Deck 6: Statement of Cash Flows

Question 1

The statement of cash flows provides information not available from other financial statements.

Answer 1

True

Question 2

Financing activities include (a) making and collecting loans and (b) acquiring and disposing of investments and productive long-lived assets.

Answer 2

False

Question 3

The cash received from the sale of property, plant, and equipment at a gain, although reported in the income statement, is classified as an investing activity.

Answer 3

True

Question 4

Determining net cash provided by operating activities involves analysis of the income statement alone as it is the statement that reflects the amount of cash generated from operations as well as the amount of cash used to conduct the operations.

Question 5

As its name implies, the indirect method is not directly involved with the computation of accrual-basis net income because it results in the presentation of a condensed cash-basis income statement.

Question 6

When computing net cash provided by operating activities, an increase in accounts receivable (net) during the year must be added to accrual-basis net income because more sales were made than those reflected in the income statement.

Question 7

Because the payment of cash dividends reduces both cash and retained earnings by a similar amount, this transaction has no effect on the statement of cash flows.

Question 8

If a company records a loss on the sale of equipment, the amount of the loss must be added back to net income to determine the proper amount of net cash provided by operating activities.

Question 9

When accounts payable increase during a period, cost of goods sold on an accrual basis is lower than cost of goods sold on a cash basis.

Question 10

In general, financing activities as used in the statement of cash flows refer to

A) liability and owners' equity items and include (a) obtaining cash from creditors and repaying the amounts borrowed and (b) obtaining capital from owners and providing them with a return on, and a return of, their investment.
B) transactions involving long-term assets and include (a) making and collecting loans and (b) acquiring and disposing of investments and productive long-lived assets.
C) only debt transactions that result from long-term borrowings from financial institutions.
D) the cash effect of transactions that enter into the determination of net income and, thus, help finance the operations of the business through the generation of cash.

Question 11

To arrive at net cash provided by operating activities, it is necessary to report revenues and expenses on a cash basis. This is done by

A) re-recording all income statement transactions that directly affect cash in a separate cash flow journal.
B) estimating the percentage of income statement transactions that were originally reported on a cash basis and projecting this amount to the entire array of income statement transactions.
C) eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash.
D) eliminating all transactions that have no current or future effect on cash, such as depreciation, from the net income computation.

Question 12

The method used to compute net cash provided by operating activities that adjusts net income for items that affected reported net income but did not affect cash is known as the

A) indirect method
B) direct method
C) adjustment method.
D) income statement method

Question 13

Schroeder Company uses the indirect method in computing net cash provided by operating activities. How would reported net income be adjusted for the following items?

Question 14

Lange Co. provided the following information on selected transactions during 2009:


-The net cash provided (used) by investing activities during 2009 is

A) $50,000.
B) $(300,000).
C) $(550,000).
D) $(1,250,000).

Question 15

Lange Co. provided the following information on selected transactions during 2009:


-The net cash provided by financing activities during 2009 is

A) $550,000.
B) $650,000.
C) $800,000.
D) $900,000.

Question 16

Lange Co. provided the following information on selected transactions during 2009:


-The net cash provided (used) by investing activities was

A) $26,000.
B) $(40,000).
C) $(136,000).
D) $(36,000).

Question 17

Lange Co. provided the following information on selected transactions during 2009:


-The net cash provided (used) by financing activities was

A) $0.
B) $(20,000).
C) $(40,000).
D) $60,000.

Question 18

Selected information from Adison Company's 2009 accounting records is as follows:
Adison's statement of cash flows for the year ended December 31, 2009, would show net cash provided (used) by financing activities of

A) $60,000.
B) $(220,000).
C) $160,000.
D) $1,360,000.

Question 19

Paxson Mining Co. has recently decided to go public and has hired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of cash flows. Financial statements of Paxson Mining Co. for 2009 and 2008 are provided below.
The following additional data were provided:
1) Dividends for the year 2009 were $96,000.
2) During the year, equipment was sold for $120,000. This equipment cost $176,000 originally and had a book value of $144,000 at the time of sale. The loss on sale was incorrectly charged to cost of sales.
3) All depreciation expense is in the selling expense category.
relate to a statement of cash flows for the year ended December 31, 2009, for Paxson Mining Company.

-The net cash provided by operating activities is

A) $204,000.
B) $144,000.
C) $120,000.
D) $100,000.

Question 20

Paxson Mining Co. has recently decided to go public and has hired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of cash flows. Financial statements of Paxson Mining Co. for 2009 and 2008 are provided below.
The following additional data were provided:
1) Dividends for the year 2009 were $96,000.
2) During the year, equipment was sold for $120,000. This equipment cost $176,000 originally and had a book value of $144,000 at the time of sale. The loss on sale was incorrectly charged to cost of sales.
3) All depreciation expense is in the selling expense category.
relate to a statement of cash flows for the year ended December 31, 2009, for Paxson Mining Company.

-The net cash provided (used) by investing activities is

A) $(176,000).
B) $24,000.
C) $120,000.
D) $(144,000).

Question 21

Paxson Mining Co. has recently decided to go public and has hired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of cash flows. Financial statements of Paxson Mining Co. for 2009 and 2008 are provided below.
The following additional data were provided:
1) Dividends for the year 2009 were $96,000.
2) During the year, equipment was sold for $120,000. This equipment cost $176,000 originally and had a book value of $144,000 at the time of sale. The loss on sale was incorrectly charged to cost of sales.
3) All depreciation expense is in the selling expense category.
relate to a statement of cash flows for the year ended December 31, 2009, for Paxson Mining Company.

-The net cash provided (used) by financing activities is

A) $(120,000).
B) $24,000.
C) $(216,000).
D) $96,000.

Question 22

Cashman Company reported net income after taxes of $85,000 for the year ended 12/31/08. Included in the computation of net income were: depreciation expense, $15,000; amortization of a patent, $8,000; and a gain on sale of investments, $3,000. Cashman also paid a $20,000 dividend during the year. The net cash provided by operating activities would be reported at

A) $45,000.
B) $85,000.
C) $89,000.
D) $105,000.

Question 23

Tobin Company sold some of its plant assets during 2008. The original cost of the plant assets was $750,000 and the accumulated depreciation at date of sale was $700,000. The proceeds from the sale of the plant assets were $105,000. The information concerning the sale of the plant assets should be shown on Tobin's statement of cash flows for the year ended December 31, 2008, as a(n)

A) subtraction from net income of $55,000 and a $50,000 increase in cash flows from financing activities.
B) addition to net income of $55,000 and a $105,000 increase in cash flows from investing activities.
C) subtraction from net income of $55,000 and a $105,000 increase in cash flows from investing activities.
D) addition of $105,000 to net income.

Question 24

An analysis of the machinery accounts of Doonan Company for 2008 is as follows:
The information concerning Doonan's machinery accounts should be shown in Doonan's statement of cash flows for the year ended December 31, 2008, as a(n)

A) subtraction from net income of $100,000 and a $200,000 decrease in cash flows from financing activities.
B) addition to net income of $100,000 and a $200,000 decrease in cash flows from investing activities.
C) $100,000 increase in cash flows from financing activities.
D) $200,000 decrease in cash flows from investing activities.

Question 25

Equipment which cost $213,000 and had accumulated depreciation of $114,000 was sold for $111,000. This transaction should be shown on the statement of cash flows as a(n)

A) addition to net income of $12,000 and a $111,000 cash inflow from financing activities.
B) deduction from net income of $12,000 and a $99,000 cash inflow from investing activities.
C) deduction from net income of $12,000 and a $111,000 cash inflow from investing activities.
D) addition to net income of $12,000 and a $99,000 cash inflow from financing activities.

Question 26

During 2009, equipment was sold for $156,000. The equipment cost $252,000 and had a book value of $144,000. Accumulated Depreciation-Equipment was $687,000 at 12/31/08 and $735,000 at 12/31/09. Depreciation expense for 2009 was

A) $60,000.
B) $96,000.
C) $156,000.
D) $192,000.

Question 27

Equipment that cost $300,000 and had a book value of $156,000 was sold for $180,000. Data from the comparative balance sheets are:


-Depreciation expense for 2009 was

A) $258,000.
B) $234,000.
C) $54,000.
D) $36,000.

Question 28

Financial statements for Rogan Company are given below:
Total assets on the balance sheet at December 31, 2008 are $2,216,000. Accumulated deprecia-tion on the equipment sold was $112,000.

-When the equipment was sold, the Buildings and Equipment account received a credit of

A) $96,000.
B) $208,000.
C) $160,000.
D) $112,000.

Question 29

Financial statements for Rogan Company are given below:
Total assets on the balance sheet at December 31, 2008 are $2,216,000. Accumulated deprecia-tion on the equipment sold was $112,000.

-The book value of the buildings and equipment at December 31, 2008 was

A) $1,016,000.
B) $1,040,000.
C) $1,424,000.
D) $1,176,000.

Question 30

Financial statements for Rogan Company are given below:
Total assets on the balance sheet at December 31, 2008 are $2,216,000. Accumulated deprecia-tion on the equipment sold was $112,000.

-The accounts payable at December 31, 2008 were

A) $88,000.
B) $216,000.
C) $64,000.
D) $296,000.

Question 31

Financial statements for Rogan Company are given below:
Total assets on the balance sheet at December 31, 2008 are $2,216,000. Accumulated deprecia-tion on the equipment sold was $112,000.

-The balance in the Retained Earnings account at December 31, 2008 was

A) $360,000.
B) $880,000.
C) $760,000.
D) $1,000,000.

Question 32

Financial statements for Rogan Company are given below:
Total assets on the balance sheet at December 31, 2008 are $2,216,000. Accumulated deprecia-tion on the equipment sold was $112,000.

-Capital stock (plus any additional paid-in capital) at December 31, 2008 was

A) $800,000.
B) $920,000.
C) $520,000.
D) $1,240,000.

Question 33

The balance in retained earnings at December 31, 2008 was $720,000 and at December 31, 2009 was $582,000. Net income for 2009 was $500,000. A stock dividend was declared and distributed which increased common stock $200,000 and paid-in capital $110,000. A cash dividend was declared and paid.

-The amount of the cash dividend was

A) $248,000.
B) $328,000.
C) $442,000.
D) $638,000.

Question 34

The following information was taken from the 2008 financial statements of Sawyer Corporation:
During 2008
• A $450,000 payment was made to retire bonds payable with a face amount of $500,000.
• Bonds payable with a face amount of $200,000 were issued in exchange for equipment.
In its statement of cash flows for the year ended December 31, 2008, what amount should Sawyer report as proceeds from issuance of bonds payable?

A) $1,500,000
B) $1,750,000
C) $1,800,000
D) $2,200,000

Question 35

Richman Corporation had net income for 2008 of $3,000,000. Additional information is as follows:
Richman's net cash provided by operating activities for 2008 was

A) $4,560,000.
B) $4,440,000.
C) $4,320,000.
D) $1,680,000.

Question 36

Net cash flow from operating activities for 2008 for Fordham Corporation was $300,000. The following items are reported on the financial statements for 2008:
Based on the information above, Fordham's net income for 2008 was

A) $312,000.
B) $296,000.
C) $264,000.
D) $256,000.

Question 37

During 2008, Hogan Company earned net income of $384,000 which included deprecia-tion expense of $78,000. In addition, the company experienced the following changes in the account balances listed below:
Based upon this information, what amount will be shown for net cash provided by operating activities for 2008?

A) $492,000
B) $465,000
C) $285,000
D) $267,000

Question 38

Robley Company reported net income of $340,000 for the year ended 12/31/08. Included in the computation of net income were: depreciation expense, $60,000; amortization of a patent, $32,000; and a loss on sale of equipment, $12,000. Robley also paid an $80,000 dividend during the year. The net cash provided by operating activities would be reported at

A) $444,000.
B) $420,000.
C) $236,000.
D) $156,000.

Question 39

Joe Novak Corporation reports the following information:


-Joe Novak's current cash debt coverage ratio is

A) 0.86.
B) 1.43.
C) 2.15.
D) 4.78.

Question 40

Joe Novak Corporation reports the following information:


-Joe Novak's free cash flow is

A) $10,000.
B) $45,000.
C) $105,000.
D) $155,000.

Question 41

Lincoln Corporation reports the following information:
Lincoln's cash debt coverage ratio is

A) 1.02.
B) 1.70.
C) 2.55.
D) 3.00.

Question 42

Kerwin Corp.'s transactions for the year ended December 31, 2008 included the following:
• Purchased real estate for $550,000 cash which was borrowed from a bank.
• Sold available-for-sale securities for $500,000.
• Paid dividends of $600,000.
• Issued 500 shares of common stock for $250,000.
• Purchased machinery and equipment for $125,000 cash.
• Paid $450,000 toward a bank loan.
• Reduced accounts receivable by $100,000.
• Increased accounts payable $200,000.

-Kerwin's net cash used in investing activities for 2008 was

A) $675,000.
B) $375,000.
C) $175,000.
D) $50,000.

Question 43

Kerwin Corp.'s transactions for the year ended December 31, 2008 included the following:
• Purchased real estate for $550,000 cash which was borrowed from a bank.
• Sold available-for-sale securities for $500,000.
• Paid dividends of $600,000.
• Issued 500 shares of common stock for $250,000.
• Purchased machinery and equipment for $125,000 cash.
• Paid $450,000 toward a bank loan.
• Reduced accounts receivable by $100,000.
• Increased accounts payable $200,000.

-Kerwin's net cash used in financing activities for 2008 was

A) $50,000.
B) $250,000.
C) $450,000.
D) $500,000.

Question 44

Miloy Corp.'s transactions for the year ended December 31, 2008 included the following:
• Acquired 50% of Gant Corp.'s common stock for $180,000 cash which was borrowed from a bank.
• Issued 5,000 shares of its preferred stock for land having a fair value of $320,000.
• Issued 500 of its 11% debenture bonds, due 2013, for $392,000 cash.
• Purchased a patent for $220,000 cash.
• Paid $120,000 toward a bank loan.
• Sold available-for-sale securities for $796,000.
• Had a net increase in returnable customer deposits (long-term) of $88,000.

-Miloy's net cash provided by investing activities for 2008 was

A) $296,000.
B) $396,000.
C) $476,000.
D) $616,000.

Question 45

Miloy Corp.'s transactions for the year ended December 31, 2008 included the following:
• Acquired 50% of Gant Corp.'s common stock for $180,000 cash which was borrowed from a bank.
• Issued 5,000 shares of its preferred stock for land having a fair value of $320,000.
• Issued 500 of its 11% debenture bonds, due 2013, for $392,000 cash.
• Purchased a patent for $220,000 cash.
• Paid $120,000 toward a bank loan.
• Sold available-for-sale securities for $796,000.
• Had a net increase in returnable customer deposits (long-term) of $88,000.

-Miloy's net cash provided by financing activities for 2008 was

A) $452,000.
B) $540,000.
C) $572,000.
D) $660,000.

Question 46

Talbert Corp.'s balance sheet accounts as of December 31, 2009 and 2008 and information relating to 2009 activities are presented below.
Information relating to 2009 activities:
• Net income for 2009 was $1,500,000.
• Cash dividends of $600,000 were declared and paid in 2009.
• Equipment costing $1,000,000 and having a carrying amount of $320,000 was sold in 2008 for $360,000.
• A long-term investment was sold in 2009 for $320,000. There were no other transactions affecting long-term investments in 2009.
• 20,000 shares of common stock were issued in 2008 for $25 a share.
• Short-term investments consist of treasury bills maturing on 6/30/10.

-Net cash provided by Talbert's 2009 operating activities was

A) $1,500,000.
B) $2,120,000.
C) $2,080,000.
D) $2,160,000.

Question 47

Talbert Corp.'s balance sheet accounts as of December 31, 2009 and 2008 and information relating to 2009 activities are presented below.
Information relating to 2009 activities:
• Net income for 2009 was $1,500,000.
• Cash dividends of $600,000 were declared and paid in 2009.
• Equipment costing $1,000,000 and having a carrying amount of $320,000 was sold in 2008 for $360,000.
• A long-term investment was sold in 2009 for $320,000. There were no other transactions affecting long-term investments in 2009.
• 20,000 shares of common stock were issued in 2008 for $25 a share.
• Short-term investments consist of treasury bills maturing on 6/30/10.

-Net cash used in Talbert's 2009 investing activities was

A) $2,320,000.
B) $1,820,000.
C) $1,680,000.
D) $1,720,000.

Question 48

Talbert Corp.'s balance sheet accounts as of December 31, 2009 and 2008 and information relating to 2009 activities are presented below.
Information relating to 2009 activities:
• Net income for 2009 was $1,500,000.
• Cash dividends of $600,000 were declared and paid in 2009.
• Equipment costing $1,000,000 and having a carrying amount of $320,000 was sold in 2008 for $360,000.
• A long-term investment was sold in 2009 for $320,000. There were no other transactions affecting long-term investments in 2009.
• 20,000 shares of common stock were issued in 2008 for $25 a share.
• Short-term investments consist of treasury bills maturing on 6/30/10.

-Net cash provided by Talbert's 2009 financing activities was

A) $480,000.
B) $520,000.
C) $1,080,000.
D) $1,680,000.

Question 49

Bell Corp.'s comparative balance sheet at December 31, 2009 and 2008 reported accumulated depreciation balances of $800,000 and $600,000, respectively. Property with a cost of $50,000 and a carrying amount of $38,000 was the only property sold in 2009. Depreciation charged to operations in 2009 was

A) $188,000.
B) $200,000.
C) $212,000.
D) $224,000.