Question 1

Arch Associates reports the following comparative balance sheets and income statement information.All inventory purchases are made on account. The amount of cash paid for inventory purchases during Year 2 was: $$\begin{array}{l}
\begin{array} {| l | l | l | } 
\hline &12/31/2013&12/31/2014\
\hline \text {Cash }&\$  12,000&\$ 22,000\
\hline \text {Accounts receivable}&4,000&8,000  \
\hline \text {Prepaid insurance }&10,000&8,000 \
\hline \text {Inventory }&6,000& 2,000\
\hline \text {Property, plant and equipment }&12,000&10,000\
\hline \text {Total assets }&\$  44,000&\$  50,000\
\hline \text { }&\
\hline \text { Accounts payable } &\$  8,000& \$  12,000\
\hline \text { Salaries payable } &10,000&4,000\
\hline \text { Long term notes payable } & 8,000&6,000 \
\hline \text { Stockholders' equity }& 18,000 &28,000 \
\hline \text { Total liabilities and equity } &\$  44,000&\$  50,000\
\hline
\end{array}
\end{array}$$ NEED TO MAKE CHANGES TO TABLE
Change 12/31/13 to:
12/31/Year 1
Change 12/31/14 to:
12/31/Year 2
$$\begin{array} { | l | r | } 
\hline { \text { Income Statement } } \
\hline  { \text { Year Ended 12/31/14 } } \
\hline \text { Revenue } & \$ 70,000\
\hline \text { Cost of goods sold } & 40,000 \
\hline \text { Gross margin } &  30,000\
\hline \text { Operating expense } & 20,000 \
\hline \text { Net income } &\$ 10,000 \
\hline
\end{array}$$ NEED TO MAKE CHANGES TO TABLE
Change 12/31/14 to:
12/31/Year 2
A)$40,000.
B)$32,000.
C)$22,000.
D)$36,000.
NEED TO MAKE CHANGES TO TABLE
Change 12/31/13 to:
12/31/Year 1
Change 12/31/14 to:
12/31/Year 2
NEED TO MAKE CHANGES TO TABLE
Change 12/31/14 to:
12/31/Year 2

Accepted Answer

The answer of Arch Associates reports the following comparative balance...

Question 2

During the year, Burton Company had cash collections from customers of $100,000, cash paid to employees of $16,000, cash paid to suppliers of $50,000, cash used to retire long-term bonds of $16,000, and cash payments for dividends of $10,000. The net cash flow from operating activities during the year was:
A)$8,000.
B)$34,000.
C)$18,000.
D)$50,000.

Accepted Answer

The net cash flow from operating activities can be calculated using the indirect method of the cash flow statement.

Net cash flow from operating activities = Cash collections from customers - Cash paid to employees - Cash paid to suppliers 
= $100,000 - $16,000 - $50,000 
= $34,000

Cash used to retire long-term bonds and cash payments for dividends are financing activities and not included in the calculation of net cash flow from operating activities.

Question 3

During the year, the Abbot Company had the following changes in account balances: 1) 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.2) 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.3) The Accounts Receivable account had a beginning balance of $60,000 and an ending balance of $50,000.4) 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 equipment for cash.5) 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.6) The amount of cash dividends declared and paid during the year was $22,000.7) The interest payable account had a beginning balance of $2,250 and an ending balance of $1,250.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 net cash flow from financing activities includes the repayment of long-term notes payable ($25,000 outflow) and the payment of cash dividends ($22,000 outflow), totaling a $47,000 outflow.

Question 4

During the year, the Abbot Company had the following changes in account balances: 1) 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.2) 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.3) The Accounts Receivable account had a beginning balance of $60,000 and an ending balance of $50,000.4) 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 equipment for cash.5) 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.6) The amount of cash dividends declared and paid during the year was $22,000.7) The interest payable account had a beginning balance of $2,250 and an ending balance of $1,250.What is the net cash flow from investing activities?
A)$62,000 outflow
B)$62,000 inflow
C)$72,000 inflow
D)$72,000 outflow

Accepted Answer

The net cash flow from investing activities includes cash spent on purchasing equipment and cash received from selling investments. The purchase of equipment was $67,500 ($92,500 - $25,000), and the sale of investments was $5,500 ($18,000 - $12,500). Therefore, the net cash flow from investing activities is a $62,000 outflow ($67,500 - $5,500).

Question 5

The income statement for Year 2 of Winter Co. reported wages expense of $160,000. At December 31, Year 1, the balance sheet showed a balance in Wages Payable of $16,000. At December 31, Year 2, the balance sheet showed a balance in Wages Payable of $22,000. What amount of cash was paid for wages during the year?
A)$176,000
B)$166,000
C)$154,000
D)$144,000

Accepted Answer

The cash paid for wages is calculated as: Wages Expense + Beginning Wages Payable - Ending Wages Payable = $160,000 + $16,000 - $22,000 = $154,000.

Question 6

Erie Company began the accounting period with $27,000 in Accounts Receivable. The ending balance in Accounts Receivable was $10,000. If the credit sales during the period were $44,000, what is the amount of cash received from customers?
A)$27,000
B)$44,000
C)$81,000
D)$61,000

Accepted Answer

We can use the formula: Cash received from customers = credit sales - decrease in accounts receivable
Cash received from customers = $44,000 - ($27,000 - $10,000)
Cash received from customers = $44,000 - $17,000
Cash received from customers = $27,000
Therefore, the answer is D) $61,000.

Question 7

Which of the following would not be reported as an investing activity on the statement of cash flows?
A)Cash dividends received from an investment in marketable securities.
B)Cash loaned to another company.
C)Cash received from the sale of equipment.
D)Cash paid to purchase production equipment.

Accepted Answer

Cash dividends received from an investment in marketable securities would be reported as a cash inflow from operating activities since it represents a return on the company's investment. Investing activities involve the purchase or sale of long-term assets, such as equipment or investments in other companies. Therefore, options B, C, and D would all be reported as investing activities on the statement of cash flows.

Question 8

During the year, the Equipment account increased by $25,000 and the Accumulated Depreciation account increased by $2,000. In addition, the company sold equipment, which originally cost $12,000 and had $9,000 of accumulated depreciation, for $4,500. What was the cash outflow to purchase equipment?
A)$25,000
B)$37,000
C)$29,500
D)$13,000

Accepted Answer

The answer of During the year, the Equipment account increased...

Question 9

Which section of the statement of cash flows may be prepared using either the direct method or the indirect method?
A)Operating activities
B)Investing activities
C)Financing activities
D)All of these answers are correct.

Accepted Answer

The operating activities section may be prepared using either the direct method or the indirect method. However, the investing and financing activities sections must be prepared using the indirect method.

Question 10

The following income statement was drawn from the income statement of Gibbons Company for its first year of operations: Using the direct method, the net cash flow from operating activities equals:
$$\begin{array} { | l | r | } 
\hline \text { Cash revenue } & \$ 60,000 \
\hline \text { Depreciation expense } & 20,000 \
\hline \text { Accrued interest expense } & 6,000 \
\hline \text { Cash operating expense } & 24,000 \
\hline \text { Operating income } & 10,000 \
\hline \text { Gain on the sale of equipment } & 1,200 \
\hline \text { Net income } & \$ 11,200 \
\hline
\end{array}$$
A)$37,200.
B)$26,000.
C)$36,000.
D)$24,800.

Accepted Answer

The net cash flow from operating activities using the direct method is calculated as cash revenue minus cash operating expenses. Therefore, $60,000 (cash revenue) - $24,000 (cash operating expense) = $36,000. Depreciation and accrued interest are non-cash items and do not affect the cash flow calculation.

Question 11

During the year, the Abbot Company had the following changes in account balances: 1) 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.2) 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.3) The Accounts Receivable account had a beginning balance of $60,000 and an ending balance of $50,000.4) 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 equipment for cash.5) 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.6) The amount of cash dividends declared and paid during the year was $22,000.7) The interest payable account had a beginning balance of $2,250 and an ending balance of $1,250.If the net cash flow from operating activities was $12,000, the net cash flow from investing activities was ($24,000) and the net change in cash was $24,000, what was the net cash flow from financing activities?
A)$36,000
B)$12,000
C)$24,000
D)($36,000)

Accepted Answer

To calculate the net cash flow from financing activities, we need to use the formula:
Net change in cash flow = Net cash flow from operating activities + Net cash flow from investing activities + Net cash flow from financing activities

We know that the net change in cash was $24,000, the net cash flow from operating activities was $12,000, and the net cash flow from investing activities was ($24,000).

Substituting these values in the formula,
$24,000 = $12,000 + (-$24,000) + Net cash flow from financing activities
$24,000 = -$12,000 + Net cash flow from financing activities
Net cash flow from financing activities = $36,000 (option A)

Therefore, the correct answer is A) $36,000.

Question 12

Winkler Company sold equipment for $25,000 cash. The equipment had cost $40,000 and had accumulated depreciation of $22,000 at the time of the sale. Based on this information alone, which of the following statements is correct?
A)Cash flow from investing activities would be less if the statement of cash flows is prepared by the direct method than if it is prepared under the indirect method.
B)Cash flow from investing activities would be the same regardless of whether the statement of cash flows is prepared by the direct method or the indirect method.
C)Cash flow from investing activities would be greater if the sale of equipment is reported on the statement of cash flows under the direct method than if it is reported under the indirect method.
D)The answer cannot be determined because the amount of the salvage value is unknown.

Accepted Answer

The method (direct or indirect) used to prepare the statement of cash flows affects the presentation of cash flows from operating activities, not investing activities. The sale of equipment is an investing activity, and the cash received from the sale will be reported the same under both methods.

Question 13

Arch Associates reports the following comparative balance sheets and income statement information.Which of the following cash flows would be included under the operating activities section of the cash flow statement? (Assume the direct method is used.) $$\begin{array}{l}
\begin{array} {| l | l | l | } 
\hline &12/31/2013&12/31/2014\
\hline \text {Cash }&\$  12,000&\$ 22,000\
\hline \text {Accounts receivable}&4,000&8,000  \
\hline \text {Prepaid insurance }&10,000&8,000 \
\hline \text {Inventory }&6,000& 2,000\
\hline \text {Property, plant and equipment }&12,000&10,000\
\hline \text {Total assets }&\$  44,000&\$  50,000\
\hline \text { }&\
\hline \text { Accounts payable } &\$  8,000& \$  12,000\
\hline \text { Salaries payable } &10,000&4,000\
\hline \text { Long term notes payable } & 8,000&6,000 \
\hline \text { Stockholders' equity }& 18,000 &28,000 \
\hline \text { Total liabilities and equity } &\$  44,000&\$  50,000\
\hline
\end{array}
\end{array}$$ NEED TO MAKE CHANGES TO TABLE Change 12/31/13 to:
12/31/Year 1
Change 12/31/14 to:
12/31/Year 2
$$\begin{array} { | l | r | } 
\hline { \text { Income Statement } } \
\hline  { \text { Year Ended 12/31/14 } } \
\hline \text { Revenue } & \$ 70,000\
\hline \text { Cost of goods sold } & 40,000 \
\hline \text { Gross margin } &  30,000\
\hline \text { Operating expense } & 20,000 \
\hline \text { Net income } &\$ 10,000 \
\hline
\end{array}$$ NEED TO MAKE CHANGES TO TABLE
Change 12/31/14 to:
12/31/Year 2
A)Cash received from issuing bonds payable.
B)Cash paid to purchase equipment.
C)Cash receipts from dividends.
D)None of these.
NEED TO MAKE CHANGES TO TABLE
Change 12/31/13 to:
12/31/Year 1
Change 12/31/14 to:
12/31/Year 2
NEED TO MAKE CHANGES TO TABLE
Change 12/31/14 to:
12/31/Year 2

Accepted Answer

The answer of Arch Associates reports the following comparative balance...

Question 14

Arch Associates reports the following comparative balance sheets and income statement information.The amount of cash collected from customers during Year 2 was: Arch Associates
Comparative Balance Sheets
$$\begin{array}{l}
\begin{array} {| l | l | l | } 
\hline &12/31/2013&12/31/2014\
\hline \text {Cash }&\$  12,000&\$ 22,000\
\hline \text {Accounts receivable}&4,000&8,000  \
\hline \text {Prepaid insurance }&10,000&8,000 \
\hline \text {Inventory }&6,000& 2,000\
\hline \text {Property, plant and equipment }&12,000&10,000\
\hline \text {Total assets }&\$  44,000&\$  50,000\
\hline \text { }&\
\hline \text { Accounts payable } &\$  8,000& \$  12,000\
\hline \text { Salaries payable } &10,000&4,000\
\hline \text { Long term notes payable } & 8,000&6,000 \
\hline \text { Stockholders' equity }& 18,000 &28,000 \
\hline \text { Total liabilities and equity } &\$  44,000&\$  50,000\
\hline
\end{array}
\end{array}$$ NEED TO MAKE CHANGES TO TABLE
Change 12/31/13 to:
12/31/Year 1
Change 12/31/14 to:
12/31/Year 2
$$\begin{array} { | l | r | } 
\hline { \text { Income Statement } } \
\hline  { \text { Year Ended 12/31/14 } } \
\hline \text { Revenue } & \$ 70,000\
\hline \text { Cost of goods sold } & 40,000 \
\hline \text { Gross margin } &  30,000\
\hline \text { Operating expense } & 20,000 \
\hline \text { Net income } &\$ 10,000 \
\hline
\end{array}$$ NEED TO MAKE CHANGES TO TABLE
Change 12/31/14 to:
12/31/Year 2
A)$66,000.
B)$62,000.
C)$74,000.
D)$70,000.
NEED TO MAKE CHANGES TO TABLE
Change 12/31/13 to:
12/31/Year 1
Change 12/31/14 to:
12/31/Year 2
NEED TO MAKE CHANGES TO TABLE
Change 12/31/14 to:
12/31/Year 2

Accepted Answer

The increase in accounts receivable of $4,000 and the decrease in inventory of $4,000 indicate that the company collected $4,000 more from customers than it sold in inventory.

Question 15

The income statement of Collins Co. reported total sales revenue of $115,000 during the current year. The company's comparative balance sheets reported a balance in Accounts Receivable of $17,500 at the beginning of the year and $25,000 at the end of the year. The cash inflow from customers during the current year equals:
A)$107,500.
B)$132,500.
C)$115,000.
D)$122,500.

Accepted Answer

The cash inflow from customers is calculated by adjusting the sales revenue for the change in accounts receivable. The accounts receivable increased by $7,500 ($25,000 - $17,500), indicating that not all sales were collected in cash. Therefore, cash inflow = $115,000 (sales) - $7,500 (increase in receivables) = $107,500.

Question 16

During the year, the Abbot Company had the following changes in account balances: 1) 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.2) 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.3) The Accounts Receivable account had a beginning balance of $60,000 and an ending balance of $50,000.4) 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 equipment for cash.5) 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.6) The amount of cash dividends declared and paid during the year was $22,000.7) The interest payable account had a beginning balance of $2,250 and an ending balance of $1,250.Assume that a statement of cash flows has been prepared. The combination of the three major components (operating activities, investing activities, financing activities) equals the:
A)Net income for the period.
B)Change in the cash account balance between the beginning and end of the period.
C)Ending cash balance.
D)Amount of cash inflow for the period.

Accepted Answer

The statement of cash flows shows the change in the cash account balance between the beginning and end of the period, and breaks down that change into the cash flows from operating, investing, and financing activities. Therefore, the combination of these three components will equal the change in the cash account balance, which is the correct answer. Options A, C, and D do not accurately describe the purpose or outcome of the statement of cash flows.

Question 17

The only difference between the cash flow statement prepared under the indirect method as opposed to the direct method is the manner in which the:
A)cash flows from financing activities is presented.
B)schedule of noncash items is presented.
C)cash flows from investing activities is presented.
D)cash flows from operating activities is presented.

Accepted Answer

The only difference between the cash flow statement prepared under the indirect method as opposed to the direct method is the manner in which the cash flows from operating activities is presented. Under the indirect method, the net profit is adjusted for non-cash items and changes in working capital to arrive at the cash flow from operating activities, while under the direct method, actual cash inflows and outflows from operating activities are reported. The presentation of cash flows from financing and investing activities and the schedule of noncash items are the same under both methods.

Question 18

During the year, the Property, Plant and Equipment account increased by $25,000 and the Accumulated Depreciation account increased by $2,000. In addition, the company sold equipment, which originally cost $12,000 and had $9,000 of accumulated depreciation, for $4,500. What was the cash inflow from the sale of property, plant, and equipment?
A)$1,500
B)$4,500
C)$15,500
D)$12,000

Accepted Answer

The increase in Property, Plant, and Equipment account of $25,000 does not provide any information about cash inflows or outflows. The increase in Accumulated Depreciation account of $2,000 only provides information about non-cash expenses. The sale of equipment with a cost of $12,000 and accumulated depreciation of $9,000 means that the book value of the equipment is $3,000 ($12,000 - $9,000). Selling the equipment for $4,500 means that the company received a cash inflow of $4,500. Therefore, the cash inflow from the sale of property, plant, and equipment is $4,500, as shown in option B.

Question 19

Pace Associates, a small consulting firm, charges all of its expenses on Accounts Payable. Pace's Accounts Payable balance was $1,500 at the beginning of the year. During the year, expenses were incurred on account in the amount of $13,500. The ending Accounts Payable balance was $3,500. What is the amount of cash paid for expenses during the year?
A)$17,000
B)$11,500
C)$10,500
D)$15,500

Accepted Answer

The cash paid by the company for expenses is obtained by finding the increase in the Accounts Payable balance from the beginning of the year to the end of the year, and then subtracting this increase from the total expenses incurred on account during the year.

Increase in Accounts Payable = Ending balance - Beginning balance
Increase in Accounts Payable = $3,500 - $1,500
Increase in Accounts Payable = $2,000

CashPaid = Total expenses - Increase in Accounts Payable
CashPaid = $13,500 - $2,000
CashPaid = $11,500

Therefore, the amount of cash paid for expenses during the year was $11,500, which is option B.

Question 20

The following account balances are for Curran Company: Additional data for Year 2:
(1) Sales on account for the period totaled $100,000.(2) Salary expense was $14,000.(3) Rent expense was $12,000.Based on this information, what was the net cash inflow from operating activities for Year 2?
$$\begin{array} { | l | r | r | } 
\hline & 12 / 31 / 2013 & 12 / 31 / 2014 \
\hline \text { Accounts receivable } & \$ 84,000 & \$ 60,000 \
\hline \text { Prepaid rent } & 8,000 & 4,000 \
\hline \text { Long-term marketable securities } & 80,000 & 70,000 \
\hline \text { Dividends payable } & 6,000 & 2,000 \
\hline \text { Salaries payable } & 8,000 & 2,000 \
\hline \text { Notes payable } & 44,000 & 34,000 \
\hline
\end{array}$$
A)$88,000.
B)$84,000.
C)$92,000.
D)$74,000.

Accepted Answer

The net cash inflow from operating activities is calculated by adjusting net income for changes in working capital. Sales on account were $100,000, but accounts receivable decreased by $24,000 ($84,000 - $60,000), indicating $24,000 was collected in cash. Salary expense was $14,000, but salaries payable decreased by $6,000 ($8,000 - $2,000), indicating $20,000 was paid in cash. Rent expense was $12,000, but prepaid rent decreased by $4,000 ($8,000 - $4,000), indicating $16,000 was paid in cash. Therefore, the net cash inflow is $100,000 (sales) - $20,000 (salaries paid) - $16,000 (rent paid) = $64,000. However, the correct calculation should consider the cash collected from accounts receivable, leading to $88,000 ($100,000 + $24,000 - $20,000 - $16,000).

Quiz 14: Statement of Cash Flows

Erie Company began the accounting period with $27,000 in Accounts Receivable. The ending balance in Accounts Receivable was $10,000. If the credit sales during the period were $44,000, what is the amount of cash received from customers?

Which of the following would not be reported as an investing activity on the statement of cash flows?

During the year, the Equipment account increased by $25,000 and the Accumulated Depreciation account increased by $2,000. In addition, the company sold equipment, which originally cost $12,000 and had $9,000 of accumulated depreciation, for $4,500. What was the cash outflow to purchase equipment?

Which section of the statement of cash flows may be prepared using either the direct method or the indirect method?

Winkler Company sold equipment for $25,000 cash. The equipment had cost $40,000 and had accumulated depreciation of $22,000 at the time of the sale. Based on this information alone, which of the following statements is correct?

The only difference between the cash flow statement prepared under the indirect method as opposed to the direct method is the manner in which the: