Chapter 11 Flashcards
1
Q
List the accounts that fall under operating activity on the statement of cash flow?
A
- Revenue
- Expenses
- Changes in current assets
- Changes in current liabilities
2
Q
List the accounts that fall under investing activity on the statement of cash flow
A
- Changes in long-term assets
3
Q
List the accounts that fall under financing activity on the statement of cash flow?
A
- Changes in long-term liabilities
- Changes in common stock
- Changes in retained earnings
4
Q
What are changes in retained earnings?
A
Dividends paid
5
Q
What is net cash flow equal to?
A
The change in cash
6
Q
What are significant investing and financing activities that do not affect cash?
A
Noncash activities
7
Q
Fill in the Blank: Indirect or Direct
The ______ method for operating activities is the most popular method out of the two
A
The Indirect method
8
Q
Fill in the Blank: Indirect or Direct
The ______ method for operating activities is easier and less costly
A
The Indirect method
9
Q
What are the advantages of the indirect method for operating activities?
A
It’s easier and less costly
10
Q
What does the indirect method for operating activities do in order to find the operating cash flows?
A
It begins with net income and then list adjustments to net income
11
Q
What does the direct method for operating activities do in order to find the operating cash flows?
A
It directly reports the cash inflows and outflows
12
Q
Fill in the Blank: Indirect or Direct
The ______ method for operating activities is a conceptually better method
A
The Direct method
13
Q
Fill in the Blank: Indirect or Direct
The ______ method for operating activities is more difficult and more costly
A
The Direct method
14
Q
Lists the steps for preparing the statement of cash flows
A
- Calculate net cash flows from operating activities
- Calculate net cash flows from investing activities
- Calculate net cash flows from financing activities
- Combine operating, investing, and financing activities
15
Q
What is the formula to find net increase (decrease) in cash?
A
Operating + Investing + Financing
16
Q
What is the formula to find cash at the end of the period?
A
Cash at the beginning of the period + net increase (decrease) in cash
17
Q
Fill in the Black:
In the Indirect method both ______ and _______ from operating activities represent the same operating activities
A
- Net income
2. Cash flows
18
Q
In the indirect method what 2 things does net income include?
A
Cash and noncash components
19
Q
Fill in the Blank: Positive or Negative
While using the indirect method, a depreciation expense will have a _______ effect on net cash flow for operative activities
A
Positive effect
20
Q
Fill in the Blank: Positive or Negative
While using the indirect method, an amortization expense will have a _______ effect on net cash flow for operative activities
A
Positive effect
21
Q
Fill in the Blank: Positive or Negative
While using the indirect method, a loss in sales of assets will have a _______ effect on net cash flow for operative activities
A
Positive effect
22
Q
Fill in the Blank: Positive or Negative
While using the indirect method, a gain in sales of assets will have a _______ effect on net cash flow for operative activities
A
Negative effect
23
Q
Fill in the Blank: Positive or Negative
While using the indirect method, an increase in a current asset will have a _______ effect on net cash flow for operative activities
A
Negative effect
24
Q
Fill in the Blank: Positive or Negative
While using the indirect method, a decrease in a current asset will have a _______ effect on net cash flow for operative activities
A
Positive effect
25
# Fill in the Blank: Positive or Negative
While using the indirect method, a increase in a current liability will have a _______ effect on net cash flow for operative activities
Positive effect
26
# Fill in the Blank: Positive or Negative
While using the indirect method, a decrease in a current liability will have a _______ effect on net cash flow for operative activities
Negative effect
27
How do you know if a statement of cash flow is using the indirect or direct method?
You look to see if there's a net income
28
Which method is being used if there's a net income at the beginning of the statement of cash flow?
The indirect method
29
Which method is being used if there's not net income?
The direct method
30
What does the change in (∆) cash equal in the indirect method?
∆Cash = ∆L + ∆SE - ∆Other Assets
31
What measures the operating cash flow generated per dollar of assets?
Cash return on assets
32
What measures the operating cash flows generated for each dollar of sales?
Cash flow to sales
33
What measures the sales revenue generated per dollar of assets?
Asset turnover
34
What are the two equations to find cash return on assets?
1. Cash flow to sales x Asset turnover
| 2. Operating Cash flow / Average total assets
35
What is the equation to find average total assets?
(Beginning assets + ending assets) / 2
36
What is the equation to find cash flow to sales?
Operating Cash Flow / Net Sales
37
What is the equation to find asset turnover?
Net sales / Average total assets
38
In the direct method are income statement items that have no cash effect reported?
No
39
Classify each of the following items as an operating, investing, or financing activity: Dividends paid
Financing
40
Classify each of the following items as an operating, investing, or financing activity: Repayment of notes payable
Financing
41
Classify each of the following items as an operating, investing, or financing activity: Payment for inventory
Operating
42
Classify each of the following items as an operating, investing, or financing activity: Purchase of equipment
Investing
43
Classify each of the following items as an operating, investing, or financing activity: Interest paid
Operating
44
Place the following items in the correct order as they would appear in the statement of cash flows.
a. Financing activities
b. Net increase (decrease) in cash
c. Operating activities
d. Beginning cash balance
e. Ending cash balance
f. Investing activities
c. Operating Activity
f. Investing Activity
a. Financing Activity
b. Net income (decrease) in cash
d. Beginning cash balance
e. Ending cash balance
45
Match the following items with the description or example that best fits: Operating activities
a. Begins with net income and then lists adjustments to net income in order to arrive at operating cash flows.
b. Item included in net income, but excluded from net operating cash flows.
c. Net cash flows from operating activities divided by average total assets.
d. Cash transactions involving lenders and investors.
e. Cash transactions involving net income.
f. Cash transactions for the purchase and sale of long-term assets.
g. Purchase of long-term assets by issuing stock.
h. Shows the cash inflows and outflows from operations such as cash received from customers and cash paid for inventory, salaries, rent, interest, and taxes.
e. Cash transactions involving net income.
46
Match the following items with the description or example that best fits: Investing activities
a. Begins with net income and then lists adjustments to net income in order to arrive at operating cash flows.
b. Item included in net income, but excluded from net operating cash flows.
c. Net cash flows from operating activities divided by average total assets.
d. Cash transactions involving lenders and investors.
e. Cash transactions involving net income.
f. Cash transactions for the purchase and sale of long-term assets.
g. Purchase of long-term assets by issuing stock.
h. Shows the cash inflows and outflows from operations such as cash received from customers and cash paid for inventory, salaries, rent, interest, and taxes.
f. Cash transactions for the purchase and sale of long-term assets.
47
Match the following items with the description or example that best fits: Financing activities
a. Begins with net income and then lists adjustments to net income in order to arrive at operating cash flows.
b. Item included in net income, but excluded from net operating cash flows.
c. Net cash flows from operating activities divided by average total assets.
d. Cash transactions involving lenders and investors.
e. Cash transactions involving net income.
f. Cash transactions for the purchase and sale of long-term assets.
g. Purchase of long-term assets by issuing stock.
h. Shows the cash inflows and outflows from operations such as cash received from customers and cash paid for inventory, salaries, rent, interest, and taxes.
d. Cash transactions involving lenders and investors.
48
What's the purchase of long-term assets by issuing stock an example of?
Noncash activities
49
Match the following items with the description or example that best fits: Indirect method
a. Begins with net income and then lists adjustments to net income in order to arrive at operating cash flows.
b. Item included in net income, but excluded from net operating cash flows.
c. Net cash flows from operating activities divided by average total assets.
d. Cash transactions involving lenders and investors.
e. Cash transactions involving net income.
f. Cash transactions for the purchase and sale of long-term assets.
g. Purchase of long-term assets by issuing stock.
h. Shows the cash inflows and outflows from operations such as cash received from customers and cash paid for inventory, salaries, rent, interest, and taxes.
a. Begins with net income and then lists adjustments to net income in order to arrive at operating cash flows.
50
Match the following items with the description or example that best fits: Direct method
a. Begins with net income and then lists adjustments to net income in order to arrive at operating cash flows.
b. Item included in net income, but excluded from net operating cash flows.
c. Net cash flows from operating activities divided by average total assets.
d. Cash transactions involving lenders and investors.
e. Cash transactions involving net income.
f. Cash transactions for the purchase and sale of long-term assets.
g. Purchase of long-term assets by issuing stock.
h. Shows the cash inflows and outflows from operations such as cash received from customers and cash paid for inventory, salaries, rent, interest, and taxes.
h. Shows the cash inflows and outflows from operations such as cash received from customers and cash paid for inventory, salaries, rent, interest, and taxes.
51
Match the following items with the description or example that best fits: Depreciation expense
a. Begins with net income and then lists adjustments to net income in order to arrive at operating cash flows.
b. Item included in net income, but excluded from net operating cash flows.
c. Net cash flows from operating activities divided by average total assets.
d. Cash transactions involving lenders and investors.
e. Cash transactions involving net income.
f. Cash transactions for the purchase and sale of long-term assets.
g. Purchase of long-term assets by issuing stock.
h. Shows the cash inflows and outflows from operations such as cash received from customers and cash paid for inventory, salaries, rent, interest, and taxes.
b. Item included in net income, but excluded from net operating cash flows.
52
Match the following items with the description or example that best fits: Cash return on assets
a. Begins with net income and then lists adjustments to net income in order to arrive at operating cash flows.
b. Item included in net income, but excluded from net operating cash flows.
c. Net cash flows from operating activities divided by average total assets.
d. Cash transactions involving lenders and investors.
e. Cash transactions involving net income.
f. Cash transactions for the purchase and sale of long-term assets.
g. Purchase of long-term assets by issuing stock.
h. Shows the cash inflows and outflows from operations such as cash received from customers and cash paid for inventory, salaries, rent, interest, and taxes.
c. Net cash flows from operating activities divided by average total assets.
53
What activity does depreciation expense go under in the statement of cash flow?
Operating Activity
54
What activity does inventory go under in the statement of cash flow?
Operating Activity
55
What activity does prepaid rent go under in the statement of cash flow?
Operating Activity
56
What activity does accounts receivable go under in the statement of cash flow?
Operating Activity
57
What activity does accounts payable go under in the statement of cash flow?
Operating Activity
58
What activity does interest payable go under in the statement of cash flow?
Operating Activity
59
What activity does sale of land go under in the statement of cash flow?
Investing Activity
60
What activity does investment bonds go under in the statement of cash flow?
Investing Activity
61
What activity does issuing common stock go under in the statement of cash flow?
Financing Activity
62
Is retained earnings included in the statement of cash flow?
No
63
What activity does dividends go under in the statement of cash flow?
Financing Activity
64
What are the two equations to find net increase (decrease) in cash flow?
1. Operating + Investing + Financing
| 2. Cash at end of period - cash at beginning of period
65
If you have noncash activities what do you have to do on the statement of cash flow?
You have to leave a note at the end of the statement
66
What activity does the purchase of long-term assets go under in the statement of cash flow?
Investing Activity
67
What activity does borrowing money from the bank go under in the statement of cash flow?
Financing Activity
68
What activity does replaying debt go under in the statement of cash flow?
Financing Activity
69
What activity does purchasing equipment go under in the statement of cash flow?
Investing Activity
70
What activity does an exchange go under in the statement of cash flow?
Noncash Activity
71
What activity does loans go under in the statement of cash flow?
Investing Activity
72
Select the section of the statement of cash flows in which each of these items would be reported: Issues $20 million in bonds
a. operating activities
b. investing activities
c. financing activities
d. noncash activities note
c. financing activities
73
Select the section of the statement of cash flows in which each of these items would be reported: Purchases equipment for $80,000
a. operating activities
b. investing activities
c. financing activities
d. noncash activities note
b. investing activities
74
Select the section of the statement of cash flows in which each of these items would be reported: Pays a $20,000 account payable.
a. operating activities
b. investing activities
c. financing activities
d. noncash activities note
a. operating activities
75
Select the section of the statement of cash flows in which each of these items would be reported: Collects a $15,000 account receivable
a. operating activities
b. investing activities
c. financing activities
d. noncash activities note
a. operating activities
76
Select the section of the statement of cash flows in which each of these items would be reported: Exchanges land for a new patent. Both are valued at $300,000
a. operating activities
b. investing activities
c. financing activities
d. noncash activities note
d. noncash activities note
77
Select the section of the statement of cash flows in which each of these items would be reported: Declares and pays a cash dividend of $100,000
a. operating activities
b. investing activities
c. financing activities
d. noncash activities note
c. financing activities
78
Select the section of the statement of cash flows in which each of these items would be reported: Loans $50,000 to a customer, accepting a note receivable.
a. operating activities
b. investing activities
c. financing activities
d. noncash activities note
b. investing activities
79
Select the section of the statement of cash flows in which each of these items would be reported: Pays $75,000 to suppliers for inventory.
a. operating activities
b. investing activities
c. financing activities
d. noncash activities note
a. operating activities
80
# Fill in the Blank: Positive or Negative
While using the indirect method, the issuance of common stock will have a _______ effect
Positive effect
81
# Fill in the Blank: Same or Opposite
Current assets is the _______ of current liabilities
Opposite
82
1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.
Transaction: Payment of employee salaries
1. Operating Activity
| 2. Outflow
83
1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.
Transaction: Sale of land for cash
1. Investing Activity
| 2. Inflow
84
1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.
Transaction: Purchase of rent in advance
1. Operating Activity
| 2. Outflow
85
1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.
Transaction: Collection of an accounts receivable
1. Operating Activity
| 2. Inflow
86
1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.
Transaction: Issuance of common stock
1. Financing Activity
| 2. Inflow
87
1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.
Transaction: Purchase of inventory
1. Operating Activity
| 2. Outflow
88
1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.
Transaction: Collection of notes receivable
1. Investing Activity
| 2. Inflow
89
1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.
Transaction: Payment of income taxes
1. Operating Activity
| 2. Outflow
90
1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.
Transaction: Sale of equipment for a note receivable
1. Noncash Activity
| 2. No effect
91
1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.
Transaction: Issuance of bonds
1. Financing Activity
| 2. Inflow
92
1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.
Transaction: Loan to another firm
1. Investing Activity
| 2. Outflow
93
1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.
Transaction: Purchase of treasury stock
1. Financing Activity
| 2. Outflow
94
1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.
Transaction: Payment of an account payable
1. Operating Activity
| 2. Outflow
95
1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.
Transaction: Payment of a long-term note payable
1. Financing Activity
| 2. Outflow
96
1. For each transaction, indicate whether the cash effect of each transaction is reported in a statement of cash flows as an operating, investing, financing, or noncash activity.
2. Indicate whether the transaction is a cash inflow or cash outflow, or has no effect on cash.
Transaction: Sale of equipment for cash
1. Investing Activity
| 2. Inflow
97
Is accumulated depreciation included in the statement of cash flow?
No
98
Indicate in which section of the statement of cash flows each of these items would be reported: Purchase of a patent
a. operating activities (indirect method)
b. investing activities
c. financing activities
d. a separate noncash activities note
b. investing
99
Indicate in which section of the statement of cash flows each of these items would be reported: Depreciation expense
a. operating activities (indirect method)
b. investing activities
c. financing activities
d. a separate noncash activities note
a. operating
100
Indicate in which section of the statement of cash flows each of these items would be reported: Decrease in accounts receivable.
a. operating activities (indirect method)
b. investing activities
c. financing activities
d. a separate noncash activities note
a. operating
101
Indicate in which section of the statement of cash flows each of these items would be reported: Issuance of a note payable
a. operating activities (indirect method)
b. investing activities
c. financing activities
d. a separate noncash activities note
c. financing
102
Indicate in which section of the statement of cash flows each of these items would be reported: Increase in inventory
a. operating activities (indirect method)
b. investing activities
c. financing activities
d. a separate noncash activities note
a. operating
103
Indicate in which section of the statement of cash flows each of these items would be reported: Collection of notes receivable
a. operating activities (indirect method)
b. investing activities
c. financing activities
d. a separate noncash activities note
b. investing
104
Indicate in which section of the statement of cash flows each of these items would be reported: Purchase of equipment
a. operating activities (indirect method)
b. investing activities
c. financing activities
d. a separate noncash activities note
b. investing
105
Indicate in which section of the statement of cash flows each of these items would be reported: Exchange of long-term assets
a. operating activities (indirect method)
b. investing activities
c. financing activities
d. a separate noncash activities note
d. noncash
106
Indicate in which section of the statement of cash flows each of these items would be reported: Decrease in accounts payable
a. operating activities (indirect method)
b. investing activities
c. financing activities
d. a separate noncash activities note
a. operating
107
Indicate in which section of the statement of cash flows each of these items would be reported: Payment of dividends
a. operating activities (indirect method)
b. investing activities
c. financing activities
d. a separate noncash activities note
c. financing
