Question 1

Valdez Company sold land that had cost $48,000 for $60,000 cash.Which of the following statements is true about this transaction?
A)The $12,000 gain would be subtracted from net income in the operating activities section using the direct method.
B)$48,000 would appear as a cash inflow from investing activities and $12,000 would be added in the operating activities section using the indirect method.
C)$60,000 would appear as a cash inflow from investing activities.
D)The $12,000 gain would be subtracted from net income in the operating activities section prepared using the indirect method and $60,000 would be reported as a cash inflow from investing activities.

Accepted Answer

According to Generally Accepted Accounting Principles (GAAP), gains or losses from the sale of long-term assets (such as land) are reported in the operating activities section of the statement of cash flows using the indirect method. Thus, the $12,000 gain would be subtracted from net income in the operating activities section prepared using the indirect method. Additionally, the sale of land for cash would be reported as a cash inflow from investing activities, and therefore $60,000 would be reported as a cash inflow from investing activities in the statement of cash flows. Choice D accurately reflects both of these components.

Question 2

Which of the following items appear on the statement of cash flows?
A)Beginning cash balance
B)Ending cash balance
C)An explanation of the activities that caused the change between the beginning and ending balances in the cash account
D)All of the choices are items that appear on the statement of cash flows

Accepted Answer

All of the choices are items that appear on the statement of cash flows, including an explanation of the activities that caused the change between the beginning and ending balances in the cash account.

Question 3

During Year 1, El Paso Company had the following changes in account balances:The Accumulated Depreciation account had a beginning balance of $25,000 and an ending balance of $35,000. The increase was due to depreciation expense.The Long-Term Notes Payable account had a beginning balance of $40,000 and an ending balance of $15,000. The decrease was due to repayment of debt.The Equipment Account had a beginning balance of $25,000 and an ending balance of $92,500. The increase was due to the purchase of other operational assets.The Long-Term Investments Account (Marketable Securities)had a beginning balance of $18,000 and an ending balance of $12,500. The decrease was due to the sale of investments at cost.The Dividends Payable account had a beginning balance of $12,000 and an ending balance of $10,000. There were $20,000 of dividends declared during the period.The Interest Payable account had a beginning balance of $2,250 and an ending balance of $1,250. The difference was due to the payment of interest.What is the net cash flow from financing activities?
A)$22,000 inflow
B)$25,000 inflow
C)$25,000 outflow
D)$47,000 outflow

Accepted Answer

The answer of During Year 1, El Paso Company had...

Question 4

During Year 1, El Paso Company had the following changes in account balances: The Accumulated Depreciation account had a beginning balance of $87,500 and an ending balance of $122,500. The increase was due to depreciation expense.The Long-Term Notes Payable account had a beginning balance of $140,000 and an ending balance of $75,000. The decrease was due to repayment of debt.The Equipment Account had a beginning balance of $125,000 and an ending balance of $327,500. The increase was due to the purchase of other operational assets.The Long-Term Investments Account (Marketable Securities)had a beginning balance of $90,000 and an ending balance of $62,500. The decrease was due to the sale of investments at cost.The Dividends Payable account had a beginning balance of $60,000 and an ending balance of $50,000. There were $100,000 of dividends declared during the period.The Interest Payable account had a beginning balance of $11,250 and an ending balance of $6,250. The difference was due to the payment of interest.What is the net cash flow from investing activities?
A)$175,000 outflow
B)$175,000 inflow
C)$210,000 inflow
D)$210,000 outflow

Accepted Answer

To calculate the net cash flow from investing activities, we need to look at the changes in the Equipment and Long-Term Investments accounts.

The increase in the Equipment account from $125,000 to $327,500 indicates a cash outflow of $202,500 (increase in assets).

The decrease in the Long-Term Investments account from $90,000 to $62,500 indicates a cash inflow of $27,500 (decrease in assets).

Therefore, the net cash flow from investing activities is ($202,500 - $27,500) = $175,000 outflow.

Question 5

Which of the following would not be a cash flow from financing activities?
A)Borrowing on a long-term note payable
B)Repayment of principal on bonds payable
C)Payment of interest on bonds payable
D)Payment of a cash dividend

Accepted Answer

Payment of interest on bonds payable is a cash flow from operating activities, not financing activities. Borrowing on a long-term note payable and repayment of principal on bonds payable are both cash flows from financing activities, while payment of a cash dividend is also a cash flow from financing activities. Payment of interest on bonds payable is a cash flow from operating activities, as it represents an expense related to the company's primary operations. A and B are cash flows from financing activities because they involve borrowing and repayment of debt. D is also a cash flow from financing activities as it represents a distribution of funds to shareholders.

Question 6

Assuming a transaction increases interest receivable and interest revenue, what effect does it have on the amount of cash generated by operating activities?
A)Decreases it
B)Increases it
C)Has no effect
D)Cannot be determined from the information given

Accepted Answer

The transaction does not involve a cash inflow or outflow, therefore it would have no effect on the amount of cash generated by operating activities.

Question 7

How would the issuance of a mortgage note in exchange for a building be reported on the statement of cash flows?
A)Financing activity
B)Investing activity
C)Operating activity
D)Noncash financing and investing activity

Accepted Answer

This transaction is a noncash investing and financing activity,which is reported in the schedule of noncash investing and financing activities.

Question 8

The direct method of preparing the operating activities section of the statement of cash flows shows increases and decreases in noncash current assets and current liabilities to arrive at cash flows from operating activities.

Accepted Answer

The indirect method of preparing the operating activities section of the statement of cash flows shows increases and decreases in noncash current assets and current liabilities to arrive at cash flows from operating activities.The direct method shows actual cash inflows and outflows from operating activities.

Question 9

During Year 1, El Paso Company had the following changes in account balances: The Accumulated Depreciation account had a beginning balance of $100,000 and an ending balance of $140,000. The increase was due to depreciation expense.The Long-Term Notes Payable account had a beginning balance of $160,000 and an ending balance of $90,000. The decrease was due to repayment of debt.The Equipment Account had a beginning balance of $150,000 and an ending balance of $375,000. The increase was due to the purchase of other operational assets.The Long-Term Investments Account (Marketable Securities)had a beginning balance of $108,000 and an ending balance of $75,000. The decrease was due to the sale of investments at cost.The Dividends Payable account had a beginning balance of $72,000 and an ending balance of $60,000. There were $120,000 of dividends declared during the period.The Interest Payable account had a beginning balance of $13,500 and an ending balance of $7,500. The difference was due to the payment of interest.What is the net cash flow from financing activities?
A)$132,000 inflow
B)$70,000 inflow
C)$70,000 outflow
D)$202,000 outflow

Accepted Answer

The answer of During Year 1, El Paso Company had...

Question 10

On August 1, Year 1, Jackson Company issued a one-year $80,000 face value interest-bearing note with a stated interest rate of 9% to Galaxy Bank. Jackson accrues interest expense on December 31, Year 1, its calendar year-end.What is the amount of interest expense and the cash outflow for interest during the year ending December 31, Year 1? 
A)Option A
B)Option B
C)Option C
D)Option D

Accepted Answer

The answer of On August 1, Year 1, Jackson Company...

Question 11

On August 1, Year 1, Jackson Company issued a one-year $50,000 face value interest-bearing note with a stated interest rate of 9% to Galaxy Bank. Jackson accrues interest expense on December 31, Year 1, its calendar year-end. What is the cash flow from financing activities that will be reported during the year ending December 31, Year 1?
A)$0
B)$50,000 inflow
C)$51,875 inflow
D)($54,500)outflow

Accepted Answer

The cash flow from financing activities for the year ending December 31, Year 1, is the inflow from issuing the note, which is $50,000. The interest expense is not considered a financing activity but an operating activity.

Question 12

On August 1, Year 1, Jackson Company issued a one-year $52,000 face value interest-bearing note with a stated interest rate of 9% to Galaxy Bank. Jackson accrues interest expense on December 31, Year 1, its calendar year-end. What is the amount of interest expense and the cash outflow for interest during the year ending December 31, Year 1? (Do not round your intermediate calculations.)

A)Option A
B)Option B
C)Option C
D)Option D

Accepted Answer

The answer of On August 1, Year 1, Jackson Company...

Question 13

When the direct method is used to prepare the operating activities section of the statement of cash flows, cash inflows from customers and cash outflows for depreciation are among the categories of cash flows likely to be reported.

Accepted Answer

Depreciation expense is a noncash expense.

Question 14

On August 1, Year 1, Jackson Company issued a one-year $80,000 face value interest-bearing note with a stated interest rate of 9% to Galaxy Bank. Jackson accrues interest expense on December 31, Year 1, its calendar year-end.What is the amount of interest expense and the total cash outflow related to the note during the year ending December 31, Year 2? 
A)Option A
B)Option B
C)Option C
D)Option D

Accepted Answer

The answer of On August 1, Year 1, Jackson Company...

Question 15

How is the cash paid to purchase land reported in the statement of cash flows?
A)Cash outflow from financing activities
B)Schedule of noncash investing and financing activities
C)Cash outflow from investing activities
D)Cash inflow from operating activities

Accepted Answer

When cash is used to purchase land, it is considered a cash outflow from investing activities. This is because the purchase of land is considered an investment in a long-term asset, rather than a financing or operating activity. Therefore, the cash paid to purchase land would be reported as a negative number in the cash flow statement under the section for investing activities. The purchase of land is considered an investing activity, as it involves acquiring a long-term asset that will be used in the operation of the business. Therefore, the cash paid to purchase land would be reported as a cash outflow from investing activities in the statement of cash flows.

Question 16

During Year 1, El Paso Company had the following changes in account balances:The Accumulated Depreciation account had a beginning balance of $25,000 and an ending balance of $35,000. The increase was due to depreciation expense.The Long-Term Notes Payable account had a beginning balance of $40,000 and an ending balance of $15,000. The decrease was due to repayment of debt.The Equipment Account had a beginning balance of $25,000 and an ending balance of $92,500. The increase was due to the purchase of other operational assets.The Long-Term Investments Account (Marketable Securities)had a beginning balance of $18,000 and an ending balance of $12,500. The decrease was due to the sale of investments at cost.The Dividends Payable account had a beginning balance of $12,000 and an ending balance of $10,000. There were $20,000 of dividends declared during the period.The Interest Payable account had a beginning balance of $2,250 and an ending balance of $1,250. The difference was due to the payment of interest.What is the net cash flow from investing activities?
A)$62,000 outflow
B)$62,000 inflow
C)$67,500 outflow
D)$73,000 outflow

Accepted Answer

The net cash flow from investing activities includes the purchase of equipment ($67,500 outflow) and the sale of long-term investments ($5,500 inflow). The net cash flow is $67,500 - $5,500 = $62,000 outflow.

Question 17

The amount of increase in accounts receivable is added to credit sales to calculate the amount of cash inflow from customers when using the direct method to prepare the operating activities section of the statement of cash flows.

Accepted Answer

Increases in accounts receivable are deducted from credit sales to determine cash collections from customers.

Question 18

How are cash receipts from interest on a note receivable classified on a statement of cash flows prepared using the direct method?
A)Operating activity
B)Investing activity
C)Financing activity
D)Noncash financing and investing activity

Accepted Answer

Cash receipts from interest on a note receivable are considered as operating activities because they arise from the company's primary business operations. Cash receipts from interest on a note receivable are classified as operating activities on a statement of cash flows prepared using the direct method. Operating activities include transactions and events that are part of a company's primary business activities, such as the receipt of interest revenue from loans and notes receivable.

Question 19

On August 1, Year 1, Jackson Company issued a one-year $80,000 face value interest-bearing note with a stated interest rate of 9% to Galaxy Bank. Jackson accrues interest expense on December 31, Year 1, its calendar year-end. What is the cash flow from financing activities that will be reported during the year ending December 31, Year 1?
A)$0
B)$80,000 inflow
C)$83,000 inflow
D)($87,200)outflow

Accepted Answer

The cash flow from financing activities for the year ending December 31, Year 1, is the inflow of $80,000 from issuing the note. Interest payments are not considered financing activities.

Question 20

On August 1, Year 1, Jackson Company issued a one-year $44,000 face value interest-bearing note with a stated interest rate of 9% to Galaxy Bank. Jackson accrues interest expense on December 31, Year 1, its calendar year-end. What is the amount of interest expense and the total cash outflow related to the note during the year ending December 31, Year 2? (Do not round your intermediate calculations.)

A)Option A
B)Option B
C)Option C
D)Option D

Accepted Answer

The answer of On August 1, Year 1, Jackson Company...

Quiz 12: Statement of Cash Flows

Valdez Company sold land that had cost $48,000 for $60,000 cash.Which of the following statements is true about this transaction?

Which of the following items appear on the statement of cash flows?

Which of the following would not be a cash flow from financing activities?

Assuming a transaction increases interest receivable and interest revenue, what effect does it have on the amount of cash generated by operating activities?

How would the issuance of a mortgage note in exchange for a building be reported on the statement of cash flows?

The direct method of preparing the operating activities section of the statement of cash flows shows increases and decreases in noncash current assets and current liabilities to arrive at cash flows from operating activities.

When the direct method is used to prepare the operating activities section of the statement of cash flows, cash inflows from customers and cash outflows for depreciation are among the categories of cash flows likely to be reported.

How is the cash paid to purchase land reported in the statement of cash flows?

The amount of increase in accounts receivable is added to credit sales to calculate the amount of cash inflow from customers when using the direct method to prepare the operating activities section of the statement of cash flows.

How are cash receipts from interest on a note receivable classified on a statement of cash flows prepared using the direct method?