Question 1

The information in statement of cash flows should help investors and creditors evaluate:

Accepted Answer

The statement of cash flows provides information about a company's cash inflows and outflows from investing and financing activities, helping investors and creditors evaluate these transactions during the period.

Question 2

Trade receivables arising from sales to customers amounted to $35,000 and $40,000 at the beginning and end of the year, respectively. Profit reported on the income statement for the year was $120,000. Exclusive of the effect of other adjustments, the cash flows from operating activities, prepared using the indirect method, is

Accepted Answer

The increase in trade receivables of $5,000 ($40,000 - $35,000) indicates that not all sales were collected in cash, so this amount is subtracted from the net income to calculate cash flows from operating activities, resulting in $115,000 ($120,000 - $5,000).

Question 3

Jackson Company gathered the following data to prepare its 20B statement of cash flows:  Based only on the above data, the net cash inflow from operating activities during 20B was which of the following?

Accepted Answer

The answer of Jackson Company gathered the following data to...

Question 4

Financing activities involve

Accepted Answer

Financing activities involve obtaining funds from external sources, such as issuing debt or equity securities, and using those funds to support operations or invest in assets. Acquiring investments and long-lived assets are typically considered investing activities, while lending money is considered an operating activity for financial statements purposes.

Question 5

Toga Corporation reported profit of $50,000 for the year. During the year, trade receivables increased by $8,000, trade payables decreased by $4,000 and depreciation expense of $6,000 was recorded. Net cash provided by operating activities for the year, using the indirect method, is

Accepted Answer

The net cash provided by operating activities using the indirect method is calculated by adjusting net income for non-cash expenses and changes in working capital. Therefore, starting with the given net income of $50,000, we make the following adjustments:

Add back depreciation expense: $50,000 + $6,000 = $56,000
Adjust for the increase in trade receivables: $56,000 - $8,000 = $48,000
Adjust for the decrease in trade payables: $48,000 + $4,000 = $52,000

Therefore, the net cash provided by operating activities is $52,000.

Question 6

Which of the following is a cash inflow from financing activities?

Accepted Answer

Proceeds from issuance of bonds payable is a cash inflow from financing activities, as it involves obtaining funds from external sources. A is a cash inflow from investing activities as it is related to the sale of equipment. B is also a cash inflow from investing activities as it involves selling investments in equity securities. C is a cash inflow from operating activities as it is related to receiving interest payments.

Question 7

Restless Company's 20B income statement reported total sales revenue of $100,000. The 20A-20B, comparative statements of financial position showed that trade receivables decreased by $10,000. What were the 20B "cash receipts from customers"?

Accepted Answer

The decrease in trade receivables indicates that more cash was collected than sales made on credit. Therefore, cash receipts from customers would be sales revenue plus the decrease in receivables: $100,000 + $10,000 = $110,000.

Question 8

Which of the following statements about the quality of earnings ratio is false?

Accepted Answer

Seasonal variations in sales can have an impact on the quality of earnings ratio as they can affect the consistency and predictability of a company's earnings. The other statements are true.

Question 9

Which of the following statements about the quality of earnings ratio is true?

Accepted Answer

The quality of earnings ratio measures the percentage of earnings that come from core operating activities, rather than one-time gains or accounting adjustments. Accruing appropriate expenses is important for accurately reflecting core operating activities, so failure to do so will reduce the quality of earnings ratio. Additionally, receivables and inventory increasing faster than trade payables will decrease the quality of earnings ratio, as it indicates that earnings are being driven by non-operating activities such as stockpiling inventory or delaying payments to suppliers. Seasonal variations in sales can impact the quality of earnings ratio if they result in irregularities in accounting practices.

Question 10

In 2013, C Co. reported a quality of earnings ratio of 1.60. In 2012 and 2011 the ratio was .97 and .98 respectively. Which of the following was the most likely cause of the large increase in the ratio?

Accepted Answer

The answer of In 2013, C Co. reported a quality...

Question 11

Investing activities include

Accepted Answer

Investing activities involve the acquisition or disposal of long-term assets and investments, such as purchasing a new building or selling stocks. Collecting principal on loans made would fall under this category. Repaying borrowed money, obtaining cash from creditors, and obtaining capital from owners all fall under financing activities.

Question 12

If a loss of $20,000 is incurred in selling (for cash) office equipment that cost $90,000 and had accumulated depreciation of $22,500, the total amount reported in the investing activities section of the statement of cash flows is

Accepted Answer

The cash received from the sale of the office equipment would be the selling price, which is not given in the question. However, we can calculate the book value of the equipment, which is $90,000 - $22,500 = $67,500. Since the loss on the sale is $20,000, the selling price must be $67,500 - $20,000 = $47,500. Therefore, the total cash inflow from investing activities would be $47,500.

Question 13

Nelson Company collected the following data in its accounting records in 20B:  No new equipment was purchased during the year. What was the cash inflow from the sale of equipment in 20B?

Accepted Answer

The beginning balance of equipment was $4,900 and the ending balance was $4,000. Therefore, equipment with a book value of $900 ($4,900 - $4,000) was sold. The cash inflow from the sale of this equipment is equal to the book value of the equipment sold, which is $900. Therefore, the correct answer is D.

Question 14

Allen Company reported total sales revenue of $150,000 and total expenses of $152,000 for the year ended December 31, 20D. During 20D, trade receivables decreased by $1,000, trade payables increased by $5,000, wages payable increased by $3,000, and $18,000 in depreciation expense was recorded. Assuming no other adjustments are needed, what was the "net cash flow from operating activities" for 20D (parentheses indicate net cash outflow)?

Accepted Answer

Net income = $150,000 - $152,000 = ($2,000)Net cash flow from operating activities = Net income + Depreciation expense + Decrease in trade receivables - Increase in trade payables - Increase in wages payable= ($2,000) + $18,000 + $1,000 - $5,000 - $3,000= $25,000

Question 15

Assume the 20D income statement reported total sales revenue of $160,000. The 20C-20D, comparative statements of financial position showed that trade receivables increased by $10,000. What was the "cash inflow from customers" for 20D?

Accepted Answer

The cash inflow from customers is calculated by subtracting the increase in trade receivables from the total sales revenue. Therefore, the cash inflow from customers for 20D is $150,000 ($160,000 - $10,000). Choice D is the correct answer.

Question 16

In 2013, The W D Company reported net earnings of $1.3 billion and cash flow from operations of $5.6 billion. In 2012, it's net earnings was $1.9 billion and cash flow from operations was $5.1 billion. What were their quality of earnings ratios for 2013 and 2012 respectively?

Accepted Answer

The quality of earnings ratio is calculated as cash flow from operations divided by net earnings. For 2013, it is $5.6 billion / $1.3 billion = 4.31. For 2012, it is $5.1 billion / $1.9 billion = 2.68.

Question 17

How should the statement of cash flows be dated?

Accepted Answer

The statement of cash flows should be dated "For the Year Ended December 31, 20X" because it covers the entire year's cash flows. This is considered the most appropriate format for financial reporting purposes.

Question 18

The 20B income statement of Dunn Company reported total sales revenue of $106,000 and total expenses of $108,000 . Expenses were: building depreciation, $10,000 and patent amortization, $5,000. There was an increase in inventory of $1,000. What was cash flow from operating activities during 20B (parentheses indicate outflow)?

Accepted Answer

The answer of The 20B income statement of Dunn Company...

Question 19

Which of the following transactions is not a direct source of cash?

Accepted Answer

Sale of services on credit is not a direct source of cash because cash is not received at the time of the transaction. Instead, payment is expected at a later date when the customer settles their account receivable. The other options - borrowing cash, disposal of inventory for cash, and sale and issuance of shares for cash - are all direct sources of cash as they involve immediate cash inflows.

Question 20

Lori Company sold an operational asset, a machine, for cash. It originally cost $20,000. The accumulated depreciation at the date of disposal was $15,000. A gain on the disposal of $2,000 was reported. What was the cash inflow from this transaction?

Accepted Answer

The book value of the machine at the time of sale was $5,000 ($20,000 cost - $15,000 accumulated depreciation). With a reported gain of $2,000, the cash inflow from the sale was $7,000 ($5,000 book value + $2,000 gain).

Quiz 5: Communicating and Interpreting Accounting Information