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Lecture 1

BMGT 220 Lecture Notes - Lecture 1: Net Income, Current Liability, Cash Flow

by

Department
Business and Management
Course Code
BMGT 220
Professor
Dr.Progyan Basu
Lecture
1

Page:
of 15
CHAPTER 14 PRACTICE QUESTIONS (STATEMENT OF CASH FLOWS)
____ 1. Which of the following will not be shown as a financing activity in Microsoft Company’s Statement of
Cash Flows?
A.
Issuing bonds for cash
B.
Selling an investment in IBM stock for cash
C.
Purchasing Microsoft stock for cash
D.
Making a payment to repay a bank loan principal
____ 2. The following financial information was acquired from the statement of cash flows for Wireless
Technologies Inc.
Cash flows from operating activities
$120,000
Cash flows from investing activities
($180,000)
Cash flows from financing activities
$ ?
Beginning cash balance:
$100,000
Ending cash balance:
$410,000
Determine the amount of cash flows from financing activities.
A.
$250,000
B.
$370,000
C.
$(370,000)
D.
$310,000
____ 3. Ireland Corp. reported the following information for 2009 and 2010.
2010
Accounts receivable
$101,000
Prepaid expenses
5,000
Accounts payable
71,000
Salaries payable
5,000
4,000
Net income
Depreciation expense
Gain on sale of equipment
If Ireland uses the indirect method to prepare the operating activities section of the statement of
cash flows, what amount will be reported as net cash inflow from operating activities for 2011?
A.
$ 73,000
B.
$ 83,000
C.
$ 95,000
D.
$105,000
____ 4. Zee Company sold machinery with a cost of $20,000 and accumulated depreciation of $8,000 for an
amount that resulted in a loss of $3,000. What amount would Zee report on the statement of cash
flows as Cash inflows from Investing Activity?
A. $9,000
B. $15,000
C. $17,000)
D. $12,000
Financing
Financing
Financing
B
100,000 + 120,000 - 180,000 + x = 410,000
40,000 + x = 410,000
x = 370,000
B
Investing
Loss 3000
Equipment 20,000
0
Dep 8000
Cash x
A
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____ 5. Dee Company’s financial statements showed that the Bonds Payable account had a balance of $481,000
on Dec 31, 2010, and a balance of $513,000 on Dec 31, 2011. The financial statements also reported
that the company retired bonds with a par value of $75,000 during the year. What was the net cash
inflow from Issuing Bonds during the year (assume bonds were issued at par)?
A.
$32,000
B.
$43,000
C.
$170,000
D.
$107,000
____ 6. A statement of cash flows typically would
not
disclose the effects of
A.
common stock issued at an amount in excess of par value.
B.
cash dividends paid.
C.
stock dividends issued.
D.
a purchase of treasury stock.
____ 7. In calculating cash flows from operating activities using the indirect method, a gain on the sale of
equipment will appear as
A.
a subtraction from net income
B.
an addition to net income
C.
an addition to cash flow from investing activities
D.
a subtraction to cash flow from investing activities
____ 8. Consider the following:
Net income, $90,000
Depreciation Expense $11,000
Increase in accounts receivable, $4,000
Decrease in merchandise inventory, $20,000
Decrease in accounts payable, $8,000
Increase in income taxes payable, $3,000
Using the Indirect Method, the Net Cash provided by Operating Activities was:
A.
$90,000
B.
$101,000
C.
$106,000
D.
$112,000
____ 9. Consider the following events:
Common stock was issued, at par, for $146,000 cash.
Cash dividends of $21,000 were paid to common stockholders.
A long-term investment was sold for $28,000, at cost.
Interest of $18,000 was paid to bondholders.
Bonds Payable with a par value of $100,000 were retired.
Compute the net cash flow from financing activities (parentheses indicate an outflow):
A.
$25,000
B.
$35,000
C.
($21,000)
D.
$43,000
Financing, inflow
Financing, outflow
Investing
Operating
Financing, outflow
146,000 - 21,000 - 100,000 = 25,000
A
90,000 + 11,000 - 4,000 + 20,000 - 8,000 + 3,000 = 112,000
D
A
- doesn't not involve the use of cash
C
D
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____ 10. Consider the following events:
Cash of $46,000 was used to purchase a used truck.
Cash of $40,000 was used to retire bonds.
Cash of $25,000 was received from the sale of an investment at a loss.
Cash dividends of $14,000 were received from an investment.
Plant assets were depreciated $6,000, under the straight-line method
Compute the net cash flow from investing activities (parentheses indicate an outflow):
A.
$25,000
B.
($7,000)
C.
($47,000)
D.
($21,000)
____ 11. The balance in retained earnings on December 31, 2010 was $720,000 and on December 31, 2011 was
$892,000. Net income for 2011 was $500,000. A cash dividend was declared and paid during 2011.
Determine the amount of the cash dividend.
A.
$248,000
B.
$328,000
C.
$442,000
D.
$638,000
____ 12. With reference to the reporting of net cash flow from operating activities, which method do most
companies use and why?
A.
Indirect method because the FASB has expressed a preference for the indirect
method
B.
Direct method because it is based on the accrual basis of accounting
C.
Direct method because it requires a supplemental indirect method section
D.
Indirect method because it is less expensive to prepare
____ 13. Which of the following statements is false for a cash flow statement prepared under the indirect
method?
A.
Cash proceeds from sale of the equipment would be reported as a cash inflow under
investing activities.
B.
Cash paid to pay back the principal amount of a note payable would be reported as a
cash outflow under financing activities.
C.
Depreciation expense would be added to net income in the operating activities
section.
D.
The gain on the sale of the equipment would be added to net income in the operating
activities section.
____ 14. A company sold some of its used equipment with a book value of $52,000 for $47,000. The indirect
method statement of cash flows will reflect a cash inflow in the investing activities section of:
A.
$47,000 and a deduction of $5,000 in the operating activities section
B.
$47,000 and an addition of $5,000 in the operating activities section
C.
$52,000 and an addition of $5,000 in the operating activities section
D.
$52,000 and a deduction of $5,000 in the operating activities section
B
720,000 + 500,000 - 892,000 = 328,000
Investing, outflow
Financing
Investing, inflow
Operating
Operating, outflow
-46,000 + 25,000 = -21,000
D
D
D
B
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