Statement Of Cash Flows Exam Prep Chapter.12

Managerial Accounting, 4e (Whitecotton)

Chapter 12 Statement of Cash Flows

1) The statement of cash flows explains the difference between the beginning and ending balances of cash and cash equivalents.

2) The payment of salaries and wages would be reported as an operating activity on the statement of cash flows.

3) Maya Company's purchase of 100 shares of Labrador Inc. common stock would be reported as a financing activity on its statement of cash flows.

4) The receipt of dividends and interest are both reported as cash inflows from investing activities on the statement of cash flows.

5) The payment of interest on bonds is classified as a cash outflow from operating activities on the statement of cash flows.

6) Treasury stock purchases made with cash are classified as cash outflows from financing activities on the statement of cash flows.

7) The approach to preparing the cash flow statement relies on the following rearrangement of the balance sheet equation:

Change in cash = Change in (Liabilities + Stockholders' Equity + Noncash Assets).

8) The reporting of financing activities is identical under the indirect and direct methods for the statement of cash flows on the statement of cash flows.

9) Under the indirect method, changes in current assets are used in determining cash flows from operating activities and changes in current liabilities are used in determining cash flows from financing activities.

10) When preparing the operating activities section of the statement of cash flows using the indirect method, accumulated depreciation is added to net income in the operating section.

11) When preparing the operating activities section of the statement of cash flows using the indirect method, a decrease in accounts receivable is subtracted from net income.

12) When preparing the operating activities section of the statement of cash flows using the indirect method, an increase in Income Taxes Payable is added to net income.

13) When the net cash flows from operating, investing, and financing activities are combined to arrive at the overall net change in cash, a net decrease in cash is subtracted from the beginning cash balance to calculate the ending cash balance.

14) Major investing and financing activities that do not involve cash do not have to be reported as part of the statement of cash flows.

15) In general, the cash flow from operating activities is considered by many to be the most important component of the statement of cash flows.

16) A healthy company typically shows positive cash flows in the financing activities section of the statement of cash flows.

17) In the decline phase, the company continues to enjoy positive operating cash flows but stops spending cash on investing activities and instead uses its cash for financing activities such as repaying lenders and returning excess cash to shareholders.

18) Depreciation Expense is not reported on the statement of cash flows when prepared using the direct method.

19) When preparing the operating activities section of the statement of cash flows using the direct method, net income must be adjusted for gains or losses realized when property, plant, and equipment is sold.

20) When preparing the operating activities section of the statement of cash flows using the direct method, a gain or loss from selling equipment is reported in the operating activities section of the statement of cash flows.

21) Investing activities include receiving cash from the sale of land and also the resulting gain or loss on the sale.

22) Using the T-account approach to preparing the statement of cash flows, an increase in Accounts Payable would appear on the debit side of the Cash account.

23) The statement of cash flows cannot be used to determine:

A) changes in working capital.

B) expenditures on long-term assets.

C) profitability as measured by specific revenues and expenses.

D) reliance on external financing.

24) Which of the following statements about the statement of cash flows is not correct?

A) It does not replace the income statement.

B) It provides details as to how cash changed during a period.

C) It provides information about cash receipts and cash payments over a period of time.

D) It measures profitability.

25) Suppose a company generally records revenues and expenses before receiving or making cash payments. Which of the following statements is not correct?

A) If revenues are falling, a net loss could result even though the company reports a net cash inflow from operating activities.

B) If revenues are rising, net income could result even though the company reports a net cash outflow from operating activities.

C) Net income and net cash flows provided by operating activities will always agree.

D) The income statement doesn't explain changes in cash because it focuses on just the operating results of the business.

26) Which of the following statements about the statement of cash flows is not correct?

A) GAAP requires every company to report a statement of cash flows.

B) The statement of cash flows is contained in the notes to the financial statements.

C) The statement of cash flows is needed because the income statement and balance sheet do not provide adequate information about the changes in cash.

D) The statement of cash flows provides information about how each major type of business activity causes a company's cash to change.

27) Cash and cash equivalents include assets that:

A) have stable long-term value.

B) are short-term, highly liquid, and purchased by the entity within three months of maturity.

C) consistently grow in value over the long run.

D) are expected to be used up within a year.

28) Which of the following items is considered to be a cash equivalent?

A) An investment in a U. S. bond due in two years.

B) A one-year certificate of deposit due in six months.

C) A one-month Treasury bill due in two weeks.

D) A promissory note due from a customer in 7 months.

29) Which of the following would not be included in the cash and cash equivalents amount reported on the balance sheet?

A) Money market funds

B) Checking accounts

C) Treasury bills

D) Notes receivable due in 90 days

30) A company purchased money market funds with cash during the current year. Which of the following statements is correct?

A) This transaction will result in a decrease in cash from operating activities.

B) This transaction will result in a decrease in cash from investing activities.

C) This transaction will result in a decrease in cash from financing activities.

D) This transaction will not cause a change in cash from operating, investing, or financing activities.

31) Which of the following statements is correct?

A) Accrual-based net income can be manipulated because it is based on estimates.

B) Cash flows are easily manipulated because they are based on estimates.

C) Accrual-based net income is not easily manipulated because valuation for such items as bad debts and inventory are precise and based on objectively verifiable information.

D) Cash flows are not easily manipulated because they are generated by internal transactions and do not involve external parties.

32) Which of the following statements about the statement of cash flows is not correct?

A) The statement of cash flows can be used to assess the likelihood of a company paying dividends.

B) Net cash flow is the best measure of profitability since it does not rely on estimates.

C) A company can have positive net income but at the same time have negative cash flow.

D) The statement of cash flows is the only financial statement that reports business activities affecting cash.

33) Which of the following is the best measure of a company's profitability?

A) Cash-based net income

B) Accrual-based net income

C) Accounts Receivable

D) Sales Revenue

34) Accrual-basis accounting is superior to cash-basis accounting in that:

A) it provides a better measure of profitability.

B) a statement of cash flows is not needed.

C) the cash balance reported will be greater.

D) there is only one method of preparing the operating activities of the statement of cash flows.

35) What is the purpose of the statement of cash flows?

A) It is intended to provide a cash-based view of a company.

B) It illustrates the profitability of a company.

C) It reports the financial position of a company at a specific point in time.

D) It outlines the changes in stockholders' equity accounts from the beginning of the period to the end of the period.

36) Which of the following would be included in cash flows from operating activities?

A) Cash received from customers.

B) Cash received from an issuance of bonds.

C) Cash dividends paid to stockholders.

D) Cash used for purchases of equipment.

37) Cash flows from operating activities include all of the following except:

A) a purchase of land.

B) collections from customers on account.

C) payments to employees for hours worked.

D) receipt of cash dividends.

38) Cash flows from operating activities include:

A) changes in accounts receivable.

B) paying principal to lenders.

C) purchases of equipment.

D) proceeds from stock issuance.

39) The Viviana Co. uses the indirect method to determine its cash flow from operations. Which of the following items will be subtracted from net income to find its cash flow from operations?

A) Decrease in Supplies.

B) Increase in Accounts Payable.

C) Depreciation Expense.

D) Increase in Accounts Receivable.

40) Which of the following would be classified as an operating activity on the statement of cash flows using the direct method?

A) Cash dividends paid.

B) Cash received from selling equipment.

C) Cash paid to retire bonds payable at maturity.

D) Cash received from accounts receivable collections.

41) A company loaned $1,000,000 with interest at 7% to another company. The interest revenue from this loan would be reported on the statement of cash flows as a:

A) cash inflow from operating activities.

B) cash inflow from investing activities.

C) cash inflow from financing activities.

D) noncash investing and/or financing activity.

42) Which of the following journal entries has an effect on cash provided by (used in) operating activities?

A) Bad debts expense.

B) Depreciation expense.

C) Sale of an investment.

D) Payment of interest on long-term notes payable.

43) Which of the following statements about cash flows from investing activities is correct?

A) The proceeds from sales of investments are reported as cash inflows from investing activities.

B) Cash flows from investing activities are calculated by making adjustments to net income.

C) Cash paid to acquire long-lived assets is reported as a cash inflow from investing activities.

D) Cash received from issuing a long-term note payable is reported as a cash inflow from investing activities.

44) Which of the following would be included in cash flows from investing activities?

A) Cash collected from customers.

B) Cash received from an issuance of bonds.

C) Cash dividends paid.

D) Cash used to purchase equipment.

45) Cash flows from investing activities include cash:

A) inflows and outflows reflecting revenues and expenses reported on the income statement.

B) inflows from the issuance of bonds.

C) inflows from the sale of long-term investments.

D) inflows from the sale of a company's own stock to its stockholders.

46) Which of the following would be reported as a cash outflow from investing activities?

A) Donating an old piece of equipment to charity.

B) Repaying the principal of a bond.

C) Buying another company's bonds with cash.

D) Acquiring an investment security by issuing company stock.

47) Cash flows from investing activities include all of the following except a(n):

A) purchase of an automobile.

B) sale of a trademark.

C) purchase of stock of another company.

D) issuance of bonds.

48) Which of the following would be classified as an investing activity on the statement of cash flows?

A) Cash received from sale of land.

B) Cash paid for interest.

C) Cash received from stock issuance.

D) Cash dividends paid.

49) A company's cash flows from investing activities include cash transactions relating to the purchase and disposal of which types of assets?

A) All of a company's assets.

B) All of a company's assets except inventory.

C) All of a company's non-current assets.

D) Property, plant and equipment.

50) Cash flows from investing activities include:

A) changes in Accounts Receivable.

B) sale of land.

C) paying principal to lenders.

D) cash dividends paid.

51) Which of the following would be included in cash flows from financing activities?

A) Cash proceeds from sales.

B) Cash received from a sale of land.

C) Cash dividends paid.

D) Cash used for purchases of equipment.

52) Cash flows from financing activities include all of the following except:

A) payment of long-term debt.

B) payment of interest.

C) proceeds from stock issuance.

D) cash dividends paid.

53) Which of the following would be classified as a financing activity on the statement of cash flows?

A) Cash receipts from accounts receivable collections.

B) Cash receipts from sale of equipment.

C) Cash paid to purchase treasury stock.

D) Cash paid for interest on notes payable.

54) The repayment of the principal of a loan which had been used to finance the purchase of equipment should be reported on the statement of cash flows as a:

A) cash outflow from investing activities.

B) cash outflow from operating activities.

C) cash outflow from financing activities.

D) noncash investing and financing activities in a supplemental disclosure.

55) Which of the following statements about financing activities is not correct?

A) Cash dividends paid to a company's stockholders are reported as cash outflows from financing activities.

B) When a company issues stock for cash, it reports a cash inflow from financing activities.

C) When a company repurchases stock with cash, it reports a cash outflow for financing activities.

D) When a company repays a loan, it reports a cash inflow from financing activities.

56) Which of the following statements about cash flows from financing activities is correct?

A) When a company borrows from lenders, a cash outflow from financing activities has occurred.

B) When a company receives cash dividends, a cash inflow from financing activities has occurred.

C) When a company repurchases its own stock, a cash outflow for financing activities has occurred.

D) When a company pays cash dividends, a cash inflow from financing activities has occurred.

57) Which of the following is included in the financing activities on a statement of cash flows?

A) Changes in accounts payable.

B) Purchases of equipment.

C) Paying interest to lenders.

D) Cash dividends paid.

58) Cash flows from financing activities can include:

A) selling goods on credit.

B) acquiring long-lived assets.

C) issuing long-term debt.

D) purchasing inventory on credit.

59) Which of the following items below will be subtracted in the financing cash flow portion of the statement of cash flows?

A) Net income earned.

B) Bank loans obtained.

C) Payment of dividends.

D) Disposal of equipment.

60) Which of the following statements about classification choices is correct?

A) GAAP classifies cash dividends paid as a financing activity, but IFRS allows them to be classified as either an operating or financing activity.

B) GAAP allows interest paid to be classified as either an operating or financing activity, but IFRS requires that it be classified as a financing activity.

C) GAAP classifies cash dividends received as an investing activity, but IFRS allows them to be classified as either an operating or investing activity.

D) GAAP classifies interest received as either an operating or investing activity, but IFRS requires it to be classified as an investing activity.

61) Cash provided by issuing stock to owners should be reported as cash:

A) inflows from financing activities.

B) outflows from financing activities.

C) inflows from investing activities.

D) outflows from investing activities.

62) Which of the following items would not be classified as a cash flow from financing activities?

A) Payments of amounts owed to owners.

B) Borrowing from financial institutions.

C) Issuing additional common stock.

D) Making a payment on account.

63) Which of the following classifications is not used on the statement of cash flows?

A) Operating

B) Investing

C) Financing

D) Spending

64) Which of the following is not needed to prepare a statement of cash flows?

A) Statement of Retained Earnings

B) Comparative balance sheets

C) Additional data concerning selected accounts that increase and decrease as a result of investing and/or financing activities

D) A complete income statement

65) Which of the following equations is correct?

A) Change in cash = Change in noncash assets

B) Change in cash = Change in liabilities + Change in stockholders' equity

C) Change in cash = Change in liabilities + Change in stockholders' equity − Change in noncash assets

D) Change in cash = Change in liabilities + Change in stockholders' equity + Change in noncash assets

66) The statement of cash flows may be viewed in terms of the balance sheet equation. Which of the following expressions below is correct?

A) Change in Cash = Change in (Liabilities + Stockholders' Equity − Noncash Assets)

B) Change in Cash = Change in (Stockholders' Equity − Liabilities + Noncash Assets)

C) Change in Cash = Change in (Liabilities − Noncash Assets)

D) Change in Cash = Change in (Stockholders' Equity − Liabilities)

67) Which of the statements below is correct when comparing the direct and indirect methods of reporting operating cash flows?

A) The direct method starts with net income and makes adjustments to arrive at the net cash provided by or used in operations.

B) The indirect method starts with cash collected from customers and details cash inflows and outflows from operations.

C) The indirect method starts with net income and makes adjustments to arrive at the net cash provided by or used in operations.

D) The net cash provided by or used in operations will be different depending on whether the direct or indirect method is used.

68) Which of the following variations of the accounting equation describes the preparation of the statement of cash flows?

A) Change in cash = Change in (Liabilities + Stockholders' equity − Noncash assets)

B) Change in cash = Change in (Liabilities − Stockholders' equity + Noncash assets)

C) Change in cash = Change in (Liabilities + Stockholders' equity + Noncash assets)

D) Change in cash = Change in (Liabilities − Stockholders' equity − Noncash assets)

69) If the calculation of cash flows from operating activities starts with net income, the company:

A) is using the net income method.

B) will remove the effects of all noncash items included in the calculation of net income.

C) is using the direct method.

D) will add all noncash items not included in the calculation of net income.

70) What is the starting point for calculating cash flows from operations when the indirect method is used?

A) Net income from the income statement.

B) Calculate the net change in the cash account.

C) Add the change in accounts receivable to sales revenue.

D) Identify the balance sheet accounts that relate to operating activities.

71) Which of the following statements is correct?

A) The Accumulated Depreciation account includes cash flows that may be categorized as both operating and investing.

B) Inventory includes cash flows that may be categorized as both operating and investing.

C) Retained Earnings includes cash flows that may be categorized as both operating and investing.

D) Bonds Payable includes cash flows that may be categorized as both operating and financing.

72) How is the change in cash classified on the statement of cash flows?

A) It is found in the investing activities section of the statement.

B) It is found in the operating activities section of the statement.

C) It is found in the financing activities section of the statement.

D) It is the sum of the investing, operating, and financing activities sections.

73) Alton Baker Company's balance sheet indicated that the cash account increased by $15,120 during the past year. Net cash provided by operating activities was $39,200 and net cash used in investing activities was $17,080. What was the net cash flow effect of the company's financing activities?

A) Net cash provided of $7,000.

B) Net cash used of $7,000.

C) Net cash used of $41,160.

D) Net cash provided of $41,160.

74) In calculating the net cash provided by or used in operations using the indirect method, which of the following items would be added to net income?

A) An increase in Accounts Receivable.

B) A decrease in Prepaid Rent.

C) An increase in long-lived assets.

D) A decrease in Salaries and Wages Payable.

75) If operating cash flows are calculated using the indirect method, which of the choices below correctly states the direction of adjustments to convert net income into net cash provided by or used in operations?

A) Option A

B) Option B

C) Option C

D) Option D

76) Depreciation is added back to net income in a statement of cash flows prepared using the indirect method because it:

A) reduces net income but not cash.

B) is a cash inflow.

C) is a revenue.

D) is a valuation concept.

77) Patterson Co.'s Depreciation Expense is $56,000 and the beginning and ending Accumulated Depreciation balances are $420,000 and $434,000, respectively. What is the cash paid for depreciation?

A) $56,000

B) $14,000

C) $0

D) $70,000

78) Which of the following statements about calculation of cash flows from operating activities under the indirect method is correct?

A) When the indirect method is used, changes in current liabilities are subtracted while changes in current assets are added to convert net income to net cash flow from operating activities.

B) When the indirect method is used, depreciation expense is added to net income as a step in the process of calculating net cash flow provided by operating activities.

C) When the indirect method is used, changes in long-term assets are added to convert net income to net cash flow provided by operating activities.

D) When the indirect method is used, changes in long-term liabilities are subtracted to convert net income to net cash flow provided by operating activities.

79) When the indirect method is used, if accounts payable increases during the accounting period, the change in accounts payable is:

A) added to the change in the cash account.

B) added to net income.

C) subtracted from net income.

D) subtracted from the change in the cash account.

80) When the indirect method is used, if a prepaid expense account increases during the accounting period, the change in the prepaid expense account is:

A) added to the change in the cash account.

B) added to net income.

C) subtracted from net income.

D) subtracted from the change in the cash account.

81) Assume a company uses the indirect method to prepare its statement of cash flows. If the Supplies account decreases and Salaries and Wages Payable increases during an accounting period, what does the company do with the changes in these accounts to calculate cash flows from operating activities?

A) Both are subtracted from net income.

B) The change in Salaries and Wages Payable is added to net income; the change in Supplies is subtracted from net income

C) Both are added to net income.

D) The change in Supplies is added to net income; the change in Salaries and Wages Payable is subtracted from net income.

82) Bailey Hill Co. uses the indirect method to determine its net cash flows from operating activities. During the course of the year, the company's Accounts Receivable increased by $28,000 and its Accounts Payable decreased by $14,000. If these are the only two adjustments required to convert net income to net cash provided by operating activities, the combined effect will be a(n):

A) subtraction of $14,000.

B) addition of $14,000.

C) addition of $42,000.

D) subtraction of $42,000.

83) Using the indirect method, which of the following would not be added to net income?

A) An increase in Equipment.

B) A decrease in Prepaid Insurance.

C) An increase in Salaries and Wages Payable.

D) A decrease in Supplies.

84) Assume a company uses the indirect method to prepare its statement of cash flows. If Accounts Receivable decreases and Unearned Revenue increases during an accounting period, what does the company do with the changes in these accounts to calculate cash flows from operating activities?

A) Both are added to net income.

B) The change in accounts receivable is added to net income; the change in unearned revenue is subtracted.

C) Both are subtracted from net income.

D) The change in unearned revenue is added to net income; the change in accounts receivable is subtracted.

85) Harlow Industries reported net income of $56,000 for the current year. During the year, Inventory decreased by $19,600, Accounts Payable decreased by $22,400, Depreciation Expense was $28,000, and Accounts Receivable increased by $18,200. If the indirect method is used, what is the net cash provided by operating activities?

A) $29,400

B) $63,000

C) $107,800

D) $144,200

86) Skinner Butte, Inc. had the following information:

What is Skinner Butte's net cash provided by operating activities?

A) $35,000

B) $37,000

C) $43,000

D) $46,600

87) The following additional information is available from the financial statements of Garfield Industries:

What is Garfield's net cash provided by operating activities?

A) $526,000

B) $570,000

C) $792,000

D) $736,000

88) Mill Garden Company's income statement for the year shows a net loss of $135,000. Additional information for the year follows:

What is the net cash provided by (used in) operating activities?

A) ($148,500)

B) $40,500

C) $19,500

D) ($67,500)

89) Wilson Co. uses the indirect method to determine its cash flow from operations. During the course of the year, Wilson's Accounts Receivable increased by $28,000 and its Accounts Payable decreased by $14,000. As a result of these two items, the net addition (or subtraction) to convert net income to cash flow from operations equals:

A) $14,000.

B) ($14,000).

C) $42,000.

D) ($42,000).

90) The information below was obtained from the financial statements of Faraday Corp. Based on this information, what was the amount of the net cash provided by operating activities during the current year?

A) $713,000

B) $721,000

C) $661,000

D) $637,000

91) The starting point for preparing the operating activities section using the indirect method is:

A) current assets.

B) current liabilities.

C) net income.

D) ending cash balance.

92) Which of the following statements best describes the reason Depreciation Expense is added to net income when preparing the statement of cash flows?

A) Depreciation expense originally reduced net income, but it actually represents a cash inflow for the company.

B) Depreciation expense originally reduced net income, but the expense does not involve paying cash.

C) Depreciation expense originally reduced net income, but it actually represents a cash outflow for the company.

D) Depreciation expense is not included in net income and, so, its cash effect must be accounted for separately.

93) When preparing the statement of cash flow using the indirect method, Depreciation Expense is:

A) added back to net income under the operating activities section.

B) subtracted from net income under the operating activities section.

C) subtracted net income under the financing activities section.

D) added back to net income under the financing activities section.

94) In arriving at cash from operating activities, adding a decrease in Supplies to net income eliminates the effect of recording expenses that:

A)  increased net income, but has not been paid in cash this period.

B) decreased net income, but has not been paid in cash this period.

C) decreased net income and decreased cash.

D) flow this period increased net income and increased cash flow this period.

95) When the indirect method is used to determine net cash provided by (used in) operating activities, subtracting an increase in Accounts Receivable from net income eliminates the effect of recording revenue that:

A) increased net income, but did not impact cash.

B) decreased net income, but did not impact cash.

C) increased net income and increased cash flow.

D) decreased net income and decreased cash flow.

96) Subtracting a decrease in Unearned Revenue from net income eliminates the effect of recording revenue that:

A) increased net income, but did not impact cash this period.

B) decreased net income, but did not impact cash this period.

C) increased net income and increased cash flow this period.

D) decreased net income and decreased cash flow this period.

97) In arriving at cash from operating activities, subtracting a decrease in Salaries and Wages Payable from net income includes the cash effects of transactions that:

A) increased cash, but did not affect net income.

B) increased cash and increased net income.

C) decreased cash, but did not affect net income.

D) decreased cash and decreased net income.

98) When the indirect method is used to determine net cash provided by (used in) operating activities, adding an increase in Interest Payable to net income eliminates the effect of recording expenses that:

A) increased net income, but did not impact cash.

B) decreased net income, but did not impact cash.

C) increased net income and increased cash flow.

D) decreased net income and decreased cash flow.

99) Assume that the indirect method is used to determine net cash provided by (used in) operating activities and that Accounts Receivable balance decreased by $10 million during the year. That $10 million should be:

A) added to net income.

B) subtracted from net income.

C) added to investing activities.

D) subtracted from investing activities.

100) Assume that the indirect method is used to determine net cash provided by (used in) operating activities and that Prepaid Insurance decreased during the year. That decrease is added to net income because:

A) the company paid additional premiums this period in excess of the Insurance Expense recorded on the income statement.

B) a decrease in Prepaid Insurance causes an increase in Insurance Expense and a decrease in net income, but it does not involve cash so it is added back to net income.

C) it includes the impact of increasing cash and increasing net income.

D) it accounts for purchasing more insurance during the period than has been expensed.

101) Two years ago, Bethel, Inc. bought $80,000 in bonds from another company. This month, it sold half of those bonds for $41,280 and purchased the common stock of another company for $2,000. On the statement of cash flows for this accounting period, Bethel would report a net cash:

A) outflow of $39,280 from investing activities.

B) inflow of $39,280 from investing activities.

C) inflow of $41,280 from investing activities.

D) outflow of $41,280 from investing activities.

102) In determining cash flows related to investing activities, which accounts are analyzed?

A) Inventory and accounts receivable.

B) Loans payable and common stock.

C) Short-term investments and prepaid expenses.

D) Long-lived tangible and intangible assets.

103) Cleveland Company paid cash to purchase equipment costing $957,600 this year. Also this year, the company sold for $196,000 cash, equipment that originally cost $644,000 five years ago. How should these transactions be listed in the statement of cash flows?

A) Braden can combine the transactions and show a decrease to cash for $313,600.

B) Braden can combine the transactions and show a decrease to cash for $761,600.

C) The purchases and the sales of equipment must be shown separately as a decrease to cash for $1,601,600 (purchase) and an increase of $196,000 (sale).

D) The purchases and the sales of equipment must be shown separately as a decrease to cash for $957,600 (purchase) and an increase of $196,000 (sale).

104) Sunnyside Co.'s comparative balance sheet indicated that the Equipment account increased by $112,000. Upon further investigation of the account changes, it is determined that Sunnyside purchased equipment totaling $196,000 for the year. It also sold equipment with an original cost of $84,000 for $22,400 cash. Assuming these are the only transactions affecting the investing activities, Sunnyside will report net cash flows provided by (used in) investing activities of:

A) ($112,000).

B) ($196,000).

C) ($89,600).

D) ($173,600).

105) To determine net cash provided by or used in financing activities, one must analyze the:

A) Notes Receivable and Bonds Payable accounts.

B) Cash account.

C) Common Stock and Retained Earnings accounts.

D) Interest Expense and Dividend Income accounts.

106) Which of the following are used to determine cash flows from financing activities?

A) Short-term debt, Accrued Liabilities, Common Stock, and Notes Payable

B) Long-term debt, Common Stock, and Retained Earnings

C) Short-term debt, Accrued Liabilities, Retained Earnings, and Bonds Payable

D) Long-term debt, Notes Payable, Interest Expense, and Bonds Payable

107) Which of the following represent cash outflows from financing activities?

A) Distributing a stock dividend.

B) Paying a bond's face value at maturity.

C) Issuing long-term bonds at a discount.

D) Paying interest on promissory notes.

108) Which of the following represents a cash inflow from financing activities?

A) Issuing stock in exchange for another company's stock.

B) Paying a bond's face value at maturity.

C) Issuing long-term bonds at a discount.

D) Receiving interest on promissory notes.

109) Scots Glenn Manufacturing took out $532,000 of new debt this year and repaid $800,000 of older debt in the same year. The company also issued stock for $353,600 cash and paid dividends of $79,200 for the year. The company's financing cash flows appearing the statement of cash flows will show:

A) Net cash used in financing activities of $347,200.

B) Net cash used in financing activities of $268,000.

C) Net cash provided by financing activities of $6,400.

D) Net cash provided by financing activities of $85,600.

110) Augusta Company reported that its bonds with a face value of $40,000 and a carrying value of $42,400 are retired for $44,800 cash. The amount to be reported under cash flows from financing activities is:

A) ($42,400).

B) ($2,400).

C) ($44,800).

D) $0; this is an operating activity.

111) When the indirect method is used, details from which of the following balance sheet accounts are used in calculating both operating and financing cash flows?

A) Bonds Payable

B) Taxes Payable

C) Retained Earnings

D) Common Stock

112) The Retained Earnings account has a beginning balance of $321,975 and an ending balance of $356,413. Net income is $40,251. Which of the following statements is correct?

A) $5,813 would be subtracted when determining cash flows from financing activities.

B) $40,251 would be added when determining cash flows from financing activities.

C) $34,438 would be added when determining cash flows from financing activities.

D) $321,975 would be added when determining cash flows from operating activities.

113) Snowberry Corporation had a net increase in Retained Earnings of $182,000 for the year. The corporation also paid $56,000 of cash dividends that had been declared in the previous year. This year, the corporation declared $50,400 of dividends but has not paid them as of year-end. Given this information, the net income for the current year must have been:

A) $176,400

B) $238,000

C) $182,000

D) $232,400

114) Cash flows from financing activities:

A) includes all cash inflows and outflows associated with a company's lending activities.

B) includes all cash inflows and outflows between a company and its stockholders.

C) are always negative because of the payments of cash dividends as well as interest and principal on debt.

D) are always positive unless the company is experiencing serious financial trouble.

115) Bardell, Inc. prepared its statement of cash flows for the year. The following information is taken from that statement:

What is the amount of net cash provided by (used in) financing activities?

A) $30,800

B) ($6,600)

C) ($30,800)

D) $6,600

116) Blair Madison Co. issues $2.8 million of new stock and pays $560,000 in cash dividends during the year. In addition, the company took advantage of falling interest rates to borrow $4.2 million in a new bond issue and paid off existing bonds with a face value of $5.6 million. The company bought 1,400 of another company's $1,000 bonds at a $280,000 premium. The net cash flow provided by financing activities is:

A) An inflow of $1,400,000.

B) An outflow of $560,000.

C) An outflow of $280,000.

D) An inflow of $840,000.

117) Company X paid Company Y $1.35 million for a new plant. During the same accounting period, Company X experienced the following changes in its balance sheet: Cash decreased by $350,000, Accounts Receivable increased by $321,300, Inventory increased by $275,800, Property, Plant, and Equipment increased by $752,900, and Bonds Payable increased by $1 million. The net cash flow provided by financing activities is:

A) An inflow of $1.35 million.

B) An outflow of $350,000.

C) An inflow of $1 million.

D) An inflow of $752,900.

118)

The company would report net cash provided by (used in) financing activities of:

A) $(5,000).

B) $4,000.

C) $10,000.

D) $12,000.

119)

The company would report net cash provided by (used in) investing activities of:

A) $(2,000).

B) $(4,000).

C) $10,000.

D) $14,000.

120) Oakdale Co. borrowed $1,960,000 cash from Eugene National Bank last year. In addition, the company repaid a $1,260,000 note payable to Michigan State Bank. How should these transactions be listed in the Statement of Cash Flows?

A) Oakdale can combine the transactions and show an increase to cash of $700,000 in the investing activities section of the statement.

B) Oakdale can combine the transactions and show an increase to cash of $700,000 in the financing activities section of the statement.

C) A decrease to cash for $1,260,000 is listed in the investing activities section and an increase of $1,960,000 is in the financing activities section.

D) Transactions must be shown separately as a decrease to cash for $1,260,000 and an increase of $1,960,000 in the financing activities section.

121) ABC Company issued 30,000 shares of common stock in January. In August, the company repurchased 5,000 shares for the treasury. When reporting these transactions in the statement of cash flows, ABC Company ________ combine them into one transaction in the ________ activities section.

A) can; financing

B) cannot; financing

C) cannot; investing

D) can; investing

122) Repayments of loans will be reported as a:

A) cash outflow under financing activities.

B) cash inflow under financing activities.

C) cash outflow under investing activities.

D) cash inflow under investing activities.

123) Material noncash investing and financing transactions are:

A) reported within the body of the statement of cash flows.

B) reported in a supplementary schedule to the statement of cash flows.

C) not reported in any part of the financial statement because cash flow is not affected.

D) reported in the body of the income statement.

124) The net cash flow provided by operating activities is an inflow of $37,042, the net cash flow used in investing activities is $16,831, and the net cash flow used in financing activities is $26,397. If the beginning cash account balance is $11,283, what is the ending cash account balance?

A) $5,097

B) ($6,186)

C) $38,759

D) $27,476

125) Westmoreland Corporation prepared its statement of cash flows for the year. The following information is taken from that statement:

What is the cash balance at the beginning of the year?

A) $15,680

B) $7,840

C) $17,640

D) $43,120

126) The direct exchange of debt for equipment would be shown:

A) on the statement of cash flows as an operating activity.

B) on the statement of cash flows as an investing activity.

C) on the statement of cash flows as a financing activity.

D) as a supplementary disclosure to the statement of cash flows.

127) The purchase of $100,000 of equipment by issuing a note would be reported:

A) as a $100,000 investing inflow, and a $100,000 financing outflow.

B) as a $100,000 investing outflow, and a $100,000 financing inflow.

C) as a $100,000 operating inflow, and a $100,000 financing outflow.

D) in a supplementary schedule.

128) A general rule for the relationship between operating, investing, and financing cash flows and the financial statements is:

A) Option A

B) Option B

C) Option C

D) Option D

129) Strawbale, Inc. purchases a $600,000 building, paying $400,000 in cash and signing a $200,000 promissory note. What will be reported on the statement of cash flows as a result of this transaction?

A) A $600,000 cash outflow from investing activities

B) A $400,000 cash outflow from investing activities and a $200,000 cash inflow from financing activities

C) A $400,000 cash outflow from investing activities and a $200,000 noncash transaction

D) A $600,000 cash outflow from investing activities and a $200,000 cash inflow from financing activities

130) Supplemental disclosures required by companies using the indirect method include all of the following except:

A) cash paid for interest.

B) cash paid for income tax.

C) cash paid for dividends.

D) noncash investing and financing activities.

131) Free cash flow is a positive cash flow from operating activities:

A) beyond what is needed to replace current property, plant, and equipment and pay cash dividends.

B) across all three activity components of the statement of cash flows.

C) beyond what has been allotted for future property, plant, and equipment replacement and expansion.

D) across both financing and investing activities.

132) Free cash flow may be used for all of the following except:

A) expanding the business.

B) paying off debt.

C) building up the cash balance.

D) paying employees.

133) Negative operating cash flow may indicate all of the following except:

A) the company may not be able to replace property, plant and equipment.

B) stockholders may not receive a dividend.

C) the company may be in the introductory phase of its life cycle.

D) the company did not earn a profit from its core business activity.

134) All of the following might be used to evaluate cash flow performance, except:

A) the absolute amount of cash flow.

B) whether cash flow is positive or negative.

C) the relationship between net income and cash flow.

D) the trend in sales and operating expenses.

135) A ski resort with a calendar year-end is likely to have:

A) unpredictable fluctuations in cash flow from quarter to quarter.

B) the largest cash inflow from operating activities in the second and third quarters (April – September).

C) a fairly stable cash flow across all four quarters.

D) the largest cash inflow from operating activities in the fourth and first quarters (October – March).

136) An outdoor water park that has a calendar year-end and is located in an area of the country that has warmer weather during April through September and colder weather during the rest of the year is likely to have:

A) unpredictable fluctuations in cash flow from quarter to quarter.

B) the largest cash inflow from operating activities in the second and third quarters (April through September).

C) a fairly stable cash flow across all four quarters.

D) the largest cash inflow from operating activities in the fourth and first quarters (October through March).

137) A company has positive cash flow from investing and financing activities, but negative cash flow from operating activities. The likely result is:

A) investors may not buy the company's stock because the receipt of dividends is unlikely.

B) investors will continue to buy stock since the company's growth prospects are good.

C) Creditors will continue to lend money to the company.

D) Creditors will demand immediate repayment of all outstanding debt.

138) The difference between net income and cash flow may be due to all of the following except:

A) use of the direct method of presenting cash flows from operating activities.

B) the company being brand new.

C) fraudulent financial reporting.

D) seasonal variations in a company's operating activities.

139) The cash flow statement should be evaluated by examining the cash flow pattern suggested by the:

A) subtotals of each of the three main sections.

B) operating activities section since this section details the day to day operations of the business.

C) change in cash regardless of which section had the biggest impact on the change.

D) financing section since this section details how much debt the company has incurred.

140) The introductory phase of a company's life cycle will most likely have net cash:

A) provided by investing activities.

B) used in financing activities.

C) used in investing activities.

D) provided by operating activities.

141) Almost all U.S. companies have used the indirect method of preparing the statement of cash flows:

A) because most users of the financial statements do not understand the direct method.

B) in spite of the FASB's stated preference for the direct method.

C) because it usually requires less space in the annual report.

D) so that stockholders cannot determine how much cash was spent on executives' salaries.

142) Which of the following statements about the reporting of operating cash flows using the direct method is correct?

A) Although most U.S. companies use the indirect method, the Financial Accounting Standards Board (FASB) prefers the direct method of accounting for cash flows from operating activities.

B) The FASB prefers the indirect method of calculating cash flows from operating activities because it gives a more accurate calculation of cash provided by operating activities.

C) The direct method results in a larger amount of cash flow from operating activities than does the indirect method.

D) The direct and indirect methods use different presentations for cash flows from investing and financing activities.

143) Which of the following statements about preparation of the statement of cash flows is correct?

A) GAAP allows the indirect method only.

B) GAAP allows the direct method only.

C) GAAP allows either the indirect or direct method.

D) Although GAAP allows either method for the preparation of the operating activities section of the statement of cash flows, the indirect method must be used to prepare the investing activities section of the statement of cash flows.

144) Which phrase below best describes the direct method for reporting operating cash flows?

A) A method that incorporates financing and investing activities into cash flows from operations.

B) A method employing accrual-based accounting to convert cash flows to GAAP Net Income.

C) A summary of operating transactions resulting in either a debit or credit to cash.

D) A series of adjustments to Net Income to arrive at operating cash flows.

145) The advantages of the direct method include all of the following except:

A) it allows for more detailed analysis of operating cash flows.

B) it provides more information than the indirect method to relate cash inflows and outflows.

C) it allows for more reliable prediction of future cash flows.

D) comparisons between companies are facilitated since most U.S. companies use the direct method.

146) When a company uses the direct method to determine the cash flows from operating activities, cash flows from operating activities will:

A) be identical to the amount reported using the indirect method.

B) be larger if there is a net cash inflow and smaller if there is a net cash outflow compared to the amount reported using the indirect method.

C) always be larger than the amount reported using the indirect method.

D) be larger if there is a net cash outflow and smaller if there is a net cash inflow compared to the amount reported using the indirect method.

147) Which of the following statements about the calculation of cash flows from operating activities under the direct method is correct?

A) When the direct method is used, each revenue and expense account on the income statement is individually examined to calculate the cash flows from operating activities.

B) Noncash revenues and expenses must be included in cash flows from operating activities when preparing a statement of cash flows using the direct method.

C) Depreciation is reported as a cash inflow in the cash flows from operating activities when the direct method is used.

D) A loss on the sale of a long-term asset is subtracted in the cash flows from operating activities when the direct method is used.

148) Which of the following items would be reported on a statement of cash flows using the indirect method, but not on a statement prepared using the direct method?

A) Cash paid for dividends.

B) Cash received from stock issuances.

C) Depreciation expense.

D) Cash paid for purchase of treasury stock.

149) Assume a company uses the direct method to prepare its statement of cash flows. If the company's Accounts Receivable increase during the accounting period, the change in Accounts Receivable is:

A) added to the change in the Cash account to calculate cash collected from customers.

B) subtracted from Sales Revenue to calculate the cash collected from customers.

C) added to Sales Revenue to calculate the cash collected from customers.

D) subtracted from the change in the Cash account to calculate cash collected from customers.

150) Castle Company's sales revenue was $584,696 and cash collected from customers was $587,003, which of the following would be consistent with this difference?

A) Accounts Receivable could have increased.

B) Cash payments could have been larger than the related expense accounts.

C) Accounts Receivable could have decreased.

D) Cash payments could have been smaller than the related expense accounts.

151) Bracken, Inc. uses the direct method to determine its cash flow from operations. During the year, it had sales revenue of $480,000. Its beginning Accounts Receivable balance was $48,000, and its ending Accounts Receivable balance was $64,000. Its cash collected from customers for the year was:

A) $480,000.

B) $464,000.

C) $496,000.

D) $592,000.

152) During the current year, Kelso Construction had $976,000 in cash sales and $3,552,000 in credit sales. The Accounts Receivable balance was $848,000 at the beginning of the year and $680,000 at the end of the year. What was the total cash collected from customers during the year?

A) $4,696,000

B) $4,528,000

C) $4,360,000

D) $3,720,000

153) If sales are $680,000 and the beginning and ending balances of Accounts Receivable are $34,400 and $38,400, respectively, the cash collected from customers is:

A) $680,000.

B) $641,600.

C) $676,000.

D) $684,000.

154) Southview Company's interest revenue for the period is $28,000 and the beginning and ending interest receivable balances are $2,640 and $11,800, respectively, cash received for interest is:

A) $28,000.

B) $18,840.

C) $37,000.

D) $16,200.

155) Assume a company uses the direct method to prepare its statement of cash flows. If the company's inventory and accounts payable both increase during the accounting period, how would these changes affect cash flow calculations?

A) The changes in each account are both added to net income.

B) The change in inventory is subtracted from cost of goods sold and the change in accounts payable is added to cost of goods sold to find the cash paid to suppliers.

C) The changes in each account are both subtracted from net income.

D) The change in inventory is added to cost of goods sold and the change in accounts payable is subtracted from cost of goods sold to find the cash paid to suppliers.

156) If Cost of Goods Sold is $72,500 and the beginning and ending Inventory balances are $9,000 and $6,500, respectively, inventory purchases for cash equal:

A) $72,500.

B) $70,000.

C) $75,000.

D) $66,000.

157) The accounting records for the Fox Hollow Company show that its cost of goods sold for the year was $300,000. In addition, it had an increase in inventory of $5,000 and a decrease in accounts payable of $6,000. As a result under the direct method, the amount of cash paid to suppliers for the year was:

A) $301,000.

B) $305,000.

C) $306,000.

D) $311,000.

158) If a company's Cost of Goods Sold is $158,000 for the period, beginning and ending Inventory balances are $18,000 and $13,000, respectively, and the beginning and ending Accounts Payable balances are $19,000 and $7,500, respectively, what is the amount of the cash paid to suppliers?

A) $157,000

B) $163,500

C) $164,500

D) $151,500

159) When the direct method is used to determine the cash flows from operating activities, other operating expenses are converted into cash outflows by:

A) adding changes in prepaid expenses and accrued liabilities to other expenses.

B) subtracting increases in prepaid expenses and subtracting decreases in accrued liabilities from other expenses.

C) adding increases in prepaid expenses and adding decreases in accrued liabilities to other expenses.

D) subtracting changes in prepaid expenses and accrued liabilities from other expenses.

160) Ashley Co. uses the direct method in calculating its cash flow from operations. Which of the following items will not have an effect on cash flow from operating activities?

A) Increase in inventory.

B) Payment of dividends to stockholders.

C) Cash collections from customers.

D) Payment of interest to lenders.

161) Blanton Ridge, Inc.'s Insurance Expense is $14,000 and the beginning and ending balances of Prepaid Insurance are $3,000 and $4,000, respectively, the cash paid for insurance is:

A) $14,000.

B) $13,000.

C) $10,000.

D) $15,000.

162) Blanton Ridge, Inc.'s Salaries and Wages Expense is $900,000 during the year and the beginning and ending balances of Salaries and Wages Payable are $36,000 and $33,000, respectively, the cash paid to employees is:

A) $900,000.

B) $867,000.

C) $897,000.

D) $903,000.

163) When the direct method is used to determine the cash flows from operating activities, which of the following adjustments must be made to interest expense to determine total interest payments?

A) Add all changes in Interest Payable.

B) Add decreases in Interest Payable and subtract increases in Interest Payable.

C) Add increases in Interest Payable and subtract decreases in Interest Payable.

D) Subtract all changes in Interest Payable.

164) Which of the following would be reported on the statement of cash flows, using the direct method, as a cash flow from operating activities?

A) Payment of income taxes.

B) Payment of cash dividends.

C) Purchase of a building.

D) Purchase of treasury stock.

165) During the current year, Woodson paid $9,000 which it owed from its prior year income tax liability and $60,000 for its current year tax liability. The company still owes $12,000 at the end of the current year. How much should the company report as cash paid for income taxes on its statement of cash flows for the current year?

A) $69,000

B) $81,000

C) $60,000

D) $7,000

166) St. Pierre Enterprises reported the following information in its financial statements:

What is the amount of cash collected from customers during the current year?

A) $350,000

B) $380,500

C) $340,000

D) $410,000

167) St. Pierre Enterprises reported the following information in its financial statements:

What is the amount of cash payments made to suppliers during the current year?

A) $280,500

B) $269,500

C) $394,500

D) $230,500

168) Marathon, Inc. showed Salaries and Wages Expense of $244,000 on its income statement. If the Salaries and Wages Payable account was $27,000 at the beginning of the year and $18,500 at the end of the year, how much cash was paid to employees?

A) $217,000

B) $225,500

C) $252,500

D) $235,500

169) When the direct method is used to determine the cash flows from operating activities, which of the following adjustments must be made to income tax expense to determine total income tax payments?

A) Add all changes in income taxes and income taxes payable.

B) Add decreases in income taxes payable and subtract increases in income taxes payable.

C) Add increases in income taxes payable and subtract decreases in income taxes payable.

D) Subtract all changes in income taxes payable.

170) Which method of preparing the operating activities section of the statement of cash flows consists of a summary of each component of operating transactions that result in either a debit or a credit to cash?

A) Direct method.

B) Indirect method.

C) Accrual method.

D) Cash method.

171) Assume that the direct method is used to prepare the operating activities section of the statement of cash flows. Which related balance sheet account will explain the difference between revenues on the income statement and cash collected from customers?

A) Inventory

B) Accounts Payable

C) Cost of Goods Sold

D) Accounts Receivable

172) Assume that the direct method is used to prepare the operating activities section of the statement of cash flows. Why is a decrease in Accounts Receivable decrease added to sales revenue when computing cash collected from customers?

A) There were more cash sales than credit sales during the year.

B) There were more collections of Accounts Receivable than sales on account during the year.

C) There were more credit sales than cash sales during the year.

D) There were more sales on account than collections of Accounts Receivable during the year.

173) Assume that the direct method is used to prepare the operating activities section of the statement of cash flows. Which of the following statements is correct concerning a decrease in Accounts Payable?

A) Since the cash payments were more than the credit purchases, the decrease must be added to purchases to calculate cash payments to suppliers.

B) Since the cash payments were less than credit purchases, the decrease must be added to purchases to calculate cash payments to suppliers.

C) Since the cash payments were more than credit purchases, the decrease must be subtracted from purchases to cash payments to suppliers.

D) Since the cash payments were less than credit purchases, the decrease must be subtracted from purchases to calculate cash payments to suppliers.

174) Assume that the direct method is used to prepare the operating activities section of the statement of cash flows. When Accrued Liabilities increase, it means that the company:

A) paid more cash than it recorded as operating expenses.

B) paid less cash than it recorded as operating expenses.

C) prepaid the operating expenses before they were incurred or recorded.

D) paid for the operating expenses as they were recorded.

175) A company has a net cash inflow from operating activities of $789,000, a net cash outflow of $50,000 from investing activities and a net cash inflow of $100,000 from financing activities. The company paid $124,000 in interest, $186,500 in income taxes, and $200,000 in cash dividends. Which of the following statements about the statement of cash flows is not correct?

A) The cash dividends of $200,000 paid will be reported as a cash outflow in the cash flow from investing activities section.

B) Supplemental disclosures required for a company using the indirect method include the amount of interest and the amount of income taxes paid.

C) The statement of cash flows will show a net increase in cash and cash equivalents of $839,000.

D) If the direct method is used, the $124,000 of interest paid and the $186,500 of income taxes paid will be reported in the cash flows from operating activities.

176) Marion Manufacturing had the following cash flows for the current year. The company uses the direct method in preparing the statement of cash flows.

 What is the net cash provided by (used in) operating activities?

A) $7,500

B) $3,000

C) ($2,000)

D) ($37,500)

177) Marion Manufacturing had the following cash flows for the current year. The company uses the direct method in preparing the statement of cash flows.

 What is the net cash provided by (used in) investing activities?

A) ($100,000)

B) $210,000

C) $205,000

D) ($95,000)

178) Marion Manufacturing had the following cash flows for the current year. The company uses the direct method in preparing the statement of cash flows.

What is the net cash flows provided by (used in) financing activities?

A) $310,000

B) $205,000

C) $305,000

D) $245,000

179) Marion Manufacturing had the following cash flows for the current year. The company uses the direct method in preparing the statement of cash flows.

 If the cash balance at the beginning of the current year was $0, what is the amount of cash at the end of the year?

A) $56,250

B) $212,500

C) $368,750

D) $155,750

180) If a company uses the indirect method to determine cash flows from operating activities, gains:

A) must be added to net income and losses subtracted from net income.

B) and losses must be added to net income.

C) must be subtracted from net income and losses added to net income.

D) and losses must be subtracted from net income.

181) Which of the following would not be added to net income in calculating cash flows from operating activities on a statement of cash flows prepared using the indirect method?

A) Amortization Expense.

B) A decrease in Accounts Receivable.

C) An increase in Salaries and Wages Payable.

D) A gain on sale of equipment.

182) Marvin Industries owns a piece of equipment with a cost of $78,000 and accumulated depreciation of $51,000. The equipment is sold for $30,000 cash. The amount that should be reported as a cash inflow from investing activities is:

A) $30,000.

B) $3,000.

C) $27,000.

D) $0; this transaction is a financing activity.

183) Emerald Co. owned equipment with a book value of $72,000 that was sold during this accounting period for $18,300 in cash, and purchased new equipment for cash of $88,800. Emerald Co. would record a debit of:

A) $88,800 and a credit of $18,300 to the cash account for a net cash inflow of $70,500.

B) $88,800 and a credit of $53,700 to the cash account for a net cash inflow of $35,100.

C) $18,300 and a credit of $88,800 to the cash account for a net cash outflow of $70,500.

D) $53,700 and a credit of $88,800 to the cash account for a net cash outflow of $35,100.

184) A company bought $250,000 of equipment with an expected life of ten years and no residual value. After six years the company sold the equipment for $94,000. If the company uses straight-line depreciation and the indirect method is used to determine cash flows from operating activities, which of the following reflects how the sale of the equipment would be reported in the statement of cash flows?

A) $94,000 is recorded as a cash inflow from investing activities and no other sections of the statement are affected.

B) $94,000 is recorded as a cash inflow from investing activities and $6,000 is added to convert net income to net cash flow provided by operating activities.

C) $94,000 is recorded as a cash inflow from investing activities and $6,000 is subtracted to convert net income to net cash flow provided by operating activities.

D) $94,000 is recorded as a cash inflow from operating activities.

185)

Equipment with a cost of $20,000 and a book value of $6,000 was sold during the year for cash of $18,000. Additional equipment was purchased during the year for cash.

What was the amount of cash paid for purchases of equipment during the year?

A) $80,000

B) $86,000

C) $100,000

D) $62,000

186)

Equipment with a cost of $20,000 and a book value of $6,000 was sold during the year for cash of $18,000. Additional equipment was purchased during the year for cash.

The company uses the indirect method in preparing the statement of cash flows. What is the amount of depreciation expense that will be reported in the operating activities section of the statement?

A) $8,000

B) $22,000

C) $14,000

D) $20,000

187) The following information is taken from the income statement of Olympic, Inc.:

Based on this information, what is the amount of net cash flow provided by operating activities?

A) $447,000

B) $420,000

C) $438,000

D) $402,000

188) The T-account approach:

A) may be used with the direct method.

B) creates one big T-account for cash that replaces separate schedules to show all the changes in the cash account.

C) shows cash provided as credits and cash used as debits.

D) does not determine the change in each balance sheet account.

189) Using the T-account approach:

A) Net income appears on the debit side of the Cash account under operating activities.

B) Payment of long-term debt appears on the debit side of the Cash account under financing activities.

C) Purchase of equipment appears on the credit side of the Cash account under operating activities.

D) An increase in Accounts Receivable appears on the debit side of the Cash account under operating activities.

190) When using the T-account approach to preparing the indirect method of the statement of cash flows, which of the following would be associated with amounts entered on the credit side of the Cash T-account?

A) Increase in Inventory

B) Decrease in Accounts Receivable

C) Decrease in Inventory

D) Increase in Accrued Liabilities

191) Identify whether each of the following list of items is an operating activity cash flow (O), an investing activity cash flow (I), a financing activity cash flow (F), or none of these (None).

1. ________ Proceeds from sale of equipment

2. ________ Cash collected from customers

3. ________ Payments to suppliers

4. ________ Stock repurchases

5. ________ Repayment of bond principal

6. ________ Payment of income tax

7. ________ Purchases of bonds from other companies

8. ________ Purchases of equipment financed with a note

9. ________ Interest and cash dividends received

10. ________ Payment of cash dividends

192) Assume that a company chooses the indirect method to determine net cash flows from operating activities.

Required:

Part a. Explain why net income is the starting point when the indirect method is used to determine cash flows from operating activities.

Part b. Briefly explain why a company's net income is most likely different in amount than its cash flows from operating activities.

193) Complete the last two columns in the following table by indicating whether each transaction would be reported:

Part a. In the operating (O), investing (I), or financing (F) activities section of the statement of cash flows or if the transaction would be reported instead as a noncash investing and/or financing transaction (Noncash).

Part b. As a cash inflow (+) or a cash outflow (−) on the statement of ash flows. (Leave this cell blank if you entered "Noncash" for part a.)

194) Choose the appropriate letter to match the account balance change with the type of adjustment made to net income when using the indirect method to determine net cash flow provided by operating activities.

Account Balance Change

1. ________ Decrease in Property, Plant, and Equipment

2. ________ Increase in Accounts Receivable

3. ________ Decrease in Inventory

4. ________ Decrease in Prepaid Expenses

5. ________ Increase in Accounts Payable

6. ________ Decrease in Accrued Liabilities

7. ________ Decrease in Income Tax Payable

8. ________ Increase in Dividends Payable

9. ________ Gain on Sales of Property, Plant and Equipment

10. ________ Depreciation Expense

Type of Adjustment

A − Add item to net income

S − Subtract item from net income

N − No adjustment necessary

195) Indicate whether each of the following would be added to or subtracted from net income when using the indirect method to reconcile net income to cash flows from operating activities.

196) Consider the following information:

Required:

Use the indirect method to compute the amount of net cash flows provided by (used in) operating activities.

197) Selected balance sheet information and the income statement for Pioneer Industries for the current year are presented below.

Required:

Prepare the cash flows from operating activities section of the statement of cash flows using the indirect method.

198) Consider the following information:

Required:

Part a. Compute the cash provided by (used in) investing activities.

Part b. Compute the cash provided by (used in) financing activities.

Part c. If you did not use any of the items listed in parts a or b, explain why, and indicate, if appropriate, how each item would be reported on the statement of cash flows.

199) The management team of Wickersham Brothers Inc. is preparing its annual financial statements. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statements are summarized.

Other information from the company's records includes the following:

• Bought equipment for cash, $50,000.

• Paid $10,000 on long-term note payable.

• Issued new shares of common stock for $20,000 cash.

• Cash dividends of $16,000 were declared and paid to stockholders.

• Accounts Payable arose from inventory purchases on credit.

• Income Tax Expense ($4,000) and Interest Expense ($3,000) were paid in full at the end of both years and are included in Other Expenses.

Required:

Part a. Prepare the statement of cash flows using the indirect method. Include any supplemental disclosures.

Part b. Interpret the statement of cash flows by explaining the main sources and uses of cash during the year.

200) Condensed financial data of Monopoly Corporation appear below:

Monopoly Corporation

Comparative Balance Sheet

December 31

Current Year Prior Year

Assets

Cash $44,000 $28,000

Accounts receivable A 32,000

Inventories B 70,000

Prepaid rent 2,500 2,000

Property, plant, and equipment 224,000 200,000

Accumulated depreciation (55,000) (40,000)

Total assets $341,500 $292,000

Liabilities and Stockholders' Equity

Accounts payable $38,000 $34,000

Accrued liabilities 10,000 12,000

Notes payable (long-term) 130,000 150,000

Contributed capital 50,000 25,000

Retained earnings 113,500 71,000

Total liabilities and stockholders' equity $341,500 $292,000

Monopoly Corporation

Income Statement

Year Ended December 31

Sales $477,500

Expenses

Cost of goods sold $290,000

Selling, general, and administrative expenses 94,000

Depreciation expense C

Interest expense 9,000

Income taxes ______D 425,000

Net income $ 52,500

Monopoly Corporation

Cash Flow Statement

Year End December 31

Cash Flows from Operating Activities

Net income $52,500

Adjustments to reconcile net income to net cash

provided by operating activities:

Depreciation 15,000

Changes in current assets and current liabilities:

Accounts Receivable (4,000)

Inventories (20,000)

Prepaid Expenses E

Accounts Payable 4,000

Accrued Liabilities F

Net cash provided by (used in) operating activities G

Cash flows from investing activities

Purchase of property, plant, and equipment (24,000)

Net cash provided by (used in) investing activities (24,000)

Financing activities

Additional capital contributed by stockholders H

Payments on long-term debt (20,000)

Payment of cash dividends I

Net cash provided by (used in) financing activities J

Increase in cash and cash equivalents 16,000

Cash and cash equivalents, beginning of period 28,000

Cash and cash equivalents, end of period $44,000

A cash dividend was declared and paid in full to stockholders during the year.

Required:

Solve for the missing numbers and summarize your answers in the table below. Be sure to indicate in parentheses ( ) if the missing number is negative (that is, a cash outflow).

201) Match each item with the correct letter below to indicate how each revenue or expense account on the income statement is adjusted when using the direct method to determine net cash flow provided by operating activities.

Account Balance Change

1. ________ Increase in Accrued Expenses

2. ________ Decrease in Accounts Receivable

3. ________ Decrease in Unearned Income

4. ________ Increase in Prepaid Expenses

5. ________ Decrease in Accounts Payable

6. ________ Increase in Long-Term Notes Payable

7. ________ Decrease in Prepaid Insurance

8. ________ Increase in Inventory

9. ________ Increase in Interest Payable

10. ________ Increase in Accumulated Depreciation

Type of Adjustment

A − Add item to related revenue or expense account balance

S − Subtract item from related revenue or expense account balance

N − No adjustment necessary

202) Consider the following information:

Required:

Use the direct method to compute the amount of net cash flows provided by (used in) operating activities.

203) The Extra Surplus Company's Balance Sheet for December 31, 2017 and the Income Statement for 2018 are shown below.

Additional data:

• Sales were $13,000; $8,000 in cash was received from customers.

• Bought new land for cash, $10,000.

• Sold other land for its book value of $5,000.

• Paid $1,000 principal on the long-term note payable and $1,000 in interest.

• Issued new shares of stock for $10,000 cash.

• Cash dividends of $1,000 were declared and paid to stockholders.

• Paid $5,500 on accounts payable.

• No inventory purchases were made; other expenses were incurred on account.

• All wages were paid in cash.

• Other expenses were on account.

Required:

Part a. Prepare a balance sheet at December 31, 2018.

Part b. Prepare the statement of cash flows using the direct method.

204) Equipment with a cost of $80,000 and accumulated depreciation of $75,000 is sold for $12,000 cash.

Required:

Part a. Prepare the journal entry to record this transaction.

Part b. Explain how this transaction would be reported on the statement of cash flows prepared using the indirect method.

205) A machine with a cost of $234,000 and accumulated depreciation of $153,000 is sold for $63,000 cash.

Required:

Part a. Prepare the journal entry to record this transaction.

Part b. Explain how this transaction would be reported on the statement of cash flows prepared using the indirect method.

206) The management team of Wickersham Brothers Inc. is preparing its annual financial statements. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statements are summarized.

Other information from the company's records includes the following:

• Bought equipment for cash, $50,000.

• Paid $10,000 on long-term note payable.

• Issued new shares of common stock for $20,000 cash.

• Cash dividends of $16,000 were declared and paid to stockholders.

• Accounts Payable arose from inventory purchases on credit.

• Income Tax Expense ($4,000) and Interest Expense ($3,000) were paid in full at the end of both years and are included in Other Expenses.

Required:

Prepare a schedule summarizing operating, investing, and financing cash flows using the T-account approach.

207) Choose the appropriate letter to match the term and the definition. Not all definitions will be used.

Term

1. _____ Operating Activities

2. _____ Indirect Method

3. _____ Working Capital

4. _____ Cash Equivalents

5. _____ Investing Activities

6. _____ Supplemental Disclosures

7. _____ Direct Method

8. _____ Financing Activities

Definition

A. Cash inflows and outflows related to components of net income.

B. Include assets that are very liquid and are purchased by the entity within three months of maturity.

C. These activities include only purchases made with borrowed funds.

D. Reports the components of cash flows from operating activities as gross receipts and gross payments.

E. This ratio uses net income instead of operating cash flow to analyze a company's ability to finance the cost of its debt.

F. Measures the ability of a company to finance its interest payments with its operating cash flow before taxes and interest.

G. A measure of the amount by which current assets exceed current liabilities.

H. These activities include money lent by a company as well as money borrowed by a company.

I. Must include cash paid for interest and income tax in a separate schedule.

J. Cash inflows and outflows related to the sale or purchase of investments and long-lived assets.

K. Cash inflows and outflows related to financing sources external to the company (owners and lenders).

L. Presents the operating activities section of the cash flow statement by adjusting net income to compute cash flows from operating activities.

208) Choose the appropriate letter to match the term and the definition. Not all definitions will be used.

Term

1. _____ Cash Inflow

2. _____ Property, Plant, and Equipment

3. _____ Comparative Balance Sheet

4. _____ Free Cash Flow

5. _____ Noncash Investing and Financing Activities

6. _____ Net Income

7. _____ Statement of Cash Flows

8. _____ Cash Outflow

Definition

A. A financial statement that tracks the flow of cash into and out of a company according to the three types of activities that generate the flows.

B. Cash flows in excess of net income.

C. Reported as supplement disclosures or in the notes section to the financial statements rather than within the body of the statement of cash flows.

D. Results from activities such as sales of goods and assets, receipt of cash dividends, and receipts of interest.

E. Cash a company receives that is not subject to income tax.

F. Purchases and sales of this are classified as investing activities.

G. The starting point for calculating operating cash flows with the direct method.

H. Cash flows from operations in excess of amount paid to replace property, plant and equipment and to pay cash dividends to stockholders.

I. The percent of a company's net cash flow that comes from investing and financing activities.

J. An adjustment made when using the indirect method of calculating cash flows from operating activities.

K. The starting point for calculating operating cash flows with the indirect method.

L. Purchases and sales of this are classified as operating activities.

M. A balance sheet that shows the starting and ending balance of the different accounts; it is used to calculate the net cash flow provided by operating activities.

N. Results from activities such as purchases of goods and assets, payment of debt, payment of cash dividends, and payment of taxes.