Deck 12: The Statement of Cash Flows

Question 1

Cash sales and sales on account were $370,000 and $455,000, respectively. During the year Accounts Receivable decreased by $35,000. Cash received from customers was:

A)$370,000.
B)$455,000.
C)$790,000.
D)$860,000.

Answer 1

D

Question 2

Increases and decreases in the long- term assets available to a company are reported on the statement of cash flows as:

A)operating activities.
B)financing activities.
C)investing activities.
D)both operating and investing activities.

Answer 2

C

Question 3

Naraval Corporation sold used equipment with a book value of $31,000 for $27,000. The indirect method statement of cash flows will reflect:

A)an addition of $31,000 in the investing activities section and an addition of $4,000 in the operating activities section.
B)an addition of $27,000 in the investing activities section and a deduction of $4,000 in the operating activities section.
C)an addition of $27,000 in the investing activities section and an addition of $4,000 in the operating activities section.
D)an addition of $31,000 in the investing activities section and a deduction of $4,000 in the operating activities section.

Answer 3

C

Question 4

The direct method of preparing the statement of cash flows is preferred primarily because of the way it reports:

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

Question 5

Changes in the current asset and current liability accounts are reported on the statement of cash flows as:

A)financing activities.
B)operating activities.
C)investing activities.
D)follows-changes in the current asset accounts are reported as investing activities and changes in current liability accounts are reported as financing activities.

Question 6

Kyoto Industries began the year with $81,500 in Accounts Receivable and ended the year with $79,200 in Accounts Receivable. Sales for the year were $2,100,000. The cash collected from customers during the year amounted to:

A)$2,179,200.
B)$2,102,300.
C)$2,097,700.
D)$2,181,500.

Question 7

Stockton- Meadows Incorporated reports an increase in Accounts Payable of $8,700 and an increase in inventory of $51,000 for the current year. Accounts Payable relates solely to the purchase of merchandise. Sales on account were $529,000 and cost of goods sold was $374,000. The total purchases of merchandise for the period were:

A)$155,000.
B)$323,000.
C)$374,000.
D)$425,000.

Question 8

On an indirect method statement of cash flows, the purchase of machinery in exchange for common stock is:

A)reflected in the investing activities section.
B)shown in the schedule of noncash investing and financing activities which accompanies the statement of cash flows.
C)ignored.
D)reflected in the operating activities section.

Question 9

Phoenix Rising Corporation sold an unused building for $177,000. The building's book value on the date of sale was $172,000. How will this transaction appear in a statement of cash flows prepared using the indirect method?

A)A $172,000 increase in investing activities and $5,000 increase in operating activities
B)A $172,000 increase in investing activities and $5,000 decrease in operating activities
C)A $177,000 increase in investing activities and $5,000 increase in operating activities
D)A $177,000 increase in investing activities and $5,000 decrease in operating activities

Question 10

Under the indirect method of preparing a statement of cash flows, depreciation expense for the current period is:

A)subtracted in the operating activities section.
B)reported in the investing activities section.
C)added in the operating activities section.
D)not reported.

Question 11

Newbury Books Company reported Insurance Expense for the current year of $38,900. During the same period, the Prepaid Insurance account decreased $5,100. Cash paid for insurance was:

A)$38,900.
B)$44,000.
C)$5,100.
D)$33,800.

Question 12

A statement of cash flows:

A)may be combined with the income statement at the option of management.
B)is a basic financial statement required for publicly- held companies.
C)is typically prepared at the request of major creditors.
D)may be combined with the balance sheet.

Question 13

Pueblo- West LLC paid a total of $61,000 in cash for insurance. Pueblo- West's Prepaid Insurance account had a beginning balance $9,000 and an ending balance of $7,500. The amount of Insurance Expense to be reported on Pueblo- West's income statement for the year is:

A)$53,500.
B)$59,500.
C)$61,000.
D)$62,500.

Question 14

Which method of preparing the statement of cash flows reconciles net income to cash flows from operating activities?

A)Direct method
B)Equilibrium method
C)Reconciliation method
D)Indirect method

Question 15

On December 31, 2008, the Bison Bit Company's Retained Earnings account had a balance of $415,000. During 2008, the company incurred a net loss of $87,000, declared stock dividends of
$16,000, and paid cash dividends of $9,000. If the Dividends Payable account increased $3,500 during 2008, the January 1, 2008, balance in the Retained Earnings account was:

A)$518,000.
B)$299,500.
C)$530,500.
D)$473,500.

Question 16

Increases and decreases in the long- term liability accounts are reported on the statement of cash flows as:

A)financing activities.
B)investing activities.
C)operating activities.
D)both operating and investing activities.

Question 17

If the cash collections from customers amounted to $529,700 and the Accounts Receivable account decreased $19,400 during the same period, sales for the period were:

A)$547,200.
B)$529,700.
C)$510,300.
D)indeterminable from the information given.

Question 18

On a statement of cash flows prepared using the indirect method, an increase in Accounts Payable during the period is:

A)added to net income to determine net cash provided by financing activities.
B)deducted from net income to determine net cash provided by financing activities.
C)added to net income to determine net cash provided by operating activities.
D)deducted from net income to determine net cash provided by operating activities.

Question 19

Which method of preparing the statement of cash flows reports all cash payments and cash receipts from operating activities?

A)Indirect method
B)Reporting method
C)Comprehensive method
D)Direct method

Question 20

The amounts found in the Salaries Payable account for NovaLights Company were $13,200 and $15,800 on December 31, 2007, and December 31, 2008, respectively. Cash paid to employees for the years ended December 31, 2007, and December 31, 2008, were $237,000 and $274,000, respectively. NovaLights Company's Salary Expense for the year ended December 31, 2008, was:

A)$234,400.
B)$276,600.
C)$271,400.
D)$239,600.

Question 21

Assume that a statement of cash flows reports cash received from customers. Which of the following is true?

A)Cash received from customers is reported when using both the direct and indirect methods.
B)The statement was prepared using the indirect method.
C)Cash received from customers is not reported on the statement of cash flows.
D)The statement was prepared using the direct method.

Question 22

ReNew Corporation had accounts receivable of $90,000 at the beginning the year and $100,000 at the end of the year. Sales on account for the year amounted to $465,000. The amount to be reported on the statement of cash flows under the operating activities is:

A)$475,000.
B)$10,000.
C)$10,000.
D)$455,000.

Question 23

On January 1, 2008, Santa Fe Accents, Inc., had a balance of $338,000 in the Investments account. During 2008, Santa Fe Accents sold investments for $125,000 cash, resulting in a $12,000 gain. On December 31, 2008, the Investments account showed a balance of $388,000. The investments purchased during 2008 totaled:

A)$300,000.
B)$163,000.
C)$75,000.
D)$175,000.

Question 24

Purchases and sales of which of the following are reported under the investing activities section of the statement of cash flows?

A)Held- to- maturity securities
B)Available- for- sale securities
C)Trading securities
D)All of the above

Question 25

Which statement regarding the statement of cash flows is true?

A)The indirect method is preferred by FASB and is used by most companies.
B)The indirect method is preferred by FASB; the direct method is used by most companies.
C)The direct method is preferred by FASB and is used by most companies.
D)The direct method is preferred by FASB; the indirect method is used by most companies.

Question 26

The direct method of preparing the statement of cash flows:

A)is preferred by FASB.
B)is much easier for companies to compute.
C)both reports where cash came from and how it was spent on operating activities and is preferred by FASB.
D)reports where cash came from and how it was spent on operating activities.

Question 27

ZCMI, Inc., reported an increase in Accounts Receivable of $7,000 and cash collections on account of $428,000. Sales on account for the period were:

A)$428,000.
B)$421,000.
C)$7,000.
D)$435,000.

Question 28

Tri- Square Company reported plant assets, net of accumulated depreciation, on January 1, 2008, at $625,300 and $713,200 on December 31, 2008. The income statement showed a depreciation expense of $47,900 and a $5,100 loss on sale of plant assets. Tri- Square Company acquired $209,000 of plant assets during the year. The proceeds from the sale of plant assets were:

A)$68,100.
B)$839,400.
C)$73,200.
D)$121,100.

Question 29

All of the following might appear as adjustments to net income on an indirect method statement of cash flows EXCEPT:

A)payment of cash dividends.
B)depreciation expense.
C)gain on sale of plant assets.
D)an increase in Accounts Receivable.

Question 30

The statement of cash flows is designed to fulfill all of the following purposes EXCEPT to:

A)evaluate management decisions.
B)help predict future cash flows.
C)show the relationship of net income to changes in the company's cash.
D)assess the collectibility of accounts receivable.

Question 31

At the beginning of the year, Prepaid Insurance had a balance of $6,500. At the end of the year the balance in Prepaid Insurance was $7,900. Insurance Expense as reported on the income statement was $49,500. Payments for insurance during the year amounted to:

A)$50,900.
B)$57,400.
C)$48,100.
D)$49,500.

Question 32

The receipt of interest on loans would be reported on a statement of cash flows under:

A)the investing activities.
B)the financing activities.
C)the operating activities.
D)no category, because interest received on loans would not be reported on a statement of cash flows.

Question 33

Southern Industries Corporation uses the direct method when preparing its statement of cash flows. Southern Industries sold equipment with a book value of $15,000 at a loss of $2,000. The amount to be reported on the statement of cash flows under "proceeds from the sale of plant assets" is:

A)$15,000.
B)$13,000.
C)$2,000.
D)$17,000.

Question 34

A firm's revenue- earning activities appear on the statement of cash flows as:

A)operating activities.
B)financing activities.
C)investing activities.
D)both operating and financing activities.

Question 35

On an indirect method statement of cash flows, dividends paid during the year are:

A)reflected in the financing activities section.
B)deducted from net income.
C)added to net income.
D)reflected in the investing activities section.

Question 36

On a statement of cash flows prepared using the indirect method, an increase in Accounts Receivable during the period is:

A)added to net income to determine net cash provided by investing activities.
B)deducted from net income to determine net cash provided by operating activities.
C)added to net income to determine net cash provided by operating activities.
D)deducted from net income to determine net cash provided by investing activities.

Question 37

The purchase of treasury stock would be reported on a statement of cash flows as a:

A)cash outflow under the financing activities.
B)cash inflow under the financing activities.
C)cash inflow under the operating activities.
D)cash inflow under the investment activities.

Question 38

Acquisitions of treasury stock would be reported on a statement of cash flows as:

A)investing activities.
B)operating activities.
C)financing activities.
D)either investing activities or operating activities

Question 39

All of the following would be reported in the financing activities section under the direct method statement of cash flows EXCEPT:

A)issuing a stock dividend.
B)issuing common stock.
C)purchasing treasury stock.
D)paying a cash dividend.

Question 40

Stockton- Meadows Incorporated reports an increase in Accounts Payable of $9,200 and an increase in inventory of $45,000 for the current year. Accounts Payable relates solely to the purchase of merchandise. Sales on account were $532,100 and cost of goods sold was $358,000. The payments to suppliers for inventory during the period were:

A)$393,800.
B)$322,200.
C)$303,800.
D)$412,200.

Question 41

Which of the following would NOT appear on a statement of cash flows using the direct method?

A)Collections from customers
B)Cost of goods sold
C)Payments to a supplier
D)Proceeds from issuance of common stock

Question 42

Assume that a statement of cash flows reports increases and decreases in current asset accounts. Which of the following is true?

A)The statement was prepared using the direct method.
B)Increases and decreases in current assets are reported when using both the direct and indirect methods.
C)The statement was prepared using the indirect method.
D)Increases and decreases in current assets are not reported on the statement of cash flows.

Question 43

Salary Expense on the income statement was $183,200 for the year ended December 31, 2004. The Salary Payable account decreased $19,230 during the same period. The amount of cash payments to employees for the year ended December 31, 2004, was:

A)$183,200.
B)$163,970.
C)$202,430.
D)indeterminable from the information given.

Question 44

Crawler's Appliance Shop reported interest revenue of $9,000 for the year. Interest Receivable at the beginning of the year was $4,100 and $3,500 at the end of the year. Interest received for the period amounted to:

A)$8,400.
B)$9,000.
C)$9,600.
D)$600.

Question 45

Big Springs Corporation sold some of its used equipment for $37,000. The indirect method statement of cash flows shows an addition to net income of $5,000. The accumulated depreciation on the equipment to date of sale was $36,000. The original cost of the equipment was:

A)$42,000.
B)$68,000.
C)$41,000.
D)$78,000.

Question 46

Cash received from customers would be reported on the statement of cash flows:

A)under investing activities.
B)under financing activities.
C)in the schedule of noncash investing and financing activities.
D)under operating activities.

Question 47

Albers Enterprises uses the direct method when preparing its statement of cash flows. Albers sold equipment with a book value of $51,000 at a gain of $7,000. The amount to be reported on the statement of cash flows under "proceeds from the sale of plant assets" is:

A)$51,000.
B)$44,000.
C)$58,000.
D)$7,000.

Question 48

The purchase of held- to- maturity securities would be reported on a statement of cash flows as:

A)operating activities.
B)financing activities.
C)investing activities.
D)nothing-held- to- maturity securities would not be reported on a statement of cash flows.

Question 49

King Edward Company reported plant assets, net of accumulated depreciation, on January 1, 2008, at $437,500 and $589,300 on December 31, 2008. The income statement showed depreciation of $39,200. King Edward Company acquired $287,000 of plant assets during the year and reported proceeds from the sale of plant assets of $89,200 for the year. The gain or loss resulting from the sale of plant assets was a:

A)$3,400 loss.
B)$6,800 loss.
C)$5,050 gain.
D)$3,920 loss.

Question 50

The declaration of dividends by the board of directors would be reported on a statement of cash flows as:

A)nothing-this activity would not be reported on a statement of cash flows.
B)a cash outflow under the investing activities.
C)a cash inflow under the financing activities.
D)a cash outflow under the financing activities.

Question 51

Under the indirect method of preparing a statement of cash flows, cash disbursed for the acquisition of a plant asset is:

A)subtracted in the operating activities section.
B)added in the investing activities section.
C)added in the financing activities section.
D)subtracted in the investing activities section.

Question 52

Productivity Enterprises uses the direct method when preparing its statement of cash flows. Productivity sold equipment with a book value of $9,000 at a loss of $1,500. The amount to be reported on the statement of cash flows in the operating activities section is:

A)$7,500.
B)$10,500.
C)$1,500.
D)$0.

Question 53

Interest paid on debt would be reported on a statement of cash flows under:

A)the investing activities.
B)the operating activities.
C)the financing activities.
D)no category, because interest paid on debt would not be reported on a statement of cash flows.

Question 54

When preparing a statement of cash flows, the sum of operating and investing and financing activities equals the:

A)net income as reported on the income statement.
B)change in cash for the period.
C)ending cash balance.
D)cash inflow for the period.

Question 55

All of the following would appear on a direct method statement of cash flows EXCEPT:

A)cash receipts from customers.
B)cash payments for interest and taxes.
C)net income.
D)cash purchase of equipment.

Question 56

Cash sales and sales on account were $190,000 and $650,000, respectively. During the year Accounts Receivable increased by $10,000. Cash received from customers was:

A)$200,000.
B)$830,000.
C)$840,000.
D)$850,000.

Question 57

Dimas Company reported sales of $555,000 and cost of goods sold of $398,000. Dimas' Inventory account increased $21,000 and its' Accounts Payable account which relates solely to the purchase of merchandise)decreased $17,000. The cash paid to purchase inventory was:

A)$402,000.
B)$394,000.
C)$436,000.
D)$360,000.

Question 58

Highly liquid short- term investments that are easily convertible into cash are called:

A)accounts receivable.
B)cash equivalents.
C)trading securities.
D)cash reserves.

Question 59

Which of the three types of activities reported on the statement of cash flows is the most critical for evaluating a company's viability?

A)Operating activities
B)Investing activities
C)Financing activities
D)All of the sections are equally important.

Question 60

Rock Company uses the indirect method to prepare its statement of cash flows. Rock's Accumulated Depreciation- Equipment account increased during the period. Rock did not purchase or sell equipment during the period. The increase in Accumulated Depreciation- Equipment is:

A)added to net income to determine net cash provided by operating activities.
B)not reported.
C)reported in the investing activities section.
D)deducted from net income to determine net cash provided by operating activities.

Question 61

Hubble Corporation sold used equipment for cash. Which statement regarding this sale is true?

A)The cash from operating activities will be greater if the indirect method is used to prepare the statement of cash flows.
B)The effect on cash from operating activities depends on whether there was a gain or loss on sale.
C)The cash from operating activities will be greater if the direct method is used to prepare the statement of cash flows.
D)The cash from operating activities will be less if the direct, rather than indirect, method is used to prepare the statement of cash flows.

Question 62

The indirect method of computing cash flows from operating activities begins with net income and reconciles from net income to operating cash flows.

Question 63

Investments that do not require cash can be reported on a separate schedule under the statement of cash flows.

Question 64

The direct method of preparing the statement of cash flows provides the clearest picture of the sources and uses of cash from investing activities.

Question 65

Which of the following is considered to be a cash equivalent?

A)Notes receivable
B)Investments in U.S. Government Treasury bonds
C)Trading securities
D)Commercial paper

Question 66

Retained Earnings had a balance on January 1, 2008, and December 31, 2008, respectively, of $255,300 and $413,000. Net income for the year was $188,700 and the only other event affecting Retained Earnings was the declaration of dividends. If there was no change in the Dividends Payable account during the year, the payments for dividends were:

A)$176,500.
B)$31,000.
C)$376,000.
D)indeterminable from the information given.

Question 67

Highly liquid short- term investments that can be converted into cash quickly are included in the definition of cash.

Question 68

The balance in Treasury Stock on January 1, 2008, and December 31, 2008, is, respectively, $55,500 and $81,700. During the year, $58,500 of treasury stock was purchased. During the year, treasury stock was sold for $1,300 over its cost. The proceeds from the sale of treasury stock amounted to:

A)$31,000.
B)$32,300.
C)$33,600.
D)$31,000.

Question 69

The statement of cash flows is used by the firm's creditors to evaluate the firm's ability to pay dividends.

Question 70

A decrease in Interest Payable during the reporting period indicates that cash paid for interest exceeded Interest Expense on the income statement.

Question 71

Creditors analyze the statement of cash flows to determine:

A)the quality of the company's earnings.
B)whether or not the company can pay interest on debt.
C)total interest earned during the period.
D)all of the above.

Question 72

Berlin & Snider Enterprise's Inventory account decreased $29,700 and its' Accounts Payable account which relates solely to the purchase of merchandise)decreased $11,550 during the year. Berlin & Snider also reported sales of $757,000 and cost of goods sold of $503,400 during the same period. Berlin & Snider's payments to suppliers for inventory during the year were:

A)$485,250.
B)$544,650.
C)$521,550.
D)$715,750.

Question 73

Cash received from the issuance of bonds would be reported on a statement of cash flows under:

A)the investing activities.
B)the operating activities.
C)the financing activities.
D)no category, because issuing bonds for cash would not be reported on a statement of cash flows.

Question 74

Which of the following would be reported on a statement of cash flows as a financing activity?

A)Interest paid on bonds payable
B)Purchase of treasury stock
C)Distribution of stock dividend
D)All of the above

Question 75

The following data is provided for last year: Net income was $210,000. Current receivables and prepaid expenses increased by $10,000 and $2,000, respectively. Current payables decreased by $8,000. Under the indirect method, the cash flows from operating activities would be:

A)$214,000.
B)$190,000.
C)$206,000.
D)$230,000.

Question 76

On an indirect method statement of cash flows, a gain on the sale of plant assets is:

A)reported in the financing activities section.
B)deducted from net income.
C)reported in the investing activities section.
D)added to net income.

Question 77

Collections on a loan are reported as financing activities on the statement of cash flows.

Question 78

Which of the following would be reported on a statement of cash flows as an investing activity?

A)Sale of equipment for cash
B)Depreciation expense
C)Purchase of treasury stock
D)All of the above

Question 79

Which of the following would NOT appear on a statement of cash flows prepared using the direct method?

A)Loss on sale of assets
B)Cash received from sale of assets
C)Cash payments for inventory
D)All of these items would appear

Question 80

Operating activities are related to the transactions that make up net income.