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Exam 21: The Statement of Cash Flows Revisited

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Question 71

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Cash equivalents generally would not include short-term investments in:

A) Commercial paper.
B) Certificates of deposit.
C) Held-to-maturity debt securities.
D) Money market funds.

E) B) and C)
F) A) and B)

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Question 72

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Indicate the reporting classification that would apply to each of the following transactions

Premises

Responses

Payment of cash dividends.

Not reported for the statement of cash flows

Purchase of treasury stock.

Noncash financing and investing activity

Investment of excess cash in an interest-bearing security classified as a cash equivalent.

Financing cash outflow

Appropriation of retained earnings for expansion of the R&D program.

Financing cash inflow

Acquisition of equipment under a finance lease agreement.

Premises

Payment of cash dividends.

Purchase of treasury stock.

Investment of excess cash in an interest-bearing security classified as a cash equivalent.

Appropriation of retained earnings for expansion of the R&D program.

Acquisition of equipment under a finance lease agreement.

Responses

Not reported for the statement of cash flows

Noncash financing and investing activity

Financing cash outflow

Financing cash inflow

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Correct Answer

Premises

Responses

Payment of cash dividends.

Purchase of treasury stock.

Investment of excess cash in an interest-bearing security classified as a cash equivalent.

Appropriation of retained earnings for expansion of the R&D program.

Acquisition of equipment under a finance lease agreement.

Premises

Payment of cash dividends.

Purchase of treasury stock.

Investment of excess cash in an interest-bearing security classified as a cash equivalent.

Appropriation of retained earnings for expansion of the R&D program.

Acquisition of equipment under a finance lease agreement.

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Question 73

Multiple Choice

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Selected information from Peridot Corporation's accounting records and financial statements for 2018 is as follows ($ in millions) : $\begin{array}{lll}\text {Cash paid to acquire machinery }&\$36\\\text {Reacquired Peridot common stock }&50\\\text {Proceeds from sale of land }&90\\\text {Gain from the sale of land }&52\\\text {Investment revenue received }&66\\\text {Cash paid to acquire office equipment }&80\\\end{array}$ In its statement of cash flows, Peridot should report net cash outflows from investing activities of:

Which of the following is not an inflow of cash?

Cash flows from investing activities do not include cash payments to:

In its 2018 Annual Report to Shareholders, Henchman & Co. provided the following Statement of Cash Flows: $\begin{array} { | l | r | r | } \hline \text { Years ended December 31 (\$ in millions) } & 2018 & 2017 \\\hline \text { Financing Activities } & & \\\hline \text { Proceeds from issuance of long-term debt } & 1,491 & \\\hline \text { Proceeds from equity security units } & 690 & \\\hline \text { Borrowings under lines of credit } & 1,173 & \\\hline \text { Repayment of borrowings under lines of Credit } & ( 1,306 ) & ( 175 ) \\\hline \text { Principal payments of long-term debt/lease } & & \\\text { agreements } & ( 119 ) & ( 485 ) \\\hline \text { Proceeds from issuance of stock } & { 8 2 5 } & 19 \\\hline \text { Dividends paid } & ( 158 ) & ( 114 ) \\\hline \text { Other financing activities } & \underline{( 64 )} & -\\\hline \text { Net cash provided by (used in) financing } & & \\\text { activities } & { 2 , 5 3 2 } & ( 755 ) \\\hline \text { Increase in cash and cash equivalents } & 145 & 177 \\\hline \text { Cash and cash equivalents at beginning of year } & \underline{319} & \underline{142} \\\hline \text { Cash and cash equivalents at end of year } & \underline{\$ 464} & \$ \underline{319} \\\hline\end{array}$ -What was the net change in cash and cash equivalents experienced by Henchman & Co. during 2018? Was it positive or negative?

In using a spreadsheet to prepare the statement of cash flows, the summary entries duplicate the actual journal entries used to record the transactions during the year.

Rampart Inc. recorded the following transaction: $\begin{array} { | l | r | r | } \hline \text { Larnd } & 15 \mathrm { million } & \\\hline \text { Notes payable } & & 12 \mathrm { million } \\\hline \text { Cash } & & 3 \mathrm { million } \\\hline\end{array}$ In the statement of cash flows, this would be reported as a:

When a company purchases a security it considers a cash equivalent, the cash outflow is:

Each year, White Mountain Enterprises (WME) prepares a reconciliation schedule that compares its income statement with its statement of cash flows on both the direct and indirect method bases. In its 2018 income statement, WME reported $440,000 for the cost of goods sold. WME paid inventory suppliers $380,000 in 2018, and its inventory balance decreased by $41,000 during the year. In its reconciliation schedule, WME should:

Listed below are the reporting classifications for a statement of cash flows using the direct method for reporting operating cash flows. Indicate the reporting classification that would apply to each of the five transactions described below by placing the number of the reporting classification in the space provided by each transaction. $\begin{array} { | l | l | l | } \hline \text { CLASSIFICATION } & \text { TRANSACTIONS } & \text { NUMBER } \\\hline \text { 1. Operating cash outflow } & \begin{array} { l } \text { Interest received on cash } \text { savings account. }\\\end{array} & -\\\hline \text { 2. Not reported for the statement of cash flows} & \text { Cash purchase of inventory. } &- \\\hline \text { 3. Financing cash outflow } & \text { Cash dividends received under the equity method. } & -\\\hline \text { 4. Operating cash inflow } & \text { Principal payment on a note. } & -\\\hline \text { 5. Investing cash inflow } & \begin{array} { l } \text { Distribution of a stock } \text { dividend. }\\\end{array} & -\\\hline\end{array}$

The sale of stock and the sale of bonds are reported as financing activities. Are payments of dividends to shareholders and payments of interest to bondholders also reported as financing activities? Explain.

Selected information from Isadore Bell Corporation's accounting records and financial statements for 2018 is as follows ($ in millions) : In its statement of cash flows, Isadore Bell should report net cash outflows from investing activities of:

The accounting records of Eastlake Industries provided the data below. $\begin{array} { | l | l | } \hline \text { Net income } & \$ 300,000 \\\hline \text { Depreciation expense } & 15,000 \\\hline \text { Increase in inventory } & 2,000 \\\hline \text { Increase in accounts receivable } & 1,400 \\\hline \text { Decrease in interest payable } & 1,600 \\\hline \text { Amortization of bond premium } & 3,000 \\\hline \text { Increase in accounts payable } & 7,000 \\\hline \text { Cash dividends paid } & 20,000 \\\hline\end{array}$ Required: Prepare a reconciliation of net income to net cash flows from operating activities.

On January 1, Jim Shorts Corporation issued $300 million face value bonds for $580 million. During the same year, $1,500,000 of the bond premium was amortized. On a statement of cash flows prepared by the indirect method, Jim Shorts Corporation should report:

Listed below are reporting classifications for a statement of cash flows using the indirect method for reporting operating cash flows. Match the reporting classifications with the transactions described below. -Financing cash inflow

In its 2018 Annual Report to Shareholders, Henchman & Co. provided the following Statement of Cash Flows: $\begin{array} { | l | r | r | } \hline \text { Years ended December 31 (\$ in millions) } & 2018 & 2017 \\\hline \text { Financing Activities } & & \\\hline \text { Proceeds from issuance of long-term debt } & 1,491 & \\\hline \text { Proceeds from equity security units } & 690 & \\\hline \text { Borrowings under lines of credit } & 1,173 & \\\hline \text { Repayment of borrowings under lines of Credit } & ( 1,306 ) & ( 175 ) \\\hline \text { Principal payments of long-term debt/lease } & & \\\text { agreements } & ( 119 ) & ( 485 ) \\\hline \text { Proceeds from issuance of stock } & { 8 2 5 } & 19 \\\hline \text { Dividends paid } & ( 158 ) & ( 114 ) \\\hline \text { Other financing activities } & \underline{( 64 )} & -\\\hline \text { Net cash provided by (used in) financing } & & \\\text { activities } & { 2 , 5 3 2 } & ( 755 ) \\\hline \text { Increase in cash and cash equivalents } & 145 & 177 \\\hline \text { Cash and cash equivalents at beginning of year } & \underline{319} & \underline{142} \\\hline \text { Cash and cash equivalents at end of year } & \underline{\$ 464} & \$ \underline{319} \\\hline\end{array}$ -What was most responsible for the positive cash flow from financing activities during 2018? What amount was received?

Sneed Corporation reported balances in the following accounts for the current year: $\begin{array}{ccrr}&\text { Beginning } & {\text { Ending }} \\Income~ tax ~payable&\$ 50 & \$ 30 \\Deferyed ~tax ~liability&80 & 140\end{array}$ Income tax expense was $230 for the year. What was the amount paid for taxes?

When treasury stock is sold at an amount less than its cost, the sale is classified as:

Which of the following would be added to net income when determining cash flows from operating activities under the indirect method?