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Exam 12: Accounting for Cash Flows

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Question 1

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A company had total assets of $745,000, total cash flows of $230,000, and cash flows from operations of $50,000. The cash flow on total assets ratio is equal to:

A) 30.87%
B) 21.74%
C) 6.71%
D) 5.13%
E) 37.58%

F) A) and B)
G) A) and E)

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Question 2

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Noncash financing and investing activities are disclosed in the ____________ or in a separate ______________________________.

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notes; schedule incl...

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Martin, Inc.'s, income statement is shown below. Based on this income statement and the other information provided, calculate the net cash provided by operations using the indirect method. Additional information: $\begin{array} { | l | r | } \hline \text { Increase in accounts receivable } & \$ 4,000 \\\hline \text { Increase in accounts payable } & 16,000 \\\hline \text { Increase in income taxes payable } & { 3 0 0 } \\\hline \text { Decrease in prepaid expenses } & 10,000 \\\hline \text { Decrease in merchardise inveritory } & 14,000 \\\hline \text { Decrease in long-tem notes payable } & { 2 0 , 0 0 0 } \\\hline\end{array}$

The conversion of preferred stock to common stock is disclosed in the financing section of the statement of cash flows.

Define and discuss the differences between operating, investing, and financing activities.

Define and explain significant noncash investing and financing activities and the method of reporting them on the statement of cash flows.

A company reported net cash provided by operating activities of $131.4 million. Assets totaled $2,197.7 million at the beginning of the year and $2,040.0 million at the end of the year. Calculate this company's cash flow on total assets ratio.

The following information is available for the Ehrens Corporation: EHRENS CORPORATION Income Statement For Year Ended December 31, 2013 $\begin{array}{|l|r|r|}\hline \text { Sales } & & \$ 240,000 \\\hline \text { Cost of goods sold } & \$ 80,900 & \\\hline \text { Depreciation expense } & 29,400 & \\\hline \text { Other operating expenses } & 48,000 & \\\hline \text { Interest expense } & 2,000 & (160,300) \\\hline \text { Other gains (losses): } & & \\\hline \text { Loss on sale of equipment } & & (8,400) \\\hline \text { Income before taxes } & & 71,300 \\\hline \text { Income taxes expense } & & 27,650 \\\hline \text { Net income } & & \$ 43,650 \\\hline\end{array}$ Additional information: (1) There was no gain or loss on the sales of the long-term investments, nor on the bonds retired. (2) Old equipment with an original cost of $37,550 was sold for $2,100 cash. (3) New equipment was purchased for $67,550 cash. (4) Cash dividends of $33,600 were paid. (5) Additional shares of stock were issued for cash. Prepare a statement of cash flows for the 2013 calendar year using the indirect method.

Both the direct and indirect methods yield the identical net cash flow amount provided or used by operating activities.

Northwest Corporation's salaries expense was $18.0 million. What is the amount of cash that the company paid for salaries if the Salaries Payable account increased by $4.0 million?

Financing activities include receiving cash from issuing debt and receiving cash dividends from investments in other companies' stocks.

Which one of the following is representative of typical cash flows from operating activities?

Spirit Company, a merchandiser, recently completed its 2013 calendar year. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, and (5) Other Expenses are paid in advance and are initially debited to Prepaid Expenses. The company's balance sheet and income statement follow: SPIRIT COMPANY Comparative Balance Sheet December 31,2013 and 2012 $\begin{array}{lrr} & 2013 &{2012} \\\text { Assets } & & \\\text { Cash } & \$ 49,200 & \$ 73,500 \\\text { Accounts receivable } & 65,830 & 51,000 \\\text { Merchandise inventory } & 276,000 & 252,500 \\\text { Prepaid expenses } & 1,000 & 1,600 \\\text { Equipment } & 159,000 & 106,500 \\\text { Accum. depreciation-Equipment } & (31,000) & (40,000) \\\text { Total assets } &\$ 520,030 & \$ 445,100\\\text { Liabilities and Equity }\\\text { Accounts payable } & \$ 58,555 & \$ 112,000 \\\text { Short-term notes payable } & 9,000 & 7,000 \\\text { Long-term notes payable } & 65,000 & 48,500 \\\text { Common stock, \$5 par value } & 162,750 & 150,750 \\\text { Paid-in capital in excess of par, common stock } &36,000 &0\\\text { Retained earnings } & 188,725 & 126,850 \\\text { Total liabilities and equity } & \$ 520,030 & \$ 445,100\end{array}$ SPIRIT COMPANY Income Statement For Year Ended December 31, 2013 $\begin{array} { l r r } \text { Sales } & & \$ 584,000 \\ \text { Cost of goods sold } & & 283,000 \\ \text { Gross profit } & & 301,000 \\ \text { Operating expenses } \\ \quad \text { Depreciation expense } & \$ 20,000 &\\ \quad \text { Other expenses } & 132,400 & 152,400 \\ \text { Other gains (losses) } \\ \quad \text { Loss on sale of equipment }& & 5,875 \\ \text { Income before taxes } && \$ 142,725 \\ \text { Income taxes expense } && 24,250\\\text { Net income }&& \$ 18,475 \end{array}$ Additional information on year 2013 transactions: a. The loss on the cash sale of equipment was $\$ 5,875$ (details in $b$ ) b. Sold equipment costing $\$ 46,500$ , for a loss of $\$ 5,875$ . c. Purchared equipment costing $\$ 99,000$ by paying $\$ 35,000$ cash and signing a long-term note payable for the balance. d. Borrowed $\$ 2,000$ cash by signing a nonsales-related short-term note payable. e. Paid $\$ 47,500$ cash to reduce the long-term notes payable. f. Issued 2,400 shares of comon stock for $\$ 20$ cash per share. g. Net income and dividends were the only items that affected retained earmings. Required: What is the amount of dividends declared and distributed in 2013?

Explain how the operating activities section of the statement of cash flows is prepared when using the indirect method.

The direct method for preparing and reporting the statement of cash flows reports net income and then adjusts the necessary items to calculate net cash provided or used by operating activities.

When the operating activities section of the statement of cash flows is reported using the direct method, the FASB requires:

Explain how to determine cash flows from investing and financing activities.

Under IFRS, interest revenue may be classified as an operating or investing activity, assuming that this classification is applied consistently across all periods.

The statement of cash flows is divided into three sections called the _____________, _____________ and _______________ sections.

A corporation reported average total assets of $397,350 in 2012 and $440,800 in 2013. Its net operating cash flow was $35,667 for 2012 and $35,790 for 2013. Calculate the cash flow on total assets ratio for both years. Comment on the results.