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Exam 11: Statement of Cash Flows

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Question 31

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Using the direct method,we examine each account in the income statement and convert it from an accrual amount to a cash amount.

A) True
B) False

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Question 32

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Under the indirect method,an increase in inventory is added to net income and a decrease in inventory is subtracted from net income to arrive at net cash flows from operating activities.

A) True
B) False

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Question 33

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We calculate cash return on assets as the change in cash divided by average total assets.

Wilson Electric reports income tax expense of $150,000.Income tax payable at the beginning and end of the year are $20,000 and $25,000,respectively.What is the cash paid for income taxes during the year?

Which of the following is an example of a cash inflow from a financing activity?

For each of the following five transactions,indicate by letter whether the cash effect of each transaction is reported in a statement of cash flows as an operating (O),investing (I),financing (F),or noncash (NC)activity.

Investing activities include cash transactions involving the purchase and sale of long-term assets and current investments.

The balance sheet of Sound Designs reports total assets of $750,000 and $800,000 at the beginning and end of the year,respectively.Sales revenues are $1.5 million ($1.2 million in the previous year) ,net income is $150,000,and net cash flows from operating activities are $175,000.What is Sound Designs' cash return on assets?

Given the items below,which of the following is a subtraction from net income to arrive at Operating Cash Flows using the indirect method? I. Loss on sale of assets II. Increase in Supplies III. Increase in Accounts Payable IV. Depreciation expense

Which of the following would be classified as an investing cash flow?

The inflow of cash received from issuing common stock is reported as an investing activity.

Portions of the financial statements for Horizon Telecom are provided below. $\begin{array} { | l r | } \hline { \begin{array} { c } \text { Horizon Telecom } \\\text { Selected Balance Sheet Data } \\\text { December 31, 2012 }\end{array} } \\\hline \text { Increase in accounts receivable } & \$ 6,000 \\\text { Increase in inventory } & 13,000 \\\text { Decrease in prepaid rent } & 9,000 \\\text { Increase in operating expenses payable } & 5,000 \\\text { Decrease in accounts payable } & 8,000 \\\text { Increase in income tax payable } & 20,000 \\\hline\end{array}$ Prepare the operating activities section of the statement of cash flows for Horizon Telecom using the direct method.

Rachel's Recordings reported net income of $200,000.Beginning balances in Accounts Receivable and Accounts Payable were $15,000 and $20,000,respectively.Ending balances in these accounts were $12,000 and $22,000,respectively.Assuming that all relevant information has been presented,Rachel's cash flows from operating activities would be:

The balance in Retained Earnings is increased by net income and is decreased by dividends.

Freedom Wireless reports operating expenses of $255,000.Operating expenses include both rent expense and salaries expense.Prepaid rent decreases during the year by $10,000 and salaries payable increases by $25,000.What is the cash paid for operating expenses during the year?

We report interest paid on bonds or notes payable with operating activities rather than financing activities.

Highland Park Homes reports net income of $300,000,and yet its net cash flow from operating activities is a negative $200,000 during the same period.Is this possible? Explain.

Which of the following statements is not true relating to cash flow analysis?

Explain the difference in the calculation of return on assets and cash return on assets.How can cash-based ratios supplement the analysis of ratios based on income statement and balance sheet information?

Lense Laboratories' net income was $250,000.Given the account information below,what is the net operating cash flows for Lense Laboratories? $\begin{array} { | l | r | } \hline \text { Increase in Accounts Receivable } & \$ 60,000 \\\hline \text { Increase in Salaries Payable } & \$ 50,000 \\\hline \text { Decrease in Inventory } & \$ 30,000 \\\hline \text { Depreciation Expense } & \$ 45,000 \\\hline \text { Increase in Prepaid Insurance } & \$ 3,000 \\\hline\end{array}$