Information on the statement of cash flows helps users answer all of the following questions except:

A company reported total assets at the end of 2017 of $95,000; including cash of $35,000, accounts receivable of $20,000, and inventory of $40,000. It reported total assets at the end of 2018 of $110,000; including cash of $44,000; accounts receivable of $29,000, and inventory of $37,000. Compute the net increase or decrease in cash in 2018.

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Warning: TT: undefined function: 32 Quiz 2 Feedback

Provided below are the solutions to the questions students found most difficult from Quiz 2 on the topics Shareholders’ Equity and Cash Flows. If the average response is incorrect (i. less than 50%

chose the correct answer), the question and solution is provided below.

Topic Quiz 2 Feedback – Most difficult questions Shareholders’ Equity

Question: The Speed Company issues an additional 10 000 preferred shares for cash at $48 per share. The shares were issued with $30 payable on application and $18 on allotment. The entry to record the transaction will result in a debit to cash for $480,000 and credit(s) to:

Answer: - Preferred share for $300,000 and allotment for $180, - Preferred share for $300,000 and retained earnings for $158, - Paid up capital from ordinary shareholders for $300,000 and allotment for $180, - Preferred share for $480,

The debit to cash is equal to the full amount of the preference shares (including the money paid at the application stage and allotment stage). Therefore, the credit is simply to preference shares for $480,000.

Shareholders’ Equity

Question: When a company declares and issues a share dividend:

Answer: - Cash increases - Total equity remains unchanged - Total liabilities increase - Retained earnings remain unchanged

The net effect on equity when a company declares and issues a share dividend is recorded as Dr Retained earnings, Cr Ordinary share capital, thus the total equity remains unchanged.

The full entry including dividend payable would be: Dr Retained earnings Cr Dividend payable

Dr Dividend payable Cr Ordinary share capital

Shareholders’ Equity

Question: All of the following are reasons that a company may buy-back shares, except:

Answer: - If it needs the shares for its employees’ share bonus program - If the company decides to increase its long term investments - To buy out the ownership of shareholders - To increase the reported amount of earnings per share

Buying back shares decreases a company’s cash and increases their equity. Thus, buying back shares would not be beneficial if they seek to increase their long term investments.

Cash Flows Question: The information in the statement of cash flows helps investors, creditors and others do all of the following except:

Answer: - Estimate the company's needs for external financing - Show the inflows and outflow of total comprehensive income on the accrual basis - Assess a company's ability to produce future cash inflows - Judge a company's ability to meet its obligations and pay dividends

The statement of cash flows shows the inflows and outflows of total comprehensive income on a cash basis, rather than an accrual basis.

Cash Flows Question: Upon review of Habib’s statement of cash flows, the following was noted:

Cash flows from operating activities $15 000 Cash flows from investing activities 70 000 Cash flows from financing activities (50 000)

From this information, the most likely explanation is that Habib is using:

Answer: - Cash from operations and selling non-current assets to pay back debt - Cash from operations and borrowing to purchase non-current assets - Profit to expand growth - Cash from investors to provide for operations

The cash inflows from investing activities are large, suggesting that non-current assets are sold. At the same time, cash flows from financing activities are large and negative, suggesting the company is paying back debt.

Which of the following is not reported on the statement of cash flows Cash flows from operating activities?

Which of the following would not be reported under financing activities on the statement of cash flows?

Which of the following are the correct terms for the 3 activities found on the statement of cash flows select all that apply?

Which of the following would be included in the operating section when preparing the statement of cash flows?