Question 1

When reconciling net income to net cash provided by operating activities, an) _____ is a deduction from net income.
A)decrease in inventories
B)increase in unearned revenues
C)decrease in prepaid rent
D)decrease in accounts payable

Accepted Answer

A decrease in accounts payable is a deduction from net income when reconciling to net cash provided by operating activities because it indicates that cash has been used to reduce the amount owed to suppliers, reducing the cash available from operations.

Question 2

Which one of the following statements regarding the effect of depreciation when reconciling net income to net cash provided by operating activities is correct?
A)Depreciation expense is a cash outflow.
B)Ignoring income tax effects, increasing depreciation expense will increase cash flows from operations.
C)Depreciation expense is added in the cash flow from operations section.
D)Depreciation expense is a source of cash.

Accepted Answer

Depreciation expense is a non-cash expense, meaning it does not involve an actual outflow of cash. Therefore, it is added back to net income when reconciling net income to net cash provided by operating activities. This is done to adjust for the fact that depreciation reduces net income but does not reduce cash available for operations.

Question 3

When reconciling net income to net cash provided by operating activities, all of the following would be an appropriate procedure except _____.
A)adding depreciation expense
B)subtracting a decrease in accounts payable
C)subtracting a decrease in prepaid expenses
D)adding a decrease in inventories

Accepted Answer

When reconciling net income to net cash provided by operating activities, depreciation expense is added back because it is a non-cash expense that reduced net income. A decrease in accounts payable indicates that more cash was paid out than was incurred in expenses, so it is subtracted. A decrease in inventories is added because it means less cash was spent on inventories, which does not affect net income but increases cash flow. However, subtracting a decrease in prepaid expenses is incorrect because a decrease in prepaid expenses is an indication that an expense has been recognized, which would have already reduced net income; adjusting for it again would not be appropriate in the reconciliation to net cash provided by operating activities.

Question 4

Hope Company reported sales on account of $250,000, an increase in inventory of $70,000, and a decrease in accounts receivable of $40,000._____ was received from Hope Company's customers.
A)$320,000
B)$290,000
C)$230,000
D)$180,000

Accepted Answer

To find out the cash received from customers, we need to start with sales on account and adjust for changes in accounts receivable.

Sales on account = $250,000 
Decrease in accounts receivable = $40,000

Cash received from customers = Sales on account - Decrease in accounts receivable 
Cash received from customers = $250,000 - $40,000 
Cash received from customers = $210,000

However, we need to remember that the increase in inventory means that the company likely used some of its cash to purchase inventory. Therefore, we need to subtract the increase in inventory from the cash received from customers to get the final answer.

Cash received from customers - Increase in inventory = Final answer 
$210,000 - $70,000 = $140,000

Therefore, the best choice is B, $290,000.

Question 5

Steve Company reported cost of goods sold of $910,000, an increase in inventory of $100,000, and a decrease in accounts payable of $40,000._____ was paid to Steve Company's suppliers.
A)$1,050,000
B)$950,000
C)$810,000
D)$770,000

Accepted Answer

To calculate the amount paid to suppliers, start with the cost of goods sold ($910,000), add the increase in inventory ($100,000) because it represents additional purchases not yet sold, and subtract the decrease in accounts payable ($40,000) because it indicates payments made that reduce the liability. This results in $910,000 + $100,000 - $40,000 = $970,000. However, there seems to be a mistake in my calculation as the correct process leads to a result not listed in the options. The correct approach should indeed yield one of the provided options, but based on the given explanation, none of the options accurately reflect the corrected calculation. The intended correct answer appears to be a mistake in calculation. Re-evaluating with the correct formula: Cost of Goods Sold + Increase in Inventory - Decrease in Accounts Payable = Payments to Suppliers, but the provided options and the calculation do not align correctly with standard accounting principles.

Question 6

Lopez Company's income statement included income tax expense of $18,000.Income tax payable at the beginning of the current year was $1,000.Income tax payable at the end of the current year was $4,000.Cash paid for taxes was_____.
A)$22,000
B)$21,000
C)$15,000
D)$17,000

Accepted Answer

Cash paid for taxes is calculated as: Income tax expense + Beginning income tax payable - Ending income tax payable = $18,000 + $1,000 - $4,000 = $15,000.

Question 7

Colorado Company's beginning and ending inventory amounts were $150,000 and $140,000, respectively.Cost of goods sold was $650,000.Colorado Company purchased _____ of inventory.
A)$680,000
B)$670,000
C)$640,000
D)an indeterminable amount

Accepted Answer

The cost of goods sold (COGS) formula is: COGS = Beginning Inventory + Purchases - Ending Inventory. Plugging in the numbers: $650,000 = $150,000 + Purchases - $140,000. Solving for Purchases gives: Purchases = $650,000 - $150,000 + $140,000 = $640,000.

Question 8

The wages expense of Ben Corporation was $45,000.Beginning wages payable was $6,000.Ending wages payable was $3,000.Cash paid to employees was_____.
A)$50,000
B)$48,000
C)$45,000
D)$43,000

Accepted Answer

To calculate the cash paid to employees, we need to take into account the changes in wages payable. 
Beginning balance of wages payable = $6,000 
Ending balance of wages payable = $3,000 
Change in wages payable = $6,000 - $3,000 = $3,000 
Cash paid to employees = Wages expense - change in wages payable 
Cash paid to employees = $45,000 - $3,000 = $42,000 
Therefore, the correct option is B) $48,000, as we need to add the change in wages payable ($3,000) to the cash paid to employees ($42,000) to get the total amount of cash paid to employees during the period. 
Cash paid to employees = $42,000 + $3,000 = $45,000 + $3,000 = $48,000.

Question 9

Miami Company's beginning and ending inventory amounts were $80,000 and $120,000, respectively.Cost of goods sold was $520,000.Miami Company purchased _____ of inventory.
A)$560,000
B)$520,000
C)$480,000
D)$600,000

Accepted Answer

To find the amount of inventory purchased, you can use the formula: Beginning Inventory + Purchases - Ending Inventory = Cost of Goods Sold. Plugging in the given values: $80,000 + Purchases - $120,000 = $520,000. Solving for Purchases gives you $560,000.

Question 10

Hollander Company gave a long-term note payable in the amount of $285,000 to acquire a new piece of equipment.This transaction will be reported on the statement of cash flows as a _____.
A)$285,000 investing outflow and $285,000 financing inflow
B)$285,000 operating outflow and $285,000 financing inflow
C)$285,000 investing inflow and $285,000 financing outflow
D)noncash transaction reported in a separate schedule

Accepted Answer

This transaction is considered a noncash investing and financing activity because the equipment was acquired through financing (a note payable) rather than through direct cash payment. Therefore, it does not appear in the cash flows from operating, investing, or financing activities sections but is disclosed in a separate schedule of noncash transactions.

Question 11

Austin Company reported cost of goods sold of $700,000, a decrease in inventory of $60,000, and an increase in accounts payable of $35,000._____ was paid to Austin Company's suppliers.
A)$795,000
B)$725,000
C)$675,000
D)$605,000

Accepted Answer

The answer of Austin Company reported cost of goods sold...

Question 12

When reconciling net income to net cash provided by operating activities, an) _____ is an addition to net income.
A)increase in accounts receivable
B)increase in inventories
C)increase in wages payable
D)all of these answers are correct

Accepted Answer

An increase in wages payable is an addition to net income when reconciling to net cash provided by operating activities because it represents an expense that has been incurred but not yet paid in cash, thus increasing cash flow.

Question 13

Tommy Company's income statement showed rent expense of $16,000.The beginning and ending balances in the Prepaid Rent account were $5,000 and $3,000, respectively.Cash paid for rent was_____.
A)$24,000
B)$19,000
C)$16,000
D)$14,000

Accepted Answer

The answer of Tommy Company's income statement showed rent expense...

Question 14

A gain on the sale of a fixed asset is reported on the statement of cash flows _____.
A)as an adjustment to operating activities under the indirect method
B)as an adjustment to operating activities under the direct method
C)as an adjustment to operating activities, regardless of the method used
D)None of these answers is correct.

Accepted Answer

A gain on the sale of a fixed asset would be reported as a cash inflow under the operating activities section of the statement of cash flows using the indirect method. It would be added to net income and adjusted for non-cash items to arrive at the operating cash flow. It would not be reported separately under the direct method. Therefore, option A is the correct answer.

Question 15

Beginning retained earnings was $34,400.Ending retained earnings was $61,600 and net income was $36,000.Cash paid as dividends was_____.
A)$1,200
B)$8,800
C)$30,000
D)$36,000

Accepted Answer

Retained Earnings = Beginning Retained Earnings + Net Income - Dividends
Using the given values, we can calculate:
61,600 = 34,400 + 36,000 - Dividends
Dividends = 8,800
Therefore, the cash paid as dividends was $8,800.

Question 16

Old equipment having a book value of $12,000 was sold for $10,000 cash.New equipment was purchased for $25,000 cash.Additional equipment was acquired in exchange for a $17,000 long-term note payable.The cash flow from investing activities was_____.
A)$15,000)
B)$13,000)
C)$30,000)
D)$32,000)

Accepted Answer

The cash flow from investing activities includes cash received from the sale of old equipment ($10,000) and cash paid for new equipment ($25,000). Therefore, the net cash flow is $10,000 - $25,000 = -$15,000.

Question 17

Orlando Company's beginning and ending accounts payable amounts were $140,000 and $130,000, respectively.Inventory purchases on account were $480,000.Orlando Company paid _____ to its suppliers.
A)$490,000
B)$480,000
C)$460,000
D)An indeterminable amount

Accepted Answer

Orlando Company paid $490,000 to its suppliers. This is calculated by adding the inventory purchases on account ($480,000) to the decrease in accounts payable ($140,000 - $130,000 = $10,000), totaling $490,000.

Question 18

Birmingham Company purchased inventory on account for $735,000.Throughout the year inventory valued at $610,000 was sold for $762,500.Beginning and ending accounts payable balances were $90,000 and $60,000, respectively.Birmingham Company paid _____ to its suppliers.
A)$580,000
B)$640,000
C)$705,000
D)$765,000

Accepted Answer

The answer of Birmingham Company purchased inventory on account for...

Question 19

Listed below are increases decreases) in selected accounts of Space Company. Accounts receivable $\$ 20,000$
Inventory $\quad 40,000$ )
Accounts payable $\quad 68,000$
$\begin{array} { l l } \text { Wages payable } & 21,000 ) \end{array}$ Net income for Space Company was $42,000.The net cash provided by operating activities was_____.
A)$69,000
B)$15,000
C)$109,000
D)$67,000)

Accepted Answer

To calculate the net cash provided by operating activities, we start with the net income of $42,000. Then, we adjust for changes in working capital accounts:- Increase in Accounts Receivable decreases cash: -$20,000- Decrease in Inventory increases cash: +$40,000- Increase in Accounts Payable increases cash: +$68,000- Decrease in Wages Payable decreases cash: -$21,000Adding these adjustments to the net income gives us: $42,000 - $20,000 + $40,000 + $68,000 - $21,000 = $109,000.

Question 20

The balances in selected accounts of Jackson Company increased decreased) as follows: $$\begin{array} { l r } 
\text { Accounts payable } & \$ 10,000 \
\text { Bonds payable } & 12,000 ) \
\text { Common stock } & 4,000
\end{array}$$ Jackson Company declared and paid dividends of $8,800.The cash flow from financing for Jackson Company was_____.
A)$16,800
B)$6,800
C)$6,800)
D)$16,800)

Accepted Answer

The answer of The balances in selected accounts of Jackson...

Quiz 16: Understanding Corporate Annual Reports: Basic Financial Statements

When reconciling net income to net cash provided by operating activities, an) _____ is a deduction from net income.

Which one of the following statements regarding the effect of depreciation when reconciling net income to net cash provided by operating activities is correct?

When reconciling net income to net cash provided by operating activities, all of the following would be an appropriate procedure except _____.

Hope Company reported sales on account of $250,000, an increase in inventory of $70,000, and a decrease in accounts receivable of $40,000._____ was received from Hope Company's customers.

Steve Company reported cost of goods sold of $910,000, an increase in inventory of $100,000, and a decrease in accounts payable of $40,000._____ was paid to Steve Company's suppliers.

Lopez Company's income statement included income tax expense of $18,000.Income tax payable at the beginning of the current year was $1,000.Income tax payable at the end of the current year was $4,000.Cash paid for taxes was_____.

Colorado Company's beginning and ending inventory amounts were $150,000 and $140,000, respectively.Cost of goods sold was $650,000.Colorado Company purchased _____ of inventory.

The wages expense of Ben Corporation was $45,000.Beginning wages payable was $6,000.Ending wages payable was $3,000.Cash paid to employees was_____.

Miami Company's beginning and ending inventory amounts were $80,000 and $120,000, respectively.Cost of goods sold was $520,000.Miami Company purchased _____ of inventory.

Hollander Company gave a long-term note payable in the amount of $285,000 to acquire a new piece of equipment.This transaction will be reported on the statement of cash flows as a _____.

Austin Company reported cost of goods sold of $700,000, a decrease in inventory of $60,000, and an increase in accounts payable of $35,000._____ was paid to Austin Company's suppliers.

When reconciling net income to net cash provided by operating activities, an) _____ is an addition to net income.

Tommy Company's income statement showed rent expense of $16,000.The beginning and ending balances in the Prepaid Rent account were $5,000 and $3,000, respectively.Cash paid for rent was_____.

A gain on the sale of a fixed asset is reported on the statement of cash flows _____.

Beginning retained earnings was $34,400.Ending retained earnings was $61,600 and net income was $36,000.Cash paid as dividends was_____.

Old equipment having a book value of $12,000 was sold for $10,000 cash.New equipment was purchased for $25,000 cash.Additional equipment was acquired in exchange for a $17,000 long-term note payable.The cash flow from investing activities was_____.

Orlando Company's beginning and ending accounts payable amounts were $140,000 and $130,000, respectively.Inventory purchases on account were $480,000.Orlando Company paid _____ to its suppliers.

Birmingham Company purchased inventory on account for $735,000.Throughout the year inventory valued at $610,000 was sold for $762,500.Beginning and ending accounts payable balances were $90,000 and $60,000, respectively.Birmingham Company paid _____ to its suppliers.