The Cash Flow Statement | Ch11 Test Bank – 2nd Canadian

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Financial Accounting, 2nd Cdn. Ed. (Waybright)

Chapter 11 The Cash Flow Statement

11.1 Understand the role of the statement of cash flows

1) A comparative statement of financial position reports at least two consecutive years of ending cash balances that can be used to compile a cash flow statement.

Diff: 1

LO: 11-1 Understand the role of the statement of cash flows

Skill: Concept

Blooms: Knowledge

2) The cash flow statement is prepared to show why the cash amount changed from the beginning of the period to the end of the period.

Diff: 1

LO: 11-1 Understand the role of the statement of cash flows

Skill: Concept

Blooms: Knowledge

3) A cash flow statement shows the company's sources of cash, but does not detail how the cash was used by the company.

Diff: 1

LO: 11-1 Understand the role of the statement of cash flows

Skill: Concept

Blooms: Knowledge

4) The statement of cash flows provides the user with a complete picture of a business's operations.

Diff: 1

LO: 11-1 Understand the role of the statement of cash flows

Skill: Concept

Blooms: Knowledge

5) Cash equivalents are short-term, highly liquid investments that usually mature within six months and whose cash value is determined with a high degree of certainty.

Diff: 1

LO: 11-1 Understand the role of the statement of cash flows

Skill: Concept

Blooms: Knowledge

6) Past cash receipts and payments do NOT help to predict:

A) management decisions.

B) ability to pay debts.

C) future cash flows.

D) future net income.

E) ability to pay dividends.

Diff: 1

LO: 11-1 Understand the role of the statement of cash flows

Skill: Analytic Skills

Blooms: Knowledge

7) In order to help the business prosper, a cash flow statement can aid in all EXCEPT:

A) predicting future net income.

B) predicting future cash flows.

C) evaluating management decisions.

D) ability to pay debts.

E) ability to pay dividends.

Diff: 1

LO: 11-1 Understand the role of the statement of cash flows

Skill: Concept

Blooms: Knowledge

8) In order to determine why net income and cash on the balance sheet do not equal, an accountant can prepare a(n):

A) income statement.

B) statement of retained earnings.

C) balance sheet.

D) cash flow statement.

E) statement of owner's equity.

Diff: 1

LO: 11-1 Understand the role of the statement of cash flows

Skill: Concept

Blooms: Knowledge

9) The accuracy of the cash flow statement can be verified by computing the change in the balance of the:

A) cash and cash equivalent accounts.

B) equity account.

C) revenue accounts.

D) asset and liability accounts.

E) expense accounts.

Diff: 1

LO: 11-1 Understand the role of the statement of cash flows

Skill: Analytic Skills

Blooms: Knowledge

10) Identify the sources and uses of cash reported on the cash flow statement.

Diff: 1

LO: 11-1 Understand the role of the statement of cash flows

Skill: Concept

Blooms: Knowledge

11) Which financial statement represents a point in time?

Diff: 1

LO: 11-1 Understand the role of the statement of cash flows

Skill: Concept

Blooms: Knowledge

12) The ________ is the financial statement associated with the operating, investing, and financing activities of a corporation.

Diff: 1

LO: 11-1 Understand the role of the statement of cash flows

Skill: Concept

Blooms: Knowledge

13) What is the purpose of the cash flow statement?

Diff: 1

LO: 11-1 Understand the role of the statement of cash flows

Skill: Concept

Blooms: Knowledge

14) What does the cash flow statement help investors and creditors do?

Diff: 1

LO: 11-1 Understand the role of the statement of cash flows

Skill: Concept

Blooms: Knowledge

15) Identify the four types of financial statements.

Diff: 1

LO: 11-1 Understand the role of the statement of cash flows

Skill: Concept

Blooms: Knowledge

16) How is the cash flow statement the communicating link between the accrual-based income statement and the cash reported on the balance sheet?

Diff: 2

LO: 11-1 Understand the role of the statement of cash flows

Skill: Concept

Blooms: Knowledge

11.2 Differentiate among cash flows from operating, investing, and financing activities

1) The three types of business activities on a cash flow statement are operating, investing, and management activities.

Diff: 1

LO: 11-2 Differentiate among cash flows from operating, investing, and financing activities

Skill: Concept

Blooms: Knowledge

2) Operating activities reflect such things as purchasing fixed assets.

Diff: 1

LO: 11-2 Differentiate among cash flows from operating, investing, and financing activities

Skill: Concept

Blooms: Knowledge

3) Current assets on the balance sheet would be affected by and be part of operating activities.

Diff: 1

LO: 11-2 Differentiate among cash flows from operating, investing, and financing activities

Skill: Concept

Blooms: Knowledge

4) Which of the following is NOT a part of operating activities?

A) Paying dividends

B) Paying payables

C) Earnings revenue

D) Paying utilities

E) Depreciation expense

Diff: 1

LO: 11-2 Differentiate among cash flows from operating, investing, and financing activities

Skill: Analytic Skills

Blooms: Analysis

5) Which of the following is NOT a part of financing activities?

A) Paying dividends

B) Issuing shares

C) Paying off loans

D) Buying land

E) Borrowing money

Diff: 1

LO: 11-2 Differentiate among cash flows from operating, investing, and financing activities

Skill: Analytic Skills

Blooms: Analysis

6) Operating cash flows affect:

A) current assets and current liabilities.

B) long-term asset accounts.

C) equity accounts.

D) long-term liability accounts.

E) current assets.

Diff: 1

LO: 11-2 Differentiate among cash flows from operating, investing, and financing activities

Skill: Concept

Blooms: Knowledge

7) What type of business activity would issuing stock be classified as on the cash flow statement?

Diff: 1

LO: 11-2 Differentiate among cash flows from operating, investing, and financing activities

Skill: Analytic Skills

Blooms: Analysis

8) The indirect method of formatting a cash flow statement starts with ________.

Diff: 1

LO: 11-2 Differentiate among cash flows from operating, investing, and financing activities

Skill: Concept

Blooms: Knowledge

9) What type of accounts do investing cash flows affect?

Diff: 1

LO: 11-2 Differentiate among cash flows from operating, investing, and financing activities

Skill: Concept

Blooms: Knowledge

10) What type of accounts do financing activities affect?

Diff: 1

LO: 11-2 Differentiate among cash flows from operating, investing, and financing activities

Skill: Concept

Blooms: Knowledge

11) In order to be successful over the long run, the main source of a company's cash must come from ________.

Diff: 1

LO: 11-2 Differentiate among cash flows from operating, investing, and financing activities

Skill: Concept

Blooms: Knowledge

12) Identify the two formats for operating activities on the cash flow statement and explain the difference(s).

Diff: 2

LO: 11-2 Differentiate among cash flows from operating, investing, and financing activities

Skill: Concept

Blooms: Comprehension

13) If $10,000 was generated from operations, $4,000 was used for investing activities, and $6,000 was generated from financing activities, by how much would the cash balance increase?

Diff: 1

LO: 11-2 Differentiate among cash flows from operating, investing, and financing activities

Skill: Application

Blooms: Application

14) Identify the three business activities on the cash flow statement and which type of accounts are affected by the cash flows of each.

Diff: 2

LO: 11-2 Differentiate among cash flows from operating, investing, and financing activities

Skill: Concept

Blooms: Knowledge

15) What are the similarities between the direct and indirect methods?

Diff: 1

LO: 11-2 Differentiate among cash flows from operating, investing, and financing activities

Skill: Concept

Blooms: Comprehension

16) What is the difference when comparing net cash provided by operations using the direct method versus indirect method? Explain why this difference exists.

Diff: 1

LO: 11-2 Differentiate among cash flows from operating, investing, and financing activities

Skill: Concept

Blooms: Comprehension

11.3 Prepare the cash flow statement using the indirect method

1) Most businesses prefer to use the indirect method of formatting a cash flow statement.

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Knowledge

2) In order to prepare a cash flow statement using the indirect method, you need the income statement only.

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Knowledge

3) The operating section of a cash flow statement using the indirect method is prepared differently from the operating section of a cash flow statement using the direct method.

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Knowledge

4) Operating cash flows under the indirect method starts with the net income for the period from the income statement.

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Knowledge

5) Even though depreciation, depletion, and amortization are expenses, they are considered non-cash transactions and must be subtracted from net income in the operating activities section of an indirect method cash flow statement.

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Knowledge

6) Changes in the long-term assets and long-term liabilities accounts must be analyzed to determine how they are presented in the operating section of a cash flow statement.

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Knowledge

7) The sum of the net increases/decreases in the operating, investing, and financing sections of the cash flow statement is equal to the change in cash over the period.

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Knowledge

8) A transaction that exchanged a building for shares of stock would be an investing activity and would appear on the cash flow statement.

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Comprehension

9) A transaction acquiring land by issuing a note for the full purchase price would not appear on the cash flow statement because no cash was involved, but it may be disclosed in a separate section.

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Comprehension

10) Which would be added back to net income in the operating section of an indirect cash flow statement?

A) A decrease in accounts payable

B) Depreciation

C) An increase in accounts receivable

D) An increase in inventory

E) A gain on the sale of a vehicle

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Knowledge

11) Which would NOT be subtracted from net income in the operating section of an indirect cash flow statement?

A) An increase in prepaid expenses

B) An increase in accounts payable

C) A decrease in accounts payable

D) An increase in notes receivable

E) A decrease in inventory

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Analytic Skills

Blooms: Analysis

12) Which would be subtracted from net income in the operating section of an indirect cash flow statement?

A) An increase in notes payable

B) A decrease in prepaid expenses

C) An increase in sales tax payable

D) An increase in inventory

E) A decrease in accounts receivable

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Analytic Skills

Blooms: Analysis

13) An example of a cash inflow from financing activities is:

A) collecting money owed by customers.

B) issuing preferred shares.

C) selling a piece of equipment.

D) paying off a bond.

E) an increase in accounts payable.

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Knowledge

14) An example of a cash outflow from financing activities is:

A) paying dividends in cash.

B) buying additional inventory.

C) selling land.

D) collecting notes receivable.

E) loss on the sale of vehicle.

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Knowledge

15) Which of the following is NOT a source of cash?

A) An increase in accounts payable

B) A decrease in accounts receivable

C) A decrease in notes payable

D) The sale of common shares

E) Collecting notes receivable

Diff: 3

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Analytic Skills

Blooms: Analysis

16) Under the indirect method of cash flow, which of the following adjustments would NOT be made to net income when computing cash from operating activities?

A) Adding an increase in accounts payable

B) Adding depreciation expense

C) Adding a decrease in accounts payable

D) Subtracting the gain on sale of land

E) Proceeds from the sale of a long-lived asset

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Analytic Skills

Blooms: Analysis

17) Under the indirect method, which of the following is NOT a proper adjustment to net income under operating activities?

A) Adding a decrease in inventory

B) Subtracting an increase in salaries payable

C) Deducting an increase in prepaid expenses

D) Subtracting a gain on the sale of equipment

E) Adding a decrease in accounts receivable

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Knowledge

18) Of the following, which is NOT classified as an investing activity on the cash flow statement?

A) Sale of equipment for cash

B) Purchasing land

C) Collecting the principal on loans

D) Selling goods and services

E) Buying computer equipment

Diff: 2

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Knowledge

19) A cash flow statement would NOT disclose:

A) stock dividends declared.

B) bonds payable issued.

C) purchase of treasury shares.

D) capital shares issued.

E) payment of dividends.

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Knowledge

20) Business transactions that do NOT involve the payment or receipt of cash are considered to be ________ transactions.

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Knowledge

21) Making a loan to another company is an example of a cash outflow from ________ activities.

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Analytic Skills

Blooms: Analysis

22) In the indirect method of cash flows, a decrease in inventory would be ________ to net income.

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Knowledge

23) A decrease in prepaid insurance would be ________ to net income in the operating section of a cash flow statement using the indirect method.

Diff: 2

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Knowledge

24) When preparing the cash flow statement by the indirect method, if current liabilities increase, the difference is ________ to net income.

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Knowledge

25) The cost of purchasing long-term assets, such as buildings and land, are ________ from ________ activities.

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Knowledge

26) Gains on the sale of long-term assets are ________ from ________ activities.

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Knowledge

27) Losses on the sale of long-term assets are ________ to ________ activities.

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Knowledge

28) Cash receipts from the sale of long-term assets, such as equipment and vehicles, are ________ to ________ activities.

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Knowledge

29) Acquisitions and sales of long-term assets belong in the ________ section of a cash flow statement using the indirect method.

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Knowledge

30) Changes in long-term liabilities belong in the ________ section of a cash flow statement using the indirect method.

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Knowledge

31) All current assets EXCEPT ________ are adjusted to net income in the operating section of an indirect cash flow statement.

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Knowledge

32) Activities that increase and decrease as a result of selling a company's shares are ________ activities.

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Knowledge

33) An increase in long-term mortgage payable would mean an increase in cash flow from ________ activities.

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Knowledge

34) Transactions involving the purchase and sale of long-term assets, lending money, and collecting the principal on loans are called ________ activities.

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Knowledge

35) The Accounts Payable balance has decreased during the year. How would this affect the cash flow statement operations section under the indirect method?

Diff: 2

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Analytic Skills

Blooms: Analysis

36) The Supplies balance has decreased during the year. How would this affect the cash flow statement operations section under the indirect method?

Diff: 2

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Analytic Skills

Blooms: Analysis

37) The Accounts Receivable balance has decreased during the year. How would this affect the cash flow statement operations section under the indirect method?

Diff: 2

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Analytic Skills

Blooms: Analysis

38) Casey Company reported net income of $35,000; depreciation expenses of $20,000; an increase in accounts payable of $2,000; and an increase in current notes receivable of $3,000. Net cash flows from operating activities under the indirect method is ________.

Diff: 2

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Application

Blooms: Application

39) Amanda Industries reported net income of $52,000; depreciation expenses of $13,000; a gain on a land sale of $3,000; and a decrease in accounts receivable of $1,500. Under the indirect method, net cash flows from operations is ________.

Diff: 2

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Application

Blooms: Application

40) Accounts receivable amounted to $215,000 at the beginning of the year and $245,000 at the end of the year. Income reported on the income statement for the year was $300,000. The cash flow from operating activities on the cash flow statement using the indirect method is ________.

Diff: 2

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Application

Blooms: Application

41) Big Toy's records show net income of $30,000; depreciation expense of $10,000; and cash dividends paid of $5,000. The cash flow from operating activities on the cash flow statement using the indirect method is ________.

Diff: 2

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Application

Blooms: Application

42) Fine Furniture Company had net income of $50,000. Accounts receivable increased by $30,000; inventory decreased by $20,000; amounts payable increased by $4,000; and salaries payable decreased by $1,000. The amount of cash flow from continuing operating activities under the indirect method is ________.

Diff: 2

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Application

Blooms: Application

43) If $10,000 was generated from operations (using the indirect method), $4,000 was used for investing activities, and $6,000 was generated from financing activities, the cash balance ________.

Diff: 2

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Application

Blooms: Application

44) The records of Ashley Boutique showed a net loss of $30,000; depreciation expense of $25,000; and an increase in supplies on hand of $5,000. The amount of net cash flow from operating activities using the indirect method is ________.

Diff: 2

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Application

Blooms: Application

45) Isaiah Corporation's Accounts Receivable increased by $35,000 and its Accounts Payable decreased by $18,000. What is the net effect on cash from operations under the indirect method?

Diff: 2

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Application

Blooms: Application

46) Why do gains and losses need to be removed from net income on the cash flow statement?

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Concept

Blooms: Knowledge

47) The comparative statement of financial position for Gino Corporation shows the following noncash current asset and liability accounts at December 31:

Gino's income statement reported the following selected information for the year ended December 31, 2015: profit was $298,600, depreciation expense was $66,750, and a loss on the sale of fixed assets was $15,150.

Calculate net cash provided (used) by operating activities using the indirect method for the year ended December 31, 2015.

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Application

Blooms: Application

48) The income statement of Dino Corporation is presented here.

Additional information is provided below:

1. Accounts receivable increased $290,400 during the year, and inventory decreased $515,500.

2. Prepaid expenses, which relate to administrative expenses, increased $127,900 during the year.

3. Accounts payable to suppliers of merchandise decreased $366,800 during the year.

4. Salaries payable decreased $116,900 during the year.

5. Income tax payable increased $62,320 during the year.

Calculate net cash provided (used) by operating activities using the indirect method for the year ended November 30, 2015.

Diff: 1

LO: 11-3 Prepare the statement of cash flows using the indirect method

Skill: Application

Blooms: Application

11.4 Prepare the cash flow statement using the direct method

1) In the direct method, each line of the income statement is converted from the accrual basis to cash basis.

Diff: 1

LO: 11-4 Prepare the statement of cash flows using the direct method

Skill: Concept

Blooms: Knowledge

2) Gains and losses on the sale of plant, property, and equipment are ignored in the direct method of preparing a cash flow statement.

Diff: 1

LO: 11-4 Prepare the statement of cash flows using the direct method

Skill: Concept

Blooms: Knowledge

3) One formula for determining cash collections from customers is to take Sales plus the increase in Accounts Receivable.

Diff: 1

LO: 11-4 Prepare the statement of cash flows using the direct method

Skill: Concept

Blooms: Knowledge

4) Payments to suppliers include items such as employee compensation, interest, and income taxes.

Diff: 1

LO: 11-4 Prepare the statement of cash flows using the direct method

Skill: Concept

Blooms: Knowledge

5) Cash payments for inventory is computed as "Total inventory purchased plus a decrease in Accounts payable OR minus an increase in Accounts payable."

Diff: 1

LO: 11-4 Prepare the statement of cash flows using the direct method

Skill: Concept

Blooms: Knowledge

6) Cost of goods sold for the year was $850,000. Inventory was $60,000 at the beginning of the year and

$90,000 at the end of the year. There were no changes in the amount in account payable for the year. Cash payment for merchandise to be reported under the direct method is:

A) $850,000.

B) $820,000.

C) $940,000.

D) $880,000.

E) $790,000.

Diff: 2

LO: 11-4 Prepare the statement of cash flows using the direct method

Skill: Application

Blooms: Application

7) Operating expenses-other than depreciation-for the year were $335,000. Prepaid expenses decreased by $7,000. Cash payments for operating expenses to be reported on the cash flow statement using the direct method would be:

A) $335,000.

B) $342,000.

C) $328,000.

D) $7,000.

E) $349,000.

Diff: 2

LO: 11-4 Prepare the statement of cash flows using the direct method

Skill: Application

Blooms: Application

8) Operating expenses other than depreciation for the year were $400,000. Accrued expenses increased by $35,000. Cash payments for operating expenses to be reported on the cash flow statement using the direct method would be:

A) $435,000.

B) $400,000.

C) $365,000.

D) $35,000.

E) $356,000.

Diff: 1

LO: 11-4 Prepare the statement of cash flows using the direct method

Skill: Application

Blooms: Application

9) The section of the cash flow statement from investing activities does NOT include:

A) the sale of common shares.

B) buying shares of other companies.

C) the cash purchases of equipment.

D) collecting the principal on loans.

E) the proceeds from the sale of equipment.

Diff: 1

LO: 11-4 Prepare the statement of cash flows using the direct method

Skill: Analytic Skills

Blooms: Comprehension

10) The proceeds from the sale of equipment under the direct method would be reported:

A) in the investing section of the cash flow statement.

B) in the operating section of the cash flow statement.

C) in the financing section of the cash flow statement.

D) as a separate disclosure.

E) in the management section of the cash flow statement.

Diff: 2

LO: 11-4 Prepare the statement of cash flows using the direct method

Skill: Concept

Blooms: Knowledge

11) Under the direct method, paying and collecting interest on loans are ________ activities.

Diff: 2

LO: 11-4 Prepare the statement of cash flows using the direct method

Skill: Concept

Blooms: Knowledge

12) When a corporation receives dividends, they are shown as a(n) ________ activity under the direct method.

Diff: 2

LO: 11-4 Prepare the statement of cash flows using the direct method

Skill: Analytic Skills

Blooms: Comprehension

13) A company settles a long-term note payable plus interest by paying $68,000 cash toward the principal amount and $5,440 cash for the interest. Under the direct method of reporting interest, the $5,440 would be listed as a(n) ________ activity.

Diff: 2

LO: 11-4 Prepare the statement of cash flows using the direct method

Skill: Analytic Skills

Blooms: Comprehension

14) In the direct method of preparing a cash flow statement, interest received and interest expense are in the ________ activities section.

Diff: 1

LO: 11-4 Prepare the statement of cash flows using the direct method

Skill: Concept

Blooms: Knowledge

15) Which method of preparing a cash flow statement is preferred according to IFRS and ASPE?

Diff: 1

LO: 11-4 Prepare the statement of cash flows using the direct method

Skill: Concept

Blooms: Knowledge

16) The only section under the direct method that differs from the indirect method is the ________ activities section.

Diff: 1

LO: 11-4 Prepare the statement of cash flows using the direct method

Skill: Concept

Blooms: Knowledge

17) Dividends received by a company appear in the ________ activities section of a direct method cash flow statement.

Diff: 1

LO: 11-4 Prepare the statement of cash flows using the direct method

Skill: Concept

Blooms: Knowledge

18) Is depreciation of factory equipment reported under the direct method and, if so, how is it reported?

Diff: 2

LO: 11-4 Prepare the statement of cash flows using the direct method

Skill: Concept

Blooms: Knowledge

19) From the income statement and balance sheet information listed below, what amount of cash is paid for salaries and wages?

Diff: 2

LO: 11-4 Prepare the statement of cash flows using the direct method

Skill: Application

Blooms: Application

20) The following information is available for Isaiah Company. What amount is paid for merchandise for the current year (2015)?

Diff: 2

LO: 11-4 Prepare the statement of cash flows using the direct method

Skill: Application

Blooms: Application

21) What types of expenses are not reported on the direct method cash flow statement?

Diff: 1

LO: 11-4 Prepare the statement of cash flows using the direct method

Skill: Concept

Blooms: Knowledge

22) Why is the direct method preferred over the indirect method?

Diff: 1

LO: 11-4 Prepare the statement of cash flows using the direct method

Skill: Concept

Blooms: Knowledge

23) Identify the various sources and uses of cash in preparing the operating activities of the cash flow statement using the direct method.

Diff: 1

LO: 11-4 Prepare the statement of cash flows using the direct method

Skill: Concept

Blooms: Knowledge

24) Why is the operating activities section of the direct method cash flow statement just a cash-basis income statement?

Diff: 1

LO: 11-4 Prepare the statement of cash flows using the direct method

Skill: Concept

Blooms: Knowledge

25) The income statement of Dino Corporation is presented here.

Additional information is provided below:

1. Accounts receivable increased $290,400 during the year, and inventory decreased $515,500.

2. Prepaid expenses, which relate to administrative expenses, increased $127,900 during the year.

3. Accounts payable to suppliers of merchandise decreased $366,800 during the year.

4. Salaries payable decreased $116,900 during the year.

5. Income tax payable increased $62,320 during the year.

Calculate net cash provided (used) by operating activities using the direct method for the year ended November 30, 2015.

Diff: 1

LO: 11-4 Prepare the statement of cash flows using the direct method

Skill: Application

Blooms: Application

11.5 Evaluate a company's performance with respect to cash

1) Free cash flow is the anticipated amount of cash available from operations after paying for planned financing of stock and paying dividends.

Diff: 2

LO: 11-5 Evaluate a company's performance with respect to cash

Skill: Concept

Blooms: Knowledge

2) The cash conversion cycle depends upon the time it takes to sell merchandise inventory, to collect receivables, and to pay payables.

Diff: 2

LO: 11-5 Evaluate a company's performance with respect to cash

Skill: Concept

Blooms: Knowledge

3) Casey Company has an accounts receivable turnover of 36 days, an inventory turnover of 77 days, and an accounts payable turnover of 40 days. Casey's cash conversion cycle is:

A) 153 days.

B) 81 days.

C) 73 days.

D) 1 day.

E) 113 days.

Diff: 2

LO: 11-5 Evaluate a company's performance with respect to cash

Skill: Application

Blooms: Application

4) Ryan Industries has an inventory turnover of 112 days, an accounts payable turnover of 73 days, and an accounts receivable turnover of 82 days. Ryan's cash conversion cycle is:

A) 121 days.

B) 103 days.

C) 43 days.

D) 9 days.

E) 112 days.

Diff: 2

LO: 11-5 Evaluate a company's performance with respect to cash

Skill: Application

Blooms: Application

5) What is the formula for free cash flow?

Diff: 1

LO: 11-5 Evaluate a company's performance with respect to cash

Skill: Concept

Blooms: Knowledge

6) What is the formula for inventory turnover in days?

Diff: 2

LO: 11-5 Evaluate a company's performance with respect to cash

Skill: Concept

Blooms: Knowledge

7) Assume that Xavier Industries has an inventory turnover of 46 days, an accounts receivable turnover of 28 days, and an accounts payable turnover of 34 days. What is the cash conversion cycle for Xavier Industries? If the average cash conversion cycle for the industry is 45 days, is Xavier healthier or facing a pending cash flow "crunch" when compared to the industry average?

Diff: 2

LO: 11-5 Evaluate a company's performance with respect to cash

Skill: Analytic Skills

Blooms: Evaluation

8) What is the cash conversion cycle?

Diff: 2

LO: 11-5 Evaluate a company's performance with respect to cash

Skill: Concept

Blooms: Knowledge

11.6 Cumulative Questions

1) Identify the four financial statements and the purpose of each.

Diff: 2

LO: 1-6 Understand and be able to prepare basic financial statements

Skill: Concept

Blooms: Knowledge

2) How is the reporting of cash on the balance sheet different from the reporting of cash on the cash flow statement?

Diff: 2

LO: 1-5, 11-2

Skill: Concept

Blooms: Knowledge

3) Inca Corporation declared a stock dividend. What would be the impact on the cash flow statement?

Diff: 1

LO: 10-5, 11-2

Skill: Concept

Blooms: Knowledge