Question 1

Which of the following activities is most likely to have a cash flow effect?

Accepted Answer

The answer of Which of the following activities is most...

Question 2

Mr. Transmission
The following information was taken from the financial records of Mr. Transmission:
 $\begin{array}{llr}
  \text {  Accounts payable, December 31 , Year 2 } &\$88,000\
 \text {Accounts payable, December 31, Year 1   } &99,000\
 \text { Operating expenses for Year 2 } &999,00
\end{array}$

-Refer to the figure Mr.Transmission.Under the indirect method,how would the change in accounts payable be reported in the operating activities section of Mr.Transmission's statement of cash flows?

Accepted Answer

The answer of Mr. Transmission
The following information was taken from...

Question 3

Which of the following transactions would NOT be classified as an investing activity?

Accepted Answer

Receiving dividends on an investment in the shares of another company is considered an operating activity, not an investing activity, because it relates to the income generated from the company's investments rather than the purchase or sale of long-term assets.

Question 4

Company J
A company reported the following information:
 $\begin{array}{llr}
  \text { Salaries payable, December 31 , Year 2 } &\$20,000\
 \text {  Salaries payable, December 31, Year 1} &15,000\
 \text { Salaries expense for Year 2 } &80,000
\end{array}$

-Refer to the figure Company J.How much cash was paid for salaries during Year 2?

Accepted Answer

The cash paid for salaries is calculated as: Salaries expense + Salaries payable at the beginning of the year - Salaries payable at the end of the year = $80,000 + $15,000 - $20,000 = $75,000.

Question 5

Metz Vets
The company's accountant prepared this reminder for his intern:
Cash = CL + LTL + CS + RE - NCCA - LTA
 where:
CL = Current labilites
LTL = Long-tern liabilities
CS =Comman shares
RE = Retained earnings
NCCA = Nancash current assets
LTA = Long-term assets
-Refer to the figure Metz Vets.Which of the following activities results in a cash inflow?

Accepted Answer

Increases in common shares (CS) result in a cash inflow because when a company issues more of its common stock, it receives cash from investors in exchange for the shares. This is a direct way for a company to raise capital.

Question 6

Company K
Company K reported the following information:
 $\begin{array}{lr}
\text { Interest payable, December 31, Year 2 } & 3,200 \
\text { Interest payable, December 31, Year 1 } & 10,200 \
\text { Interest expense for Year 2 } & 22,000
\end{array}$

-Refer to the figure Company K.How much cash was paid for interest during Year 2?

Accepted Answer

The answer of Company K
Company K reported the following information:
...

Question 7

When the direct method is used to determine operating cash flows,how is the sale of long-term investments for cash reported on the statement of cash flows?

Accepted Answer

The sale of long-term investments for cash is considered an investing activity because it relates to the acquisition and disposal of long-term assets, which is part of the company's investing activities.

Question 8

Used Car Dealer
A used car dealer reported the following information:
 $\begin{array}{llr}
  \text { Accounts payable, December 31 , Year 2  } &\$95,000\
 \text { Accounts payable, December 31, Year 1  } &50,000\
 \text {Cost of goods sold for Year 2  } &560,000
\end{array}$

-Refer to the figure Used Car Dealer.Assuming there was no change in inventory during the period,how much cash was paid for merchandise purchases during Year 2?

Accepted Answer

The increase in accounts payable from Year 1 to Year 2 is $95,000 - $50,000 = $45,000. Since there was no change in inventory, this $45,000 increase in accounts payable must have been offset by a $45,000 decrease in cash. Therefore, the cash paid for merchandise purchases during Year 2 was $560,000 (cost of goods sold) + $45,000 (decrease in cash) = $605,000.

Question 9

A company acquired land by issuing common shares.How should this transaction be disclosed when a statement of cash flows is prepared?

Accepted Answer

This transaction should be disclosed in a supplemental schedule of noncash investing and financing activities or in a note because it involves the exchange of non-cash assets (land for common shares), which does not affect the company's cash flows directly.

Question 10

Metz Vets
The company's accountant prepared this reminder for his intern:
Cash = CL + LTL + CS + RE - NCCA - LTA
 where:
CL = Current labilites
LTL = Long-tern liabilities
CS =Comman shares
RE = Retained earnings
NCCA = Nancash current assets
LTA = Long-term assets
-Refer to the figure Metz Vets.Which of the following activities results in a cash outflow?

Accepted Answer

Decreases in retained earnings (RE) typically result from dividends paid out to shareholders, which is a cash outflow.

Question 11

Companies sometimes engage in important investing and financing activities that do not affect cash.If the amount of the transaction is significant,where should it be disclosed when financial statements are prepared?

Accepted Answer

Transactions that do not affect cash should be disclosed in a note to the financial statements or in a supplemental schedule. This is because these transactions do not belong in the cash flow statement, which only reports on cash inflows and outflows. However, if the transaction is significant, it is important to disclose it in the financial statements to provide a clearer picture of the company's financial position and performance.

Question 12

Which of the following operating activities results in a cash outflow?

Accepted Answer

Decreasing accounts payable means that the company is paying off its debts, resulting in a cash outflow. Collecting accounts receivable and making cash sales both result in a cash inflow, and recording deposits as unearned revenue does not result in any immediate cash flow.

Question 13

During Year 1,the accounts receivable balance increased.What does this indicate?

Accepted Answer

An increase in accounts receivable balance indicates that credit sales exceeded collections on account during the period. This means that customers purchased goods or services on credit but did not pay for them immediately, resulting in an increase in the accounts receivable balance. Thus, option A is the correct choice. Option B is incorrect because an increase in accounts receivable is not added to net income in the operating activities section of a statement of cash flows prepared under the indirect method. Option C is incorrect because an increase in accounts receivable is not added to credit sales to determine the collections on account during the period. Option D is incorrect because an increase in accounts receivable does not necessarily mean there were no cash sales during the period.

Question 14

Which of the following financing activities results in a cash inflow?

Accepted Answer

Issuing bonds results in a cash inflow as investors purchase the bonds from the company, providing the company with cash. Repurchasing shares (A) and paying cash dividends (D) result in cash outflows, while repaying a bank loan (C) results in a reduction in debt but does not result in a cash inflow.

Question 15

Company F
Company F reported the following information:
 $\begin{array}{lrr}
&\text { Year } 2&\text { Year } 1\
\text { Land } & \$ 350,000 & \$ 100,000 \
\text { Common shares } & 450.000 & 200.000
\end{array}$
-Refer to the figure Company F.An analysis of records indicated that there were no cash flow effects resulting from the changes in the two accounts presented in the figure.How should the changes in these accounts be reported on a statement of cash flows?

Accepted Answer

The correct answer is B because when a company acquires an asset like land through the issuance of shares, it involves no cash transaction. This is considered a noncash investing and financing activity, which should be disclosed in the statement of cash flows to provide a complete picture of the company's financial activities, even though it does not affect the cash balance directly.

Question 16

When the indirect method is used to determine operating cash flows,where is the gain from selling a long-term investment recognized? (The proceeds from selling the investment are considered separately.)

Accepted Answer

In the indirect method, gains from selling long-term investments are subtracted from net income in the operating activities section because they are non-operating gains.

Question 17

Company G
Company G reported the following information:
 $\begin{array}{llr}
  \text {Accounts receivable, December 31 , Year 2  } &\$122,000\
 \text {  Accounts receivable, December 31, Year 1 } &113,000\
 \text {  Sales (all on credit) for Year 2 } &850,000
\end{array}$

-Refer to the figure Company G.How much cash was collected from customers during Year 2?

Accepted Answer

The cash collected from customers is calculated as: Beginning Accounts Receivable + Sales - Ending Accounts Receivable = $113,000 + $850,000 - $122,000 = $841,000.

Question 18

During the current year,the accounts payable balance decreased.What does this indicate?

Accepted Answer

A decrease in accounts payable balance indicates that payments on account exceeded credit purchases during the period. This means that the company paid off some of its outstanding debts to suppliers or vendors.

Question 19

Which of the following transactions is NOT a significant noncash investing and financing activity?

Accepted Answer

Cash equivalents are purchased using cash, which is a cash transaction and does not involve noncash investing or financing activities. The other choices all involve significant noncash investing or financing activities, as they involve the issuance of notes payable, bonds, or common shares to acquire assets.

Question 20

Company H
Company H reported the following information:
 $$\begin{array} { l l } 
\text { Prepaid insurance, December 31, Year 2 } & \$ 14,000 \
\text { Prepaid insurance, December 31, Year 1 } & 11,500 \
\text { Insurance expense for Year 2 } & 25,200
\end{array}$$
-Refer to the figure Company H.How much cash was paid for insurance during Year 2?

Accepted Answer

The answer of Company H
Company H reported the following information:
...

Quiz 11: The Statement of Cash Flows