Question 1

Identify the section of the statement of cash flows (a-d) where each of the following items would be reported.
-Amortization of patent

Accepted Answer

Amortization of patent is a non-cash expense related to the operating activities of the business and therefore would be reported in the operating activities section of the statement of cash flows.

Question 2

Income tax was $175,000 for the year. Income tax payable was $30,000 and $40,000 at the beginning and end of the year, respectively. Cash payments for income tax reported on the statement of cash flows using the direct method is

Accepted Answer

The cash payments for income tax reported on the statement of cash flows using the direct method is calculated by adding the increase in income tax payable to the income tax expense and deducting the decrease in income tax payable.

Cash payments for income tax = Income tax expense + increase in income tax payable – decrease in income tax payable
 
= $175,000 + ($40,000 – $30,000)
 
= $165,000

Therefore, the answer is B.

Question 3

Identify the section of the statement of cash flows (a-d) where each of the following items would be reported.
-Increase in income taxes payable

Accepted Answer

An increase in income taxes payable would typically be reported as a change in a liability account in the operating activities section of the statement of cash flows, since it represents a cash outflow that is related to the company's current operations.

Question 4

When using the spreadsheet (work sheet) method to analyze noncash accounts, it is best to start with

Accepted Answer

Starting with retained earnings is effective because it links net income and dividends, helping to reconcile changes in equity and ensuring all noncash transactions are accounted for.

Question 5

For each of the following activities that may take place during the accounting period, indicate the effect (a-g) on the statement of cash flows prepared using the indirect method. Choices may be selected as the answer for more than one question.
-Purchase of equipment

Accepted Answer

The purchase of equipment is a cash outflow for investing activities, therefore it decreases cash from investing activities.

Question 6

For each of the following activities that may take place during the accounting period, indicate the effect (a-g) on the statement of cash flows prepared using the indirect method. Choices may be selected as the answer for more than one question.
-Decrease in accounts payable balance

Accepted Answer

A decrease in accounts payable indicates that a company has paid off some of its debts or bills, which means cash has been used. In the indirect method of preparing the statement of cash flows, this is reflected as a decrease in cash from operating activities because accounts payable is related to the company's day-to-day operations.

Question 7

For each of the following activities that may take place during the accounting period, indicate the effect (a-g) on the statement of cash flows prepared using the indirect method. Choices may be selected as the answer for more than one question.
-Amortization of intangible assets

Accepted Answer

Amortization of intangible assets is a non-cash expense that is added back to net income in the operating activities section of the cash flow statement when using the indirect method.

Question 8

For each of the following activities that may take place during the accounting period, indicate the effect (a-g) on the statement of cash flows prepared using the indirect method. Choices may be selected as the answer for more than one question.
-Exchange of land for common stock

Accepted Answer

The exchange of land for common stock involves a noncash transaction and therefore would be reported as a noncash investing and financing supplement on the statement of cash flows using the indirect method. It would not affect the cash flows from operating, investing, or financing activities as no actual cash has been exchanged.

Question 9

Free cash flow is

Accepted Answer

Free cash flow is the cash generated from operations after deducting the cash used for capital expenditures to maintain productive capacity. Choice A is incorrect because free cash flow is not equal to all cash in the bank. Choice B is incorrect because it does not take into account capital expenditures. Choice C is incorrect because it includes cash used for dividends, which is not included in the calculation of free cash flow. Therefore, the correct answer is D.

Question 10

Free cash flow is cash flow from operations less cash used for

Accepted Answer

Free cash flow is the cash that is available to the company after it has met its capital expenditure requirements. Capital expenditures refer to investments made in property, plant, and equipment (PP&E) that are needed to maintain or improve current production. Therefore, Option A is the correct choice as it subtracts investments in PP&E needed to maintain current production from cash flow from operations to arrive at free cash flow. Options B and D are incorrect as they subtract cash used for dividends and to redeem bonds payable which are financing activities and not capital expenditures. Option C is incorrect as it subtracts investments in PP&E needed to achieve desired future production, which is a capital expenditure and not already counted in cash flow from operations.

Question 11

For each of the following activities that may take place during the accounting period, indicate the effect (a-g) on the statement of cash flows prepared using the indirect method. Choices may be selected as the answer for more than one question.
-Gain on sale of investments

Accepted Answer

Gains on the sale of investments are added back to net income in the operating activities section of the cash flow statement when using the indirect method because the gain is included in the net income figure but does not involve an actual cash transaction.

Question 12

For each of the following activities that may take place during the accounting period, indicate the effect (a-g) on the statement of cash flows prepared using the indirect method. Choices may be selected as the answer for more than one question.
-Sale of land

Accepted Answer

Sale of land is an investing activity as it involves the disposal of a long-term asset, and hence the cash inflow will be reflected as an increase in cash flows from investing activities.

Question 13

For each of the following activities that may take place during the accounting period, indicate the effect (a-g) on the statement of cash flows prepared using the indirect method. Choices may be selected as the answer for more than one question.
-Repayment of long-term note payable

Accepted Answer

Repayment of long-term note payable is a financing activity, and repaying the note decreases cash, so it is shown as a decrease in cash from financing activities on the statement of cash flows when using the indirect method.

Question 14

For each of the following activities that may take place during the accounting period, indicate the effect (a-g) on the statement of cash flows prepared using the indirect method. Choices may be selected as the answer for more than one question.
-Increase in accounts receivable balance

Accepted Answer

An increase in accounts receivable means that the company has not received cash for goods or services it has provided, which reduces operating cash inflow.

Question 15

Identify the section of the statement of cash flows (a-d) where each of the following items would be reported.
-Sale of machinery held for use by the company

Accepted Answer

The sale of machinery held for use by the company is a type of investing activity because it involves the sale of a long-term asset that was used in the company's operations.

Question 16

For each of the following activities that may take place during the accounting period, indicate the effect (a-g) on the statement of cash flows prepared using the indirect method. Choices may be selected as the answer for more than one question.
-Acquisition of treasury stock

Accepted Answer

The acquisition of treasury stock is a financing activity, and it uses cash, thereby decreasing cash from financing activities.

Question 17

The operating cash flow available for company use after purchasing the fixed assets that are necessary to maintain current productive capacity is called the

Accepted Answer

Free cash flow is the cash flow available for company use after necessary investments in fixed assets have been made to maintain current productive capacity. It can be used for such things as paying dividends, buying back stock, or investing in growth opportunities. Modified cash flow, PPE cash flow, and restricted cash flow are not commonly used or recognized terms in financial analysis.

Question 18

For each of the following activities that may take place during the accounting period, indicate the effect (a-g) on the statement of cash flows prepared using the indirect method. Choices may be selected as the answer for more than one question.
-Payment of dividends

Accepted Answer

Payment of dividends is a financing activity and therefore will decrease cash from financing activities on the statement of cash flows prepared using the indirect method.

Question 19

When using the spreadsheet (work sheet) for the statement of cash flows, under the indirect method, entries made on the spreadsheet are​

Accepted Answer

The entries made on the spreadsheet for the statement of cash flows under the indirect method are not recorded in the journal or posted to the ledger. The purpose of the statement of cash flows is to show the cash inflows and outflows of the business during the period, and it does not require journal entries or ledger postings. The information is obtained from the balance sheet, income statement, and other sources such as the bank statement and accounts receivable and payable records.

Question 20

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

Accepted Answer

The formula for calculating cash payments for merchandise using the direct method is: Cost of merchandise sold + Increase in inventory - Decrease in inventory + Decrease in accounts payable - Increase in accounts payable.

Plugging in the given numbers:

$45,000 + ($10,500 - $13,500) + ($7,000 - $5,000) = $45,000 - $3,000 + $2,000 = $44,000

Therefore, the correct answer is B) $44,000.

Quiz 16: Statement of Cash Flows

Identify the section of the statement of cash flows (a-d) where each of the following items would be reported. -Amortization of patent

Income tax was $175,000 for the year. Income tax payable was $30,000 and $40,000 at the beginning and end of the year, respectively. Cash payments for income tax reported on the statement of cash flows using the direct method is

Identify the section of the statement of cash flows (a-d) where each of the following items would be reported. -Increase in income taxes payable

When using the spreadsheet (work sheet) method to analyze noncash accounts, it is best to start with

For each of the following activities that may take place during the accounting period, indicate the effect (a-g) on the statement of cash flows prepared using the indirect method. Choices may be selected as the answer for more than one question. -Purchase of equipment

For each of the following activities that may take place during the accounting period, indicate the effect (a-g) on the statement of cash flows prepared using the indirect method. Choices may be selected as the answer for more than one question. -Decrease in accounts payable balance

For each of the following activities that may take place during the accounting period, indicate the effect (a-g) on the statement of cash flows prepared using the indirect method. Choices may be selected as the answer for more than one question. -Amortization of intangible assets

For each of the following activities that may take place during the accounting period, indicate the effect (a-g) on the statement of cash flows prepared using the indirect method. Choices may be selected as the answer for more than one question. -Exchange of land for common stock

Free cash flow is

Free cash flow is cash flow from operations less cash used for

For each of the following activities that may take place during the accounting period, indicate the effect (a-g) on the statement of cash flows prepared using the indirect method. Choices may be selected as the answer for more than one question. -Gain on sale of investments

For each of the following activities that may take place during the accounting period, indicate the effect (a-g) on the statement of cash flows prepared using the indirect method. Choices may be selected as the answer for more than one question. -Sale of land

For each of the following activities that may take place during the accounting period, indicate the effect (a-g) on the statement of cash flows prepared using the indirect method. Choices may be selected as the answer for more than one question. -Repayment of long-term note payable

For each of the following activities that may take place during the accounting period, indicate the effect (a-g) on the statement of cash flows prepared using the indirect method. Choices may be selected as the answer for more than one question. -Increase in accounts receivable balance

Identify the section of the statement of cash flows (a-d) where each of the following items would be reported. -Sale of machinery held for use by the company

For each of the following activities that may take place during the accounting period, indicate the effect (a-g) on the statement of cash flows prepared using the indirect method. Choices may be selected as the answer for more than one question. -Acquisition of treasury stock

The operating cash flow available for company use after purchasing the fixed assets that are necessary to maintain current productive capacity is called the

For each of the following activities that may take place during the accounting period, indicate the effect (a-g) on the statement of cash flows prepared using the indirect method. Choices may be selected as the answer for more than one question. -Payment of dividends

When using the spreadsheet (work sheet) for the statement of cash flows, under the indirect method, entries made on the spreadsheet are​

When using the spreadsheet (work sheet) for the statement of cash flows, under the indirect method, entries made on the spreadsheet are