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    Statement of cash flows

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    1. Indicate whether the transaction is an operating activity, a financing activity, or an investing activity. Assume all purchase and sale transactions are for cash unless otherwise stated.

    Depreciation expense
    operating activity
    financing activity
    investing activity

    2. Dairy Delights reported the following information for its most recent fiscal year. Accounts payable increased $3,900; inventory decreased $2,700; net income was $6,600; and depreciation expense was $1,500. On the statement of cash flows, net cash flow from operating activities should be reported as

    $1,500
    $6,900
    $9,300
    $14,700

    3. Under which format(s) of the statement of cash flows would you expect to find a line titled "Net Cash Flow from Operating Activities?"

    Indirect Method Format Direct Method Format

    Yes Yes
    Yes No
    No Yes
    No No

    4. Sonny's Liquors, Inc. had the following cash flows during March:
    Paid for inventory
    $ 20,000

    Paid wages to employees
    40,000

    Received from cash sales
    100,000

    Paid for equipment
    60,000

    Received a loan
    70,000

    What was the cash flow from financing activities?
    $70,000 inflow
    $80,000 outflow
    $120,000 outflow
    $60,000 outflow

    5. The indirect format of the cash flow statement reconciles

    assets to liabilities and owners' equity
    accrual basis net income to cash from operations
    accrual basis net income to change in cash balance
    sales revenues to accrual basis net income

    6. Which of the following is a false statement?

    a company can have a net income for the period but have a net decrease in cash from operations
    a company that consistently reports net cash inflow from investing activities has many growth opportunities
    a company that reports a net loss for the period may not necessarily report a net cash outflow from operating activities
    depreciation expense is added back to net income to arrive at cash from operations

    7. The primary difference between the cash flows statement and all other primary external financial statements is that the cash flows statement is

    not an accrual based statement and all others are
    not prepared unless the firm is a manufacturer
    an optional statement in the external reporting package
    prepared before the end of the year and not after

    8. The following information is available to prepare a statement of cash flows:

    Cash paid to owners for dividends
    $1,000
    Cash received from customers from prior credit sales
    8,600
    Cash paid for long-term assets
    3,300
    Cash paid for income taxes
    2,700

    What are the cash flows from operations under the direct method?

    $11,300
    $ 5,900
    $ 5,300
    $ 2,600

    9. Indicate whether the transaction is an operating activity, a financing activity, or an investing activity. Assume all purchase and sale transactions are for cash unless otherwise stated.

    Payment of a cash dividend
    operating activity
    financing activity
    investing activity

    10. Which of the following is a cash flow from an investing activity?
    payment for advertising
    cash receipt from a customer for a previous credit sale
    cash received from sale of equipment
    payment of dividends

    11. Indicate whether the transaction is an operating activity, a financing activity, or an investing activity. Assume all purchase and sale transactions are for cash unless otherwise stated.

    Collection of principal from a note receivable
    operating activity
    financing activity
    investing activity

    12. Which of the following is a TRUE statement regarding the operating activities section of the statement of cash flows when the indirect format is used?
    it explains the relationship between cash flows for a period and the results of operations reported on the income statement
    it is designed to report to the reader what events caused cash to increase during the period and what events caused cash to decrease during the period
    it results in a slightly higher amount of cash from operations being reported because depreciation expense is included
    it is easier to understand and interpret correctly than when it is prepared using the direct method

    13. Indicate whether the transaction is an operating activity, a financing activity, or an investing activity. Assume all purchase and sale transactions are for cash unless otherwise stated.

    Borrow cash on a long-term note
    operating activity
    financing activity
    investing activity

    14. The direct and indirect formats are methods of preparing the

    operating activities section of a statement of cash flows
    investing activities section of a statement of cash flows
    income statement
    balance sheet

    15. A statement of cash flows has been prepared. The sum of the three major components (operating activities, investing activities, financing activities) will add up to an amount equal to

    the ending cash balance reported on the balance sheet
    net income for the period on the accrual basis
    the ending amount of working capital
    the net change in the cash account during the year

    16. When determining cash flows from operating activities using the indirect format, depreciation expense is subtracted from netincome.

    True
    False

    17. Red River Manufacturing reported a substantial net loss for the most recent accounting period. Its net cash flows for the same period

    must have been negative
    must have been positive
    could have been either negative or positive
    cannot be measured

    18. The sale of equipment is a financing activity.

    True
    False

    19. Indicate whether the transaction is an operating activity, a financing activity, or an investing activity. Assume all purchase and sale transactions are for cash unless otherwise stated.

    Collection of interest revenue on note receivable in the collection of principal from a note receivable
    operating activity
    financing activity
    investing activity

    20. A firm that has negative cash flows from operating activities and positive cash flows from investing and financing activities is experiencing prosperous growth.

    True
    False

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    https://brainmass.com/business/statement-of-cash-flows/statement-of-cash-flows-398692

    Solution Preview

    Questions

    1. Indicate whether the transaction is an operating activity, a financing activity, or an investing activity. Assume all purchase and sale transactions are for cash unless otherwise stated.

    Depreciation expense
    operating activity
    financing activity
    investing activity

    It's a non cash expenses and is added to the net profit- Operating activity.

    2. Dairy Delights reported the following information for its most recent fiscal year. Accounts payable increased $3,900; inventory decreased $2,700; net income was $6,600; and depreciation expense was $1,500. On the statement of cash flows, net cash flow from operating activities should be reported as

    $14,700

    =Net Income+ Depreciation+Increase in Accounts payable + Decrease in Inventory
    =6600+1500+3900+2700
    =$14700

    3. Under which format(s) of the statement of cash flows would you expect to find a line titled "Net Cash Flow from Operating Activities?"

    In Both
    Indirect Method Format Direct Method Format

    Yes Yes

    4. Sonny's Liquors, Inc. had the following cash flows during March:
    Paid for inventory
    $ 20,000

    Paid wages to employees
    40,000

    Received from cash sales
    100,000

    Paid for equipment
    60,000

    Received a loan
    70,000

    What was the cash flow from financing activities?
    $70,000 inflow
    5. The indirect format of the cash flow statement ...

    Solution Summary

    Solution explains Statement of cash flows

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