Statement of Cash Flows and Financial Statement
Articulation Results 8/30/2022
Question 1
aq.cf.fsa.001_1802
Why is it important for a financial analyst to scrutinize the statement of cash
flows’ footnotes?
Footnotes provide significant information about noncash investing and financing activities,
such as the issuing of stock for fixed assets.
Footnotes provide vital information about a company's liquidity position, trend in revenue
from different demographic regions, and changes in capital structure.
Footnotes detail the executive compensation details and shareholders' voting procedures and
information.
Footnotes provide significant information about mergers and acquisitions a company is
targeting in the current year.
You Answered Correctly!
This answer is correct. The statement of cash flows requires footnote disclosure
of any significant noncash investing and financing activities, such as the issuing
of stock for fixed assets or the conversion of debt to equity.
Question 2
aq.cf.fsa.002_1802
In its cash flow statement for the current year, Ness Co. reported cash paid for
interest of $70,000. Ness did not capitalize any interest during the current year.
Changes occurred in several balance sheet accounts as follows:
Accrued interest payable 17,000 decrease
Prepaid interest
23,000 decrease
In its income statement for the current year, what amount would Ness have
reported as interest expense?
$ 76,000
$ 30,000
$ 64,000
$110,000
You Answered Correctly!
This answer is correct. The amount is calculated as cash paid for interest minus
the decrease in accrued interest payable and plus the amount of decrease in
prepaid interest, or $76,000 = $70,000 − $17,000 + $23,000.
Question 3
aq.cf.fsa.003_1802
Baker Co. began its operations during the current year. The following is Baker's
balance sheet at December 31:
Assets
Cash
$192,000
Accounts receivable
82,000
Total assets
$274,000
Liabilities and stockholders’ equity
Accounts payable
$24,000
Common stock
200,000
Retained earnings
50,000
Total liabilities and stockholders’ equity $274,000
Baker's net income for the current year was $78,000 and dividends of $28,000
were declared and paid. Common stock was issued for $200,000. What amount
should Baker report as cash provided by operating activities in its statement of
cash flows for the current year?
$ 50,000
$192,000
$ 20,000
$250,000
You Answered Correctly!
This answer is correct. Because Baker is in its first year of operations, the
beginning balances of all accounts are zero. Cash flow from operating activities is
calculated as net income minus the increase in accounts receivable, plus the
increase in accounts payable ($78,000 − $82,000 + $24,000) = increase in cash
from operating activities of $20,000. Cash flows from common stock and
dividends are included in financing activities.
Question 4
aq.cf.fsa.004_1802
In a company's statement of cash flows, interest paid is:
part of the investing section
part of the financing section
part of the operating section
part of the debt service
section
You Answered Correctly!
This answer is correct. Interest paid out is part of the operating section, as it is
considered an operating expense.
Question 5
aq.cf.fsa.005_1802
The cash flows and net income from four business segments for Taylor
Laboratories Inc. have been provided.
Segment 1 Segment 2 Segment 3 Segment 4
Cash flow from operations
$3,000
$(250)
$(3,000)
$2,000
Cash flow from investing activities
(4,000)
6,000
8,000
(3,000)
Cash flow from financing activities
1,080
(1,000)
(1,000)
1,080
Net income
1,500
1,750
2,375
1,500
Based on the information, which segment should be discontinued by the
company?
Segment 1, because net income is lowest and requires high investments.
Segment 4, because net income and cash inflow from operations are low.
Segment 3, because cash used in operations is high and cash inflow is predominantly from
investing activities.
Segment 2, because cash used in operations is low and cash flow from investing activities is
not properly utilized.
You Answered Correctly!
This answer is correct. Segment 3 should be discontinued because the major
portion of the segment's income and cash flow appear to be from the sale of its
productive assets.
Question 6
aq.cf.fsa.006_1802
Reed Co.’s year 2 statement of cash flows reported cash provided from operating
activities of $400,000. For year 2, depreciation of equipment was $190,000,
amortization of patent was $5,000, and dividends paid on common stock were
$100,000. If this is the only information relevant to cash flows, what amount was
reported as net income in Reed's year 2 statement of cash flows?
$105,000
$305,000
$595,000
$205,000
You Answered Correctly!
This answer is correct and is calculated by taking cash flows from operations of
$400,000 and deducting the depreciation of equipment and amortization of the
patent, which are non-cash expenses that would reduce income, but not affect
cash flow: ($400,000 − $190,000 − $5,000 = $205,000).
Question 7
aq.cf.fsa.007_1802
Music Makers, a record label company, paid dividends of $560,000 to its
shareholders, reducing its dividends payable to $350,000. The balance in
dividends payable at the beginning of the year was $230,000. The balance in
retained earnings at the beginning of the year was $1,990,000 and is now
$2,430,000. If only cash dividends were declared during the year, what was
Music Makers’ net income for the year?
There is not enough
information.
$1,000,000
$440,000
$1,120,000
You Answered Correctly!
This is correct. First, calculate the balance in retained earnings before the
dividends were paid of $910,000 ($350,000 + $560,000). Then, calculate the
amount of dividends issued this year of $680,000 ($910,000 − $230,000). Next,
calculate net income of $1,120,000 ($2,430,000 + $680,000 − $1,990,000).
Question 8
aq.cf.fsa.008_1802
Ace prepares its statement of cash flows using the direct method. In which
section of the statement should Ace report the dividends received from an
investment?
Financing activities.
Operating activities.
Investing activities.
Supplemental
disclosures.
You Answered Correctly!
This answer is correct because dividends received are reported in the operating
section of the statement of cash flows.
Question 9
aq.cf.fsa.009_1802
Below is the balance sheet and a partial income statement for Wonderful Water
Bottles, a water bottle manufacturer and distributor:
Wonderful Water Bottles
Balance Sheet
as of December 31, 20X1 and 20X2
20X1
20X2
Cash
$800,000 $1,206,000
Accounts Receivable
700,000
900,000
Inventory
3,500,000 4,500,000
Marketable Securities
300,000
400,000
Property and Equipment
11,000,000 11,400,000
Total Assets
$16,300,000 $18,406,000
Accounts Payable
$400,000
$700,000
Accrued Wages
600,000
800,000
Long-Term Debt
5,000,000 6,000,000
Total Liabilities
6,000,000 7,500,000
Common Stock
300,000
300,000
Additional Paid-In Capital
6,000,000 6,000,000
Retained Earnings
4,000,000 4,606,000
Total Equity
10,300,000 10,906,000
Total Liabilities and Equity $16,300,000 $18,406,000
Wonderful Water Bottles
Statement of Income
for the year ended December 31, 20X2
Sales Revenue
$
?
Cost of Goods Sold
11,900,000
Gross Profit
$
?
Wage Expense
1,500,000
Administrative Expenses
1,100,000
Operating Expenses
2,600,000
Operating Income
?
Dividend Revenue
100,000
Gain on Sale of Equipment
200,000
Other Revenues and Gains
300,000
Interest Expense
300,000
Loss on Sale of Securities
100,000
Other Expenses and Losses
400,000
Income Before Tax
Income Tax Expense
Net Income
$
?
294,000
?
This year Wonderful Water Bottles declared and paid dividends of $500,000.
Based on the information provided, what was Wonderful Water Bottles’ sales
revenue for the year?
$15,000,000
$15,500,000
$16,000,000
Not enough information
provided.
You Answered Correctly!
The change in retained earnings is $606,000 ($4,606,000 − $4,000,000).
However, remember that dividends were declared of $500,000, which would
reduce retained earnings. This means that to determine net income, add
$500,000 to $606,000 to get $1,106,000. Now work backwards into sales
revenue as seen below:
Wonderful Water Bottles
Statement of Income
for the year ended December 31, 20X2
Sales Revenue
$16,000,000
Cost of Goods Sold
11,900,000
Gross Profit
$4,100,000
Wage Expense
1,500,000
Administrative Expenses
1,100,000
Operating Expenses
2,600,000
Operating Income
1,500,000
Dividend Revenue
100,000
Gain on Sale of Equipment
200,000
Other Revenues and Gains
300,000
Interest Expense
300,000
Loss on Sale of Securities
100,000
Other Expenses and Losses
400,000
Income Before Tax
1,400,000
Income Tax Expense
294,000
Net Income
$ 1,106,000
Question 10
aq.cf.fsa.010_1802
The financial accountant of Eva Wolfe Corp. has ascertained the cash flows from
operations as follows.
Net income
$15,000
Depreciation on equipment
2,500
Dividend income
2,500
Interest income
5,000
Increase in current assets
(8,000)
Increase in current liabilities 6,500
Cash flow from operations $23,500
The management accountant of the company argues that the cash flow from
operations is incorrect as calculated. Which of the following statements correctly
identifies the error in the above calculation?
The increase in current liabilities should be deducted from net income.
Cash flow from operations should be found using the direct method.
Dividend income and interest income are already included in net income and do not require
adjustment to find cash flow from operating activities.
Depreciation on equipment should not be added back to net income for calculating cash
flow from operations.
You Answered Correctly!
This is correct. The dividend and interest income items are already included in
net income, so adding them in this calculation double-counts them.