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Exam 12: Reporting and Analyzing Cash Flows

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Question 91

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Activities that involve the production or purchase of merchandise and the sale of goods and services to customers, including expenditures related to administering the business, are classified as:

A) Financing activities
B) Investing activities
C) Operating activities
D) Direct activities
E) Indirect activities

F) A) and E)
G) A) and D)

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Question 92

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The indirect method for the preparation of the operating activities section of the statement of cash flows:

A) Separately lists each major item of operating cash receipts.
B) Separately lists each major item of operating cash payments.
C) Reports net income and then adjusts it for items necessary to determine net cash provided or used by operating activities.
D) Is required if the company is a merchandiser.
E) Must not be used in all circumstances.

F) All of the above
G) B) and E)

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Question 93

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The statement of cash flows explains how transactions and events impact the end-of-period cash balance to produce the end-of-period net income balance.

Use the following information to calculate cash paid for salaries: $\begin{array}{|l|r|}\hline \text { Salaries expense } & \$ 79,000 \\\hline \text { Salaries payable, January 1 } & 6,400 \\\hline \text { Salaries payable, December } 31 & 3,320\\\hline\end{array}$

Which one of the following is representative of typical cash flows from operating activities?

Based on the following income statement and balance sheet for Rashid Corporation, determine the cash flows from operating activities using the indirect method. $\begin{array}{c} \text { RASHID CORPORATION } \\ \text { Income Statement } \\ \text { For Year Ended December 31, 2013 } \\\begin{array}{|l|r|r|}\hline \text { Sales } & & \$ 504,000 \\\hline \text { Cost of goods sold } & \$ 327,600 & \\\hline \text { Depreciation expense } & 42,000 & \\\hline \text { Other operating expenses } & 125,500 & (495,100) \\\hline \text { Other gains (losses): }\\\hline{\text { Gain on sale of equipment }} && \underline{7,200} \\\hline \text { Income before taxes } & & \$ 16,100 \\\hline \text { Income tax expense } & & (4,800) \\\hline \text { Net income } & & \$ 11,300\\\hline\end{array}\end{array}$ $\begin{array}{c} \text { RASHID CORPORATION } \\ \text { Balance Sheets } \\ \text { At December 31 } \\\begin{array}{|l|r|r|}\hline &2013&2012\\\hline \text { Assets }\\\hline \text { Cash } & \$ 64,650 & \$ 55,800 \\\hline \text { Accounts receivable } & 21,000 & 29,000 \\\hline \text { Inventory } & 58,000 & 52,100 \\\hline \text { Equipment } & 240,000 & 222,000 \\\hline \text { Accumulated depreciation } & (106,000) & (96,000) \\\hline \text { Total assets } & \$ 277,650 & \$ 262,900 \\\hline \\\hline \text { Liabilities: }\\\hline \text { Accounts payable } & \$ 28,400 & \$ 23,700 \\\hline \text { Income taxes payable } & \underline{1,050} & \underline{1,200} \\\hline \text { Total liabilities } & \$ 29,450 & \$ 24,900 \\\hline \text { Equity }\\\hline \text { Common stock } & \$ 106,000 & \$ 106,000 \\\hline \text { Contributed Capital in excess of par value } & 18,000 & 18,000 \\\hline \text { Retained earnings } & \underline{124,200} & \underline{114,000} \\\hline \text { Total equity } & \$ 248,200 & \$ 238,000 \\\hline \text { Total liabilities and equity } & \$ 277,650 & \$ 262,900 \\\hline\end{array}\end{array}$

When analyzing the changes on a spreadsheet used to prepare a statement of cash flows, the cash flows from financing activities generally affect:

Both cash dividends received and interest received are considered to be investing inflows.

Define and discuss the differences between operating, investing, and financing activities.

Explain the what value separating cash flows into operating activities, investing activities, and financing activities has to financial statement users when it comes analyzing cash flows and the company's financial condition.