Connect Financial Accounting Chapter 12

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Connect Financial Accounting Chapter 12

Q1. The following income statement and information about changes in noncash current assets and current liabilities are reported.

SONAD COMPANY
Income Statement
For Year Ended December 31, 2017
Sales $ 2,323,000
Cost of goods sold 1,138,270
Gross profit 1,184,730
Operating expenses
Salaries expense $ 318,251
Depreciation expense 55,752
Rent expense 62,721
Amortization expenses–Patents 6,969
Utilities expense 25,553 469,246
715,484
Gain on sale of equipment 9,292
Net income $ 724,776

Changes in current asset and current liability accounts for the year that relate to operations follow.

Accounts receivable $ 22,300 increase Accounts payable $ 10,025 decrease
Inventory 34,575 increase Salaries payable 1,250 decrease

Prepare only the cash flows from operating activities section of the statement of cash flows using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)

connect financial accounting chapter 12

Q2. Equipment with a book value of $79,000 and an original cost of $168,000 was sold at a loss of $32,000.

  1. Paid $106,000 cash for a new truck.
  2. Sold land costing $315,000 for $405,000 cash, yielding a gain of $90,000.
  3. Long-term investments in stock were sold for $94,200 cash, yielding a gain of $16,250.

Use the above information to determine this company’s cash flows from investing activities. (Amounts to be deducted should be indicated with a minus sign.)

connect financial accounting chapter 12

Q3.

  1. Net income was $479,000.
  2. Issued common stock for $72,000 cash.
  3. Paid cash dividend of $13,000.
  4. Paid $120,000 cash to settle a note payable at its $120,000 maturity value.
  5. Paid $119,000 cash to acquire its treasury stock.
  6. Purchased equipment for $85,000 cash.

Use the above information to determine this company’s cash flows from financing activities. (Amounts to be deducted should be indicated with a minus sign.)

connect financial accounting chapter 12

Q4. The following financial statements and additional information are reported.

IKIBAN INC.
Comparative Balance Sheets
June 30, 2017 and 2016
2017 2016
Assets
Cash $ 96,700 $ 62,000
Accounts receivable, net 92,000 69,000
Inventory 81,800 113,500
Prepaid expenses 6,200 9,000
Total current assets 276,700 253,500
Equipment 142,000 133,000
Accum. depreciation—Equipment (36,000 ) (18,000 )
Total assets $ 382,700 $ 368,500
Liabilities and Equity
Accounts payable $ 43,000 $ 57,000
Wages payable 7,800 18,600
Income taxes payable 5,200 7,400
Total current liabilities 56,000 83,000
Notes payable (long term) 48,000 78,000
Total liabilities 104,000 161,000
Equity
Common stock, $5 par value 256,000 178,000
Retained earnings 22,700 29,500
Total liabilities and equity $ 382,700 $ 368,500

 

IKIBAN INC.
Income Statement
For Year Ended June 30, 2017
Sales $ 768,000
Cost of goods sold 429,000
Gross profit 339,000
Operating expenses
Depreciation expense $ 76,600
Other expenses 85,000
Total operating expenses 161,600
177,400
Other gains (losses)
Gain on sale of equipment 3,800
Income before taxes 181,200
Income taxes expense 45,690
Net income $ 135,510

Additional Information

  1. A $30,000 note payable is retired at its $30,000 carrying (book) value in exchange for cash.
  2. The only changes affecting retained earnings are net income and cash dividends paid.
  3. New equipment is acquired for $75,600 cash.
  4. Received cash for the sale of equipment that had cost $66,600, yielding a $3,800 gain.
  5. Prepaid Expenses and Wages Payable relate to Other Expenses on the income statement.
  6. All purchases and sales of inventory are on credit.

(1) Prepare a statement of cash flows for the year ended June 30, 2017, using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)

connect financial accounting chapter 12

Connect Financial Accounting Chapter 12 Quiz

Q1. The purchase of long-term assets by issuing a note payable for the entire amount is reported on the statement of cash flows in the:

  • Operating activities.
  • Financing activities.
  • Investing activities.
  • Schedule of noncash financing and investing activities.
  • Reconciliation of cash balance.

Q2. The appropriate section in the statement of cash flows for reporting the purchase of land in exchange for common stock is:

  • Operating activities.
  • Financing activities.
  • Investing activities.
  • Schedule of noncash investing or financing activity.
  • Reconciliation of cash balance.

Q3. In preparing Marjorie Company’s statement of cash flows for the most recent year, the following information is available:

Purchase of equipment $ 260,000
Proceeds from the sale of equipment 87,000
Purchase of land 91,000
  • $438,000 of net cash used.
  • $438,000 of net cash provided.
  • $264,000 of net cash used.
  • $351,000 of net cash used.
  • $264,000 of net cash provided.

Q4. Use the following information to calculate cash received from dividends:

Dividends revenue $ 29,800
Dividends receivable, January 1 2,600
Dividends receivable, December 31 3,400
  • $26,400
  • $29,000
  • $29,800
  • $30,600
  • $32,400

Q5. The statement of cash flows helps analysts evaluate all but which of the following?

  • Ability of the company to generate profit.
  • Source of cash used for plant expansion.
  • Differences between net income and net operating cash flow.
  • Source of cash used to finance investing activities.
  • Source of cash used for debt repayments.

Q6. The first line item in the operating activities section of a spreadsheet for a statement of cash flows prepared using the indirect method is:

  • Cash
  • Cash received from customers.
  • Increase (decrease) in accounts receivable.
  • Net income (loss).
  • Adjustments to net income.

Q7. A machine with a cost of $130,000 and accumulated depreciation of $85,000 is sold for $50,000 cash. The amount that should be reported in the operating activities section reported under the direct method is:

  • $50,000
  • $5,000
  • $45,000
  • Zero. This is an investing activity.
  • Zero. This is a financing activity

Q8. When using the indirect method to calculate and report the net cash provided or used by operating activities, net income is adjusted for all but which of the following?

  • Gains and losses from nonoperating items.
  • Revenues and expenses that did not provide or use cash.
  • Changes in noncurrent assets and noncurrent liabilities.
  • Changes in current liabilities related to operating activities.
  • Depreciation and amortization expense.

Q9. A company had net cash flows from operations of $341,000, net income of $286,000 and average total assets of $1,850,000. The cash flow on total assets ratio equals:

  • 83.9
  • 542.5
  • 15.5
  • 18.4
  • 646.9

Q10. In preparing a company’s statement of cash flows for the most recent year using the indirect method, the following information is available:

Net income for the year was $ 52,000
Accounts payable increased by 18,000
Accounts receivable decreased by 25,000
Inventories increased by 5,000
Depreciation expense was 30,000

Net cash provided by operating activities was:

  • $120,000
  • $60,000
  • $70,000
  • $80,000
  • $130,000