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Exam 11: Statement of Cash Flows

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Question 1

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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?

A) $78 million.
B) $72 million.
C) $75 million.
D) $76 million.

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

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Question 2

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Which of the following items is not reported in the operating section of the statement of cash flows using the direct method?

A) Depreciation expense.
B) Cash paid to suppliers.
C) Cash received from customers.
D) Cash paid for income taxes.

E) None of the above
F) A) and B)

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Question 3

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For each of the following ten 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. Also, indicate whether the transaction is a cash inflow (CI), cash outflow (CO), or no effect on cash (NE). The first answer is provided as an example. $\begin{array} { c c l } \begin{array} { c } \text { Type of } \\\text { Activity }\end{array} & \begin{array} { c } \text { Cash Inflow } \\\text { or Outflow }\end{array} & \text { Transaction } \\\hline \text { O } & \text { CO } & \text { Payment of employee salaries } \\&& \text { 1. Issuance of bonds } \\&& \text { 2. Payment of income taxes } \\&& \text { 3. Payment of a long-term note payable } \\& & \text { 4. Sale of treasury stock } \\&& \text { 5. Payment of an account payable } \\&& \text { 6. Sale of land for cash } \\&& \text { 7. Purchase of long-term assets by issuing debt. } \\& & \text { 8. Collection of an account receivable } \\&& \text { 9. Issuance of common stock } \\&& \text { 10. Purchase of inventory }\end{array}$

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 asset turnover compare to the industry average of 2.4 times?

Wireless Technologies reports income tax expense of $800,000. Income tax payable at the beginning and end of the year are $50,000 and $70,000, respectively. What is the amount of cash paid for income taxes?

Under what section of the Statement of Cash Flows would you classify dividends paid on common stock?

Data Solutions reports sales of $100 million. Accounts receivable at the beginning and end of the year are $6 million and $9 million, respectively. What is the amount of cash received from customers?

A company's Income Tax Payable account decreased from $14 million to $12 million during the year. If its income tax expense was $80 million, what would be shown as cash paid for income taxes under the direct method?

The balance sheet of Integrated Systems reports total assets of $890,000 and $950,000 at the beginning and end of the year, respectively. Sales revenues are $1.6 million, net income is $185,000, and net cash flows from operating activities are $155,000. Calculate the cash return on assets, cash flow to sales, and asset turnover for Integrated Systems.

Data Solutions reports operating expenses of $5 million. Operating expenses include rent expense. Prepaid rent at the beginning and end of the year are $120,000 and $80,000, respectively. All other operating expenses were paid in cash as incurred. What is the amount of cash paid for operating expenses?

Laser Solutions' inventory decreases during the year by $8 million and its accounts payable to suppliers increases by $6 million during the same period. What is the amount of cash paid to suppliers of merchandise during the reporting period if its cost of goods sold is $81 million?

Alpha Computers reports net income of $44 million. Included in that number are depreciation expense of $7 million and a loss on the sale of land of $2 million. Records reveal decreases in Accounts Receivable, Inventory, and Accounts Payable of $4 million, $3 million, and $2 million, respectively. Calculate Alpha Computers' 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:

We calculate cash return on assets as the change in cash divided by average total assets. We calculate cash return on assets as net cash flows from operating activities divided by average total assets.

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' asset turnover?

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

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

Bad Brad's would report net cash inflows (outflows) from investing activities in the amount of:

Lowes and Home Depot report the following information in their 2010 annual financial statements ($ in millions): $\begin{array}{lrr}\text { Lowes }&2010&2009\\\text { Sales } & \$ 47,220 & \$ 48,230 \\\text { Net income } & 1,783 & 2,195 \\\text { Operating cash flows } & 4,054 & 4,122 \\\text { Total assets } & 33,005 & 32,625\\\\\text { Home Depot }&2010&2009\\\text { Sales } & \$ 66,176 & \$ 71,288 \\\text { Net income } & 2,620 & 2,312 \\\text { Operating cash flows } & 5,125 & 5,528 \\\text { Total assets } & 40,877 & 41,164\end{array}$ Calculate Lowe's and Home Depot's cash return on assets, cash flow to sales ratio, and asset turnover ratio for 2010. Which company has the better cash flow to sales ratio and which company has the better asset turnover ratio?

We report the purchase of stock in another corporation as a cash outflow from investing activities.