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Exam 16: Statement of Cash Flows

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Question 51

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Explain the value of separating cash flows into operating activities, investing activities and financing activities to financial statement users in analyzing cash flows and the company's financial performance and condition.

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By separating cash flows into three cate...

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Question 52

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___________________ activities generally include those transactions and events that affect long-term assets.

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Question 53

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Financing activities include receiving cash from issuing debt and receiving cash dividends from investments in other companies' shares.

Weston is preparing the company's statement of cash flows for the fiscal year just ended. Using the following information, determine the amount of cash flows from financing activities. Management wishes to maximize cash flows from operating activities.

Financing activities include (a) the purchase and sale of long-term assets, (b) the purchase and sale of short-term investments, and (c) lending and collecting on loans.

Information to prepare the statement of cash flows usually comes from three sources: (1) ________________________, (2) _____________________, and (3) __________________.

Sebring Company reports depreciation expense of $40,000 for Year 2. Also, equipment costing $140,000 was sold for a $5,000 gain in Year 2. The following selected information is available for Sebring Company from its comparative balance sheet. Compute the cash received from the sale of the equipment.

The indirect method separately lists each major item of operating cash receipts and cash payments.

Explain how the cash flows from operating activities section of the statement of cash flows is prepared using the direct method.

When preparing a statement of cash flows on the indirect method, which of the following is correct?

Explain how cash flows from investing and financing activities are determined.

Describe the format of the statement of cash flows, including the reporting of significant noncash investing and financing activities.

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.

A company purchased equipment for $150,000 by paying $50,000 and signing a $100,000 note payable. The entire transaction is disclosed to users on the statement of cash flows and/or in the notes to the financial statements.

A company reported average total assets of $496,000 in Year 1 and $604,000 in Year 2. Its net operating cash flow in Year 1 was $41,150 and $55,500 in Year 2. Calculate its cash flow on total assets ratio for both years. Comment on the results.

Companies have the option of using either the direct or indirect method to prepare the operating section of the statement of cash flows.

The IASB recommends that the operating section of the statement of cash flows be reported using the direct method.

Use the following information and the indirect method to calculate the net cash provided or used by operating activities: Income before taxes…………………………………………… $14,000 Depreciation expense..………………………………………… 12,000 Payment on mortgage payable………………………………… 15,000 Gain on sale of land…………………………………………… 7,500 Increase in merchandise inventory……………………………. 2,050 Increase in accounts payable………………………………….. 6,150 Proceeds from sale of land……………………………………. 8,000 Income taxes paid……………………………………………... 1,700

The direct method of reporting operating cash flows:

An example of a transaction that must be disclosed as a noncash investing and financing activity includes: