Question 1

In the indirect method, an increase in trade receivables is reported on the statement of cash flows as:

Accepted Answer

A)  an increase to sales. 
B)  a decrease to sales. 
C)  an increase to cash. 
D)  a decrease to cash. 
A)  an increase to sales. 
B)  a decrease to sales. 
C)  an increase to cash. 
D)  a decrease to cash.

Question 2

Matlock Company reported total sales revenue of $55,000 and total expenses amounting to $45,000 on its income statement for the year ended December 31, 20B. During 20B, trade receivables decreased by $4,000, merchandise inventory decreased by $6,000, trade payables increased by $2,000 and depreciation of $8,000 was recorded. Therefore, based only on this information, the net cash flow from operating activities for 20B was which of the following?

Accepted Answer

A)  $30,000. 
B)  $18,000. 
C)  $19,000. 
D)  $10,000. 
A)  $30,000. 
B)  $18,000. 
C)  $19,000. 
D)  $10,000.

Question 3

The following information is provided from the cash flow statement for Toys 4 U for the years 2008 through 2012 in millions of dollars:
   (A) Calculate the capital acquisitions ratio for Toys 4 U for the five year period from 2008 to 2020.
   (B) Comment on the capital acquisitions ratio for Toys 4 U for the five years.

Accepted Answer

(A) (1) 2.58, (2) 1.03, (3) 1.79, (4) .5

Question 4

The statement of cash flows (indirect method) reports depreciation expense as an addition to profit because depreciation does which of the following?

Accepted Answer

A)  Causes an inflow of funds for the replacement of assets. 
B)  Is a direct use of cash. 
C)  Reduces reported profit of the period but does not involve an outflow of cash for that period. 
D)  Reduces reported profit and causes an inflow of cash. 
A)  Causes an inflow of funds for the replacement of assets. 
B)  Is a direct use of cash. 
C)  Reduces reported profit of the period but does not involve an outflow of cash for that period. 
D)  Reduces reported profit and causes an inflow of cash.

Question 5

Cash collected from customers is a cash flow from a financing activity.

Accepted Answer

A) True 
 B)False

Question 6

Wish Corporation acquired a computer for $15,000 and paid for it in full by issuing 1,000 shares of its own common shares, par $10 (current market price $15 share). This transaction should not be reported on the statement of cash flows because cash was neither paid out nor received.

Accepted Answer

A) True 
 B)False

Question 7

The payment to shareholders for repurchase of treasury shares is a cash flow from a financing activity.

Accepted Answer

A) True 
 B)False

Question 8

Financing activities involve

Accepted Answer

A)  acquiring investments. 
B)  acquiring long-lived assets. 
C)  lending money. 
D)  issuing debt. 
A)  acquiring investments. 
B)  acquiring long-lived assets. 
C)  lending money. 
D)  issuing debt.

Question 9

The amortization of a patent is treated in a similar manner to depreciation of a building when preparing the operating activities section of the statement of cash flows using the indirect method.

Accepted Answer

A) True 
 B)False

Question 10

Only investments with original maturities of less than three months at the date of purchase qualify as cash equivalents.

Accepted Answer

A) True 
 B)False

Question 11

If a loss of $20,000 is incurred in selling (for cash) office equipment that cost $90,000 and had accumulated depreciation of $22,500, the total amount reported in the investing activities section of the statement of cash flows is

Accepted Answer

A)  $87,500. 
B)  $47,500. 
C)  $67,500. 
D)  $70,000. 
A)  $87,500. 
B)  $47,500. 
C)  $67,500. 
D)  $70,000.

Question 12

Any item that appears on the statement of earnings would be considered either a cash inflow or cash outflow from operating activities.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements about the quality of earnings ratio is false?

Accepted Answer

A)  An increase in operating assets and a decrease in liabilities will reduce operating cash flows, thereby reducing the ratio. 
B)  Seasonal variations in sales have no impact on the quality of earnings ratio. 
C)  Seasonal variations in sales and purchases of inventory can cause wide deviations in the quality of earnings ratio. 
D)  When sales are growing, receivables and inventory normally increase at a faster rate than trade payables often causing operating cash flows to be less than profit. 
A)  An increase in operating assets and a decrease in liabilities will reduce operating cash flows, thereby reducing the ratio. 
B)  Seasonal variations in sales have no impact on the quality of earnings ratio. 
C)  Seasonal variations in sales and purchases of inventory can cause wide deviations in the quality of earnings ratio. 
D)  When sales are growing, receivables and inventory normally increase at a faster rate than trade payables often causing operating cash flows to be less than profit.

Question 14

Which of the following transactions does not affect cash during a period?

Accepted Answer

A)  Redemption of bonds 
B)  Write-off of an uncollectible account 
C)  Sale of common shares 
D)  Collection of an accounts receivable 
A)  Redemption of bonds 
B)  Write-off of an uncollectible account 
C)  Sale of common shares 
D)  Collection of an accounts receivable

Question 15

The following information was reported from the statement of cash flows for The W D Company for the years 2010 through 2012 in millions of dollars:
   A. Calculate the quality of earnings ratio for the years 2010 through 2012.
   B. Interpret the quality of earnings ratio for The W D Company for the three year period.

Accepted Answer

(A) (1) 4.30, (2) 2.76, (3) 2.59.
(B) Th

Question 16

Cash equivalents are defined as short-term, highly liquid investments that are readily convertible into known amounts of cash and are so near their maturity that there is insignificant risk of changes in their value due to interest rate changes.

Accepted Answer

A) True 
 B)False

Question 17

The capital expenditures ratio (Cash Flow from Operating Activities ÷ Cash Paid for Property, Plant, and Equipment) reflects the portion of purchases of property, plant, and equipment financed from operating activities without the need for outside debt or equity financing or the sale of other investments or other long-term assets.

Accepted Answer

A) True 
 B)False

Question 18

The following changes were noted from the statement of financial position: trade receivables increased $8,000; inventory increased $4,000; trade payables increased $6,000; prepaid expense decreased $2,000; accrued liability decreased $5,000; and interest payable increased $1,000
Required: Prepare the operating activities section of the statement of cash flows using the indirect method.

Accepted Answer

The answer of   The following changes were noted...

Question 19

Billton Company purchased a machine in the current year for $18,000. Payment included cash, $5,000; a one-year note payable, $5,000; and a 2-year, $8,000 note payable. This decreases cash by $5,000 in the current year.

Accepted Answer

A) True 
 B)False

Question 20

C Co. reported the following information from their statement of cash flows in millions of dollars:
   (A) Calculate the quality of earnings ratio for C Co for the three years:
   (B) In 2011, P Co. reported a quality of earnings ratio of 1.61. Compare C Co.'s quality of earnings ratio for that year to their competitor's ratio.

Accepted Answer

(A) (1) 1.60, (2) .97, (3) .98.
(B) In 2

In the indirect method, an increase in trade receivables is reported on the statement of cash flows as:

The statement of cash flows (indirect method) reports depreciation expense as an addition to profit because depreciation does which of the following?

Cash collected from customers is a cash flow from a financing activity.

Wish Corporation acquired a computer for $15,000 and paid for it in full by issuing 1,000 shares of its own common shares, par $10 (current market price $15 share). This transaction should not be reported on the statement of cash flows because cash was neither paid out nor received.

The payment to shareholders for repurchase of treasury shares is a cash flow from a financing activity.

Financing activities involve

The amortization of a patent is treated in a similar manner to depreciation of a building when preparing the operating activities section of the statement of cash flows using the indirect method.

Only investments with original maturities of less than three months at the date of purchase qualify as cash equivalents.

If a loss of $20,000 is incurred in selling (for cash) office equipment that cost $90,000 and had accumulated depreciation of $22,500, the total amount reported in the investing activities section of the statement of cash flows is

Any item that appears on the statement of earnings would be considered either a cash inflow or cash outflow from operating activities.

Which of the following statements about the quality of earnings ratio is false?

Which of the following transactions does not affect cash during a period?

Cash equivalents are defined as short-term, highly liquid investments that are readily convertible into known amounts of cash and are so near their maturity that there is insignificant risk of changes in their value due to interest rate changes.

Billton Company purchased a machine in the current year for $18,000. Payment included cash, $5,000; a one-year note payable, $5,000; and a 2-year, $8,000 note payable. This decreases cash by $5,000 in the current year.

Financial Statements and Business Decisions

Investing and Financing Decisions and the Accounting System

Operating Decisions and the Accounting System

Adjustments, Financial Statements, and the Quality of Earnings

Reporting and Interpreting Sales Revenue, Receivables, and Cash

Reporting and Interpreting Cost of Goods Sold and Inventory

Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

Reporting and Interpreting Liabilities

Reporting and Interpreting Bond Securities

Reporting and Interpreting Stockholders Equity

Statement of Cash Flows

Analyzing Financial Statements

Reporting and Interpreting Investments in Other Corporations

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Exam 5: Communicating and Interpreting Accounting Information

In the indirect method, an increase in trade receivables is reported on the statement of cash flows as:

The statement of cash flows (indirect method) reports depreciation expense as an addition to profit because depreciation does which of the following?

Cash collected from customers is a cash flow from a financing activity.

Wish Corporation acquired a computer for $15,000 and paid for it in full by issuing 1,000 shares of its own common shares, par $10 (current market price $15 share). This transaction should not be reported on the statement of cash flows because cash was neither paid out nor received.

The payment to shareholders for repurchase of treasury shares is a cash flow from a financing activity.

Financing activities involve

The amortization of a patent is treated in a similar manner to depreciation of a building when preparing the operating activities section of the statement of cash flows using the indirect method.

Only investments with original maturities of less than three months at the date of purchase qualify as cash equivalents.

If a loss of $20,000 is incurred in selling (for cash) office equipment that cost $90,000 and had accumulated depreciation of $22,500, the total amount reported in the investing activities section of the statement of cash flows is

Any item that appears on the statement of earnings would be considered either a cash inflow or cash outflow from operating activities.

Which of the following statements about the quality of earnings ratio is false?

Which of the following transactions does not affect cash during a period?

Cash equivalents are defined as short-term, highly liquid investments that are readily convertible into known amounts of cash and are so near their maturity that there is insignificant risk of changes in their value due to interest rate changes.

Billton Company purchased a machine in the current year for $18,000. Payment included cash, $5,000; a one-year note payable, $5,000; and a 2-year, $8,000 note payable. This decreases cash by $5,000 in the current year.

Financial Statements and Business Decisions

Investing and Financing Decisions and the Accounting System

Operating Decisions and the Accounting System

Adjustments, Financial Statements, and the Quality of Earnings

Reporting and Interpreting Sales Revenue, Receivables, and Cash

Reporting and Interpreting Cost of Goods Sold and Inventory

Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

Reporting and Interpreting Liabilities

Reporting and Interpreting Bond Securities

Reporting and Interpreting Stockholders Equity

Statement of Cash Flows

Analyzing Financial Statements

Reporting and Interpreting Investments in Other Corporations

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