Question : 41. When using the indirect method of preparing a statement of : 1295739

 

 

41. When using the indirect method of preparing a statement of cash flows, which of the following items would need to be deducted from net income in order to reconcile to cash provided by operating activities? A. Increase in accounts payableB. Increase in accounts receivableC. Depreciation expenseD. Increase in property, plant, and equipment

 

42. When using the indirect method of preparing a statement of cash flows, which of the following items would need to be deducted from net income in order to reconcile to cash provided by operating activities? A. Gain on sale of property, plant, and equipmentB. Decrease in prepaid insuranceC. Depreciation expenseD. Increase in salaries payable

 

43. The collection of interest revenue will be depicted on the statement of cash flows as a: A. source of cash from an operating activity.B. source of cash from an investing activity.C. use of cash from a financing activity.D. source of cash from a financing activity.

 

44. The payment of interest expense will be depicted on the statement of cash flows as a: A. source of cash from an operating activity.B. use of cash from an investing activity.C. use of cash from a financing activity.D. use of cash from an operating activity.

 

45. The payment of a cash dividend will be depicted on the statement of cash flows as a: A. source of cash from an operating activity.B. use of cash from an investing activity.C. use of cash from a financing activity.D. use of cash from an operating activity.

 

46. Burrows Inc. had an outstanding loan at the beginning of 2008 totaling $10,000. During 2008, $11,400 was paid out related to this loan broken down as follows: $10,000 towards principal and $1,400 in interest. Which of the following statements is correct regarding how the $11,400 payment should be depicted on the statement of cash flows? A. The entire $11,400 should be shown as a use of cash from financing activities.B. The entire $11,400 should be shown as a use of cash from investing activities.C. The $10,000 principal portion should be shown as a use of cash from financing activities, and the $1,400 in interest should be shown as a use of cash from operating activities.D. The $10,000 principal portion should be shown as a use of cash from investing activities, and the $1,400 in interest should be shown as a use of cash from operating activities.

 

47. Clyde’s Clothing Inc. comparative balance sheets and income statements showed the following information for 2007 and 2008: 

Inventory – 12/31/07

$ 60,000

Inventory – 12/31/08

75,000

Accounts payable – 12/31/07

18,000

Accounts payable – 12/31/08

20,000

Cost of goods sold – 2008

400,000

 

 

Clyde’s accounts payable balances are composed solely of amounts due to suppliers for purchases of inventory. What is the amount of cash payments for inventory that Clyde should report on its 2008 statement of cash flows assuming that the direct method is used? A. $387,000B. $413,000C. $497,000D. $303,000

 

48. Skipper’s Souvenir Shop had comparative balance sheets and income statements that showed the following information for 2007 and 2008: 

Inventory – 12/31/07

$ 100,000

Inventory – 12/31/08

85,000

Accounts payable – 12/31/07

20,000

Accounts payable – 12/31/08

15,000

Cost of goods sold – 2008

700,000

 

 

Skipper’s accounts payable balances are composed solely of amounts due to suppliers for purchases of inventory. What is the amount of cash payments for inventory that Skipper should report on its 2008 statement of cash flows assuming that the direct method is used? A. $690,000B. $710,000C. $850,000D. $550,000

 

49. Gregson Company had the following noncash current asset and current liabilities balances at the end of 2007 and 2008: 

 

   2007  

   2008  

Accounts receivable

$  60,000

$  68,000

Inventory

230,000

210,000

Prepaid insurance

15,000

13,000

Accounts payable

20,000

30,000

 

 

 

 

 

Net income for 2008 was $750,000 and depreciation expense was $40,000. All sales and all purchases are on account. Gregson uses the indirect method for preparing the statement of cash flows.Net cash flows from operating activities for 2008 would be: A. $814,000B. $774,000C. $786,000D. $766,000

 

50. Atlantic Inc.had the following noncash current asset and current liabilities balances at the end of 2007 and 2008: 

 

   2007  

   2008  

Accounts receivable

$  50,000

$  42,000

Inventory

190,000

160,000

Prepaid insurance

10,000

6,000

Accounts payable

25,000

30,000

 

 

 

 

 

Net income for 2008 was $940,000 and depreciation expense was $25,000. All sales and all purchases are on account. Atlantic uses the indirect method for preparing the statement of cash flows.Net cash flows from operating activities for 2008 would be: A. $   918,000B. $1,012,000C. $1,002,000D. $   987,000

 

51. Which of the following statements is best regarding the cash flow adequacy ratio? A. It helps users to determine whether or not the company is maintaining a sufficient cash balance.B. It helps users to determine whether or not the company can pay off its short-terms obligations as they become due.C. It helps users to determine whether or not the company has sufficient cash to pay employees.D. It helps users to determine whether or not the company has sufficient cash to pay long-term debt after payment of interest, taxes, and capital expenditures.

 

52. Cash flows are likely to be insufficient to repay average annual long-term debt over the next five years if the cash flow adequacy ratio is: A. less than 1.B. less than 10.C. less than 5.D. more than 5.

 

53. Lovett Inc. had the following information available from its 2007 financial statements: 

Cash flow from operating activities ———————————–

$ 700,000

Cash flow from investing activities  ———————————–

100,000

Cash flow from financing activities  ———————————-

600,000

Interest  ———————————————————————

40,000

Taxes ————————————————————————

25,000

Capital expenditures  —————————————————–

100,000

Average amount of debt maturing over the next five years  ——-

500,000

 

 

Lovett’s cash flow adequacy ratio is: A. 1.27B. 1.73C. 1.20D. 2.47

 

54. Chapin Inc. had the following information available from its 2007 financial statements: 

Cash flow from operating activities ———————————–

$ 900,000

Cash flow from investing activities  ———————————–

200,000

Cash flow from financing activities  ———————————-

100,000

Interest   ——————————————————————-

50,000

Taxes   ———————————————————————

40,000

Capital expenditures  —————————————————-

200,000

Average amount of debt maturing over the next five years  ——-

800,000

 

 

Chapin’s cash flow adequacy ratio is: A.   .8800B. 1.4875C. 1.1375D. 1.3500

 

55. Triad Bank is considering lending a significant amount of money to only one of four companies that has recently applied for a loan. The bank has computed the cash flow adequacy ratio for each company to be as follows: 

 

Cash flow adequacy ratio

Vance Inc.

1.99

Wake Inc.

3.67

Selma Inc.

   .850

Garner Inc.

1.22

 

 

Which company would the bank be least likely to lend money to? A. VanceB. WakeC. SelmaD. Garner