Deck 11: Statement of Cash Flows

Question 1

Morgan Corporation acquired land by issuing its common stock. How should this transaction be disclosed when a statement of cash flows is prepared?

A) On the face of the statement of cash flows or in the notes to the financial statements.
B) The acquisition of land should be reported as an investing activity and the issuance of the stock as a financing activity.
C) In the operating activities section under the indirect method.
D) The transaction does not need to be disclosed.

Answer 1

A

Question 2

The primary purpose of the statement of cash flows is to provide information about:

A) the financial position of the company.
B) the profitability of the company.
C) the investing and financing activities of the company.
D) the cash inflows and outflows of the company.

Answer 2

D

Question 3

Which of the following is not an operating activity?

A) Cash collections from credit customers
B) Cash payments for operating expenses
C) Cash receipts for interest earned
D) Cash payments for dividends to stockholders

Answer 3

D

Question 4

Which of the following operating activities results in a cash outflow?

A) Paying creditors for inventory
B) Collecting accounts receivable
C) Making cash sales
D) Receiving deposits recorded as unearned revenue

Question 5

Which of the following statements is false?

A) The method of preparing the operating activities section of a statement of cash flows which adjusts net income to remove the effects of deferrals and accruals for revenues and expenses is the indirect method.
B) The method of preparing the operating activities section of a statement of cash flows which reports its cash inflows from operations followed by its cash outflows for operations is the direct method.
C) The FASB prefers the direct method of preparing the operating activities section of the statement of cash flows.
D) Most companies use the direct method of preparing the operating activities section of the statement of cash flows.

Question 6

Scotty Company reported the following information at the end of 2011 and 2012: An analysis of Scotty's records indicated that there were no cash flow effects resulting from the changes in the two accounts presented above. How should Scotty report the changes in these accounts on a statement of cash flows?

A) Scotty should report $200,000 for the acquisition of land as an investing activity and $200,000 for the issuance of stock as a financing activity.
B) Scotty should report $200,000 as a noncash investing and financing activity for the acquisition of land by issuing common stock.
C) Scotty should report the issuance of common stock to acquire land in the financing activity section with a net cash flow effect of zero.
D) Scotty should report the acquisition of land by issuing common stock in the investing activity section with a net cash flow effect of zero.

Question 7

Which of the following statements regarding the statement of cash flows is true?

A) The statement of cash flows analyzes the change in cash.
B) The statement of cash flows is organized to present classifications for total cash inflows and not cash outflows.
C) The statement of cash flows analyzes only the changes in current assets and current liabilities.
D) The statement of cash flows is an optional financial statement.

Question 8

Presented below is the operating activities section of the statement of cash flows for Kerry Corporation for 2012: Which method of preparing the operating activities section has Kerry used?

A) The direct method
B) The indirect method
C) Either method
D) Cannot be determined without further information

Question 9

Which of the following statements is not true?

A) The information in the statement of cash flows helps investors, creditors, and others to assess a company's ability to produce future cash inflows.
B) The information in the statement of cash flows helps investors, creditors, and others to judge a company's ability to meet it future obligations.
C) The information in the statement of cash flows helps investors, creditors, and others to estimate the company's needs for external financing.
D) The information in the statement of cash flows helps investors, creditors, and others to show the inflows and outflows of net income on the accrual basis.

Question 10

Which of the following transactions is a significant noncash investing and financing activity?

A) Land is purchased for cash.
B) Bonds are issued for cash.
C) Cash equivalents are purchased.
D) Buildings are acquired by issuing common stock.

Question 11

Special Inc. reported net income of $150,000 for 2012, but its cash balance decreased $40,000. Which financial statement should Special's management refer to for an explanation of this situation?

A) Balance sheet
B) Income statement
C) Statement of retained earnings
D) Statement of cash flows

Question 12

Each of the following transactions would be classified as an investing activity except:

A) acquiring an investment in the stock of another company
B) lending money to a supplier
C) issuing stock to acquire land
D) disposing of a used delivery truck

Question 13

The order of presentation of activities on the statement of cash flows is:

A) operating, investing, and financing.
B) operating, financing, and investing.
C) financing, operating, and investing.
D) financing, investing, and operating.

Question 14

Which of the following statements is most likely to be right?

A) The method of preparing the operating activities section of a statement of cash flows which adjusts net income to remove the effects of deferrals and accruals for revenues and expenses is the direct method.
B) The method of preparing the operating activities section of a statement of cash flows which reports its cash inflows from operations followed by its cash outflows for operations is the indirect method.
C) The FASB prefers the indirect method of preparing the operating activities section of the statement of cash flows.
D) Most companies use the indirect method of preparing the operating activities section of the statement of cash flows.

Question 15

Cash flows from acquiring and selling products are classified as:

A) operating activities.
B) investing activities.
C) financing activities.
D) distribution activities.

Question 16

Which of the following is not a current reporting requirement for a statement that reports changes in cash over a period of time?

A) This statement must classify cash flows into three categories: operating, investing, and financing activities.
B) Cash equivalents must be combined with cash in preparing this statement.
C) Working capital may be used as a substitute for cash in preparing this statement.
D) The operating activities section can be prepared using either the direct method or the indirect method.

Question 17

Occasionally, companies engage in important investing and financing activities which do not affect cash. If the amount of the transaction is significant, how should it be disclosed when financial statements are prepared?

A) In a separate section in the statement of cash flows with a corresponding zero balance.
B) In the investing activities section of the statement of cash flows.
C) On the face of the statement of cash flows or in the notes to the financial statements.
D) In both the investing and the financing activities statement of cash flows.

Question 18

The current period statement of cash flows includes the following: The cash balance at the end of the period is:

A) $45,000.
B) $635,000.
C) $355,000.
D) $125,000.

Question 19

Which method of preparing the operating activities section of a statement of cash flows reports its cash inflows from operations followed by its cash outflows for operation?

A) The direct method
B) The indirect method
C) Both the direct method and the indirect method
D) Neither the direct method nor the indirect method

Question 20

National Co. reported a net loss of $30,000 for 2012, yet its cash balance increased during the year. Which financial statement should National's management refer to for an explanation of this situation?

A) Balance sheet
B) Income statement
C) Statement of retained earnings
D) Statement of cash flows

Question 21

Robin Corporation reported the following information for 2011 and 2012: How much cash was paid for salaries during 2012?

A) $60,000
B) $65,000
C) $75,000
D) $85,000

Question 22

Using the Direct Method
For the following question(s), indicate how each transaction described would be classified on a statement of cash flows if the operating activities section is prepared under the direct method.

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When using the direct method, where is depreciation expense recorded on the statement of cash flows?

A) Operating activity
B) Investing activity
C) Financing activity
D) Not reported on the statement of cash flows

Question 23

The following items were reported on the balance sheets and income statement for Hawkeye Corporation: How would the change in accounts payable be reported in the operating activities section of Hawkeye's statement of cash flows under the indirect method?

A) As an addition to operating expenses
B) As a deduction from operating expenses
C) As an addition to net income
D) As a deduction from net income

Question 24

The following items were reported on the balance sheets and income statement for Transformer Inc., a service company: What amount would be reported in the operating activities section of Transformer's statement of cash flows for payments for operating expenses under the direct method?

A) $237,000
B) $163,000
C) $200,000
D) $292,000

Question 25

Watch Tower Inc. reported net income of $950,000. Cash from operations:

A) will always be more than $950,000.
B) will always be less than $950,000.
C) will be equal to $950,000.
D) can not be determined without more information.

Question 26

Diablo Company reported the following information for 2011 and 2012: How much cash was paid for insurance during 2012?

A) $22,700
B) $27,400
C) $39,200
D) $36,700

Question 27

Presented below is the operating activities section of the statement of cash flows for Bruin Consulting for 2012: Which method of preparing the operating activities section has Bruin Consulting used?

A) The direct method
B) The indirect method
C) The allowance method
D) Cannot be determined without further information

Question 28

Pull & Co. reported net income for the current year. Which of the following business transactions would cause cash from operating activities to be higher than the amount of net income?

A) Cash dividends were paid to stockholders during the year.
B) Depreciation expense was recorded for the year.
C) A bank loan was repaid during the year.
D) Equipment was purchased for cash during the year.

Question 29

Buckle Company reported the following information for 2011 and 2012. Assume that all merchandise purchases are on account. Under direct method how much cash was paid to suppliers for inventory purchases during 2012?

A) $1,005,000
B) $1,050,000
C) $ 995,000
D) $1,020,000

Question 30

Penn Corporation reported the following information for 2011 and 2012: If Penn uses the indirect method to prepare the operating activities section of the statement of cash flows, what amount will be reported as net cash inflow from operating activities for 2012?

A) $232,000
B) $215,000
C) $245,000
D) $247,000

Question 31

Everest Inc. reported the following information for 2011 and 2012: If Everest Inc. uses the indirect method to prepare the operating activities section of the statement of cash flows, what amount will be reported as net cash inflow from operating activities for 2012?

A) $ 98,000
B) $139,000
C) $119,000
D) $109,000

Question 32

Which method of preparing the operating activities section of a statement of cash flows adjusts net income to remove the effects of deferrals and accruals for revenues and expenses?

A) The direct method
B) The indirect method
C) Both the direct and indirect methods
D) Neither the direct method nor the indirect method

Question 33

Brandywine Corporation reported the following information for 2011 and 2012: How much cash was paid for interest during 2012?

A) $25,000
B) $39,000
C) $52,500
D) $45,500

Question 34

During 2011, the accounts receivable balance of Big Buck Corporation increased. From Big Buck's statement of cash flows, the financial reader would conclude which of the following?

A) This increase indicates that Big Buck sold more than it collected in cash during the period.
B) This increase is added to net income in the operating activities section of a statement of cash flows prepared under the indirect method.
C) This increase is added to sales recognized on the income statement to determine the cash collections from customers during the period.
D) This increase indicates that Big Buck purchased more than it sold in cash during the period.

Question 35

Pacific Whale Corporation reported the following information for 2011 and 2012: How much cash was received from customers during 2012?

A) $972,000
B) $841,000
C) $859,000
D) $963,000

Question 36

The following information is available from the current period financial statements of a company: The net cash flow from operating activities using the indirect method is:

A) $141,000.
B) $173,000.
C) $117,000.
D) $215,000.

Question 37

The following items were reported on the balance sheets and income statement for Online Co.: What amount would be reported in the operating activities section of Online's statement of cash flows for collections from customers under the direct method, assuming that all sales are on credit?

A) $ 975,000
B) $1,025,000
C) $1,225,000
D) $1,250,000

Question 38

Cold and Flu Corporation reported the following information for 2011 and 2012. Inventory is not reported as there was no change in inventory from December 31, 2011, to December 31, 2012. How much cash was paid for inventory during 2012?

A) $200,000
B) $245,000
C) $265,000
D) $240,000

Question 39

The following items were reported on the balance sheets and income statement for Hawley Company: How would the change in accounts receivable be reported in the operating activities section of Hawley's statement of cash flows under the indirect method?

A) As an addition to sales
B) As a deduction from sales
C) As an addition to net income
D) As a deduction from net income

Question 40

During 2012, the accounts payable balance of Bombay Corporation decreased. From the statement of cash flows the financial reader would most likely conclude which of the following?

A) This decrease indicates that Bombay's sales increased compared to the previous period.
B) This decrease is added to net income in the operating activities section of a statement of cash flows prepared under the indirect method.
C) This decrease is deducted from the investing activities section of a statement of cash flows prepared under the indirect method.
D) This decrease indicates that Bombay paid more during the period than it recognized as credit purchases.

Question 41

Using the Indirect Method
For the following question(s), indicate how each transaction described would be classified on a statement of cash flows if the operating activities section is prepared under the indirect method.

-
When using the indirect method, where is the gain from selling a long-term investment appear on the statement of cash flows? (The proceeds from selling the investment are considered separately.)

A) Operating activity
B) Investing activity
C) Financing activity
D) Financing and Investing activities

Question 42

Using the Direct Method
For the following question(s), indicate how each transaction described would be classified on a statement of cash flows if the operating activities section is prepared under the direct method.

-
When using the direct method, where is the purchase of equipment for cash shown on the statement of cash flows?

A) Operating activity
B) Investing activity
C) Financing activity
D) Noncash investing and financing activity

Question 43

Using the Direct Method
For the following question(s), indicate how each transaction described would be classified on a statement of cash flows if the operating activities section is prepared under the direct method.

-
When using the direct method, where is the issuance of stock for cash shown on the statement of cash flows?

A) Operating activity
B) Investing activity
C) Financing activity
D) Noncash investing and financing activity

Question 44

Using the Indirect Method
For the following question(s), indicate how each transaction described would be classified on a statement of cash flows if the operating activities section is prepared under the indirect method.

-
When using the indirect method, where is the issuance of stock to retire a long-term debt shown on the statement of cash flows?

A) Operating activity
B) Investing activity
C) Financing activity
D) Noncash investing or financing activity

Question 45

Using the Direct Method
For the following question(s), indicate how each transaction described would be classified on a statement of cash flows if the operating activities section is prepared under the direct method.

-
When using the direct method, where are salaries paid to employees reported on the statement of cash flows?

A) Operating activity
B) Investing activity
C) Financing activity
D) Noncash investing and financing activity

Question 46

Using the Direct Method
For the following question(s), indicate how each transaction described would be classified on a statement of cash flows if the operating activities section is prepared under the direct method.

-
When using the direct method, where is the retirement of bonds payable at their maturity date shown on the statement of cash flows?

A) Operating activity
B) Investing activity
C) Financing activity
D) Noncash investing and financing activity

Question 47

Using the Indirect Method
For the following question(s), indicate how each transaction described would be classified on a statement of cash flows if the operating activities section is prepared under the indirect method.

-
When using the indirect method, where is depreciation expense recorded on the statement of cash flows?

A) Operating activity
B) Investing activity
C) Financing activity
D) Noncash investing and financing activity

Question 48

Using the Indirect Method
For the following question(s), indicate how each transaction described would be classified on a statement of cash flows if the operating activities section is prepared under the indirect method.

-
When using the indirect method, where is the receipt of cash from the sale of long-term investments treated on the statement of cash flows?

A) Operating activity
B) Investing activity
C) Financing activity
D) Noncash investing or financing activity

Question 49

Using the Indirect Method
For the following question(s), indicate how each transaction described would be classified on a statement of cash flows if the operating activities section is prepared under the indirect method.

-
When using the indirect method, where is the decrease in accounts payable shown on the statement of cash flows?

A) Operating activity
B) Investing activity
C) Financing activity
D) Noncash investing and financing activity

Question 50

Using the Direct Method
For the following question(s), indicate how each transaction described would be classified on a statement of cash flows if the operating activities section is prepared under the direct method.

-
When using the direct method, where is the purchase of equipment for cash shown on the statement of cash flows?

A) Operating activity
B) Investing activity
C) Financing activity
D) Noncash investing and financing activity

Question 51

Using the Indirect Method
For the following question(s), indicate how each transaction described would be classified on a statement of cash flows if the operating activities section is prepared under the indirect method.

-
When using the indirect method, where would the payment of cash dividends be shown on the statement of cash flows?

A) Operating activities
B) Investing activities
C) Financing activities
D) Noncash investing and financing activity

Question 52

Using the Direct Method
For the following question(s), indicate how each transaction described would be classified on a statement of cash flows if the operating activities section is prepared under the direct method.

-
When using the direct method, where is the collection of cash from customers shown on the statement of cash flows?

A) Operating activity
B) Investing activity
C) Financing activity
D) Noncash investing and financing activity

Question 53

Using the Indirect Method
For the following question(s), indicate how each transaction described would be classified on a statement of cash flows if the operating activities section is prepared under the indirect method.

-
When using the indirect method, where is the purchase of equipment for cash shown on the statement of cash flows?

A) Operating activity
B) Investing activity
C) Financing activity
D) Noncash investing and financing activity

Question 54

Mimi's Pies had the following results for December 31, 2011 and 2012, respectively: What was the amount of cash flows from investing activities for 2012?

A) Cash inflow of $290,000
B) Cash outflow of $290,000
C) Cash outflow of $10,000
D) Cash outflow of $30,000

Question 55

When using the indirect method, which balance sheet accounts are most affected by investing activities?

A) Current assets and current liabilities
B) Long-term assets
C) Long-term liabilities
D) Stockholders' equity

Question 56

Using the Indirect Method
For the following question(s), indicate how each transaction described would be classified on a statement of cash flows if the operating activities section is prepared under the indirect method.

-
When using the indirect method, where would the retirement of bonds payable at their maturity date be shown on the statement of cash flows?

A) Operating activity
B) Investing activity
C) Financing activity
D) Noncash investing and financing activity

Question 57

Using the Indirect Method
For the following question(s), indicate how each transaction described would be classified on a statement of cash flows if the operating activities section is prepared under the indirect method.

-
When using the indirect method, where is the issuing of stock for cash shown on the statement of cash flows?

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

Question 58

Using the Indirect Method
For the following question(s), indicate how each transaction described would be classified on a statement of cash flows if the operating activities section is prepared under the indirect method.

-
When using the indirect method, where is an increase in accounts receivable during the year shown on the statement of cash flows?

A) Operating activity
B) Investing activity
C) Financing activity
D) Noncash investing and financing activity

Question 59

Using the Direct Method
For the following question(s), indicate how each transaction described would be classified on a statement of cash flows if the operating activities section is prepared under the direct method.

-
When using the direct method, where is the payment of a cash dividend shown on the statement of cash flows?

A) Operating activity
B) Investing activity
C) Financing activity
D) Noncash investing and financing activity

Question 60

Using the Direct Method
For the following question(s), indicate how each transaction described would be classified on a statement of cash flows if the operating activities section is prepared under the direct method.

-
When using the direct method, where is the sale of long-term investments for cash reported on the statement of cash flows?

A) Operating activity
B) Investing activity
C) Financing activity
D) Noncash investing and financing activity

Question 61

Upon review of Bert's statement of cash flows, the following was noted: From this information, the most likely explanation is that Bert is:

A) using cash from operations and selling long-term assets to pay back debt.
B) using cash from operations and borrowing to purchase long-term assets.
C) using its profits to expand growth.
D) using cash from investors to provide for operations.

Question 62

Cash flows from issuing and repurchasing stock or issuing and repaying debt are classified as:

A) operating activities.
B) investing activities.
C) financing activities.
D) purchasing activities.

Question 63

Cash flows from acquiring and disposing of long-term assets are classified as:

A) operating activities.
B) investing activities.
C) financing activities.
D) purchasing activities.

Question 64

Upon review of Mack's statement of cash flows, the following was noted: From this information, the most likely explanation is that Mack is:

A) using cash from operations and selling long-term assets to pay back debt.
B) using cash from operations and borrowing to purchase long-term assets.
C) using its profits to expand growth.
D) using cash from investors to provide for operations.

Question 65

Which of the following is not an investing activity?

A) Purchase of investments for cash.
B) Purchase of equipment for cash.
C) Sale of merchandise for cash.
D) Sale of land for cash.

Question 66

Which balance sheet accounts are most affected by operating activities?

A) Current assets and current liabilities
B) Long-term assets
C) Long-term liabilities
D) Stockholders' equity

Question 67

Free cash flow is cash from operations, less cash for :

A) dividends and cash for fixed assets needed to maintain productivity.
B) dividends and cash to redeem bonds payable.
C) fixed assets needed to maintain productivity.
D) dividends, cash for fixed assets needed to maintain productivity, and cash to redeem bonds payable.

Question 68

Which of the following activities is most likely to have a cash flow effect?

A) Revaluing assets to reflect their market values
B) Declaring cash dividends
C) Reissuing treasury stock
D) Issuing stock to acquire a patent

Question 69

Which of the following statements is false regarding how the cash flow effects of the changes in the equipment and accumulated depreciation accounts would be reported on a statement of cash flows if the indirect method is used to prepare the operating activities section?

A) Cash proceeds from the sale of the equipment would be reported as a cash inflow in the investing activities section.
B) The cash paid to purchase equipment would be reported as a cash outflow in the investing activities section.
C) Depreciation expense would be added to net income in the operating activities section.
D) A loss on the sale of the equipment would be subtracted from net income in the operating activities section.

Question 70

Which balance sheet accounts are most affected by financing activities?

A) Current assets
B) Current liabilities
C) Long-term assets
D) Long-term liabilities and stockholders' equity

Question 71

Power Chair Company reported the following information in its annual report for 2012. What is the cash flow adequacy ratio for 2012 for Power Chair Company?

A) 0.50
B) 3.50
C) 4.50
D) 8.00

Question 72

Cash flows from borrowing and paying off a 180-day bank loan are classified as:

A) operating activities.
B) investing activities.
C) financing activities.
D) purchasing activities.

Question 73

Which of the following is not a financing activity?

A) Issuing bonds for cash
B) Selling an investment in IBM stock for cash
C) Purchasing a company's own stock (treasury stock) for cash
D) Making a cash payment to repay a bank loan

Question 74

Press Inc. reported the following information in its annual report for 2012. What is the cash flow adequacy ratio for 2012 for Press?

A) 7.375
B) 4.625
C) .925
D) 6.050

Question 75

Which of the following measures can be used to evaluate a company's ability to meet future debt obligations after paying operating expenses, dividends and making capital expenditures?

A) Earnings per share
B) Net income
C) Cash flow adequacy ratio
D) Net increase or decrease in cash and cash equivalents

Question 76

The Responsible Company completed the following transactions involving investments during 2012. Responsible uses the indirect method to prepare the operating activities section of the statement of cash flows. The following statements describe how Responsible reported the cash flow effects of the transactions above on its 2012 statement of cash flows. Which of the following has been reported incorrectly by Responsible?

A) Payments of $80,000 for 20-year treasury bonds were reported as a cash outflow in the operating activities section.
B) Proceeds of $100,000 were reported as a cash inflow in the investing activities section.
C) Payments of $55,000 for trading securities were reported as a cash outflow in the investing activities section.
D) A gain of $20,000 on the sale of available-for-sale securities was deducted from net income in the operating activities section.

Question 77

Free cash flow is:

A) all the cash in the bank.
B) the cash flow from operations.
C) the cash flow from financing, less cash used to purchase fixed assets to maintain productivity and cash used for dividends.
D) the cash flow from operations, less cash used to purchase fixed assets to maintain productivity and cash used for dividends.

Question 78

The statement of cash flows:

A) along with the balance sheet and income statement is prepared on the accrual basis.
B) along with the balance sheet and statement of retained earnings is dated as of a specific date.
C) along with the balance sheet is used to analyze liquidity.
D) ties the balance sheet to the statement of retained earnings.

Question 79

Which of the following financing activities results in a cash inflow?

A) Buying treasury stock
B) Issuing bonds
C) Repaying a bank loan
D) Paying cash dividends

Question 80

Upon review of Roepers's statement of cash flows, the following was noted: From this information, the most likely explanation is that Roeper is:

A) using cash from operations and selling long-term assets to pay back debt.
B) using cash from operations and borrowing to purchase long-term assets.
C) using its profits to expand growth.
D) using cash from investors to provide for operations.