Question 1

Which of the following represent cash inflows from financing activities?

Accepted Answer

Issuing long-term bonds at a discount is a cash inflow from financing activities as it involves raising funds through debt issuance.

Question 2

Which of the following are used to determine cash flows from financing activities?

Accepted Answer

Cash flows from financing activities include transactions involving borrowing money (long-term debt), raising funds from shareholders (contributed capital), and paying dividends (retained earnings). Short-term debt and notes payable fall under cash flows from operating activities, while accrued liabilities and bonds payable fall under cash flows from both operating and financing activities. Interest expense is not a determinant of cash flows from financing activities.

Question 3

Which of the following statements is true regarding cash flows from financing activities?

Accepted Answer

When companies repurchase their own stock, it results in cash outflows for financing activities because the company is using cash to buy back shares from investors.

Question 4

The company would report net cash inflows (outflows) from investing activities of:

Accepted Answer

The answer of The company would report net cash inflows...

Question 5

When the direct method is used to determine the net cash flows from operating activities, which of the following adjustments must be made to income tax expense to determine total income tax payments?

Accepted Answer

When using the direct method to determine net cash flows from operating activities, income tax expense needs to be adjusted for changes in income taxes payable. Increases in income taxes payable represent a cash inflow (as taxes have been accrued but not yet paid), while decreases in income taxes payable represent a cash outflow (as taxes have already been paid). Therefore, to determine total income tax payments, decreases in income taxes payable should be added and increases in income taxes payable should be subtracted, resulting in option B as the correct answer.

Question 6

Company X paid Company Y $1.35 million for a new plant. During the same accounting period, Company X experienced the following changes in its balance sheet: Cash decreased by $350,000, Accounts Receivable increased by $321,300, Inventory increased by $275,800, Property, Plant, and Equipment increased by $752,900, and Bonds Payable increased by $1 million. The net cash flow from financing activities is:

Accepted Answer

The payment of $1.35 million for the new plant would be recorded as a cash outflow from investing activities. The change in bonds payable of $1 million would be recorded as a cash inflow from financing activities. The other changes in the balance sheet accounts are related to operating activities and do not impact the calculation of net cash flow from financing activities. Therefore, the net cash flow from financing activities is an inflow of $1 million.

Question 7

The net cash flow from operating activities is an inflow of $37,042, the net cash flow from investing activities is an outflow of $16,831, and the net cash flow from financing activities is an outflow of $26,397. If the beginning cash account balance is $11,283, what is the ending cash account balance?

Accepted Answer

The answer of The net cash flow from operating activities...

Question 8

Your company owned equipment with a book value of $120,000 that was sold during this accounting period for $30,500 in cash, and purchased new equipment for cash of $148,000. Your company would record:

Accepted Answer

When equipment with a book value of $120,000 is sold for $30,500 in cash, there is a loss on the sale of the equipment of $89,500 ($120,000 book value - $30,500 selling price). Therefore, the company would record a debit to the cash account for $30,500 to reflect the cash received from the sale, and a credit of $120,000 to the equipment account to reflect the removal of the sold equipment from the books. The loss of $89,500 would be recorded through a debit to the loss on the sale of equipment account and a credit to the equipment account.

When new equipment is purchased for cash of $148,000, the company would record a debit to the equipment account for $148,000 and a credit to the cash account for $148,000 to reflect the purchase of the new equipment.

Therefore, the net effect on the cash account would be a debit of $30,500 and a credit of $148,000, resulting in a net cash outflow of $117,500.

Question 9

Two years ago, your company bought $40,000 in bonds from another company. This month, it sold half of those bonds for $20,640 and lent $1,000 to an employee with a promissory note. On the statement of cash flows for this accounting period, your company would report a net cash:

Accepted Answer

The answer of Two years ago, your company bought $40,000...

Question 10

Which of the following represent cash outflows from financing activities?

Accepted Answer

The answer of Which of the following represent cash outflows...

Question 11

Free cash flow is a positive cash flow:

Accepted Answer

The answer of Free cash flow is a positive cash...

Question 12

An outdoor water park in the Midwestern states with a calendar year-end is likely to have:

Accepted Answer

The largest cash inflow from operations in an outdoor water park in the Midwestern states with a calendar year-end is likely to occur in the second and third quarters (April - September) when the weather is warmest and most people are likely to visit the water park. This results in a peak season for the park and more revenue coming in during this time compared to the off-season (October - March). As a result, cash flow is likely to be fairly predictable with fluctuations being limited to the peak and off-seasons.

Question 13

The company would report net cash inflows (outflows) from financing activities of:

Accepted Answer

The answer of The company would report net cash inflows...

Question 14

A company issues $1 million of new stock and pays $200,000 in cash dividends during the year. In addition, the company took advantage of falling interest rates to borrow $1.5 million in a new bond issue and paid off existing bonds with a face value of $2 million. The company bought 500 of another company's $1,000 bonds at a $100,000 premium. The net cash flow from financing activities is:

Accepted Answer

The net cash flow from financing activities is the sum of all inflows and outflows resulting from transactions involving the company’s sources of capital (e.g. issuing stock, borrowing money, paying dividends, buying or selling bonds).

In this case, the company issued $1 million of new stock, resulting in an inflow of cash. They also borrowed $1.5 million through a new bond issue, which is another inflow of cash. However, they used part of this money ($2 million) to pay off existing bonds, resulting in an outflow of cash.

The company also paid $200,000 in cash dividends, which is an outflow of cash. Finally, they bought 500 bonds at a premium, which is another outflow of cash.

To calculate the net cash flow from financing activities, we add up all the inflows and subtract all the outflows:

$1 million (stock issue) + $1.5 million (new bond issue) - $2 million (bond repayment) - $200,000 (dividend payment) - $100,000 (bond purchase premium) = $300,000

Therefore, the answer is D: an inflow of $300,000.

Question 15

Cash transactions relating to the purchase and sale of which types of assets affect a company's cash flows from investing activities?

Accepted Answer

Cash flows from investing activities include transactions involving the purchase and sale of non-current assets, such as property, plant, and equipment, and investment securities, but not inventory, which is considered a current asset and affects operating cash flows.

Question 16

A toy store with a calendar year-end is likely to have:

Accepted Answer

A toy store with a year-end in December will likely experience the largest cash inflow from operations in the fourth quarter (October-December) due to holiday shopping, followed by the first quarter (January-March) as customers redeem gift cards and make returns. Therefore, option D is the most likely scenario for a toy store with a calendar year-end.

Question 17

Buffers, Inc., uses cash when buying and selling all of its investment assets. Which of the following statements regarding cash flows are true? (1). When the investment asset accounts increase, net cash inflows have occurred. (2). When the investment asset accounts increase, net cash outflows have occurred.
(3)) When the investment asset accounts decreased, net cash inflows have occurred. (4). When the investment asset accounts decrease, net cash outflows have occurred.

Accepted Answer

The answer of Buffers, Inc., uses cash when buying and...

Question 18

If a company's sales revenue was $171,356 and cash collected from customers was $167,803, which of the following would be consistent with this difference?

Accepted Answer

The difference between sales revenue and cash collected from customers indicates that not all sales have been collected in cash. Therefore, accounts receivable could have increased, meaning that there are outstanding payments from customers that have not been collected yet. Option A is incorrect because a decrease in accounts receivable would result in cash collected being higher than sales revenue. Option B and D are incorrect because they both suggest that cash payments are related to expenses, which is not necessarily the case.

Question 19

Which of the following would be reported as a cash outflow from investing activities?

Accepted Answer

Buying another company's bonds with cash is a cash outflow from investing activities because it is a purchase of an investment asset. A is incorrect because donating equipment is not a cash transaction. B is incorrect because repaying the principal of a bond is a cash outflow from financing activities. D is incorrect because paying for an investment asset with stock is a non-cash transaction.

Question 20

The retained earnings account has a beginning balance of $321,975 and an ending balance of $356,413. Net income is $40,251. Which of the following statements is true?

Accepted Answer

The change in retained earnings is due to net income and dividends. The difference between the beginning and ending retained earnings is $34,438, which means dividends of $5,813 were paid ($40,251 net income - $34,438 change in retained earnings). Dividends are subtracted in cash flows from financing activities.

Quiz 12: Reporting and Interpreting the Statement of Cash Flows