ACCT 2101 Chapter Notes - Chapter 12: Accrual, Free Cash Flow, Retained Earnings

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lemonclam298

24 Dec 2017

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Statement of cash flows explains how the amount of cash on the balance sheet at the beginning of the period has become the amount of cash reported at the end of the period. Cash equivalents: short term investments who"s original maturities are three months or less and are readily convertible to cash. Cash flows from operating activities: cash in/outflows that relate directly to revenues and expenses reported on the income statement. Two methods of presenting operating activities of the statement. Direct method: reports components of cash flows from operating activities as gross receipts and gross payments. Net cash provided (used) by operating activities = inflows - outflows. Rarely used in the united states as it is more expensive to. Rarely used in the united states as it is more expensive to implement. Indirect method: takes the net income and removes any non cash items to get the net cash inflow/outflow from operating activities.

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Choose the correction answer

15. The statement of cash flowsprovides information to help investors and creditors assess thecash and noncash investing and financing transactions during theperiod.

T F

16. The net increase(decrease) in cash reported on the statement of cash flows shouldreconcile the beginning and ending cash balances reported in thecomparative balance sheets.

T F

17. Anobjective of the statement of cash flows is to

a. disclose changes during the period in all assetand all equity accounts.

b. disclose the change in working capital during theperiod.

c. provide information about the operating,investing, and financing activities of an entity during aperiod.

d. None of these answers are correct.

18. Theprimary purpose of the statement of cash flows is to provideinformation

a. about the operating, investing, and financingactivities of an entity during a period.

b. that is useful in assessing future cash flowprospects.

c. about the cash receipts and cash payments of anentity during a period.

d. about the entity's ability to meet itsobligations and to pay dividends.

19. Cash equivalents are

a. treasury bills, commercial paper, and moneymarket funds purchased with excess cash.

b. investments with original maturities of threemonths or less.

c. readily convertible into known amounts ofcash.

d. All of these answers are correct.

20. Xanthe Corporation had the following transactions occur in thecurrent year:

1. Cash sale of merchandise inventory.

2. Sale of delivery truck at book value.

3. Sale of Xanthe common stock for cash.

4. Issuance of a note payable to a bank forcash.

5. Sale of a security held as anavailable-for-sale investment.

6. Collection of loan receivable.

How many of the above items willappear as a cash inflow from investing activities on a statement ofcash flows for the current year?

a. Five items

b. Four items

c. Three items

d. Two items

erinchimpanzee626

The comparative balance sheet of Canace Products Inc. forDecember 31, 2016 and 2015, is shown as follows:

1		Dec. 31, 2016	Dec. 31, 2015
2	Assets
3	Cash	$643,460.00	$679,530.00
4	Accounts receivable (net)	566,490.00	548,320.00
5	Inventories	1,010,720.00	982,600.00
6	Investments	0.00	240,910.00
7	Land	519,510.00	0.00
8	Equipment	879,710.00	680,990.00
9	Accumulated depreciation-equipment	(243,750.00)	(200,970.00)
10	Total assets	$3,376,140.00	$2,931,380.00
11	Liabilities and Stockholdersâ Equity
12	Accounts payable (merchandise creditors)	$772,290.00	$748,770.00
13	Accrued expenses payable (operating expenses)	63,970.00	69,800.00
14	Dividends payable	8,000.00	7,040.00
15	Common stock, $2 par	56,000.00	32,000.00
16	Paid-in capital: Excess of issue price over parâcommon stock	408,000.00	192,000.00
17	Retained earnings	2,067,880.00	1,881,770.00
18	Total liabilities and stockholdersâ equity	$3,376,140.00	$2,931,380.00

The income statement for the year ended December 31, 2016, is asfollows:

1	Sales		$5,974,620.00
2	Cost of merchandise sold		2,451,470.00
3	Gross profit		$3,523,150.00
4	Operating expenses:
5	Depreciation expense	$42,780.00
6	Other operating expenses	3,099,440.00
7	Total operating expenses		3,142,220.00
8	Operating income		$380,930.00
9	Other expense:
10	Loss on sale of investments		(64,890.00)
11	Income before income tax		$316,040.00
12	Income tax expense		102,160.00
13	Net income		$213,880.00

Additional data obtained from an examination of the accounts inthe ledger for 2016 are as follows:

A.	Equipment and land were acquired for cash.
B.	There were no disposals of equipment during the year.
C.	The investments were sold for $176,020 cash
D.	The common stock was issued for cash.
E.	There was a $27,770 debit to Retained Earnings for cashdividends declared.

Prepare a statement of cash flows, using the direct method ofpresenting cash flows from operating activities. Be sure tocomplete the heading of the statement. Refer to the Labels andAmount Descriptions list provided for the exact wording of theanswer choices for text entries. Use the minus sign only toindicate the net cash outflows for each section. âDeductâ, âLessâor colons (:) will automatically appear if required.

Labels and Amount Descriptions

Cash paid for dividends

Cash paid for purchase of equipment

Cash paid for purchase of land

Cash paid for purchase of treasury stock

Cash payments for income taxes

Cash payments for merchandise

Cash payments for operating expenses

Cash received from customers

Cash received from sale of common stock

Cash received from sale of investments

December 31, 2016

Decrease in cash

Depreciation

For the Year Ended December 31, 2016

Gain on sale of investments

Increase in cash

Issuance of common stock for acquisition of land

Issuance of common stock for purchase of equipment

Loss on sale of investments

Net cash flow from financing activities

Net cash flow from investing activities

Net cash flow from operating activities

Net cash flow used for financing activities

Net cash flow used for investing activities

Net cash flow used for operating activities

Canace Products Inc.

Statement of Cash Flows

1	Cash flows from operating activities:
2
3
4
5
6
7
8	Cash flows from investing activities:
9
10
11
12
13
14	Cash flows from financing activities:
15
16
17
18
19	Cash at the beginning of the year
20	Cash at the end of the year

blushmarten502

Which of the following characteristics may result in theclassification of a liability being changed from current tononcurrent:

a) violation of a subjective acceleration clause

b) violation of a objective acceleration clause

c) a demand provision for payment

d) refiancing after the balance sheet date

Pending litigation would generally be considered:

a) nonmonetary liabilty

b) contingent liability

c) estimated liability

d) current liability

Barrons Co. current ratio is 2:1. Which of the followingtransactions would normally increase Barney's current ratio?

a) purchasing inventory on account

b) borring money by signing a long-term note

c) collecting an account receivable

d) purchasing land for cash

On multiple step income statement, gains or losses on sale ofequipment would be shown

a) before gross profit on sales

b) after gross profit on sales but before income from conitnuingoperations

c) after income from continuing operations but before incomefrom extraordinary items

d) after income before extraordinary items but before netincome

A single step income statement is a format that

a) compares the current years income with last year's income

b) recongnizes subtotals at intermediate stages such as grossmargin

c) combines revenues and gains and subtracts from them expensesand losses, resulting in income from operations

d) reports sales revenue, cost of goods sold, gross margin, andall other expenses

In contrast with a multiple-step income statement, a single stepincome statement does NOT show the amount of

a) income taxes on continuing operations

b) cost of goods sold

c) gross profit

d) earnings per share

The amount of income reported for tax purposes

a) is nomally greater than the net income reported tostockholders

b) must be computed according to GAAP

c) is used to compute earnings per share

d) may differ from the amount of income detemined for financialreporting purposes

Under the general rule of revenue recognition, revenue isrecognized when

a) marketability and market price are assured

b) a contractual agreement exists, and cash collection isassured

c) the earnings process is complete, and a valid promise ofpayment has been received

d) all related expenses have been incurred

Seaworth Company's gross sales in 2014 were 3930000. Assumingsales returns and allowances were 74000 sales discounts were 35000and freight-out was 28000 what were Seaworthy's net sales in2014?

a) 3792000

b) 3821000

c)3856000

d) 3930000

On June 30, 2014 Sonata COmpanys operating facilities inNebraska were detroyed by a flood. The loss of $700000 was notcovered by insurance. Sonata's tax rate for 2014 is 40 percent. InSonatas income statement for the year ended sept 30 2014 this eventshould be reported as an extraordinary loss of

a) 0

b) 280000

c) 420000

d) 700000

In a statement of cash flows, payments to acquire debtinstruments of other entities would typically be classified as cashoutflows for

a) financing activities

b) equity activities

c) operating activities

d) investing activities

A gain on the sale of a plan asset in the ordinary course ofbusiness should be presented in a staement of cash flows preparedusing the indirect method as

a) a cash inflow from investing activities

b) a cash inflow from financing activities

c) a deduction from net income

d) a addition to net income

In a statement of cash flows, proceeds from issuing equityinstruments should be classified as cash inflows from

a) brokerage activities

b) financing activities

c) investing activites

d) operating activities

When preparing a statement of cash flows using the indirectmethod, the amortization of trademarks should be reported as a

a) increase in cash flows from investing activities

b) reduction in cash flows from investing activities

c) increase in cash flows from operating activities

d) reduction in cash flows from operating activites

A loss in the sale of machinery in the ordinary course ofbusiness should be presented in a statement of cash flows( indirectmethod) as

a) an addition to net income

b) a deduction from net income

c) an inflow and outflow of cash

d) an outflow of cash

In preparing a statement of cash flows, which of the followingtransactions would be considered an investing activity?

a) sale of a business segment

b) Issuance of bonds payable at a discount

c) purchase of treasury stock

d) sale of capital stock

In a statement of cash flows (indirect method), depreciation istreated as an adjustment to reported net income becausedepreciation

a) is an inflow of cash to reserve account for assetreplacement

b) reduces the reported net income and involves an inflow ofcash

c) reduces the reported net inome but does not involve anoutflow of cash

d) usually represents a significant portion of operatingexpense

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ACCT 2101 Chapter Notes - Chapter 12: Accrual, Free Cash Flow, Retained Earnings

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