Ch16 Answer Key

8/22/2019 Ch16 Answer Key

1/30

Study4smart

Quality review Materials


2/30

ch16 Key1 . TR U E

2 . TR U E

3 . FALSE

4 . TR U E

5 . TR U E

6 . TR U E

7 . TR U E

8 . FALSE

9 . TR U E

10. FALSE11. FALSE12. TRUE13. TRUE14. FALSE15. FALSE16. TRUE17. TRUE18. TRUE19. TRUE20. FALSE21. TRUE22. FALSE23. TRUE24. TRUE25. TRUE26. TRUE27. FALSE28. FALSE29. TRUE


3/30

32. TRUE33. TRUE34. FALSE35. TRUE36.

FALSE


4/30

37. FALSE38. TRUE39. TRUE40. FALSE41. FALSE42. TRUE43. FALSE44. TRUE45. FALSE46. FALSE47. FALSE48. TRUE49. FALSE50. FALSE51. TRUE52. TRUE53. FALSE54. C55. E56. C57. E58. D59. C60. C61. B62. E63. A64. B65. C66. A67. E68. B69. A70. A71. D72. A


5/30


6/30

75. B76. B77. D78. B79. C80. B81. D82. E83. A84. B85.

C

86. D87. C88. E130.B

131.A132.C133.E

134.Indirect method :: A calculation that reports net income and then adjusts the net income amount by adding and subtracting items that arenecessary to yield net cash provided (used) by operating activities. andStatement of cash flows :: A financial statement that reports the cash

inflows and cash outflows for an accounting period, and classifies those cash flows as operating, investing, or financing activities. andDirect

method :: A calculation of the net cash provided (used) by operating activities that lists the major items of operating cash receipts, and then

subtracts the major items of operating cash payments. andInvesting activities :: Transactions that include making and collecting notes

receivable or purchasing and selling plant assets, or investments in other than cash equivalents and trading securities. andFinancing

activities :: Transactions with a company's owners and creditors that include obtaining cash from issuing debt and repaying the amounts

borrowed, and obtaining cash from or distributing cash to owners. andOperating activities :: Activities that involve the production or

purchase of merchandise and the sale of goods or services to customers, including expenditures related to administering the business.

135.operating activity, an :: Received cash dividends from investments in trading securities. andoperating activity, an:: Collected accountsreceivable from customers. andfinancing activity, or a significant :: Issued bonds payable for cash. andoperating activity, an :: Paid wages to

employees. andfinancing activity, or a significant :: Issued stock for cash. andinvesting activity, a:: Sold equipment for cash. andnoncash

financing and investing activity :: Purchased land in exchange for a note payable. andfinancing activity, or a significant:: Paid cash

dividends. andoperating activity, an :: Received interest from investments in trading securities. andinvesting activity, a :: Purchases of land for

cash.

136.operating activity, an:: Cash sales of merchandise. andinvesting activity, a:: Sale of land for cash. andfinancial activity, or asignificant:: Signed a note payable in exchange for cash. andoperating activity, an :: Purchased supplies for cash. andoperating

activity, an :: Paid cash to settle an account payable. andnoncash financing and investing activity :: Purchased a warehouse in exchange

for shares of its stock. andoperating activity, an :: Paid interest on a note payable. andfinancial activity, or a significant:: Reissued

treasury stock. andinvesting activity, a :: Purchased equipment for cash. andnoncash financing and investing activity :: Purchased

equipment in exchange for a 6-month note payable.

137.The purpose of the statement of cash flows is to report the cash inflows and cash outflows for an accounting period. The cash flows areclassified as operating, financing or investing activities. Decisions using the evaluation of cash flows include those by both internal and external

decision makers. External decision makers decide whether to invest in or lend money to a company. Investors assess cash inflows and outflowsbefore buying and selling stock. Internal decision makers evaluate the impact of cash flows for understanding and predicting cash flows for

operations. The sources of cash inflows and outflows are identified. Managers may evaluate cash inflows to determine if enough cash is

il bl i h l If h i il bl i d d b h


7/30

long-term investments.


8/30

138.Operating activities involve the day-to-day business activities that generate operating income. Examples are production andpurchase of merchandise, the sale of goods to customers, and the expenditures to administer the business. Investing activities generally

include those transactions that affect long-term assets. They also include the purchase and sale of short-term investments other than cash

equivalents and trading securities, and lending and collecting from notes receivable. Financing activities include those transactions and events

that affect long-term liabilities and equity. They also include borrowing and repaying principle amounts of both long- and short-term notes.

139.Noncash investing and financing activities involve the purchase or sale of assets which are financed via noncash sources, such as borrowingfunds or exchanging stock for assets. These activities are disclosed in either a note to the statement of cash flows or in a separate schedule

reported with the statement of cash flows.

140.The statement of cash flows involves reporting cash receipts and cash payments organized into three categories: operating, financing, andinvesting. Noncash financing and investing items are reported in a note or in a separate schedule with the statement. The statement reconciles thebeginning and ending cash and cash equivalents balances and explains the amount of net increase or decrease in this balance.

141.By separating cash flows into three categories, the statement of cash flows allows users to focus their analysis on specific areas ofimportance. The operating section of the statement reveals the net effect of cash inflows and cash outflows from the core activities of a

business which directly affect its operating income. Operating cash flows indicate the health of a business. A business with a declining or

negative amount of cash from operating activities may be in financial difficulty. Analysis of the financing section reveals to financial statement

users how a business raises funds from the outside. Analysis of the investing activity section reveals whether or not a firm is acquiring new

assets and disposing of existing assets and thus investing in the future of the company.

142.The cash flow on total assets ratio is defined as cash flows from operations divided by average total assets. The ratio can be used as ameasure of the quality of earnings. The analysis of this ratio is commonly performed over time to determine trends in operating cash flows,

especially as compared with operating income.

143.The preparation of the statement of cash flows involves five common steps: (1) compute the net increase or decrease in cash; (2) computethe net cash used or provided by operating activities; (3) compute the net cash provided or used by investing activities (4) compute net cash

provided or used by financing activities; (5) prove and report beginning and ending cash balance.

144.The indirect method for preparing the operating section of the statement of cash flows is the most widely used method. The indirectmethod starts with net income and then adjusts net income for (1) changes in non-cash current assets and current liabilities, (2) operating

items not providing or using cash, (3) nonoperating gains and losses.

145.Cash flows from investing activities are determined by identifying changes in all noncurrent asset accounts, the current accounts forboth notes receivable and investments in securities (excluding trading securities). Cash flows from financing activities are determined by

identifying changes in all noncurrent liability accounts and the equity accounts. Once the changes in the accounts have been identified, the

changes are explained by reconstruction analysis, and then the effects on cash flow are reported.

146.The spreadsheet provides an analytical framework for the preparation of the statement of cash flows. The upper portion of thespreadsheet is used to analyze the changes in balance sheet accounts for the accounting period. The lower portion of the spreadsheet isorganized into the statement of cash flows activities of operating, financing, investing, and noncash. Changes in the balances analyzed in the

top section are then entered into the appropriate section of the cash flows in the lower section of the spreadsheet.

147.The direct method for reporting cash flows provided or used by operations (which is recommended by the FASB) involves listingseparately the major items of operating cash inflows and cash outflows. The operating cash outflows are then subtracted from operating

cash inflows to obtain the net inflow or net outflow of cash. A separate schedule reporting the reconciliation between net income and net cash

provided or used by operating activities is required.

Feedback:

148.Answers will vary


9/30


10/30

Feedback:

150. Answers will vary

Feedback:



11/30


12/30

(c) Paid to retire bonds: $66,000 - $48,750 = $17,250

(b) Received from stock issuance:

(a) Received from sales of long-term investments: $56,400 - $55,900 = $500


13/30

Feedback:



14/30

(c) Paid to retire bonds: $79,200 - $58,500 = $20,700

(b) Received from stock issuance:

(a) Received from sales of long-term investments: $67,680 - $67,080 = $600

Feedback:



15/30


16/30

Feedback:


Feedback:



17/30


18/30

Feedback:



19/30


20/30


21/30

Feedback:



22/30

Feedback:


Feedback: $57,000/$962,000 = 5.9%


Feedback: $131 .4/$2,040.8 = 6.4%


Feedback: $2,204/[($13,362 + $13,369)/2] = 16.5%



23/30

Commen

t: The

company

had an increase in net operating cash flow and a corresponding increase in average total assets over the two-year time period. Its efficiency in

the use of its assets to generate operating cash flow increased over the past year.

Feedback:


Commen

t: Despite the increase in net operating cash flow in Year 2 over Year 1, the company's efficiency in the use of its assets declined by nearly a

whole percentage point.

Feedback:

169.Answers willvary

Comment: The company had an increase in net operating cash flow and a corresponding increase in average total assets over the two-year time

period. Its efficiency in the use of its assets to generate operating cash flow increased over the past year.

Feedback:


Feedback: $218,000/$898,000 = 24.3%



24/30

(2) $137,200/$525,250 = 26.1%


25/30

(2) $ 109,700/((522,280+427,480)/2) = 23.1%


26/30


27/30

(2) $ 109,700/((522,280+427,480)/2) =

23.1%

Feedback:



28/30

177. Cash equivalents


29/30

178. Operating179. Invest ing180. Financing181. Notes; schedule included with the statement of cash flows.182. Operating, investing, financing183. Operating activities184. Cash flows from operations; average total assets185. Comparative balance sheets; current income statement; additional information186. Ba l a nc e sheet187. Added to188. Ident i c a l189. I n d i r e c t190. D i r e c t


30/30

ch16 Summary

Category # of Q

AACSB: Analytic 1

AACSB: Communications 5

AICPA BB: Global

AICPA BB: Industry 2

AICPA BB: Resource Management 1

AICPA FN: Decision Making 2

AICPA FN: Measurement 6

AICPA FN: Reporting 9

Blooms: Apply 5

Blooms: Remember 5

Blooms: Understand 7

Difficulty: Easy 5

Difficulty: Hard 5

Difficulty: Medium 7

Fundamental - Chapter 16 1

Learning Objective: A1 Analyze the statement of cash flows and apply the cash flow on total assets ratio. 2

Learning Objective: C1 Distinguish between operating; investing and financing activities; and describe how noncash investing

and 6

financing activities are disclosed.

Learning Objective: P1 Prepare a statement of cash flows. 2

Learning Objective: P2 Compute cash flows from operating activities using the indirect method. 2

Learning Objective: P3 Determine cash flows from both investing and financing activities. 3

Learning Objective: P4 Appendix 16AIllustrate use of a spreadsheet to prepare a statement of cash flows. 1

Learning Objective: P5 Appendix 16BCompute cash flows from operating activities using the direct method. 1

Ch16 Answer Key

Documents

Transcript of Ch16 Answer Key