Deck 16: Statement of Cash Flows: Another Look

Question 1

The cash change equation for preparing the statement of cash flows using a T-account work sheet is: Assets = Liabilities + Shareholders' Equity

Answer 1

False

Question 2

During the maturity phase, cash outflow typically exceeds cash inflow from operations because operations are not earning profits while the firm must invest in accounts receivable and inventories.

Answer 2

False

Question 3

Revenues from sales of goods or services to customers during a period equal cash received from customers during that period.

Answer 3

False

Question 4

Some investing and financing transactions do not involve cash but appear on the statement of cash flows.

Question 5

The cash flow from operations section shows an addition for the increase in the current asset accounts in an amount equal to the firm's expenditure to acquire a derivative.

Question 6

The first step in a procedure for preparing the statement of cash flows using a T-account work sheet is to explain the change in the master Cash account between the beginning and the end of the period by accounting for the changes in the other balance sheet accounts.

Question 7

The conversion of nonparticipating preferred stock into common stock should be presented in a statement of cash flows as a(n)

A)operating activity.
B)investing activity.
C)financing activity.
D)noncash exchange.
E)None of these answers is correct.

Question 8

Net income for a particular period will likely differ from cash flow from operations for the same period.

Question 9

Which of the following independent transactions would cause net income to be more than cash from operating activities?

A)A decrease in the accounts receivable account
B)An increase in the merchandise inventory account
C)An increase in the accounts payable account
D)An increase in the accrued wages payable account
E)None of these answer choices is correct.

Question 10

Firms typically report cash flows from operations using the direct method.

Question 11

Weakening profitability,from reduced sales or reduced profit margins on existing sales,
signals the beginning of the decline phase, but ever-declining accounts receivable and inventories can produce positive cash flow from operations.

Question 12

Which of the following would be reported in the operating, investing, or financing sections of the statement of cash flows prepared under the indirect method?

A)Declaration of an unpaid cash dividend
B)Acquisition of a factory warehouse by issuing long-term debt
C)Gain on the sale of cash equivalents
D)Write-off of an uncollectible account receivable
E)None of these answers is correct.

Question 13

The growth phase portrays cash flow characteristics similar to the introduction phase.

Question 14

The product life-cycle concept from microeconomics and marketing provides useful insights
into the relations among cash flows from operating, investing, and financing activities.

Question 15

The last step in the accounting record-keeping process is preparing the statement of cash flows from balance sheet amounts and from details of transactions affecting the cash account.

Question 16

When using the indirect method to calculate cash flow from operations, add back the subtraction for minority interest in earnings of consolidated, but less than 100%-owned subsidiaries to derive cash flow from operations.

Question 17

The proper interpretation of information in the statement of cash flows requires an understanding of the economic characteristics of the industries in which a firm conducts operations and a multi-period view.

Question 18

Choose the combination below that best reflects the appropriate classification of cash received from investing and financing activities. Cash Received from Cash Received from
Investing Activities Financing Activities

A)Sale of treasury stock Proceeds from issuing common stock
B)Sale of treasury stock Sale of investment securities
C)Sale of investment securities Proceeds of issuing common stock
D)Proceeds from issuing common stock Sale of investment securities
E)None of these answers is correct.

Question 19

Most, but not all, firms report cash flows from operations using the indirect method.

Question 20

Cash flow from ____ activities includes purchases and sales of marketable securities, investments in securities, property, plant, and equipment, and intangibles.

A)operating
B)investing
C)financing
D)purchasing
E)exchanging

Question 21

Generally only investments with maturities of _____ months or less qualify as cash equivalents.

A)one
B)two
C)three
D)six
E)twelve

Question 22

What method starts with the total for net income and adjusts for expenses and revenues not using or producing cash, then removes the effects of nonoperating gains and losses or any balance sheet changes involving non-cash operating accounts?

A)direct method for calculating the cash flows from investing.
B)indirect method for calculating the cash flows from investing.
C)indirect method for calculating the cash flows from financing.
D)direct method for calculating the cash flows from operations.
E)indirect method for calculating the cash flows from operations.

Question 23

The term "cash flows"refers to changes in

A)cash, only.
B)cash and cash equivalents.
C)working capital.
D)cash and marketable securities.
E)funds.

Question 24

What method starts with the components of income, the individual revenues and expenses, but not gains and losses, then adds or subtracts the same balance sheet changes involving the same operating accounts? Take an income statement line, then list next to it, horizontally, additions and subtractions.

A)direct method for calculating the cash flows from investing.
B)indirect method for calculating the cash flows from investing.
C)indirect method for calculating the cash flows from financing.
D)direct method for calculating the cash flows from operations.
E)indirect method for calculating the cash flows from operations.

Question 25

Which of the following is/are true?

A)Revenues from sales of goods or services to customers during a particular period do not necessarily equal cash received from customers during the same period.
B)The receipt of cash can precede, coincide with, or follow the recognition of revenue.
C)Expenses incurred to generate revenues during a particular period do not necessarily equal cash expended for the goods and services consumed in operations during the same period.
D)The expenditure of cash can precede, or coincide with, or follow the recognition of expenses.
E)all of the above

Question 26

Which method of preparing the statement of cash flows starts with the components of income, the individual revenues and expenses, but not gains and losses, then adds or subtracts the same balance sheet changes involving the same operating accounts?

A)direct method
B)fixed method
C)indirect method
D)funds flow method
E)predetermined method

Question 27

Cash flow from ____ activities includes increases and decreases in short-term and long-term borrowing, increases and decreases in common and preferred stock, and dividends.

A)operating
B)investing
C)financing
D)purchasing
E)exchanging

Question 28

Cash flow from financing activities include(s)

A)cash issues of long-term borrowings.
B)cash redemptions of long-term borrowings.
C)cash sales and cash repurchases of common and preferred shares.
D)cash dividends.
E)all of the above.

Question 29

Cash flow from investing activities does not include

A)cash purchases of property, plant, and equipment.
B)cash sales of marketable securities and investments in securities.
C)cash sales of property, plant, and equipment.
D)cash sales of intangibles.
E)cash purchases of treasury stock.

Question 30

The ____ explains the reasons for the changes in cash and cash equivalents during a period.This statement classifies the reasons as relating to operating, investing, and financing activities.

A)statement of cash flows
B)balance sheet
C)income statement
D)funds flow statement
E)statement of retained earnings

Question 31

Cash flow from investing activities includes

A)cash purchases of property, plant, and equipment.
B)cash sales of marketable securities and investments in securities.
C)cash sales of property, plant, and equipment.
D)cash sales of intangibles.
E)all of the above

Question 32

Firms typically report cash flows from operations using the indirect method.The indirect method starts with net income, then adds any expense amount that does not use cash, and subtracts any revenue amount that does not provide cash.The adjustments to convert net income to cash flow from operations generally does not involve

A)adding the amount by which an expense exceeds the related cash expenditure for the period.
B)subtracting the amount by which a revenue exceeds the related cash receipt for the period.
C)adding credit changes in operating non-cash working capital accounts.
D)subtracting debit changes in operating working capital accounts.
E)subtracting the amount by which an expense exceeds the related cash expenditure for the period.

Question 33

The statement of cash flows explains the reasons for the change in cash and cash equivalents during a period.This statement classifies the reasons as relating to

A)operating decisions, only.
B)investing decisions, only.
C)financing decisions, only.
D)operating, investing, or financing decisions.
E)operating, investing, financing, or exchange decisions.

Question 34

The accountant prepares the statement of cash flows after completing the

A)balance sheet, only.
B)income statement, only
C)balance sheet and the income statement.
D)funds flow statement.
E)statement of retained earnings.

Question 35

Firms typically report cash flows from operations using the

A)direct method.
B)indirect method.
C)financial position method.
D)variable method.
E)funds flow method.

Question 36

Some investing and financing transactions do not involve cash and therefore

A)appear on the statement of cash flows under operating, investing or financing activities, as appropriate.
B)appear on the statement of cash flows under operating activities.
C)appear on the statement of cash flows under operating or financing activities, as appropriate.
D)appear on the statement of cash flows under investing or financing activities, as appropriate.
E)do not appear on the statement of cash flows.

Question 37

In determining cash flows from operations, which method starts with net income, then add noncash expenses and subtracts noncash revenues?

A)direct method
B)fixed method
C)indirect method
D)funds flow method
E)variable method

Question 38

Which method of preparing the statement of cash flows starts with the total for net income and removes the effects of gains and losses from nonoperating transactions, and then adds or subtracts balance sheet changes involving operating accounts?

A)direct method
B)fixed method
C)indirect method
D)funds flow method
E)variable method

Question 39

Cash flow from financing activities do not include

A)cash issues of long-term borrowings.
B)cash redemptions of long-term borrowings.
C)cash sales and cash repurchases of common and preferred shares.
D)cash payments of interest.
E)all of the above.

Question 40

Which of the following is/are not true?

A)Revenues from sales of goods or services to customers during a particular period do not necessarily equal cash received from customers during the same period.
B)The receipt of cash can precede, coincide with, or follow the recognition of revenue.
C)Expenses incurred to generate revenues during a particular period do not necessarily equal cash expended for the goods and services consumed in operations during the same period.
D)The expenditure of cash can precede, coincide with, or follow the recognition of expenses.
E)The net income for a particular period will likely equal the cash flow from operations for the same period.

Question 41

Jamison Corporation issued preferred stock totaling $10,000,000 during Year 4.The statement of cash flows classifies the transaction as a(n)

A)operating activity.
B)investing activity.
C)financing activity.
D)exchange transaction.
E)equity transaction.

Question 42

The beginning and the ending balances in cash and cash equivalents are entered in the master T-account for preparing the statement of cash flows.Cash equivalents represent _____ in which a firm has temporarily placed excess cash.

A)short-term, highly illiquid investments
B)short-term, highly liquid investments
C)short-term and long-term, highly liquid investments
D)short-term and long-term, highly illiquid investments
E)short-term and long-term, marketable securities

Question 43

In preparing the statement of cash flows for Year 5, internal records indicate that depreciation on manufacturing facilities totaled $500 and on selling and administrative facilities totaled $300 during the year.The firm included these amounts in cost of goods sold and selling and administrative expenses, respectively, in the income statement for Year 5.None of this $800 of depreciation required an operating cash flow during Year 5.The firm reported cash expenditures for these assets as investing activities in the earlier periods when it acquired them.The T-account work sheet entry to explain the change in the Accumulated Depreciation account.

A)adds back depreciation to net income in deriving cash flow from operations.
B)subtracts depreciation from net income in deriving cash flow from operations.
C)adds back depreciation on the selling and administrative facilities, only, to net income in deriving cash flow from operations.
D)subtracts depreciation on the selling and administrative facilities, only, from net income in deriving cash flow from operations.
E)none of the above

Question 44

Glass Corporation retired $7,500,000 of long-term debt at maturity.The income statement shows no gain or loss on retirement of debt.The statement of cash flows classifies the transaction as a(n)

A)operating activity
B)investing activity.
C)financing activity.
D)exchange transaction.
E)lending activity.

Question 45

Towson Corporation acquired 1,000,000 shares of its own common stock for $10,000,000 during Year 2.The statement of cash flows classifies the transaction as a(n)

A)exchange transaction.
B)investing activity.
C)financing activity.
D)operating activity.
E)equity activity.

Question 46

In order to explain the change in the master cash account between the beginning and the end of the period, the accountant reconstructs the entries originally made in the accounts during the period and enters them in appropriate T-accounts on the T-account work sheet.By explaining the changes in balance sheet accounts other than cash, this process also explains the change in

A)cash and cash equivalents.
B)cash, only.
C)working capital.
D)cash and marketable securities.
E)funds.

Question 47

In determining cash flows from operations under the indirect method, the adjustments to convert net income to cash flow from operations generally involve ____ debit changes in operating working capital accounts.

A)adding
B)subtracting
C)multiplying
D)dividing
E)cannot be determined from the information provided

Question 48

During Year 4, Adams Company had a net increase in accounts payable for purchases on account.Accounting classifies this source of cash in the _____ section of the statement of cash flows.

A)Investing
B)Operations
C)Financing
D)Exchange
E)Funds Flow

Question 49

During Year 9, Hart Motors Corp.had a net $100,000 decrease in Warranties Payable.The T-account work sheet for preparing the statement of cash flows

A)adds this decrease in Warranties Payable so that cash flow from operations reports cash expenditures, not expenses.
B)subtracts this decrease in Warranties Payable so that cash flow from operations reports cash expenditures, not expenses.
C)adds this decrease in Warranties Payable so that cash flow from operations reports cash expenses, not expenditures.
D)subtracts this decrease in Warranties Payable so that cash flow from operations reports cash expenses, not expenditures.
E)subtracts this decrease in Warranties Payable so that cash flow from financing reports cash expenses, not expenditures.

Question 50

In preparing a T-account work sheet, a master T-account for cash appears at the top of the work sheet.This master T-account has three sections, labeled

A)Operations, Investing, and Financing.
B)Working Capital, Investing, and Financing.
C)Operations, Working Capital, and Financing
D)Operations, Working Capital, and Investing
E)Operations, Exchanges, and Investing

Question 51

The first step in theprocedure for preparing the statement of cash flows using a T-account work sheet is to

A)obtain a balance sheet for the beginning of the period of the statement of cash flows.
B)obtain a balance sheet for the ending of the period spanned by the statement of cash flows.
C)obtain a balance sheet for the beginning and the end of the period spanned by the statement of cash flows.
D)obtain an income statement for the beginning of the period of the statement of cash flows.
E)obtain an income statement for the end of the period of the statement of cash flows.

Question 52

Queen Corporation borrowed $750,000 during Year 3 from its bank under a long-term borrowing arrangement.The statement of cash flows classifies the transaction as a(n)

A)operating activity.
B)investing activity.
C)financing activity.
D)exchange transaction.
E)lending activity.

Question 53

The second step of completing the T-account work sheet for generating the statement of cash flows is to prepare a T-account for each balance sheet account other than _____ and enter the beginning and the ending balances.

A)cash and cash equivalents
B)working capital
C)cash, only
D)cash and marketable securities
E)exchanges

Question 54

In determining cash flows from operations under the indirect method, the adjustments to convert net income to cash flow from operations generally involve ____ the amount by which a revenue exceeds the related cash receipt for the period (such as equity method earnings exceeding dividends).

A)adding
B)subtracting
C)multiplying
D)dividing
E)cannot be determined from the information provided

Question 55

In theprocedure for preparing the statement of cash flows using a T-account work sheet, a master T-account for _____ appears at the top of the work sheet.

A)cash
B)working capital
C)financing
D)operations
E)net income

Question 56

Exxon Corporation declared and paid $90,000 of dividends to its shareholders during Year 3.The statement of cash flows classifies the transaction as a(n)

A)investing activity.
B)financing activity.
C)operating activity
D)exchange transaction.
E)equity activity.

Question 57

The statement of cash flows classifies cash used for interest expense as

A)an operating activity
B)an investing activity.
C)a financing activity.
D)an exchange activity.
E)a funds usage activity.

Question 58

King Corporation borrowed $75,000 during Year 2 from its bank under a short-term borrowing arrangement.The statement of cash flows for King Corporation classifies the transaction as a(n)

A)operating activity
B)investing activity.
C)financing activity.
D)lending activity.
E)exchange activity.

Question 59

In determining cash flows from operations under the indirect method, the adjustments to convert net income to cash flow from operations generally involve _____ the amount by which an expense exceeds the related cash expenditure for the period (for depreciation, the entire amount).

A)subtracting
B)multiplying
C)adding
D)dividing
E)cannot be determined from the information provided

Question 60

In determining cash flows from operations under the indirect method, the adjustments to convert net income to cash flow from operations generally involve ____ credit changes in operating working capital accounts, such as accounts receivable, inventories, or accounts payable.

A)adding
B)subtracting
C)multiplying
D)dividing
E)cannot be determined from the information provided

Question 61

The accounting records of Calli Inc.indicate that the firm sold for $1,800 during Year 2 a machine originally costing $6,000, with accumulated depreciation of $4,600.The journal entry made to record this sale was as follows: Cash .........................................1,800
Accumulated Depreciation .......................4,600
Loss on Disposal of Equipment .................... 400
Equipment .......................................6,000
In preparing the statement of cash flows using the work sheet, the accountant.

A)adds the $400 loss to net income in computing cash flow from operations.
B)subtracts the $400 loss from net income in computing cash flow from operations.
C)adds the $400 loss to net income in computing cash flow from investing activities.
D)subtracts the $400 loss from net income in computing cash flow investing activities.
E)subtracts the $400 loss from retained earnings in computing cash flow investing activities.

Question 62

Which of the following is not true?

A)Most derivative acquisitions represent marketable securities held as current assets.
B)The cash flow from operations section shows a subtraction for the increase in the current asset accounts in an amount equal to the firm's expenditure to acquire the derivative.
C)If the firm classifies the derivative as a nonoperating asset, then the cash outflow appears in the investing section of the statement of cash flows.
D)Subsequent to acquisition, the firm may report changes in the fair value of the derivative in income.
E)Firms engage in transactions involving derivatives and for the most part, the complex parts of these transactions occur before the firm has acquired the derivative.

Question 63

The balance sheet indicates that Paul Corporation owns 40 percent of the common stock of Sun Company.During Year 2, Sun Company earned $12,000 and paid $4,000 of dividends.Paul Corporation made the following entries on its books during the year. Investment in Company B ..................... 4,800
Equity in Earnings of Affiliate ..........................4,800
Net income of Paul Corporation includes $4,800 of equity income.It received only $1,600 of cash.
The T-account work sheet for preparing the statement of cash flows

A)adds $3,200 to net income in deriving cash from operations.
B)subtracts $1,600 from net income in deriving cash from operations.
C)adds $1,600 to net income in deriving cash from operations.
D)subtracts $3,200 from net income in deriving cash from operations.
E)adds $3,200 to retained earnings in deriving cash from investing.

Question 64

Dominick Inc. The accounting records of Dominick Inc.indicate that the firm sold for $1,800 during Year 2 a machine originally costing $6,000, with accumulated depreciation of $4,600.The journal entry made to record this sale was as follows:
Cash ........................................1,800
Accumulated Depreciation.......................4,600
Equipment..........................................6,000
Gain on Disposal of Equipment...........................400
(Use the information about Dominick Inc.to answer this question.) In preparing the Statement of cash flows, all the cash proceeds of $1,800 appear as an increase in cash from

A)a financing activity.
B)an investing activity.
C)an operating activity.
D)an exchange activity.
E)none of the above

Question 65

Which of the following is/are true?

A)Most derivative acquisitions represent marketable securities held as current assets.
B)The cash flow from operations section shows a subtraction for the increase in the current asset accounts in an amount equal to the firm's expenditure to acquire the derivative.
C)If the firm classifies the derivative as a nonoperating asset, then the cash outflow appears in the investing section of the statement of cash flows.
D)Subsequent to acquisition, the firm may report changes in the fair value of the derivative in income.
E)all of the above

Question 66

During Year 7, Frank Company had a net increase in accounts receivable of $10,000.The T-account work sheet for preparing the statement of cash flows

A)adds the increase in accounts receivable in deriving cash flow from operating activities.
B)subtracts the increase in accounts receivable in deriving cash flow from operations.
C)adds the increase in accounts receivable in deriving cash flow from financing activities.
D)subtracts the increase in accounts receivable in deriving cash flow from financing activities.
E)subtracts the increase in accounts receivable in deriving cash flow from investing activities.

Question 67

In the preparation of a statement of cash flows, adjustments to net income to reconcile net income to cash from operating activities include

A)dividends received.
B)the difference between the purchase price and the resale price of treasury stock (assuming the cost method of accounting for treasury stock).
C)amortization of organization cost.
D)redemption premium on preferred stock redeemed during the period.
E)All of these answer choices are correct.

Question 68

Dominick Inc. The accounting records of Dominick Inc.indicate that the firm sold for $1,800 during Year 2 a machine originally costing $6,000, with accumulated depreciation of $4,600.The journal entry made to record this sale was as follows:
Cash ........................................1,800
Accumulated Depreciation.......................4,600
Equipment..........................................6,000
Gain on Disposal of Equipment...........................400
(Use the information about Dominick Inc.to answer this question.) In preparing the statement of cash flows using the T-account worksheet, the accountant

A)subtracts the $400 gain from net income in computing cash flow investment activities.
B)adds the $400 gain to net income in computing cash flow from investment activities.
C)subtracts the $400 gain from net income in computing cash flow from operations.
D)adds the $400 gain to net income in computing cash flow from operations.
E)adds the $400 gain to retained earnings in computing cash flow investment activities.

Question 69

In preparing the statement of cash flows for Year 4, internal records indicate that depreciation on manufacturing facilities totaled $800.The firm included this amount in cost of goods sold in the income statement for Year 4.None of the of depreciation required an operating cash flow during Year 4.The T-account work sheet entry adds back the $800 of depreciation on manufacturing facilities.Accountants treat depreciation charges on manufacturing facilities as

A)a period expense.
B)an opportunity cost.
C)a product cost.
D)a cost of capital.
E)a marginal cost.

Question 70

On a statement of cash flows prepared using the direct method, cash from customers would be sales plus a(n)

A)decrease in accounts payable.
B)increase in accounts payable.
C)decrease in accounts receivable.
D)increase in accounts receivable.
E)None of these answers is correct.

Question 71

On a statement of cash flows prepared using the direct method, cash paid for income taxes would be income tax expense minus

A)an increase in income taxes payable.
B)a decrease in income taxes payable.
C)beginning income taxes payable.
D)ending income taxes payable.
E)None of these answers is correct.

Question 72

Which of the following is not added to net income as an adjustment to reconcile net income to cash from operating activities on the statement of cash flows?

A)Increase in an accrued liability
B)Amortization of discount on bond payable
C)Loss on sale of operational asset
D)Increase in deferred tax asset
E)None of these answers is correct.

Question 73

During Year 6, Delta Company had a net $4,000 increase in customer advances.The T-account work sheet for preparing the statement of cash flows

A)subtracts this excess from net income in deriving cash flow from operating activities.
B)adds this excess to net income in deriving cash flow from financing activities.
C)adds this excess to net income in deriving cash flow from operating activities.
D)subtracts this excess from net income in deriving cash flow from financing activities.
E)subtracts this excess from retained earnings in deriving cash flow from operating activities.

Question 74

Notes to the Year 2 financial statements of Care Corporation indicate that income tax expense of $3,000 comprises $2,000 currently payable taxes and $1,000 deferred to future periods.Care Corporation made the following entry during Year 2 to recognize income tax expense: Income Tax Expense ..............3,000
Income Tax Payable ........................2,000
Deferred Income Taxes Payable ...............1,000
The $1,000 of deferred income taxes reduced net income but did not require a cash outflow during Year 2.To explain the change in the Deferred Income Taxes account, the T-account work sheet must.

A)subtract deferred income taxes from net income to derive cash flow from operations.
B)add back deferred income taxes to net income to derive cash flow from operations.
C)add back deferred income taxes to net income to derive cash flow from financing.
D)subtract deferred income taxes from net income to derive cash flow from financing.
E)add back deferred income taxes to net income to derive cash flow from investing.

Question 75

In Year 8, Global Marketing Corporation had a net increase in inventories of $50,000.The T-account work sheet for preparing the statement of cash flows

A)adds this change in inventory in deriving cash flow from operating activities.
B)adds this change in inventory in deriving cash flow from financing activities.
C)subtracts this change in inventory in deriving cash flow from operating activities.
D)subtracts this change in inventory in deriving cash flow from financing activities.
E)subtracts this change in inventory in deriving cash flow from investment activities.

Question 76

Bonds Payable on the balance sheet of Michael LLC includes one series of bonds initially issued at a premium.The entry made in the accounting records for interest expense during the period was as follows: Interest Expense .................4,500
Premium on Bonds Payable ..........500
Cash ...............................5,000
The firm spent $5,000 of cash even though it subtracted only $4,500 of interest expense in computing net income.In preparing the statement of cash flows using the T-account work sheet

A)subtract an additional $5,000 from net income to derive cash flow from operations.
B)subtract an additional $4,500 from net income to derive cash flow from operations.
C)subtract an additional $500 from net income to derive cash flow from operations.
D)add an additional $500 from net income to derive cash flow from operations.
E)add an additional $4,500 from net income to derive cash flow from operations.

Question 77

Firms engage in transactions involving derivatives.For the most part, the complex parts of these transactions occur _____, but those transactions do _____ until, possibly, their settlement.

A)after the firm has acquired the derivative; not affect cash flows
B)before the firm has acquired the derivative; not affect cash flows
C)when the firm has acquired the derivative; not affect cash flows
D)after the firm has acquired the derivative; not affect net income
E)before the firm has acquired the derivative; not affect net income

Question 78

Prepayments for Julianna Company decreased by $2,000 during Year 3, the firm expensed less cash during Year 3 for new prepayments than it expensed prepayments of earlier years.Assume that all prepayments relate to selling and administrative activities.The journal entries that Julianna Corporation made in the accounting records during the year had the following combined effect: Selling and Administrative Expenses ..............35,500
Cash ........................................... 33,500
Prepayments ......................................2,000
To explain the change in the statement of cash flows T-account work sheet for Prepayments

A)add back $33,050 to net income.
B)add back $2,000 to net income.
C)subtract $2,000 from net income.
D)subtract $33,500 from net income.
E)subtract $2,000 from retained earnings.

Question 79

Amortization of the premium on bonds payable is subtracted from net income in the reconciliation of net income to cash flows from operations because

A)it is a financing cash outflow.
B)it reduces income without causing a cash outflow.
C)interest expense understates the cash paid for interest by the amount of the premium amortization.
D)it increases income without causing a cash flow.
E)None of these answers is correct.

Question 80

The extent to which a firm adjusts net income for changes in noncurrent assets and noncurrent liabilities in deriving cash flow from operations depends on the nature of its operations. Firms that grow or diversify by acquiring minority ownership positions in other businesses will often show a

A)addition to retained earnings for distributed earnings.
B)addition to net income for distributed earnings.
C)subtraction from net income for equity in undistributed earnings.
D)addition to net income for equity in undistributed earnings.
E)subtraction from net income for distributed earnings.