Cash flow statement Exam Questions and Answers with Complete Solutions. Chapter 16
Paper Co. had net income of $70,000 during the year. Dividend payment was $10,000. The following
information is available:
Mortgage repayment $20,000
Available-for-sale securities purchased 10,000 increase
Bonds payable—issued 50,000 increase
Inventory 40,000 increase
Accounts payable 30,000 decrease
What amount should Paper report as net cash provided by operating activities in its statement of cash
flows for the year?
$0
$10,000
$20,000
$30,000 - Answers the net cash from operating activities is $70,000 − $40,000 − $30,000 = $0.
The mortgage repayment is a financing activity. The available-for-sale securities purchased are an
investing activity, and the bonds issued are a financing activity.
New England Co. had net cash provided by operating activities of $351,000; net cash used by investing
activities of $420,000; and cash provided by financing activities of $250,000. New England's cash balance
was $27,000 on January 1. During the year, there was a sale of land that resulted in a gain of $25,000,
and proceeds of $40,000 were received from the sale. What was New England's cash balance at the end
of the year?
$ 27,000
$ 40,000
$208,000
$248,000 - Answers To calculate the cash balance at the end of the year, you should combine the effects
of the changes in operating, investing, and financing activities and add the beginning cash balance.
,$351,000 − $420,000 + $250,000 = change in cash of $181,000 + beginning cash balance of $27,000 =
$208,000 ending balance in cash.
Kollar Corp.'s transactions for the year ended December 31, Year 2, included the following:
Purchased real estate for $550,000 cash, which was borrowed from a bank. Sold investment securities
for $500,000.
Paid dividends of $600,000.
Issued 500 shares of common stock for $250,000.
Purchased machinery and equipment for $125,000 cash.
Paid $450,000 toward a bank loan.
Reduced accounts receivable by $100,000.
Increased accounts payable by $200,000.
Kollar's net cash outflow from financing activities for Year 2 was
$ 50,000.
$250,000.
$450,000.
$500,000. - Answers Financing activities include all cash flows involving liabilities and equity other than
operating items. The financing activities are
Bank borrowing$ 550,000
Dividend payment (600,000)
Issuance of stock 250,000
Bank loan payment(450,000)
Net cash used in financing activities$(250,000)
,The purchase of real estate ($550,000), sale of investment securities ($500,000), and purchase of
machinery and equipment ($125,000) are investing activities. The reduction of accounts receivable
($100,000) and the increase in accounts payable ($200,000) are operating items.
In preparing its cash flow statement for the year ended December 31, year 1, Reve Co. collected the
following data:
Gain on sale of equipment$ (6,000)
Proceeds from sale of equipment 10,000
Purchase of A.S., Inc. bonds (par value $200,000) (180,000)
Amortization of bond discount 2,000
Dividends declared(45,000)
Dividends paid(38,000)
Proceeds from sale of treasury stock (carrying amount $65,000) 75,000
In its December 31, Year 1, statement of cash flows, what amount should Reve report as net cash
provided by financing activities?
$20,000
$27,000
$30,000
$37,000 - Answers Financing activities include all cash flows involving liabilities and owners' equity other
than operating items. The financing activities are
Dividends paid $(38,000)
Proceeds from sale of treasury stock 75,000
Net cash provided by financing activities $37,000
The excess of dividends declared over dividends paid is a noncash financing activity. The gain on sale of
equipment ($6,000) and amortization of bond discount ($2,000) are net income adjustments in the
, operating section, while the proceeds from sale of equipment ($10,000) and purchase of A.S., Inc. bonds
($180,000) are investing items.
During Year 2, Teb, Inc. had the following activities related to its financial operations:
Payment for the early retirement of long-term bonds payable (carrying value $740,000) $750,000
Distribution in Year 2 of cash dividend declared in Year 1 to preferred shareholders 62,000
Carrying value of convertible preferred stock in Teb, converted into common shares 120,000
Proceeds from sale of treasury stock (carrying value at cost, $86,000) 95,000
In Teb's Year 2 statement of cash flows, net cash used in financing activities should be
$717,000.
$716,000.
$597,000.
$535,000. - Answers Financing activities include all cash flows involving liabilities and equity, other than
operating items. The only item given that is not classified as a cash flow from financing activities is the
conversion of preferred stock into common stock ($120,000). This is a noncash item, reported in a
separate schedule at the bottom of the statement of cash flows. The other items are cash financing
activities, resulting in net cash used in financing activities of $717,000.
Cash paid to retire bonds payable $(750,000)
Payment of cash dividend(62,000)
Sale of treasury stock 95,000
$(717,000)
Note that the preferred dividends were a cash payment in Year 2, not in Year 1 when declared. For the
other items, the important number is the cash flow, not the carrying value or cost.
Baler Co. prepared its statement of cash flows at year-end using the direct method. The following
amounts were used in the computation of cash flows from operating activities:
