Question: A recent statement of cash flows for

> Explain why a $50,000 increase in inventory during the year must be included in developing cash flows from operating activities under both the direct and indirect methods.

> Explain why cash paid during the period for purchases and for salaries is not specifically reported on the statement of cash flows, indirect method, as cash outflows.

> What are the typical cash inflows from operating activities? What are the typical cash outflows from operating activities?

> What are the major categories of business activities reported on the statement of cash flows? Define each of these activities.

> BG Wholesalers is developing its annual financial statements at December 31, 2013. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statement are summarized: Additional Data: a. Bou

> HiDef Films , Inc., is developing its annual financial statements at December 31, 2012. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statement are summarized as follows: Additi

> Forrest Company is developing its annual financial statements at December 31, 2013. The statements arecomplete except for the statement of cash flows. The completed comparative balance sheets and incomestatement are summarized as follows: Additional Da

> As this book was being written, the business press reported the following information concerning bonds issued by AT&T: Explain the meaning of the reported information. If you bought AT&T bonds with $10,000 face value, how much would you pay (ba

> XS Supply Company is developing its annual financial statements at December 31, 2011. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statement are summarized: Additional Data: a.

> Alpha Company’s accountants have just completed the income statement and balance sheet for the year and have provided the following information (dollars in thousands): Other Data: The company issued $20,000, 8 percent bonds payable du

> Use the information concerning HiDefFilms , Inc., provided in Problem 13-1 to fulfill the following requirements. Required: 1. Prepare the statement of cash flows using the direct method for the year ended December 31, 2012. 2. Based on the cash flow st

> Consider the following: Net income  =  $10,000, depreciation expense  =  $2,000, accounts receivable increased by $700, inventory decreased by $400, and accounts payable increased by $300. Based on this information alone, what is cash flow from operating

> If the balance in prepaid expenses has increased during the year, what action should be taken on the statement of cash flows when following the indirect method, and why? a. The change in the account balance should be subtracted from net income because th

> Total cash inflow in the operating section of the statement of cash flows should include which of thefollowing? a. Cash received from customers at the point of sale. b. Cash collections from customer accounts receivable. c. Cash received in advance of re

> In what order do the three sections of the statement of cash flows usually appear when reading fromtop to bottom? a. Financing, Investing, Operating b. Investing, Operating, Financing c. Operating, Financing, Investing d. Operating, Investing, Financin

> The total change in cash as shown near the bottom of the statement of cash flows for the year should agree with which of the following? a. The difference in retained earnings when reviewing the comparative balance sheet. b. Net income or net loss as foun

> Consider the following: Issued common stock for $25,000, sold office equipment for $1,200, paid cash dividends $6,000, purchased investments for $2,000, purchased new equipment for $4,000. What was the net cash inflow (outflow) from investing activities?

> Consider the following: Issued common stock for $25,000, sold office equipment for $1,200, paid cash dividends $6,000, purchased investments for $2,000, paid accounts payable of $4,000. What was the net cash inflow (outflow) from financing activities? a.

> The annual report of American Airlines contained the following note: The Company recorded the issuance of $775 million in bonds (net of $25 million discount) as long-term debt on the consolidated balance sheet. The bonds bear interest at fixed rates, wit

> Which of the following is not added to net income when computing cash flows from operationsunder the indirect method? a. The net increase in accounts payable. b. The net decrease in accounts receivable. c. Depreciation expense reported on the income stat

> Which of the following items would not appear in the financing section of the statement of cashflows? a. The repurchase of the company’s own stock. b. The receipt of dividends. c. The repayment of debt. d. The payment of dividends.

> Which of the following would not appear in the investing section of the statement of cash flows? a. Purchase of inventory. b. Sale of obsolete equipment used in the factory. c. Purchase of land for a new office building. d. All of the above would appear.

> Lion Nathan, brewer of XXXX, Toohey’s, and other well-known Australian brands, has net revenue of more than $2 billion (Australian). Some of the items included in its recent annual consolidated statement of cash flows presented using the direct method ar

> Indicate whether each item would be added ( + ) or subtracted ( − ) in the computation of cash flow from operating activities using the indirect method. 1. Accrued expenses (increase). 2. Inventories (increase).

> MillerCoors Brewing Company is the world’s fifth largest brewer. In the United States, its tie to the magical appeal of the Rocky Mountains is one of its most powerful trademarks. Some of the items included in its recent annual consolidated statement of

> Which of the following transactions qualify as noncash investing and financing activities? Purchase of building with mortgage payable Additional short-term borrowing from bank. Dividends paid in cash Purchase of equipment with short-term investments

> Based on the following information, compute cash flows from financing activities. Purchase of short-term investments ..........................$500 Dividends paid ................................................................900 Interest paid ........

> Based on the following information, compute cash flows from investing activities. Cash collections from customers ........................$550 Sale of used equipment......................................... 250 Depreciation expense .....................

> Lisa K. Corporation reported net income of $86,000, depreciation expense of $2,000, and cash flow from operations of $52,500. Compute the quality of income ratio. What does the ratio tell you about the company’s ability to finance operating and other cas

> Santa Corporation sold a $1,000 bond on January 1, 2011. The bond specified an interest rate of 6 percent payable at the end of each year. The bond matures at the end of 2013. It was sold at a market rate of 8 percent per year. The following spreadsheet

> Capaz Company completed its income statement and balance sheet for 2012 and provided the following information: In addition, Capaz bought a small service machine for $5,000. Required: 1. Present the operating activities section of the statement of cas

> The following information pertains to Satellite Company: Required: Present the operating activities section of the statement of cash flows for Satellite Company using the indirect method. |Income Statement for 2012 Sales $85,000 Expenses Cost of go

> To compare statement of cash flows reporting under the direct and indirect methods, enter check marks to indicate which items are used with each method. STATEMENT OF CASH FLOWS METHOD Cash Flows (and Related Changes) Direct Indirect 1. Accounts paya

> Hewlett-Packard is a leading manufacturer of computer equipment for the business and home markets. For each of the following recent transactions, indicate whether net cash inflows (outflows) from operating activities (NCFO), investing activities (NCFI),

> Stanley Furniture Company is a Virginia-based furniture manufacturer. For each of the following firstyeartransactions, indicate whether net cash inflows (outflows) from operating activities (NCFO), investingactivities (NCFI), or financing activities (NCF

> The Australian company BHP Billiton is the world’s biggest mining company. Some of the items includedin its recent annual consolidated statement of cash flows presented using the direct method are listed here. Indicate whether each item is disclosed in t

> Reebok International Ltd. is a global company that designs and markets sports and fitness products, including footwear, apparel, and accessories. Some of the items included in its recent annual consolidated statement of cash flows presented using the ind

> An analysis of accounts follows: a. Purchased equipment, $19,000, and issued capital stock in full payment. b. Purchased a long-term investment for cash, $15,000. c. Paid cash dividend, $10,000. d. Sold operational asset for $6,000 cash (cost, $21,000, a

> Refer to the following summarized income statement and additional selected information forHuanca, Inc.: Income Statement Revenues ...........................................$146,500 Cost of sales ...........................................55,500 Gross m

> Refer to the information for Capaz Company in Exercise 13-7. Information fromExercise 13-7 Capaz Company completed its income statement and balance sheet for 2012 and provided the following information: In addition, Capaz bought a small service machi

> Westover Corporation had $300,000, 10-year bonds outstanding on December 31, 2011 (end of the accounting period). Interest is payable each December 31. The bonds were issued on January 1, 2011.The company uses the straight-line method to amortize any pre

> Refer to the information for Satellite Company in Exercise 13-6. Information from Exercise 13-6 The following information pertains to Satellite Company: Required: Present the operating activities section of the statement of cash flows for Satellite Co

> An analysis of Courtney Corporation’s operational asset accounts provided the following information: a. Acquired a large machine that cost $36,000, paying for it by giving a $15,000, 12 percent interest bearing note due at the end of two years and 500 sh

> Gibraltar Industries is a Buffalo, New York–based manufacturer of high-value-added steel products. In a recent year, it reported the following activities: Acquisitions (investments in other companies) ...........................$ (8,724) Decrease in inv

> Deep Waters Company was started several years ago by two diving instructors. The company’s comparative balance sheets and income statement are presented below, along with additional information. Additional Data: a. Prepaid expenses re

> Oering’s Furniture Corporation is a Virginia-based manufacturer of furniture. In a recent year, it reported the following activities: Net income ..................................................................................$ 5,135 Purchase of proper

> A recent annual report for PepsiCo contained the following information for the period (dollars in millions): Net income .........................................................$5,142 Depreciation and amortization ............................1,543 Incre

> During the period, Wong Company sold some excess equipment at a loss. The following information was collected from the company’s accounting records: From the Income Statement Depreciation expense.................................................. $ 820 L

> During two recent years Perez Construction, Inc., disposed of the following plant and equipment: Required: 1. Determine the cash flow from the sale of property for each year that would be reported in the investing activities section of the cash flow st

> A recent statement of cash flows for Colgate-Palmolive reported the following information (dollars in millions): Operating Activities Net income............................................................ $1,957.2 Depreciation...........................

> Using data from the previous exercise, complete each of the requirements in Exercise 10-9 without using a discount account. Exercise 10-9 On January 1, 2011, Park Corporation sold a $600,000, 7.5 percent bond issue (8.5 percent market rate). The bonds w

> Time Warner Inc. is a leading media and entertainment company with businesses in television networks, filmed entertainment, and publishing. The company’s 2008 annual report contained the following information (dollars in millions): Net loss.............

> New Vision Company completed its income statement and balance sheet for 2011 and provided the following information: Required: Present the operating activities section of the statement of cash flows for New Vision Company using the indirect method.

> Rocky Mountain Chocolate Factory manufactures an extensive line of premium chocolate candies for saleat its franchised and company-owned stores in malls throughout the United States. Its balance sheet forthe first quarter of a recent year is presented al

> Carlyle Golf, Inc., was formed in September of last year. The company designs, contracts for themanufacture of, and markets a line of men’s golf apparel. A portion of the statement of cash flows forCarlyle follows: CURRENT YEAR Cash flows from operating

> In a February 19, 2004, press release, the Securities and Exchange Commission described a numberof fraudulent transactions that Enron executives concocted in an effort to meet the company’s financialtargets. One particularly well-known scheme is called t

> Refer to the financial statements of American Eagle Outfitters given in Appendix B at the end of this book. Required: 1. On the statement of cash flows, what was the largest item (in absolute value) listed under “Adjustments to reconcile net income to n

> Refer to the financial statements of American Eagle Outfitters (Appendix B) and Urban Outfitters (Appendix C) and the Industry Ratio Report (Appendix D) at the end of this book. Required: 1. Compute the quality of income ratio for both companies for the

> Refer to the financial statements of Urban Outfitters given in Appendix C at the end of this book. Required: 1. Does Urban Outfitters use the direct or indirect method to report cash flows from operating activities? 2. What amount of tax payments did th

> Ingersol Construction Supply Company is developing its annual financial statements at December 31,2012. The statements are complete except for the statement of cash flows. The completed comparativebalance sheets and income statement are summarized as fol

> Use the information concerning Ingersol Construction Supply Company provided in Alternate Problem 13-1 to fulfill the following requirements. Required: 1. Prepare the statement of cash flows using the direct method for the year ended December 31, 2012.

> On January 1, 2011, Park Corporation sold a $600,000, 7.5 percent bond issue (8.5 percent market rate). The bonds were dated January 1, 2011, pay interest each June 30 and December 31, and mature in four years. Required: 1. Give the journal entry to rec

> Audio House , Inc., is developing its annual financial statements at December 31, 2013. The statementsare complete except for the statement of cash flows. The completed comparative balance sheets andincome statement are summarized as follows: Additiona

> Explain how bonds held to maturity are reported on the balance sheet.

> When one company acquires control of another, how are the acquired company’s assets and liabilities recorded?

> Under the fair value method, when and how does the investor company measure revenue?

> Explain the difference in accounting methods used for passive investments, investments in which the investor can exert significant influence, and investments in which the investor has control over another entity.

> Explain the difference between a short-term investment and a long-term investment.

> What is goodwill?

> Under the equity method, dividends received from the affiliate company are not recorded as revenue. To record dividends as revenue involves double counting. Explain.

> Under the equity method, why does the investor company measure revenue on a proportionate basis when income is reported by the affiliate company rather than when dividends are declared?

> Explain the application of the cost principle to the purchase of capital stock in another company.

> The Mira Vista Company issued $500,000 in bonds at a discount five years ago. The current book value of the bonds is $475,000. The company now has excess cash on hand and plans to retire the bonds. The company must pay a 7 percent (of par) call premium t

> On August 4, 2012, Glenn Corporation purchased 3,000 shares of Riley Company for $150,000. The following information applies to the stock price of Riley Company: Price 12/31/2012 ...................$57 12/31/2013 ......................51 12/31/2014 ....

> During January 2011, Pareto Glass Company purchased the following securities as its long-term securities available for sale investment portfolio: D Corporation Common Stock: 11,000 shares (95,000 outstanding) at $9 per share F Corporation Bonds: $300,00

> Below are selected T-accounts for the RunnerTech Company. Required: Complete the following journal entries and answer the following questions: a. Purchased securities available for sale for cash. Prepare the journal entry. b. Received cash dividends on

> On March 1, 2011, Lightning Technology purchased 8,000 shares of Computing Services Company for $17 per share. The following information applies to the stock price of Computing Services: Price 12/31/2011........................... $15 12/31/2012........

> Starbucks is a global company that provides high-quality coffee products. Assume that as part of itsexpansion strategy, Starbucks plans to open numerous new stores in Mexico in three years. The companyhas $7 million to support the expansion and has decid

> Verizon Communications Inc. was formed by the merger of Bell Atlantic Corporation and GTE Corporationin 2000. It is the largest provider of wireline and wireless communication services in the UnitedStates, with a presence in over 150 other countries. The

> On January 4, 2011, D’Angelo Company acquired all of the net assets (assets and liabilities) of Barato Company for $124,000 cash. The two companies merged, with D’Angelo Company surviving. On the date of acquisition, Barato’s balance sheet included the f

> During 2011, Bradford Company purchased some of the 90,000 shares of common stock, par $6, of Hall,Inc., as a long-term investment. The annual accounting period for each company ends December 31. Thefollowing transactions occurred during 2011: Jan. 7 Pu

> Below are selected T-accounts for Gauge Company. Required: Complete the following journal entries and answer the following questions: a. Purchased additional investments in affiliated companies for cash. Prepare the journal entry. b. Received cash divi

> Cruise Corporation had outstanding 100,000 shares of no-par common stock. On January 10, 2011, DockCompany purchased a block of these shares in the open market at $20 per share for long-term investmentpurposes. At the end of 2011, Cruise reported net inc

> Several years ago, Walters Company issued a $600,000 bond at par value. As a result of declining interest rates, the company has decided to call the bond at a call premium of 5 percent. Record the retirement of the bonds.

> Company T had outstanding 25,000 shares of common stock, par value $10 per share. On January 1, 2011, Company P purchased some of these shares as a long-term investment at $25 per share. At the end of 2011, Company T reported the following: income, $45,0

> Company W purchases 10 percent of Company Z and Company W intends to hold the stock for at least five years. At the end of the current year, how would Company W’s investment in Company Z be reported on Company W’s December 31 (year-end) balance sheet? a.

> Company X owns 40 percent of Company Y and exercises significant influence over the management of Company Y. Therefore, Company X uses what method of accounting for reporting its ownership of stock in Company Y? a. The amortized cost method. b. The equit

> Lamichael Company purchased 100 percent of the outstanding voting shares of Darrell Corporation in the open market for $200,000 cash and Darrell was merged into Lamichael Company. On the date of acquisition, the fair value of Darrell Corporation’s proper

> Which of the following is true regarding the economic return from investing ratio? a. This ratio is used to evaluate how efficiently a company manages its total assets. b. This ratio is used to evaluate the efficiency of a company given the capital contr

> Bott Company acquired 500 shares of stock of Barus Company at $50 per share as a long-term investment. This represents 40 percent of the outstanding voting shares of Barus. During the year, Barus paid stockholders $2 per share in dividends. At year-end,

> Bott Company acquired 500 shares of stock of Barus Company at $50 per share as a long-term investment. This represents 10 percent of the outstanding voting shares of Barus. During the year, Barus paid stockholders $2 per share in dividends. At year-end,

> When using the equity method of accounting, when is revenue recorded on the books of the investor company? a. When a dividend is received from the affiliate. b. When the fair value of the affiliate stock increases. c. When the affiliate company reports n

> When recording dividends received from a stock investment accounted for using the equity method, which of the following statements is true? a. Total assets are increased and net income is increased. b. Total assets are increased and total stockholders’ e

> Realized gains and losses are recorded on the income statement for which of the following transactions in trading securities and available-for-sale securities? a. When adjusting a trading security to its fair value. b. Only when recording the sale of a t

> Gateway Company issued a $1 million bond that matures in 10 years. The bond has a 10 percent stated rate of interest. When the bond was issued, the market rate was 8 percent. The bond pays interest eachsix months. Record the issuance of the bond on June

> Dividends received from stock that is reported as a security available for sale in the long-term assets section of the balance sheet are reported as which of the following? a. An increase to cash and a decrease to the investment in stock account. b. An i

> The Walt Disney Company owns theme parks, movie studios, television and radio stations, newspapers, and television networks, including ABC and ESPN. Its balance sheet recently reported goodwill in the amount of $22 billion, which is more than 35 percent

> Ceiling Company purchased $1,300,000, 8 percent bonds issued by Melissa Company on January 1, 2011. The purchase price of the bonds was $1,350,000. Interest is payable semiannually each June 30 and December 31. Record the purchase of the bonds on January

> Match the following. Answers may be used more than once: Measurement Method A. Amortized cost 1. Less than 20 percent ownership. B. Equity method C. Purchase method and consolidation 2. Current fair value. 3. More than 50 percent ownership. 4. At le

> N.M.S. Company held securities available for sale and reported the following information at the end of each year: Compute the economic return from investing ratio for 2012, 2013, and 2014. What do the results suggest about N.M.S. Company? Ending Fa