Question 1

On a spreadsheet used to prepare the operating activities section of the statement of cash flows,depreciation expense does not require an entry in the Analysis of Changes columns because it is a noncash item.

Accepted Answer

The answer of On a spreadsheet used to prepare the...

Question 2

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

Accepted Answer

Financing activities include receiving cash from issuing debt, but receiving cash dividends from investments in other companies' stocks is considered an investing activity, not a financing activity.

Question 3

Financing activities include receiving cash from issuing debt and paying cash dividends to shareholders.

Accepted Answer

Financing activities involve raising capital through debt or equity issuance and distributing funds to shareholders through dividends.

Question 4

Investing activities include: (a)the purchase and sale of long-term assets,(b)lending and collecting on notes receivable,and (c)the purchase and sale of short-term investments in the securities of other entities,other than cash equivalents and trading securities.

Accepted Answer

Investing activities include all of the mentioned activities, which involve long-term assets, notes receivable, and short-term investments in securities.

Question 5

Financing activities include the payment of cash dividends to stockholders.

Accepted Answer

Financing activities refers to activities related to raising and repaying capital, including payments to stockholders in the form of dividends.

Question 6

When using a spreadsheet to prepare the statement of cash flows,an increase in accounts payable is entered in the Analysis of Changes columns with a debit in the statement of cash flows section and a credit in the balance sheet section.

Accepted Answer

The answer of When using a spreadsheet to prepare the...

Question 7

Financing activities include receiving cash dividends from investments in other companies' stocks.

Accepted Answer

Financing activities involve transactions related to raising capital and repaying investors, such as issuing equity, paying dividends, and repaying debt, not receiving dividends from investments, which is considered an investing activity.

Question 8

The FASB requires a reconciliation of net income to net cash provided or used by operating activities when the direct method is used (which can be reported in the notes).

Accepted Answer

This is true according to the FASB guidelines.

Question 9

Equipment costing $400,000 with accumulated depreciation of $260,000 is sold at a gain of $10,000.This implies that $150,000 cash was received from the sale.

Accepted Answer

The book value of the equipment is $140,000 ($400,000 - $260,000). Selling it at a gain of $10,000 means it was sold for $150,000 ($140,000 + $10,000).

Question 10

When preparing the operating activities section of the statement of cash flows using the indirect method,depreciation is added to net income.

Accepted Answer

Depreciation is a non-cash expense, meaning it reduces net income without actually requiring cash outflows. Therefore, it needs to be added back to net income in order to calculate the cash generated from operating activities.

Question 11

Equipment costing $200,000 with accumulated depreciation of $160,000 is sold at a loss of $10,000.This implies that $30,000 cash was received from the sale.

Accepted Answer

The book value of the equipment is calculated as the cost ($200,000) minus accumulated depreciation ($160,000), which equals $40,000. Selling it at a loss of $10,000 means it was sold for $30,000 ($40,000 book value - $10,000 loss = $30,000 cash received).

Question 12

Equipment costing $400,000 with accumulated depreciation of $260,000 is sold at a gain of $10,000.This implies that $130,000 cash was received from the sale.

Accepted Answer

We can use the following formula to calculate the cash received from the sale of an asset:

Cash received = Selling price - Book value

The book value of the equipment can be calculated as follows:

Book value = Cost - Accumulated depreciation
Book value = $400,000 - $260,000
Book value = $140,000

Since the equipment was sold at a gain of $10,000, the selling price must have been:

Selling price = Book value + Gain
Selling price = $140,000 + $10,000
Selling price = $150,000

Therefore, the cash received from the sale should be:

Cash received = Selling price - Book value
Cash received = $150,000 - $140,000
Cash received = $10,000

So the correct answer is B.

Question 13

Investing activities include receiving cash dividends from investments in other companies' stocks.

Accepted Answer

Investing activities involve the purchase and sale of long-term assets and other investments, not the cash flows from dividends received, which are considered operating activities.

Question 14

When using a spreadsheet to prepare the statement of cash flows,a decrease in accounts payable is entered in the Analysis of Changes columns with a debit in the statement of cash flows section and a credit in the balance sheet section.

Accepted Answer

In preparing a statement of cash flows, a decrease in accounts payable would be considered a use of cash and would be reflected as a decrease in cash flows from operating activities. The analysis of changes column typically does not use debit or credit terminology; instead, it notes increases or decreases in cash flow.

Question 15

A spreadsheet can help organize the information needed to prepare a statement of cash flows.

Accepted Answer

A spreadsheet can be used to organize the information related to cash inflows and outflows, which can be further used to prepare a statement of cash flows.

Question 16

The payment of cash dividends never changes the balance of retained earnings.

Accepted Answer

The payment of cash dividends decreases the balance of retained earnings, as dividends are a distribution of profits to shareholders and not retained by the company.

Question 17

When preparing the operating activities section of the statement of cash flows using the indirect method,depreciation is subtracted from net income.

Accepted Answer

When preparing the operating activities section of the statement of cash flows using the indirect method, depreciation is added back to net income because it is a non-cash expense that reduced net income.

Question 18

Depreciation expense is not reported on a statement of cash flows prepared under the direct method.

Accepted Answer

Depreciation expense is a non-cash item and is therefore not included in the operating activities section of the statement of cash flows under the direct method. It may, however, be included in the indirect method reconciliation of net income to cash flows from operating activities.

Question 19

The gain or loss from retirement of debt is reported under cash flows from operating activities on the statement of cash flows using the indirect method.

Accepted Answer

The answer of The gain or loss from retirement of...

Question 20

Equipment costing $100,000 with accumulated depreciation of $40,000 is sold at a loss of $10,000.This implies that $40,000 cash was received from the sale.

Accepted Answer

The loss on the sale of equipment is calculated as follows:

Proceeds from Sale ($100,000 - $40,000 - $10,000) = $50,000 
Book Value of Equipment = $60,000 ($100,000 - $40,000) 
Loss on Sale = $10,000

Therefore, the cash received from the sale is $50,000, not $40,000.

Quiz 12: Reporting and Analyzing Cash Flows