Which method is used by majority of US companies to report cashflows from operating activities?
Accrual method
Direct method
Indirect method
Computational method
Which of the following is incorrect regardingthe financing activities section of a statement of cash flows?
Increases in contributed capital suggest cash inflows occurredfrom issuing equity instruments.
Decreases in long-term debt balances suggest cash outflowsoccurred for payment of debt.
Increases in short-term notes payable suggest cash outflowsoccurred from issuing notes or bonds.
Decreases in retained earnings suggest cash outflows occurred topay dividends.
Which method is used by majority of US companies to report cashflows from operating activities?
Accrual method | ||
Direct method | ||
Indirect method | ||
Computational method |
Which of the following is incorrect regardingthe financing activities section of a statement of cash flows?
Increases in contributed capital suggest cash inflows occurredfrom issuing equity instruments. | ||
Decreases in long-term debt balances suggest cash outflowsoccurred for payment of debt. | ||
Increases in short-term notes payable suggest cash outflowsoccurred from issuing notes or bonds. | ||
Decreases in retained earnings suggest cash outflows occurred topay dividends. |
Related questions
Which of the following statement is incorrectregarding the investing activities section of the statement of cashflows?
Investing activities deal with long-term liabilities (debt) andequity accounts. | ||
Increases in long-term asset balances suggest cash outflows topurchase assets. | ||
Decreases in long term asset balances suggest cash inflows fromselling assets. | ||
Investing activities involve cash purchases and cash disposalsof long-term assets. |
Which of the following statements iscorrect?
Investors need to understand that the value of a company'searnings per share is affected by its choices of accountingprinciples and assumptions. | ||
Earnings per share is calculated for a company's preferredstock. | ||
The most widely quoted measure of a company's earningsperformance is return on equity. | ||
The book value per share measures the market value of acorporation's stock. |
Which of the following statements is incorrectregarding preparing a statement of cash flows using the directmethod?
The direct method shows adjustments to net income. | ||
The direct method shows the specific sources and uses of cashthat are associated with operating activities. | ||
Noncash expenses, gains, and losses are not used in thedetermination of net cash flow from operating activities. | ||
A majority of companies use the indirect method rather than thedirect method. |
Which of the following statements regarding a process costsystem is false?
Use of a process cost system would be appropriate for a companythat manufactures luxury yachts. | ||
Unit costs are computed for each department. | ||
The number of equivalent whole units for a period takes intoaccount the stage of completion of ending work in processinventory. | ||
Unit cost is determined for a designated period of time. |
Statement of Cash Flows Using a Work SheetâIndirect Method (Appendix)
Peoria Corp. just completed another successful year, as indicated by the following income statement:
| For the Year Ended December 31, 2017 | |
| Sales revenue | $1,250,000 |
| Cost of goods sold | 700,000 |
| Gross profit | $550,000 |
| Operating expenses | 150,000 |
| Income before interest and taxes | $400,000 |
| Interest expense | 25,000 |
| Income before taxes | $375,000 |
| Income tax expense | 150,000 |
| Net income | $225,000 |
Presented here are comparative balance sheets:
| December 31 | |||
| 2017 | 2016 | ||
| Cash | $52,000 | $90,000 | |
| Accounts receivable | 180,000 | 130,000 | |
| Inventory | 230,000 | 200,000 | |
| Prepayments | 15,000 | 25,000 | |
| Total current assets | $477,000 | $445,000 | |
| Land | $750,000 | $600,000 | |
| Plant and equipment | 700,000 | 500,000 | |
| Accumulated depreciation | (250,000) | (200,000) | |
| Total long-term assets | $1,200,000 | $900,000 | |
| Total assets | $1,677,000 | $1,345,000 | |
| Accounts payable | $130,000 | $148,000 | |
| Other accrued liabilities | 68,000 | 63,000 | |
| Income taxes payable | 90,000 | 110,000 | |
| Total current liabilities | $288,000 | $321,000 | |
| Long-term bank loan payable | $350,000 | $300,000 | |
| Common stock | $550,000 | $400,000 | |
| Retained earnings | 489,000 | 324,000 | |
| Total stockholders' equity | $1,039,000 | $724,000 | |
| Total liabilities and stockholders' equity | $1,677,000 | $1,345,000 | |
Other information is as follows:
Dividends of $60,000 were declared and paid during the year.
Operating expenses include $50,000 of depreciation.
Land and plant and equipment were acquired for cash, and additional stock was issued for cash. Cash also was received from additional bank loans.
The president has asked you some questions about the year's results. She is very impressed with the profit margin of 18% (net income divided by sales revenue). She is bothered, however, by the decline in the company's cash balance during the year. One of the conditions of the existing bank loan is that the company maintain a minimum cash balance of $50,000.
Required:
1. Using the format in the chapter's appendix, prepare a statement of cash flows work sheet. If an amount box does not require an entry, leave it blank. Use the minus sign to indicate cash payments, cash outflows, or decreases in cash.
| Balances | Cash Inflows (Outflows) | |||||
| Accounts | 12/31/17 | 12/31/16 | Changes | Operating | Investing | Financing |
| Cash | $ | $ | $ | $ | $ | $ |
| Accounts Receivable | ||||||
| Inventory | ||||||
| Prepayments | ||||||
| Land | ||||||
| Plant and Equipment | ||||||
| Accumulated Depreciation | ||||||
| Accounts Payable | ||||||
| Other Accrued Liabilities | ||||||
| Income Taxes Payable | ||||||
| Long-Term Bank Loan Payable | ||||||
| Common Stock | ||||||
| Retained Earnings | ||||||
| Net Income | ||||||
| Totals | $ | $ | $ | $ | $ | $ |
| Net increase (decrease) in cash | $ | |||||
2. Prepare a statement of cash flows for 2017 using the indirect method in the Operating Activities section. Use the minus sign to indicate cash payments, cash outflows, or decreases in cash.
| Peoria Corp. | |
| Statement of Cash Flows | |
| For the Year Ended December 31, 2017 | |
| Cash Flows from Operating Activities | |
| $ | |
| Adjustments to reconcile net income to net cash provided by operating activities: | |
| $ | |
| Cash Flows from Investing Activities | |
| $ | |
| $ | |
| Cash Flows from Financing Activities | |
| $ | |
| $ | |
| $ | |
| Cash balance, December 31, 2016 | |
| Cash balance, December 31, 2017 | $ |
3. During the year Peoria experienced a decrease in cash at the end of the year due to
