Q&A Hero

Q: Using the indirect method, calculate the amount of cash flows from operating activities from the following data:Net income $230,000Beginning accounts receivable 22,000Ending accounts receivable 29,000Beginning prepaid expenses 5,000Ending prepaid expenses 2,000Beginning accounts payable 15,000Ending accounts payable 14,000Depreciation expense 50,000Amortization of intangible asset 3,000Dividends declared and paid 11,000

Q: Harrell Company reported net income of $320,000 for the current year. Depreciation recorded on buildings and equipment amounted to $65,000 for the year. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows:InstructionsPrepare the cash flows from the operating activities section of the statement of cash flows using the indirect method.

Q: The income statement of Runge Inc. for the year ended December 31, 2012, reported the following condensed information:Revenue from fees $600,000Operating expenses 360,000Income from operations 240,000Income tax expense 60,000Net income $180,000Runge's balance sheet contained the following comparative data at December 31:Runge has no depreciable assets. Accounts payable pertains to operating expenses.InstructionsPrepare the operating activities section of the statement of cash flows using the direct method.

Q: The general ledger of the Alexander Company provides the following information:The company's net sales for the year was $2,000,000 and cost of goods sold amounted to $1,700,000.InstructionsCompute the following:(a) Cash receipts from customers(b) Cash payments to suppliers

Q: a. Sales = $850,000; Accounts receivable decreased by $40,000. Calculate cash receipts from sales.b. Cost of goods sold = $650,000; inventory increased by $22,000; accounts payable increased by $28,000. Calculate cash payments for purchases.c. Income statement shows $25,500 in income taxes. The balance sheet shows an increase in taxes payable of $3,500. Calculate the cash paid for income taxes.d. Operating expenses total $103,000; Depreciation expense = $14,000; Prepaid expenses decreased by $13,000; Accrued liabilities increased by $6,000. Calculate cash payments for operating expenses.

Q: a. Sales = $650,500; Accounts receivable increased by $27,500. Calculate cash receipts from sales.b. Cost of goods sold = $430,000; inventory decreased by $75,000; accounts payable decreased by $28,500. Calculate cash payments for purchases.c. The Income statement shows $12,500 in income taxes. The balance sheet shows an increase in taxes payable of $1,500. Calculate the cash paid for income taxes.d. Operating expenses total $75,750; Depreciation expense = $37,200; Prepaid expenses increased by $15,400; Accrued wages decreased by $10,600. Calculate cash payments for operating expenses.

Q: Miller Company had total operating expenses of $135,000 in 2012, which included Depreciation Expense of $25,000. Also during 2012, prepaid expenses increased by $9,000 and accrued expenses decreased by $5,500.InstructionsCalculate the amount of cash payments for operating expenses in 2012 using the direct method.

Q: Hutton Company prepared the tabulation below at December 31, 2012.Net Income $275,000Adjustments to reconcile net income to net cash provided by operating activities:InstructionsShow how each item should be reported in the statement of cash flows. Use parentheses for deductions.

Q: Assuming a statement of cash flows is prepared using the indirect method, indicate the reporting of the transactions and events listed below by major categories on the statement. Use the following code letters to indicate the appropriate category under which the item would appear on the statement of cash flows.

Q: Assume the indirect method is used to compute cash flows from operations. For each item listed below, indicate the effect on net income in arriving at cash flows from operations by choosing one of the following code letters.1. Increase in accounts receivable2. Increase in inventory3. Decrease in prepaid expenses4. Decrease in accounts payable5. Increase in accrued liabilities6. Increase in income taxes payable7. Depreciation expense8. Loss on sale of investment9. Gain on disposal of equipment10. Amortization expense

Q: Ballester Company reported net income of $150,000 for the current year. Depreciation recorded on buildings and equipment amounted to $75,000 for the year. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows:InstructionsPrepare the cash flows from the operating activities section of the statement of cash flows using the indirect method.

Q: (a) Identify several alternatives for presenting significant noncash activities in financial statements.(b) Give three examples of significant noncash activities.

Q: Selected transactions for the Locey Company are listed below.1. Collected accounts receivable.2. Declared and paid dividends on common stock.3. Sold long-term investments for cash.4. Issued stock for equipment.5. Repaid five year note payable.6. Paid employee wages.7. Converted bonds payable to common stock.8. Acquired long-term investment with cash.9. Sold buildings and equipment for cash.10. Sold merchandise to customers.InstructionsClassify each transaction as either (a) an operating activity, (b) an investing activity, (c) a financing activity, or (d) a noncash investing and financing activity.

Q: Selected transactions of the Rains Company are listed below.1. Common stock is sold for cash above par value.2. Bonds payable are issued for cash at a discount.3. Interest on a short-term note receivable is collected.4. Merchandise is sold to customers for cash.5. Cash is paid to purchase inventory.6. Equipment is purchased by signing a 3-year, 10% note payable.7. Cash dividends on common stock are declared and paid.8. One hundred shares of XYZ common stock are purchased for cash.9. Land is sold for cash at book value.10. Bonds payable are converted into common stock.InstructionsClassify each transaction as either (a) an operating activity, (b) an investing activity, (c) a financing activity, or (d) a noncash investing and financing activity.

Q: the growth phase of the product life cycle occurs when the company is purchasing fixed assets and beginning to produce and sell.

Q: Which of the following are criteria for determining whether to record an asset as a fixed asset? a. must be an investment and long-lived b. must be long-lived and used by the company in its normal operations c. must be short-lived and tangible d. must be tangible and an investment

Q: the acquisition of a building by issuing bonds would be considered an investing and financing activity that did not affect cash.

Q: any item that appears on the income statement would be considered as either a cash inflow or cash outflow from operating activities.

Q: The depreciation method that does not use residual value in computing the first year's depreciation expense is a. straight-line b. units-of-activity c. double-declining-balance d. sum-of-the-years-digits

Q: the payment of interest on bonds payable is classified as a cash outflow from operating activities.

Q: A machine with a cost of $120,000 has an estimated residual value of $15,000 and an estimated life of 5 years or 15,000 hours. It is to be depreciated by the units-of-activity method. What is the amount of depreciation for the second full year, during which the machine was used 5,000 hours? a. $5,000 b. $35,000 c. $21,000 d. $45,000

Q: the receipt of dividends from long-term investments in stock is classified as a cash inflow from investing activities.

Q: Weber Company purchased a mining site for $1,750,000 on July 1. The company expects to mine ore for the next 10 years and anticipates that a total of 400,000 tons will be recovered. The estimated residual value of the property is $150,000. During the first year, the company extracted 6,500 tons of ore. The depletion expense is a. $17,500 b. $16,000 c. $26,000 d. $15,000

Q: cash flow from investing activities is considered the most important category on the statement of cash flows because it is considered the best measure of expected income.

Q: On December 31, Strike Company has decided to discard one of its batting cages. The equipment had an initial cost of $310,000 and has accumulated depreciation of $260,000. Depreciation has been recorded up to the end of the year. Which of the following will be included in the journal entry for the disposal? a. Accumulated Depreciation, debit, $310,000 b. Loss on Disposal of Asset, debit, $260,000 c. Equipment, credit, $310,000 d. Gain on Disposal of Asset, credit, $50,000

Q: The acquisition of a used machine with a purchase price of $77,000, requiring an overhaul costing $8,000, installation costs of $5,000, and special acquisition fees of $3,000 would be journalized with a debit to the asset account for a. $93,000 b. $90,000 c. $82,000 d. $85,000

Q: the sale of land for cash would be classified as a cash inflow from an investing activity.

Q: The natural resources of some companies include a. timber, metal ores, and minerals b. timber, equipment, and patents c. minerals, trademarks, and land d. metal ores, copyrights, and supplies

Q: the statement of cash flows classifies cash receipts and payments as operating, nonoperating, financial, and extraordinary activities.

Q: The proper journal entry for the purchase of a computer costing $975 on account to be utilized within the business would be a. Office Supplies 975 Accounts Payable 975 b. Office Equipment 975 Accounts Payable 975 c. Office Supplies 975 Accounts Receivable 975 d. Office Equipment 975 Accounts Receivable 975

Q: noncash investing and financing transactions, such as the exchange of common stock to purchase assets, represent significant investing and financing activities and are reflected either in a schedule separate from the statement of cash flows or in a separate note to the financial statements.

Q: The process of transferring the cost of an asset to an expense account is called all of the following except a. depletion b. allocation c. amortization d. depreciation

Q: noncash investing and financing activities must be reported in the body of a statement of cash flows.

Q: Expenditures for research and development are generally recorded as a. current operating expenses b. assets and amortized over their estimated useful life c. assets and amortized over 40 years d. current assets

Q: in preparing a statement of cash flows, the issuance of debt should be reported separately from the retirement of debt.

Q: When a company exchanges machinery and receives a trade-in allowance greater than the book value, this transaction would be journalized with which of the following entries (assuming the exchange was considered to have commercial substance)? a. debit Machinery and Accumulated Depreciation; credit Machinery, Cash, and Gain on Exchange of Machinery b. debit Machinery and Accumulated Depreciation; credit Machinery and Cash c. debit Cash and Machinery; credit Accumulated Depreciation d. debit Cash and Machinery; credit Accumulated Depreciation and Machinery

Q: the statement of cash flows explains the difference between net income, as shown on the income statement, and the net cash flows generated from operations.

Q: Accumulated Depreciation a. is used to show the amount of cost expiration of intangibles b. is the same as Depreciation Expense c. is a contra asset account d. is used to show the amount of cost expiration of natural resources

Q: the activity from the balance sheet to be presented in the financing activities section of the statement of cash flows is based on an analysis of stockholders equity only.

Q: Xtra Company purchased a business from Argus for $96,000 above the fair value of its net assets. Argus had developed the goodwill over 12 years. How much would Xtra amortize the goodwill for its first year? a. $7,000 b. $8,000 c. $0 (goodwill is not amortized) d. cannot be determined with information given

Q: operating activities include the cash effects of transactions that create revenues and expenses.

Q: the statement of cash flows shows the effects on net income of a companys operating, investing, and financing activities for an accounting period.

Q: When a company sells machinery at a price equal to its book value, this transaction would be journalized as a a. debit to Cash and Accumulated Depreciation and a credit to Machinery b. debit to Machinery and a credit to Cash and Accumulated Depreciation c. debit to Cash and Machinery and a credit to Accumulated Depreciation d. debit to Cash and Depreciation Expense and a credit to Accumulated Depreciation

Q: Which of the following statements is true? a. A larger fixed asset turnover ratio is associated with firms that are more labor intensive and require smaller fixed asset investments. b. The fixed asset turnover ratio cannot be compared across time for an individual company. c. A smaller fixed asset turnover ratio is associated with firms that are more labor intensive and require smaller fixed asset investments. d. The fixed asset turnover ratio is not useful for comparing different companies.

Q: a statement of cash flows indicates the sources and uses of cash during a period.

Q: the primary purpose of the statement of cash flows is to provide information about a companys cash receipts and cash payments during an accounting period.

Q: Machinery was purchased on January 1 for $51,000. The machinery has an estimated life of 7 years and an estimated salvage value of $9,000. Double-declining-balance depreciation for the second year (rounded to the nearest dollar) would be a. $10,929 b. $6,000 c. $10,500 d. $10,408

Q: a primary objective of the statement of cash flows is to show the income or loss on investing and financing transactions.

Q: The higher the fixed asset turnover ratio, the a. less efficiently a company is using its fixed assets in generating sales b. more efficiently a company is using its fixed assets in generating sales c. more efficiently a company is using its current assets in generating sales d. more efficiently a company is using its intangible assets in generating sales

Q: When the amount of use of a fixed asset varies from year to year, the method of determining depreciation expense that best matches allocation of cost with revenue is a. the double-declining-balance method b. the straight-line method c. the units-of-activity method d. MACRS

Q: for external reporting, a company must prepare either an income statement or a statement of cash flows, but not both.

Q: the statement of cash flows is a required statement that must be prepared along with an income statement, balance sheet, and retained earnings statement.

Q: On June 1, Scotter Company purchased equipment at a cost of $120,000 that has a depreciable cost of $90,000 and an estimated useful life of 3 years or 30,000 hours. Using straight-line depreciation, compute depreciation expense for the first year, which ends on December 31. a. $17,500 b. $30,000 c. $12,500 d. $40,000

Q: using the indirect method, an increase in accounts receivable during a period is deducted from net income in calculating cash provided by operations.

Q: The acquisition of a new machine with a purchase price of $109,000, transportation costs of $12,000, installation costs of $5,000, and special acquisition fees of $6,000, would be journalized with a debit to the asset account for a. $114,000 b. $126,000 c. $121,000 d. $132,000

Q: The formula for annual depreciation using the straight-line depreciation method is a. Initial Cost ÷ Estimated Useful Life b. Depreciable Cost ÷ Estimated Useful Life c. Depreciable Cost × Estimated Useful Life d. Initial Cost × Estimated Useful Life

Q: cash provided by operations is generally equal to operating income.

Q: Equipment with a cost of $160,000, an estimated residual value of $40,000, and an estimated life of 15 years was depreciated by the straight-line method for 4 years. Due to obsolescence, it was determined that the remaining useful life should be shortened by 3 years and the residual value changed to zero. The depreciation expense for the current and future years is a. $11,636 b. $16,000 c. $11,000 d. $8,000

Q: under the indirect method, gains and losses from the sale of equipment used in operations would be included in the cash flows from operating activities section on the statement of cash flows.

Q: In a lease contract, the party who legally owns the asset is the a. lessee b. lessor c. operator d. banker

Q: a loss on sale of equipment is added to net income in determining cash provided by operations under the indirect method.

Q: On June 1, Michael Company purchased equipment at a cost of $120,000 that has a depreciable cost of $90,000 and an estimated useful life of 3 years or 30,000 hours. Using straight-line depreciation, compute depreciation expense for the second year. a. $17,500 b. $30,000 c. $12,500 d. $40,000

Q: during the maturity phase, cash from operations and net income are approximately the same.

Q: as an adjustment to operating expenses per the income statement, an increase in accrued liabilities would be added to operating expenses to determine cash payments for operating expenses.

Q: When a company exchanges machinery and receives a trade-in allowance less than the book value, this transaction would be journalized with which of the following entries? a. debit Machinery and Accumulated Depreciation; credit Machinery and Cash b. debit Cash and Machinery; credit Accumulated Depreciation c. debit Cash and Machinery; credit Accumulated Depreciation and Machinery d. debit Machinery, Accumulated Depreciation, and Loss on Exchange of Machinery; credit Machinery and Cash

Q: Which of the following is included in the cost of land? a. cost of paving a parking lot b. brokerage commission c. outdoor parking lot lighting attached to the land d. fences on the land

Q: an increase in inventory would be added to cost of goods sold to determine net purchases for the period.

Q: Computer equipment was acquired at the beginning of the year at a cost of $57,000 that has an estimated residual value of $9,000 and an estimated useful life of 5 years. Determine the second-year depreciation using the straight-line method. a. $13,200 b. $19,200 c. $9,600 d. $9,000

Q: in computing net cash flow from operating activities using the direct method, each item in the income statement is adjusted from the accrual basis to the cash basis.

Q: Which of the following is an example of a capital expenditure? a. cleaning the carpet in the front room b. tuning-up a company truck c. replacing an engine in a company car d. replacing all burned-out light bulbs in the factory

Q: during the year, income tax expense amounted to $25,000 and income taxes payable increased by $3,000; therefore, the cash paid for income taxes was $22,000.

Q: during a period, cost of goods sold plus an increase in inventory plus an increase in accounts payable equals cash paid to suppliers.

Q: Expenditures that add to the utility of fixed assets for more than one accounting period are a. committed expenditures b. revenue expenditures c. utility expenditures d. capital expenditures

Q: the current cash debt coverage ratio is considered a better representative of liquidity than the current ratio because it involves the entire year rather than a balance at one point in time.

Q: If a fixed asset, such as a computer, were purchased on January 1 for $3,750 with an estimated life of 3 years and a salvage or residual value of $150, the journal entry for monthly expense under straight-line depreciation is a. Depreciation Expense 100 Accumulated Depreciation 100 b. Depreciation Expense 1,200 Accumulated Depreciation 1,200 c. Accumulated Depreciation 1,200 Depreciation Expense 1,200 d. Accumulated Depreciation 100 Depreciation Expense 100

Q: The accumulated depletion of a natural resource is reported on the a. balance sheet as depreciation from the cost of the resource b. income statement as an increase in revenue c. balance sheet as a deduction from the cost of the natural resource d. income statement as a deduction from revenues

Q: the cash basis measure of liquidity is the cash debt coverage ratio.

Q: the cash debt coverage ratio indicates a companys ability to repay its liabilities from cash generated from operations.

Q: A characteristic of a fixed asset is that it is a. intangible b. used in the operations of a business c. held for sale in the ordinary course of business d. a short-term investment

Q: the current cash debt coverage ratio is computed by dividing net cash provided by operations by average total liabilities.