Which item belongs in the investing section of the statement of cash flow Quizlet

At the end of 2018, Schenck Corporation sold its only piece of equipment for $9,000 cash, a price that resulted in a loss of $3,000. During 2018, depreciation expense recognized by Schenck was $1,000. Schenck uses the indirect method to compute net cash flow from operating activities. In reconciling net income to net cash flow from operating activities under the indirect method, the required adjustments based upon the given data:

a) increase net income by $4,000
b) increase net income by $1,000
c) decrease net income by $4,000
d) increase net income by $3,000

Monarch Company uses the indirect method to prepare its statement of cash flows. The following information has been gathered for the current period:

Gain on sale of land $54,000
Net Income $171,000
Depreciation expense $83,000
Cash received from sale of land $169,000
Decrease in inventory $ 19,000
Increase in accounts receivable $14,000
Increase in accounts payable $20,000

On the basis of the above information only, Monarch Company's statement of cash flows shows net cash flow from operating activities to be:

a) $187,000
b) $333,000
c) $225,000
d) $361,000

Haven Corporation issued $700,000 of 10-year bonds payable at par in 2014. During 2018, Haven paid $50,000 interest and an additional $233,333 to retire one-third of the bonds at par. These activities would be reported in Haven's statement of cash flows for 2018 as:

a) $283,333 net cash provided by financing activities
b) $283,333 net cash used in financing activities
c) $233,333 net cash used in financing activities, and $50,000 cash disbursed for operating activities
d) $466,667 net cash provided by financing activities, and $50,000 cash disbursed for operating activities

1. At December 31, year 1, Kale Co. had the following balances in the accounts it maintains at First State Bank:

Checking account #101: $175,000
Checking account #102: ($10,000)
Money Market Account: $25,000
90-day certificate of deposit, due 2/28/Y2: $50,000
180-day certificate of deposit, due 3/15/Y2: $80,000

Kale classifies investments with original maturities of three months or less as cash equivalents. In its December 31, year 1 balance sheet, what amount should Kale report as cash and cash equivalents?

a. $190,000
b. $200,000
c. $240,000
d. $320,000

Correct Answer: C) $240,000

Notes

(c) The 12/31/Y1 cash and cash equivalents balance is $240,000, as computed below.

$175,000
($10,000)
$25,000
$50,000
Total: $240,000

Bank overdrafts (like account #201) are normally reported as a current liability. However, when available cash is present in another account in the same bank, as in this case, offsetting is required. The money market account of $25,000 and the 90-day CD of $50,000 are considered cash equivalents because they had original maturities of three months or less. The 180-day CD of $80,000 is excluded because its original maturity was more than three months.

11. In preparing its cash flow statement for the year ended December 31, year 1, Reve Co. collected the following data:

Gain on sale of equipment: ($6,000)
Proceeds from sale of equipment: $10,000
Purchase of A.S., Inc. bonds (par value $200,000): ($180,000)
Amortization of bond discount: $2,000
Dividends declared: ($45,000)
Dividends paid: ($38,000)
Proceeds from sale of treasury stock (carrying amount $65,000): $75,000

In its December 31, year 1 statement of cash flows, what amount should Reve report as net cash used in investing activities?

a. $170,000
b. $176,000
c. $188,000
d. $194,000

12. In preparing its cash flow statement for the year ended December 31, year 1, Reve Co. collected the following data:

Gain on sale of equipment: ($6,000)
Proceeds from sale of equipment: $10,000
Purchase of A.S., Inc. bonds (par value $200,000): ($180,000)
Amortization of bond discount: $2,000
Dividends declared: ($45,000)
Dividends paid: ($38,000)
Proceeds from sale of treasury stock (carrying amount $65,000): $75,000

In its December 31, year 1 statement of cash flows, what amount should Reve report as net cash provided by financing activities?

a. $20,000
b. $27,000
c. $30,000
d. $37,000

Correct Answer: D) $37,000

Notes

(d) Financing activities include all cash flows involving liabilities and owners' equity other than operating items. The financing activities are

($38,000)
+ $75,000
Equals: $37,000

The excess of dividends declared over dividends paid is a noncash financing activity. The gain on sale of equipment ($6,000) and amortization of bond discount ($2,000) are net income adjustments in the operating section, while the proceeds from sale of equipment ($10,000) and purchase of A.S., Inc. bonds ($180,000) are investing items.

17. Flax Corp. uses the direct method to prepare its statement of cash flows. Flax's trial balances at December 31, year 2 and year 1 are as follows:

Year 1:

Debits
Cash: $32,000
Accounts receivable: $30,000
Inventory: $47,000
Property, plant, & equipment: $95,000
Unamortized bond discount: $5,000
Cost of goods sold: $380,000
Selling expenses: $172,000
General and administrative expenses: $151,300
Interest expense: $2,600
Income tax expense: $61,200
Total Debits: $976,100

Credits
Allowance for uncollectible accounts: $1,100
Accumulated depreciation: $15,000
Trade accounts payable: $17,500
Income taxes payable: $27,100
Deferred income taxes: $4,600
8% callable bonds payable: $20,000
Common stock: $40,000
Additional paid-in capital: $7,500
Retained earnings: $64,600
Sales: $778,700
Total Credits: $976,100

Year 2:

Debits
Cash: $35,000
Accounts receivable: $33,000
Inventory: $31,000
Property, plant, & equipment: $100,000
Unamortized bond discount: $4,500
Cost of goods sold: $250,000
Selling expenses: $141,500
General and administrative expenses: $137,000
Interest expense: $4,300
Income tax expense: $20,400
Total Debits: $756,700

Credits
Allowance for uncollectible accounts: $1,300
Accumulated depreciation: $16,500
Trade accounts payable: $25,000
Income taxes payable: $21,000
Deferred income taxes: $5,300
8% callable bonds payable: $45,000
Common stock: $50,000
Additional paid-in capital: $9,100
Retained earnings: $44,700
Sales: $538,800
Total Credits: $756,700

-Flax purchased $5,000 in equipment during year 2.
-Flax allocated one third of its depreciation expense to selling expenses and the remainder to general and administrative expenses. There were no write-offs of accounts receivable during year 2.

What amount should Flax report in its statement of cash flows
for the year ended December 31 , year 2, for cash collected from customers?

a. $541,800
b. $541,600
c. $536,000
d. $535,800

18. Flax Corp. uses the direct method to prepare its statement of cash flows. Flax's trial balances at December 31, year 2 and year 1 are as follows:

Year 1:

Debits
Cash: $32,000
Accounts receivable: $30,000
Inventory: $47,000
Property, plant, & equipment: $95,000
Unamortized bond discount: $5,000
Cost of goods sold: $380,000
Selling expenses: $172,000
General and administrative expenses: $151,300
Interest expense: $2,600
Income tax expense: $61,200
Total Debits: $976,100

Credits
Allowance for uncollectible accounts: $1,100
Accumulated depreciation: $15,000
Trade accounts payable: $17,500
Income taxes payable: $27,100
Deferred income taxes: $4,600
8% callable bonds payable: $20,000
Common stock: $40,000
Additional paid-in capital: $7,500
Retained earnings: $64,600
Sales: $778,700
Total Credits: $976,100

Year 2:

Debits
Cash: $35,000
Accounts receivable: $33,000
Inventory: $31,000
Property, plant, & equipment: $100,000
Unamortized bond discount: $4,500
Cost of goods sold: $250,000
Selling expenses: $141,500
General and administrative expenses: $137,000
Interest expense: $4,300
Income tax expense: $20,400
Total Debits: $756,700

Credits
Allowance for uncollectible accounts: $1,300
Accumulated depreciation: $16,500
Trade accounts payable: $25,000
Income taxes payable: $21,000
Deferred income taxes: $5,300
8% callable bonds payable: $45,000
Common stock: $50,000
Additional paid-in capital: $9,100
Retained earnings: $44,700
Sales: $538,800
Total Credits: $756,700

-Flax purchased $5,000 in equipment during year 2.
-Flax allocated one third of its depreciation expense to selling expenses and the remainder to general and administrative expenses. There were no write-offs of accounts receivable during year 2.

What amount should Flax report in its statement of cash flows
for the year ended December 31 , year 2, for cash paid for goods to be sold?

a. $258,500
b. $257,500
c. $242,500
d. $226,500

19. Flax Corp. uses the direct method to prepare its statement of cash flows. Flax's trial balances at December 31, year 2 and year 1 are as follows:

Year 1:

Debits
Cash: $32,000
Accounts receivable: $30,000
Inventory: $47,000
Property, plant, & equipment: $95,000
Unamortized bond discount: $5,000
Cost of goods sold: $380,000
Selling expenses: $172,000
General and administrative expenses: $151,300
Interest expense: $2,600
Income tax expense: $61,200
Total Debits: $976,100

Credits
Allowance for uncollectible accounts: $1,100
Accumulated depreciation: $15,000
Trade accounts payable: $17,500
Income taxes payable: $27,100
Deferred income taxes: $4,600
8% callable bonds payable: $20,000
Common stock: $40,000
Additional paid-in capital: $7,500
Retained earnings: $64,600
Sales: $778,700
Total Credits: $976,100

Year 2:

Debits
Cash: $35,000
Accounts receivable: $33,000
Inventory: $31,000
Property, plant, & equipment: $100,000
Unamortized bond discount: $4,500
Cost of goods sold: $250,000
Selling expenses: $141,500
General and administrative expenses: $137,000
Interest expense: $4,300
Income tax expense: $20,400
Total Debits: $756,700

Credits
Allowance for uncollectible accounts: $1,300
Accumulated depreciation: $16,500
Trade accounts payable: $25,000
Income taxes payable: $21,000
Deferred income taxes: $5,300
8% callable bonds payable: $45,000
Common stock: $50,000
Additional paid-in capital: $9,100
Retained earnings: $44,700
Sales: $538,800
Total Credits: $756,700

-Flax purchased $5,000 in equipment during year 2.
-Flax allocated one third of its depreciation expense to selling expenses and the remainder to general and administrative expenses. There were no write-offs of accounts receivable during year 2.

What amount should Flax report in its statement of cash flows
for the year ended December 31 , year 2, for cash paid for interest?

a. $4,800
b. $4,300
c. $3,800
d. $1,700

20. Flax Corp. uses the direct method to prepare its statement of cash flows. Flax's trial balances at December 31, year 2 and year 1 are as follows:

Year 1:

Debits
Cash: $32,000
Accounts receivable: $30,000
Inventory: $47,000
Property, plant, & equipment: $95,000
Unamortized bond discount: $5,000
Cost of goods sold: $380,000
Selling expenses: $172,000
General and administrative expenses: $151,300
Interest expense: $2,600
Income tax expense: $61,200
Total Debits: $976,100

Credits
Allowance for uncollectible accounts: $1,100
Accumulated depreciation: $15,000
Trade accounts payable: $17,500
Income taxes payable: $27,100
Deferred income taxes: $4,600
8% callable bonds payable: $20,000
Common stock: $40,000
Additional paid-in capital: $7,500
Retained earnings: $64,600
Sales: $778,700
Total Credits: $976,100

Year 2:

Debits
Cash: $35,000
Accounts receivable: $33,000
Inventory: $31,000
Property, plant, & equipment: $100,000
Unamortized bond discount: $4,500
Cost of goods sold: $250,000
Selling expenses: $141,500
General and administrative expenses: $137,000
Interest expense: $4,300
Income tax expense: $20,400
Total Debits: $756,700

Credits
Allowance for uncollectible accounts: $1,300
Accumulated depreciation: $16,500
Trade accounts payable: $25,000
Income taxes payable: $21,000
Deferred income taxes: $5,300
8% callable bonds payable: $45,000
Common stock: $50,000
Additional paid-in capital: $9,100
Retained earnings: $44,700
Sales: $538,800
Total Credits: $756,700

-Flax purchased $5,000 in equipment during year 2.
-Flax allocated one third of its depreciation expense to selling expenses and the remainder to general and administrative expenses. There were no write-offs of accounts receivable during year 2.

What amount should Flax report in its statement of cash flows
for the year ended December 31 , year 2, for cash paid for income taxes?

a. $25,800
b. $20,400
c. $19,700
d. $15,000

21. Flax Corp. uses the direct method to prepare its statement of cash flows. Flax's trial balances at December 31, year 2 and year 1 are as follows:

Year 1:

Debits
Cash: $32,000
Accounts receivable: $30,000
Inventory: $47,000
Property, plant, & equipment: $95,000
Unamortized bond discount: $5,000
Cost of goods sold: $380,000
Selling expenses: $172,000
General and administrative expenses: $151,300
Interest expense: $2,600
Income tax expense: $61,200
Total Debits: $976,100

Credits
Allowance for uncollectible accounts: $1,100
Accumulated depreciation: $15,000
Trade accounts payable: $17,500
Income taxes payable: $27,100
Deferred income taxes: $4,600
8% callable bonds payable: $20,000
Common stock: $40,000
Additional paid-in capital: $7,500
Retained earnings: $64,600
Sales: $778,700
Total Credits: $976,100

Year 2:

Debits
Cash: $35,000
Accounts receivable: $33,000
Inventory: $31,000
Property, plant, & equipment: $100,000
Unamortized bond discount: $4,500
Cost of goods sold: $250,000
Selling expenses: $141,500
General and administrative expenses: $137,000
Interest expense: $4,300
Income tax expense: $20,400
Total Debits: $756,700

Credits
Allowance for uncollectible accounts: $1,300
Accumulated depreciation: $16,500
Trade accounts payable: $25,000
Income taxes payable: $21,000
Deferred income taxes: $5,300
8% callable bonds payable: $45,000
Common stock: $50,000
Additional paid-in capital: $9,100
Retained earnings: $44,700
Sales: $538,800
Total Credits: $756,700

-Flax purchased $5,000 in equipment during year 2.
-Flax allocated one third of its depreciation expense to selling expenses and the remainder to general and administrative expenses. There were no write-offs of accounts receivable during year 2.

What amount should Flax report in its statement of cash flows
for the year ended December 31 , year 2, for cash paid for selling expenses?

a. $142,000
b. $141,500
c. $141,000
d. $140,000

Correct Answer: C) $141,000

Notes

(c) In general, cash paid for selling expenses is affected by prepaid selling expenses, accrued selling expenses, depreciation and/or amortization expense, and possibly bad debts expense. In this case, there are no prepaid or accrued selling expenses in the trial balances, and bad debts expense is apparently included in general and administrative expenses (see discussion below). Therefore, cash paid for selling expenses is $141,000 ($141,500 selling expenses less $500 depreciation expense). Total depreciation expense can be determined from the change in the accumulated depreciation account ($16,500 - $15,000 = $1,500), and 1/3 of that amount is selling expense (1/3 × $1,500 = $500). Note that bad debt expense ($1,300 - $1,100 = $200) must be included in general and administrative expenses, because the answer obtained by assuming it is part of selling expenses ($141,000 - $200 = $140,800) is not given as one of the four choices.

24. Metro, Inc. reported net income of $150,000 for year 1. Changes occurred in several balance sheet accounts during year 1 as follows:

-Investment in Videogold, Inc. stock, carried on the equity basis: $5,500 increase
-Accumulated depreciation, caused by major repair to projection equipment: $2,100 decrease
-Premium on bonds payable: $1,400 decrease
-Deferred income tax liability (long-term): $1,800 increase

In Metro's year 1 cash flow statement, the reported net cash provided by operating activities should be

a. $150,000
b. $148,300
c. $144,900
d. $142,800

Correct Answer: C) $144,900

Notes

(c) Net income was $150,000. Three of the four items given are net income adjustments (the major repair to projection equipment [$2,100] is a cash outflow under investing activities) because it is a capital expenditure related to a major repair, resulting in net cash provided by operating activities of $144,900.

When equity method income is recorded, the offsetting debit is to the investment account, not cash; when premium on bonds payable is amortized, the credit to interest expense is offset by a debit to the premium account, not cash. Therefore, both of these items increase income without increasing cash, and must be deducted as a net income adjustment. For the deferred tax items, when income tax expense is debited, the offsetting credit is to deferred tax liability, not cash. Therefore, this item decreases net income without decreasing cash, and it must be added back as a net income adjustment. Note that there should normally be depreciation expense as a net income adjustment, but it is not given.

25. Lino Co.'s worksheet for the preparation of its year 1 statement of cash flows showed the following:

January 1:
Accounts Receivable: $23,000
Allowance for uncollectible accounts: $800
Prepaid rent expense: $12,400
Accounts Payable: $19,400

December 31:
Accounts Receivable: $29,000
Allowance for uncollectible accounts: $1,000
Prepaid rent expense: $8,200
Accounts Payable: $22,400

Lino's year 1 net income is $150,000. What amount should Lino include as net cash provided by operating activities in the statement of cash flows?

a. $151,400
b. $151,000
c. $148,600
d. $145,400

Correct Answer: A) $151,400

Notes

(a) Based only on the items given, net cash provided by operating activities is $151,400, as computed below.

$150,000
+ ($5,800)
+ $4,200
+ $3,000
Equals: $151,400

The increase in net AR is deducted from net income because it indicates that cash collected is less than sales revenue. The decrease in prepaid rent is added because it reflects rent expense that was not a cash payment, but an allocation of previously recorded prepaid rent. Finally, the increase in AP is added because it also represents an expense (cost of goods sold) that was not yet paid.

What goes in the investing section of the statement of cash flows?

What is an example of an investing activity in cash flow statement?

Which item is not included in the investing activities section of the statement of cash flows?

Which is included under financing activities in the statement of cash flows quizlet?