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Exam 14: Statement of Cash Flows

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Question 1

Multiple Choice

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Income tax was $400,000 for the year. Income tax payable was $30,000 and $40,000 at the beginning and end of the year. Cash payments for income tax reported on the cash flow statement using the direct method is

A) $400,000
B) $390,000
C) $430,000
D) $440,000

E) A) and D)
F) B) and C)

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B

Question 2

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Land costing $46,000 was sold for $79,000 cash. The gain on the sale was reported on the income statement as other income. On the statement of cash flows, what amount should be reported as an investing activity from the sale of land?

A) $79,000
B) $46,000
C) $125,000
D) $33,000

E) All of the above
F) A) and C)

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Question 3

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The following two scenarios are independent of one another.

If a business issued bonds payable in exchange for land, the transaction would be reported in a separate schedule on the statement of cash flows.

The declaration and issuance of a stock dividend would be reported on the statement of cash flows.

Which of the following below increases cash?

Cash paid to acquire treasury stock should be shown on the statement of cash flows from investing activities.

Master Designs Company has cash flows for operating activities of $300,000. Cash flows used for investments in property, plant, and equipment totaled $65,000, of which 70% of this investment was used to replace existing capacity. What is the free cash flow for Master Designs?

A corporation uses the Indirect Statement of Cash Flows. A fixed asset has been sold for $25,000 representing a gain of $3,750. The value in the operating activities section regarding this event would be:

The cost of merchandise sold during the year was $45,000. Merchandise inventories were $13,500 and $10,500 at the beginning and end of the year, respectively. Accounts payable were $7,000 and $5,000 at the beginning and end of the year, respectively. Using the direct method of reporting cash flows from operating activities, cash payments for merchandise total

The comparative balance sheet of Colson Company, for 2011 and the preceding year ended December 31, 2010 appears below in condensed form: The income statement for the current year is as follows: Additional data for the current year are as follows: Prepare a statement of cash flows, using the direct method of reporting cash flows from operating activities.

Balances of the current asset and current liability accounts at the end and beginning of the year are as follows: Use the direct method to prepare the cash flows from operating activities section of a statement of cash flows.

The cost of merchandise sold during the year was $50,000. Merchandise inventories were $12,500 and $10,500 at the beginning and end of the year, respectively. Accounts payable were $6,000 and $5,000 at the beginning and end of the year, respectively. Using the direct method of reporting cash flows from operating activities, cash payments for merchandise total

A major disadvantage of the indirect method of reporting cash flows from operating activities is that the difference between the net amount of cash flows from operating activities and net income is emphasized.

Cash outflows from financing activities include the payment of cash dividends, the acquisition of treasury stock, and the repayment of amounts borrowed.

A building with a cost of $153,000 and accumulated depreciation of $42,000 was sold for a $11,000 gain. When using the indirect method, the cash generated from this investing activity was $121,000.

Which of the following can be found on the statement of cash flows?

There is no difference in the Investing and Financing sections of the statement of cash flows using the indirect and direct method.

On the basis of the following data for Larson Co. for the year ending December 31, 2011 and the preceding year ended December 31, 2010, prepare a statement of cash flows. Use the indirect method of reporting cash flows from operating activities. In addition to the balance sheet data, assume that:  Equipment costing $125,000 was purchased for cash.  Equipment costing $85,000 with accumulated depreciation of $65,000 was sold for $15,000.  The stock was issued for cash.  The only entries in the retained earnings account were net income of $51,000 and cash dividends declared of $13,000.

The statement of cash flows is an optional financial statement.