Solved by verified expert :Under the direct method of determining net cash provided by operating activities on the statement of cash flows, the net income figure is adjusted for changes in current assets and liabilities.TrueFalseBennett Company reported sales on its income statement last year of $420,000. On the company’s statement of cash flows, sales adjusted to a cash basis were $412,000. (The company uses the direct method to determine the net cash provided by operating activities.) Bennett Company reported the following account balances on its comparative balance sheet:EndingBalance BeginningBalanceAccounts receivable $45,000 ? Prepaid expenses $38,000 $35,000 Inventory $45,000 $50,000Based on this information, the beginning accounts receivable balance was:$37,000 $42,000 $53,000 $39,000Last year Lawsby Company reported sales of $330,000 on its income statement. During the year, accounts receivable increased by $34,000 and accounts payable increased by $39,000. The company uses the direct method to determine the net cash provided by operating activities on the statement of cash flows. The sales revenue adjusted to a cash basis for the year would be:$325,000 $335,000 $296,000 $291,000If accounts receivable increase during a period, then the amount of cash collected from customers will be greater than the amount of sales reported on the income statement for the period.TrueFalseUnder the direct method of determining the net cash provided by operating activities on the statement of cash flows, an increase in income taxes payable would be subtracted from income tax expense to convert income tax expense to a cash basis.TrueFalseKelln Corporation’s most recent comparative balance sheet and income statement appear below:Kelln CorporationComparative Balance SheetEndingBalance BeginningBalanceAssets: Cash and cash equivalents $37 $35 Accounts receivable 85 75 Inventory 64 77 Property, plant and equipment 898 760 Less accumulated depreciation 331 285 Total assets $753 $662 Liabilities and stockholders’ equity: Accounts payable $84 $50 Bonds payable 463 500 Common stock 30 10 Retained earnings 176 102 Total liabilities and stockholders’ equity $753 $662 Income StatementSales $750 Cost of goods sold 450 Gross margin 300 Selling and administrative expense 161 Net operating income 139 Income taxes 49 Net income $90The company paid a cash dividend and it did not dispose of any property, plant, and equipment. The company did not issue any bonds payable or repurchase any of its own common stock. The company uses the direct method to determine the net cash provided by operating activities.The net cash provided by (used in) operating activities for the year was:$83 $173 $7 $139Free cash flow is net cash provided by operating activities less dividends.TrueFalseUnder the direct method of determining the net cash provided by operating activities on the statement of cash flows, an increase in accounts payable would be added to cost of goods sold to convert cost of goods sold to a cash basis.TrueFalseLast year Burford Company’s cash account decreased by $29,000. Net cash used in investing activities was $8,400. Net cash provided by financing activities was $26,500. On the statement of cash flows, the net cash flow provided by (used in) operating activities was:$(47,100) $(29,000) $(10,900) $18,100The change in the cash balance must equal the changes in all other balance sheet accounts besides cash.TrueFalseA newly formed company with enormous growth prospects would be expected to have negative free cash flow during its start-up phase.TrueFalseA company can increase its net cash flow by increasing the depreciation expense it records during the period.TrueFalseNegative free cash flow suggests that the company did not generate enough cash flow from its operating activities to fund its capital expenditures and dividend payments.TrueFalseA gain on the sale of equipment would be included as part of a company’s financing activities on the statement of cash flows.TrueFalseLast year Cumber Company reported a cost of goods sold of $74,000. Inventories decreased by $16,000 during the year, and accounts payable increased by $14,000. The company uses the direct method to determine the net cash provided by operating activities on the statement of cash flows. The cost of goods sold adjusted to a cash basis would be:$60,000 $104,000 $44,000 $58,000The changes in Tener Company’s balance sheet account balances for last year appear below:Increases(Decreases)Asset and Contra-Asset Accounts: Cash $(8,000) Accounts receivable $(5,000) Inventory $0 Prepaid expenses $12,000 Long-term investments $42,000 Property, plant and equipment $17,000 Accumulated depreciation $57,000 Liability and Equity Accounts: Accounts payable $5,000 Accrued liabilities $(15,000) Income taxes payable ,000 Bonds payable $(20,000) Common stock $13,000 Retained earnings $13,550The company’s income statement for the year appears below:Income StatementSales $770,000 Cost of goods sold 460,000 Gross margin 310,000 Selling and administrative expenses 263,000 Net operating income 47,000 Income taxes 16,450 Net income $30,550The company declared and paid $17,000 in cash dividends during the year. It did not dispose of any property, plant, and equipment during the year. The company uses the direct method to determine the net cash provided by operating activities.On the statement of cash flows, the cost of goods sold adjusted to a cash basis would be:$465,000 $450,000 $460,000 $455,000Kelln Corporation’s most recent comparative balance sheet and income statement appear below:Kelln CorporationComparative Balance SheetEndingBalance BeginningBalanceAssets: Cash and cash equivalents $41 $39 Accounts receivable 95 79 Inventory 72 81 Property, plant and equipment 958 800 Less accumulated depreciation 339 289 Total assets $827 $710 Liabilities and stockholders’ equity: Accounts payable $97 $54 Bonds payable 499 540 Common stock 69 45 Retained earnings 162 71 Total liabilities and stockholders’ equity $827 $710Income StatementSales $790 Cost of goods sold 470 Gross margin 320 Selling and administrative expenses 155 Net operating income 165 Income taxes 58 Net income $107The company paid a cash dividend and it did not dispose of any property, plant, and equipment. The company did not issue any bonds payable or repurchase any of its own common stock.The net cash provided by (used in) investing activities for the year was:$108 $158 $(158) $(108)A company can have a net loss and still generate a positive net cash provided by operating activities in its statement of cash flows.TrueFalseCridman Company’s selling and administrative expenses for last year totaled $310,000. During the year the company’s prepaid expense account balance decreased by $27,000 and accrued liabilities increased by $30,000. Depreciation for the year was $31,000. Based on this information, selling and administrative expenses adjusted to a cash basis under the direct method on the statement of cash flows would be:$398,000 $336,000 $284,000 $222,000Under the indirect method of determining the net cash provided by operating activities on the statement of cash flows, a decrease in accounts receivable is added to net income.TrueFalseThe investing and financing sections of the statement of cash flows record net cash flows rather than gross cash flows.TrueFalseFree cash flow increases when a company issues common stock for cash.TrueFalseKelln Corporation’s most recent comparative balance sheet and income statement appear below:Kelln CorporationComparative Balance SheetEndingBalance BeginningBalanceAssets: Cash and cash equivalents $41 $39 Accounts receivable 95 79 Inventory 72 81 Property, plant and equipment 958 800 Less accumulated depreciation 339 289 Total assets $827 $710 Liabilities and stockholders’ equity: Accounts payable $97 $54 Bonds payable 499 540 Common stock 69 45 Retained earnings 162 71 Total liabilities and stockholders’ equity $827 $710Income StatementSales $790 Cost of goods sold 470 Gross margin 320 Selling and administrative expense 155 Net operating income 165 Income taxes 58 Net income $107The company paid a cash dividend and it did not dispose of any property, plant, and equipment. The company did not issue any bonds payable or repurchase any of its own common stock.The net cash provided by (used in) financing activities for the year was:$(16) $(41) $(33) $24Baldock Corporation’s balance sheet and income statement appear below:Baldock CorporationComparative Balance SheetEndingBalance BeginningBalanceAsset: Cash and cash equivalents $43 $38 Accounts receivable 34 29 Inventory 46 57 Property, plant and equipment 445 330 Less accumulated depreciation 211 189 Total assets $357 $265 Liabilities and stockholders’ equity: Accounts payable $66 $58 Accrued liabilities 22 15 Income taxes payable 38 33 Bonds payable 31 35 Common stock 49 40 Retained earnings 151 84 Total liabilities and stockholders’ equity $357 $265 Income StatementSales $756 Cost of goods sold 473 Gross margin 283 Selling and administrative expenses 166 Net operating income 117 Gain on sale of plant and equipment 16 Income before taxes 133 Income taxes 48 Net income $85Cash dividends were $18. The company sold equipment for $16 that was originally purchased for $12 and that had accumulated depreciation of $12. The company uses the direct method to determine the net cash provided by operating activities. The net cash provided by (used in) operating activities for the year was:$151 $129 $147 $117
