Question 1

On a statement of cash flows prepared using the direct method, cash from customers would be sales plus a(n)

Accepted Answer

A)  decrease in accounts payable. 
B)  increase in accounts payable. 
C)  decrease in accounts receivable. 
D)  increase in accounts receivable. 
A)  decrease in accounts payable. 
B)  increase in accounts payable. 
C)  decrease in accounts receivable. 
D)  increase in accounts receivable.

Question 2

Assume cash paid to suppliers for the current year is $350,000, merchandise inventory increased by $5,000 during the year, and accounts payable decreased by $10,000 during the year. What was the cost of goods sold for the current year?

Accepted Answer

A)  $335,000 
B)  $345,000 
C)  $355,000 
D)  $365,000 
A)  $335,000 
B)  $345,000 
C)  $355,000 
D)  $365,000

Question 3

Which of the following independent transactions would cause net income to be more than cash from operating activities?

Accepted Answer

A)  A decrease in the accounts receivable account 
B)  An increase in the merchandise inventory account 
C)  An increase in the accounts payable account 
D)  An increase in the accrued wages payable account 
A)  A decrease in the accounts receivable account 
B)  An increase in the merchandise inventory account 
C)  An increase in the accounts payable account 
D)  An increase in the accrued wages payable account

Question 4

Under the direct method, cash paid to suppliers can be computed as cost of goods sold for the period

Accepted Answer

A)  plus an increase in inventory and minus an increase in accounts payable. 
B)  plus a decrease in inventory and minus an increase in accounts payable. 
C)  minus an increase in inventory and plus an increase in accounts payable. 
D)  minus a decrease in inventory and plus an increase in accounts payable. 
A)  plus an increase in inventory and minus an increase in accounts payable. 
B)  plus a decrease in inventory and minus an increase in accounts payable. 
C)  minus an increase in inventory and plus an increase in accounts payable. 
D)  minus a decrease in inventory and plus an increase in accounts payable.

Question 5

Assume Young Company holds the following assets at year-end and classifies as cash equivalents everything allowed by professional standards.
 
What would be the total cash equivalents at year-end for Young Company?

Accepted Answer

A)  $80,000 
B)  $100,000 
C)  $120,000 
D)  $140,000 
A)  $80,000 
B)  $100,000 
C)  $120,000 
D)  $140,000

Question 6

The amortization of bond discount related to long-term debt should be presented in a statement of cash flows prepared using the indirect method as a(n)

Accepted Answer

A)  inflow and outflow of cash. 
B)  outflow of cash. 
C)  deduction from net income in the adjustments to reconcile net income to cash from operating activities. 
D)  addition to net income in the adjustments to reconcile net income to cash from operating activities. 
A)  inflow and outflow of cash. 
B)  outflow of cash. 
C)  deduction from net income in the adjustments to reconcile net income to cash from operating activities. 
D)  addition to net income in the adjustments to reconcile net income to cash from operating activities.

Question 7

Which of the following need not be disclosed in a statement of cash flows as a noncash exchange?

Accepted Answer

A)  Dividend paid in capital stock of the company (stock dividend). 
B)  Acquisition of fixed assets in exchange for capital stock 
C)  Retirement of a bond issue through the issuance of another bond issue 
D)  Conversion of convertible debt to capital stock 
A)  Dividend paid in capital stock of the company (stock dividend). 
B)  Acquisition of fixed assets in exchange for capital stock 
C)  Retirement of a bond issue through the issuance of another bond issue 
D)  Conversion of convertible debt to capital stock

Question 8

Use the following information to compute the cash flow from operating activities under (1) the U.S. approach, and (2) the U.K. approach.

Accepted Answer

The answer of Use the following information to compute the...

Question 9

The amortization of patents should be presented in a statement of cash flows prepared using the indirect method as a(n)

Accepted Answer

A)  inflow and outflow of cash. 
B)  outflow of cash. 
C)  addition to net income in the adjustments to reconcile net income to cash from operating activities. 
D)  deduction from net income in the adjustments to reconcile net income to cash from operating activities. 
A)  inflow and outflow of cash. 
B)  outflow of cash. 
C)  addition to net income in the adjustments to reconcile net income to cash from operating activities. 
D)  deduction from net income in the adjustments to reconcile net income to cash from operating activities.

Question 10

A company with substantial operating profits prepares its statement of cash flows using the indirect method. The gain on the sale of a long-term investment should be disclosed separately as a(n)

Accepted Answer

A)  inflow from operating activities. 
B)  adjustment to net income in the reconciliation of net income to cash from operating activities. 
C)  inflow from investing activities. 
D)  outflow from investing activities. 
A)  inflow from operating activities. 
B)  adjustment to net income in the reconciliation of net income to cash from operating activities. 
C)  inflow from investing activities. 
D)  outflow from investing activities.

Question 11

Which of the following is not classified as an operating activity?

Accepted Answer

A)  Interest received 
B)  Interest paid 
C)  Dividends received 
D)  Dividends paid 
A)  Interest received 
B)  Interest paid 
C)  Dividends received 
D)  Dividends paid

Question 12

In the preparation of a statement of cash flows, adjustments to net income to reconcile net income to cash from operating activities include

Accepted Answer

A)  dividends received. 
B)  the difference between the purchase price and the resale price of treasury stock (assuming the cost method of accounting for treasury stock). 
C)  amortization of organization cost. 
D)  redemption premium on preferred stock redeemed during the period. 
A)  dividends received. 
B)  the difference between the purchase price and the resale price of treasury stock (assuming the cost method of accounting for treasury stock). 
C)  amortization of organization cost. 
D)  redemption premium on preferred stock redeemed during the period.

Question 13

A change in unearned revenue would be classified into which of the following categories for purposes of disclosure in the statement of cash flows?

Accepted Answer

A)  Operating cash flow 
B)  Investing cash flow 
C)  Financing cash flow 
D)  As an item reconciling earnings and operating cash flow 
A)  Operating cash flow 
B)  Investing cash flow 
C)  Financing cash flow 
D)  As an item reconciling earnings and operating cash flow

Question 14

Which of the following transactions would not be reported on the statement of cash flows?

Accepted Answer

A)  Purchase of treasury stock 
B)  Purchase of an operational asset by issuing common stock 
C)  Declaration of a cash dividend which has not yet been paid 
D)  Patent amortization 
A)  Purchase of treasury stock 
B)  Purchase of an operational asset by issuing common stock 
C)  Declaration of a cash dividend which has not yet been paid 
D)  Patent amortization

Question 15

Which of the following would be reported in the operating, investing, or financing sections of the statement of cash flows prepared under the indirect method?

Accepted Answer

A)  Declaration of an unpaid cash dividend 
B)  Acquisition of a factory warehouse by issuing long-term debt 
C)  Gain on the sale of cash equivalents 
D)  Write-off of an uncollectible account receivable 
A)  Declaration of an unpaid cash dividend 
B)  Acquisition of a factory warehouse by issuing long-term debt 
C)  Gain on the sale of cash equivalents 
D)  Write-off of an uncollectible account receivable

Question 16

A firm purchased $20,000 worth of investments classified as securities available for sale. At the end of the year, the investments were worth $23,000. What is the correct presentation of these events in the statement of cash flows prepared under the direct method?

Accepted Answer

A)  Investing cash outflow, $20,000 
B)  Add $17,000 in reconciliation of earnings and net operating cash flow 
C)  Investing cash outflow, $20,000; subtract $3,000 in reconciliation of earnings and net operating cash flow 
D)  No disclosure is needed. 
A)  Investing cash outflow, $20,000 
B)  Add $17,000 in reconciliation of earnings and net operating cash flow 
C)  Investing cash outflow, $20,000; subtract $3,000 in reconciliation of earnings and net operating cash flow 
D)  No disclosure is needed.

Question 17

At the beginning of the year, a firm leased equipment on a capital lease, capitalizing $60,000 in both its lease liability and leased assets accounts. The contract calls for December 31 payments of $15,000. The lessee's annual reporting period ends December 31 and the contract reflects 10% interest. The lessee made the first payment as required. The direct method statement of cash flows for the lessee should reflect which of the following in the first year of the lease contract (ignore noncash disclosures)?

Accepted Answer

A)  $15,000 financing cash outflow 
B)  $15,000 operating cash outflow 
C)  $6,000 operating cash outflow; $9,000 financing cash outflow 
D)  $9,000 financing cash outflow 
A)  $15,000 financing cash outflow 
B)  $15,000 operating cash outflow 
C)  $6,000 operating cash outflow; $9,000 financing cash outflow 
D)  $9,000 financing cash outflow

Question 18

Which of the following would not be a cash flow from financing activities for Carlton Company?

Accepted Answer

A)  Cash from issuance of Carlton Co. common stock 
B)  Cash from issuance of Carlton Co. preferred stock 
C)  Cash from issuance of Carlton Co. bonds payable 
D)  Cash from sale of Fern Company common stock 
A)  Cash from issuance of Carlton Co. common stock 
B)  Cash from issuance of Carlton Co. preferred stock 
C)  Cash from issuance of Carlton Co. bonds payable 
D)  Cash from sale of Fern Company common stock

Question 19

A firm sold an investment in securities available for sale originally costing $30,000, for $28,000. At the beginning of the year, the investment had a valuation allowance of $3,000, debit. What is the correct disclosure for these events in the statement of cash flows prepared under the direct method, assuming this is the only investment in securities available for sale?

Accepted Answer

A)  $28,000 investing cash inflow; add $33,000 in the reconciliation of earnings and net operating cash flow 
B)  $28,000 investing cash inflow; add $2,000 in the reconciliation of earnings and net operating cash inflow 
C)  $28,000 investing cash inflow; add $5,000 in the reconciliation of earnings and net operating cash inflow 
D)  Add $5,000 in the reconciliation of earnings and net operating cash flow. 
A)  $28,000 investing cash inflow; add $33,000 in the reconciliation of earnings and net operating cash flow 
B)  $28,000 investing cash inflow; add $2,000 in the reconciliation of earnings and net operating cash inflow 
C)  $28,000 investing cash inflow; add $5,000 in the reconciliation of earnings and net operating cash inflow 
D)  Add $5,000 in the reconciliation of earnings and net operating cash flow.

Question 20

A gain on the sale of a plant assets should be included in which of the following sections of a statement of cash flows prepared using the indirect method?

Accepted Answer

A)  Investing activities 
B)  Operating activities 
C)  Financing activities 
D)  Non-cash investing and financing activities 
A)  Investing activities 
B)  Operating activities 
C)  Financing activities 
D)  Non-cash investing and financing activities

Exam 21: Statement of Cash Flows Revisited

On a statement of cash flows prepared using the direct method, cash from customers would be sales plus a(n)

Assume cash paid to suppliers for the current year is $350,000, merchandise inventory increased by $5,000 during the year, and accounts payable decreased by $10,000 during the year. What was the cost of goods sold for the current year?

Which of the following independent transactions would cause net income to be more than cash from operating activities?

Under the direct method, cash paid to suppliers can be computed as cost of goods sold for the period

Assume Young Company holds the following assets at year-end and classifies as cash equivalents everything allowed by professional standards. What would be the total cash equivalents at year-end for Young Company?

The amortization of bond discount related to long-term debt should be presented in a statement of cash flows prepared using the indirect method as a(n)

Which of the following need not be disclosed in a statement of cash flows as a noncash exchange?

Use the following information to compute the cash flow from operating activities under (1) the U.S. approach, and (2) the U.K. approach.

The amortization of patents should be presented in a statement of cash flows prepared using the indirect method as a(n)

A company with substantial operating profits prepares its statement of cash flows using the indirect method. The gain on the sale of a long-term investment should be disclosed separately as a(n)

Which of the following is not classified as an operating activity?

In the preparation of a statement of cash flows, adjustments to net income to reconcile net income to cash from operating activities include

A change in unearned revenue would be classified into which of the following categories for purposes of disclosure in the statement of cash flows?

Which of the following transactions would not be reported on the statement of cash flows?

Which of the following would be reported in the operating, investing, or financing sections of the statement of cash flows prepared under the indirect method?

A firm purchased $20,000 worth of investments classified as securities available for sale. At the end of the year, the investments were worth $23,000. What is the correct presentation of these events in the statement of cash flows prepared under the direct method?

Which of the following would not be a cash flow from financing activities for Carlton Company?

A gain on the sale of a plant assets should be included in which of the following sections of a statement of cash flows prepared using the indirect method?

Financial Reporting

A Review of the Accounting Cycle

The Balance Sheet and Notes to the Financial Statements

The Income Statement

Statement of Cash Flows and Articulation

Earnings Management

The Revenuereceivablescash Cycle

Revenue Recognition

Inventory and Cost of Goods Sold

Investments in Noncurrent Operating Assets-Acquisition

Investments in Noncurrent Operating Assets-Utilization and Retirement

Debt Financing

Equity Financing

Investments in Debt and Equity Securities

Leases

Income Taxes

Employee Compensation-Payroll, Pensions, Other Comp Issues

Earnings Per Share

Derivatives, Contingencies, Business Segments, and Interim Reports

Accounting Changes and Error Corrections

Accounting in a Global Market

Analysis of Financial Statements

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