Chapter 21

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Chapter 21  Which of the following decision makers tend to be especially interested in cash flow information? – investors; creditors  Which of the following transactions/events commonly give rise to cash inflows for business entities? – cash collected from customers; common stock is sold to investors  Which of the following are valid categories in the statement of cash flows? – cash flows from operating activities; cash flows from investing activities; cash flows from financing activities  Which of the following are required characteristics of cash equivalents? – high liquidity; low risk; short-term  Which of the following are included in the statement of cash flows? – cash flows from operating activities; cash flows from financing activities; noncash investing and financing activities; cash flows from investing activities  Which of the following statements best describes the importance of cash flow information? – investors and creditors consider the risk associated with cash flow forecasts; investors and creditors rely heavily on cash flow information  Which of the following statements regarding the recognition of revenues and expenses is correct? – They are recognized even if cash has not been received or paid  Which of the following transactions/events commonly give rise to cash outflows of business entities – employees are paid; fire insurance is purchased  Which of the following are not valid categories in the statement of cash flows? – cash flows from continuing operations; cash flows from discontinued operations  Short-term, highly liquid investments that can be readily converted to cash, with little risk of loss are referred to as___ ____ - cash equivalents  Cash flows from ____ activities are both outflows and inflows of cash caused by the acquisition and disposal of long-term assets. – investing  In addition to the primary activities, what other required information must be presented in a statement of cash flows? – a reconciliation of the net increase or decrease in cash with the change in the cash balance; noncash investing and financing activities  Which of the following concepts governs recognition and expense? – accrual accounting  Inflows and outflows of cash resulting from the external funding of a business are cash flows from ______ activities. – financing  Munster Company reports the following net cash in its statement of cash flows: net inflow from operating activities: $200; net outflow from investing activities: $300; net outflow from financing activities: $50. The ending balance is $20; the beginning balance must have been – 170 (20- 200+300+50)  Steiner Corp. purchases a new machine for $120,000. The company makes a $20,000 downpayment and signs a promissory note for the difference. Which of the following statements is correct regarding this transaction and the classification in a statement of cash flows? – investing cash outflow is $20,000  Which of the following would result in a cash outflow from investing activities? – purchase of a machine for cash  The objective in preparing the statement of cash flows is to identify all transactions and events that represent – operating, investing, and financing activities and report them in the proper statement format  An important tool that can be used to ensure that no reportable activities are inadvertently overlooked is a – spreadsheet  Financing activities are inflows and outflows of cash resulting from the – external financing of a business

 Norbert Company reports the following net cash in its statement of cash flows: net inflow from operating activities: $200; net outflow from investing activities: $220; net inflow from financing activities: $130. The current year beginning balance was $80. The cash balance at the end of the year will be – 190 ((80+200-220+130)  Steiner Corp. purchases a new machine for $120,000. The company makes a $20,000 downpayment and signs a promissory note for the difference. This transaction consists of – a cash outflow from investing activity; a noncash investing and financing activity  Which of the following represent objectives of preparing a statement of cash flows? – classifying the transactions and events correctly; adhering to a proper statement format; identifying all operating, investing, and financing events and transactions  An important advantage of using a spreadsheet to analyze transactions that may need to be reported in the statement of cash flows is to – make sure that no reportable activity is overlooked  Amounts reported in the income statement usually are ____ the cash effects of the items reported – different from  Sales revenue for the year was $100,000; accounts receivable had a beginning balance of $10,000 and an ending balance of $18,000. Cash collected from customers was - $92,000  Norbert Company reports the following net cash flows in its statement of cash flows: net inflow from operating activities: $200; net outflow from investing activities: $220; net inflow from financing activities: $130. The current year beginning cash was $80. During the current year, cash must have – increased by $110 (200-220+130)  Glueck Corp. reports sales revenue of $200,000. During the year, the company’s accounts receivable balance decreased by $10,000 and its deferred revenue increased by $4,000. Cash collected from customers is - $214,000 (200000+10000+4000)  Which of the following statements regarding income statement and related cash amounts is correct? – income statement amounts and cash amounts typically are not the same.  Glueck Corp. reports sales revenue of $200,000. During the year, the company’s accounts receivable balance decreased by $14,000. Additional information reveals that during the year accounts totaling $7,000 were written off and bad debt expense of $10,000 was recognized. A journal entry prepared to determine cash collected from customers would include debits to – cash for $207,000; bad debt expense for $10,000  Glueck Corp. reports sales revenue of $200,000. During the year, the company’s accounts receivable balance decreased by $14,000. Cash collected from customers is - $214,000 (200000+14000)  Which of the following is correct regarding depreciation expense? – it is a noncash expense that does not require the use of cash  Michal Corp’s land account decreased by $250,000. No specific information regarding this decrease is available. In its statement of cash flows, Michael should report – cash inflows from investing activities of $250,000  Wichtel Corp. reports sales revenue of $400,000. During the year, the company’s accounts receivable balance decreased by $10,000 and its deferred revenue decreased by $6,000. Cash collected from customers is - $404,000 (400000+10000-6000)  If a journal entry is used to derive the amount of cash collected from customers – sales revenue, bad debt accruals, and changes in A/R and the allowance account need to be recognized  Depreciation represents a noncash expense because it is merely an ____ of a ____ cash expenditure. – allocation; previous  Which of the following methods of preparing the statement of cash flows is (are) acceptable under the U.S. GAAP? – the direct method; the indirect method

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