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1) Big Horn Company reported net income of $3,200 for the current year. The company's income...

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1) Big Horn Company reported net income of $3,200 for the current year. The company's income statement shows a depreciation expense of $750. Balances for the company's current asset and current liability accounts at the beginning and end of the year are as follows:

End of year Beginning of year
Cash $220 $150
Accounts receivable 170 320
Inventory 550 650
Prepaid expenses 75 50
Accounts payable 140 180
Income taxes payable 6 12

When the statement of cash flows is prepared, Big Horn Company will show operating cash flows of

a. $2,629.

b. $3,379.

c. $4,129.

d. $4,229.

e. none of the above

2) Consider the following transactions:

Paid interest with cash $10
Paid cash dividends $45
Sold common stock for cash $1,200
Purchased treasury stock for cash $360
Sold bonds for cash $800

What amount will be reported as the net cash inflow from financing activities?

a. $850

b. $1,560

c. $1,595

d. $1,685

e. none of the above

Answer and Explanation:

1) The answer to the above question is c. $4,129.

Cash flow from operating activities can be calculated as follows:

Amount($)
Net income 3,200
Add: depreciation 750
Additions to cash
Decrease in Accounts receivable 750
Decrease in inventory 100
Less: Increase in prepaid expenses (25)
Less: Decrease in Accounts payable (40)
Less: Income tax paid (6)
Cash flow from operating activities 4,129

2) The answer to the above question is above is e. none of the above.

Cash flow from financing activities can be calculated as follows:

Amount($)
Paid interest with cash (10)
Paid cash dividends (45)
Sold common stock for cash 1,200
Purchased treasury stock for cash (360)
Sold bonds for cash 800
Inflow from Financing activities 1,585

Learn more about this topic:

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Using the Statement of Cash Flows for Decision Making

from Accounting 101: Financial Accounting

Chapter 12 / Lesson 5
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