investing. D) none of the above. Answer: A LO: 13-1 Diff: 2 EOC Ref: S13-7 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

12

13.1-41

Issuing preferred stock to stockholders would be a: A) cash inflow from investing. B) cash inflow from operations. C) cash inflow from financing. D) cash inflow from depreciation. Answer: C LO: 13-1 Diff: 2 EOC Ref: S13-7 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-42

Buying and selling property, plant and equipment would be considered in: A) the operating portion of the statement of cash flows. B) the investing portion of the statement of cash flows. C) the financing portion of the statement of cash flows. D) none of the above portions of the statement of cash flows. Answer: B LO: 13-1 Diff: 2 EOC Ref: S13-7 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-43

Of the following, which is NOT a cash outflow from an investing activity? A) Purchase of equity securities B) Loans made to another party C) Purchase of treasury stock D) Purchase of commercial real estate Answer: C LO: 13-1 Diff: 1 EOC Ref: S13-7 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

13

13.1-44

Of the following, which is the primary source of cash over the life of a business? A) Operating activities B) Financing activities C) Investing activities D) None of the above Answer: A LO: 13-1 Diff: 1 EOC Ref: S13-7 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-45

Of the following, which is NOT a cash inflow from a financing activity? A) Additional owner investment B) Issuance of stock C) Interest revenue on loans D) Mortgage proceeds Answer: C LO: 13-1 Diff: 1 EOC Ref: S13-7 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-46

An outflow of cash from an investing activity would be: A) purchasing treasury stock. B) issuing notes payable. C) paying cash dividends to stockholders. D) making loans to third parties. Answer: D LO: 13-1 Diff: 1 EOC Ref: S13-7 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

14

13.1-47

Money borrowed for a mortgage would be a(n) __________activity. A) operating B) investing C) financing D) non-cash Answer: C LO: 13-1 Diff: 1 EOC Ref: S13-7 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-48

Which of the following is NOT a cash outflow from an operating activity? A) Payment of interest on a loan B) Payment for purchasing inventory C) Owner withdrawal from the company D) Payments to the government for taxes Answer: C LO: 13-1 Diff: 1 EOC Ref: S13-7 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-49

A payment of interest on a loan would be considered a: A) cash outflow from operating activities. B) cash outflow from investing activities. C) cash outflow from financing activities. D) cash outflow from depreciation. Answer: A LO: 13-1 Diff: 2 EOC Ref: S13-7 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

15

13.1-50

Cash received from selling merchandise would be considered a: A) cash inflow from investing activities. B) cash inflow from operating activities. C) cash inflow from financing activities. D) cash outflow from operating activities. Answer: B LO: 13-1 Diff: 2 EOC Ref: S13-7 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-51

Creditor and stockholder transactions are considered ___________ activities. A) planning B) financing C) operating D) investing Answer: B LO: 13-1 Diff: 2 EOC Ref: S13-7 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-52

A loss of $35,000 from the sale of equipment would be included in which of the activities sections of the statement of cash flows? A) Operating B) Investing C) Financing D) Would not be on the statement of cash flows Answer: A LO: 13-1 Diff: 2 EOC Ref: S13-7 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

16

13.1-53

Which of the following are the activities that are included in the investing activities section of the statement of cash flows? A) Activities that increase or decrease long-term assets B) Activities that obtain the cash needed to launch and sustain the business C) Activities that create revenue or expenses in the entity's major line of business D) None of the above Answer: A LO: 13-1 Diff: 1 EOC Ref: S 13-4 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-54

Which of the following sections from the statement of cash flows would include the issuance of a stock dividend? A) Operating section B) Financing section C) Investing section D) None of the above Answer: D LO: 13-1 Diff: 1 EOC Ref: S13-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-55

Which of the following would be considered an operating activity on the statement of cash flows? A) Dividends paid to stockholders B) The sale of inventory C) Gain on sale of short-term investments D) The receipt of stock dividends from investment stock Answer: B LO: 13-1 Diff: 1 EOC Ref: S13-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

17

13.1-56

Which of the following items would be reported as an operating activity on the statement of cash flows? A) A purchase of treasury stock B) A payment of dividends C) An issuance of stock D) A payment of interest Answer: D LO: 13-1 Diff: 1 EOC Ref: S13-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-57

Which of the following would be considered an investing activity on the statement of cash flows? A) A sale of land B) A purchase of treasury stock C) Depreciation of equipment D) A sale of inventory Answer: A LO: 13-1 Diff: 1 EOC Ref: S13-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-58

Which of the following items would be reported in the financing activities section on the statement of cash flows? A) Cash paid for interest B) Cash received from customers C) Cash paid for operating expenses D) Cash received from a sale of treasury stock Answer: D LO: 13-1 Diff: 1 EOC Ref: S13-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

18

13.1-59

Where are noncash investing and financing activities reported? A) The financing activities section of the statement of cash flows B) The investing activities section of the statement of cash flows C) A schedule accompanying the statement of cash flows D) In both A and B Answer: C LO: 13-1 Diff: 1 EOC Ref: S13-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-60

Which of the following are the activities that are included in the financing activities section of the statement of cash flows? A) Activities that obtain the cash needed to launch and sustain the business B) Activities that increase or decrease long-term assets C) Activities that create revenue or expenses in the entity's major line of business D) None of the above Answer: A LO: 13-1 Diff: 2 EOC Ref: S13-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.1-61

List three ways that owners and investors use the statement of cash flows. Answer: A. The statement of cash flows is used to predict future cash flows. B. The statement of cash flows is used to evaluate management decisions. C. The statement of cash flows is used to predict a company' ability to pay debts and dividends. LO: 13-1 Diff: 1 EOC Ref: S13-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

19

13.2-1

The indirect method of presenting the investing activities section of the statement of cash flow reconciles net income to net cash provided by investing activities. Answer: False LO: 13-2 Diff: 1 EOC Ref: EOC Accounting Vocabulary AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.2-2

When a company uses the indirect method to present the statement of cash flows, depreciation expense must be added to net income to reconcile to net cash provided by operating activities. Answer: True LO: 13-2 Diff: 2 EOC Ref: S13-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.2-3

When a company uses the indirect method to present the statement of cash flows, a gain on the sale of a long-term asset must be subtracted from net income to reconcile to net cash provided by operating activities. Answer: True LO: 13-2 Diff: 2 EOC Ref: S13-8 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.2-4

When a company uses the indirect method to present the statement of cash flows, an increase in a current liability must be subtracted from net income to reconcile to net cash provided by operating activities. Answer: False LO: 13-2 Diff: 2 EOC Ref: S13-8 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

20

13.2-5

When a company uses the indirect method to present the statement of cash flows, cash received from the sale of a long-term asset increases the amount of net cash provided by investing activities. Answer: True LO: 13-2 Diff: 2 EOC Ref: S13-8 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.2-6

A company uses the indirect method to prepare the statement of cash flows. How will depreciation be presented on the statement? A) Depreciation expense will be added to net income in the financing activities section. B) Depreciation expense will be subtracted from net income in the operating section. C) Depreciation expense will be added to net income in the operating activities section. D) Depreciation expense will be added to net income in the investing activities section. Answer: C LO: 13-2 Diff: 2 EOC Ref: S13-8 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.2-7

A company uses the indirect method to prepare the statement of cash flows. How will a loss from the sale of equipment be presented on the statement? A) A loss from the sale of equipment will be an addition in the financing activities section. B) A loss from the sale of equipment will be added to net income in the operating activities section. C) A loss from the sale of equipment will be deducted from net income in the operating activities section. D) A loss from the sale of equipment will be an addition in the investing activities section. Answer: B LO: 13-2 Diff: 2 EOC Ref: S13-8 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

21

13.2-8

A company uses the indirect method to prepare the statement of cash flows. Which of the following items would be added to net income in determining the net cash flow from operating activities? A) A decrease in accounts receivable would be added to net income. B) An increase in inventory would be added to net income. C) A decrease in accounts payable would be added to net income. D) An increase in preferred dividends payable would be added to net income. Answer: A LO: 13-2 Diff: 2 EOC Ref: S13-8 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.2-9

A company uses the indirect method to prepare the statement of cash flows. Which of the following items would be subtracted from net income in determining the net cash flow from operating activities? A) Amortization of a premium on bonds payable would be subtracted from net income. B) An increase in dividends payable would be subtracted from net income. C) A loss on the sale of equipment would be subtracted from net income. D) Depreciation expense would be subtracted from net income. Answer: A LO: 13-2 Diff: 2 EOC Ref: S13-5 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.2-10

A company uses the indirect method to prepare the statement of cash flows. How will the adjustment to reflect the amount of cash payments to employees be presented on the statement? A) The adjustment will be for the increase or decrease in accrued expenses for the period and will adjust net income in the operating activities section. B) The adjustment will be for the increase or decrease in accounts receivable for the period and will adjust net income in the operating activities section. C) The adjustment will be for the increase or decrease in inventory for the period and will adjust net income in the operating activities section. D) The adjustment will be for the increase or decrease in accounts payable for the period and will adjust net income in the operating activities section. Answer: A LO: 13-2 Diff: 2 EOC Ref: S13-8 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

22

13.2-11

A company uses the indirect method to prepare the statement of cash flows. How will the adjustment to reflect the amount of cash paid for interest be presented on the statement? A) The adjustment will be for the increase or decrease in accounts receivable for the period and will adjust net income in the operating activities section. B) The adjustment will be for the increase or decrease in inventory for the period and will adjust net income in the operating activities section. C) The adjustment will be for the increase or decrease in accrued expenses for the period and will adjust net income in the operating activities section. D) The adjustment will be for the increase or decrease in accounts payable for the period and will adjust net income in the operating activities section. Answer: C LO: 13-2 Diff: 3 EOC Ref: S13-8 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.2-12

A company uses the indirect method to prepare the statement of cash flows. How will the adjustment to reflect the amount of cash payments to suppliers be presented on the statement? A) The adjustment will be for the increase or decrease in accounts payable for the period and will adjust net income in the operating activities section. B) The adjustment will be for the increase or decrease in inventory for the period and will adjust net income in the operating activities section. C) The adjustment will be for the increase or decrease in accrued expenses for the period and will adjust net income in the operating activities section. D) The adjustment will be for the increase or decrease in accounts receivable for the period and will adjust net income in the operating activities section. Answer: A LO: 13-2 Diff: 3 EOC Ref: S13-8 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

23

13.2-13

A company uses the indirect method to prepare the statement of cash flows. How will the adjustment to reflect the amount of cash received from customers be presented on the statement? A) The adjustment will be for the increase or decrease in accounts receivable for the period and will adjust net income in the operating activities section. B) The adjustment will be for the increase or decrease in accounts payable for the period and will adjust net income in the operating activities section. C) The adjustment will be for the increase or decrease in accrued expenses for the period and will adjust net income in the operating activities section. D) The adjustment will be for the increase or decrease in inventory for the period and will adjust net income in the operating activities section. Answer: A LO: 13-2 Diff: 3 EOC Ref: S13-8 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.2-14

The balance in the ___________ can be used to check the accuracy of the statement of cash flows. A) asset and liability accounts B) liability accounts C) asset accounts D) cash and cash equivalent accounts Answer: D LO: 13-2 Diff: 1 EOC Ref: S13-8 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.2-15

Computing cash generated from operating activities is: A) the same for both the direct and indirect methods. B) different in that the direct method considers depreciation. C) different in that the indirect method considers depreciation. D) none of the above. Answer: C LO: 13-2 Diff: 1 EOC Ref: S13-8 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

24

13.2-16

To prepare the statement of cash flows, you need the: A) accounts payable ledger. B) accounts receivable ledger. C) general journal. D) balance sheet from the beginning and ending of the period. Answer: A LO: 13-2 Diff: 2 EOC Ref: E13-12 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.2-17

Operating activities resulting from the sales of goods and services relate to: A) retained earnings reported on the balance sheet. B) assets and liabilities reported on the balance sheet. C) net income on the retained earnings statement. D) the income statement. Answer: D LO: 13-2 Diff: 2 EOC Ref: E13-12 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.2-18

Which of the following would NOT be done when calculating the change in cash from operating activities under the indirect method? A) Add an increase in accrued interest payable B) Deduct the purchase of equipment C) Add a decrease in merchandise inventory D) Deduct a decrease in accounts payable Answer: B LO: 13-2 Diff: 2 EOC Ref: E13-12 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

25

13.2-19

Which is NOT reported as an operating activity on a cash flow statement? A) Proceeds from the sale of equipment B) Interest revenue C) Interest expense D) Dividend revenue Answer: A LO: 13-2 Diff: 2 EOC Ref: E13-12 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.2-20

A company pays cash dividends on preferred stock. Where would this transaction appear if the company prepares the statement of cash flows using the indirect method or the direct method? A) The payment of cash dividends would be presented in the investing activities section as a cash payment under both methods. B) The payment of cash dividends would be presented in the financing activities section as a cash payment under both methods. C) The payment of cash dividends would be presented in the operating activities section as a reduction in net income under the indirect method and as a cash payment under the direct method. D) The payment of cash dividends would be presented in the non-cash investing and financing activities section under both methods. Answer: B LO: 13-2 Diff: 2 EOC Ref: S13-8 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.2-21

A company acquires its own stock to hold as treasury stock. Where would this transaction appear if the company prepares the statement of cash flows using the indirect method or the direct method? A) The acquisition of treasury stock would be presented in the operating activities section as a reduction in net income under the indirect method and as a cash payment under the direct method. B) The acquisition of treasury stock would be presented in the financing activities section as a cash payment under both methods. C) The acquisition of treasury stock would be presented in the non-cash investing and financing activities section under both methods. D) The acquisition of treasury stock would be presented in the investing activities section as a cash payment under both methods. Answer: B LO: 13-2 Diff: 2 EOC Ref: S13-8 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

26

13.2-22

A company sells treasury stock for an amount less than its acquisition cost. Where would this transaction appear if the company prepares the statement of cash flows using the indirect method or the direct method? A) The sale of treasury stock would be presented in the investing activities section as a cash receipt under the both methods. B) The sale of treasury stock would be presented in the financing activities section as a cash receipt under the both methods. C) The sale of treasury stock would be presented in the operating activities section as a reduction in net income under the indirect method and as a cash receipt under the direct method. D) The sale of treasury stock would be presented in the non-cash investing and financing activities section under both methods. Answer: B LO: 13-2 Diff: 2 EOC Ref: S13-8 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.2-23

A company purchases equipment for use in its business activities. Where would this transaction appear if the company prepares the statement of cash flows using the indirect method or the direct method? A) The purchase of equipment would be presented in the non-cash investing and financing activities section under both methods. B) The purchase of equipment would be presented in the financing activities section as a cash payment under both methods. C) The purchase of equipment would be presented in the operating activities section as a reduction in net income under the indirect method and as a cash payment under the direct method. D) The purchase of equipment would be presented in the investing activities section as a cash payment under both methods. Answer: D LO: 13-2 Diff: 2 EOC Ref: S13-8 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

27

13.2-24

A company sells equipment at a loss. Where would this transaction appear if the company prepares the statement of cash flows using the indirect method or the direct method? A) The sale of equipment at a loss would be presented in the investing activities section as a cash receipt under the both methods. B) The sale of equipment at a loss would be presented in the investing activities section as a cash payment under the both methods. C) The sale of equipment at a loss would be presented in the operating activities section as a reduction in net income under the indirect method and as a cash receipt under the direct method. D) The sale of equipment at a loss would be presented in the financing activities section as a cash receipt under the both methods. Answer: A LO: 13-2 Diff: 2 EOC Ref: S13-8 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.2-25

A company purchases land using its common stock. Where would this transaction appear if the company prepares the statement of cash flows using the indirect method or the direct method? A) The purchase of land would be presented in the financing activities section as a cash payment under both methods. B) The purchase of land would be presented in the investing activities section as a cash payment under both methods. C) The purchase of land would be presented in the non-cash investing and financing activities section under both methods. D) The purchase of land would be presented in the operating activities section as a reduction in net income under the indirect method and as a cash payment under the direct method. Answer: C LO: 13-2 Diff: 3 EOC Ref: S13-8 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.2-26

A company uses the indirect method to prepare the statement of cash flows. How will a gain from the sale of equipment be presented on the statement? A) A gain from the sale of equipment will be an addition in the investing activities section. B) A gain from the sale of equipment will be added to net income in the operating activities section. C) A gain from the sale of equipment will be deducted from net income in the operating activities section. D) A gain from the sale of equipment will be a deduction in the financing activities section. Answer: C LO: 13-2 Diff: 2 EOC Ref: S13-5 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

28

13.2-27

A company uses the indirect method to prepare the statement of cash flows. Which of the following items would be added to net income in determining the net cash flow from operating activities? A) An increase in accrued liabilities would be added to net income. B) An increase in dividends paid would be added to net income. C) A decrease in accounts payable would be added to net income. D) A gain on the sale of land would be added to net income. Answer: A LO: 13-2 Diff: 2 EOC Ref: S13-12 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.2-28

A company uses the indirect method to prepare the statement of cash flows. It sold a piece of equipment at a loss of $3,600. The equipment was purchased several years ago for $70,500 and had accumulated depreciation of $52,900. What is reported under the operating activities section on the statement of cash flows? A) Cash proceeds of $14,000 are subtracted from net income. B) Cash proceeds of $14,000 are added to net income. C) The loss of $3,600 is added to net income. D) The loss of $3,600 is subtracted from net income. Answer: C LO: 13-2 Diff: 3 EOC Ref: S13-12 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

29

13.2-29

A company uses the indirect method to prepare the statement of cash flows. It presents the following amounts on its financial statements. Accounts receivable Cost of goods sold Sales revenue Accounts payable* Inventory Salary payable Salary expense End of this year $110,000 560,000 830,000 75,000 86,000 13,000 49,000 End of prior year $100,000 67,000 105,000 10,000 45,000

*Relates solely to the acquisition of inventory What will appear in the operating activities section related to accounts receivable? A) The increase of $10,000 will be subtracted from sales revenue. B) The increase of $10,000 will be added to net income. C) The increase of $10,000 will be added to sales revenue. D) The increase of $10,000 will be subtracted from net income Answer: D LO: 13-2 Diff: 2 EOC Ref: S13-8 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting 13.2-30 A cash flow statement shows $13,000 from operations, ($9,000) from investing, and $21,000 from financing. The cash balance must have increased or decreased by: A) $12,000. B) $25,000. C) $43,000. D) $34,000. Answer: B LO: 13-2 Diff: 2 EOC Ref: S13-8 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

30

13.2-31

A company uses the indirect method to prepare the statement of cash flows. It presents the following amounts on its financial statements. Accounts receivable Cost of goods sold Sales revenue Accounts payable* Inventory Salary payable Salary expense End of this year $110,000 560,000 830,000 75,000 86,000 13,000 49,000 End of prior year $100,000 67,000 105,000 10,000 45,000

*Relates solely to the acquisition of inventory What will appear in the operating activities section related to accounts payable? A) The increase of $8,000 will be added to net income. B) The increase of $8,000 will be subtracted from net income. C) The increase of $8,000 will be subtracted from cost of goods sold. D) The increase of $8,000 will be added to cost of goods sold. Answer: A LO: 13-2 Diff: 2 EOC Ref: S13-8 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

31

13.2-32

A company uses the indirect method to prepare the statement of cash flows. It presents the following amounts on its financial statements. Accounts receivable Cost of goods sold Sales revenue Accounts payable* Inventory Salary payable Salary expense End of this year $110,000 560,000 830,000 75,000 86,000 13,000 49,000 End of prior year $100,000 67,000 105,000 10,000 45,000

*Relates solely to the acquisition of inventory What will appear in the operating activities section related to inventory? A) The decrease of $19,000 will be subtracted from net income. B) The decrease of $19,000 will be subtracted from cost of goods sold. C) The decrease of $19,000 will be added to cost of goods sold. D) The decrease of $19,000 will be added to net income. Answer: D LO: 13-2 Diff: 2 EOC Ref: S13-8 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

32

13.2-33

A company uses the indirect method to prepare the statement of cash flows. It presents the following amounts on its financial statements. End of this year End of prior year Accounts receivable $110,000 $100,000 Cost of goods sold 560,000 Sales revenue 830,000 Accounts payable* 75,000 67,000 Inventory 86,000 105,000 Salary payable 13,000 10,000 Salary expense 49,000 45,000 *Relates solely to the acquisition of inventory What will appear in the operating activities section related to salary payable? A) The increase of $3,000 will be added to net income. B) The increase of $3,000 will be added to cost of goods sold. C) The increase of $3,000 will be subtracted from cost of goods sold. D) The increase of $3,000 will be subtracted from net income Answer: A LO: 13-2 Diff: 2 EOC Ref: S13-8 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.2-34

A company reported beginning plant assets, net of depreciation, of $645,000 and an ending amount of $732,500. Depreciation expense of $48,300 and a loss on the sale of equipment of $5,600 were reported on the income statement. The company acquired $213,000 of plant assets during the year. How much will be reported as cash received from the sale of equipment in the investing activities section of the statement of cash flows? A) The cash received upon the sale of the equipment was $71,600. B) The cash received upon the sale of the equipment was $77,200. C) The cash received upon the sale of the equipment was $82,800. D) The cash received upon the sale of the equipment was $119,900. Answer: A LO: 13-2 Diff: 2 EOC Ref: E13-8 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

33

13.2-35

A company sold equipment with a book value of $9,000 at a gain of $2,500. How much will be reported in the investing activities section of the statement of cash flows as cash received upon the sale of the equipment? A) The cash received upon the sale of the equipment was $11,500. B) The cash received upon the sale of the equipment was $2,500. C) The cash received upon the sale of the equipment was $6,500. D) The cash received upon the sale of the equipment was $9,000. Answer: A LO: 13-2 Diff: 2 EOC Ref: E13-15 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.2-36

The beginning and ending balances of long-term debt are $61,500 and $35,400, respectively, and cash payments for long-term debt during the year were $35,100. How much new long-term debt was issued during the year? A) New long-term debt issued during the year was $9,000. B) New long-term debt issued during the year was $300. C) New long-term debt issued during the year was $26,100. D) New long-term debt issued during the year was $61,200. Answer: A LO: 13-2 Diff: 3 EOC Ref: E13-15 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

34

13.2-37

The balance sheet for Jeremiah Corporation follows: Ending balance Assets: Current assets: Cash and cash equivalents Accounts receivable Inventory Total current assets Property, plant, and equipment Less accumulated depreciation Net property, plant, and equipment Total assets Liabilities and stockholders' equity: Current liabilities: Accounts payable Accrued salaries payable Other accounts payable Notes payable Total current liabilities Long-term debt Deferred income taxes Total long-term liabilities Stockholders' equity: Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ $ $ $ $ $ $ $ 20,000 9,500 39,000 68,500 143,500 102,000 41,500 110,000 Beginning balance $ $ $ $ $ $ $ $ 12,000 8,000 38,000 58,000 135,000 95,000 40,000 98,000

$ $ $ $ $ $ $ $ $ $ $ $

14,000 15,000 1,000 1,000 31,000 34,500 5,500 40,000 23,500 15,500 39,000 110,000

$ $ $ $ $ $ $ $ $ $ $ $

9,000 12,000 6,000 7,000 34,000 31,000 3,000 34,000 17,000 13,000 30,000 98,000

Operating income for the period was $15,000, while cash dividends paid were $12,500. The overall total of the sources of cash for Jeremiah Corporation for the year was: A) $ 8,000. B) $12,500. C) $35,500. D) $42,500. Answer: D LO: 13-2 Diff: 2 EOC Ref: E 13-15 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

35

13.2-38

The balance sheet for Jeremiah Corporation follows: Ending balance Assets: Current assets: Cash and cash equivalents Accounts receivable Inventory Total current assets Property, plant, and equipment Less accumulated depreciation Net property, plant, and equipment Total assets Liabilities and stockholders' equity: Current liabilities: Accounts payable Accrued salaries payable Other accounts payable Notes payable Total current liabilities Long-term debt Deferred income taxes Total long-term liabilities Stockholders' equity: Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ $ $ $ $ $ $ $ 20,000 9,500 39,000 68,500 143,500 102,000 41,500 110,000 Beginning balance $ $ $ $ $ $ $ $ 12,000 8,000 38,000 58,000 135,000 95,000 40,000 98,000

$ $ $ $ $ $ $ $ $ $ $ $

14,000 15,000 1,000 1,000 31,000 34,500 5,500 40,000 23,500 15,500 39,000 110,000

$ $ $ $ $ $ $ $ $ $ $ $

9,000 12,000 6,000 7,000 34,000 31,000 3,000 34,000 17,000 13,000 30,000 98,000

Operating income for the period was $15,000, while cash dividends paid were $12,500. The overall total of the uses of cash for Jeremiah Corporation for the year was: A) $ 8,000. B) $23,500. C) $34,500. D) $42,500. Answer: C LO: 13-2 Diff: 2 EOC Ref: E13-15 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

36

13.2-39

The balance sheet for Maleenah Corporation follows: Ending balance Assets: Current assets: Cash and cash equivalents Accounts receivable Inventory Total current assets Property, plant, and equipment Less accumulated depreciation Net property, plant, and equipment Total assets Liabilities and stockholders' equity: Current liabilities: Accounts payable Wages payable Other accounts payable Notes payable Total current liabilities Long-term debt Deferred income taxes Total liabilities Stockholders' equity: Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ $ $ $ $ $ $ $ 57,500 19,600 50,000 127,100 287,000 108,500 178,500 305,600 Beginning balance $ $ $ $ $ $ $ $ 44,000 22,600 54,000 120,600 275,000 101,500 173,500 294,100

$ $ $ $ $ $ $ $ $ $ $ $

26,000 41,500 39,500 24,000 131,000 72,000 19,500 91,500 54,000 29,100 83,100 305,600

$ $ $ $ $ $ $ $ $ $ $ $

29,500 47,000 33,000 25,000 134,500 78,000 17,000 95,000 45,000 19,600 64,600 294,100

Operating income for the period was $13,800, while cash dividends paid were $4,300. The overall total of the uses of cash for Maleenah Corporation for the year was: A) $ 2,000. B) $32,300. C) $34,500. D) $55,100. Answer: B LO: 13-2 Diff: 2 EOC Ref: E13-15 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

37

13.2-40

The balance sheet for Maleenah Corporation follows: Ending balance Assets: Current assets: Cash and cash equivalents Accounts receivable Inventory Total current assets Property, plant, and equipment Less accumulated depreciation Net property, plant, and equipment Total assets Liabilities and stockholders' equity: Current liabilities: Accounts payable Wages payable Other accounts payable Notes payable Total current liabilities Long-term debt Deferred income taxes Total liabilities Stockholders' equity: Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ $ $ $ $ $ $ $ 57,500 19,600 50,000 127,100 287,000 108,500 178,500 305,600 Beginning balance $ $ $ $ $ $ $ $ 44,000 22,600 54,000 120,600 275,000 101,500 173,500 294,100

$ $ $ $ $ $ $ $ $ $ $ $

26,000 41,500 39,500 24,000 131,000 72,000 19,500 91,500 54,000 29,100 83,100 305,600

$ $ $ $ $ $ $ $ $ $ $ $

29,500 47,000 33,000 25,000 134,500 78,000 17,000 95,000 45,000 19,600 64,600 294,100

Operating income for the period was $13,800, while cash dividends paid were $4,300. The overall total of the uses of cash for Maleenah Corporation for the year was: A) $13,500. B) $32,300. C) $45,800. D) $38,800. Answer: C LO: 13-2 Diff: 2 EOC Ref: E13-15 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

38

13.2-41

The following data relate to Wise Enterprises for last year: Operating income Net increase in all current assets except cash Net increase in current liabilities Cash dividends paid on common stock Loss on sale of investments Depreciation expense $ $ $ $ $ $ 108,000 12,000 38,000 15,000 4,000 6,000

What is the net cash provided by operating activities for last year on the statement of cash flows for Wise Enterprises? A) $121,000 B) $124,000 C) $144,000 D) $151,000 Answer: C LO: 13-2 Diff: 2 EOC Ref: E13-15 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting 13.2-42 The following data relate to Jackson Corporation for last year: Operating income Net increase in all current assets except cash Net decrease in current liabilities Cash dividends paid on common stock Gain on sale of investments Depreciation expense $ $ $ $ $ $ 225,000 43,000 25,000 32,000 10,000 12,000

What is the net cash provided by operating activities for last year on the statement of cash flows for Jackson Corporation? A) $127,000 B) $159,000 C) $155,000 D) $113,000 Answer: B LO: 13-2 Diff: 2 EOC Ref: E13-15 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

39

13.2-43

Rabin Corporation had the following selected balance sheet changes for the past year: Assets and contra-assets Cash Accounts receivable Inventory Prepaid expenses Accumulated depreciation Liabilities Accounts payable Wages payable Taxes payable Increase/(Decrease) $ 37,000 $ 12,000 $ 17,000 $ (5,000) $ 9,000 Increase/(Decrease) $ 18,000 $ (9,000) $ 11,000

The companys operating income for the year was $25,000. What is the net cash provided by operating activities for last year on the statement of cash flows for Rabin Corporation (using the indirect method)? A) $ 5,000 B) $20,000 C) $30,000 D) $67,000 Answer: C LO: 13-2 Diff: 2 EOC Ref: E13-15 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

40

13.3-1

When a company uses the direct method to present the statement of cash flows, depreciation expense must be added to net income to reconcile to net cash provided by operating activities. Answer: False LO: 13-3 Diff: 2 EOC Ref: S13-9 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.3-2

The direct method of presenting the financing activities section of the statement of cash flow reconciles net income to net cash provided by financing activities. Answer: False LO: 13-3 Diff: 2 EOC Ref: S13-9 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.3-3

When a company uses the direct method to present the statement of cash flows, cash received from the sale of a long-term asset increases the amount of net cash provided by investing activities. Answer: True LO: 13-3 Diff: 2 EOC Ref: S13-9 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.3-4

When a company uses the direct method to present the statement of cash flows, cash received from the sale of treasury stock increases the amount of net cash provided by investing activities. Answer: False LO: 13-3 Diff: 2 EOC Ref: S13-9 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.3-5

When a company uses the direct method to present the statement of cash flows, the payment of cash dividends reduces the amount of net cash provided by operating activities. Answer: False LO: 13-3 Diff: 2 EOC Ref: S13-9 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

41

13.3-6

Which of the following would appear on a statement of cash flows prepared using the direct method? A) A loss of the sale of equipment would appear on the statement. B) Cash payments for salaries would appear on the statement. C) Amortization expenses would appear on the statement. D) Depreciation expenses would appear on the statement. Answer: B LO: 13-3 Diff: 2 EOC Ref: E13-18 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.3-7

Which of the following would appear on a statement of cash flows prepared using the direct method? A) Interest received on a loan would appear on the statement. B) Collections from customers would appear on the statement. C) Cash payment of dividends would appear on the statement. D) All of the above would appear on the statement. Answer: D LO: 13-3 Diff: 2 EOC Ref: E13-18 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.3-8

A company's income statement reports depreciation expenses of $25,000. How will the depreciation expense be reported on the statement of cash flows if the company uses the direct method to prepare the statement? A) Depreciation would not be reported on the statement of cash flows. B) Depreciation expense would be an addition under financing activities. C) Depreciation expense would be a deduction under operating activities. D) Depreciation expense would be an addition under investing activities. Answer: A LO: 13-3 Diff: 1 EOC Ref: E13-18 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

42

13.3-9

A company uses the direct method to prepare the statement of cash flows. How will the amount of cash payments to employees be computed? A) Cash payments to employees will be equal to salary expense plus the beginning balance in salary payable. B) Cash payments to employees will be equal to salary expense plus the ending balance in salary payable. C) Cash payments to employees will be equal to salary expense plus the increase in salary payable. D) Cash payments to employees will be equal to salary expense plus the decrease in salary payable. Answer: D LO: 13-3 Diff: 1 EOC Ref: S13-9 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.3-10

The only part that differs in a statement of cash flows using the direct method rather than the indirect method is: A) the financing activities section. B) the investing activities section. C) the operating activities section. D) none of the above. Answer: C LO: 13-3 Diff: 1 EOC Ref: S13-9 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.3-11

Under the direct method of cash flow, which is NOT included in the cash flow statement? A) Changes in accounts receivable B) Changes in accounts payable C) Changes in depreciation D) Changes in interest expense Answer: C LO: 13-3 Diff: 1 EOC Ref: S13-9 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

43

13.3-12

Which would NOT be included in the operating activities section of a direct method statement of cash flow? A) Changes in accounts payable B) Changes in accounts receivable C) Changes in inventory D) Changes in depreciation Answer: D LO: 13-3 Diff: 1 EOC Ref: S13-9 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.3-13

Under the direct method of preparing the statement of cash flows, a decrease in merchandise inventory would be: A) subtracted from operating expenses. B) added to cost of goods sold. C) added to operating expenses. D) subtracted from cost of goods sold. Answer: D LO: 13-3 Diff: 2 EOC Ref: S13-9 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.3-14

A company uses the direct method to prepare the statement of cash flows. How will the amount of cash payments to suppliers be computed? A) The amount of cash payments to suppliers is computed as interest expense minus the decrease in accounts payable. B) The amount of cash payments to suppliers is computed as purchases minus the increase in accounts payable. C) The amount of cash payments to suppliers is computed as interest expense minus the decrease in merchandise inventory. D) The amount of cash payments to suppliers is computed as interest expense minus the increase in merchandise inventory. Answer: B LO: 13-3 Diff: 3 EOC Ref: S13-9 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

44

13.3-15

A company uses the direct method to prepare the statement of cash flows. How will the amount of cash paid for interest be computed? A) The amount of cash paid for interest is computed as interest expense minus the increase in interest payable. B) The amount of cash paid for interest is computed as interest expense minus the increase in interest revenue. C) The amount of cash paid for interest is computed as interest expense minus the decrease in interest payable. D) The amount of cash paid for interest is computed as interest expense plus the increase in interest payable. Answer: A LO: 13-3 Diff: 3 EOC Ref: S13-9 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.3-16

A company uses the direct method to prepare the statement of cash flows. How will the amount of cash purchases of inventory be computed? A) The amount of cash purchases of inventory is computed as cost of goods sold plus ending inventory. B) The amount of cash purchases of inventory is computed as cost of goods sold plus ending inventory plus beginning inventory. C) The amount of cash purchases of inventory is computed as cost of goods sold plus ending inventory minus beginning inventory. D) The amount of cash purchases of inventory is computed as beginning inventory minus ending inventory minus cost of goods sold. Answer: C LO: 13-3 Diff: 3 EOC Ref: S13-9 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

45

13.3-17

A company uses the direct method to prepare the statement of cash flows. How will the amount of cash payments to employees be computed? A) The amount of cash payments to employees is computed as salary expense plus the decrease in salaries payable. B) The amount of cash payments to employees is computed as salary expense plus the ending balance salaries payable. C) The amount of cash payments to employees is computed as salary expense plus the increase in salaries payable. D) The amount of cash payments to employees is computed as salary expense plus the beginning balance in salaries payable. Answer: A LO: 13-3 Diff: 3 EOC Ref: S13-9 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.3-18

A company uses the direct method to prepare the statement of cash flows. How will the amount of cash received from customers be computed? A) The amount of cash received from customers is computed as sales revenue plus the decrease (or minus the increase) in accounts receivable. B) The amount of cash received from customers is computed as cost of goods sold minus ending inventory plus beginning inventory. C) The amount of cash received from customers is computed as cost of goods sold plus ending inventory minus beginning inventory. D) The amount of cash received from customers is computed as sales revenue minus the decrease (or plus the increase) in accounts receivable. Answer: A LO: 13-3 Diff: 3 EOC Ref: S13-9 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.3-19

Which of the following would appear on a statement of cash flows prepared using the direct method? A) Amortization expense B) Loss on sale of equipment C) Net income D) Collections from customers Answer: D LO: 13-3 Diff: 2 EOC Ref: S13-9 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

46

13.3-20

A company uses the direct method to prepare the statement of cash flows. It presents the following amounts on its financial statements. Accounts receivable Cost of goods sold Sales revenue Accounts payable* Inventory Salary payable Salary expense End of this year $110,000 560,000 830,000 75,000 86,000 13,000 49,000 End of prior year $100,000 67,000 105,000 10,000 45,000

*Relates solely to the acquisition of inventory What will appear in the operating activities section related to accounts receivable? A) The increase of $10,000 will be subtracted from sales to determine cash received from customers. B) The increase of $10,000 will be subtracted from net income. C) The increase of $10,000 will be added to sales to determine cash received from customers. D) The increase of $10,000 will be added to net income. Answer: A LO: 13-3 Diff: 2 EOC Ref: S13-10 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

47

13.3-21

A company uses the direct method to prepare the statement of cash flows. It presents the following amounts on its financial statements. Accounts receivable Cost of goods sold Sales revenue Accounts payable* Inventory Salary payable Salary expense End of this year $110,000 560,000 830,000 75,000 86,000 13,000 49,000 End of prior year $100,000 67,000 105,000 10,000 45,000

*Relates solely to the acquisition of inventory What will appear in the operating activities section related to accounts payable? A) The increase of $8,000 will be subtracted from purchases to determine payments to suppliers. B) The increase of $8,000 will be added to net income. C) The increase of $8,000 will be added to purchases to determine payments to suppliers. D) The increase of $8,000 will be subtracted from net income Answer: A LO: 13-3 Diff: 2 EOC Ref: S13-10 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting 13.3-22 A company uses the direct method to prepare the statement of cash flows. It presents the following amounts on its financial statements. End of this year End of prior year Accounts receivable $110,000 $100,000 Cost of goods sold 560,000 Sales revenue 830,000 Accounts payable* 75,000 67,000 Inventory 86,000 105,000 Salary payable 13,000 10,000 Salary expense 49,000 45,000 *Relates solely to the acquisition of inventory What will appear in the operating activities section related to inventory? A) The decrease of $19,000 will be subtracted from net income. B) The decrease of $19,000 will be added to net income. C) The decrease of $19,000 will be added to cost of goods sold to determine payments to suppliers. D) The decrease of $19,000 will be subtracted from cost of goods sold to determine payments to suppliers. Answer: D LO: 13-3 Diff: 2 EOC Ref: S13-10 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall. 48

13.3-23

A company uses the direct method to prepare the statement of cash flows. It presents the following amounts on its financial statements. Accounts receivable Cost of goods sold Sales revenue Accounts payable* Inventory Salary payable Salary expense End of this year $110,000 560,000 830,000 75,000 86,000 13,000 49,000 End of prior year $100,000 67,000 105,000 10,000 45,000

*Relates solely to the acquisition of inventory What will appear in the operating activities section related to salary payable? A) The increase of $3,000 will be subtracted from net income. B) The increase of $3,000 will be subtracted from salary expense to determine payments to employees. C) The increase of $3,000 will be added to salary expense to determine payments to employees. D) The increase of $3,000 will be added to net income. Answer: B LO: 13-3 Diff: 2 EOC Ref: S13-10 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting 13.3-24 A company's inventory account increased $26,800 and its accounts payable account decreased $18,240 during the year. The accounts payable relates only to the acquisition of inventory. Sales were $789,500 and cost of goods sold was $532,700. What was the amount of payments to supplier of inventory? A) $541,260 B) $834,540 C) $577,740 D) $550,940 Answer: C LO: 13-3 Diff: 3 EOC Ref: S13-10 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

49

13.3-25

A company uses the indirect method to prepare the statement of cash flows. The board of directors declared dividends on common stock of $165,000 during the year. Dividends payable were $40,000 at the beginning of the year and $45,000 at the end of the year. A. What was the amount of cash paid for dividends during the year? B. Where will this amount appear on the statement of cash flows? C. How would the amount appear if the company uses the direct method to prepare the statement? Answer: A. $165,000 - 45,000 + 40,000 = $160,000 B. The amount will be presented as a cash payment in the financing activities section. C. The presentation will be the same since it does not affect the operating activities section. LO: 13-3 Diff: 2 EOC Ref: E13-13 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.3-26

The income statement and a partial balance sheet for Jefferson Company is presented below. Prepare the operating activities section of the statement of cash flows using the direct method. Jefferson Company Income Statement For the Current Year Sales Cost of goods sold Gross profit Operating expenses: Salaries Depreciation expense Miscellaneous Net income Jefferson Company Partial Balance Sheet End of this year End of this year End of prior year $65,000 50,000 86,000 4,000 51,000 6,000 $500,000 390,000 $110,000 $70,000 20,000 10,000 $10,000

100,000

Cash Accounts receivable (net) Inventories Prepaid expenses Accounts payable (merchandise) Salaries payable

$80,000 57,000 102,000 4,500 58,000 7,500

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

50

Answer: Jefferson Company Partial Statement of Cash Flows For the Current Year Cash flow from operating activities: Receipts: Collections from customers Payments: To merchandise suppliers To employees To other suppliers Net cash provided by operating activities

$493,000 $399,000 68,500 10,500 15,000

478,000

LO: 13-3 Diff: 2 EOC Ref: E13-13 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting 13.3-27 Use the direct method of cash flows to answer the question. Beginning A/R: $67,000 Ending A/R: $79,000 Credit Sales: $745,000 Cost of Good Sold: $412,000 Beginning Inventory: $42,000 Ending Inventory: $47,000 Beginning A/P: $29,000 Ending A/P: $36,000

Compute the change in accounts receivable for the year. Answer: Increase by $12,000 Calculations: 79,000 67,000 = 12,000 LO: 13-3 Diff: 2 EOC Ref: S13-13 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

51

13.3-28

Use the direct method of cash flows to answer the question. Beginning A/R: $67,000 Ending A/R: $79,000 Credit Sales: $745,000 Cost of Good Sold: $412,000 Beginning Inventory: $42,000 Ending Inventory: $47,000 Beginning A/P: $29,000 Ending A/P: $36,000

Compute the change in accounts payable for the year. Answer: Increase by $7,000 Calculations: 36,000 29,000 = 7,000 LO: 13-3 Diff: 2 EOC Ref: S13-13 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting 13.3-29 Use the direct method of cash flows to answer the question. Beginning A/R: $67,000 Ending A/R: $79,000 Credit Sales: $745,000 Cost of Good Sold: $412,000 Beginning Inventory: $42,000 Ending Inventory: $47,000 Beginning A/P: $29,000 Ending A/P: $36,000

Compute the cash received from receivables customers during the year. Answer: $733,000 Calculations: 745,000 12,000 = 733,000 LO: 13-3 Diff: 2 EOC Ref: S13-13 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

52

13.3-30

Use the direct method of cash flows to answer the question. Beginning A/R: $67,000 Beginning Inventory: $42,000 Ending A/R: $79,000 Ending Inventory: $47,000 Credit Sales: $745,000 Beginning A/P: $29,000 Cost of Good Sold: $412,000 Ending A/P: $36,000 Calculate the cost of merchandise purchased during the year. Answer: $417,000 Calculations: $412,000 + 5,000 = 417,000 LO: 13-3 Diff: 2 EOC Ref: S13-13 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

13.3-31

Use the direct method of cash flows to answer the question. Beginning A/R: $67,000 Ending A/R: $79,000 Credit Sales: $745,000 Cost of Good Sold: $412,000 Beginning Inventory: $42,000 Ending Inventory: $47,000 Beginning A/P: $29,000 Ending A/P: $36,000

Calculate the cash paid for merchandise for the year. Answer: $410,000 Calculations: 412,000 + 5,000 7,000 = 410,000 LO: 13-3 Diff: 2 EOC Ref: S13-13 AASCB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement, Reporting

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

53

You might also like