Question 1

A company reported an increase in accounts receivable and an increase in unearned sales revenues during 2014. Which of the following statements is correct?

Accepted Answer

Cash collected from customers is calculated by adjusting sales revenues for changes in accounts receivable and unearned sales revenues. An increase in accounts receivable means less cash was collected than sales made, so it is subtracted. An increase in unearned sales revenues means cash was collected in advance, so it is added.

Question 2

Bold Company's 2014 income statement reported total sales revenue of $250,000. During 2014, accounts receivable decreased by $20,000 and accounts payable increased $10,000. How much cash was collected from customers during 2014?

Accepted Answer

The decrease in accounts receivable indicates that more cash was collected than the sales revenue reported. Therefore, cash collected = Sales revenue + Decrease in accounts receivable = $250,000 + $20,000 = $270,000. The change in accounts payable does not affect cash collected from customers.

Question 3

KAJ Incorporated purchased a machine costing $250,000 by paying $35,000 cash and signing a $215,000 note payable. How would this transaction be reported within the cash flow from financing activities section of the cash flow statement?

Accepted Answer

The transaction involves a cash outflow of $35,000, which is reported in the investing activities section, and the note payable is a non-cash financing activity, so it is not reported in the financing activities section.

Question 4

Amanda Company reported income tax expense of $250,000. Beginning income taxes payable was $30,000, while ending income taxes payable was $25,000, and accounts payable decreased $10,000. How much cash was paid for taxes?

Accepted Answer

The cash paid for taxes can be calculated by adjusting the income tax expense for the change in income taxes payable. The calculation is as follows: Income tax expense ($250,000) + Decrease in income taxes payable ($30,000 - $25,000 = $5,000) = Cash paid for taxes ($250,000 + $5,000 = $255,000). The change in accounts payable is not relevant to the calculation of cash paid for taxes.

Question 5

Slipper Company sold a productive asset, a machine, for cash. It originally cost Slipper $20,000. The accumulated depreciation at the date of disposal was $15,000. A gain on the disposal of $2,000 was reported. What was the asset's selling price?

Accepted Answer

The answer of Slipper Company sold a productive asset, a...

Question 6

Which of the following would not be reported as a financing activities cash flow?

Accepted Answer

Purchasing a building by signing a note payable would be reported as a cash flow from investing activities, not financing activities. Financing activities involve transactions related to raising or repaying capital, while investing activities involve transactions related to purchasing or selling long-term assets. Issuing common stock for cash, cash dividend payments, and purchasing treasury stock would be reported as financing activities cash flows.

Question 7

A company reported an increase in accounts payable and a decrease in inventory during 2014. Which of the following statements is correct?

Accepted Answer

The answer of A company reported an increase in accounts...

Question 8

During 2014, Tommy's Toys reported the following: long-term debt repayments, $503 million; interest paid, $143 million; proceeds from exercise of stock options, $27 million, and issue of common stock in exchange for land costing $10 million. What is the 2014 net cash flow from financing activities?

Accepted Answer

Net cash flow from financing activities is calculated as: long-term debt repayments ($503 million) + interest paid ($143 million) - proceeds from exercise of stock options ($27 million) = $619 million net cash outflow. However, the issue of common stock in exchange for land is a non-cash transaction and does not affect cash flow. Therefore, the net cash outflow is $476 million.

Question 9

KAJ Incorporated purchased a machine costing $250,000 by paying $35,000 and signing a $215,000 note payable. How would this transaction be reported within the cash flow from investing activities section of the cash flow statement?

Accepted Answer

The cash paid of $35,000 is reported as an outflow in the investing activities section of the cash flow statement. The note payable is reported as a financing activity. Therefore, the total cash outflow of $250,000 is divided between investing and financing activities.

Question 10

A company reported an increase in accrued sales revenues and a decrease in unearned sales revenues during 2014. Which of the following statements is correct?

Accepted Answer

The answer of A company reported an increase in accrued...

Question 11

A company's 2014 income statement reported total sales revenue of $1,200,000; accounts receivable increased by $25,000 and the unearned sales revenue account decreased $15,000 during 2014. How much cash was collected from customers during 2014?

Accepted Answer

The answer of A company's 2014 income statement reported total...

Question 12

Which of the following is not reported as a cash flow from investing activities?

Accepted Answer

Purchasing land in exchange for common stock is not reported as a cash flow from investing activities because it is a non-cash transaction where two assets are being exchanged instead of cash being received or paid out. A) Sale of a depreciable asset for cash is reported as a cash inflow from investing activities. C) Selling a long-term investment at a loss for cash is reported as a cash outflow from investing activities. D) Purchase of a patent in exchange for cash is reported as a cash outflow from investing activities.

Question 13

Aaron Inc. reported operating expenses during 2015 of $765,000 (including $80,000 of depreciation expense). Prepaid expenses increased $25,000 while accrued liabilities increased $43,000. How much cash was paid for operating expenses during 2015?

Accepted Answer

To find the cash paid for operating expenses, adjust the reported operating expenses for changes in prepaid expenses and accrued liabilities. Start with the reported operating expenses of $765,000, subtract the increase in prepaid expenses of $25,000 (since this represents cash paid but not yet expensed), and subtract the increase in accrued liabilities of $43,000 (since this represents expenses incurred but not yet paid). Therefore, the cash paid for operating expenses is $765,000 - $25,000 - $43,000 = $697,000. However, since depreciation is a non-cash expense, it should be added back: $697,000 + $80,000 = $667,000.

Question 14

Halbur Company reported the following for its recent year of operation: $\begin{array}{lr}
\text { From the income statement: } \
\text { Depreciation expense } & \$ 1,000 \
\text { Loss on sale of equipment } & 3,000\
\text { From the comparative balance sheet: } & \
\text { Beginning balance, equipment } & \$ 12,500 \
\text { Ending balance, equipment } & 8,000 \
\text { Beginning balance, accumulated depreciation } & 2,000 \
\text { Ending balance, accumulated depreciation } & 2,400
\end{array}$ No new equipment was purchased during the year. What was the selling price of the equipment?

Accepted Answer

The equipment's book value at the time of sale was $8,100 ($12,500 - $2,000 - $1,000). The loss on sale was $3,000, so the selling price was $8,100 - $3,000 = $5,100. The ending balance of equipment is $8,000, so the equipment sold was $4,500 ($12,500 - $8,000). Therefore, the selling price was $900 ($5,100 - $4,500).

Question 15

Atkins Corporation has provided the following information for the year ended December 31, 2014: • The equipment account balance increased $200,000.
• The equipment accumulated depreciation account increased $35,000.
• Equipment costing $50,000 was sold during the year resulting in a $10,000 gain.
• Depreciation expense recorded on the equipment during the year was $65,000.
Which of the following statements is correct with respect to determining cash flow from investing activities? Assume that the equipment purchase and sale resulted in cash flows.

Accepted Answer

The answer of Atkins Corporation has provided the following information...

Question 16

Which of the following transactions is not reported in the statement of cash flows as a cash flow from investing activities?

Accepted Answer

Purchasing land in exchange for common stock is reported in the statement of cash flows as a cash flow from financing activities, not investing activities. The other options are reported as cash flows from investing activities.

Question 17

Madison Company had sales of $154,000. Additional information from the balance sheet is below: $$\begin{array} { c c c } 
&\text { Beginning Balance } & \text { Ending Balance } \
 \text { Accounts Receivable }&22,000 & \$ 28,000 \
\text { Accounts Payable }&21,000 & 25,000
\end{array}$$ How much cash was collected from customers?

Accepted Answer

The cash collected from customers is calculated as: Sales - Increase in Accounts Receivable = $154,000 - ($28,000 - $22,000) = $148,000.

Question 18

The financial statements for World Company show the following: Cost of goods sold, $725,000. $\begin{array}{lrr}&\text { Beginning Balance }&\text { Ending Balance }\
\text { Merchandise Inventory } & \$ 45,000 & \$ 56,000 \
\text { Accounts Receivable } & 53,000 & 50,000 \
\text { Accounts Pavable } & 37,000 & 42,000
\end{array}$ How much cash was paid to suppliers?

Accepted Answer

The correct answer is A. The cash paid to suppliers can be calculated using the following formula:Cash paid to suppliers = Cost of goods sold + Beginning merchandise inventory - Ending merchandise inventory - Increase in accounts payable + Decrease in accounts receivableCash paid to suppliers = $725,000 + $45,000 - $56,000 - ($42,000 - $37,000) + ($53,000 - $50,000)Cash paid to suppliers = $731,000

Question 19

Atkins Corporation has provided the following information for the year ended December 31, 2014: • The equipment account balance increased $200,000.
• The equipment accumulated depreciation account increased $35,000.
• Equipment costing $50,000 was sold during the year resulting in a $10,000 gain.
• Depreciation expense recorded on the equipment during the year was $65,000.
Which of the following statements is incorrect with respect to preparation of the statement of cash flows? Assume that the equipment purchase and sale resulted in cash flows.

Accepted Answer

The sale of equipment resulted in a $50,000 cash inflow ($60,000 cash inflow from the sale minus $10,000 gain), not a $30,000 cash inflow as stated in option A. All other statements are correct.

Question 20

A company reported an increase in prepaid rent and an increase in accrued liabilities during 2014. Which of the following statements is correct?

Accepted Answer

When prepaid rent increases, it means that the company paid in advance for rent expenses that will be recognized as an expense in future periods. Therefore, the increase in prepaid rent should be subtracted from operating expenses to determine cash paid for operating expenses.
On the other hand, when accrued liabilities increase, it means that the company incurred expenses but had not yet paid for them. Therefore, the increase in accrued liabilities should be subtracted from operating expenses to determine cash paid for operating expenses.
Therefore, the increase in prepaid rent is added to operating expenses, and the increase in accrued liabilities is subtracted from operating expenses. Hence, choice C is correct.

Quiz 12: Statement of Cash Flows