Quiz 16: “How Well Am I Doing?” Statement of Cash Flows

Managerial Accounting

Business
123
Questions
16
True/False
96
Choices
11
Essay
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Quiz Materials

Use the following to answer questions 68-69:
Samarium Retail Corporation's most recent comparative Balance Sheet is as follows:
Ending Beginning
Assets
Cash ....................................................................... $ 51,000 $ 64,000
Accounts receivable, net ....................................... 83,000 41,000
Merchandise inventory .......................................... 96,000 87,000
Equipment ............................................................. 120,000 120,000
Accumulated depreciation ..................................... (65,000) (50,000)
Total assets ............................................................ $285,000 $262,000
Liabilities and Stockholders’ Equity
Accounts payable .................................................. $ 12,000 $ 38,000
Taxes payable ........................................................ 1,000 3,000
Notes payable ........................................................ 30,000 5,000
Common stock ...................................................... 100,000 80,000
Retained earnings .................................................. 142,000 136,000
Total liabilities and stockholders’ equity .............. $285,000 $262,000
Samarium's net income was $46,000. No direct exchange transactions occurred at Samarium
during the year. No equipment was sold or purchased. Cash dividends of $40,000 were
declared and paid. Samarium uses the indirect method to prepare its statement of cash flows.


Use the following to answer questions 70-71:
Chenay Service Corporation's most recent comparative Balance Sheet is as follows:
Ending Beginning
Assets
Cash ....................................................................... $ 59,000 $ 70,000
Accounts receivable, net ....................................... 108,000 82,000
Prepaid expenses ................................................... 10,000 4,000
Equipment ............................................................. 350,000 300,000
Accumulated depreciation ..................................... (50,000) (40,000)
Total assets ............................................................ $477,000 $416,000
Liabilities and Stockholders’ Equity
Accounts payable .................................................. $ 29,000 $ 16,000
Notes payable ........................................................ 78,000 90,000
Common stock ...................................................... 225,000 200,000
Retained earnings .................................................. 145,000 110,000
Total liabilities and stockholders’ equity .............. $477,000 $416,000
Chenay's net income was $35,000. No direct exchange transactions occurred at Chenay during
the year. No equipment was sold and no dividends were paid during the year. Chenay uses the
indirect method to prepare its statement of cash flows.


Use the following to answer questions 72-74:
Waste Company's comparative balance sheet and income statement for last year appear
below:
Statement of Financial Position
Ending Beginning
Balance Balance
Cash ........................................................... $ 60,000 $ 22,000
Accounts receivable .................................. 40,000 54,000
Inventory ................................................... 43,000 61,000
Prepaid expenses ....................................... 22,000 10,000
Long-term investments .............................. 260,000 200,000
Plant and equipment .................................. 480,000 480,000
Accumulated depreciation ......................... (257,000) (222,000)
Total assets ................................................ $648,000 $605,000
Accounts payable ...................................... $ 32,000 $ 50,000
Accrued liabilities ..................................... 51,000 25,000
Taxes payable ............................................ 34,000 24,000
Bonds payable ........................................... 120,000 160,000
Deferred taxes ........................................... 28,000 16,000
Common stock .......................................... 180,000 150,000
Retained earnings ...................................... 203,000 180,000
Total liabilities and owners’ equity ........... $648,000 $605,000

Income Statement
Sales .......................................................... $600,000
Less cost of goods sold ............................. 340,000
Gross margin ............................................. 260,000
Less operating expenses ............................ 160,000
Net operating income ................................ 100,000
Less income taxes ..................................... 30,000
Net income ................................................ $ 70,000
The company declared and paid $47,000 in cash dividends during the year. The following
questions pertain to the company's statement of cash flows.


Use the following to answer questions 75-77:
Megrey Company's net income last year was $82,000. Changes in the company's balance
sheet accounts for the year appear below:
Increases
(Decreases)
Debit balances:
Cash ........................................................ $3,000
Accounts receivable ............................... $5,000
Inventory ................................................ $1,000
Prepaid expenses .................................... $(8,000)
Long-term investments .......................... $80,000
Plant and equipment ............................... $25,000
Credit balances:
Accumulated depreciation ...................... $66,000
Accounts payable ................................... $(7,000)
Accrued liabilities .................................. $(2,000)
Taxes payable ......................................... $0
Bonds payable ........................................ $(40,000)
Deferred taxes ........................................ $15,000
Common stock ....................................... $20,000
Retained earnings ................................... $54,000
The company declared and paid cash dividends of $28,000 last year. The following questions
pertain to the company's statement of cash flows.


Use the following to answer questions 78-80:
Meguro Company's net income last year was $77,000. Changes in the company's balance
sheet accounts for the year appear below:
Increases
(Decreases)
Debit balances:
Cash ........................................................ $5,000
Accounts receivable ............................... $1,000
Inventory ................................................ $(4,000)
Prepaid expenses .................................... $(5,000)
Long-term investments .......................... $40,000
Plant and equipment ............................... $25,000
Credit balances:
Accumulated depreciation ...................... $70,000
Accounts payable ................................... $(5,000)
Accrued liabilities .................................. $6,000
Taxes payable ......................................... $14,000
Bonds payable ........................................ $(50,000)
Deferred taxes ........................................ $(6,000)
Common stock ....................................... $20,000
Retained earnings ................................... $13,000
The company declared and paid cash dividends of $64,000 last year. The following questions
pertain to the company's statement of cash flows.


Use the following to answer questions 81-82:
Spad Company recorded the following events last year:
Issuance of shares of the company’s own common stock ............... $350,000
Purchase of bonds issued by other companies ................................ $60,000
Dividends paid to the company’s own shareholders ....................... $36,000
Dividends received from investments in other companies’ shares . $16,000
Repayment of principal on the company’s own bonds ................... $260,000
Interest paid on the company’s own bonds ..................................... $3,000
Collection of the principal amount of a loan made to another
company....................................................................................... $220,000
Purchase of equipment .................................................................... $330,000
On the statement of cash flows, some of these events are classified as operating activities,
some are classified as investing activities, and some are classified as financing activities.


Use the following to answer questions 83-84:
On December 31, Year 1, Rex Corporation borrowed $100,000 from the Third National Bank
of Springfield. Rex has five years to pay off the note. On December 31, Year 2, Rex paid
$9,000 of interest on the loan and paid off $20,000 of the loan. Rex uses the direct method to
prepare its statement of cash flows.


Use the following to answer questions 85-86:
Narley Dude Corporation had net sales of $720,000 and cost of goods sold of $385,000 for
the just completed year. Shown below are the beginning and ending balances for the year of
various Narley Dude accounts:
Ending Beginning
Cash ................................... $34,000 $20,000
Accounts receivable .......... $49,000 $19,000
Inventory ........................... $67,000 $44,000
Accounts payable .............. $15,000 $21,000
Narley Dude prepares its statement of cash flows using the direct method.


Use the following to answer questions 87-91:
The change in each of Klondike Company's balance sheet accounts appears below:
Increase Decrease
Cash ............................................... 4,000
Accounts receivable ...................... 5,000
Inventory ....................................... 6,000
Prepaid expenses ........................... 3,000
Long-term investments .................. 17,000
Plant and equipment ...................... 11,000
Accumulated depreciation ............. 9,000
Accounts payable .......................... 8,000
Accrued liabilities ......................... 5,000
Bonds payable ............................... 12,000
Common stock .............................. 3,000
Retained earnings .......................... 3,000
Klondike Company’s income statement for the year appears below:
Sales ................................................ $350,000
Cost of goods sold ........................... 190,000
Gross margin ................................... 160,000
Operating expense ........................... 157,000
Net income ...................................... $ 3,000
There were no sales or retirements of plant and equipment and no dividends paid during the
year. The company pays no income taxes.
The company uses the direct method for determining the net cash provided by operating
activities on its statement of cash flows.


Use the following to answer questions 92-97:
The comparative balance sheets for Rayco, Inc., are presented below:
Ending Beginning
Cash ................................................................. $ 20,000 $ 15,000
Accounts receivable (net) ................................ 27,000 25,000
Inventory ......................................................... 32,000 35,000
Prepaid expenses ............................................. 8,000 5,000
Long-term investments .................................... 36,000 38,000
Plant and equipment ........................................ 108,000 92,000
Accumulated depreciation ............................... (49,000) (30,000)
Total assets ...................................................... $182,000 $180,000
Accounts payable ............................................ $ 30,000 $ 38,000
Notes payable .................................................. 40,000 32,000
Deferred income taxes ..................................... 17,000 35,000
Common stock ................................................ 45,000 40,000
Retained earnings ............................................ 50,000 35,000
Total liabilities and stockholders equity ......... $182,000 $180,000
Rayco, Inc., reported the following net income for the year:
Sales ................................................................ $200,000
Less cost of goods sold ................................... 100,000
Gross margin ................................................... 100,000
Less operating expenses .................................. 52,000
Net operating income ...................................... 48,000
Gain on sale of investments ............................ 2,000
Income before taxes ........................................ 50,000
Less income taxes ........................................... 20,000
Net income ...................................................... $ 30,000
There were no sales or retirements of plant and equipment during the year. Dividends paid to
shareholders totaled $15,000. The company uses the direct method for determining the net
cash provided by operating activities on its statement of cash flows.


Use the following to answer questions 98-99:
Last year, Knox Company reported on its income statement sales of $375,000 and cost of
goods sold of $140,000. During the year, the balance in accounts receivable increased
$30,000, the balance in accounts payable decreased $25,000, and the balance in inventory
increased $10,000. The company uses the direct method to determine the net cash provided by
operating activities on its statement of cash flows.


Use the following to answer questions 100-103:
Van Brun Company's comparative balance sheet and income statement for last year appear
below:
Statement of Financial Position
Ending Beginning
Balance Balance
Cash ........................................................... $ 56,000 $ 31,000
Accounts receivable .................................. 27,000 42,000
Inventory ................................................... 69,000 60,000
Prepaid expenses ....................................... 14,000 19,000
Long-term investments .............................. 260,000 180,000
Plant and equipment .................................. 410,000 410,000
Accumulated depreciation ......................... (270,000) (235,000)
Total assets ................................................ $566,000 $507,000
Accounts payable ...................................... $ 28,000 $ 46,000
Accrued liabilities ..................................... 31,000 17,000
Taxes payable ............................................ 17,000 20,000
Bonds payable ........................................... 140,000 190,000
Deferred taxes ........................................... 31,000 19,000
Common stock .......................................... 90,000 60,000
Retained earnings ...................................... 229,000 155,000
Total liabilities and owners’ equity ........... $566,000 $507,000
Income Statement
Sales .......................................................... $850,000
Less cost of goods sold ............................. 390,000
Gross margin ............................................. 460,000
Less operating expenses ............................ 280,000
Net operating income ................................ 180,000
Less income taxes ..................................... 54,000
Net income ................................................ $126,000
The company declared and paid $52,000 in cash dividends during the year. The company uses
the direct method to determine the net cash provided by operating activities.


Use the following to answer questions 104-107:
The changes in Templin Company's balance sheet account balances for last year appear
below:
Increases
(Decreases)
Debit balances:
Cash ............................................ $3,000
Accounts receivable ................... $13,000
Inventory .................................... $(9,000)
Prepaid expenses ........................ $(2,000)
Long-term investments .............. $40,000
Plant and equipment ................... $55,000
Credit balances:
Accumulated depreciation .......... $62,000
Accounts payable ....................... $5,000
Accrued liabilities ...................... $14,000
Taxes payable ............................. $8,000
Bonds payable ............................ $(50,000)
Deferred taxes ............................ $(6,000)
Common stock ........................... $20,000
Retained earnings ....................... $47,000
The company’s income statement for the year appears below:
Sales ................................................ $760,000
Less cost of goods sold ................... 370,000
Gross margin ................................... 390,000
Less operating expenses .................. 240,000
Net operating income ...................... 150,000
Less income taxes ........................... 45,000
Net income ...................................... $105,000
The company declared and paid $58,000 in cash dividends during the year. The company uses
the direct method to determine the net cash provided by operating activities.


Use the following to answer questions 108-111:
The changes in Tempski Company's balance sheet account balances for last year appear
below:
Increases
(Decreases)
Debit balances:
Cash ............................................ $(5,000)
Accounts receivable ................... $(7,000)
Inventory .................................... $14,000
Prepaid expenses ........................ $(8,000)
Long-term investments .............. $70,000
Plant and equipment ................... $35,000
Credit balances:
Accumulated depreciation .......... $64,000
Accounts payable ....................... $12,000
Accrued liabilities ...................... $(10,000)
Taxes payable ............................. $9,000
Bonds payable ............................ $(30,000)
Deferred taxes ............................ $(10,000)
Common stock ........................... $20,000
Retained earnings ....................... $44,000
The company’s income statement for the year appears below:
Sales ................................................ $870,000
Less cost of goods sold ................... 360,000
Gross margin ................................... 510,000
Less operating expenses .................. 350,000
Net operating income ...................... 160,000
Less income taxes ........................... 48,000
Net income ...................................... $112,000
The company declared and paid $68,000 in cash dividends during the year. The company uses
the direct method to determine the net cash provided by operating activities.


Questions

Q1
Free

An increase in a prepaid expense would be deducted from net income in computing
net cash provided by operating activities on the statement of cash flows under the
indirect method.

True/False
expand_more
A) True.
B) False.
Answer:
False
Q2
Free

A gain on the sale of equipment would be included as part of a company's investing
activities on the statement of cash flows.

True/False
expand_more
A) True.
B) False.
Answer:
False
Q3
Free

Payment of cash dividends to shareholders is considered to be an operating activity on
the statement of cash flows.

True/False
expand_more
A) True.
B) False.
Answer:
False
Q4

Payment of accrued taxes is considered an operating activity on the statement of cash
flows.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q5

The sale of preferred stock for cash would be classified as an investing activity in the
statement of cash flows.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q6

The collection of a long-term loan made to a supplier would be treated as an investing
activity on a statement of cash flows.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q7

Borrowing on a long-term note would be considered a financing activity and a source
of cash on the statement of cash flows.

True/False
expand_more
A) True.
B) False.
Answer:

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Q8

Under the direct method of determining the net cash provided by operating activities
on the statement of cash flows, an increase in inventory would be deducted from cost
of goods sold to convert cost of goods sold to a cash basis.

True/False
expand_more
A) True.
B) False.
Answer:

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Q9

Under the direct method of determining the net cash provided by operating activities
on the statement of cash flows, a decrease in prepaid expenses would be added to
operating expenses to convert operating expenses to a cash basis.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q10

Which of the following would be considered a "source" of cash for purposes of
constructing a statement of cash flows?

Multiple Choice
expand_more
A) a decrease in accounts payable.
B) dividends paid to the company's own shareholders.
C) an increase in accrued liabilities.
D) an increase in prepaid expenses.
Answer:

A) You need to subscribe to get the answer.

Q11

Which of the following would be considered a "source" of cash for purposes of
constructing a statement of cash flows?

Multiple Choice
expand_more
A) a decrease in accounts receivable.
B) an increase in prepaid expenses.
C) an increase in accrued liabilities.
D) an increase in plant and equipment.
Answer:

A) You need to subscribe to get the answer.

Q12

Martin Corporation uses the indirect method to prepare its statement of cash flows. If
Martin purchases additional equipment, which results in additional depreciation
charges, what net effect will the purchase of this additional equipment have on the net
cash provided (used) in the following sections of Martin's statement of cash flows?
Operating Financing
Activities Activities

Multiple Choice
expand_more
A) increase decrease
B) increase no effect
C) decrease no effect
D) no effect decrease
E) no effect no effect
Answer:

A) You need to subscribe to get the answer.

Q13

Under the indirect method of determining net cash provided by operating activities on
the statement of cash flows, which of the following would be recorded as a deduction
from net income?

Multiple Choice
expand_more
A) A decrease in accounts receivable?
B) An increase in accounts payable.
C) A decrease in accounts payable.
D) An increase in deferred revenue.
Answer:

A) You need to subscribe to get the answer.

Q14

An increase in accounts receivable of $1,000 over the course of a year would be
shown on the company's statement of cash flows prepared under the indirect method
as:

Multiple Choice
expand_more
A) an addition to net income of $1,000 in order to arrive at net cash provided by operating activities.
B) a deduction from net income of $1,000 in order to arrive at net cash provided by operating activities.
C) an addition of $1,000 under financing activities.
D) a deduction of $1,000 under financing activities.
Answer:

A) You need to subscribe to get the answer.

Q15

A decrease in the taxes payable account of $1,000 over the course of a year would be
shown on the company's statement of cash flows prepared under the indirect method
as:

Multiple Choice
expand_more
A) an addition to net income of $1,000 in order to arrive at net cash provided by operating activities.
B) a deduction from net income of $1,000 in order to arrive at net cash provided by operating activities.
C) an addition of $1,000 under financing activities.
D) a deduction of $1,000 under financing activities.
Answer:

A) You need to subscribe to get the answer.

Q16

Shoshoni Corporation prepares its statement of cash flows using the indirect method.
Which of the following would be added to net income in the operating activities
section of the statement?
Increase in Decrease in
Accounts Accounts
Receivable Payable

Multiple Choice
expand_more
A) Yes Yes
B) Yes No
C) No Yes
D) No No
Answer:

A) You need to subscribe to get the answer.

Q17

Fawn Corporation prepares its statement of cash flows using the indirect method.
Which of the following would be added to net income in the operating activities
section of the statement?
Increase in Increase in
Merchandise Deferred
Inventory Income Taxes

Multiple Choice
expand_more
A) Yes Yes
B) Yes No
C) No Yes
D) No No
Answer:

A) You need to subscribe to get the answer.

Q18

Adah Corporation prepares its statement of cash flows using the indirect method.
Which of the following would be deducted from net income in the operating activities
section of the statement?
Decrease in Decrease in
Accounts Merchandise
Receivable Inventory

Multiple Choice
expand_more
A) Yes Yes
B) Yes No
C) No Yes
D) No No
Answer:

A) You need to subscribe to get the answer.

Q19

Tomlin Corporation prepares its statement of cash flows using the indirect method.
Which of the following would be deducted from net income in the operating activities
section of the statement?
Increase in Decrease in
Interest Interest
Receivable Payable

Multiple Choice
expand_more
A) Yes Yes
B) Yes No
C) No Yes
D) No No
Answer:

A) You need to subscribe to get the answer.

Q20

During the year the balance in the accounts receivable account increased by $6,000. In
order to adjust the company's net income to a cash basis using the direct method on the
statement of cash flows, it would be necessary to:

Multiple Choice
expand_more
A) deduct the $6,000 from the sales revenue reported on the income statement.
B) add the $6,000 to the sales revenue reported on the income statement.
C) deduct the $6,000 from the cost of goods sold reported on the income statement.
D) add the $6,000 to the cost of goods sold reported on the income statement.
Answer:

A) You need to subscribe to get the answer.

Q21

Wesi Corporation prepares its statement of cash flows using the direct method. Which
of the following should Wesi classify as an operating activity on its statement?
Dividends Taxes
Paid Paid

Multiple Choice
expand_more
A) Yes Yes
B) No Yes
C) Yes No
D) No No
Answer:

A) You need to subscribe to get the answer.

Q22

In a statement of cash flows, a change in accounts receivables would be classified as:

Multiple Choice
expand_more
A) an operating activity.
B) a financing activity.
C) an investing activity.
D) a noncash item that need not appear on the statement of cash flows.
Answer:

A) You need to subscribe to get the answer.

Q23

In a statement of cash flows, a change in the taxes payable account would be classified
as:

Multiple Choice
expand_more
A) an operating activity.
B) a financing activity.
C) an investing activity.
D) a noncash item that need not appear on the statement of cash flows.
Answer:

A) You need to subscribe to get the answer.

Q24

In a statement of cash flows, a change in the plant and equipment account would
ordinarily be classified as:

Multiple Choice
expand_more
A) an operating activity.
B) a financing activity.
C) an investing activity.
D) a noncash item that need not appear on the statement of cash flows.
Answer:

A) You need to subscribe to get the answer.

Q25

In a statement of cash flows, a change in the bonds payable account would ordinarily
be classified as:

Multiple Choice
expand_more
A) an operating activity.
B) a financing activity.
C) an investing activity.
D) a noncash item that need not appear on the statement of cash flows.
Answer:

A) You need to subscribe to get the answer.

Q26

In a statement of cash flows, a change in the common stock account would ordinarily
be classified as:

Multiple Choice
expand_more
A) an operating activity.
B) a financing activity.
C) an investing activity.
D) a noncash item that need not appear on the statement of cash flows.
Answer:

A) You need to subscribe to get the answer.

Q27

Which of the following should be classified as a financing activity on a statement of
cash flows?

Multiple Choice
expand_more
A) cash received from the sale of merchandise.
B) cash received from the sale of equipment.
C) cash received from the issuance of bonds payable.
D) both A and B above
E) none of the above
Answer:

A) You need to subscribe to get the answer.

Q28

Hauta Corporation prepares its statement of cash flows using the indirect method.
Which of the following would be deducted from net income in the operating activities
section of the statement?
Amortization Gain on Sale
Expense of Building

Multiple Choice
expand_more
A) Yes Yes
B) Yes No
C) No Yes
D) No No
Answer:

A) You need to subscribe to get the answer.

Q29

Which of the following is not considered to be a cash equivalent for purposes of
preparing the statement of cash flows?

Multiple Choice
expand_more
A) Accounts receivable.
B) Treasury bills.
C) Money market funds.
D) Commercial paper.
Answer:

A) You need to subscribe to get the answer.

Q30

Frizz Hair Salon had net income of $93,000 for the year just ended. Frizz collected the
following additional information to prepare its statement of cash flows for the year:
Increase in accounts receivable ....................... $10,000
Decrease in accounts payable .......................... $2,000
Increase in retained earnings ........................... $31,000
Cash received from sale of equipment ............ $18,000
Loss on sale of equipment ............................... $5,000
Depreciation expense ...................................... $16,000
Frizz uses the indirect method to prepare its statement of cash flows. What is Frizz's
net cash provided (used) by operating activities?

Multiple Choice
expand_more
A) $92,000
B) $102,000
C) $120,000
D) $126,000
Answer:

A) You need to subscribe to get the answer.

Q31

Majorn Auto Parts Store had net income of $81,000 for the year just ended. Majorn
collected the following additional information to prepare its statement of cash flows
for the year:
Increase in accounts receivable ................. $102,000
Decrease in merchandise inventory ........... $18,000
Decrease in accounts payable .................... $35,000
Increase in retained earnings ..................... $29,000
Cash received from sale of building .......... $215,000
Gain on sale of building ............................ $47,000
Depreciation expense ................................ $32,000
Majorn uses the indirect method to prepare its statement of cash flows. What is
Majorn's net cash provided (used) by operating activities?

Multiple Choice
expand_more
A) $41,000
B) $(53,000)
C) $185,000
D) $279,000
Answer:

A) You need to subscribe to get the answer.

Q32

On January 1, Joyuda Corporation sold a building for $350,000. The building was
purchased eight years ago for $400,000. The accumulated depreciation on the building
on the date of sale was $128,000. Joyuda uses the indirect method to prepare its
statement of cash flows. What net effect will this sale have on the net cash provided
(used) in the operating activities section of Joyuda's statement of cash flows?

Multiple Choice
expand_more
A) no effect
B) $78,000 increase
C) $78,000 decrease
D) $50,000 decrease
Answer:

A) You need to subscribe to get the answer.

Q33

The following information relates to Jelsa Corporation for last year:
Net income ...................................................................... $64,000
Net decrease in all current assets except cash ................. $7,000
Net increase in current liabilities ..................................... $16,000
Dividends paid on common stock ................................... $10,000
Depreciation expense ...................................................... $8,000
Loss on sale of machinery ............................................... $5,000
What is Jelsa's net cash provided (used) by operating activities for last year on the
statement of cash flows? (Assume that current liabilities do not contain any notes
payable.)

Multiple Choice
expand_more
A) $54,000
B) $58,000
C) $68,000
D) $100,000
Answer:

A) You need to subscribe to get the answer.

Q34

The following information relates to Siem, Inc. for last year:
Net income ...................................................................... $5,000
Net increase in all current assets except cash .................. $43,000
Net decrease in current liabilities .................................... $27,000
Dividends paid on common stock ................................... $25,000
Depreciation expense ...................................................... $30,000
Gain on sale of building .................................................. $11,000
What is Siem's net cash provided (used) by operating activities for last year on the
statement of cash flows? (Assume that current liabilities do not contain any notes
payable.)

Multiple Choice
expand_more
A) $8,000
B) $(17,000)
C) $(46,000)
D) $(71,000)
Answer:

A) You need to subscribe to get the answer.

Q35

Klutz Dance Studio had net income of $167,000 for the year just ended. Klutz
collected the following additional information to prepare its statement of cash flows
for the year:
Decrease in accounts receivable ....................................... $24,000
Increase in accounts payable ............................................ $11,000
Increase in retained earnings ............................................ $92,000
Cash paid for purchase of new music equipment ............. $20,000
Depreciation expense ....................................................... $5,000
Klutz uses the indirect method to prepare its statement of cash flows. What is Klutz's
net cash provided (used) by operating activities?

Multiple Choice
expand_more
A) $95,000
B) $137,000
C) $185,000
D) $207,000
Answer:

A) You need to subscribe to get the answer.

Q36

Morgan Company's net income last year was $73,000 and cash dividends declared and
paid to the company's stockholders totaled $14,000. Changes in selected balance sheet
accounts for the year appear below:
Increases
(Decreases)
Debit balances:
Accounts receivable ............................... $10,000
Prepaid expenses .................................... $(3,000)
Credit balances:
Accumulated depreciation ...................... $16,000
Accounts payable ................................... $(4,000)
Bonds payable ........................................ $80,000
Based solely on this information, the net cash provided by operations under the
indirect method on the statement of cash flows would be:

Multiple Choice
expand_more
A) $89,000
B) $78,000
C) $68,000
D) $154,000
Answer:

A) You need to subscribe to get the answer.

Q37

Mori Company's net income last year was $25,000 and cash dividends declared and
paid to the company's stockholders totaled $10,000. Changes in selected balance sheet
accounts for the year appear below:
Increases
(Decreases)
Debit balances:
Accounts receivable ............................... $(6,000)
Inventory ................................................ $2,000
Prepaid expenses .................................... $(1,000)
Long term investments ........................... $20,000
Credit balances:
Accumulated depreciation ...................... $12,000
Accounts payable ................................... $9,000
Taxes payable ......................................... $(5,000)
Based solely on this information, the net cash provided by operations under the
indirect method on the statement of cash flows would be:

Multiple Choice
expand_more
A) $46,000
B) $4,000
C) $36,000
D) $37,000
Answer:

A) You need to subscribe to get the answer.

Q38

Moretta Company's net income last year was $32,000 and cash dividends declared and
paid to the company's stockholders totaled $14,000. Changes in selected balance sheet
accounts for the year appear below:
Increases
(Decreases)
Debit balances:
Accounts receivable ................................ $7,000
Inventory ................................................. $(4,000)
Prepaid expenses ..................................... $(1,000)
Long term investments ........................... $8,000
Credit balances:
Accumulated depreciation ...................... $17,000
Accounts payable .................................... $(6,000)
Taxes payable ......................................... $7,000
Based solely on this information, the net cash provided by operations under the
indirect method on the statement of cash flows would be:

Multiple Choice
expand_more
A) $24,000
B) $36,000
C) $16,000
D) $48,000
Answer:

A) You need to subscribe to get the answer.

Q39

Nornang Company's net income last year was $47,000. Changes in selected balance
sheet accounts for the year appear below:
Increases
(Decreases)
Debit balances:
Accounts receivable ............................... $(13,000)
Inventory ................................................ $15,000
Prepaid expenses .................................... $4,000
Credit balances:
Accumulated depreciation ...................... $32,000
Accounts payable ................................... $(13,000)
Accrued liabilities .................................. $8,000
Taxes payable ......................................... $9,000
Deferred taxes ........................................ $0
Based solely on this information, the net cash provided by operations under the
indirect method on the statement of cash flows would be:

Multiple Choice
expand_more
A) $77,000
B) $89,000
C) $79,000
D) $17,000
Answer:

A) You need to subscribe to get the answer.

Q40

Norman Company's net income last year was $26,000. Changes in selected balance
sheet accounts for the year appear below:
Increases
(Decreases)
Debit balances:
Accounts receivable ................................. $8,000
Inventory .................................................. $12,000
Prepaid expenses ...................................... $(6,000)
Credit balances:
Accumulated depreciation ........................ $24,000
Accounts payable ..................................... $(15,000)
Accrued liabilities .................................... $9,000
Taxes payable ........................................... $0
Deferred taxes .......................................... $5,000
Based solely on this information, the net cash provided by operations under the
indirect method on the statement of cash flows would be:

Multiple Choice
expand_more
A) $50,000
B) $35,000
C) $17,000
D) $63,000
Answer:

A) You need to subscribe to get the answer.

Q41

Four years ago, Sulu Corporation purchased a $75,000 long-term investment in bonds
of another corporation. During the current year, this investment was sold for $80,000.
Sulu uses the indirect method to prepare its statement of cash flows. What effect will
the above transaction have on the investing activities section of Sulu's statement of
cash flows for the current year?

Multiple Choice
expand_more
A) $80,000 increase
B) $5,000 decrease
C) $5,000 increase
D) $75,000 increase
Answer:

A) You need to subscribe to get the answer.

Q42

Severn Corporation prepares its statement of cash flows using the direct method. Last
year, Severn reported Income Tax Expense of $27,000. At the beginning of last year,
Severn had a $2,000 balance in the Taxes Payable account. At the end of last year,
Severn had a $5,000 balance in the account. On its statement of cash flows for last
year, what amount should Severn have shown for its Income Tax Expense adjusted to
a cash basis (i.e., income taxes paid)?

Multiple Choice
expand_more
A) $20,000
B) $22,000
C) $24,000
D) $30,000
Answer:

A) You need to subscribe to get the answer.

Q43

Honalo Corporation had net sales of $515,000 for the just completed year. Shown
below are the beginning and ending balances of various Honalo accounts:
Ending Beginning
Cash ............................................... $102,000 $136,000
Accounts receivable ...................... $254,000 $218,000
Inventory ....................................... $461,000 $527,000
Accounts payable .......................... $77,000 $96,000
Retained earnings .......................... $367,000 $298,000
Honalo prepares its statement of cash flows using the direct method. On its statement
of cash flows, what amount should Honalo show for its net sales adjusted to a cash
basis (i.e., cash received from sales)?

Multiple Choice
expand_more
A) $479,000
B) $526,000
C) $545,000
D) $551,000
Answer:

A) You need to subscribe to get the answer.

Q44

Khmer, Inc. had cost of goods sold of $114,000 for the just completed year. Shown
below are the beginning and ending balances of various Khmer accounts:
Ending Beginning
Cash ................................................. $60,000 $47,000
Accounts receivable ........................ $86,000 $96,000
Inventory ......................................... $47,000 $54,000
Accounts payable ............................ $29,000 $13,000
Retained earnings ............................ $82,000 $5,000
Khmer prepares its statement of cash flows using the direct method. On its statement
of cash flows, what amount should Khmer show for its cost of goods sold adjusted to a
cash basis (i.e., cash paid to suppliers)?

Multiple Choice
expand_more
A) $91,000
B) $123,000
C) $137,000
D) $147,000
Answer:

A) You need to subscribe to get the answer.

Q45

Last year Cumpton Company reported a cost of goods sold of $40,000. Inventories
decreased by $8,000 during the year, and accounts payable increased by $11,000. The
company uses the direct method to determine the net cash provided by operating
activities on the statement of cash flows. The cost of goods sold adjusted to a cash
basis would be:

Multiple Choice
expand_more
A) $21,000
B) $59,000
C) $32,000
D) $29,000
Answer:

A) You need to subscribe to get the answer.

Q46

Last year Cumba Company reported a cost of goods sold of $30,000. Inventories
decreased by $7,000 during the year, and accounts payable decreased by $13,000. The
company uses the direct method to determine the net cash provided by operating
activities on the statement of cash flows. The cost of goods sold adjusted to a cash
basis would be:

Multiple Choice
expand_more
A) $23,000
B) $24,000
C) $36,000
D) $43,000
Answer:

A) You need to subscribe to get the answer.

Q47

Last year Lawrence Company reported sales of $100,000 on its income statement.
During the year, accounts receivable decreased by $15,000 and accounts payable
decreased by $20,000. The company uses the direct method to determine the net cash
provided by operating activities on the statement of cash flows. The sales revenue
adjusted to a cash basis for the year would be:

Multiple Choice
expand_more
A) $95,000
B) $115,000
C) $105,000
D) $120,000
Answer:

A) You need to subscribe to get the answer.

Q48

Last year Lawson Company reported sales of $140,000 on its income statement.
During the year, accounts receivable decreased by $20,000 and accounts payable
increased by $15,000. The company uses the direct method to determine the net cash
provided by operating activities on the statement of cash flows. The sales revenue
adjusted to a cash basis for the year would be:

Multiple Choice
expand_more
A) $175,000
B) $105,000
C) $125,000
D) $160,000
Answer:

A) You need to subscribe to get the answer.

Q49

Cridland Company's operating expenses for last year totaled $220,000. During the
year the company's prepaid expense account balance decreased by $2,000 and accrued
liabilities decreased by $6,000. Depreciation charges for the year were $15,000. Based
on this information, operating expenses adjusted to a cash basis under the direct
method on the statement of cash flows would be:

Multiple Choice
expand_more
A) $231,000
B) $239,000
C) $209,000
D) $201,000
Answer:

A) You need to subscribe to get the answer.

Q50

Criddle Company's operating expenses for last year totaled $260,000. During the year
the company's prepaid expense account balance increased by $24,000 and accrued
liabilities increased by $15,000. Depreciation charges for the year were $33,000.
Based on this information, operating expenses adjusted to a cash basis under the direct
method on the statement of cash flows would be:

Multiple Choice
expand_more
A) $302,000
B) $236,000
C) $218,000
D) $284,000
Answer:

A) You need to subscribe to get the answer.

Q51

Crider Company's operating expenses for last year totaled $240,000. During the year
the company's prepaid expense account balance decreased by $15,000 and accrued
liabilities increased by $13,000. Depreciation charges for the year were $23,000.
Based on this information, operating expenses adjusted to a cash basis under the direct
method on the statement of cash flows would be:

Multiple Choice
expand_more
A) $245,000
B) $291,000
C) $235,000
D) $189,000
Answer:

A) You need to subscribe to get the answer.

Q52

The Simplex Company reported cost of goods sold on its income statement of
$10,000. The following account balances appeared on the company's comparative
balance sheet for the same year:
Ending Beginning
Inventory ....................................... $22,000 $20,000
Accounts Payable .......................... $14,000 $11,000
The company uses the indirect method to determine the net cash provided by operating
activities. The cost of goods sold, adjusted to a cash basis, on the company's statement
of cash flows for the year would be:

Multiple Choice
expand_more
A) $11,000
B) $10,000
C) $9,000
D) $5,000
Answer:

A) You need to subscribe to get the answer.

Q53

Crossland Company reported sales on its income statement of $435,000. On the
statement of cash flows, which used the direct method, sales adjusted to a cash basis
were $455,000. Crossland Company reported the following account balances on its
balance sheet for the year:
Account Ending Beginning
Accounts receivable ...................... $30,000 ?
Prepaid expenses ........................... $14,000 $11,000
Inventory ....................................... $18,000 $20,000
Based on this information, the beginning balance in accounts receivable was:

Multiple Choice
expand_more
A) $50,000
B) $40,000
C) $30,000
D) $20,000
Answer:

A) You need to subscribe to get the answer.

Q54

Duke Company reported cost of goods sold last year of $270,000 on its income
statement. Additional information concerning the company's closing and opening
account balances last year follows:
December 31 January 1
Inventory ........................... $60,000 $45,000
Accounts payable .............. $26,000 $39,000
Duke Company uses the direct method to determine the net cash provided by
operating activities on its statement of cash flows. What amount should Duke report as
cash paid to suppliers in its statement of cash flows for last year?

Multiple Choice
expand_more
A) $242,000
B) $268,000
C) $272,000
D) $298,000
Answer:

A) You need to subscribe to get the answer.

Q55

Last year Marks Company sold equipment with a net book value of $135,000 for
$110,000 in cash. This equipment was originally purchased for $215,000. What will
be the net effect of this transaction on the net cash provided by investing activities on
the statement of cash flows?

Multiple Choice
expand_more
A) A net addition of $105,000 to cash.
B) A net deduction of $105,000 from cash.
C) A net addition of $25,000 to cash.
D) A net deduction of $25,000 from cash.
Answer:

A) You need to subscribe to get the answer.

Q56

Last year Marymoor Company sold equipment with a net book value of $95,000 for
$70,000 in cash. This equipment was originally purchased for $130,000. What will be
the net effect of this transaction on the net cash provided by investing activities on the
statement of cash flows?

Multiple Choice
expand_more
A) A net addition of $25,000 to cash.
B) A net deduction of $25,000 from cash.
C) A net addition of $60,000 to cash.
D) A net deduction of $60,000 from cash.
Answer:

A) You need to subscribe to get the answer.

Q57

The following transactions occurred last year at Joyce Company:
Issuance of shares of the company’s own common stock ................... $80,000
Dividends paid to the company’s own shareholders ........................... $3,000
Dividends received from investments in other companies’ shares ..... $5,000
Interest paid on the company’s own bonds ......................................... $6,000
Repayment of principal on the company’s own bonds ....................... $50,000
Proceeds from sale of the company’s used equipment ........................ $22,000
Purchase of land .................................................................................. $140,000
Based solely on the above information, the net cash provided by financing activities
for the year on the statement of cash flows would be:

Multiple Choice
expand_more
A) $306,000
B) $21,000
C) $(92,000)
D) $27,000
Answer:

A) You need to subscribe to get the answer.

Q58

The following transactions occurred last year at Jost Company:
Issuance of shares of the company’s own common stock ................ $170,000
Dividends paid to the company’s own shareholders ........................ $7,000
Dividends received from investments in other companies’ shares .. $4,000
Interest paid on the company’s own bonds ...................................... $11,000
Repayment of principal on the company’s own bonds .................... $40,000
Proceeds from sale of the company’s used equipment ..................... $23,000
Purchase of land ............................................................................... $120,000
Based solely on the above information, the net cash provided by financing activities
for the year on the statement of cash flows would be:

Multiple Choice
expand_more
A) $112,000
B) $123,000
C) $375,000
D) $19,000
Answer:

A) You need to subscribe to get the answer.

Q59

Martin Company's cash and cash equivalents consist of cash and marketable securities.
Last year the company's cash account increased by $42,000 and its marketable
securities account decreased by $61,000. Cash provided by operating activities was
$140,000. Net cash used for financing activities was $102,000. Based on this
information, the net cash flow from investing activities on the statement of cash flows
was:

Multiple Choice
expand_more
A) a net $103,000 increase.
B) a net $103,000 decrease.
C) a net $38,000 decrease.
D) a net $57,000 decrease.
Answer:

A) You need to subscribe to get the answer.

Q60

Last year Burke Company's cash account decreased by $17,000. Net cash used in
investing activities was $19,000. Net cash provided by financing activities was
$25,000. The net cash flow provided by (used in) operating activities on the statement
of cash flows was:

Multiple Choice
expand_more
A) $(11,000)
B) $(17,000)
C) $(23,000)
D) $6,000
Answer:

A) You need to subscribe to get the answer.

Q61

Last year Burach Company's cash account increased by $20,000. Net cash used in
investing activities was $34,000. Net cash provided by financing activities was
$12,000. On the statement of cash flows, the net cash flow provided by (used in)
operating activities was:

Multiple Choice
expand_more
A) $20,000
B) $42,000
C) $(2,000)
D) $(22,000)
Answer:

A) You need to subscribe to get the answer.

Q62

What is Samarium's net cash provided (used) by operating activities?

Multiple Choice
expand_more
A) $(18,000)
B) $(33,000)
C) $69,000
D) $84,000
Answer:

A) You need to subscribe to get the answer.

Q63

What is Samarium's net cash provided (used) by investing activities?

Multiple Choice
expand_more
A) $0
B) $(15,000)
C) $25,000
D) $45,000
Answer:

A) You need to subscribe to get the answer.

Q64

What is Chenay's net cash provided (used) by operating activities?

Multiple Choice
expand_more
A) $16,000
B) $26,000
C) $80,000
D) $90,000
Answer:

A) You need to subscribe to get the answer.

Q65

What is Chenay's net cash provided (used) by financing activities?

Multiple Choice
expand_more
A) $13,000
B) $25,000
C) $(37,000)
D) $(62,000)
Answer:

A) You need to subscribe to get the answer.

Q66

The net cash provided by (used in) operating activities last year was:

Multiple Choice
expand_more
A) $(15,000)
B) $105,000
C) $70,000
D) $155,000
Answer:

A) You need to subscribe to get the answer.

Q67

The net cash provided by (used in) investing activities last year was:

Multiple Choice
expand_more
A) $(60,000)
B) $60,000
C) $(30,000)
D) $30,000
Answer:

A) You need to subscribe to get the answer.

Q68

The net cash provided by (used in) financing activities last year was:

Multiple Choice
expand_more
A) $57,000
B) $(57,000)
C) $10,000
D) $(10,000)
Answer:

A) You need to subscribe to get the answer.

Q69

The net cash provided by (used in) operating activities last year was:

Multiple Choice
expand_more
A) $90,000
B) $156,000
C) $82,000
D) $148,000
Answer:

A) You need to subscribe to get the answer.

Q70

The net cash provided by (used in) investing activities last year was:

Multiple Choice
expand_more
A) $85,000
B) $(85,000)
C) $105,000
D) $(105,000)
Answer:

A) You need to subscribe to get the answer.

Q71

The net cash provided by (used in) financing activities last year was:

Multiple Choice
expand_more
A) $48,000)
B) $(48,000)
C) $20,000
D) $(20,000)
Answer:

A) You need to subscribe to get the answer.

Q72

The net cash provided by (used in) operating activities last year was:

Multiple Choice
expand_more
A) $164,000
B) $77,000
C) $147,000
D) $94,000
Answer:

A) You need to subscribe to get the answer.

Q73

The net cash provided by (used in) investing activities last year was:

Multiple Choice
expand_more
A) $65,000
B) $(65,000)
C) $45,000
D) $(45,000)
Answer:

A) You need to subscribe to get the answer.

Q74

The net cash provided by (used in) financing activities last year was:

Multiple Choice
expand_more
A) $(94,000)
B) $94,000
C) $(30,000)
D) $30,000
Answer:

A) You need to subscribe to get the answer.

Q75

Based solely on the information above, the net cash provided by (used in) financing
activities on the statement of cash flows would be:

Multiple Choice
expand_more
A) $54,000
B) $1,275,000
C) $51,000
D) $299,000
Answer:

A) You need to subscribe to get the answer.

Q76

Based solely on the information above, the net cash provided by (used in) investing
activities on the statement of cash flows would be:

Multiple Choice
expand_more
A) $(1,275,000)
B) $(390,000)
C) $(170,000)
D) $(650,000)
Answer:

A) You need to subscribe to get the answer.

Q77

What effect will Rex's loan have on each section of its Year 1 statement of cash flows?
Operating Activities Investing Activities Financing Activities

Multiple Choice
expand_more
A) no effect $100,000 decrease $100,000 increase
B) $100,000 increase no effect no effect
C) no effect $100,000 increase no effect
D) no effect no effect $100,000 increase
Answer:

A) You need to subscribe to get the answer.

Q78

What effect will Rex's interest and loan payments have on each section of its Year 2
statement of cash flows?
Operating Activities Investing Activities Financing Activities

Multiple Choice
expand_more
A) $9,000 decrease $20,000 decrease no effect
B) $9,000 decrease no effect $20,000 decrease
C) $29,000 decrease no effect no effect
D) no effect $9,000 decrease $20,000 decrease
Answer:

A) You need to subscribe to get the answer.

Q79

On its statement of cash flows, what amount should Narley Dude show for its net sales
adjusted to a cash basis (i.e., cash received from sales)?

Multiple Choice
expand_more
A) $690,000
B) $704,000
C) $750,000
D) $755,000
Answer:

A) You need to subscribe to get the answer.

Q80

On its statement of cash flows, what amount should Narley Dude show for its cost of
goods sold adjusted to a cash basis (i.e., cash paid to suppliers)?

Multiple Choice
expand_more
A) $356,000
B) $368,000
C) $402,000
D) $414,000
Answer:

A) You need to subscribe to get the answer.

Q81

Using the direct method, sales adjusted to a cash basis was:

Multiple Choice
expand_more
A) $345,000
B) $350,000
C) $355,000
D) $359,000
Answer:

A) You need to subscribe to get the answer.

Q82

Using the direct method, cost of goods sold adjusted to a cash basis was:

Multiple Choice
expand_more
A) $190,000
B) $192,000
C) $188,000
D) $184,000
Answer:

A) You need to subscribe to get the answer.

Q83

Using the direct method, operating expense adjusted to a cash basis was:

Multiple Choice
expand_more
A) $168,000
B) $155,000
C) $146,000
D) $148,000
Answer:

A) You need to subscribe to get the answer.

Q84

The net cash provided (used) by investing activities was:

Multiple Choice
expand_more
A) $(6,000)
B) $11,000
C) $(11,000)
D) $6,000
Answer:

A) You need to subscribe to get the answer.

Q85

The net cash provided (used) by financing activities was:

Multiple Choice
expand_more
A) $(9,000)
B) $(12,000)
C) $20,000
D) $(3,000)
Answer:

A) You need to subscribe to get the answer.

Q86

Using the direct method, sales adjusted to the cash basis would be:

Multiple Choice
expand_more
A) $202,000
B) $198,000
C) $200,000
D) $210,000
Answer:

A) You need to subscribe to get the answer.

Q87

Using the direct method, cost of goods sold adjusted to the cash basis would be:

Multiple Choice
expand_more
A) $95,000
B) $100,000
C) $105,000
D) $108,000
Answer:

A) You need to subscribe to get the answer.

Q88

The income tax expense adjusted to the cash basis would be:

Multiple Choice
expand_more
A) $18,000
B) $2,000
C) $20,000
D) $38,000
Answer:

A) You need to subscribe to get the answer.

Q89

The net cash provided by operating activities would be:

Multiple Choice
expand_more
A) $37,000
B) $39,000
C) $30,000
D) $19,000
Answer:

A) You need to subscribe to get the answer.

Q90

The net cash provided by financing activities would be:

Multiple Choice
expand_more
A) $(2,000)
B) $(10,000)
C) $(15,000)
D) $5,000
Answer:

A) You need to subscribe to get the answer.

Q91

The net cash provided by investing activities would be:

Multiple Choice
expand_more
A) $(4,000)
B) $(12,000)
C) $(16,000)
D) $4,000
Answer:

A) You need to subscribe to get the answer.

Q92

Under the direct method, sales adjusted to a cash basis would be:

Multiple Choice
expand_more
A) $295,000
B) $345,000
C) $405,000
D) $355,000
Answer:

A) You need to subscribe to get the answer.

Q93

Under the direct method, cost of goods sold adjusted to a cash basis would be:

Multiple Choice
expand_more
A) $105,000
B) $125,000
C) $175,000
D) $155,000
Answer:

A) You need to subscribe to get the answer.

Q94

On the statement of cash flows, the sales revenue adjusted to a cash basis would be:

Multiple Choice
expand_more
A) $850,000
B) $835,000
C) $874,000
D) $865,000
Answer:

A) You need to subscribe to get the answer.

Q95

On the statement of cash flows, the cost of goods sold adjusted to a cash basis would
be:

Multiple Choice
expand_more
A) $390,000
B) $363,000
C) $408,000
D) $417,000
Answer:

A) You need to subscribe to get the answer.

Q96

On the statement of cash flows, the operating expenses adjusted to a cash basis would
be:

Multiple Choice
expand_more
A) $280,000
B) $226,000
C) $334,000
D) $261,000
Answer:

A) You need to subscribe to get the answer.

Q97

On the statement of cash flows, the income tax expense adjusted to a cash basis would
be:

Multiple Choice
expand_more
A) $63,000
B) $57,000
C) $45,000
D) $54,000
Answer:

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Q98

On the statement of cash flows, the sales revenue adjusted to a cash basis would be:

Multiple Choice
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A) $738,000
B) $747,000
C) $760,000
D) $773,000
Answer:

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Q99

On the statement of cash flows, the cost of goods sold adjusted to a cash basis would
be:

Multiple Choice
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A) $384,000
B) $365,000
C) $356,000
D) $370,000
Answer:

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On the statement of cash flows, the operating expenses adjusted to a cash basis would
be:

Multiple Choice
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A) $240,000
B) $162,000
C) $318,000
D) $224,000
Answer:

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On the statement of cash flows, the income tax expense adjusted to a cash basis would
be:

Multiple Choice
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A) $47,000
B) $37,000
C) $43,000
D) $45,000
Answer:

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On the statement of cash flows, the sales revenue adjusted to a cash basis would be:

Multiple Choice
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A) $877,000
B) $870,000
C) $863,000
D) $891,000
Answer:

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On the statement of cash flows, the cost of goods sold adjusted to a cash basis would
be:

Multiple Choice
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A) $358,000
B) $348,000
C) $362,000
D) $360,000
Answer:

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On the statement of cash flows, the operating expenses adjusted to a cash basis would
be:

Multiple Choice
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A) $288,000
B) $350,000
C) $412,000
D) $352,000
Answer:

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On the statement of cash flows, the income tax expense adjusted to a cash basis would
be:

Multiple Choice
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A) $48,000
B) $47,000
C) $39,000
D) $49,000
Answer:

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Alegre Retail Corporation's most recent comparative Balance Sheet is as follows:
Ending Beginning
Assets
Cash ................................................................ $ 7,000 $ 12,000
Accounts receivable, net ................................. 11,000 2,000
Merchandise inventory ................................... 39,000 24,000
Long-term investments ................................... 23,000 9,000
Equipment ...................................................... 83,000 100,000
Accumulated depreciation .............................. (66,000) (62,000)
Total assets ..................................................... $97,000 $ 85,000
Liabilities and Stockholders’ Equity
Accounts payable ........................................... $ 9,000 $28,000
Taxes payable ................................................. 1,000 2,000
Notes payable ................................................. 16,000 10,000
Common stock ................................................ 42,000 30,000
Retained earnings ........................................... 29,000 15,000
Total liabilities and stockholders’ equity ....... $97,000 $85,000
Alegre's net income was $34,000. No direct exchange transactions occurred at Alegre
during the year. No equipment was purchased. There was a gain of $3,000 when
equipment was sold. The accumulated depreciation on the equipment sold was
$12,000. Cash dividends of $20,000 were declared and paid during the year. Alegre
uses the indirect method to prepare its statement of cash flows.
Required:
Prepare Alegre's statement of cash flows.

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Burns Company's net income last year was $91,000. Changes in the company's
balance sheet accounts for the year appear below:
Increases
(Decreases)
Debit balances:
Cash ........................................................... $19,000
Accounts receivable .................................. $13,000
Inventory ................................................... $(16,000)
Prepaid expenses ....................................... $4,000
Long-term investments .............................. $10,000
Plant and equipment .................................. $70,000
Credit balances:
Accumulated depreciation ......................... $31,000
Accounts payable ...................................... $(18,000)
Accrued liabilities ...................................... $16,000
Taxes payable ............................................ $(4,000)
Bonds payable ........................................... $(60,000)
Deferred taxes ............................................ $8,000
Common stock ........................................... $40,000
Retained earnings ...................................... $87,000
The company declared and paid cash dividends of $4,000 last year.
Required:
a. Construct in good form the operating activities section of the company's statement
of cash flows for the year. (Use the indirect method.)
b. Construct in good form the investing activities section of the company's statement
of cash flows for the year.
c. Construct in good form the financing activities section of the company's statement
of cash flows for the year.

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Burtch Company's net income last year was $112,000. Changes in the company's
balance sheet accounts for the year appear below:
Increases
(Decreases)
Debit balances:
Cash ............................................... $(14,000)
Accounts receivable ...................... $(9,000)
Inventory ....................................... $16,000
Prepaid expenses ........................... $(8,000)
Long-term investments .................. $40,000
Plant and equipment ...................... $30,000
Credit balances:
Accumulated depreciation ............. $36,000
Accounts payable .......................... $18,000
Accrued liabilities .......................... $(5,000)
Taxes payable ................................ $3,000
Bonds payable ............................... $(40,000)
Deferred taxes ................................ $8,000
Common stock ............................... $20,000
Retained earnings .......................... $15,000
The company declared and paid cash dividends of $97,000 last year.
Required:
a. Construct in good form the operating activities section of the company's statement
of cash flows for the year. (Use the indirect method.)
b. Construct in good form the investing activities section of the company's statement
of cash flows for the year.
c. Construct in good form the financing activities section of the company's statement
of cash flows for the year.

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The following information was collected from the most recent Income Statement and
comparative Balance Sheet of Dolor Corporation:
Increase in cash ................................................... $36,000
Decrease in accounts receivable .......................... $17,000
Increase in merchandise inventory ...................... $44,000
Decrease in prepaid rent ...................................... $3,000
Increase in equipment .......................................... $56,000
Increase in accumulated depreciation .................. $18,000
Decrease in accounts payable .............................. $25,000
Increase in salaries payable ................................. $2,000
Increase in interest payable ................................. $1,000
Decrease in deferred income taxes ...................... $4,000
Increase in notes payable ..................................... $12,000
Dolor's net income for the year was $167,000. No direct exchange transactions
occurred at Dolor during the year. No equipment was sold during the year. Cash
dividends of $30,000 were declared and paid during the year. Dolor uses the indirect
method to prepare its statement of cash flows.
Required:
Prepare Dolor's operating activities section of its statement of cash flows.

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Answer:

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Comparative balance sheets and the income statements for Ellis Company are
presented below:
Ellis Company
Balance Sheets
December 31, Year 1 and Year 2
Year 2 Year 1
Assets
Current assets:
Cash ........................................................... $ 45,000 $ 30,000
Accounts receivable .................................. 38,000 40,000
Inventory ................................................... 67,000 60,000
Total current assets ....................................... 150,000 130,000
Long-term investments ................................. 162,000 200,000
Plant and equipment ..................................... 278,000 150,000
Accumulated depreciation ............................ (52,000) (50,000)
Total assets ................................................... $538,000 $430,000
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable ...................................... $ 36,000 $ 40,000
Accrued liabilities ..................................... 24,000 30,000
Total current liabilities ................................. 60,000 70,000
Bonds payable .............................................. 20,000 30,000
Mortgage payable ......................................... 100,000
Deferred income taxes .................................. 15,000 20,000
Total liabilities .............................................. 195,000 120,000
Stockholders’ equity:
Common stock........................................... 295,000 270,000
Retained earnings ...................................... 48,000 40,000
Total stockholders’ equity ............................ 343,000 310,000
Total liabilities and stockholders’ equity ..... $538,000 $430,000

Ellis Company
Income Statement
For the Year Ended December 31, Year 2
Sales ................................................................ $150,000
Less cost of goods sold ................................... 76,500
Gross margin .................................................. 73,500
Less operating expenses ................................. 16,000
Net operating income ..................................... 57,500
Less loss on sale of investment ...................... 2,500
Income before taxes ........................................ 55,000
Less income taxes ........................................... 22,000
Net income ..................................................... $ 33,000
Summary of transactions for Year2:
* During Year 2, the company sold for cash of $35,500 long-term investments with a
cost of $38,000 when purchased.
* All sales were on credit.
* The company paid a cash dividend of $25,000.
* Bonds payable of $25,000 were retired by issuing common stock. The bonds retired
were equivalent to the market value of the $25,000 stock issued.
* An addition to one of the company’s buildings was completed on December 31,
Year 2, at a cost of $128,000. The company gave an interest-bearing mortgage for
$100,000 and paid $28,000 in cash.
* Bonds payable were sold for $15,000 cash at par value.
Required:
a. Using the indirect method, determine the net cash provided by operating activities
for Year 2.
b. Using the direct method, determine the net cash provided by operating activities
for Year 2.
c. Using the net cash provided by operating activities figure from either part a or b,
prepare a statement of cash flows for Year 2.

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Hesselbaum Retail Corporation's most recent Income Statement and comparative
Balance Sheet is as follows:
Hesselbaum Retail Corporation
Income Statement
For the Year Ended December 31, Year 2
Sales ................................................................................. $118,000
Less cost of goods sold .................................................... 56,000
Gross margin ................................................................... 62,000
Less operating expenses .................................................. 37,000
Net operating income ...................................................... 25,000
Less loss on sale of equipment ........................................ 2,000
Income before taxes ......................................................... 23,000
Less income taxes ............................................................ 9,000
Net income ...................................................................... $ 14,000
Hesselbaum Retail Corporation
Comparative Balance Sheet
At December 31, Year 2, and Year 1
Year 2 Year 1
Assets
Cash ................................................................... $12,000 $ 4,000
Accounts receivable, net .................................... 29,000 7,000
Merchandise inventory ...................................... 36,000 21,000
Prepaid expenses ............................................... 6,000 8,000
Equipment ......................................................... 72,000 88,000
Accumulated depreciation ................................. (60,000) (57,000)
Total assets ........................................................ $95,000 $71,000
Liabilities and stockholders’ equity
Accounts payable .............................................. $17,000 $ 9,000
Wages payable ................................................... 6,000 1,000
Taxes payable .................................................... 2,000 3,000
Common stock ................................................... 50,000 42,000
Retained earnings .............................................. 20,000 16,000
Total liabilities and stockholders’ equity .......... $95,000 $71,000

No direct exchange transactions occurred at Hesselbaum during Year 2. No equipment
was purchased during Year 2. The accumulated depreciation on the equipment sold
was $9,000. Cash dividends of $10,000 were declared and paid during Year 2.
Hesselbaum uses the direct method to prepare its statement of cash flows.
Required:
Prepare Hesselbaum's operating activities section of its Year 2 statement of cash
flows.

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Carr Company's comparative balance sheet and income statement for last year appear
below:
Statement of Financial Position
Ending Beginning
Balance Balance
Cash ............................................................. $ 3,000 $ 23,000
Accounts receivable .................................... 83,000 71,000
Inventory ..................................................... 39,000 47,000
Prepaid expenses ......................................... 9,000 15,000
Long-term investments ................................ 240,000 200,000
Plant and equipment .................................... 515,000 480,000
Accumulated depreciation ........................... (320,000) (295,000)
Total assets .................................................. $569,000 $541,000
Accounts payable ........................................ $ 9,000 $ 25,000
Accrued liabilities ........................................ 24,000 17,000
Taxes payable .............................................. 16,000 21,000
Bonds payable ............................................. 160,000 200,000
Deferred taxes .............................................. 33,000 25,000
Common stock ............................................. 170,000 140,000
Retained earnings ........................................ 157,000 113,000
Total liabilities and owners’ equity ............. $569,000 $541,000
Income Statement
Sales .............................................................. $850,000
Less cost of goods sold ................................. 450,000
Gross margin ................................................ 400,000
Less operating expenses ............................... 270,000
Net operating income ................................... 130,000
Less income taxes ......................................... 39,000
Net income ................................................... $ 91,000
The company declared and paid $47,000 in cash dividends during the year.
Required:
Construct in good form the operating activities section of the company's statement of
cash flows for the year using the direct method.

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Answer:

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Carmel Company's comparative balance sheet and income statement for last year
appear below:
Statement of Financial Position
Ending Beginning
Balance Balance
Cash ......................................................................... $ 49,000 $ 30,000
Accounts receivable ................................................ 23,000 30,000
Inventory ................................................................. 63,000 49,000
Prepaid expenses ..................................................... 13,000 19,000
Long-term investments ............................................ 260,000 200,000
Plant and equipment ................................................ 520,000 500,000
Accumulated depreciation ....................................... (256,000) (224,000)
Total assets .............................................................. $672,000 $604,000
Accounts payable .................................................... $ 20,000 $ 35,000
Accrued liabilities .................................................... 30,000 17,000
Taxes payable .......................................................... 15,000 11,000
Bonds payable ......................................................... 100,000 150,000
Deferred taxes .......................................................... 23,000 16,000
Common stock ......................................................... 100,000 70,000
Retained earnings .................................................... 384,000 305,000
Total liabilities and owners’ equity ......................... $672,000 $604,000
Income Statement
Sales .......................................................................... $810,000
Less cost of goods sold ............................................. 390,000
Gross margin ............................................................ 420,000
Less operating expenses ........................................... 290,000
Net operating income ............................................... 130,000
Less income taxes ..................................................... 39,000
Net income ............................................................... $ 91,000
The company declared and paid $12,000 in cash dividends during the year.
Required:
Construct in good form the operating activities section of the company's statement of
cash flows for the year using the direct method.

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The following information is taken from the Operating Activities section of the
statement of cash flows for the Parks Company for the year just ended:
Net income ...................................................................... $15,000
Adjustments to convert net income to cash basis:
Accounts receivable ........................................................ $ 3,000
Gain on sale of equipment ............................................... (3,000)
Inventory ......................................................................... (7,000)
Accounts payable ............................................................ 4,000
Depreciation expense ...................................................... 11,000
Interest payable ................................................................ (1,000)
Prepaid expenses ............................................................. 2,000
Income tax payable .......................................................... (7,000) 2,000
Net cash inflow from operating activities ....................... $17,000
The following information is taken from the company’s income statement for the year
just ended:
Sales .................................................................................. $96,000
Cost of goods sold ............................................................ 42,000
Gross margin .................................................................... 54,000
Operating Expenses .......................................................... 29,000
Net operating income ....................................................... 25,000
Gain on sale of equipment ................................................ 3,000
Income before taxes .......................................................... 28,000
Income taxes ..................................................................... 13,000
Net income ....................................................................... $15,000
Required:
a. For each of the adjustments to convert net income to the cash basis, indicate
whether the account increased or decreased.
b. Determine the net cash provided by operating activities using the direct method.
You need not prepare the formal operating activities section of the statement of
cash flows but you should show the adjustments that must be made to sales,
expenses, and so forth and the cash flow balances of sales, expenses, etc.

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Daugherty Company's comparative balance sheet and income statement for last year
appear below:
Statement of Financial Position
Ending Beginning
Balance Balance
Cash ........................................................... $ 7,000 $ 21,000
Accounts receivable .................................. 71,000 47,000
Inventory ................................................... 62,000 44,000
Prepaid expenses ....................................... 2,000 9,000
Long-term investments .............................. 310,000 240,000
Plant and equipment .................................. 370,000 370,000
Accumulated depreciation ......................... (214,000) (186,000)
Total assets ................................................ $608,000 $545,000
Accounts payable ...................................... $ 69,000 $ 48,000
Accrued liabilities ...................................... 2,000 17,000
Taxes payable ............................................ 28,000 13,000
Bonds payable ........................................... 140,000 170,000
Deferred taxes ............................................ 27,000 17,000
Common stock ........................................... 90,000 70,000
Retained earnings ...................................... 252,000 210,000
Total liabilities and owners’ equity ........... $608,000 $545,000
Income Statement
Sales ............................................................. $940,000
Less cost of goods sold ................................ 510,000
Gross margin ............................................... 430,000
Less operating expenses .............................. 270,000
Net operating income .................................. 160,000
Less income taxes ........................................ 48,000
Net income .................................................. $112,000

The company declared and paid $70,000 in cash dividends during the year.
Required:
a. Construct in good form the operating activities section of the company's statement
of cash flows for the year.
b. Construct in good form the investing activities section of the company's statement
of cash flows for the year.
c. Construct in good form the financing activities section of the company's statement
of cash flows for the year.

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Dawson Company's comparative balance sheet and income statement for last year
appear below:
Statement of Financial Position
Ending Beginning
Balance Balance
Cash ........................................................... $ 49,000 $ 22,000
Accounts receivable .................................. 50,000 71,000
Inventory ................................................... 84,000 52,000
Prepaid expenses ....................................... 17,000 13,000
Long-term investments .............................. 240,000 180,000
Plant and equipment .................................. 430,000 430,000
Accumulated depreciation ......................... (277,000) (237,000)
Total assets ................................................ $593,000 $531,000
Accounts payable ...................................... $ 43,000 $ 61,000
Accrued liabilities ...................................... 33,000 19,000
Taxes payable ............................................ 37,000 25,000
Bonds payable ........................................... 110,000 160,000
Deferred taxes ............................................ 31,000 19,000
Common stock ........................................... 70,000 50,000
Retained earnings ...................................... 269,000 197,000
Total liabilities and owners’ equity ........... $593,000 $531,000
Income Statement
Sales ............................................................. $680,000
Less cost of goods sold ................................ 300,000
Gross margin ............................................... 380,000
Less operating expenses .............................. 250,000
Net operating income .................................. 130,000
Less income taxes ........................................ 39,000
Net income .................................................. $ 91,000
The company declared and paid $19,000 in cash dividends during the year.

Required:
a. Construct in good form the operating activities section of the company's statement
of cash flows for the year.
b. Construct in good form the investing activities section of the company's statement
of cash flows for the year.
c. Construct in good form the financing activities section of the company's statement
of cash flows for the year.

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Vertical analysis of financial statements is accomplished through the preparation of
common-size statements.

True/False
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A) True.
B) False.
Answer:

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The gross margin percentage is computed by dividing the gross margin by net income
before interest and taxes.

True/False
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A) True.
B) False.
Answer:

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If a company's return on assets is substantially higher than its cost of borrowing, then
the common stockholders would normally want the company to have a relatively high
debt/equity ratio.

True/False
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A) True.
B) False.
Answer:

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The dividend yield ratio is calculated by dividing dividends per share by earnings per
share.

True/False
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A) True.
B) False.
Answer:

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Financial leverage is positive if the interest rate on debt is lower than the return on
total assets.

True/False
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A) True.
B) False.
Answer:

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To compute the return on total assets, net income should be adjusted by adding aftertax
interest expense and preferred dividends.

True/False
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A) True.
B) False.
Answer:

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When computing the return on common equity, the income available for common
stockholders is determined by deducting preferred dividends from net income.

True/False
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A) True.
B) False.
Answer:

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