Chapter 13 Statement of Cash Flows 629ANSWERS TO SELF-STUDY QUESTIONS
- A Cash flows from investing activities include receipts
from the sale of noncurrent assets, such as equipment (answer
A), and payments to acquire noncurrent assets. Receipts of
cash from the sale of stock (answer B) and payments of cash
for dividends (answer C) and to acquire treasury stock (an-
swer D) are cash flows from financing activities. - C Payment of cash for dividends (answer C) is an ex-
ample of a financing activity. The receipt of cash from cus-
tomers on account (answer A) is an operating activity. The
receipt of cash from the sale of equipment (answer B) is an in-
vesting activity. The payment of cash to acquire land (answer
D) is an example of an investing activity. - D The indirect method (answer D) reports cash flows
from operating activities by beginning with net income and
adjusting it for revenues and expenses not involving the re-
ceipt or payment of cash.
4. C The cash flows from operating activities section of
the statement of cash flows would report net cash flow from
operating activities of $65,500, determined as follows:
Net income $55,000
Add: Depreciation $22,000
Decrease in inventories 5,000
Decrease in prepaid expenses 500 27,500
$82,500
Deduct: Increase in accounts rec. $10,000
Decrease in accounts pay. 7,000 17,000
Net cash flow from
operating activities $65,500- C The cash conversion cycle is calculated as the number
of days’ sales in accounts receivable, plus the number of days’
sales in inventory, less the number of days’ sales in accounts
payable. Or, 30 days + 45 days 25 days = 50 days (answer C).