Question 1

Martel Co. had supplies of $24,000 and $33,000 at the end of 2017 and 2018, respectively. During 2018, Howard paid $128,000 for supplies. Supplies expense in the 2018 income statement was:

Accepted Answer

$128,000 - $9,000 increase in supplies = $119,000.

Question 2

The FASB's stated preference for reporting operating cash flows is the:

Accepted Answer

The FASB has expressed a preference for the direct method of reporting operating cash flows. This method provides more detailed information about the sources and uses of cash within a company's operations. However, it is also more time-consuming and costly to implement compared to the indirect method. Despite the preference, the indirect method is still widely used in practice.

Question 3

Arrow Printers paid $2,000 interest on short-term notes payable, $10,000 interest on long-term bonds, and $6,000 in dividends on its common stock. Arrow would report cash outflows from activities, as follows:

Accepted Answer

Interest expenses and dividend payments are typically classified as financing activities in the statement of cash flows. Therefore, the $2,000 interest on short-term notes payable and the $10,000 interest on long-term bonds would be reported as financing outflows, totaling $12,000. And the $6,000 payment in dividends on common stock would also be reported as a financing outflow. Therefore, the total cash outflows reported in the financing section of the statement of cash flows would be $18,000. There would be no cash outflows reported in the operating section since these expenses are non-cash and non-operating.

Question 4

Nevada Boot Co. reported net income of $216,000 for its year ended December 31, 2018. Purchases totaled $152,000. Accounts payable balances at the beginning and end of the year were $36,000 and $33,000, respectively. Beginning and ending inventory balances were $44,000 and $46,000, respectively. Assuming that all relevant information has been presented, Nevada Boot would report operating cash flows of:

Accepted Answer

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Question 5

Cash flows from investing do not include cash flows from:

Accepted Answer

Cash flows from investing activities include cash transactions involved in buying and selling long-term assets and other investments, not transactions related to a corporation's own securities, which are considered financing activities.

Question 6

Howard Inc. had prepaid rent of $75,000 and $80,000 at the end of 2017 and 2018, respectively. During 2018, Howard recorded $240,000 in rent expense in its income statement. Cash outflows for rent in 2018 were:

Accepted Answer

$240,000 + $5,000 increase in prepaid rent = $245,000.

Question 7

Shady Lane's income tax payable account decreased from $14 million to $12 million during 2018. If its income tax expense was $80 million, what was shown as an operating cash flow under the direct method?

Accepted Answer

Income taxes payable: $14 million + 80 million - x = $12 million. x = $82 million.

Question 8

Stinley Co. paid utilities of $134,000 during 2018. At the end of 2018, utilities payable equals $17,000 and utilities expense equals $145,000. What was the balance of utilities payable at the beginning of 2018?

Accepted Answer

$17,000 - $145,000 utilities expense + $134,000 utilities paid = $6,000.

Question 9

Schneider Inc. had salaries payable of $60,000 and $90,000 at the end of 2017 and 2018, respectively. During 2018, Schneider recorded $620,000 in salaries expense in its income statement. Cash outflows for salaries in 2018 were:

Accepted Answer

$620,000 - $30,000 increase in salaries payable = $590,000.

Question 10

Shively Mfg. Co. sold for $18,000 equipment that cost $40,000 and had a book value of $30,000. Shively would report:

Accepted Answer

The sale of equipment is an investing activity and would result in an investing cash inflow. The amount received for the sale of the equipment, $18,000, would be reported in the statement of cash flows as an investing cash inflow. The cost and book value amounts are not relevant to the determination of the cash inflow from the sale of the equipment.

Question 11

Cash flows from investing do not include cash flows from:

Accepted Answer

Cash flows from investing activities include the purchase and sale of long-term assets such as equipment, property, and investments in other companies. Lending money to another corporation and purchasing other corporation's securities are cash flows from financing activities. Borrowing is a cash flow from financing activities as well.

Question 12

Tropical Tours reported revenue of $400,000 for its year ended December 31, 2018. Accounts receivable at December 31, 2017 and 2018, were $35,000 and $32,000, respectively. Using the direct method for reporting cash flows from operating activities, Tropical Tours would report cash collected from customers of:

Accepted Answer

11ea937b_365a_28b0_a419_bb9a89cb29d1_TB2599_00 Cash collections = $35,000 + 400,000 - 32,000 = $403,000

Question 13

Bird Brain Co. reported net income of $45,000 for the year ended December 31, 2018. January 1 balances in accounts receivable and accounts payable were $23,000 and $26,000 respectively. Year-end balances in these accounts were $22,000 and $28,000, respectively. Assuming that all relevant information has been presented, Bird Brain's cash flows from operating activities would be:

Accepted Answer

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Question 14

Lucia Ltd. reported net income of $135,000 for the year ended December 31, 2018. January 1 balances in accounts receivable and accounts payable were $29,000 and $26,000, respectively. Year-end balances in these accounts were $30,000 and $24,000, respectively. Assuming that all relevant information has been presented, Lucia's cash flows from operating activities would be:

Accepted Answer

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Question 15

Rowdy's Restaurants Cash Flow ($ in millions)  
-Rowdy's would report net cash inflows (outflows) from operating activities in the amount of:

Accepted Answer

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Question 16

Hong Kong Clothiers reported revenue of $5,000,000 for its year ended December 31, 2018. Accounts receivable at December 31, 2017 and 2018, were $320,000 and $355,000, respectively. Using the direct method for reporting cash flows from operating activities, Hong Kong Clothiers would report cash collected from customers of:

Accepted Answer

11ea937b_365a_4fc1_a419_ef10078c606e_TB2599_00 Cash collections = $320,000 + 5,000,000 - 355,000 = $4,965,000

Question 17

Which of the following is added to net income as an adjustment under the indirect method of preparing the statement of cash flows?

Accepted Answer

A loss on the sale of equipment is added back to net income because it is a non-cash expense that reduced net income but did not affect cash flow.

Question 18

Cash flows from investing activities do not include:

Accepted Answer

Cash flows from investing activities refer to cash inflows and outflows related to investments in long-term assets such as property, plant, and equipment, and investments in securities. Proceeds from issuing bonds are considered financing activities, not investing activities.

Question 19

Cash flows from financing activities include:

Accepted Answer

Cash flows from financing activities include transactions that involve raising capital or repaying debts, such as dividends paid to shareholders. A, B, and C are cash flows from operating and investing activities.

Question 20

In the operating activities section of the statement of cash flows, we start with net income:

Accepted Answer

The indirect method starts with net income and adjusts for non-cash items and changes in working capital to arrive at cash flows from operating activities. The direct method directly lists all cash inflows and outflows from operating activities.

Quiz 4: The Income Statement, Comprehensive Income, and the Statement of Cash Flows

Martel Co. had supplies of $24,000 and $33,000 at the end of 2017 and 2018, respectively. During 2018, Howard paid $128,000 for supplies. Supplies expense in the 2018 income statement was:

The FASB's stated preference for reporting operating cash flows is the:

Arrow Printers paid $2,000 interest on short-term notes payable, $10,000 interest on long-term bonds, and $6,000 in dividends on its common stock. Arrow would report cash outflows from activities, as follows:

Cash flows from investing do not include cash flows from:

Howard Inc. had prepaid rent of $75,000 and $80,000 at the end of 2017 and 2018, respectively. During 2018, Howard recorded $240,000 in rent expense in its income statement. Cash outflows for rent in 2018 were:

Shady Lane's income tax payable account decreased from $14 million to $12 million during 2018. If its income tax expense was $80 million, what was shown as an operating cash flow under the direct method?

Stinley Co. paid utilities of $134,000 during 2018. At the end of 2018, utilities payable equals $17,000 and utilities expense equals $145,000. What was the balance of utilities payable at the beginning of 2018?

Schneider Inc. had salaries payable of $60,000 and $90,000 at the end of 2017 and 2018, respectively. During 2018, Schneider recorded $620,000 in salaries expense in its income statement. Cash outflows for salaries in 2018 were:

Shively Mfg. Co. sold for $18,000 equipment that cost $40,000 and had a book value of $30,000. Shively would report:

Cash flows from investing do not include cash flows from:

Rowdy's Restaurants Cash Flow ($ in millions) -Rowdy's would report net cash inflows (outflows) from operating activities in the amount of:

Which of the following is added to net income as an adjustment under the indirect method of preparing the statement of cash flows?

Cash flows from investing activities do not include:

Cash flows from financing activities include:

In the operating activities section of the statement of cash flows, we start with net income: