Use the following information to answer questions 8-10.
The Boxcar Corporation has paid a total of $1 million in cash bonuses to its officers for 8 consecutive years. The board’s policy requires that, for this bonus to be paid, net cash provided by operating activities reported on the current year’s statement of cash flows must exceed $1 million. President and CEO, I.M. Troubled, is very concerned with producing annual operating cash flows to support the usual bonus. At the end of the current year, controller Willie Waffle presented the president with some disappointing news; the net cash flows provided by operating activities calculated by using the indirect method was only $970,000. The president, I.M. Troubled, asked Willie if there was any way to increase the operating cash flows by another $30,000. He said Willie’s job depended on it. Later in the day, Willie met with the president and suggested that they could reclassify a $60,000, 2-year note payable listed in the financing activities section as “Proceeds from a bank loan, $60,000” as an increase in accounts payable instead.
QUESTION 8
What would be the effect on operating cash flows on Boxcar's statement of cash flows if the proceeds from the bank loan were reclassified as an increase in accounts payable?
a. Net cash provided by operating cash flows would decrease.
b. Net cash provided by operating cash flows would increase.
c. Net cash provided by operating cash flows would not be affected.
d. There is not enough information to determine if there would be an effect.
QUESTION 9
What would be the effect on financing cash flows on Boxcar's statement of cash flows if the proceeds from the bank loan were reclassified as an increase in accounts payable?
a. Net cash provided by financing cash flows would decrease.
b. Net cash provided by financing cash flows would increase.
c. Net cash provided by financing cash flows would not be affected.
d. There is not enough information to determine if there would be an effect.
QUESTION 10
Assuming the controller does reclassify the proceeds of the bank loan as an increase in accounts payable, which of the following statements is true?
a. The controller's actions are ethical as long as he is doing what the CEO ordered him to do.
b. The CEO's actions are unethical because he is threatening the controller that he will lose his job if he doesn't make the change.
c. Both statements are true.
d. Neither statement is true.
QUESTION 8:
The effect on operating cash flows on Boxcar's statement of cash flows if the proceeds from the bank loan were reclassified as an increase in accounts payable would be:
a. Net cash provided by operating cash flows would decrease.
QUESTION 9:
The effect on financing cash flows on Boxcar's statement of cash flows if the proceeds from the bank loan were reclassified as an increase in accounts payable would be:
c. Net cash provided by financing cash flows would not be affected.
QUESTION 10:
Assuming the controller does reclassify the proceeds of the bank loan as an increase in accounts payable, the following statement is true:
b. The CEO's actions are unethical because he is threatening the controller that he will lose his job if he doesn't make the change.
To answer the questions, let's analyze the effects of reclassifying the proceeds from the bank loan as an increase in accounts payable on the statement of cash flows.
QUESTION 8: What would be the effect on operating cash flows if the proceeds from the bank loan were reclassified as an increase in accounts payable?
Reclassifying the proceeds from the bank loan as an increase in accounts payable would not affect operating cash flows. Operating cash flows are determined based on the cash generated or used by the company's core operations. The loan proceeds are considered a financing activity and do not directly impact operating cash flows. Therefore, the answer is (c) Net cash provided by operating cash flows would not be affected.
QUESTION 9: What would be the effect on financing cash flows if the proceeds from the bank loan were reclassified as an increase in accounts payable?
Reclassifying the proceeds from the bank loan as an increase in accounts payable would not affect financing cash flows. Financing cash flows represent the cash activities related to obtaining or repaying external funding, such as borrowing or repaying loans. The reclassification of the bank loan as an increase in accounts payable would not change the overall financing cash flows since the effect is essentially shifting the classification. Therefore, the answer is (c) Net cash provided by financing cash flows would not be affected.
QUESTION 10: Assuming the controller does reclassify the proceeds of the bank loan as an increase in accounts payable, which of the following statements is true?
In this scenario, the statement (b) The CEO's actions are unethical because he is threatening the controller that he will lose his job if he doesn't make the change is true. The CEO's threat to the controller's job security is unethical and inappropriate behavior. It is important for an organization's leadership to promote an ethical work environment and not engage in coercive tactics or intimidation. Therefore, the answer is (b) The CEO's actions are unethical because he is threatening the controller that he will lose his job if he doesn't make the change.