Question 1

Presented below is the Operating Activities section of the statement of cash flows for Feline Friends Corp.for 2017:$$\begin{array}{l}
\text { Operating activities: }\
\begin{array} { l r } 
\text { Cash collected from customers } & \$ 165,000 \
\text { Cash payments for merchandise } & ( 83,000 ) \
\text { Cash payments for operating expenses } & \underline { ( 58,000 ) } \
\text { Net cash inflow from operating activities } & \$ 24,000
\end{array}
\end{array}$$ Which method of preparing the Operating Activities section has Feline used?

Accepted Answer

The direct method is used here because the operating activities section explicitly lists cash receipts and payments, such as cash collected from customers and cash payments for merchandise and operating expenses.

Question 2

When using the direct method,how is the collection of cash from customers shown on the statement of cash flows?

Accepted Answer

Cash collected from customers is considered an operating activity because it relates to the primary operations of the business. The direct method of presenting cash flows from operating activities involves showing cash inflows and outflows related to operating activities, and the collection of cash from customers would be included as an inflow.

Question 3

Which of the following transactions is a significant noncash investing and financing activity?

Accepted Answer

Acquiring equipment by issuing a long-term note is a significant noncash investing and financing activity because it involves a non-cash transaction (issuing a note instead of paying cash) for a long-term investment (acquiring equipment). The other choices involve cash transactions (purchasing land for cash, issuing bonds for cash, and purchasing cash equivalents).

Question 4

The following items were reported on the balance sheets and income statement for Carlton Co.: $\begin{array}{lr}
\text { Accounts receivable, December } 31,2017 & \$ 185,000 \
\text { Accounts receivable, December } 31,2018 & 178,000 \
\text { Sales-2018 } & 850,000
\end{array}$What amount would be reported in the Operating Activities section of the statement of cash flows for collections from customers under the direct method assuming that all sales are on credit?

Accepted Answer

To calculate collections from customers under the direct method, start with the sales on credit and adjust for the change in accounts receivable. Sales were $850,000. Accounts receivable decreased from $185,000 to $178,000, indicating that $7,000 more cash was collected than sales made on credit. Therefore, collections from customers would be $850,000 + $7,000 = $857,000.

Question 5

Klein Corp.acquired land by issuing its common stock.How should this transaction be disclosed when a statement of cash flows is prepared?

Accepted Answer

The acquisition of land by issuing common stock is a noncash transaction that affects investing and financing activities but does not involve cash flows. Therefore, it should be disclosed in a supplemental schedule of noncash investing and financing activities or in a note to the financial statements, not in the main body of the statement of cash flows.

Question 6

Presented below is the Operating Activities section of the statement of cash flows for Golden Consulting for 2017: $\text { Operating activities: }$
$\begin{array}{lr}
\text { Net income } & \$ 92,000 \
\text { Add: Depreciation } & 20,000 \
\text { Decrease in accounts receivable } & 8,000 \
\hline &\$120,000\
\text { Deduct: Decrease in accounts payable }&(6,000)\
\text { Net cash inflow from operating activities }&\$114,000
\end{array}$Which method of preparing the Operating Activities section has Golden Consulting used?

Accepted Answer

Golden Consulting has used the indirect method for preparing the Operating Activities section of the cash flow statement. This is indicated by the adjustments made to net income for non-cash items (like depreciation) and changes in working capital accounts (like accounts receivable and accounts payable).

Question 7

The following items were reported on the balance sheets and income statement for Flying Mullet Company: $\begin{array}{lr}
\text { Accounts receivable, December } 31,2017 & \$ 85,000 \
\text { Accounts receivable, December } 31,2018 & 98,000 \
\text { Sales-2018 } & 750,000
\end{array}$How would the change in accounts receivable be reported in the Operating Activities section of the statement of cash flows under the indirect method?

Accepted Answer

Under the indirect method for the statement of cash flows, increases in accounts receivable from one period to the next are deducted from net income in the Operating Activities section. This is because the sales that increased accounts receivable did not result in an immediate cash inflow.

Question 8

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

Accepted Answer

If a significant investing or financing activity does not affect cash, it should be disclosed in a note to the financial statements or in a supplemental schedule. This is because the primary purpose of financial statements is to provide information about a company's financial position, performance, and cash flows, and such transactions may not be reflected in those figures. Therefore, it is important to provide additional information to investors and stakeholders about such activities so they can make informed decisions. Disclosure in a note or supplemental schedule allows for transparency and provides context for the company's financial statements.

Question 9

Which of the following statements is false?

Accepted Answer

Most companies actually use the indirect method, not the direct method, for preparing the Operating Activities section of the statement of cash flows. Therefore, statement D is false. Statements A, B, and C are all true.

Question 10

The following items were reported on the balance sheets and income statement for Centerton Inc. ,a service company: $\begin{array}{lr}
\text { Accounts payable, December } 31,2017 & \$ 64,000 \
\text { Accounts payable, December } 31,2018 & 48,000 \
\text { Operating expenses-2018 } & 170,000
\end{array}$What amount would be reported in the Operating Activities section of the statement of cash flows for payments for operating expenses under the direct method?

Accepted Answer

The correct amount is $186,000, calculated by adding the decrease in accounts payable ($64,000 - $48,000 = $16,000) to the operating expenses ($170,000), resulting in $186,000. This reflects the total cash paid for operating expenses.

Question 11

During 2017,the accounts payable balance of Andreas Corp.decreased.Which of the following statements is true?

Accepted Answer

A decrease in accounts payable indicates that the company paid off more of its liabilities than it incurred, which means cash was used. Under the indirect method, this decrease is deducted from net income in the Operating Activities section.

Question 12

When using the direct method,how is the issuance of stock for cash shown on the statement of cash flows?

Accepted Answer

Issuance of stock for cash is an activity related to financing, therefore it will be shown as a financing activity on the statement of cash flows when using the direct method.

Question 13

When using the direct method,how is the payment of a cash dividend shown on the statement of cash flows?

Accepted Answer

When using the direct method, the payment of a cash dividend is shown as a financing activity on the statement of cash flows. This is because it represents a distribution of earnings to shareholders, which is a financing-related transaction.

Question 14

The following items were reported on the balance sheets and income statement for Bezos Corp.: $\begin{array}{lr}
\text { Accounts payable, December } 31,2017 & \$ 42,000 \
\text { Accounts payable, December } 31,2018 & 48,000 \
\text { Operating expenses } & 286,000
\end{array}$How would the change in accounts payable be reported in the Operating Activities section of the statement of cash flows under the indirect method?

Accepted Answer

The increase in accounts payable from $42,000 to $48,000 indicates that not all of the operating expenses were paid in cash during the year. Under the indirect method for the statement of cash flows, increases in accounts payable are added to net income in the Operating Activities section to adjust for the fact that these expenses did not use cash.

Question 15

When using the direct method,how is the retirement of bonds payable at their maturity date shown on the statement of cash flows?

Accepted Answer

Retirement of bonds payable at their maturity date is considered a financing activity since it involves the repayment of borrowed funds. Hence, it is shown as a financing activity on the statement of cash flows when using the direct method.

Question 16

Each of the following transactions would be classified as either an investing or a financing activity except​ when

Accepted Answer

Issuing stock to acquire land can be classified as either a financing or investing activity depending on the circumstances. If the land is being acquired for operational purposes, it would be classified as an investing activity. However, if the stock is being issued purely to raise capital for financing purposes, it would be classified as a financing activity.

Question 17

Which of the following statements is true?

Accepted Answer

Most companies use the indirect method of preparing the Operating Activities section of the statement of cash flows, which adjusts net income for non-cash items and changes in current assets and liabilities. The direct method, which reports major classes of gross cash receipts and payments, is less commonly used. While the FASB does not express a preference for either method, it does require companies to reconcile the two methods if the direct method is used.

Question 18

When using the direct method,how is depreciation expense recorded on the statement of cash flows?

Accepted Answer

Depreciation expense is a non-cash charge and does not affect cash flow; therefore, it is not reported on the statement of cash flows when using the direct method.

Question 19

During 2017,the accounts receivable balance of Dickerson Corp.increased.Which of the following statements is true?

Accepted Answer

An increase in accounts receivable indicates that the company sold more on credit than it collected in cash, as it implies that customers owe more to the company at the end of the period than at the beginning.

Question 20

When using the direct method,how is the purchase of equipment for cash shown on the statement of cash flows?

Accepted Answer

When using the direct method, the purchase of equipment for cash is shown as an investing activity on the statement of cash flows. This is because it represents an outflow of cash for the acquisition of a long-term asset, which is classified as an investing activity rather than an operating or financing activity.

Quiz 12: The Statement of Cash Flows

When using the direct method,how is the collection of cash from customers shown on the statement of cash flows?

Which of the following transactions is a significant noncash investing and financing activity?

Klein Corp.acquired land by issuing its common stock.How should this transaction be disclosed when a statement of cash flows is prepared?

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

Which of the following statements is false?

During 2017,the accounts payable balance of Andreas Corp.decreased.Which of the following statements is true?

When using the direct method,how is the issuance of stock for cash shown on the statement of cash flows?

When using the direct method,how is the payment of a cash dividend shown on the statement of cash flows?

When using the direct method,how is the retirement of bonds payable at their maturity date shown on the statement of cash flows?

Each of the following transactions would be classified as either an investing or a financing activity except when

Which of the following statements is true?

When using the direct method,how is depreciation expense recorded on the statement of cash flows?

During 2017,the accounts receivable balance of Dickerson Corp.increased.Which of the following statements is true?

When using the direct method,how is the purchase of equipment for cash shown on the statement of cash flows?

Quiz 12: The Statement of Cash Flows

When using the direct method,how is the collection of cash from customers shown on the statement of cash flows?

Which of the following transactions is a significant noncash investing and financing activity?

Klein Corp.acquired land by issuing its common stock.How should this transaction be disclosed when a statement of cash flows is prepared?

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

Which of the following statements is false?

During 2017,the accounts payable balance of Andreas Corp.decreased.Which of the following statements is true?

When using the direct method,how is the issuance of stock for cash shown on the statement of cash flows?

When using the direct method,how is the payment of a cash dividend shown on the statement of cash flows?

When using the direct method,how is the retirement of bonds payable at their maturity date shown on the statement of cash flows?

Each of the following transactions would be classified as either an investing or a financing activity except​ when

Which of the following statements is true?

When using the direct method,how is depreciation expense recorded on the statement of cash flows?

During 2017,the accounts receivable balance of Dickerson Corp.increased.Which of the following statements is true?

When using the direct method,how is the purchase of equipment for cash shown on the statement of cash flows?

Each of the following transactions would be classified as either an investing or a financing activity except when