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Exam 11: Statement of Cash Flows

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Question 21

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The indirect method begins with net income,while the direct method considers each of the individual accounts that make up net income.

A) True
B) False

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Question 22

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Electronic Wonders reports net income of $95,000.The accounting records reveal Depreciation Expense of $50,000 as well as increases in Prepaid Rent,Accounts Payable,and Income Tax Payable of $40,000,$23,000,and $20,000,respectively.Prepare the operating activities section of Electronic Wonders' statement of cash flows using the indirect method.

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Question 23

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Data Solutions reports income tax expense of $1,700,000.Income taxes payable at the beginning and end of the year are $250,000 and $370,000,respectively.What is the amount of cash paid for income taxes?

Identify and briefly describe the three categories of cash flows reported in the statement of cash flows.

The purchase of treasury stock is classified in the statement of cash flows as a(n) :

Data Solutions reports cost of goods sold of $75 million.Inventory at the beginning and end of the year are $8 million and $9 million,respectively.Accounts payable at the beginning and end of the year are $5 million and $3 million,respectively.What is the amount of cash paid to suppliers?

Bad Brad's BBQ had cash flows for the year as follows ($ in millions) : CASH RECEIVED FROM: $\begin{array} { l r } \text { Customers } & \$ 1,800 \\ \text { Interest on investments } & 200 \\ \text { Sale of land } & 100 \\ \text { Sale of common stock } & 600 \\ \text { Issuance of debt securities } & 2,000 \\\text { CASH PAID FOR: }\\\text { Interest on debt } & \$ 300 \\\text { Income tax } & 80 \\\text { Debt principal reduction } & 1,500 \\\text { Purchase of equipment } & 4,000 \\\text { Purchase of inventory } & 1,000 \\\text { Dividends on common stock } & 200 \\\text { Operating expenses } & 500\end{array}$ -Bad Brad's would report net cash inflows (outflows) from operating activities in the amount of:

Financing activities include cash receipts and cash payments for transactions relating to revenue and expense activities.

All classifications on the Balance Sheet have a general relationship with sections identified on the Statement of Cash Flows.Indicate which relationships are correctly identified in the table below. $\begin{array} { | c | c | c | } \hline \# & \begin{array} { c } \text { Classification on the Balance } \\\text { Sheet }\end{array} & \begin{array} { c } \text { Section on Statement of Cash } \\\text { Flows }\end{array} \\\hline \text { I } & \text { Bonds Payable } & \text { Financing } \\\hline \text { II } & \text { Equipment } & \text { Operating } \\\hline \text { III } & \text { Common Stock } & \text { Financing } \\\hline \text { IV } & \text { Accounts Payable } & \text { Operating } \\\hline \text { V } & \text { Accounts Receivable } & \text { Operating } \\\hline\end{array}$

_________ is an investing cash flow and ________ is a financing cash flow,as reported on the Statement of Cash Flows.

Depreciation expense is not reported on the statement of cash flows under the direct method.

Micro Manufacturing reports net income of $850,000.Depreciation Expense is $60,000,Accounts Receivable increases $30,000 and Accounts Payable decreases $10,000.Calculate net cash flows from operating activities using the indirect method.

Fidelity Systems reports net income of $80 million.Included in that number is depreciation expense of $8 million,and a gain on the sale of equipment of $1 million.Records reveal increases in Accounts Receivable,Inventory,and Accounts Payable of $4 million,$3 million,and $2 million,respectively.Calculate Fidelity's net cash flows from operating activities.

Mary's Music Store reported net income of $135,000.Beginning balances in Accounts Receivable and Accounts Payable were $29,000 and $26,000,respectively.Ending balances in these accounts were $30,000 and $24,000,respectively.Assuming that all relevant information has been presented,Mary's cash flows from operating activities would be:

The balance sheet of Tech Track reports total assets of $400,000 and $500,000 at the beginning and end of the year,respectively.Sales revenues are $1.1 million ($0.8 million in the previous year) ,net income is $40,000,and net cash flows from operating activities are $50,000.How does Tech Track's cash return on assets compare to the industry average of 10%?

We report the payment of cash dividends as a cash outflow from investing activities.

If accounts receivable decreases,this indicates that revenues exceed cash receipts from customers.

The indirect and direct methods:

We report interest and dividends received from investments with investing activities.

Wireless Technologies reports operating expenses of $2 million.Operating expenses include rent expense.Prepaid rent at the beginning and end of the year are $20,000 and $70,000,respectively.All other operating expenses were paid in cash as incurred.What is the amount of cash paid for operating expenses?