Chapter 16 Reporting the Statement of Cash Flows

MULTIPLE CHOICE QUESTIONS

1. The primary purpose of the statement of cash flows is to report all major cash receipts (inflows) and cash payments (outflows) during a period.

True

• 1. False

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Communication

AICPA: BB Resource Management; FN Reporting

The statement of cash flows reports and proves the net change in cash for a reporting period.

• 1. True
  2. False

Learning Objective: 16-P1 Prepare a statement of cash flows. Bloom's: Remember

AACSB: Communication

AICPA: BB Resource Management; FN Reporting

1. To be classified as a cash equivalent, the only criterion an item must meet is that it must be readily convertible to a known amount of cash.

True

• 1. False

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Communication

AICPA: BB Resource Management; FN Measurement

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

True

• 1. False

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Communication

AICPA: BB Resource Management; FN Reporting

1. Internal users of the statement of cash flows often use cash flow information to plan day-to-day operating activities and make long-term investment and financing decisions.

True

• 1. False

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Communication

AICPA: BB Resource Management; FN Decision Making

1. A cash equivalent must be readily convertible to a known amount of cash, and must be sufficiently close to its maturity so its market value is unaffected by interest rate changes.

True

• 1. False

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Communication

AICPA: BB Resource Management; FN Measurement

1. Business activities that generate or use cash are classified as operating, investing, or financing activities on the statement of cash flows.

True

• 1. False

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Communication

AICPA: BB Resource Management; FN Reporting

1. Financing activities include (a) the purchase and sale of long-term assets, (b) the purchase and sale of short-term investments, and (c) lending and collecting on loans.

True

• 1. False

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Communication

AICPA: BB Resource Management; FN Reporting

1. Investing activities include (a) the purchase and sale of long-term assets, (b) the purchase and sale of short-term investments, and (c) lending and collecting on loans.

True

• 1. False

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Communication

AICPA: BB Resource Management; FN Reporting

Cash paid for merchandise is an operating activity.

• 1. True
  2. False

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Communication

AICPA: BB Resource Management; FN Reporting

The purchase of stock in another company is classified as a financing activity.

• 1. True
  2. False

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Communication

AICPA: BB Resource Management; FN Reporting

The purchase of stock in another company is classified as an investing activity.

• 1. True
  2. False

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Communication

AICPA: BB Resource Management; FN Reporting

Receipts of cash dividends and interest earned on loans are classified as investing activities.

• 1. True
  2. False

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Communication

AICPA: BB Resource Management; FN Reporting

The payment of cash dividends to shareholders is classified as a financing activity.

• 1. True
  2. False

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Communication

AICPA: BB Resource Management; FN Reporting

1. The full disclosure principle requires that noncash investing and financing activities be disclosed in the financial statements.

True

• 1. False

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Communication

AICPA: FN Reporting; BB Industry

1. Conversion of preferred stock to common stock is disclosed in the financing section of the statement of cash flows.

True

• 1. False

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Understand AACSB: Communication

AICPA: FN Reporting; BB Industry

1. A purchase of land in exchange for a long-term note payable is reported in the investing section of the statement of cash flows.

True

• 1. False

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Understand AACSB: Communication

AICPA: BB Resource Management; FN Reporting

1. A purchase of land in exchange for a long-term note payable must be disclosed as a noncash investing and financing activity.

True

• 1. False

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Understand AACSB: Communication

AICPA: BB Resource Management; FN Reporting

1. A noncash investing transaction should be disclosed in either a footnote or at the bottom of the statement of cash flows.

True

• 1. False

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Communication

AICPA: FN Reporting; BB Industry

1. A company purchased equipment for $150,000 by paying $50,000 and signing a $100,000 note payable. The entire transaction is disclosed to users in the financing section of the statement of cash flows.

True

• 1. False

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Understand AACSB: Communication

AICPA: FN Reporting; BB Industry

1. A purchase of land in exchange for shares of stock is disclosed at the bottom of the statement of cash flows or in a note to the statement.

True

• 1. False

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Understand AACSB: Communication

AICPA: FN Reporting; BB Industry

1. Accounting standards require companies to include a statement of cash flows in a complete set of financial statements.

True

• 1. False

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Communication

AICPA: FN Reporting; BB Industry

1. The statement of cash flows explains how transactions and events impact the end-of-period cash balance to produce the end-of-period net income.

True

• 1. False

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Understand AACSB: Communication

AICPA: FN Reporting; BB Industry

1. Most managers stress the importance of understanding and predicting cash flows for business decisions.

True

• 1. False

Learning Objective: 16-A1 Analyze the statement of cash flows and apply the cash flow on total assets ratio. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Decision Making

1. Managers only use the cash flow statement to evaluate the net cash increase or decrease, and do not pay much attention to the details of cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities.

True

• 1. False

Learning Objective: 16-A1 Analyze the statement of cash flows and apply the cash flow on total assets ratio. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Decision Making

1. A cash-based measure to help business decision makers estimate the amount and timing of cash flows is the cash flow on total assets ratio.

True

• 1. False

Learning Objective: 16-A1 Analyze the statement of cash flows and apply the cash flow on total assets ratio. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Decision Making

1. The cash flow on total assets ratio compared to the total assets ratio can be used as an indicator of earnings quality.

True

• 1. False

Learning Objective: 16-A1 Analyze the statement of cash flows and apply the cash flow on total assets ratio. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Decision Making

1. Cash flow amounts and their timing should be considered when planning and analyzing operating activities.

True

• 1. False

Learning Objective: 16-A1 Analyze the statement of cash flows and apply the cash flow on total assets ratio. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Decision Making

1. The cash flow on total assets ratio is computed by dividing cash flows from operations by average total assets.

True

• 1. False

Learning Objective: 16-A1 Analyze the statement of cash flows and apply the cash flow on total assets ratio. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Decision Making

1. The cash flow on total assets ratio is computed by dividing average total assets by operating income.

True

• 1. False

Learning Objective: 16-A1 Analyze the statement of cash flows and apply the cash flow on total assets ratio. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Decision Making

1. The cash flow on total assets ratio reflects actual cash flows and is therefore affected by income recognition and measurement.

True

• 1. False

Learning Objective: 16-A1 Analyze the statement of cash flows and apply the cash flow on total assets ratio. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Decision Making

A cash coverage of growth ratio of less than 1 indicates cash inadequacy to meet asset growth.

• 1. True
  2. False

Learning Objective: 16-A1 Analyze the statement of cash flows and apply the cash flow on total assets ratio. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Decision Making

1. The cash flows from operating activities section of an indirect method of cash flows begins with net income or loss.

True

• 1. False

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

1. Both the direct and indirect methods yield the identical net cash flow amount provided or used by operating activities.

True

• 1. False

Learning Objective: 16-P1 Prepare a statement of cash flows. Bloom's: Remember

AACSB: Communication

AICPA: FN Reporting; BB Industry

1. The reporting of financing activities in the statement of cash flows is identical under either the direct or indirect methods.

True

• 1. False

Learning Objective: 16-P1 Prepare a statement of cash flows. Bloom's: Remember

AACSB: Communication

AICPA: FN Reporting; BB Industry

1. The reporting of investing activities in the statement of cash flows is identical under either the direct or indirect methods.

True

• 1. False

Learning Objective: 16-P1 Prepare a statement of cash flows. Bloom's: Remember

AACSB: Communication

AICPA: FN Reporting; BB Industry

1. The FASB recommends that the operating section of the statement of cash flows be reported using the direct method.

True

• 1. False

Learning Objective: 16-P1 Prepare a statement of cash flows. Bloom's: Remember

AACSB: Communication

AICPA: FN Reporting; BB Industry

1. Since it is recommended by the FASB, the direct method of preparing the statement of cash flows is most frequently used.

True

• 1. False

Learning Objective: 16-P1 Prepare a statement of cash flows. Bloom's: Remember

AACSB: Communication

AICPA: FN Reporting; BB Industry

1. Information to prepare the statement of cash flows usually comes from (a) comparative balance sheets, (b) current income statement, and (c) additional information.

True

• 1. False

Learning Objective: 16-P1 Prepare a statement of cash flows. Bloom's: Remember

AACSB: Communication

AICPA: FN Reporting; BB Industry

1. The direct method for computing and reporting net cash flows from operating activities involves adjusting the net income figure to obtain net cash provided or used by operating activities.

True

• 1. False

Learning Objective: 16-P1 Prepare a statement of cash flows. Bloom's: Remember

AACSB: Communication

AICPA: FN Reporting; BB Industry

The indirect method separately lists each major item of operating cash receipts and cash payments.

• 1. True
  2. False

Learning Objective: 16-P1 Prepare a statement of cash flows. Bloom's: Remember

AACSB: Communication

AICPA: FN Reporting; BB Industry

1. The indirect method for computing and reporting net cash flows from operating activities involves adjusting the net income figure to obtain net cash provided or used by operating activities.

True

• 1. False

Learning Objective: 16-P1 Prepare a statement of cash flows. Bloom's: Remember

AACSB: Communication

AICPA: FN Reporting; BB Industry

The direct method separately lists each major item of operating cash receipts and cash payments.

• 1. True
  2. False

Learning Objective: 16-P1 Prepare a statement of cash flows. Bloom's: Remember

AACSB: Communication

AICPA: FN Reporting; BB Industry

1. Companies have the option of using either the direct or indirect method to prepare the operating section of the statement of cash flows.

True

• 1. False

Learning Objective: 16-P1 Prepare a statement of cash flows. Bloom's: Remember

AACSB: Communication

AICPA: FN Reporting; BB Industry

1. Cash flows are essentially the same as net income because they are both measured using accrual accounting principles.

True

• 1. False

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Reporting; FN Decision Making

1. When preparing the operating activities section of the statement of cash flows using the indirect method, expenses with no cash outflows are added back to net income.

True

• 1. False

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

1. When preparing the operating activities section of the statement of cash flows using the indirect method, non-operating gains are added to net income.

True

• 1. False

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

1. When preparing the operating activities section of the statement of cash flows using the indirect method, non-operating losses are added to net income.

True

• 1. False

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

1. When preparing the operating activities section of the statement of cash flows using the direct method, non-operating gains are added to net income.

True

• 1. False

Learning Objective: 16-P5 Appendix;16-B Compute cash flows from operating activities using the direct method. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

1. When preparing the operating activities section of the statement of cash flows using the direct method, non-operating losses are added to net income.

True

• 1. False

Learning Objective: 16-P5 Appendix;16-B Compute cash flows from operating activities using the direct method. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

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

True

• 1. False

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

1. When preparing the operating activities section of the statement of cash flows using the indirect method, decreases in current operating assets are subtracted from net income.

True

• 1. False

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

1. When preparing the operating activities section of the statement of cash flows using the indirect method, decreases in current operating assets are added to net income.

True

• 1. False

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

1. When preparing the operating activities section of the statement of cash flows using the indirect method, an increase in income taxes payable is added to net income.

True

• 1. False

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

1. When preparing the operating activities section of the statement of cash flows using the indirect method, decreases in current operating liabilities are added to net income.

True

• 1. False

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

1. When preparing the operating activities section of the statement of cash flows using the indirect method, decreases in current operating liabilities are subtracted from net income.

True

• 1. False

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

1. When preparing the operating activities section of the statement of cash flows using the indirect method, depreciation is subtracted from net income.

True

• 1. False

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

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

True

• 1. False

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

1. The gain or loss from retirement of debt is reported under cash flows from operating activities on the statement of cash flows using the indirect method.

True

• 1. False

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Understand

AACSB: Communication

AICPA: FN Reporting; BB Industry

Financing activities include receiving cash dividends from investments in other companies' stocks.

• 1. True
  2. False

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

Investing activities include receiving cash dividends from investments in other companies' stocks.

• 1. True
  2. False

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

1. Investing activities include: (a) the purchase and sale of long-term assets, (b) lending and collecting on notes receivable, and (c) the purchase and sale of short-term investments in the securities of other entities, other than cash equivalents and trading securities.

True

• 1. False

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

1. Financing activities include receiving cash from issuing debt and receiving cash dividends from investments in other companies' stocks.

True

• 1. False

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

1. Financing activities include receiving cash from issuing debt and paying cash dividends to shareholders.

True

• 1. False

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

The payment of cash dividends never changes the balance of retained earnings.

• 1. True
  2. False

Learning Objective: 16-P3 Determine cash flows from both investing and financing activities. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. Equipment costing $100,000 with accumulated depreciation of $40,000 is sold at a loss of $10,000. This implies that $40,000 cash was received from the sale.

True

• 1. False

Learning Objective: 16-P3 Determine cash flows from both investing and financing activities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. Equipment costing $200,000 with accumulated depreciation of $160,000 is sold at a loss of

$10,000. This implies that $30,000 cash was received from the sale.

True

• 1. False

Learning Objective: 16-P3 Determine cash flows from both investing and financing activities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

A spreadsheet can help organize the information needed to prepare a statement of cash flows.

• 1. True
  2. False

Learning Objective: 16-P4 Appendix; 16-A Illustrate use of a spreadsheet to prepare a statement of cash flows. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. On a spreadsheet used to prepare the operating activities section of the statement of cash flows, depreciation expense does not require an entry in the Analysis of Changes columns because it is a noncash item.

True

• 1. False

Learning Objective: 16-P4 Appendix; 16-A Illustrate use of a spreadsheet to prepare a statement of cash flows. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. When using a spreadsheet to prepare the statement of cash flows, a decrease in accounts payable is entered in the Analysis of Changes columns with a debit in the statement of cash flows section and a credit in the balance sheet section.

True

• 1. False

Learning Objective: 16-P4 Appendix; 16-A Illustrate use of a spreadsheet to prepare a statement of cash flows. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. When using a spreadsheet to prepare the statement of cash flows, an increase in accounts payable is entered in the Analysis of Changes columns with a debit in the statement of cash flows section and a credit in the balance sheet section.

True

• 1. False

Learning Objective: 16-P4 Appendix; 16-A Illustrate use of a spreadsheet to prepare a statement of cash flows. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. Depreciation expense is not reported on a statement of cash flows prepared under the direct method.

True

• 1. False

Learning Objective: 16-P5 Appendix;16-B Compute cash flows from operating activities using the direct method. Bloom's: Understand

AACSB: Communication

AICPA: BB Resource Management; FN Reporting

1. The FASB requires a reconciliation of net income to net cash provided or used by operating activities when the direct method is used (which can be reported in the notes).

True

• 1. False

Learning Objective: 16-P5 Appendix;16-B Compute cash flows from operating activities using the direct method. Bloom's: Remember

AACSB: Communication

AICPA: FN Reporting; BB Industry

1. The gain or loss from retirement of debt is reported under cash flows from operating activities on the statement of cash flows using the direct method.

True

• 1. False

Learning Objective: 16-P5 Appendix;16-B Compute cash flows from operating activities using the direct method. Bloom's: Understand

AACSB: Communication

AICPA: FN Reporting; BB Industry

The statement of cash flows reports:

• 1. Cash inflows and cash outflows for an accounting period.
  2. Changes in equity.
  3. Equity, net income, and dividends.
  4. Assets, liabilities, and equity.
  5. Revenues, gains, expenses, and losses.

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Communication

AICPA: BB Resource Management; FN Reporting

The statement of cash flows reports all but which of the following:

• 1. Cash flows from operating activities.
  2. The financial position of the company at the end of the accounting period.
  3. Cash flows from investing activities.
  4. Cash flows from financing activities.
  5. Significant noncash financing and investing activities.

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Communication

AICPA: BB Resource Management; FN Reporting

The statement of cash flows is:

• 1. A financial statement that lists the types and amounts of the revenues and expenses of a business for an accounting period.

Another name for the statement of financial position.

• 1. A financial statement that lists the types and amounts of assets, liabilities, and equity of a business on a specific date.

A financial statement that presents information about changes in equity during a period.

• 1. A financial statement that reports the cash inflows and cash outflows for an accounting period, and that classifies those cash flows as operating activities, investing activities, or financing activities.

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Communication

AICPA: BB Resource Management; FN Reporting

A cash equivalent is:

• 1. Another name for cash.
  2. Generally within 12 months of its maturity date.
  3. An investment readily convertible to a known amount of cash.
  4. Is not considered highly liquid.
  5. Close to its maturity date but its market value may still be affected by interest rate changes.

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. An investment that is readily convertible to a known amount of cash and that is sufficiently close to its maturity date so that its market value is unaffected by interest rate changes is a(n):

Operating activity.

• 1. Cash equivalent.
  2. Short-term marketable equity security.
  3. Common stock.
  4. Financing activity.

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. Activities that involve the production or purchase of merchandise and the sale of goods and services to customers, including expenditures related to administering the business, are classified as:

Direct activities.

• 1. Indirect activities.
  2. Financing activities.
  3. Operating activities.
  4. Investing activities.

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Communication

AICPA: BB Resource Management; FN Reporting

1. The appropriate section in the statement of cash flows for reporting the purchase of equipment for cash is:

Schedule of noncash investing or financing activity.

• 1. Financing activities.
  2. This is not reported on the statement of cash flows.
  3. Investing activities.
  4. Operating activities.

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Communication

AICPA: BB Resource Management; FN Reporting

Which of the following items is reported on the statement of cash flows under financing activities?

• 1. Declaration of a stock dividend.
  2. Stock split.
  3. Payment of a cash dividend.
  4. Payment of a stock dividend.
  5. Declaration of a cash dividend.

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Understand AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

Investing activities do not include the:

• 1. Sale of short-term investments other than cash equivalents.
  2. Sale of plant assets.
  3. Lending and collecting on notes receivable.
  4. Issuance of common stock.
  5. Purchase of plant assets.

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Understand AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

The appropriate section in the statement of cash flows for reporting the cash payment of wages is:

• 1. This is not reported on the statement of cash flows.
  2. Operating activities.
  3. Schedule of noncash investing or financing activity.
  4. Financing activities.
  5. Investing activities.

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Understand AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

1. The appropriate section in the statement of cash flows for reporting the issuance of common stock for cash is:

Schedule of noncash investing or financing activity.

• 1. Operating activities.
  2. This is not reported on the statement of cash flows.
  3. Financing activities.
  4. Investing activities.

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Understand AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

1. A company's transactions with its creditors to borrow money and/or to repay the principal amounts of both short- and long-term debt are reported as cash flows from:

Investing activities.

• 1. Direct activities.
  2. Operating activities.
  3. Indirect activities.
  4. Financing activities.

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Understand AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

1. The appropriate section in the statement of cash flows for reporting the receipt of cash dividends from investments in securities is:

Investing activities.

• 1. Schedule of noncash investing or financing activity.
  2. Financing activities.
  3. Operating activities.
  4. This is not reported on the statement of cash flows.

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Understand AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

Which one of the following is representative of typical cash flows from operating activities?

• 1. Repayment of principals on loans.
  2. Payments by a merchandiser to acquire equity securities of other companies.
  3. Proceeds from the issuance of bonds and notes payable.
  4. Receipts of cash sales.
  5. Proceeds from collecting the principal amounts of loans.

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Understand AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

Typical cash flows from investing activities include each of the following except:

• 1. Proceeds from the sale of equipment.
  2. Payments to buy intangible assets.
  3. Payments to purchase property, plant and equipment or other productive assets (excluding inventory).

Payments to acquire held-to maturity securities of other entities, except cash equivalents.

• 1. Proceeds from collecting the principal amount of accounts receivable arising from customer sales.

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Understand AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

1. If a company borrows money from a bank, the interest paid on this loan should be reported on the statement of cash flows as a(n):

Operating activity.

• 1. Financing activity.
  2. Investing activity.
  3. This is not reported in the statement of cash flows.
  4. Noncash investing and financing activity.

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Understand AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

1. Cash flows from selling trading securities are usually reported in the statement of cash flows as part of:

Financing activities.

• 1. This is not reported in the statement of cash flows.
  2. Investing activities.
  3. Noncash activities.
  4. Operating activities.

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Understand AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

1. Which of the following is included in the cash flows from financing activities section of the statement of cash flows?

Interest expense.

• 1. Sale of equipment.
  2. Interest revenue.
  3. Purchase of stock in another company.
  4. Purchase of treasury stock.

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Understand AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

Cash flows from interest received on loans are reported in the statement of cash flows as part of:

• 1. Operating activities.
  2. Financing activities.
  3. This is not reported in the statement of cash flows.
  4. Noncash activities.
  5. Investing activities.

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Understand AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

1. The accounting principle that requires important noncash financing and investing activities be reported on the statement of cash flows or in a footnote is the:

Materiality principle.

• 1. Historical cost principle.
  2. Business entity principle.
  3. Full disclosure principle.
  4. Going concern principle.

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Remember AACSB: Communication

AICPA: BB Resource Management; FN Reporting

1. The appropriate section in the statement of cash flows for reporting the purchase of land in exchange for common stock is:

Investing activities.

• 1. Reconciliation of cash balance.
  2. Operating activities.
  3. Schedule of noncash investing or financing activity.
  4. Financing activities.

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Understand AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

1. The purchase of long-term assets by issuing a note payable for the entire amount is reported on the statement of cash flows in the:

Financing activities.

• 1. Investing activities.
  2. Schedule of noncash financing and investing activities.
  3. Operating activities.
  4. Reconciliation of cash balance.

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Understand AACSB: Communication

AICPA: BB Resource Management; FN Reporting

1. An example of a transaction that must be disclosed as a noncash investing and financing activity includes all but which of the following?

The purchase of noncash assets in exchange for equity or debt securities.

• 1. The retirement of debt by issuing equity stock.
  2. The leasing of assets in a transaction that qualifies as a capital lease.
  3. A transaction exchanging cash equivalents for cash.
  4. The purchase of long-term assets financed by a cash down payment and a note payable to the seller for the balance.

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Understand AACSB: Communication

AICPA: BB Resource Management; FN Reporting

Noncash investing and financing activities may be disclosed in:

• 1. The reconciliation of cash balance section.
  2. The financing activities section of the statement of cash flows.
  3. A note in the financial statements or a schedule attached to the statement of cash flows.
  4. The operating activities section of the statement of cash flows.
  5. The investing activities section of the statement of cash flows.

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Understand AACSB: Communication

AICPA: BB Resource Management; FN Reporting

Accounting standards:

• 1. Require that companies omit the statement of cash flows from a complete set of financial statements if the company has no investing activities.
  2. Allow companies to omit the statement of cash flows from a complete set of financial statements if cash is an insignificant asset.
  3. Allow companies to include the statement of cash flows in a complete set of financial statements if the cash balance makes up more than 50% of the current assets.
  4. Require that companies include a statement of cash flows in a complete set of financial statements.
  5. Allow companies to omit the statement of cash flows from a complete set of financial statements if the company has no financing activities.

Learning Objective: 16-C1 Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed.

Bloom's: Understand AACSB: Communication

AICPA: FN Reporting; BB Industry

Common uses of the statement of cash flows include all but which of the following?

• 1. Investor assessment of cash flows before buying and selling stock.
  2. Management prediction of future cash flows for decision making.
  3. Management determination of the specific sources and uses of cash.
  4. Creditor evaluation of a company's ability to generate cash to cover debt.
  5. Government assessment of whether company is able to pay taxes as they become due.

Learning Objective: 16-A1 Analyze the statement of cash flows and apply the cash flow on total assets ratio. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Decision Making

The statement of cash flows helps analysts evaluate all but which of the following?

• 1. Source of cash used for debt repayments.
  2. Differences between net income and net operating cash flow.
  3. Ability of the company to generate profit.
  4. Source of cash used to finance investing activities.
  5. Source of cash used for plant expansion.

Learning Objective: 16-A1 Analyze the statement of cash flows and apply the cash flow on total assets ratio. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Decision Making

The statement of cash flows cannot help address questions such as:

• 1. Why is cash flow from operations different from income?
  2. What is the source of cash for new plant assets?
  3. How much of the company's revenues have been retained as profit?
  4. How much cash is generated from or used in operations?
  5. How is the increase in investments financed?

Learning Objective: 16-A1 Analyze the statement of cash flows and apply the cash flow on total assets ratio. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Decision Making

The cash flow on total assets ratio:

• 1. Is the same as profit margin.
  2. Can be an indicator of earnings quality.
  3. Is highly affected by accounting principles of income recognition and measurement.
  4. Is the same as return on assets.
  5. Is average net assets divided by cash flows from operations.

Learning Objective: 16-A1 Analyze the statement of cash flows and apply the cash flow on total assets ratio. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Decision Making

The cash flow on total assets ratio is calculated by:

• 1. Dividing cash flows from operations by average total assets.
  2. Dividing total cash flows by average total assets.
  3. Dividing average total assets by cash flows from investing activities.
  4. Total cash flows divided by average total assets times 365.
  5. Dividing average total assets by total cash flows.

Learning Objective: 16-A1 Analyze the statement of cash flows and apply the cash flow on total assets ratio. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Decision Making

1. A company had net cash flows from operations of $341,000, net income of $286,000 and average total assets of $1,850,000. The cash flow on total assets ratio equals:

A) 646.9% B) 15.5% C) 83.9% D) 542.5% E) 18.4%

Learning Objective: 16-A1 Analyze the statement of cash flows and apply the cash flow on total assets ratio. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Decision Making

1. A company had net cash flows from operations of $120,000, cash flows from financing of

$330,000, total cash flows of $500,000, and average total assets of $2,500,000. The cash flow on total assets ratio equals:

A) 20.0%. B) 24.0%. C) 5.0%. D) 20.8%. E) 4.8%.

Learning Objective: 16-A1 Analyze the statement of cash flows and apply the cash flow on total assets ratio. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Decision Making

1. A company had average total assets of $1,660,000, total cash flows of $1,320,000, cash flows from operations of $205,000, and cash flows from financing of $750,000. The cash flow on total assets ratio equals:

A) 22.0%. B) 79.5%. C) 11.65%. D) 12.3%. E) 45.2%.

Learning Objective: 16-A1 Analyze the statement of cash flows and apply the cash flow on total assets ratio. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Decision Making

Preparation of the statement of cash flows does not involve:

• 1. Computing the net increase or decrease in cash.
  2. Computing the profit compared to the net increase or decrease in cash.
  3. Computing and reporting net cash provided or used by operations.
  4. Computing and reporting net cash provided or used by investing activities.
  5. Computing and reporting net cash provided or used by financing activities.

Learning Objective: 16-P1 Prepare a statement of cash flows. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

1. The reporting of net cash provided or used by operating activities that lists the major items of operating cash receipts, such as receipts from customers, and subtracts the major items of operating cash disbursements, such as cash paid for merchandise, is referred to as the:

Direct method of reporting net cash provided or used by operating activities.

• 1. Indirect method of reporting net cash provided or used by operating activities.
  2. Classified statement of cash flows.
  3. Cash basis of accounting.
  4. Net method of reporting cash flows from operating activities.

Learning Objective: 16-P1 Prepare a statement of cash flows. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

A statement of cash flows explains the differences between the beginning and ending balances of:

• 1. Cash, cash equivalents, and short-term investments.
  2. Cash and cash equivalents.
  3. Net income.
  4. Working capital.
  5. Equity.

Learning Objective: 16-P1 Prepare a statement of cash flows. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

1. The direct method for the preparation of the operating activities section of the statement of cash flows:
   1. Reports adjustments to reconcile net income to net cash provided or used by operating activities in the statement.

Is required by the FASB.

• 1. Reports a different amount of cash flows from operations than if the indirect method is used.
  2. Separately lists each major item of operating cash receipts and cash payments.
  3. Is required if the company is a merchandiser.

Learning Objective: 16-P1 Prepare a statement of cash flows. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

1. The indirect method for the preparation of the operating activities section of the statement of cash flows:

Separately lists each major item of operating cash payments.

• 1. Is required if the company is a merchandiser.
  2. Must not be used in all circumstances.
  3. Separately lists each major item of operating cash receipts.
  4. Reports net income and then adjusts it for items necessary to determine net cash provided or used by operating activities.

Learning Objective: 16-P1 Prepare a statement of cash flows. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

The direct method of reporting operating cash flows:

• 1. Is considered supplementary disclosure.
  2. Is not recommended by the FASB, but is commonly used.
  3. Is used by most companies.
  4. Must be used by all companies.
  5. Is recommended but not required by the FASB.

Learning Objective: 16-P1 Prepare a statement of cash flows.

Bloom's: Understand AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

Of the following, which one affects cash during a period?

• 1. The declaration of a cash dividend.
  2. The payment of interest expense accrued in a previous accounting period.
  3. The declaration of a stock dividend.
  4. Writing off an uncollectible account receivable.
  5. An adjusting entry recognizing the expiration of prepaid insurance.

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. When using the indirect method to calculate and report the net cash provided or used by operating activities, net income is adjusted for all but which of the following?

Depreciation and amortization expense.

• 1. Changes in current liabilities related to operating activities.
  2. Gains and losses from nonoperating items.
  3. Revenues and expenses that did not provide or use cash.
  4. Changes in noncurrent assets and noncurrent liabilities.

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. When using the indirect method to calculate and report net cash provided or used by operating activities, which of the following is subtracted from net income?

Decrease in income taxes payable.

• 1. Depreciation expense.
  2. Bad debts expense.
  3. Amortization of intangible assets.
  4. Decrease in merchandise inventory.

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. The first line item in the operating activities section of a spreadsheet for a statement of cash flows prepared using the indirect method is:

Net income (loss).

• 1. Adjustments to net income.
  2. Cash received from customers.
  3. Cash.
  4. Increase (decrease) in accounts receivable.

Learning Objective: 16-P4 Appendix; 16-A Illustrate use of a spreadsheet to prepare a statement of cash flows. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. When preparing a statement of cash flows using the indirect method, each of the following should be classified as an operating cash flow except:

A decrease in accounts payable.

• 1. Proceeds from the disposal of a long-term asset with no gain or loss.
  2. An increase in accounts receivable.
  3. A decrease in accrued expenses payable.
  4. An increase in prepaid expenses.

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. A company's Inventory balance at the end of the year was $188,000 and $200,000 at the beginning of the year. Its Accounts Payable balance at the end of the year was $84,000 and $80,000 at the beginning of the year, and its cost of goods sold for the year was $720,000. The company's total amount of cash payments for merchandise during the year equals:

A) $720,000. B) $736,000. C) $712,000. D) $728,000. E) $704,000.

Learning Objective: 16-P5 Appendix;16-B Compute cash flows from operating activities using the direct method. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. Use the following information to calculate cash paid for wages and salaries:

A) $172,200. B) $157,400. C) $168,000. D) $163,800. E) $174,400.

Learning Objective: 16-P5 Appendix;16-B Compute cash flows from operating activities using the direct method. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. Use the following information to calculate cash paid for salaries:

A) $183,000. B) $175,000. C) $143,000. D) $167,000. E) $155,000.

Learning Objective: 16-P5 Appendix;16-B Compute cash flows from operating activities using the direct method. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. Use the following information to calculate cash paid for income taxes:

A) $43,000. B) $52,100. C) $23,700. D) $41,900. E) $53,200.

Learning Objective: 16-P5 Appendix;16-B Compute cash flows from operating activities using the direct method. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. Use the following information to calculate cash paid for income taxes:

Income tax expense $50,000

Income tax payable, January 1 9,000

Income tax payable, December 31 7,000

A) $57,000. B) $50,000. C) $59,000. D) $52,000. E) $48,000.

Learning Objective: 16-P5 Appendix;16-B Compute cash flows from operating activities using the direct method. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. Use the following information about the current year's operations of a company to calculate the cash paid for merchandise.

A) $234,000. B) $220,000. C) $223,200. D) $218,000. E) $228,800.

Learning Objective: 16-P5 Appendix;16-B Compute cash flows from operating activities using the direct method. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. Use the following information about the current year's operations of a company to calculate the cash paid for merchandise.

A) $727,000. B) $726,300. C) $732,700. D) $737,700. E) $737,300.

Learning Objective: 16-P5 Appendix;16-B Compute cash flows from operating activities using the direct method. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. Use the following information about the current year's operations of a company to calculate the cash paid for merchandise.

A) $585,000. B) $508,000. C) $480,000. D) $512,000. E) $520,000.

Learning Objective: 16-P5 Appendix;16-B Compute cash flows from operating activities using the direct method. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. When preparing a statement of cash flows using the indirect method, which of the following is correct?

The declaration of a cash dividend should be a use of cash in the financing activities section.

• 1. The issuance of a stock dividend should be a use of cash in the financing activities section.
  2. The purchase of land and a building by issuing a long-term note payable should be a source of cash in the financing activities section.
  3. Proceeds from the sale of equipment should be added to net income in the operating activities section.

A loss on the sale of land should be added to net income in the operating activities section.

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. A company's income statement showed the following: net income, $134,000; depreciation expense,

$30,000; and gain on sale of plant assets, $4,000. An examination of the company's current assets and current liabilities showed the following changes as a result of operating activities: accounts receivable decreased $9,400; merchandise inventory increased $18,000; prepaid expenses increased $6,200; accounts payable increased $3,400. Calculate the net cash provided or used by operating activities.

A) $96,600. B) $141,000. C) $88,600. D) $156,600. E) $148,600.

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. A company's income statement showed the following: net income, $124,000 and depreciation expense, $30,000. An examination of the company's current assets and current liabilities showed the following changes as a result of operating activities: accounts receivable decreased $9,400; merchandise inventory increased $18,000; and accounts payable increased $3,400. Calculate the net cash provided or used by operating activities.

A) $148,800. B) $178,000. C) $159,200. D) $118,000. E) $123,200.

Diff: 2

Topic: Applying the Indirect Method of Reporting

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. Use the following information and the indirect method to calculate the net cash provided or used by operating activities:

A) $85,700. B) $69,900. C) $93,900. D) $108,900. E) $81,600.

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. In preparing a company's statement of cash flows for the most recent year using the indirect method, the following information is available:

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. In preparing a company's statement of cash flows for the most recent year using the indirect method, the following information is available:

Diff: 3

Topic: Applying the Indirect Method of Reporting

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. In preparing a company's statement of cash flows for the most recent year using the indirect method, the following information is available:

Net cash provided by operating activities was:

A) $60,000. B) $70,000. C) $130,000. D) $80,000. E) $120,000.

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. In preparing a company's statement of cash flows for the most recent year using the indirect method, the following information is available:

Net cash provided by operating activities was:

A) $60,000. B) $34,000. C) $80,000. D) $52,000. E) $70,000.

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. A machine with a cost of $130,000 and accumulated depreciation of $85,000 is sold for $50,000 cash. The amount that should be reported as a source of cash under cash flows from investing activities is:

A) $5,000. B) $45,000.

1. Zero. This is an operating activity.
2. Zero. This is a financing activity. E) $50,000.

Learning Objective: 16-P3 Determine cash flows from both investing and financing activities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. A machine with a cost of $130,000 and accumulated depreciation of $85,000 is sold for $50,000 cash. The amount that should be reported in the operating activities section reported under the direct method is:

A) $50,000.

B) Zero. This is a financing activity. C) $45,000.

1. Zero. This is an investing activity. E) $5,000.

Learning Objective: 16-P3 Determine cash flows from both investing and financing activities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. A machine with a cost of $130,000, accumulated depreciation of $85,000, and current year depreciation expense of $17,000 is sold for $40,000 cash. The amount that should be reported as a source of cash under cash flows from investing activities is:

A) $5,000. B) $17,000. C) $40,000. D) $28,000. E) $45,000.

Learning Objective: 16-P3 Determine cash flows from both investing and financing activities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. A machine with a cost of $130,000, current year depreciation expense of $17,000 and accumulated depreciation of $85,000 is sold for $40,000 cash. The total amount that should be reported in the operating section of the statement of cash flow as per indirect method is:

A) $17,000. B) $22,000. C) $57,000. D) $4,000. E) $21,000.

Learning Objective: 16-P3 Determine cash flows from both investing and financing activities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. A company reported that its bonds with a par value of $50,000 and a carrying value of $57,000 are retired for $60,000 cash, resulting in a loss of $3,000. The amount to be reported under cash flows from financing activities is:

A) $(7,000). B) $7,000. C) $(57,000). D) $(60,000). E) $(3,000).

Learning Objective: 16-P3 Determine cash flows from both investing and financing activities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. Addams Corporation paid cash dividends totaling $75,000 during its most recent fiscal year. How should this information be reported on Addams's statement of cash flows?

In operating activities as a source of funds.

• 1. In investing activities as a source of funds.
  2. In financing activities as a use of funds.
  3. In financing activities as a source of funds.
  4. In investing activities as a use of funds.

Learning Objective: 16-P3 Determine cash flows from both investing and financing activities. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

1. Use the following information to calculate cash received from dividends:

A) $26,400. B) $32,400. C) $29,000. D) $29,800. E) $30,600.

Learning Objective: 16-P3 Determine cash flows from both investing and financing activities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. Use the following information to calculate cash received from dividends:

A) $64,000. B) $63,500. C) $60,400. D) $67,100. E) $63,000.

Learning Objective: 16-P3 Determine cash flows from both investing and financing activities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. Analysis reveals that a company had a net increase in cash of $20,000 for the current year. Net cash provided by operating activities was $18,000; net cash used in investing activities was $10,000 and net cash provided by financing activities was $12,000. If the year-end cash balance is $24,000, the beginning cash balance was:

A) $40,000. B) $4,000. C) $44,000. D) $39,000. E) $16,000.

Learning Objective: 16-P1 Prepare a statement of cash flows. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. Stormer Company reports the following amounts on its statement of cash flow: Net cash provided by operating activities was $28,000; net cash used in investing activities was $10,000 and net cash used in financing activities was $12,000. If the beginning cash balance is $5,000, what is the ending cash balance?

A) $31,000. B) $45,000. C) $6,000. D) $55,000. E) $11,000.

Learning Objective: 16-P1 Prepare a statement of cash flows. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. Bagrov Corporation had a net decrease in cash of $10,000 for the current year. Net cash used in investing activities was $52,000 and net cash used in financing activities was $38,000. What amount of cash was provided (used) in operating activities?

$80,000 provided.

• 1. $100,000 provided. C) $(100,000) used. D) $(10,000) used.

E) $(80,000) used.

Learning Objective: 16-P1 Prepare a statement of cash flows. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. The accountant for Crusoe Company is preparing the company's statement of cash flows for the fiscal year just ended. The following information is available:

Learning Objective: 16-P3 Determine cash flows from both investing and financing activities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. The accountant for Crusoe Company is preparing the company's statement of cash flows for the fiscal year just ended. The following information is available:

The amount of cash dividends paid during the year would be:

A) $44,000. B) $64,000. C) $48,000. D) $46,000. E) $8,000.

Learning Objective: 16-P3 Determine cash flows from both investing and financing activities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. The accountant for Huckleberry Company is preparing the company's statement of cash flows for the fiscal year just ended. The following information is available:

Learning Objective: 16-P3 Determine cash flows from both investing and financing activities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. The accountant for Mandarin Company is preparing the company's statement of cash flows for the fiscal year just ended. The following information is available:

84

What is the amount of cash dividends paid that should be reported in the financing section of the statement of cash flows?

A) $63,000. B) $41,000. C) $1,000. D) $43,000. E) $42,000.

Learning Objective: 16-P3 Determine cash flows from both investing and financing activities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. In preparing a company's statement of cash flows for the most recent year, the following information is available:

$234,000 of net cash used.

• 1. $340,000 of net cash used.
  2. $120,000 of net cash provided.
  3. $259,000 of net cash used.
  4. $280,000 of net cash provided.

Learning Objective: 16-P3 Determine cash flows from both investing and financing activities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. In preparing a company's statement of cash flows for the year just ended, the following information is available:

$347,000 of net cash used.

• 1. $26,000 of net cash used.
  2. $51,000 of net cash used.
  3. $147,000 of net cash used.
  4. $340,000 of net cash used.

Learning Objective: 16-P3 Determine cash flows from both investing and financing activities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. In preparing Marjorie Company's statement of cash flows for the most recent year, the following information is available:

Net cash flows from investing activities for the year were:

$438,000 of net cash provided.

• 1. $264,000 of net cash provided.
  2. $438,000 of net cash used.
  3. $351,000 of net cash used.
  4. $264,000 of net cash used.

Learning Objective: 16-P3 Determine cash flows from both investing and financing activities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. In preparing a company's statement of cash flows for the most recent year, Ransom Corp. reported the following information:

$230,000 of net cash provided.

• 1. $108,000 of net cash used.
  2. $138,000 of net cash provided.
  3. $230,000 of net cash used.
  4. $138,000 of net cash used.

Learning Objective: 16-P3 Determine cash flows from both investing and financing activities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. When analyzing the changes on a spreadsheet used to prepare a statement of cash flows, the cash flows from operating activities generally affect:

Noncurrent liability and equity accounts.

• 1. Noncurrent assets.
  2. Net income, current assets, and current liabilities.
  3. Equity accounts only.
  4. Both noncurrent assets and noncurrent liabilities.

Learning Objective: 16-P4 Appendix; 16-A Illustrate use of a spreadsheet to prepare a statement of cash flows. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. When analyzing the changes on a spreadsheet used to prepare a statement of cash flows, the cash flows from investing activities generally affect:

Noncurrent liability and equity accounts.

• 1. Noncurrent assets.
  2. Equity accounts only.
  3. Net income, current assets, and current liabilities.
  4. Both noncurrent assets and noncurrent liabilities.

Learning Objective: 16-P4 Appendix; 16-A Illustrate use of a spreadsheet to prepare a statement of cash flows. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. When analyzing the changes on a spreadsheet used to prepare a statement of cash flows, the cash flows from financing activities generally affect:

Both noncurrent assets and noncurrent liabilities.

• 1. Noncurrent assets.
  2. Net income, current assets, and current liabilities.
  3. Noncurrent liability and equity accounts.
  4. Equity accounts only.

Learning Objective: 16-P4 Appendix; 16-A Illustrate use of a spreadsheet to prepare a statement of cash flows. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. Which of the following transactions or events should be reported as a source of cash from operating activities when using the direct method?

Depreciation expense.

• 1. Cash collections from customers.
  2. Cash received from the sale of treasury stock.
  3. Cash received from the sale of a building.
  4. Credit sales.

Learning Objective: 16-P5 Appendix;16-B Compute cash flows from operating activities using the direct method. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. When the operating activities section of the statement of cash flows is reported using the direct method, the FASB requires:

The income statement to be prepared under the cash basis of accounting.

• 1. The preparation of the statement of cash flows under the indirect method be completed and reported with the statement of cash flows prepared using the direct method.
  2. Footnotes to the financial statements disclosing the difference between net income and the cash provided or used by financing activities.

A reconciliation of net income to net cash provided or used by operating activities.

• 1. Noncash investing and financing activities be included in the statement of cash flows.

Learning Objective: 16-P5 Appendix;16-B Compute cash flows from operating activities using the direct method. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Reporting

1. All of the following statements related to reporting cash flows from operating activities under U.S. GAAP and IFRS are true except:

The definition of cash and cash equivalents is similar for U.S. GAAP and IFRS.

• 1. U.S. GAAP requires cash outflows for interest expense to be classified as financing activities.
  2. U.S. GAAP requires cash flows from interest revenue and dividend revenue be classified as operating activities.

IFRS permits classification of interest expense under operating or financing activities.

• 1. IFRS permits classification of interest revenue and dividend revenue under operating or investing activities.

Learning Objective: 16-P3 Determine cash flows from both investing and financing activities. Bloom's: Understand

AACSB: Analytical Thinking AICPA: FN Reporting; BB Global

1. All of the following statements related to preparation of the statement of cash flows under U.S. GAAP and IFRS are true except:
   1. Both U.S. GAAP and IFRS permit the reporting of cash flows from operating activities using either the direct or indirect method.
   2. IFRS permits classification of cash outflows for interest expense under operating or financing based on which one results in better cash flows from operating activities.
   3. IFRS permits classification of interest expense under operating or financing activities provided it is consistently applied across periods.
   4. IFRS permits the splitting of income tax cash flows among operating, investing, and financing depending on the sources of that tax.

U.S. GAAP requires cash outflows for income tax be classified as operating activities.

Learning Objective: 16-P3 Determine cash flows from both investing and financing activities. Bloom's: Understand

AACSB: Analytical Thinking AICPA: FN Reporting; BB Global

1. Mercury Company reports depreciation expense of $40,000 for Year 2. Also, equipment costing

$150,000 was sold for its book value in Year 2. There were no other equipment purchases or sales during the year. The following selected information is available for Mercury Company from its comparative balance sheet. Compute the cash received from the sale of the equipment.

A) $68,000. B) $32,000. C) $38,000. D) $36,000. E) $40,000.

Learning Objective: 16-P3 Determine cash flows from both investing and financing activities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. Jamison Company reports depreciation expense of $35,000 for Year 2. Also, equipment costing

$140,000 was sold for a $5,000 gain in Year 2. The following selected information is available for Jamison Company from its comparative balance sheet. Compute the cash received from the sale of the equipment.

A) $38,000. B) $23,000. C) $40,000. D) $35,000. E) $67,000.

Learning Objective: 16-P3 Determine cash flows from both investing and financing activities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. Jeffreys Company reports depreciation expense of $40,000 for Year 2. Also, equipment costing

$240,000 was sold for a $10,000 loss in Year 2. The following selected information is available for Jeffreys Company from its comparative balance sheet. Compute the cash received from the sale of the equipment.

A) $62,000. B) $58,000. C) $18,000. D) $38,000. E) $28,000.

Learning Objective: 16-P3 Determine cash flows from both investing and financing activities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. Bagwell's net income for the year ended December 31, Year 2 was $185,000. Information from Bagwell's comparative balance sheets is given below. Compute the cash received from the sale of its common stock during Year 2.

A) $145,000. B) $50,000. C) $95,000. D) $106,000. E) $185,000.

Learning Objective: 16-P3 Determine cash flows from both investing and financing activities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. Bagwell's net income for the year ended December 31, Year 2 was $175,000. Information from Bagwell's comparative balance sheets is given below. Compute the cash paid for dividends during Year 2.

A) $95,000. B) $69,000. C) $79,000. D) $201,000. E) $50,000.

Learning Objective: 16-P3 Determine cash flows from both investing and financing activities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. Scranton, Inc. reports net income of $230,000 for the year ended December 31. It also reports

$87,700 depreciation expense and a $5,000 gain on the sale of equipment. Its comparative balance sheet reveals a $35,500 decrease in accounts receivable, a $15,750 increase in accounts payable, and a $12,500 decrease in wages payable. Calculate the cash provided (used) in operating activities using the indirect method.

A) $356,450. B) $376,450. C) $263,750. D) $319,950. E) $351,450.

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. Alvez Company reports net income of $305,000 for the year ended December 31. It also reports

$93,700 depreciation expense and a $10,000 loss on the sale of equipment. Its comparative balance sheet reveals a $40,200 increase in accounts receivable, a $10,200 decrease in prepaid expenses, a

$15,200 increase in accounts payable, a $12,500 decrease in wages payable, and a $100,000 decrease in notes payable. Calculate the cash provided (used) in operating activities using the indirect method.

A) $361,000. B) $371,400. C) $461,800. D) $351,000. E) $381,400.

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. Alvez reports net income of $305,000 for the year ended December 31. It also reports $93,700 depreciation expense and a $10,000 loss on the sale of equipment. Its comparative balance sheet reveals a $40,200 increase in accounts receivable, a $10,200 decrease in prepaid expenses, a

$15,200 increase in accounts payable, a $12,500 decrease in wages payable, a $75,000 increase in equipment, and a $100,000 decrease in notes payable. Calculate the net increase in cash for the year.

A) $281,400. B) $381,400. C) $206,400. D) $406,400. E) $216,400.

Learning Objective: 16-P2 Compute cash flows from operating activities using the indirect method. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. Fernwood Company is preparing the company's statement of cash flows for the fiscal year just ended. The following information is available:

Retained earnings balance at the beginning of the year $233,000 Cash dividends declared for the year 50,000

Proceeds from the sale of equipment 85,000 Gain on the sale of equipment 4,500

Cash dividends payable at the beginning of the year 22,000 Cash dividends payable at the end of the year 30,000 Net income for the year 110,000

A) $343,000. B) $301,000. C) $213,000. D) $293,000. E) $297,500.

Learning Objective: 16-P3 Determine cash flows from both investing and financing activities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. Fernwood Company is preparing the company's statement of cash flows for the fiscal year just ended. The following information is available:

Gain on the sale of equipment 4,500

Cash dividends payable at the beginning of the year 22,000 Cash dividends payable at the end of the year 30,000 Net income for the year 110,000

The amounc of cash paid for dividends was:

A) $60,000. B) $42,000. C) $52,000. D) $58,000. E) $50,000.

Learning Objective: 16-P3 Determine cash flows from both investing and financing activities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

1. Marshland Company is preparing the company's statement of cash flows for the fiscal year just ended. The following information is available: