Question 1

Select transactions of Irene Accounting Inc. (IAI)are listed below. IAI uses the indirect method to determine cash flows from operating activities.
1. IAI sells a held-to-maturity investment for $28,000. The investment's amortized cost is $20,000.
2. IAI's income tax expense totaled $30,000. Its income tax payable account increased $5,000,while its deferred income tax liability account decreased $18,000.
3. IAI declares a cash dividend of $3,000. The dividends payable account increases $1,000.
4. At year-end IAI increases its allowance for bad debts by $15,000.
Required:
Discuss how the activities listed above would be reported in the statement of cash flows. For items with multiple reporting options,identify all available options. For items not reported on the statement of cash flows,indicate the disclosure requirements,if any.

Accepted Answer

The answer of Select transactions of Irene Accounting Inc. (IAI)are...

Question 2

Recon Cile Ltd.'s policy is to report all cash flows arising from interest and dividends in the operating section. Recon Cile's activities for the year ended December 31,2018 included the following:
• Sold a held-for-trading investment for $16,000. The book value of this investment,which was not designated as a cash equivalent,was $13,000.
• Purchased an available-for-sale investment for $20,000.
• Borrowed $25,000 from the bank for investment purposes.
• Sold equipment for $21,000 that originally cost $45,000. The net book value of this item at time of sale was $25,000.
• Purchased inventory costing $4,000 for cash.
• Received $6,000 in interest and $2,500 in dividends on sundry investments.
• Acquired a forklift costing $22,000 under a finance lease.
• Acquired land and buildings valued at $400,000 by issuing ordinary shares.
• Bought $300,000 in bonds at a discount,paying $285,000 cash.
Required:
a. Prepare the cash flows from investing activities section of the statement of cash flows.
b. Identify how the activities listed above that are not investing activities would be reported in the statement of cash flows assuming that the statement is prepared using the indirect method.

Accepted Answer

The answer of Recon Cile Ltd.'s policy is to report...

Question 3

What is an investing activity?
A)Activities that do not involve cash.
B)Activities involving the acquisition of investments not included in cash equivalents.
C)Activities involving the principal revenue-producing activities of the entity.
D)Activities involving changes in the size and composition of the equity's borrowings.

Accepted Answer

Investing activities refer to the acquisition and disposal of long-term assets and investments that are not included in cash equivalents. These can include property, plant and equipment, investments in securities, and other long-term assets like patents or trademarks. Option A is incorrect as investing activities generally involve cash transactions. Option C refers to operating activities, not investing activities. Option D refers to financing activities which involve changes in equity and borrowings.

Question 4

Select transactions of SimBis Accounting Inc. (SAI)are listed below. SAI uses the indirect method to determine cash flows from operating activities.
1. SAI purchases a $200,000,45-day treasury bill held-for-trading investment.
2. SAI amortizes $32,000 of the discount on bonds payable.
3. At year-end SAI increases its allowance for bad debts by $10,000.
4. SAI's income tax expense totaled $40,000. Its income tax payable account increased $5,000,while its deferred income tax liability account decreased $8,000.
5. SAI acquires equipment valued at $80,000 under a finance lease.
6. SAI makes payments of $15,000 on an operating lease.
7. SAI declares and distributes a stock dividend valued at $33,000.
8. SAI declares a cash dividend of $30,000. The dividends payable account increases $15,000.
9. SAI's comprehensive income for the year totaled $200,000 consisting of $150,000 net income and $50,000 other comprehensive income.
10. SAI sells a held-to-maturity investment for $22,000. The investment's amortized cost is $20,000.
Required:
Discuss how the activities listed above would be reported in the statement of cash flows. For items with multiple reporting options,identify all available options. For items not reported on the statement of cash flows,indicate the disclosure requirements,if any.

Accepted Answer

The answer of Select transactions of SimBis Accounting Inc. (SAI)are...

Question 5

Jamie Bleay Law Ltd.'s policy is to report all cash inflows from interest and dividends in the investing section and cash outflows arising from interest and dividends in the financing section. Jamie Bleay Law's activities for the year ended December 31,2016 included the following:
• Sold a held-for-trading investment for $11,000. The book value of this investment,which was designated as a cash equivalent,was $11,000.
• Sold an available-for-sale investment for $14,000. The book value of the investment was $14,000.
• Borrowed $120,000 from the bank for investment purposes.
• Sold equipment for $26,000 that originally cost $20,000. The net book value of this item at time of sale was $14,000.
• Received $9,000 in interest and $7,000 in dividends on sundry investments.
• Paid $4,000 interest on the investment loan.
• Acquired land and buildings valued at $700,000 by paying $200,000 cash and issuing ordinary shares for the balance.
• Bought $550,000 in bonds at a premium,paying $560,000 cash.
Required:
a. Prepare the cash flows from investing activities section of the statement of cash flows.
b. Identify how the activities listed above that are not investing activities would be reported in the statement of cash flows assuming that the statement is prepared using the indirect method.

Accepted Answer

The answer of Jamie Bleay Law Ltd.'s policy is to...

Question 6

The opening balance in the computer account for Adara Corp for fiscal 2017 was $100,000; the closing balance was $107,000. The corresponding balances in the accumulated depreciation accounts were $63,000 and $67,500. During the year Adara scrapped a computer originally costing $13,000 having a remaining net book value of $3,500 and purchased a replacement machine for cash.
Requirements:
a. Prepare the underlying journal entries to record the foregoing transactions and record events stemming from the transactions (e.g.,the accrual of interest at year-end).
b. For each entry identify the cash flow effects,if any,under both the direct and indirect methods of presentation and classify the cash flow according to its nature.

Accepted Answer

The answer of The opening balance in the computer account...

Question 7

What is a financing activity?
A)Activities involving the acquisition and disposal of long-term assets.
B)Activities involving redemption of the contributed equity of an entity.
C)Activities involving the principal revenue-producing activities of the entity.
D)Activities that do not involve cash.

Accepted Answer

Financing activities involve transactions that affect the entity's contributed equity and/or liabilities, such as issuing or redeeming bonds, paying dividends, or buying back shares. Choice A refers to investing activities, choice C refers to operating activities, and choice D is incorrect as financing activities always involve cash transactions.

Question 8

Tub Time Corp.'s policy is to report all cash flows arising from interest and dividends in the operating activities section. Tub Time's activities for the year ended December 31,2018 included the following:
• 2018's net income after taxes totaled $220,000.
• Declared and issued a stock dividend valued at $40,000.
• Accounts receivable decreased $44,000 in 2018.
• Sold a held-for-trading investment for $13,000. The book value was $11,000. (Assume this held-for-trading investment was not designated as a cash equivalent.)
• Interest revenue for the period was $6,000. The interest receivable account decreased $4,000.
• Declared a $10,000 dividend payable. The dividends payable account decreased $19,000 in 2018.
• Sold an available-for-sale investment for $9,000. The book value was $14,000.
• Tub Time recorded a $15,000 goodwill impairment loss during the year.
• Depreciation expense for the year was $14,000.
Requirements:
a. Prepare the cash flows from operating activities section of the statement of cash flows using the indirect method.
b. Identify how the activities listed above that are not operating activities would be required in the statement of cash flows.

Accepted Answer

The answer of Tub Time Corp.'s policy is to report...

Question 9

What is an operating activity?
A)Activities involving the acquisition and disposal of long-term assets.
B)Activities involving changes in the size and composition of the contributed equity.
C)Activities involving the principal revenue-producing activities of the entity.
D)Activities that do not involve cash.

Accepted Answer

Operating activities refer to the principal revenue-producing activities of the entity. These activities involve the day-to-day operations of the business, such as the sale of goods or services, and the collection of cash from customers. They are reflected in the entity's income statement as revenue and expenses. Choices A, B, and D do not accurately describe operating activities.

Question 10

Crete Ltd.'s policy is to report all cash flows arising from interest and dividends in the operating section. Crete's activities for the year ended December 31,2018 included the following:
• Income tax expense for the year was $30,000.
• Sold an available-for-sale investment for $45,000. The book value was $52,000.
• Depreciation expense for the year was $19,000
• Sales for the year were $1,030,000.
• Selling and administration expenses for the year totaled $240,000.
• Mamie's cost of goods sold in 2018 was $315,000.
• Interest expense for the period was $12,000. The interest payable account increased $5,000.
• Accounts payable increased $20,000 in 2018.
• Accounts receivable decreased $36,000 in 2018.
• Mamie's inventory increased $13,000 during the year.
• Dividends were not declared during the year; however,the dividends payable account increased $5,000.
Requirements:
a. Prepare the cash flows from operating activities section of the statement of cash flows using the direct method.
b. Identify how the activities listed above that are not operating activities would be reported in the statement of cash flows.

Accepted Answer

The answer of Crete Ltd.'s policy is to report all...

Question 11

Which of the following is an operating activity?
A)Receipt of customer deposit.
B)Proceeds from mortgage issue.
C)Purchase of land.
D)Redemption of preferred shares.

Accepted Answer

Receipt of customer deposit is a cash inflow related to the company's core business operations and is classified as an operating activity in the cash flow statement.

Note: B, C, and D are all financing or investing activities, not operating activities.

Question 12

On January 1,2017,Adara acquired equipment under a finance lease. The lease calls for fifteen annual payments of $10,000 due at the beginning of the year. Adara must return the equipment to the lessor at the end of the lease. The January 1,2017 payment was made as agreed. The implicit rate in the lease is 7%; the present value of the lease payments is $97,455.
Requirements:
a. Prepare the underlying journal entries to record the foregoing transactions and record events stemming from the transactions (e.g.,the accrual of interest at year-end).
b. For each entry identify the cash flow effects,if any,under both the direct and indirect methods of presentation and classify the cash flow according to its nature.

Accepted Answer

The answer of On January 1,2017,Adara acquired equipment under a...

Question 13

What is not a "non-cash" transaction?
A)Exchange of land with another company.
B)Conversion of preferred shares.
C)Payment of cash dividends.
D)Payment of stock dividends.

Accepted Answer

Cash dividends involve actual payment of cash to shareholders and therefore are not considered non-cash transactions. The other options involve exchanges of assets or securities and do not involve the exchange of cash, making them non-cash transactions.

Question 14

Angela's Angels Corp.'s policy is to report all cash inflows from interest and dividends in the investing section and cash outflows arising from interest and dividends in the financing section. Angela's activities for the year ended December 31,2016 included the following:
• Declared and issued a stock dividend valued at $15,000.
• Issued $300,000 in ordinary shares.
• Accounts payable decreased $38,000 during the year.
• Paid $910,000 to repurchase bonds. The book value of the bonds was $1,000,000.
• Made a $25,000 principal payment on a bank loan.
• Interest expense for the period was $12,000. The interest payable account increased $2,000.
• Declared a $12,000 cash dividend payable on January 15,2017.
• Acquired an automobile costing $30,000 under a finance lease.
Required:
a. Prepare the cash flows from financing activities section of the statement of cash flows.
b. Identify how the activities listed above that are not financing activities would be reported in the statement of cash flows assuming that the statement is prepared using the indirect method.

Accepted Answer

The answer of Angela's Angels Corp.'s policy is to report...

Question 15

Select transactions of June Bowen Inc. (JBI)are listed below. JBI uses the indirect method to determine cash flows from operating activities.
1. JBI amortizes $12,000 of the discount on bonds payable.
2. At year-end JBI increases its allowance for bad debts by $18,000.
3. JBI's income tax expense totaled $50,000. Its income tax payable account increased $5,000,while its deferred income tax liability account decreased $8,000.
4. JBI makes payments of $25,000 on an operating lease.
5. JBI declares and distributes a stock dividend valued at $33,000.
6. JBI declares a cash dividend of $30,000. The dividends payable account increases $10,000.
7. JBI sells a held-to-maturity investment for $28,000. The investment's amortized cost is $20,000.
Required:
Discuss how the activities listed above would be reported in the statement of cash flows. For items with multiple reporting options,identify all available options. For items not reported on the statement of cash flows,indicate the disclosure requirements,if any.

Accepted Answer

The answer of Select transactions of June Bowen Inc. (JBI)are...

Question 16

The opening balance in the land account for Adara Corp for fiscal 2017 was $500,000; the closing balance was $610,000. During the year land costing $130,000 was given to a creditor in full settlement of a $152,000 loan. The fair value of the land at the time of the exchange was $152,000. The company also purchased a separate parcel of land for cash during the year.
Required:
a. Prepare the underlying journal entries to record the foregoing transactions and record events stemming from the transactions (e.g.,the accrual of interest at year-end).
b. For each entry identify the cash flow effects,if any,under both the direct and indirect methods of presentation and classify the cash flow according to its nature.
c. Why does the IASB require that companies classify cash flows as arising from operations,investing,or financing activities?

Accepted Answer

The answer of The opening balance in the land account...

Question 17

Which of the following is an investing activity?
A)Payment of salaries.
B)Purchase of inventory.
C)Sale of held for trading investment.
D)Collection of loan receivable.

Accepted Answer

Sale of held for trading investment is an investing activity as it involves the sale of an asset that was acquired for the purpose of generating returns. Payment of salaries (A) and purchase of inventory (B) are operating activities, while collection of loan receivable (D) is a financing activity.

Question 18

What is an investing activity?
A)Activities involving the acquisition and disposal of long-term assets.
B)Activities involving changes in the size and composition of the contributed equity.
C)Activities involving the principal revenue-producing activities of the entity.
D)Activities that do not involve cash.

Accepted Answer

Investing activities involve the acquisition and disposal of long-term assets, such as property, plant, and equipment, and investments in securities.

Question 19

Mamie K. Ltd.'s policy is to report all cash flows arising from interest and dividends in the operating section. Mamie's activities for the year ended December 31,2018 included the following:
• Income tax expense for the year was $36,000.
• Sales for the year were $730,000.
• Accounts payable decreased $20,000 in 2018.
• Selling and administration expenses for the year totaled $140,000.
• Accounts receivable increased $6,000 in 2018.
• Mamie's cost of goods sold in 2018 was $315,000.
• Mamie's inventory decreased $13,000 during the year.
• Interest expense for the period was $17,000. The interest payable account increased $5,000.
• Dividends were not declared during the year; however,the dividends payable account decreased $2,000.
• Sold an available-for-sale investment for $45,000. The book value was $52,000.
• Depreciation expense for the year was $19,000.
Requirements:
a. Prepare the cash flows from operating activities section of the statement of cash flows using the direct method.
b. Identify how the activities listed above that are not operating activities would be reported in the statement of cash flows.

Accepted Answer

The answer of Mamie K. Ltd.'s policy is to report...

Question 20

Sherya Inc.'s policy is to report all cash flows arising from interest and dividends in the operating section. Sherya's activities for the year ended December 31,2018 included the following:
• Interest expense for the period was $10,000. The interest payable account decreased $4,000.
• Made a $110,000 principal payment on a bank loan.
• Declared a $15,000 cash dividend payable on January 15,2019.
• Declared and issued a stock dividend valued at $50,000.
• Paid $55,000 to repurchase ordinary shares and cancelled them. The book value was $40,000.
• Accounts payable increased $23,000 during the year.
• Issued $1,500,000 in bonds. The cash proceeds were $1,380,000.
Required:
a. Prepare the cash flows from financing activities section of the statement of cash flows.
b. Identify how the activities listed above that are not financing activities would be reported in the statement of cash flows assuming that the statement is prepared using the indirect method.

Accepted Answer

The answer of Sherya Inc.'s policy is to report all...

Quiz 9: Statement of Cash Flows

What is an investing activity?

What is a financing activity?

What is an operating activity?

Which of the following is an operating activity?

What is not a "non-cash" transaction?

Which of the following is an investing activity?

What is an investing activity?