Question 1

A negative cash flow is referred to as a cash outflow.

Accepted Answer

A) True 
 B)False

Question 2

The quality of income ratio measures:

Accepted Answer

A)  how much of net income came from operating activities. 
B)  the proportion of net income that is likely to be collected over time. 
C)  how much of gross income the company was able to shield from taxes. 
D)  the portion of net income that is generated by cash from operating activities. 
A)  how much of net income came from operating activities. 
B)  the proportion of net income that is likely to be collected over time. 
C)  how much of gross income the company was able to shield from taxes. 
D)  the portion of net income that is generated by cash from operating activities.

Question 3

Which of the following statements regarding the quality of income and fraudulent financial reporting is NOT true?

Accepted Answer

A)  Net income assumes that all revenues are eventually realized as cash inflows and all expenses are realized as cash outflows. The quality of income ratio is a measure of the extent to which this assumption should be considered valid. 
B)  Fraudulent financial reporting may involve delayed expense recognition. 
C)  Fraudulent financial reporting is more likely to result in overstatement of net cash flows from operating activities rather than as overstatement of net income. 
D)  Fraudulent financial reporting may involve aggressive revenue recognition, that is, recognizing revenue before it is earned. 
A)  Net income assumes that all revenues are eventually realized as cash inflows and all expenses are realized as cash outflows. The quality of income ratio is a measure of the extent to which this assumption should be considered valid. 
B)  Fraudulent financial reporting may involve delayed expense recognition. 
C)  Fraudulent financial reporting is more likely to result in overstatement of net cash flows from operating activities rather than as overstatement of net income. 
D)  Fraudulent financial reporting may involve aggressive revenue recognition, that is, recognizing revenue before it is earned.

Question 4

Which of the following is not needed to prepare a statement of cash flows?

Accepted Answer

A)  Statement of retained earnings. 
B)  Comparative balance sheet. 
C)  Additional information on financing and investing activities. 
D)  Income statement. 
A)  Statement of retained earnings. 
B)  Comparative balance sheet. 
C)  Additional information on financing and investing activities. 
D)  Income statement.

Question 5

Which of the following would be reported as a cash outflow from investing activities?

Accepted Answer

A)  Donating an old piece of equipment to charity. 
B)  Repaying the principal of a bond. 
C)  Buying another company's bonds with cash. 
D)  Paying for an investment asset by issuing company stock. 
A)  Donating an old piece of equipment to charity. 
B)  Repaying the principal of a bond. 
C)  Buying another company's bonds with cash. 
D)  Paying for an investment asset by issuing company stock.

Question 6

When the cash flows from operating, investing, and financing activities are combined to arrive at the overall net change in cash, a net decrease in cash is subtracted from the beginning cash to calculate the ending cash balance.

Accepted Answer

A) True 
 B)False

Question 7

A corporation prepared its statement of cash flows for the year. The following information is taken from that statement:   What is the amount of net cash flows from financing activities?

Accepted Answer

A)  $15,400 
B)  ($3,300) 
C)  ($15,400) 
D)  $3,300 
A)  $15,400 
B)  ($3,300) 
C)  ($15,400) 
D)  $3,300

Question 8

If a company is to succeed over the long-term, a positive cash flow from operating activities is necessary.

Accepted Answer

A) True 
 B)False

Question 9

Depreciation expense is not reported on the statement of cash flows when prepared using the direct method.

Accepted Answer

A) True 
 B)False

Question 10

If a company uses the indirect method to determine net cash flows from operating activities:

Accepted Answer

A)  gains must be added to net income and losses subtracted from net income. 
B)  gains and losses must be added to net income. 
C)  gains must be subtracted from net income and losses added to net income. 
D)  gains and losses must be subtracted from net income. 
A)  gains must be added to net income and losses subtracted from net income. 
B)  gains and losses must be added to net income. 
C)  gains must be subtracted from net income and losses added to net income. 
D)  gains and losses must be subtracted from net income.

Question 11

A company reported that its bonds with a face value of $50,000 and a carrying value of $53,000 are retired for $56,000 cash. The amount to be reported under cash flows from financing activities is:

Accepted Answer

A)  ($53,000). 
B)  ($3,000). 
C)  ($56,000) 
D)  $0. This is an operating activity. 
A)  ($53,000). 
B)  ($3,000). 
C)  ($56,000) 
D)  $0. This is an operating activity.

Question 12

Which of the following statements is true regarding cash flows from financing activities?

Accepted Answer

A)  When companies borrow, cash outflows for financing activities have occurred. 
B)  When companies receive dividends, cash inflows from financing activities have occurred. 
C)  When companies repurchase their own stock, cash outflows for financing activities have occurred. 
D)  When companies pay dividends, cash inflows from financing activities have occurred. 
A)  When companies borrow, cash outflows for financing activities have occurred. 
B)  When companies receive dividends, cash inflows from financing activities have occurred. 
C)  When companies repurchase their own stock, cash outflows for financing activities have occurred. 
D)  When companies pay dividends, cash inflows from financing activities have occurred.

Question 13

Depreciation is added back to net income in a statement of cash flows prepared using the indirect method because it:

Accepted Answer

A)  reduces income but not cash. 
B)  is a cash inflow. 
C)  is a revenue. 
D)  is a valuation concept. 
A)  reduces income but not cash. 
B)  is a cash inflow. 
C)  is a revenue. 
D)  is a valuation concept.

Question 14

When the direct method is used to determine the net cash flows from operating activities, which of the following adjustments must be made to interest expense to determine total interest payments?

Accepted Answer

A)  Add all changes in interest payable. 
B)  Add decreases in interest payable and subtract increases in interest payable. 
C)  Add increases in interest payable and subtract decreases in interest payable. 
D)  Subtract all changes in interest payable. 
A)  Add all changes in interest payable. 
B)  Add decreases in interest payable and subtract increases in interest payable. 
C)  Add increases in interest payable and subtract decreases in interest payable. 
D)  Subtract all changes in interest payable.

Question 15

Which of the following represent cash outflows from financing activities?

Accepted Answer

A)  Distributing a stock dividend. 
B)  Paying a bond's face value at maturity. 
C)  Issuing long-term bonds at a discount. 
D)  Paying interest on promissory notes. 
A)  Distributing a stock dividend. 
B)  Paying a bond's face value at maturity. 
C)  Issuing long-term bonds at a discount. 
D)  Paying interest on promissory notes.

Question 16

In 2011, a company paid $4,500 which it owed from its 2010 income tax liability and $30,000 for its 2011 tax liability. The company still owes $6,000 at year-end. How much should the company report as cash paid for income taxes on its 2011 statement of cash flows, using the direct method?

Accepted Answer

A)  $34,500 
B)  $40,500 
C)  $30,000 
D)  $3,500 
A)  $34,500 
B)  $40,500 
C)  $30,000 
D)  $3,500

Question 17

An outdoor water park in the Midwestern states with a calendar year-end is likely to have:

Accepted Answer

A)  unpredictable fluctuations in cash flow from quarter to quarter. 
B)  the largest cash inflow from operations in the second and third quarters (April - September). 
C)  a fairly stable cash flow across all four quarters. 
D)  the largest cash inflow from operations in the fourth and first quarters (October - March). 
A)  unpredictable fluctuations in cash flow from quarter to quarter. 
B)  the largest cash inflow from operations in the second and third quarters (April - September). 
C)  a fairly stable cash flow across all four quarters. 
D)  the largest cash inflow from operations in the fourth and first quarters (October - March).

Question 18

Which of the following would NOT be added to net income in calculating net cash flows from operating activities on a statement of cash flows prepared using the indirect method?

Accepted Answer

A)  Amortization expense. 
B)  A decrease in accounts receivable. 
C)  An increase in wages payable. 
D)  A gain on the sale of equipment. 
A)  Amortization expense. 
B)  A decrease in accounts receivable. 
C)  An increase in wages payable. 
D)  A gain on the sale of equipment.

Question 19

What is the net cash flows from operating activities?

Accepted Answer

A)  $15,000 
B)  $5,000 
C)  ($4,000) 
D)  ($75,000) 
A)  $15,000 
B)  $5,000 
C)  ($4,000) 
D)  ($75,000)

Question 20

Which of the following would be classified as an operating activity on the statement of cash flows using the direct method?

Accepted Answer

A)  Cash dividends paid to stockholders. 
B)  Cash received from selling equipment. 
C)  Cash paid to retire bonds payable at maturity. 
D)  Cash received from accounts receivable collections. 
A)  Cash dividends paid to stockholders. 
B)  Cash received from selling equipment. 
C)  Cash paid to retire bonds payable at maturity. 
D)  Cash received from accounts receivable collections.

A negative cash flow is referred to as a cash outflow.

The quality of income ratio measures:

Which of the following statements regarding the quality of income and fraudulent financial reporting is NOT true?

Which of the following is not needed to prepare a statement of cash flows?

Which of the following would be reported as a cash outflow from investing activities?

When the cash flows from operating, investing, and financing activities are combined to arrive at the overall net change in cash, a net decrease in cash is subtracted from the beginning cash to calculate the ending cash balance.

A corporation prepared its statement of cash flows for the year. The following information is taken from that statement: What is the amount of net cash flows from financing activities?

If a company is to succeed over the long-term, a positive cash flow from operating activities is necessary.

Depreciation expense is not reported on the statement of cash flows when prepared using the direct method.

If a company uses the indirect method to determine net cash flows from operating activities:

A company reported that its bonds with a face value of $50,000 and a carrying value of $53,000 are retired for $56,000 cash. The amount to be reported under cash flows from financing activities is:

Which of the following statements is true regarding cash flows from financing activities?

Depreciation is added back to net income in a statement of cash flows prepared using the indirect method because it:

When the direct method is used to determine the net cash flows from operating activities, which of the following adjustments must be made to interest expense to determine total interest payments?

Which of the following represent cash outflows from financing activities?

In 2011, a company paid $4,500 which it owed from its 2010 income tax liability and $30,000 for its 2011 tax liability. The company still owes $6,000 at year-end. How much should the company report as cash paid for income taxes on its 2011 statement of cash flows, using the direct method?

An outdoor water park in the Midwestern states with a calendar year-end is likely to have:

Which of the following would NOT be added to net income in calculating net cash flows from operating activities on a statement of cash flows prepared using the indirect method?

What is the net cash flows from operating activities?

Which of the following would be classified as an operating activity on the statement of cash flows using the direct method?

Business Decisions and Financial Accounting

Reporting Investing and Financing Results on the Balance Sheet

Reporting Operating Results on the Income Statement

Adjustments, Financial Statements, and Financial Results

Financial Reporting and Analysis

Internal Control and Financial Reporting for Cash and Merchandise Sales

Reporting and Interpreting Inventories and Cost of Goods Sold

Reporting and Interpreting Receivables, Bad Debt Expense, and Interest Revenue

Reporting and Interpreting Long-Lived Tangible and Intangible Assets

Reporting and Interpreting Liabilities

Reporting and Interpreting Stockholders Equity

Measuring and Evaluating Financial Performance

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Exam 12: Reporting and Interpreting the Statement of Cash Flows

A negative cash flow is referred to as a cash outflow.

The quality of income ratio measures:

Which of the following statements regarding the quality of income and fraudulent financial reporting is NOT true?

Which of the following is not needed to prepare a statement of cash flows?

Which of the following would be reported as a cash outflow from investing activities?

When the cash flows from operating, investing, and financing activities are combined to arrive at the overall net change in cash, a net decrease in cash is subtracted from the beginning cash to calculate the ending cash balance.

A corporation prepared its statement of cash flows for the year. The following information is taken from that statement: What is the amount of net cash flows from financing activities?

If a company is to succeed over the long-term, a positive cash flow from operating activities is necessary.

Depreciation expense is not reported on the statement of cash flows when prepared using the direct method.

If a company uses the indirect method to determine net cash flows from operating activities:

A company reported that its bonds with a face value of $50,000 and a carrying value of $53,000 are retired for $56,000 cash. The amount to be reported under cash flows from financing activities is:

Which of the following statements is true regarding cash flows from financing activities?

Depreciation is added back to net income in a statement of cash flows prepared using the indirect method because it:

When the direct method is used to determine the net cash flows from operating activities, which of the following adjustments must be made to interest expense to determine total interest payments?

Which of the following represent cash outflows from financing activities?

In 2011, a company paid $4,500 which it owed from its 2010 income tax liability and $30,000 for its 2011 tax liability. The company still owes $6,000 at year-end. How much should the company report as cash paid for income taxes on its 2011 statement of cash flows, using the direct method?

An outdoor water park in the Midwestern states with a calendar year-end is likely to have:

Which of the following would NOT be added to net income in calculating net cash flows from operating activities on a statement of cash flows prepared using the indirect method?

What is the net cash flows from operating activities?

Which of the following would be classified as an operating activity on the statement of cash flows using the direct method?

Business Decisions and Financial Accounting

Reporting Investing and Financing Results on the Balance Sheet

Reporting Operating Results on the Income Statement

Adjustments, Financial Statements, and Financial Results

Financial Reporting and Analysis

Internal Control and Financial Reporting for Cash and Merchandise Sales

Reporting and Interpreting Inventories and Cost of Goods Sold

Reporting and Interpreting Receivables, Bad Debt Expense, and Interest Revenue

Reporting and Interpreting Long-Lived Tangible and Intangible Assets

Reporting and Interpreting Liabilities

Reporting and Interpreting Stockholders Equity

Measuring and Evaluating Financial Performance

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