View Product website:

https://selldocx.com/docx/statement-of-cash-flows-test-bank-with-answers-11e-1123

Financial Accounting, 11^th edition

Test Bank and Video Questions

By Pratt and Peters

Chapter 14: The Statement of Cash Flows

For Instructor Use Only

Copyright © 2021 John Wiley & Sons, Inc. or the author, all rights reserved.

Table of Contents

Multiple Choice Questions 2

Matching Questions 35

Short Problems 39

Short Essay Questions 60

Data Analytic Questions 66

Video Questions 68

Multiple Choice Questions

1) How will a company classify 'proceeds received from the issuance of long-term bonds' on its statement of cash flows?

A) Cash provided from operations

B) Cash used in operations

C) Cash provided from investing activities

D) Cash provided from financing activities

Diff: Easy

Learning Objective: 14.1

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 1 / None

2) How will a company classify the exchange of common stock for land on its statement of cash flows?

A) An operating activity

B) An investing activity

C) A financing activity

D) A footnote

Diff: Easy

Learning Objective: 14.1

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 2 / None

3) How will a company classify a payment for the acquisition of land on its statement of cash flows?

A) Cash provided from operations

B) Cash used in financing activities

C) Cash provided from investing activities

D) Cash used for investing activities

Diff: Easy

Learning Objective: 14.1

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 3 / None

4) Equipment that cost $10,000 that had a book value of $6,000 was sold for $7,000. Data from the comparative balance sheets are:

12/31/20 12/31/19

Equipment $420,000 $310,000

Accumulated Depreciation 59,000 36,000

Equipment purchased during 2020 cost is:

A) $120,000.

B) $110,000.

C) $145,000.

D) $ 10,000.

Explanation: $420,000 - ($310,000 - $10,000) = $120,000

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 4 / None

5) If an investor is interested in the solvency of a company, he/she should analyze the:

A) balance sheet and income statement.

B) income statement, balance sheet, and statement of cash flows.

C) balance sheet and statement of cash flows.

D) statement of cash flows only.

Diff: Easy

Learning Objective: 14.2

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 5 / None

6) How will a company classify the sale of treasury stock at an amount equal to its cost on its statement of cash flows?

A) Operating activity

B) Investing activity

C) Extraordinary activity

D) Financing activity

Diff: Easy

Learning Objective: 14.1

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 6 / None

7) How will a company classify payments to suppliers on its statement of cash flows?

A) Cash provided from operations

B) Cash used in operations

C) Cash provided from investing activities

D) Cash used in financing activities

Diff: Easy

Learning Objective: 14.1

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 7 / None

8) Payments for purchases of property, plant, and equipment and other productive assets are classified as cash outflows from:

A) operating activities.

B) financing activities.

C) investing activities.

D) selling activities.

Diff: Easy

Learning Objective: 14.1

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 8 / None

9) How will a company classify payments for inventory acquisitions on its statement of cash flows?

A) Cash provided from operations

B) Cash used in operations

C) Cash provided from investing activities

D) Cash used for investing activities

Diff: Easy

Learning Objective: 14.1

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 9 / None

10) How will a company classify cash receipts from selling equipment no longer used in operations on its statement of cash flows?

A) Cash provided from operations

B) Cash provided from financing activities

C) Cash provided from investing activities

D) Cash used for investing activities

Diff: Easy

Learning Objective: 14.1

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 10 / None

11) A company uses the indirect method of preparing the statement of cash flows. Current year depreciation expense can be found on the:

A) income statement and statement of cash flows.

B) balance sheet and income statement.

C) statement of cash flows and balance sheet.

D) income statement and statement of comprehensive income.

Diff: Easy

Learning Objective: 14.1

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 11 / None

12) A company uses the direct method of preparing the statement of cash flows. Current year depreciation expense can be found on the:

A) balance sheet and income statement.

B) income statement and statement of cash flows.

C) income statement only.

D) statement of cash flows only.

Diff: Easy

Learning Objective: 14.1

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 12 / None

13) An investor is interested in assessing the effectiveness of a company's cash management. Where will the investor look to evaluate this?

A) Statement of cash flows

B) Income statement

C) Balance sheet

D) Company's bank statements

Diff: Easy

Learning Objective: 14.2; 14.5

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 13 / None

14) A company declares cash dividends on the last day of the year. Payment will be made during the following fiscal period. Cash flows:

A) from operations will be less than if dividends were not declared.

B) from operations will be more than if dividends were not declared.

C) from financing activities will be less than if dividends were not declared.

D) will be the same as if dividends had not been declared.

Diff: Easy

Learning Objective: 14.1; 14.2; 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 14 / None

15) What is reported on the statement of cash flows?

A) Operating, investing, and financing activities of an entity for a period of time

B) All revenues and expense listed by operating, financing, and operating activity

C) Operating, investing, and financing activities of an entity at the balance sheet date

D) A detail of all incoming and outgoing cash flows of a business

Diff: Easy

Learning Objective: 14.1

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 15 / None

16) Which statement is true with respect to the preparation of the "cash flows from operating activities" section?

A) It can be calculated by using the direct or indirect methods.

B) Cash flows are calculated as the difference between revenues and expenses.

C) It is always equal to accrual accounting income.

D) Cash payments for depreciation and dividends are reported in the operating activates sections.

Diff: Easy

Learning Objective: 14.1

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 16 / None

17) Which one of the following transactions is an investing activity?

A) Sale of equipment at book value

B) Sale of merchandise on credit

C) Declaration of cash dividend

D) Issuance of bonds payable at a discount

Diff: Easy

Learning Objective: 14.1

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 17 / None

18) How will a company classify the income tax payments on its statement of cash flows?

A) Operating activities

B) Taxing activities

C) Lending activities

D) Financing activities

Diff: Easy

Learning Objective: 14.1

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 18 / None

19) A company uses straight-line instead of the units of production method of depreciation. Assuming a tax rate of zero, which statement is true as a result of its choice of depreciation methods?

A) Cash flows from operations will be less than under the straight-line method

B) Cash flows from operations will be more than under the straight-line method

C) Cash used for investing activities will be more than under the straight-line method

D) Cash flows are the same as if the units of production method had been used.

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 19 / None

20) An acquisition of land by signing a 10-year mortgage payable is reported on the statement of cash flows as:

A) an operating activity.

B) an investing activity.

C) a financing activity.

D) a footnote.

Diff: Easy

Learning Objective: 14.2

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 20 / None

21) Which one of the following is consistent with a company recording a large operating loss but still having healthy cash flows from operations?

A) A large amount of depreciation and/or amortization expense

B) An increase in accounts receivable and inventory

C) A decrease in accounts payable

D) All sales are on a cash basis.

Diff: Easy

Learning Objective: 14.5

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 21 / None

22) Which one of the following is consistent with a company recording a large operating income but having a net cash outflow from operations?

A) A great amount of depreciation expense

B) An increase in accounts receivable and inventory

C) An increase in accounts payable

D) Acquisition of new plant assets for cash

Diff: Easy

Learning Objective: 14.5

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 22 / None

23) Which one of the following is added to net income when using the indirect method to determine cash flows from operations?

A) Decrease in amounts paid to reduce long-term notes

B) Decrease in accounts payable

C) Depreciation or amortization

D) Cash received from selling treasury stock

Diff: Easy

Learning Objective: 14.1; 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 23 / None

24) Which one of the following is added to net income when using the indirect method to determine cash flows from operations?

A) Amortization of intangibles

B) Decrease in accounts payable

C) Increase in accounts receivable

D) A gain on the sale of plant assets

Diff: Easy

Learning Objective: 14.1; 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 24 / None

25) Which of the following is added to net income when using the indirect method to determine cash flows from operations?

A) Cash dividends paid

B) Increase in accounts payable and decrease in accounts receivable

C) Decrease in accounts receivable and cash dividends declared

D) Increase in prepaid expenses

Diff: Easy

Learning Objective: 14.1; 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 25 / None

26) Which one of the following is added to net income when using the indirect method to determine cash flows from operations?

A) Increase in inventory

B) Decrease in wages payable

C) Loss from sale of land

D) Gain from selling treasury stock above its original cost

Diff: Easy

Learning Objective: 14.1; 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 26 / None

27) Which one of the following is subtracted from net income when using the indirect method to determine cash flows from operations?

A) Loss from sale of land

B) Depreciation expense

C) A stock split

D) Gain from sale of equipment

Diff: Easy

Learning Objective: 14.1; 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 27 / None

28) Which one of the following is subtracted from net income when using the indirect method to determine cash flows from operations?

A) Increase in prepaid insurance

B) Increase in accounts payable

C) Decrease in accounts receivable

D) Decrease in prepaid insurance

Diff: Easy

Learning Objective: 14.1; 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 28 / None

29) The statement of cash flows is designed to highlight:

A) the revenues and expenses of an entity's operations during a period.

B) the predicted future cash flows.

C) the cash effects of the operating, investing, and financing activities of an entity during a period.

D) the future cash balance.

Diff: Easy

Learning Objective: 14.1

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 29 / None

30) An increase in inventory is reported in a statement of cash flows using the indirect method as a(n):

A) addition to net income in arriving at net cash flows from operating activities.

B) deduction from net income in arriving at net cash flows from operating activities.

C) cash outflow from investing activities.

D) cash outflow from financing activities.

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 30 / None

31) Which one of the following would you expect to find as part of cash flows from investing activities?

A) The issuance of common stock in exchange for a factory

B) Cash dividends paid

C) Cash inflows from the proceeds of a sale of a building

D) The write-off of accounts receivable

Diff: Easy

Learning Objective: 14.1

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 31 / None

32) When preparing a statement of cash flows using the indirect method, an increase in inventory will result in an adjustment to reported net income because:

A) cost of goods sold on an accrual basis is less than on a cash basis.

B) the increase in inventory indicates inventory purchases exceeded the cost of the inventory sold (COGS) during the period.

C) acquisition of inventory is an investment activity.

D) inventory purchased created smaller cash outflows than cash inflows received from inventory sales.

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 32 / None

33) In determining cash flow from operating activities, which of the following adjustments will be made as a result of an increase in accounts receivable during a period?

A) An addition to net income when the direct method is used

B) An addition to net income when the indirect method is used

C) A deduction from net income when the direct method is used

D) A deduction from net income when the indirect method is used

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 33 / None

34) In determining net cash flows from operating activities, a decrease in salaries payable during a period:

A) means that income on an accrual basis is equal to income on a cash basis.

B) must be added to net income under the indirect method.

C) means that salaries paid with cash during the period exceeded salaries accrued, which were reflected as expenses on the income statement.

D) creates a cash inflow from employees.

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 34 / None

35) Calvin Company provided the following information during 2020:

Purchase of land by issuing bonds $ 550,000

Proceeds from issuing long-term debt 300,000

Dividends paid to shareholders 120,000

Proceeds from issuing stock 300,000

Proceeds from sale of building 360,000

Purchases of inventories 800,000

Purchase of treasury stock 430,000

How much is 'net cash provided (used) by investing activities' during 2020?

A) $790,000

B) $360,000

C) $910,000

D) $(120,000)

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 35 / None

36) Calvin Company provided the following information during 2020:

Purchase of land by issuing bonds $ 550,000

Proceeds from issuing long-term debt 300,000

Dividends paid to shareholders 120,000

Proceeds from issuing stock 300,000

Proceeds from sale of building 360,000

Purchases of inventories 800,000

Purchase of treasury stock 430,000

How much is 'net cash provided (used) by financing activities' during 2020?

A) $(500,000)

B) $550,000

C) $50,000

D) $600,000

Explanation:

Long-term debt − Dividends paid + stock issuance − Purchase of treasury stock

$300,000 − $120,000 + $300,000 − $430,000 = $50,000

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 36 / None

37) Which of the following is subtracted from income when using the indirect method to determine cash flows from operations?

A) Decrease in accounts payable

B) Depreciation

C) Cash dividends declared and distributed

D) Amounts due from customers at year end

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 37 / None

38) Selected information from Hsu Inc. is provided below for the years ending December 31, 2020 and 2019.

2020 2019

Accumulated depreciation $32,000 $29,000

Equipment 60,000 55,000

During 2020, depreciation expense was recorded. New equipment was acquired for cash. Old equipment which was 70% depreciated with an original cost of $26,000 was sold for a gain of $4,000. For how much was the equipment sold?

A) $11,800

B) $5,000

C) $3,800

D) $31,000

Explanation: [(100% - 70%) × $26,000] + $4,000 = $11,800

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 38 / None

39) Relevant account balances for Martinez Corporation are:

12/31/20 1/01/20

Accounts receivable $18,000 $14,000

Inventory 24,000 26,000

Prepaid insurance 1,500 2,100

Accounts payable 25,000 26,000

Income information for 2020

Revenue $120,000

Cost of goods sold $60,000

Insurance expense 6,000

Operating expenses 18,000

Depreciation 10,000 94,000

Net income $ 26,000

How much cash was received from customers during 2020?

A) $120,000

B) $116,000

C) $138,000

D) $124,000

Explanation: $120,000, Revenue - [$18,000 (A/R 12/31/20) - $14,000 (A/R 1/1/20)] = $116,000

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 39 / None

40) Relevant account balances for Martinez Corporation are:

12/31/20 1/01/20

Accounts receivable $18,000 $14,000

Inventory 24,000 26,000

Prepaid insurance 1,500 2,100

Accounts payable 25,000 26,000

Income information for 2020

Revenue $120,000

Cost of goods sold $60,000

Insurance expense 6,000

Operating expenses 18,000

Depreciation 10,000 94,000

Net income $ 26,000

How much cash was paid to suppliers for inventory during 2020?

A) $2,000

B) $59,000

C) $63,000

D) $61,000

Explanation: $60,000, Cost of Goods Sold - [$26,000 (Inventory, 12/31/20) - $24,000 (Inventory, 1/1/20)] + [$26,000 (A/P, 1/1/20) - $25,000 (A/P 12/31/20)] = $59,000

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 40 / None

41) Relevant account balances for Martinez Corporation are:

12/31/20 1/01/20

Accounts receivable $18,000 $14,000

Inventory 24,000 26,000

Prepaid insurance 1,500 2,100

Accounts payable 25,000 26,000

Income information for 2020

Revenue $120,000

Cost of goods sold $60,000

Insurance expense 6,000

Operating expenses 18,000

Depreciation 10,000 94,000

Net income $ 26,000

How much cash was paid for insurance during 2020?

A) $5,400

B) $6,000

C) $6,600

D) $600

Explanation: $6,000, Insurance Expense - [$2,100 (Prepaid Ins., 1/1/20) - $1,500 (Prepaid Ins., 12/31/20)] = $5,400

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 41 / None

42) How does depreciation appear on the statement of cash flows under the direct method?

A) Added in the operating activities section

B) Subtracted in the operating activities section

C) In the investing activities section since it relates to plant assets

D) It will not be reported since it is not a cash flow.

Diff: Easy

Learning Objective: 14.1

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 42 / None

43) Relevant account balances for Martinez Corporation are:

12/31/20 1/01/20

Accounts receivable $18,000 $14,000

Inventory 24,000 26,000

Prepaid insurance 1,500 2,100

Accounts payable 25,000 26,000

Income information for 2020

Revenue $120,000

Cost of goods sold $60,000

Insurance expense 6,000

Operating expenses 18,000

Depreciation 10,000 94,000

Net income $ 26,000

How much is Martinez's cash flows from operations for 2020?

A) $28,400

B) $38,400

C) $23,600

D) $33,600

Explanation: (Direct) [Revenue, $120,000 - {(A/R, 12/31/20) $18,000 - (A/R, 1/1/20) $14,000}*] - [COGS, $60,000 - {(Inv. 1/1/20) $26,000 - (Inv. 12/31/20) $24,000}** - {(A/P 1/1/20) $26,000 - (A/P 12/31/20) $25,000}*^] - [Ins. Exp., $6,000 - {(Prep. Ins. 1/1/20) $2,100 - (Prep. Ins. 12/31/20) $1,500}***] - Op. Exp., $18,000 = $116,000 - $59,000 - $5,400 - $18,000 = $33,600 or (Indirect) $26,000, NI + $10,000 Depreciation - $4,000* + $2,000** + $600*** - $1,000*^ = $33,600

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 43 / None

44) Selected information from Cooke Inc. is provided below for the years ending December 31, 2020 and 2019.

2020 2019

Accumulated depreciation $32,000 $29,000

Equipment 60,000 55,000

During 2020, depreciation expense was recorded. New equipment was acquired for cash. Old equipment which was 70% depreciated with an original cost of $26,000 was sold for a gain of $4,000. What is the cost of the new equipment acquired?

A) $11,800

B) $5,000

C) $21,000

D) $31,000

Explanation: $60,000, Equip., 2020 - [$55,000 (Equip., 2019) - $26,000 (Sold Equip. Cost)] = $31,000

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 44 / None

45) The May 1 and May 31 balances in accounts receivable are $35,000 and $36,000, respectively. During May, the company reported sales totaling $235,000 from its customers. The company incurred $211,000 of expenses, although $12,000 was not paid as of May 31. How much is cash flows from operations for May?

A) $24,000

B) $37,000

C) $11,000

D) $35,000

Explanation: [$235,000, Sales - ($36,000 {5/1 A/R} - $35,000 {5/31 A/R)] - [$211,000, Exp. - $12,000, Exp. not paid] = $35,000

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 45 / None

46) The following are from Forman's comparative balance sheet and 2020 income statement:

December 31, 2020 January 1, 2020

Accounts receivable $ 22,000 $19,000

Unearned revenue 3,000 4,000

Salaries payable 8,000 5,000

Sales revenue 154,000

Salaries expense 88,000

Determine the amount of cash that Forman collected from customers during 2020.

A) $150,000

B) $158,000

C) $151,000

D) $156,000

Explanation: $154,000, Sales - ($22,000 {12/31/20 A/R} - $19,000 {1/1/20 A/R}) - ($4,000 {1/1/20 Unearn. Rev. - $3,000 {12/31/20 Unearn. Rev.}) = $150,000

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 46 / None

47) The following are from Forman's comparative balance sheet and 2020 income statement:

December 31, 2020 January 1, 2020

Accounts receivable $ 22,000 $19,000

Unearned revenue 3,000 4,000

Salaries payable 8,000 5,000

Sales revenue 154,000

Salaries expense 88,000

Determine the amount of cash that Forman Incorporated paid for salaries during 2020.

A) $91,000

B) $88,000

C) $85,000

D) $80,000

Explanation: $88,000, Sal. Exp. - ($8,000 {Sal. Pay. 12/31/20} - $5,000 {Sal. Pay. 1/1/20}) = $85,000

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 47 / None

48) Johnson Company engaged in the following transactions during 2020:

1. Johnson wrote off an account receivable against the allowance account.

2. Johnson purchased a piece of plant equipment.

3. Johnson reacquired 5,000 shares of its common stock.

4. Johnson sold a building at a loss in exchange for a five-year note.

5. Johnson declared, but did not pay, a cash dividend.

If Johnson uses the indirect method, which of these transactions or parts of these transactions would be included in the operating activity section of the statement of cash flows?

A) Transaction 4

B) Transaction 1

C) More than one of these transactions would be found in the operating activity section.

D) None of these transactions would be found in the operating activity section.

Diff: Medium

Learning Objective: 14.1; 14.4

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 48 / None

49) Johnson Company engaged in the following transactions during 2020:

1. Johnson wrote off an open receivable as uncollected.

2. Johnson purchased a piece of plant equipment.

3. Johnson reacquired 5,000 shares of its common stock.

4. Johnson sold a building at a loss in exchange for a five-year note.

5. Johnson declared, but did not pay a cash dividend.

Which of these transactions or parts of these transactions would be included in the financing activity section of the statement of cash flows?

A) Transactions 2 and 4

B) Transactions 2 through 5

C) Transaction 3

D) None of these choices are correct.

Diff: Medium

Learning Objective: 14.1; 14.4

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 49 / None

50) Johnson Company engaged in the following transactions during 2020:

1. Johnson wrote off an account receivable against the allowance account.

2. Johnson purchased a piece of plant equipment.

3. Johnson reacquired 5,000 shares of its common stock.

4. Johnson sold a building at a loss in exchange for a five-year note.

5. Johnson declared, but did not pay a cash dividend.

If Johnson uses the indirect method, which of these transactions would not appear in whole or in part on the statement of cash flows?

A) Transaction 1 and 5 only

B) Transactions 4 and 5 only

C) Transactions 1, 4, and 5

D) None of these would appear on the statement of cash flows.

Diff: Medium

Learning Objective: 14.1; 14.4

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 50 / None

51) Denver Company prepares its statement of cash flows using the direct method and engaged in the following transactions during 2020:

1. Denver retired bonds payable by issuing common stock.

2. Denver collected on a long-term note receivable.

3. Denver enacted a stock split.

4. Denver recorded depreciation on fixed assets.

5. Denver paid interest on long-term debt.

Which of these transactions or parts of these transactions would be included in the operating activity section of the statement of cash flows?

A) Transaction 2

B) Transaction 5

C) Transaction 4

D) None of these choices is correct.

Diff: Medium

Learning Objective: 14.1; 14.4

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 51 / None

52) Denver Company prepares its statement of cash flows using the direct method and engaged in the following transactions during 2020:

1. Denver retired bonds payable by issuing common stock.

2. Denver collected on a long-term note receivable.

3. Denver issued a dividend in the form of shares of common stock.

4. Denver recorded depreciation on fixed assets.

5. Denver paid interest on long-term debt.

Which of these transactions would not appear in whole or in part on the statement of cash flows?

A) Transactions 1 & 2

B) Transactions 2 & 3

C) Transactions 1, 2, 3, & 4

D) Transactions 1, 3, & 4

Diff: Medium

Learning Objective: 14.1; 14.4

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 52 / None

53) Denver Company prepares its statement of cash flows using the direct method and engaged in the following transactions during 2020:

1. Denver retired bonds payable by issuing common stock.

2. Denver collected on a long-term note receivable.

3. Denver issued a dividend in the form of shares of common stock.

4. Denver recorded depreciation on fixed assets.

5. Denver paid interest on long-term debt.

Which of these transactions or parts of these transactions would be included in the financing activity section of the statement of cash flows?

A) Transaction 1

B) Transaction 3

C) Transactions 1 & 3

D) None of these transactions would be found in the financing activity section.

Diff: Medium

Learning Objective: 14.1; 14.4

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 53 / None

54) Samuels Company prepares its statement of cash flows using the direct method and engaged in the following transactions during 2020:

1. Samuels purchased inventory on account.

2. Samuels collected open accounts receivable.

3. Samuels exchanged a building for land and realized a gain.

4. Samuels issued 75,000 shares of preferred stock.

5. Samuels purchased a three-year fire insurance policy.

Which of these transactions or parts of these transactions would be included in the operating activity section of the statement of cash flows?

A) Transactions 1,2 & 5

B) Transactions 2 & 5 only

C) Transactions 2, 3, & 5

D) None of these choices is correct.

Diff: Medium

Learning Objective: 14.1; 14.4

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 54 / None

55) Samuels Company prepares its statement of cash flows using the direct method and engaged in the following transactions during 2020:

1. Samuels purchased inventory on account.

2. Samuels collected open accounts receivable.

3. Samuels exchanged a building for land and realized a gain.

4. Samuels issued 75,000 shares of preferred stock.

5. Samuels purchased a three-year fire insurance policy.

Which of these transactions or parts of these transactions would be included in the financing activity section of the statement of cash flows?

A) Transaction 3 only

B) Transaction 4 only

C) Transactions 3 & 4

D) None of these transactions would be found in the financing activity section.

Diff: Medium

Learning Objective: 14.1; 14.4

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 55 / None

56) Samuels Company prepares its statement of cash flows using the direct method and engaged in the following transactions during 2020:

1. Samuels purchased inventory on account.

2. Samuels collected open accounts receivable.

3. Samuels exchanged a building for land and realized a gain.

4. Samuels issued 75,000 shares of preferred stock.

5. Samuels purchased a three-year fire insurance policy.

Which of these transactions or parts of these transactions would be included in the investing activity section of the statement of cash flows?

A) Transaction 3 only

B) Transaction 4 only

C) Transactions 3 & 4

D) None of these transactions would be found in the investing activity section.

Diff: Medium

Learning Objective: 14.1; 14.4

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 56 / None

57) Samuels Company prepares its statement of cash flows using the direct method and engaged in the following transactions during 2020:

1. Samuels purchased inventory on account.

2. Samuels collected open accounts receivable.

3. Samuels exchanged a building for land and realized a gain.

4. Samuels issued 75,000 shares of preferred stock.

5. Samuels purchased a three-year fire insurance policy.

Which of these transactions would not be included in whole or in part on the statement of cash flows?

A) Transaction 1 only

B) Transaction 5 only

C) Transactions 1, 3, & 5

D) Transactions 1 & 3

Diff: Medium

Learning Objective: 14.1; 14.4

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 57 / None

58) The following information was taken from the records of Albert's Fine Coffee:

During 2020, machinery with a cost of $16,000 was sold.

Based on this information, how much machinery was purchased during 2020?

A) $50,000

B) $66,000

C) $40,000

D) $60,000

Explanation:

2020 Ending machinery = 2020 Beginning machinery + Cost of

machinery purchased during 2020 -

Cost of machinery sold during 2020

$90,000 = $40,000 + Machinery purchased - $16,000

Machinery purchased = $66,000

Diff: Hard

Learning Objective: 14.4

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Measurement

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 58 / None

59) The following information was taken from the records of Albert's Fine Coffee:

During 2020, machinery with a cost of $16,000 was sold.

Based on this information, how much cash was collected on the sale of the machinery during 2020?

A) $10,000

B) $20,000

C) $4,000

D) $16,000

Explanation: When the machinery was sold during 2020, Albert's would prepare the appropriate entry using the following format.

Cash (+A) XX

Accumulated Depreciation (+A) XX

Machinery (-A) XX

Gain on Plant Assets (Ga, +SE) XX

We can find the cash collected for the sale of the machinery by first calculating the other three amounts.

Machinery

It is given in the exercise that the cost of the machinery sold was $16,000.

Gain on Plant Assets

It is given in the exercise that the gain on the sale was $4,000.

Accumulated Depreciation

From the entry given above,

Cash = Cost of machinery sold + Gain on plant assets -

Accumulated depreciation on machinery sold

= $16,000 + $4,000 - $4,000

= $16,000

Diff: Hard

Learning Objective: 14.4

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Measurement

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 59 / None

60) The following information was taken from the records of Albert's Fine Coffee:

During 2020, machinery with a cost of $16,000 was sold.

The journal entry to record the sale of the machinery would include:

A) a debit to Accumulated Depreciation of $4,000.

B) a debit to Cash of $2,000.

C) a debit to Machinery for $16,000.

D) a credit to Gain on Plant Assets for $3,000.

Explanation:

Machinery

It is given in the exercise that the cost of the machinery sold was $16,000.

Gain on Plant Assets

It is given in the exercise that the gain on the sale was $4,000.

Accumulated Depreciation

From the entry given above,

Cash = Cost of machinery sold + Gain on plant assets -

Accumulated depreciation on machinery sold

= $16,000 + $4,000 - $4,000

= $16,000

Cash (+A) 16,000

Accumulated Depreciation (+A) 4,000

Machinery (-A) 16,000

Gain on Plant Assets (Ga, +SE) 4,000

Diff: Hard

Learning Objective: 14.4

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 60 / None

61) The following year-end totals were taken from the records of Langston Company.

What is the amount of cash outflow associated with insurance during 2020?

A) $4,000

B) $2,800

C) $1,700

D) $6,800

Explanation:

Insurance

2020 Ending prepaid insurance = 2020 Beginning prepaid insurance

+ Insurance purchases during 2020

- 2020 Insurance expense

$8,000 = $5,200 + Insurance purchases - $4,000; Insurance purchases

= $6,800

Diff: Hard

Learning Objective: 14.4

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Measurement

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 61 / None

62) The following year-end totals were taken from the records of Langston Company.

What is the amount of cash outflow associated with wages during 2020?

A) $9,500

B) $2,500

C) $5,500

D) $7,000

Explanation:

Wages

2020 Ending wages payable = 2020 Beginning wages payable + 2020 Wages expense - Wages paid during 2020

$7,000 = $0 + $9,500 - Wages paid; Wages paid = $2,500

Diff: Hard

Learning Objective: 14.4

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Measurement

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 62 / None

Matching Questions

63) For each transaction provided in items 1 through 12, select the proper section of the statement of cash flows (direct method) in which it should be reported from the reporting categories provided below.

Reporting Categories

A. Cash provided/used by financing activities

B Cash provided/used by investing activities

C. Cash provided/used by operating activities

D. Disclosed in notes

_______ 1. Principal payment on long-term note payable

_______ 2. Customers paid cash for inventory items

_______ 3. Cash dividends paid to stockholders

_______ 4. Issuance of stock for more than its par value

_______ 5. Payment of employees' salaries

_______ 6. Issuance of common stock for cash

_______ 7. Payment of income taxes

_______ 8. Issuance of bonds at a premium

_______ 9. Sale of available-for-sale securities (long-term)

_______ 10. Purchase of equipment

_______ 11. Purchase of treasury stock

_______ 12. Sale of long-term investment

1. A

2. C

3. A

4. A

5. C

6. A

7. C

8. A

9. B

10. B

11. A

12. B

Diff: Easy

Learning Objective: 14.1

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 8 min.

Title/Media Ref.: Matching Question 1 / None

64) For each transaction provided in items 1 through 5, select the proper section of the statement of cash flows in which it should be reported using the indirect method from the reporting categories provided in a through h below. If the item is not required to be reported on the statement of cash flows, place an 'X' in the space provided.

Reporting Categories

a. Cash flows from operating activities–will be added to net income

b. Cash flows from operating activities–will be subtracted from net income

c. Cash flows from investing activities–increase as a result of cash inflows

d. Cash flows from investing activities–decrease as a result of cash outflows

e. Cash flows from financing activities–increase as a result of cash inflows

f. Cash flows from financing activities–decrease as a result of cash outflows

g. Disclosed as a non-cash transaction in the notes

h. Appears in operating activities only under the direct method

_______ 1. Increase in unearned revenue

_______ 2. Payment of cash dividends

_______ 3. Increase in income taxes payable

_______ 4. Issuance of common stock to acquire land

_______ 5. Increase in accounts receivable

1. a

2. f

3. a

4. g

5. b

Diff: Easy

Learning Objective: 14.1; 14.2; 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 4 min.

Title/Media Ref.: Matching Question 2 / None

65) For each transaction provided in items 1 through 5, select the proper section of the statement of cash flows in which it should be reported using the indirect method from the reporting categories provided in a through h below. If the item is not required to be reported on the statement of cash flows, place an 'X' in the space provided.

Reporting Categories

a. Cash flows from operating activities–will be added to net income

b. Cash flows from operating activities–will be subtracted from net income

c. Cash flows from investing activities–increase as a result of cash inflows

d. Cash flows from investing activities–decrease as a result of cash outflows

e. Cash flows from financing activities–increase as a result of cash inflows

f. Cash flows from financing activities–decrease as a result of cash outflows

g. Disclosed as a non-cash transaction in the notes

h. Appears in operating activities only under the direct method

_______ 1. Retired long-term debt before its maturity date

_______ 2. Decrease in income taxes payable

_______ 3. Recognized loss on the sale of equipment

_______ 4. Declared cash dividends

_______ 5. Amortization of patent

1. f

2. b

3. a

4. X

5. a

Diff: Easy

Learning Objective: 14.1; 14.2; 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 4 min.

Title/Media Ref.: Matching Question 3 / None

66) For each transaction provided in items 1 through 7, select the proper section of the statement of cash flows in which it should be reported using the indirect method from the reporting categories provided in a through h below.

Reporting Categories

a. Cash flows from operating activities–will be added to net income

b. Cash flows from operating activities–will be subtracted from net income

c. Cash flows from investing activities–increase as a result of cash inflows

d. Cash flows from investing activities–decrease as a result of cash outflows

e. Cash flows from financing activities–increase as a result of cash inflows

f. Cash flows from financing activities–decrease as a result of cash outflows

g. Disclosed as a non-cash transaction in the notes

h. Cash flows are already included in net income - not necessary to separately report on statement of cash flows

_______ 1. Loss on sale of old equipment

_______ 2. Issuance of stock to pay off bonds payable

_______ 3. Recorded amortization on intangible assets

_______ 4. Sold trading investments at book value (no gain or loss)

_______ 5. Paid salaries expense for the current period

_______ 6. Decrease in salaries payable

_______ 7. Acquired machinery by issuing bonds payable

1. a

2. g

3. a

4. c

5. h

6. b

7. g

Diff: Easy

Learning Objective: 14.1; 14.2; 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 5 min.

Title/Media Ref.: Matching Question 4 / None

Short Problems

67) Accrued wages payable on December 31, 2019 and 2020 are $9,000 and $4,000, respectively. During 2020, wages expense is $36,000. Calculate the amount of cash paid for wages during 2020.

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 3 min.

Title/Media Ref.: Short Problem 1 / None

68) Graham, Inc. experienced the following changes in its cash balance during the current calendar year:

Increases in Cash:

From customers $6,000

Sale of investments 3,100

Collection of interest 800

Issue of common stock 3,000

Decreases in Cash:

Payment to suppliers $3,000

Wages 1,000

Purchase of building 3,000

Payment of interest 400

Retirement of long-term debt 600

Payment of dividends 500

Payment of salespersons' commissions 200

Prepare, in good form, a cash flow statement for the current year using the direct method.

Cash Flow Statement for Current Year

Cash provided by operations:

Add: From customers $6,000

Interest collections 800 $6,800

Less: Payment to suppliers 3,000

Wages paid 1,000

Interest paid 400

Payment to salespersons 200 (4,600)

Cash inflow (outflow) from operations 2,200

Cash flows from investing activities:

Sale of investments $3,100

Purchase of building (3,000) 100

Cash flows from financing activities:

Issuance of stock $3,000

Retirement of debt (600)

Dividend payment (500) 1,900

Net increase (decrease) in cash flows $4,200

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 7 min.

Title/Media Ref.: Short Problem 2 / None

69) Beginning and ending balances for relevant balance sheet accounts are as follows:

12/31/20 1/01/20

Merchandise inventory $32,000 $21,000

Accounts payable 15,000 8,000

During 2020, cost of goods sold was $102,000. Calculate the amount of cash paid to suppliers for merchandise inventory.

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 3 min.

Title/Media Ref.: Short Problem 3 / None

70) The following is the cash ledger account for Jensen Corp. for 2020.

Using the information above, complete the following cash flow statement using the direct method.

Cash provided by operations:

Add: From customers (Cash, $26,000 +

A/R, $59,000) $85,000

Interest collections 3,000 $88,000

Less: Interest payments (4,000)

Wages paid (12,000)

Payment on accounts payable (36,000) (52,000)

Cash inflows (outflows) from operations $36,000

Cash flows from investing activities:

Sale of land $48,000

Fixed asset purchase (56,000) (8,000)

Cash flows from financing activities:

Issuance of stock $31,000

Dividend payment (7,000) 24,000

Net increase in cash $52,000

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 10 min.

Title/Media Ref.: Short Problem 4 / None

71) Richards Inc. presented its comparative financial data and other data as follows:

Dec. 31, 2020 Dec. 31, 2019

Cash $ 16,000 $ 9,000

Accounts receivable 22,000 16,000

Prepaid expenses 3,800 3,000

Investment in stock (no fair value) 8,000 21,000

Building and equipment 103,200 80,000

Accumulated depreciation (60,000) (51,000)

$ 93,000 $ 78,000

Accounts payable $ 9,000 $ 6,000

Notes payable (used for operations) 6,000 8,000

Accrued expenses 13,000 7,000

Mortgage payable 25,000 31,000

Common stock 9,000 5,000

Additional paid-in capital 21,000 16,000

Retained earnings 10,000 5,000

$ 93,000 $78,000

Additional information:

1. Equipment was purchased for $43,200 and was paid in cash. Other equipment was sold at a $3,000 gain and was 50% depreciated at the time of sale.

2. During 2020, Richards Inc. declared and paid cash dividends.

3. Part of the investment in the stock portfolio was sold at book value. The stock is closely-held so no fair value adjustments were made.

4. Net income was $49,000.

Prepare a statement of cash flows (indirect method) for 2020. Omit the heading.

Cash flows from operating activities:

Net income $ 49,000

Depreciation expense 19,000 [($60,000 + $10,000) - $51,000]

Gain on sale of equipment (3,000)

Increase in accounts receivable (6,000) ($22,000 - $16,000)

Increase in prepaid expenses (800) ($3,800 - $3,000)

Increase in accounts payable 3,000 ($9,000 - $6,000)

Decrease in short-term operating loan (2,000) ($6,000 - $8,000)

Increase in accrued expenses 6,000 ($13,000 - $7,000)

Cash provided by operations $65,200

Cash flows from investing activities:

Sale of investments $ 13,000 ($21,000 - $8,000)

Purchase of building and equipment (43,200)

Sale of building and equipment 13,000 [($80,000 + $43,200) - $103,200] =

($20,000 - $10,000) =

($10,000 + $3,000) = $13,000

Cash used by investing activities (17,200)

Cash flows from financing activities:

Payments on mortgage $(6,000) ($25,000 - $31,000)

Sale of common stock 9,000 [($9,000 - $5,000) +

($21,000 - $16,000)]

Payment of dividends (44,000) [($49,000 + $5,000) - $10,000]

Cash provided by fin. activities (41,000)

Net increase in cash flows $ 7,000

Diff: Hard

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 12 min.

Title/Media Ref.: Short Problem 5 / None

72) The comparative balance sheets of Shad Inc. contain prepaid insurance of $48,000 on January 1, 2020 and $37,000 on December 31, 2020. Shad's 2020 income statement contains insurance expense of $15,000. Calculate the amount of cash paid for insurance premiums during 2020.

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 3 min.

Title/Media Ref.: Short Problem 6 / None

73) Beginning and ending balances for relevant balance sheet accounts are as follows:

12/31/20 1/01/20

Merchandise inventory $32,000 $18,000

Accounts payable 13,000 20,000

During 2020, cost of goods sold was $148,000. Calculate the amount of cash paid to suppliers of merchandise inventory.

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 3 min.

Title/Media Ref.: Short Problem 7 / None

74) List two distinct examples of investing activities and two distinct examples of financing activities.

Purchase or sale of noncurrent assets

Purchase or sale of securities of other entities

Loans or collection of principal of loans to other entities

Financing activities:

Issuance or reacquisition of stock

Issuance or redemption of debt

Payment of cash dividends to shareholders

Diff: Easy

Learning Objective: 14.1

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 3 min.

Title/Media Ref.: Short Problem 8 / None

75) The accounts receivable balances on January 1 and December 31 are $22,000 and $18,000, respectively. The income statement for the year included sales revenue of $120,000. Determine the amount of cash collected from customers during the year.

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 3 min.

Title/Media Ref.: Short Problem 9 / None

76) Selected information from Thompson Corporation is provided below for the years ending December 31, 2020 and 2019.

2020 2019

Accumulated depreciation $41,000 $35,000

Accounts payable 39,000 25,000

Equipment 55,000 49,000

During 2020 depreciation expense was recorded. New equipment was acquired for cash. Old equipment which was 60% depreciated with an original cost of $26,000 was sold for a loss of $4,000. Prepare the investing activities section of the statement of cash flows.

Cash flows from investing activities:

Purchase of plant assets [($49,000 - $26,000) - $55,000] $(32,000)

Sale of plant assets [$26,000 × (1 - .6)] = ($10,400 - $4,000) 6,400

Cash used by investing activities $(25,600)

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 4 min.

Title/Media Ref.: Short Problem 10 / None

77) Beginning and ending balances for selected accounts are as follows:

12/31/20 1/01/20

Accounts receivable $14,000 $19,000

Revenue received in advance 6,000 3,000

During 2020, sales revenue is $110,000. Calculate the cash collected from customers.

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 4 min.

Title/Media Ref.: Short Problem 11 / None

78) The August 1 and August 31 balances in accounts receivable are $21,000 and $18,000, respectively. During August, the company collected $56,000 from its customers and incurred $37,000 of expenses, all paid in cash. Calculate the amount of cash flows from operations for August.

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 2 min.

Title/Media Ref.: Short Problem 12 / None

79) During the current year, Martini Foods reported sales of $250,000, and wrote off $7,000 of accounts receivable as uncollectible under the allowance method. On January 1 and December 31 of the current year, Richard Young had accounts receivable of $26,000 and $14,000, respectively. Determine the amount of cash collected from customers during the current year.

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 3 min.

Title/Media Ref.: Short Problem 13 / None

80) List two distinct examples of significant noncash transactions and two distinct examples of transactions not reported in connection with a statement of cash flows

Acquiring assets by issuing stock or liabilities

Entering into capital leases

Conversion of bonds or preferred stock into common stock

Declaration of dividends

Not reported in connection with a statement of cash flows:

Stock dividends distributed

Appropriations of retained earnings

Fair value adjustments for available-for-sale investments

Diff: Easy

Learning Objective: 14.2

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 3 min.

Title/Media Ref.: Short Problem 14 / None

81) During 2020, equipment was sold for $57,000. This equipment cost $90,000 and had a book value of $47,000. Accumulated depreciation for equipment was $184,000 at 12/31/20 and $147,000 at 12/31/19. Show how the results of the three items will appear on the statement of cash flows using the indirect method from this information.

Cash flows from operating activities:

Net income $ XX

Gain on sale of equipment ($57,000 - $47,000) (10,000)

Depreciation expense [$184,000 - ($147,000 - $43,000)] 80,000

Cash from investing activities:

Sale of equipment $57,000

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 4 min.

Title/Media Ref.: Short Problem 15 / None

82) Wilson Corporation reported cost of goods sold of $100,000. On January 1, Wilson Corporation had inventory and accounts payable of $21,000 and $33,000, respectively. On December 31, inventory and accounts payable were $28,000 and $20,000, respectively. Calculate cash payments to suppliers of inventory.

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 3 min.

Title/Media Ref.: Short Problem 16 / None

83) Parton Inc., reported accounting service revenue of $450,000 for 2020. On January 1, 2020, Parton Inc. had $38,000 of accounts receivable and $0 of cash deposits (prepayments) received from customers. On December 31, 2020, accounts receivable and deposits (prepayments) received were $49,000 and $6,000, respectively. Calculate the amount of cash collected from clients during 2020.

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 3 min.

Title/Media Ref.: Short Problem 17 / None

84) Lawson Co. sold equipment that cost $40,000 and a current book value of $18,000, for $20,000 cash. Lawson purchased additional equipment during the year. Data from the company's balance sheets at December 31, 2020 and 2019 are:

12/31/20 12/31/19

Equipment $650,000 $520,000

Accumulated depreciation 106,000 82,000

Show how the results of the transactions will appear on the statement of cash flows using the indirect method.

Cash flows from operating activities:

Net income $ XX

Gain on sale of equipment ($20,000 - $18,000) (2,000)

Depreciation expense ($106,000 + $22,000* - $82,000) 46,000

Cash flows from investing activities:

Sale of machine $ 20,000

Purchase of machine [$650,000 - ($520,000 - $40,000) (170,000)

*($40,000 - $18,000)

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 4 min.

Title/Media Ref.: Short Problem 18 / None

85) Relevant account balances for Jeremy Supply Co. are:

Accounts 12/31/20 1/01/20

Accounts receivable $16,000 $ 9,000

Inventory 6,000 3,000

Accounts payable 11,000 20,000

Income information:

Revenue $48,000

Cost of goods sold $27,000

Operating expenses 18,000

Depreciation 5,000 50,000

Net loss $(2,000)

Determine the amount of cash provided (used) by operations for 2020 using the indirect method.

Net loss ($2,000)

Depreciation 5,000

Increase in accounts receivable (7,000) ($16,000 - $9,000)

Increase in inventory (3,000) ($6,000 - $3,000)

Decrease in accounts payable (9,000) ($11,000 - $20,000)

Cash used by operations ($16,000)

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 5 min.

Title/Media Ref.: Short Problem 19 / None

86) Benton Company reported insurance expense of $301,000 during the current year. On January 1 and December 31 of the current year, prepaid insurance was $28,000 and $41,000, respectively. Calculate cash paid for insurance premiums for the current year.

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 3 min.

Title/Media Ref.: Short Problem 20 / None

87) The following are relevant account balances from Winthrop Company's comparative balance sheet and 2020 income statement.

December 31, 2020 January 1, 2020

Accounts receivable $15,000 $19,000

Prepaid insurance 5,000 3,000

Unearned revenue 8,000 11,000

Salaries payable 9,000 6,000

Winthrop's 2020 income statement includes the following:

Sales revenue $89,000

Insurance expense 4,000

Salaries expense 31,000

Determine the amount of cash collected from customers during 2020.

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 4 min.

Title/Media Ref.: Short Problem 21 / None

88) The following are relevant account balances from Winthrop Company's comparative balance sheet and 2020 income statement.

December 31, 2020 January 1, 2020

Accounts receivable $15,000 $19,000

Prepaid insurance 5,000 3,000

Unearned revenue 8,000 11,000

Salaries payable 9,000 6,000

Winthrop's 2020 income statement includes the following:

Sales revenue $89,000

Insurance expense 4,000

Salaries expense 31,000

Determine the amount of cash paid for insurance during 2020.

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 3 min.

Title/Media Ref.: Short Problem 22 / None

89) The following are relevant account balances from Winthrop Company's comparative balance sheet and 2020 income statement.

December 31, 2020 January 1, 2020

Accounts receivable $15,000 $19,000

Prepaid insurance 5,000 3,000

Unearned revenue 8,000 11,000

Salaries payable 9,000 6,000

Winthrop's 2020 income statement includes the following:

Sales revenue $89,000

Insurance expense 4,000

Salaries expense 31,000

Determine the amount of cash paid for salaries during 2020.

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 3 min.

Title/Media Ref.: Short Problem 23 / None

90) During 2020, Bacon Co. reported a net operating loss of $19,000. The only asset or liability changes during 2020 were a decrease in accounts receivable of $11,000 and an increase in accumulated depreciation of $42,000. Calculate cash flows from operations during 2020 (indicate outflow or inflow).

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 3 min.

Title/Media Ref.: Short Problem 24 / None

91) The following are relevant account balances from Hampton's comparative balance sheet and 2020 income statement. Hampton's balance sheets:

Other information:

No equipment was sold or retired during 2020. Hampton's net income for 2020 was $33,000.

Calculate depreciation expense for 2020.

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 2 min.

Title/Media Ref.: Short Problem 25 / None

92) The following are relevant account balances from Hampton's comparative balance sheet and 2020 income statement. Hampton's balance sheets:

Other information:

No equipment was sold or retired during 2020. Hampton's net income for 2020 was $33,000.

Calculate the amount of dividends paid during 2020.

$4,000 (Div. Pay. 1/1/20) + $14,000* - $6,000 (Div. Pay. 12/31/20) = $12,000 paid

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 4 min.

Title/Media Ref.: Short Problem 26 / None

93) The following are relevant account balances from Hampton's comparative balance sheet and 2020 income statement. Hampton's balance sheets:

Other information:

No equipment was sold or retired during 2020. Hampton's net income for 2020 was $33,000.

Determine the cost of the equipment purchased during 2020.

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 2 min.

Title/Media Ref.: Short Problem 27 / None

94) The following are relevant account balances from Hampton's comparative balance sheet and 2020 income statement. Hampton's balance sheets:

Other information:

No equipment was sold or retired during 2020. Hampton's net income for 2020 was $33,000.

Calculate the cash proceeds from the issuance of common stock during 2020.

Diff: Easy

Learning Objective: 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 2 min.

Title/Media Ref.: Short Problem 28 / None

95) Information from the 2019 and 2020 accounting records of Roman Corp. follows:

12/31/20 12/31/19

Net cash provided by operations $38,000 $7,000

Net cash provided (used) by investing activities (19,000) 16,000

Net cash provided (used) by financing activities 43,000 (9,000)

Cash balance ? 23,000

Calculate the December 31, 2020 ending cash balance.

Diff: Easy

Learning Objective: 14.1

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FC: Reporting

TOT: 3 min.

Title/Media Ref.: Short Problem 29 / None

Short Essay Questions

96) How is the statement of cash flows linked to the other financial statements?

Diff: Easy

Learning Objective: 14.1; 14.4; 14.5

Bloom's: Knowledge

AACSB/AICPA: Analytic; Communication / BB: Critical Thinking; FC: Reporting

TOT: 4 min.

Title/Media Ref.: Short Essay Question 1 / None

97) How do 'cash equivalents' fit into the statement of cash flows?

Diff: Easy

Learning Objective: 14.1

Bloom's: Knowledge

AACSB/AICPA: Analytic; Communication / BB: Critical Thinking; FC: Reporting

TOT: 4 min.

Title/Media Ref.: Short Essay Question 2 / None

98) How does the direct method of preparing the statement of cash flows differ from the indirect method?

Diff: Easy

Learning Objective: 14.1; 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic; Communication / BB: Critical Thinking; FC: Reporting

TOT: 4 min.

Title/Media Ref.: Short Essay Question 3 / None

99) In the operating activities section of a statement of cash flows prepared using the indirect method certain items are added to net income. Why is depreciation added?

Diff: Easy

Learning Objective: 14.1; 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic; Communication / BB: Critical Thinking; FC: Reporting

TOT: 4 min.

Title/Media Ref.: Short Essay Question 4 / None

100) In the operating activities section of a statement of cash flows prepared using the indirect method certain items are added to, or subtracted from, net income. Why are changes in current accounts added or subtracted?

Diff: Easy

Learning Objective: 14.1; 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic; Communication / BB: Critical Thinking; FC: Reporting

TOT: 4 min.

Title/Media Ref.: Short Essay Question 5 / None

101) International financial reporting standards require a statement of cash flows. Why is this and what are some of the unique issues that multinational companies must understand when interpreting these statements?

Diff: Easy

Learning Objective: 14.5

Bloom's: Knowledge

AACSB/AICPA: Analytic; Communication; Diversity / BB: Critical Thinking; FC: Reporting

TOT: 4 min.

Title/Media Ref.: Short Essay Question 6 / None

102) Why is cash generated from operating activities more important than cash generated from other sources?

Diff: Easy

Learning Objective: 14.2

Bloom's: Knowledge

AACSB/AICPA: Analytic; Communication / BB: Critical Thinking; FC: Reporting

TOT: 4 min.

Title/Media Ref.: Short Essay Question 7 / None

103) Presented below is a partial statement of cash flows for Santiago Company for 2020.

Net income $44,000

Adjustments to net income:

Add: Depreciation 7,000

Decrease in accounts receivable 12,000

Increase in salaries payable 5,000

Less: Gain on sale of equipment (1,000)

Increase in inventories (2,000)

Decrease in accounts payable (5,000)

Net cash inflows from operating activities $60,000

Mr. Santiago, the president of the company, is puzzled by why the cash from operating activities in the statement presented above is $60,000, as compared to the company's income statement for the same period that shows net income of $44,000. Provide justification why the two amounts might not be equal.

Diff: Easy

Learning Objective: 14.1; 14.4

Bloom's: Knowledge

AACSB/AICPA: Analytic; Communication / BB: Critical Thinking; FC: Reporting

TOT: 7 min.

Title/Media Ref.: Short Essay Question 8 / None

104) How are changes in foreign currency valuations reported on a statement of cash flows?

Diff: Easy

Learning Objective: 14.5

Bloom's: Knowledge

AACSB/AICPA: Analytic; Communication; Diversity / BB: Critical Thinking; FC: Reporting

TOT: 4 min.

Title/Media Ref.: Short Essay Question 9 / None

105) Explain the ways in which management can 'window dress' the statement of cash flows.

Diff: Easy

Learning Objective: 14.3

Bloom's: Knowledge

AACSB/AICPA: Analytic; Communication / BB: Critical Thinking; FC: Reporting

TOT: 4 min.

Title/Media Ref.: Short Essay Question 10 / None

Data Analytic Questions

Important Note to Instructor: All of the real world data included in the data analytic test bank questions was taken from the company information data base used for the data analytic concept practice exercises in the text located at www.wiley.com/go/pratt/financialaccounting11e. These questions can be used in at least two different ways to test two levels of data analytic skills. To test only the basic analysis required simply provide the student with the financial information followed by the questions just as they are illustrated in the test bank. Alternatively, to test both their ability to access and navigate the data base as well as their analysis skills, you can provide for the students only the questions and require them to access and navigate the data base, organize the data, and perform the analysis.

Key ratios for Ford Motor Company for 2017, 2018 and 2019, organized into the ROE framework, are provided below. Review the ratios and answer the questions that follow.

Key: ROE = Return on equity; ROA = Return on assets; CSL = Capital structure leverage; PM = Profit margin; AT = Asset turnover; LTD/TA = Long-term debt/total assets; COGS/S = COGS/sales; A/R Turn = Accounts receivable turnover; CR = Current ratio; OpEx/S = Operating expenses/sales; Inv Turn = Inventory turnover; QR = Quick ratio; Int/S = Interest expense/sales; LTA Turn = Long-term asset turnover; Int Cov = Interest coverage; Tax/S = Federal income tax expense/sales; A/P Turn = Accounts payable turnover; UG/NI = Unusual gains/net income; UL/NI = Unusual losses/net income

106) The change in ROE from 2018 to 2019 was driven by:

A) the change in leverage.

B) the change in return on assets.

C) the change in the current ratio.

D) the change in Ford's ability to control operating expenses.

Diff: Hard

Learning Objective: 14.4

Bloom's: Application

AACSB/AICPA: Analytic / BB: None; FC: Measurement

TOT: 3 min.

Title/Media Ref.: Data Analytic Question 1 / None

107) Least important to the change in asset turnover was:

A) the change in accounts receivable turnover.

B) the change in inventory turnover.

C) the change in accounts payable turnover.

D) the change in long-term asset turnover.

Diff: Hard

Learning Objective: 14.4

Bloom's: Application

AACSB/AICPA: Analytic / BB: None; FC: Measurement

TOT: 3 min.

Title/Media Ref.: Data Analytic Question 2 / None

108) Choose the best answer.

A) Ford's ability to control its total expenses improved over the 3-year period.

B) The productivity of Ford's assets increased over the 3-year period.

C) Ford became more reliant on long-term debt financing over the 3-year period.

D) Ford appeared to book a fairly large unusual loss during 2019.

Diff: Hard

Learning Objective: 14.4

Bloom's: Application

AACSB/AICPA: Analytic / BB: None; FC: Measurement

TOT: 3 min.

Title/Media Ref.: Data Analytic Question 3 / None

109) Which of the following statements is false?

A) Ford is relying more heavily on debt financing in 2019 than in 2018.

B) The combination of the trends from 2018 to 2019 in Ford's cash collection from customers and its payments to suppliers is hurting its operating cash flows.

C) Ford is better able to cover its debt payments with operating funds in 2019 compared to 2018.

D) Asset turnover has slowed down across the 3-year period.

Diff: Hard

Learning Objective: 14.4

Bloom's: Application

AACSB/AICPA: Analytic / BB: None; FC: Measurement

TOT: 3 min.

Title/Media Ref.: Data Analytic Question 4 / None

Video Questions

110) When a company performs a service for a customer and has not yet received payment, the following journal entry is recorded. How does the customer record this transaction?

Accounts receivable 100

Service revenue 100

A) Debit: expense Credit: accrued payable

B) Debit: expense Credit: prepaid expense

C) Debit: accrued payable Credit: expense

D) Debit: prepaid expense Credit: expense

Diff: Medium

Learning Objective: 4.7; 14.4

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: An introduction to the differences between accruals and cash flow Video: Question 1 / Video: An introduction to the differences between accruals and cash flow. www.wiley.com/go/pratt/financialaccounting11e

111) When a company pays cash for insurance in advance of the coverage period, it records the following journal entry. How does the insurance company record this transaction?

Prepaid expense 100

Cash 100

A) Debit: cash Credit: revenue

B) Debit: cash Credit: prepaid expense

C) Debit: cash Credit: unearned revenue

D) Debit: cash Credit: short-term investment

Diff: Medium

Learning Objective: 4.7; 14.4

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: An introduction to the differences between accruals and cash flow Video: Question 2 / Video: An introduction to the differences between accruals and cash flow. www.wiley.com/go/pratt/financialaccounting11e

112) What do these four balance sheet accounts all have in common: accounts receivable, prepaid expense, accrued payables, unearned revenue?

A) They all represent transactions where customers make payments after they receive services.

B) They are all temporary accounts closed to the income summary during the closing process at the end of the period.

C) They are all balance sheet accounts that when increased, reduce shareholders' equity.

D) They all represent balance sheet accounts that are created when the recognition of a revenue or an expense differs from the corresponding receipt or payment of cash.

Diff: Medium

Learning Objective: 4.7; 14.4

Bloom's: Knowledge

AACSB/AICPA: Knowledge / None

Title/Media Ref.: An introduction to the differences between accruals and cash flow Video: Question 3 / Video: An introduction to the differences between accruals and cash flow. www.wiley.com/go/pratt/financialaccounting11e

113) Net income on the income statement and net cash from operating activities on the statement of cash flows are both measures of the company's operating performance. Why do they have different dollar amounts?

A) Net income covers a different time period than is covered by net cash from operating activities.

B) Net income is a relatively conservative estimate of operating performance, while net cash from operating activities is more aggressive.

C) Net income is the result of revenues that are recognized when the earning process is complete, less expenses recognized when incurred, and the timing of these two events may or may not coincide with the receipt or payment of cash.Net cash from operating activities, on the other hand, simply represents the actual cash inflows and outflows.

D) Net income reflects revenues less expenses, while net cash from operating activities reflects accruals.

Diff: Medium

Learning Objective: 4.7; 14.4

Bloom's: Comprehension

AACSB/AICPA: Knowledge / None

Title/Media Ref.: An introduction to the differences between accruals and cash flow Video: Question 4 / Video: An introduction to the differences between accruals and cash flow. www.wiley.com/go/pratt/financialaccounting11e

114) Assume that a company provided a service to a customer for $100, but by the end of the period had not yet received payment. Which statement below accurately describes the effect on the company's net income dollar amount and net cash from operating activities dollar amount?

A) The dollar value effect of these events on net income would be the same as the effect on net cash from operating activities.

B) These events would cause net income to be higher than net cash from operating activities.

C) These events would cause net income to be lower than net cash from operating activities.

D) These events would affect neither net income nor net cash from operating activities.

Diff: Medium

Learning Objective: 4.7; 14.4

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: An introduction to the differences between accruals and cash flow Video: Question 5 / Video: An introduction to the differences between accruals and cash flow. www.wiley.com/go/pratt/financialaccounting11e

115) Assume that at the end of the year a company owed wages of $100 to its employees, but had not yet paid them. Which statement below accurately describes the effect on the company's net income dollar amount and net cash from operating activities dollar amount?

A) The dollar value effect of these events on net income would be the same as the effect on net cash from operating activities.

B) These events would cause net income to be higher than net cash from operating activities.

C) These events would cause net income to be lower than net cash from operating activities.

D) These events would affect neither net income nor net cash from operating activities.

Diff: Medium

Learning Objective: 4.7; 14.4

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: An introduction to the differences between accruals and cash flow Video: Question 6 / Video: An introduction to the differences between accruals and cash flow. www.wiley.com/go/pratt/financialaccounting11e

116) Which of the following statements would be true, given that during the year the balance in the accounts receivable account on the balance sheet increased from $2,300 to $2,500?

A) During the year revenues associated with sales to customers were higher than the cash amount collected from customers.

B) During the year revenues associated with sales to customers was lower than the cash amount collected from customers.

C) During the year revenues associated with sales to customers was recorded in the same amount as the cash collected from customers.

D) It shows that the company grew during the year.

Diff: Medium

Learning Objective: 4.7; 14.4

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: An introduction to the differences between accruals and cash flow Video: Question 7 / Video: An introduction to the differences between accruals and cash flow. www.wiley.com/go/pratt/financialaccounting11e

117) Which of the following statements would be true, given that during the year the balance in the prepaid expense account on the balance sheet, all associated with insurance coverage, decreased from $1,000 to $500?

A) During the year prepayments for insurance were made faster than the coverage period expired.

B) During the year prepayments for insurance were made slower than the coverage period expired.

C) During the year prepayments for insurance were made at the same rate as the coverage period expired.

D) It shows that the cost of the company's insurance policies decreased during the year.

Diff: Medium

Learning Objective: 4.7; 14.4

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: An introduction to the differences between accruals and cash flow Video: Question 8 / Video: An introduction to the differences between accruals and cash flow. www.wiley.com/go/pratt/financialaccounting11e

118) Which of the following statements would be true, given that during the year the balance in the accrued payable account on the balance sheet increased from $2,000 to $3,000?

A) During the year the expenses associated with this account were accrued faster than payments were made on this liability.

B) During the year the expenses associated with this account were accrued slower than payments were made on this liability.

C) During the year the expenses associated with this account were accrued at the same rate as payments were made on this liability.

D) During the year the cost of these expenses increased.

Diff: Medium

Learning Objective: 4.7; 14.4

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: An introduction to the differences between accruals and cash flow Video: Question 9 / Video: An introduction to the differences between accruals and cash flow. www.wiley.com/go/pratt/financialaccounting11e

119) Which of the following statements would be true, given that during the year the balance in the unearned revenue account on the balance sheet decreased from $2,000 to $1,500?

A) During the year payments received in advance for services not yet performed came in faster than the company performed the related services.

B) During the year payments received in advance for services not yet performed came in slower than the company performed the related services.

C) During the year payments received in advance for services not yet performed came in at the same rate as the company performed the related services.

D) During the year the price for these services was lower than for prior years.

Diff: Medium

Learning Objective: 4.7; 14.4

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: An introduction to the differences between accruals and cash flow Video: Question 10 / Video: An introduction to the differences between accruals and cash flow. www.wiley.com/go/pratt/financialaccounting11e

120) Assume that when a company makes a sale, it always records the sale before it receives cash payment. During the year the company recorded $2,000 in revenue from these sales, while the balance in the company's accounts receivable account increased from $100 to $200.

A) The amount of cash received from customers during the year was $2,000.

B) The amount of cash received from customers during the year was $2,100.

C) The amount of cash received from customers during the year was $1,900.

D) The amount of cash received from customers during the year was $1,800.

Diff: Hard

Learning Objective: 4.7; 14.4

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Differences between net income and net cash from operations Video: Question 1 / Video: Differences between net income and net cash from operations. www.wiley.com/go/pratt/financialaccounting11e

121) Again, assume that when a company makes a sale, it always records the sale before it receives cash payment. During the year the company recorded $2,000 in revenue from these sales, while the balance in the company's accounts receivable account decreased from $200 to $100.

A) The amount of cash received from customers during the year was $2,000.

B) The amount of cash received from customers during the year was $2,100.

C) The amount of cash received from customers during the year was $1,900.

D) The amount of cash received from customers during the year was $2,200.

Diff: Hard

Learning Objective: 4.7; 14.4

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Differences between net income and net cash from operations Video: Question 2 / Video: Differences between net income and net cash from operations. www.wiley.com/go/pratt/financialaccounting11e

122) Assume that when a company pays rent for facilities, it always pays for it in advance, prior to the rental period. During the year the company recorded rent expense of $4,000, while the balance in the company's prepaid rent account increased from $2,500 to $3,000.

A) The amount of cash paid for rent during the year was $4,000.

B) The amount of cash paid for rent during the year was $4,500.

C) The amount of cash paid for rent during the year was $3,500.

D) The amount of cash paid for rent during the year was $7,000.

Diff: Hard

Learning Objective: 4.7; 14.4

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Differences between net income and net cash from operations Video: Question 3 / Video: Differences between net income and net cash from operations. www.wiley.com/go/pratt/financialaccounting11e

123) Again, assume that when a company pays rent for facilities, it always pays for it in advance, prior to the rental period. During the year the company recorded rent expense of $4,000, while the balance in the company's prepaid rent account was $3,000 at both the beginning and the end of the year.

A) The amount of cash paid for rent during the year was $4,000.

B) The amount of cash paid for rent during the year was $4,500.

C) The amount of cash paid for rent during the year was $3,500.

D) The amount of cash paid for rent during the year was $7,000.

Diff: Hard

Learning Objective: 4.7; 14.4

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Differences between net income and net cash from operations Video: Question 4 / Video: Differences between net income and net cash from operations. www.wiley.com/go/pratt/financialaccounting11e

124) Assume that at the end of each year a company accrues wages expense for employee wages that are owed but unpaid as of the end of the year. During the year the company recorded wages expense of $5,000, while the balance in the company's wages payable account increased from $500 to $800.

A) The amount of cash paid for wages during the year was $5,000.

B) The amount of cash paid for wages during the year was $4,700.

C) The amount of cash paid for wages during the year was $5,300.

D) The amount of cash paid for wages during the year was $5,800.

Diff: Hard

Learning Objective: 4.7; 14.4

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Differences between net income and net cash from operations Video: Question 5 / Video: Differences between net income and net cash from operations. www.wiley.com/go/pratt/financialaccounting11e

125) Assume that a company rents real estate and is always paid in advance of the rental period. During the year the company recorded rent revenue of $8,000, while the balance in the company's unearned revenue account decreased from $1,000 to $600.

A) The amount of cash received for rent during the year was $8,000.

B) The amount of cash received for rent during the year was $8,400.

C) The amount of cash received for rent during the year was $7,600.

D) The amount of cash paid for rent during the year was $8,600.

Diff: Hard

Learning Objective: 4.7; 14.4

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Differences between net income and net cash from operations Video: Question 6 / Video: Differences between net income and net cash from operations. www.wiley.com/go/pratt/financialaccounting11e

126) Which of the following statements best describes the difference between the direct and the indirect form of presentation for the operating section of the statement of cash flows?

A) The direct form focuses on differences between net income as reported on the income statement and the actual cash received and paid related to the company's operating activities, while the indirect form reports only revenues and expenses.

B) The direct form provides the actual cash flows associated with the company's investing activities, while the indirect does not.

C) The direct form brings together the actual cash flows associated with the company's operating, investing and financing activities, while the indirect form focuses only on the company's operating activities.

D) The direct form computes net cash from operating activities directly from the operating cash inflows and outflows reflected in the cash ledger account, while the indirect form computes net cash from operating activities by starting with net income and then listing the adjustments necessary to convert accrual-based net income to net operating cash flows.

Diff: Hard

Learning Objective: 4.7; 14.4

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Differences between net income and net cash from operations Video: Question 7 / Video: Differences between net income and net cash from operations. www.wiley.com/go/pratt/financialaccounting11e

127) Which of the statements below is an accurate statement about this reconciliation between net income and net cash from operating activities?

Net income $3,000

Change in accounts receivable (100)

Change in unearned revenues (200)

Change in prepaid expense (200)

Change in accrued payables 50

Net cash from operation activities $2,550

A) It represents an example of the direct form of presentation for the operating section of the statement of cash flows.

B) The balance in the accounts receivable account must have increased by $100 during the year.

C) The balance in the accrued payables account must have decreased by $50 during the year.

D) During the year revenues earned on services for which cash payments were received in advance must have been less than the amount of cash advances received by $200.

Diff: Hard

Learning Objective: 4.7; 14.4

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Differences between net income and net cash from operations Video: Question 8 / Video: Differences between net income and net cash from operations. www.wiley.com/go/pratt/financialaccounting11e

128) Which of the statements below is an accurate statement about this reconciliation between net income and net cash from operating activities?

Net income $3,000

Change in accounts receivable (100)

Change in unearned revenues (200)

Change in prepaid expense (200)

Change in accrued payables 50

Net cash from operation activities $2,550

A) The balance in the prepaid expense account must have decreased during the year by $200.

B) During the year the cash received from outstanding accounts receivables must have exceeded the revenue earned on customer sales on account by $100.

C) The balance in the accrued payables account must have increased by $50 during the year.

D) The dollar value of net cash from operating activities is less than the dollar value of net income because revenues must have exceeded expenses during the year by $450.

Diff: Hard

Learning Objective: 4.7; 14.4

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Differences between net income and net cash from operations Video: Question 9 / Video: Differences between net income and net cash from operations. www.wiley.com/go/pratt/financialaccounting11e

129) Which of the statements below is an accurate statement about this reconciliation between net income and net cash from operating activities?

Net income $3,000

Change in accounts receivable (100)

Change in unearned revenues (200)

Change in prepaid expense (200)

Change in accrued payables 50

Net cash from operation activities $2,550

A) During the year cash payments to reduce accrued payables must have been less than the accrued expenses recorded.

B) The balance in the unearned revenue account must have increased during the year by $200.

C) The balance in the prepaid expense account must have decreased by $200 during the year.

D) The accrual accounting system used to compute net income normally records expenses faster than the cash is paid to cover these expenses, which explains why in this case the dollar value of net income is greater than the dollar value of net cash from operating activities.

Diff: Hard

Learning Objective: 4.7; 14.4

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Differences between net income and net cash from operations Video: Question 10 / Video: Differences between net income and net cash from operations. www.wiley.com/go/pratt/financialaccounting11e

130) Which of the four statements below describes the statement of cash flows?

A) This statement provides a measure of the operating performance of a company during the year.

B) This statement provides a measure of the financial condition of a company at a given point in time.

C) This statement summarizes the effects of the operating, investing and financing activities of a company during a year.

D) This statement tracks the investments made by the shareholders' during a year.

Diff: Easy

Learning Objective: 14.5

Bloom's: Knowledge

AACSB/AICPA: Knowledge / None

Title/Media Ref.: A complete statement of cash flows Video: Question 1 / Video: A complete statement of cash flows. www.wiley.com/go/pratt/financialaccounting11e

131) The statement of cash flows is very helpful in determining:

A) the capital structure of accompany as of the end of an accounting period.

B) the key expenses that a company must control to stay profitable.

C) the ability of a company to generate cash through its operations.

D) whether or not a company's cash balance is adequate given its outstanding obligations.

Diff: Easy

Learning Objective: 14.5

Bloom's: Comprehension

AACSB/AICPA: Knowledge / None

Title/Media Ref.: A complete statement of cash flows Video: Question 2 / Video: A complete statement of cash flows. www.wiley.com/go/pratt/financialaccounting11e

132) Which of the following is true when a company makes a cash payment to its vendors for prior deliveries of inventory?

A) The transaction would affect operating cash flows on the statement of cash flows.

B) The transaction would affect investing cash flows on the statement of cash flows.

C) The transaction would affect financing cash flows on the statement of cash flows.

D) The transaction would not affect the statement of cash flows.

Diff: Medium

Learning Objective: 14.5

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: A complete statement of cash flows Video: Question 3 / Video: A complete statement of cash flows. www.wiley.com/go/pratt/financialaccounting11e

133) Which of the following is true when a company pays off an outstanding obligation by issuing equity to the creditor?

A) The transaction would affect operating cash flows on the statement of cash flows.

B) The transaction would affect investing cash flows on the statement of cash flows.

C) The transaction would affect financing cash flows on the statement of cash flows.

D) The transaction would not affect the statement of cash flows.

Diff: Medium

Learning Objective: 14.5

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: A complete statement of cash flows Video: Question 4 / Video: A complete statement of cash flows. www.wiley.com/go/pratt/financialaccounting11e

134) Which of the following is true when a company purchases a short-term investment with cash?

A) The transaction would affect operating cash flows on the statement of cash flows.

B) The transaction would affect investing cash flows on the statement of cash flows.

C) The transaction would affect financing cash flows on the statement of cash flows.

D) The transaction would not affect the statement of cash flows.

Diff: Medium

Learning Objective: 14.5

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: A complete statement of cash flows Video: Question 5 / Video: A complete statement of cash flows. www.wiley.com/go/pratt/financialaccounting11e

135) Which of the following is true when a company pays a dividend to its shareholders?

A) The transaction would affect operating cash flows on the statement of cash flows.

B) The transaction would affect investing cash flows on the statement of cash flows.

C) The transaction would affect financing cash flows on the statement of cash flows.

D) The transaction would not affect the statement of cash flows.

Diff: Medium

Learning Objective: 14.5

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: A complete statement of cash flows Video: Question 6 / Video: A complete statement of cash flows. www.wiley.com/go/pratt/financialaccounting11e

136) Which of the following is true when a company buys another company by paying cash to the other company's shareholders?

A) The transaction would affect operating cash flows on the statement of cash flows.

B) The transaction would affect investing cash flows on the statement of cash flows.

C) The transaction would affect financing cash flows on the statement of cash flows.

D) The transaction would not affect the statement of cash flows.

Diff: Medium

Learning Objective: 14.5

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: A complete statement of cash flows Video: Question 7 / Video: A complete statement of cash flows. www.wiley.com/go/pratt/financialaccounting11e

137) Which of the following statements is not true about depreciation?

A) Depreciation is a non-cash expense that is added back to net income in the computation of net cash from operating activities under the indirect method of presentation.

B) Depreciation creates an expense that reduces net income but does not reduce cash from operating activities.

C) Depreciation represents a case where the cost of a non-current asset is being allocated to future income statements over the useful life of the non-current asset.

D) Depreciation is recorded so that non-current assets can be replaced after they wear out.

Diff: Medium

Learning Objective: 14.5

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: A complete statement of cash flows Video: Question 8 / Video: A complete statement of cash flows. www.wiley.com/go/pratt/financialaccounting11e

138) Under the indirect method of presentation for the operating section of the statement of cash flows changes in the accounts receivable balance from the beginning to the end of the period are often used to adjust net income. Which of the following statements is not true?

A) An increase in the accounts receivable balance would be added to net income.

B) The change in the accounts receivable balance is used as an adjustment to net income because it provides information about whether cash was collected from customers faster or slower than the related revenues were being recognized.

C) The accounts receivable account is increased when revenues from sales on account during the year exceed the amount of cash being collected from customers during that year.

D) The changes in the account balances of the current balance sheet items always give rise to adjustments to net income under the indirect form of presentation because they all represent cases where the accrual system of accounting gives rise to a revenue or an expense that does not correspond to the cash collected or paid.

Diff: Medium

Learning Objective: 14.5

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: A complete statement of cash flows Video: Question 9 / Video: A complete statement of cash flows. www.wiley.com/go/pratt/financialaccounting11e

139) How would the sale of a partially-depreciated piece of equipment for a cash amount greater than its balance sheet (book) value be represented on a statement of cash flows under the indirect form of presentation?

A) The dollar value of the realized gain would be added back to net income in the computation of net cash from operating activities, and the cash proceeds would increase net cash from operating activities.

B) The dollar value of the realized gain would be subtracted from net income in the computation of net cash from operating activities, and the cash proceeds would increase net cash from operating activities.

C) The dollar value of the realized gain would be added back to net income in the computation of net cash from operating activities, and the cash proceeds would increase net cash from investing activities.

D) The dollar value of the realized gain would be subtracted from net income in the computation of net cash from operating activities, and the cash proceeds would increase net cash from investing activities.

Diff: Medium

Learning Objective: 14.5

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: A complete statement of cash flows Video: Question 10 / Video: A complete statement of cash flows. www.wiley.com/go/pratt/financialaccounting11e

© 2021 John Wiley & Sons, Inc. All rights reserved. Instructors who are authorized users of this course are permitted to download these materials and use them in connection with the course. Except as permitted herein or by law, no part of these materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise.