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Exam 21: The Statement of Cash Flows Revisited

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Question 91

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Is depreciation a source of cash? Explain.

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No. Depreciation is simply the systemati...

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Question 92

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Interest payments to creditors are reported in a statement of cash flows as:

A) An investing activity.
B) A borrowing activity.
C) A financing activity.
D) An operating activity.

E) None of the above
F) C) and D)

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Question 93

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Cash paid for taxes and interest must be disclosed on the face of the statement or in the disclosure notes under both the direct and indirect methods of reporting cash flows from operating activities.

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

Which of the following is not classified as an operating activity?

A firm reported ($ in millions) net cash inflows (outflows) as follows: operating $75, investing ($200) , and financing $350. The beginning cash balance was $250. What was the ending cash balance?

Red Manufacturing Company owns 40% of the outstanding common stock of Blue Supply Company. During 2018, Red received a $50 million cash dividend from Blue. What effect did this dividend have on Red's 2018 statement of cash flows?

Bowers Corporation reported the following ($ in 000s) for the year: $~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~\text { Balance }\\\begin{array} { l l l r } & \text { Begirning } & \text { Ending } \\\text { Accounts receivable } & \$ 600 & \$ 873\end{array}$ Sales on account were $1,900,000 for the year. How much cash was collected from customers on account?

On June 4, White Corporation issued $400 million of bonds for $386 million. During the same year, $1 million of the bond discount was amortized. In a statement of cash flows prepared by the indirect method, White Corporation should report:

Selected information from Large Corporation's accounting records and financial statements for 2018 is as follows ($ in millions) : Large prepares its financial statements in accordance with IFRS. In its statement of cash flows, Large most likely reports net cash outflows from investing activities of:

In its 2018 Annual Report to Shareholders, Kinney Inc. reported the following Consolidated Statement of Cash Flows: For the years ended December 31, -Assuming the decrease in accrued expenses during fiscal year 2018 included a $20,000 reduction due to taxes, compute the income tax expense for Kinney in that year.

A company reported interest expense of $540,000 for the year. Interest payable was $35,000 and $75,000 at the beginning and the end of the year, respectively. What was the amount of interest paid?

A firm reported salary expense of $239,000 for the current year. The beginning and ending balances in salaries payable were $40,000 and $15,000, respectively. What was the amount of cash paid for salaries?

Cash flows from financing activities do not include cash received from:

How is the amortization of patents reported in a statement of cash flows that is prepared using the direct method?

Pickering Company's prepaid insurance was $8,000 at December 31, 2017, and $10,000 at December 31, 2018. Pickering reported insurance expense of $15,000 on the 2018 income statement. What amount would be reported in the statement of cash flows as insurance paid using the direct method?

Which of the following causes a change in cash?

When reporting operating activities in a statement of cash flows, depreciation is:

The accounting records of Harrison Company provided the data below. $\begin{array} { | l | l| } \hline \text { Net loss } & \$ 10,000 \\\hline \text { Depreciation expense } & 12,000 \\\hline \text { Increase in salaries payable } & 1,000 \\\hline \text { Decrease in accounts receivable } & 4,000 \\\hline \text { Increase in inventory } & 4,800 \\\hline \text { Amortization of patent } & 700 \\\hline \text { Decrease in discount on bonds } & 500 \\\hline\end{array}$ Required: Prepare a reconciliation of net income to net cash flows from operating activities.

Transactions that represent noncash investing and financing activities must be reported in the statement of cash flows or in disclosure notes.