1.

Question : Student Answer:

Instructor Explanation: Points Received: Comments: 2. Question : Student Answer:

(TCO F) The company uses the indirect method for the statement of cash flow. How would an increase in the inventory balance be reported? Cash outflow from investing activities Cash inflow from investing activities Deduction from net income to compute net cash flow from operating activities Addition to net income to compute net cash flow from operating activities See Chapter 23. 5 of 5

Instructor Explanation: Points Received: Comments: 3. Question :

(TCO F) Which of the following is not true? The statement of cash flow provides information to help investors and creditors assess the cash and noncash investing and financing transactions during the period. A company can convert net income to net cash flow utilizing either the direct or indirect method. When prepaid expenses decrease during a period, expenses on the accrual basis are lower than on the cash basis. When the accounts receivable balance decreases, cash basis revenues are higher than accrual basis revenues. See Chapter 23. 5 of 5

(TCO F) Glitter Girl, Inc. recognized net income of $136,000 including $24,000 in depreciation expense. Additional changes from the balance sheet are as follows. Accounts Receivable $3,000 decrease Prepaid Expenses $14,500 decrease Inventory $9,000 increase Accrued Liabilities $10,000 decrease Accounts Payable $19,500 increase Compute the net cash from operating activities based on the above information.

Student Answer:

Instructor Explanation: Points Received: Comments: 4. Question :

$178,000 $164,500 $96,500 $94,500 See Chapter 23. 136000 + 24000 + 19500 9000 + 3000 + 14500 - 10000 5 of 5

Student Answer:

Instructor Explanation: Points Received: Comments: 5. Question :

(TCO F) Dasher Builder's, Inc. shows the following as of December 31, 2012. Sold available for sales securities for $650,000 Acquired 50% of Elven Corp's common stock for $310,000 cash, which was borrowed from Peppermint's Bank. Issued 2,000 shares of its preferred stock for land having a fair value of $50,000 Purchased a patent for $170,000 cash Issued 1,000 of its 12% debenture bonds, due 2017, for $225,000 cash Paid $130,000 toward bank loan. Recognized $79,000 net increase in returnable long term customer deposits Dasher's net cash provided by investing activities for 2012 is $340,000. $600,000. $170,000. $290,000. See Chapter 23. -310000 170000 + 650000 5 of 5

(TCO F) Big Dog Builder's, Inc. shows the following as of December 31, 2012. Acquired 50% of Kitty Corp's common stock for $225,000 cash which was borrowed from Mouse's Bank. Sold available for sales securities for $852,000

Student Answer:

Instructor Explanation: Points Received: Comments:

Issued 1,000 of its 12% debenture bonds, due 2017, for $350,000 cash Paid $160,000 toward bank loan. Recognized $66,000 net increase in returnable long term customer deposits Issued 2,000 shares of its preferred stock for land having a fair value of $500,000 Purchased a patent for $140,000 cash Big Dog's net cash provided by financing activities for 2012 is $481,000. $415,000. $641,000. $575,000. See Chapter 23. -225000 + 350000 160000 + 66000 5 of 5

6. Question :

(TCO F) Cash flows from operating activities (indirect and direct methods). Presented below is the income statement of Smiling Tiger, Inc. Sales Cost of goods sold Gross profit Operating expenses Income before income taxes Income taxes Net income In addition, the following information related to net changes in working capital is presented. Cash Accounts receivable Inventories Salaries payable (operating expenses) Accounts payable Income taxes payable Depreciation expense for the year was $54,000 Deferred tax liability account increased $6,500 Required: Prepare a schedule computing the net cash flow from operating activities that would be shown on a statement of cash flows: (a) using the indirect method. (b) using the direct method. Debit $50,000 34,500 60,000 450,000 12,000 Credit $1,020,000 640,000 $380,000 230,000 150,000 60,000 $90,000

$25,000

Student Answer:

A) using the indirect method. Tiger Inc Statement of cash flow (Partial) (Indirect Method) Cash flow from operating activities Net Income 90,000 Adjustments to reconcile net income to net cash provided by operating activities Increase in accounts receivable (34,500) Decrease in inventories 25,000 Decrease in salaries payable (60,000) Increase in accounts payable 450,000 Decrease in income taxes payable (12,000) Depreciation expense 54,000 Increase in deferred tax liability 6,500 Net cash provided by operating activities 519,000 B) using the direct method. Tiger Inc Statement of cash flow (Partial) (Direct Method) Cash flow from operating activities Cash received from customers 985,500 {1,020,000 34,500} Cash paid to suppliers (165,000) {(640,000 - 25,000 - 450,000) *-1} Operating expenses paid (236,000) {(230,000 - 54,000 + 60,000) *-1} Taxes paid (65,500) {(60,000 + 12,000 - 6,500) *-1} Net cash provided by operating activities 519,000

Instructor Explanation:

(a) Smiling Tiger, Inc. Statement of Cash Flows (Partial) (Indirect Method) Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Increase in trade accounts receivable Decrease in inventories Decrease in salaries payable (operating expenses) Increase in trade accounts payable Decrease in income taxes payable Depreciation expense Increase in deferred tax liability Net cash provided by operating activities (b) Smiling Tiger, Inc. Statement of Cash Flows (Partial) (Direct Method) Cash flows from operating activities Cash received from customers Cash paid to suppliers Operating expenses paid Taxes paid Net cash provided by operating activities $90,000 ($34,500) $25,000 ($60,000) $450,000 ($12,000) $54,000 $6,500

429,000 $519,000

1020000-34500 640000-25000-450000 230000+60000-54000 60000+12000-6500

$985,500 $165,000 236,000 65,500

466,500 $519,000

Points Received:

15 of 15