Deck 12: Statement of Cash Flows

Question 1

If a company sells equipment at a loss, the loss from selling the equipment is reported in the investing activities section of the statement of cash flows.

Answer 1

False

Question 2

In preparing the operating activities section of the statement of cash flows by the indirect method, decreases in noncash current liabilities are added to net income.

Answer 2

False

Question 3

Cash flow from operating activities can be more stable from year to year than the amount of operating income.

Answer 3

False

Question 4

Investing activities on the statement of cash flows always involve long-term assets, including marketable securities.

Question 5

The indirect method for preparing the operating activities section of the statement of cash flows begins with the amount of sales revenue reported on the income statement.

Question 6

The amount of revenue a company recognizes on the income statement normally differs from the amount of cash collected from customers.

Question 7

In preparing the statement of cash flows by the indirect method, increases in noncash current assets are subtracted from net income.

Question 8

A company experiencing rapid growth can be short of cash despite earning substantial net income.

Question 9

Goodloe Corporation's credit sales for Year 1 were $500,000, and the balance in its accounts receivable increased by $26,000 during the year. In Year 1, Goodloe collected $526,000 in cash from its customers.

Question 10

Jones Company requires prepayment from all customers. Jones Company reported revenue of $258,000 on its Year 1 income statement. The balance in its Unearned Revenue account was $12,000 at the start of Year 1 and $4,000 at the end of the year. Based on this information alone, the amount of cash that Jones collected from customers for Year 1 was $250,000.

Question 11

The three main sections of the statement of cash flows are, in order, operating activities, investing activities, and financing activities.

Question 12

The direct method of preparing the operating activities section of the statement of cash flows is preferred by the Financial Accounting Standards Board.

Question 13

A cash payment to purchase treasury stock is reported on the statement of cash flows as a financing activity.

Question 14

TheFASB requires that companies report cash flow per share in their audited financial statements.

Question 15

The final or bottom line on the statement of cash flows is the net increase or decrease in cash for the period.

Question 16

Mayes Corporation reported utilities expense of $18,200 on its income statement for Year 1. For the year, the beginning balance in Utilities Payable was $2,500 and the ending balance was $1,500. The amount of cash that Mayes paid for utilities in Year 1 was $19,200.

Question 17

Rapid growth of a company can cause it to be short of cash.

Question 18

Companies report significant noncash investing and financing activities on a schedule that accompanies the statement of cash flows.

Question 19

The investing activities section of the statement of cash flows distinguishes between acquisitions of long-term assets that expand operating capacity and those that replace old, worn-out assets.

Question 20

In preparing the operating activities section of the statement of cash flows by the indirect method, gains are added to net income.

Question 21

Valdez Company sold land that had cost $48,000 for $60,000 cash.Which of the following statements is true about this transaction?

A)The $12,000 gain would be subtracted from net income in the operating activities section using the direct method.
B)$48,000 would appear as a cash inflow from investing activities and $12,000 would be added in the operating activities section using the indirect method.
C)$60,000 would appear as a cash inflow from investing activities.
D)The $12,000 gain would be subtracted from net income in the operating activities section prepared using the indirect method and $60,000 would be reported as a cash inflow from investing activities.

Question 22

Which of the following items appear on the statement of cash flows?

A)Beginning cash balance
B)Ending cash balance
C)An explanation of the activities that caused the change between the beginning and ending balances in the cash account
D)All of the choices are items that appear on the statement of cash flows

Question 23

During Year 1, El Paso Company had the following changes in account balances:The Accumulated Depreciation account had a beginning balance of $25,000 and an ending balance of $35,000. The increase was due to depreciation expense.The Long-Term Notes Payable account had a beginning balance of $40,000 and an ending balance of $15,000. The decrease was due to repayment of debt.The Equipment Account had a beginning balance of $25,000 and an ending balance of $92,500. The increase was due to the purchase of other operational assets.The Long-Term Investments Account (Marketable Securities)had a beginning balance of $18,000 and an ending balance of $12,500. The decrease was due to the sale of investments at cost.The Dividends Payable account had a beginning balance of $12,000 and an ending balance of $10,000. There were $20,000 of dividends declared during the period.The Interest Payable account had a beginning balance of $2,250 and an ending balance of $1,250. The difference was due to the payment of interest.What is the net cash flow from financing activities?

A)$22,000 inflow
B)$25,000 inflow
C)$25,000 outflow
D)$47,000 outflow

Question 24

During Year 1, El Paso Company had the following changes in account balances: The Accumulated Depreciation account had a beginning balance of $87,500 and an ending balance of $122,500. The increase was due to depreciation expense.The Long-Term Notes Payable account had a beginning balance of $140,000 and an ending balance of $75,000. The decrease was due to repayment of debt.The Equipment Account had a beginning balance of $125,000 and an ending balance of $327,500. The increase was due to the purchase of other operational assets.The Long-Term Investments Account (Marketable Securities)had a beginning balance of $90,000 and an ending balance of $62,500. The decrease was due to the sale of investments at cost.The Dividends Payable account had a beginning balance of $60,000 and an ending balance of $50,000. There were $100,000 of dividends declared during the period.The Interest Payable account had a beginning balance of $11,250 and an ending balance of $6,250. The difference was due to the payment of interest.What is the net cash flow from investing activities?

A)$175,000 outflow
B)$175,000 inflow
C)$210,000 inflow
D)$210,000 outflow

Question 25

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

A)Borrowing on a long-term note payable
B)Repayment of principal on bonds payable
C)Payment of interest on bonds payable
D)Payment of a cash dividend

Question 26

Assuming a transaction increases interest receivable and interest revenue, what effect does it have on the amount of cash generated by operating activities?

A)Decreases it
B)Increases it
C)Has no effect
D)Cannot be determined from the information given

Question 27

How would the issuance of a mortgage note in exchange for a building be reported on the statement of cash flows?

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

Question 28

The direct method of preparing the operating activities section of the statement of cash flows shows increases and decreases in noncash current assets and current liabilities to arrive at cash flows from operating activities.

Question 29

During Year 1, El Paso Company had the following changes in account balances: The Accumulated Depreciation account had a beginning balance of $100,000 and an ending balance of $140,000. The increase was due to depreciation expense.The Long-Term Notes Payable account had a beginning balance of $160,000 and an ending balance of $90,000. The decrease was due to repayment of debt.The Equipment Account had a beginning balance of $150,000 and an ending balance of $375,000. The increase was due to the purchase of other operational assets.The Long-Term Investments Account (Marketable Securities)had a beginning balance of $108,000 and an ending balance of $75,000. The decrease was due to the sale of investments at cost.The Dividends Payable account had a beginning balance of $72,000 and an ending balance of $60,000. There were $120,000 of dividends declared during the period.The Interest Payable account had a beginning balance of $13,500 and an ending balance of $7,500. The difference was due to the payment of interest.What is the net cash flow from financing activities?

A)$132,000 inflow
B)$70,000 inflow
C)$70,000 outflow
D)$202,000 outflow

Question 30

On August 1, Year 1, Jackson Company issued a one-year $80,000 face value interest-bearing note with a stated interest rate of 9% to Galaxy Bank. Jackson accrues interest expense on December 31, Year 1, its calendar year-end.What is the amount of interest expense and the cash outflow for interest during the year ending December 31, Year 1?

A)Option A
B)Option B
C)Option C
D)Option D

Question 31

On August 1, Year 1, Jackson Company issued a one-year $50,000 face value interest-bearing note with a stated interest rate of 9% to Galaxy Bank. Jackson accrues interest expense on December 31, Year 1, its calendar year-end. What is the cash flow from financing activities that will be reported during the year ending December 31, Year 1?

A)$0
B)$50,000 inflow
C)$51,875 inflow
D)($54,500)outflow

Question 32

On August 1, Year 1, Jackson Company issued a one-year $52,000 face value interest-bearing note with a stated interest rate of 9% to Galaxy Bank. Jackson accrues interest expense on December 31, Year 1, its calendar year-end. What is the amount of interest expense and the cash outflow for interest during the year ending December 31, Year 1? (Do not round your intermediate calculations.)

A)Option A
B)Option B
C)Option C
D)Option D

Question 33

When the direct method is used to prepare the operating activities section of the statement of cash flows, cash inflows from customers and cash outflows for depreciation are among the categories of cash flows likely to be reported.

Question 34

On August 1, Year 1, Jackson Company issued a one-year $80,000 face value interest-bearing note with a stated interest rate of 9% to Galaxy Bank. Jackson accrues interest expense on December 31, Year 1, its calendar year-end.What is the amount of interest expense and the total cash outflow related to the note during the year ending December 31, Year 2?

A)Option A
B)Option B
C)Option C
D)Option D

Question 35

How is the cash paid to purchase land reported in the statement of cash flows?

A)Cash outflow from financing activities
B)Schedule of noncash investing and financing activities
C)Cash outflow from investing activities
D)Cash inflow from operating activities

Question 36

During Year 1, El Paso Company had the following changes in account balances:The Accumulated Depreciation account had a beginning balance of $25,000 and an ending balance of $35,000. The increase was due to depreciation expense.The Long-Term Notes Payable account had a beginning balance of $40,000 and an ending balance of $15,000. The decrease was due to repayment of debt.The Equipment Account had a beginning balance of $25,000 and an ending balance of $92,500. The increase was due to the purchase of other operational assets.The Long-Term Investments Account (Marketable Securities)had a beginning balance of $18,000 and an ending balance of $12,500. The decrease was due to the sale of investments at cost.The Dividends Payable account had a beginning balance of $12,000 and an ending balance of $10,000. There were $20,000 of dividends declared during the period.The Interest Payable account had a beginning balance of $2,250 and an ending balance of $1,250. The difference was due to the payment of interest.What is the net cash flow from investing activities?

A)$62,000 outflow
B)$62,000 inflow
C)$67,500 outflow
D)$73,000 outflow

Question 37

The amount of increase in accounts receivable is added to credit sales to calculate the amount of cash inflow from customers when using the direct method to prepare the operating activities section of the statement of cash flows.

Question 38

How are cash receipts from interest on a note receivable classified on a statement of cash flows prepared using the direct method?

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

Question 39

On August 1, Year 1, Jackson Company issued a one-year $80,000 face value interest-bearing note with a stated interest rate of 9% to Galaxy Bank. Jackson accrues interest expense on December 31, Year 1, its calendar year-end. What is the cash flow from financing activities that will be reported during the year ending December 31, Year 1?

A)$0
B)$80,000 inflow
C)$83,000 inflow
D)($87,200)outflow

Question 40

On August 1, Year 1, Jackson Company issued a one-year $44,000 face value interest-bearing note with a stated interest rate of 9% to Galaxy Bank. Jackson accrues interest expense on December 31, Year 1, its calendar year-end. What is the amount of interest expense and the total cash outflow related to the note during the year ending December 31, Year 2? (Do not round your intermediate calculations.)

A)Option A
B)Option B
C)Option C
D)Option D

Question 41

Which of the following items would be classified as a cash flow from investing activities?1)Issue common stock for cash2)Payment on principal of note payable3)Payment of dividends4)Sale of equipment for cash

A)1 and 4
B)4 only
C)3 only
D)1, 2, 3, and 4

Question 42

What is the name given to the sum of the subtotals of the three sections (operating activities, investing activities, and financing activities)of the statement of cash flows?

A)Net income for the period
B)Net change in cash
C)The ending cash balance
D)The amount of cash inflow for the period

Question 43

Shamoo Incorporated presents its statement of cash flows using the indirect method. The following accounts and corresponding balances were drawn from the company's year-end balance sheets: The Year 2 income statement showed net income of $50,000. Based on this information, the amount of the cash flow from operating activities shown on the Year 2 statement of cash flows is

A)$46,000.
B)$48,000.
C)$50,000.
D)$52,000.

Question 44

PhillipsCompany reported total credit sales of $460,000 for Year 2. Its accounts receivable totaled $70,000 and $100,000 at the beginning and end of the year, respectively. What was the cash collected from customers during Year 2?

A)$530,000
B)$460,000
C)$490,000
D)$430,000

Question 45

The financial statements of Gregg Company reported wages expense of $388,000 during Year 2, wages payable of $59,200 at the beginning of Year 2, and wages payable of $81,400 at the end of Year 2. What amount of cash was paid for wages during Year 2?

A)$447,200
B)$388,000
C)$328,800
D)$365,800

Question 46

During Year 1, Mallard Company earned $165,000 of sales revenue on account and accrued $122,500 of operating expenses. The company also earned $26,400 of service revenue that had previously been recorded as unearned revenue. In addition, a $2,200 stock dividend was issued to the stockholders. What can be said about cash flows considering these transactions?

A)Cash outflows from financing activities are $2,200.
B)Cash inflows from operating activities are $68,900.
C)Cash inflows from operating activities are $42,500.
D)There are no cash inflows or outflows as a result of these activities.

Question 47

On January 1, Year 1, Chisolm Company purchased equipment for $36,000 cash. On December 31, Year 1, depreciation of $9,000 was recorded. Which of the following correctly shows the combined effect of these two events on the income statement and statement of cash flows? Chisolm uses the direct method.

A)Option A
B)Option B
C)Option C
D)Option D

Question 48

Which of the following transactions affects cash flows?

A)Accrual of interest receivable
B)Issuance of a stock dividend
C)Recognition of depreciation expense
D)Payment of dividends declared in a previous year

Question 49

Which of the following transactions is a use of cash?

A)Short-term borrowing of cash
B)Acquisition of land by issuing a short-term note payable
C)Issuance of a stock dividend
D)Purchase of treasury stock

Question 50

What effect does depreciation expense have on net income and cash flows?

A)Option A
B)Option B
C)Option C
D)Option D

Question 51

On September 1, Year 1, Laredo Company purchased equipment making a down payment of $15,500 cash and signing a one-year note payable on the $22,500 balance. The note carried an interest rate of 6%, and all interest was to be paid on the maturity date. Which of the following correctly shows the combined effect of the purchase as well as the accrual of interest on December 31, Year 1?

A)Option A
B)Option B
C)Option C
D)Option D

Question 52

Ervin Company began the accounting period with $64,000 in accounts receivable. The ending balance in accounts receivable was $40,000. If the credit sales during the period were $588,000, what is the amount of cash received from customers?

A)$564,000
B)$612,000
C)$24,000
D)$548,000

Question 53

When using the indirect method, which of the following items should be added to the amount of net income when determining the amount of net cash flow from operating activities?

A)The amount of an increase in the balance of a Land account
B)The amount of a decrease in the balance of a Prepaid Rent account
C)The amount of an increase in the balance of the Accounts Receivable account
D)The amount of a decrease in the balance of the Other Operating Expenses Payable account

Question 54

Which of the following is not a section of the statement of cash flows?

A)Operating activities
B)Purchasing activities
C)Financing activities
D)Investing activities

Question 55

The financial statements of Gregg Company reported wages expense of $160,000 during Year 2, wages payable of $16,000 at the beginning of Year 2, and wages payable of $22,000 at the end of Year 2. What amount of cash was paid for wages during Year 2?

A)$176,000
B)$160,000
C)$154,000
D)$144,000

Question 56

The Club, Incorporated (TCI)presents its statement of cash flows using the indirect method. For the current year the Company reported net income of $120,000. All sales are on account and the balance in the Accounts Receivable account increased by $7,000. The balance in the unearned revenue account decreased by $6,000. Also, the company reported depreciation expense of $15,000 and a gain on the sale of equipment of $8,000. Based on this information alone, the amount of the cash flow from operating activities shown on statement of cash flows is

A)$114,000
B)$126,000
C)$128,000
D)$130,000

Question 57

On January 1, Year 1, Mayer Corporation signed a contract to perform $25,000 worth of services for Phips Company over the next three years. Which of the following indicates the effects of this event on the Year 1 income statement and statement of cash flows of Mayer Corporation?

A)Option A
B)Option B
C)Option C
D)Option D

Question 58

Phillips Company reported total credit sales of $244,200 for Year 2. Its accounts receivable totaled $39,500 and $57,700 at the beginning and end of the year, respectively. What was the cash collected from customers during Year 2?

A)$283,700
B)$262,400
C)$244,200
D)$226,000

Question 59

Which of the following is the correct sequence of the three sections that are presented on the statement of cash flows?

A)Operating, Investing, Financing
B)Investing, Operating, Financing
C)Operating, Financing, Investing
D)Financing, Investing, Operating

Question 60

Ervin Company began the accounting period with $61,500 in accounts receivable. The ending balance in accounts receivable was $23,000. If the credit sales during the period were $148,000, what is the amount of cash received from customers?

A)$61,500
B)$148,000
C)$186,500
D)$232,500

Question 61

Which section of the statement of cash flows is prepared using either the direct or indirect method?

A)Operating activities
B)Investing activities
C)Financing activities
D)All of these answer choices are correct

Question 62

When using the indirect method to complete the cash flows from operating activities section of the statement of cash flows, what is the proper disposition of depreciation expense?

A)Subtract depreciationexpense from net income.
B)Add depreciationexpense to net income.
C)Disregard depreciationexpense because it relates to an investing activity.
D)Disregard depreciationexpense because it is a noncash expense.

Question 63

Erie Company reports the following comparative balance sheets and income statement information for the current year. Assuming accounts payable is used for inventory purchases only, what was the amount of cash paid for inventory purchases during the year?

A)$165,000
B)$37,000
C)$197,000
D)$181,000

Question 64

Erie Company reports the following comparative balance sheets and income statement information for the current year. Assuming accounts payable is used for inventory purchases only, what was the amount of cash paid for inventory purchases during the year?

A)$32,000
B)$176,000
C)$192,000
D)$160,000

Question 65

On January 1, Year 2, the balance of Jacobs Corporation's Accounts Receivable was $34,000. Sales on account for Year 2 amounted to $188,000 and the ending balance of Accounts Receivable was $53,000. What is the amount of cash collected from customers?

A)$135,000
B)$169,000
C)$207,000
D)$222,000

Question 66

When using the indirect method to prepare the operating activities section of the statement of cash flows, how is a decrease in current liabilities handled?

A)It is subtracted from net income in the cash flows from operating activities section.
B)It is subtracted from current assets in the cash flows from financing activities section.
C)It is added to net income in the cash flows from operating activities section.
D)It is added to inventory purchases in the cash flows from investing activities section.

Question 67

When using the indirect method to prepare the operating activities section of the statement of cash flows, how is an increase in noncash current assets handled?

A)It is subtracted from net income in the cash flows from operating activities section.
B)It is subtracted from current liabilities in the cash flows from financing activities section.
C)It is added to net income in the cash flows from operating activities section.
D)It is added to equipment purchases in the cash flows from investing activities section.

Question 68

Erie Company reports the following comparative balance sheets and income statement information for the current year. All revenues are from credit sales. What was the cash received from customers during the year?

A)$280,000
B)$296,000
C)$320,000
D)$336,000

Question 69

Hilliard Company, a small consulting firm, charges all of its operating expenses on Accounts Payable. On January 1, Year 2, Hilliard's Accounts Payable balance was $26,500 and, during Year 2, an additional $137,000 of operating expenses were charged on account. On December 31, Year 2, the Accounts Payable balance was $57,300. What is the amount of cash paid for expenses during Year 2?

A)$79,700
B)$167,800
C)$163,500
D)$106,200
E)$79,700

Question 70

Which of the following statements best explains the correct handling of depreciation on the statement of cash flows when using the indirect method?

A)Depreciation expense is a noncash expense that is added to net income to derive cash flows from operating activities.
B)Depreciationexpense is subtracted in the cash flows from investing activities section because it reduces the book value of the corresponding plant asset.
C)Depreciationexpense is subtracted from net income because it causes a loss when the related plant asset is sold.
D)Depreciationexpense adds to the company's Cash account to help pay for new equipment.

Question 71

Which of the following is a correct statement of one of the rules for converting net income to the cash flow from operating activities using the indirect method?

A)All noncash expenses and losses are subtracted from net income.
B)Increases in current liabilities are added to net income.
C)Increases in current assets are added to net income.
D)Decreases in current assets are subtracted from net income.

Question 72

A review of Pueblo Company's balance sheet revealed a beginning balance in its Land account of $150,000. The ending balance in the account was $325,000. All transactions associated with the purchase or sale of land were cash transactions. Based on this information alone, Pueblo would show a

A)$175,000 cash outflow in the financing activities section of its statement of cash flows.
B)$325,000 cash outflow in the financing activities section of its statement of cash flows.
C)$325,000 cash outflow in the investing activities section of its statement of cash flows.
D)$175,000 cash outflow in the investing activities section of its statement of cash flows.

Question 73

The following beginning and ending balances were drawn from the records of Allen Company. If Allen Company sold equipment that had an original cost of $175,000 and accumulated depreciation of $75,000 for $62,500, how much did Allen pay for new equipment?

A)$12,500
B)$25,000
C)$100,000
D)$250,000

Question 74

Erie Company reports the following comparative balance sheets and income statement information for the current year. All revenues are from credit sales. What was the cash received from customers during the year?

A)$296,000
B)$264,000
C)$280,000
D)$248,000

Question 75

Which method of reporting cash flows from operating activities is used by most businesses in preparing the statement of cash flows?

A)Accrual method
B)Direct method
C)Indirect method
D)Computational method

Question 76

The following beginning and ending balances were drawn from the records of Allen Company. If Allen Company sold equipment that had an original cost of $1,150,000 and accumulated depreciation of $550,000 for $325,000, how much did Allen pay for new equipment?

A)$225,000
B)$1,700,000
C)$450,000
D)$600,000

Question 77

Which of the following is an incorrect statement of one of the rules for converting net income to the cash flow from operating activities using the indirect method?

A)Increases in current assets are subtracted from net income.
B)Decreases in current assets are added to net income.
C)Gains are added to net income.
D)Increases in current liabilities are added to net income.

Question 78

On January 1, Year 2, the balance of Jacobs Corporation's Accounts Receivable was $40,000. Sales on account for Year 2 amounted to $320,000 and the ending balance of Accounts Receivable was $64,000. What is the amount of cash collected from customers?

A)$296,000
B)$256,000
C)$344,000
D)$360,000

Question 79

When using the indirect method to complete the cash flows from operating activities section of the statement of cash flows, what is the proper disposition of a loss on disposal of equipment?

A)Disregard the loss because it relates to an investing activity.
B)Disregard the loss because it relates to a financing activity.
C)Add the loss to net income.
D)Subtract the loss from net income.

Question 80

On January 1, Year 1, Colgate Corporation decided to switch from the direct method to the indirect method of preparing the statement of cash flows. Assuming a positive net income figure but a decrease in the cash balance, what can be said about the change in method of preparing the statement?

A)The direct method will yield a larger amount for cash flows from operating activities.
B)The only difference will be in the cash flows from financing activities section.
C)The indirect method will yield a larger amount for cash flows from operating activities.
D)There will be no difference in the totals on the statement of cash flows.