Deck 10: Statement of Cash Flows

Question 1

The financial statement that summarizes cash receipts and disbursements information and indicates the causes of net change in the cash balance for a specific time period is the

A) balance sheet.
B) income statement.
C) statement of cash flows.
D) statement of fund balance.
E) statement of stockholders' equity.

Answer 1

statement of cash flows.

Question 2

The primary information provided by the statement of cash flows relates to the entity's

A) cash receipts and disbursements during a period.
B) ability to generate future cash flows.
C) ability to finance its inventory investments.
D) ability to pay dividends and meet obligations.
E) cash flows for plant asset purchases.

Answer 2

cash receipts and disbursements during a period.

Question 3

Which of the following is not part of a typical statement of cash flows?

A) Cash flows from major classes of cash receipts and cash disbursements
B) Reconciliation between net income to cash flows from operations
C) Reconciliation between beginning and ending cash balances
D) Reconciliation between ending Retained Earnings and cash flows from operations
E) All of the above are parts of a SCF

Answer 3

Reconciliation between ending Retained Earnings and cash flows from operations

Question 4

For purposes of the statement of cash flows, cash refers to

Question 5

Companies typically want to have the most stability in generating positive cash flows from

A) investing activities.
B) operating activities.
C) investing activities..
D) property, plant and equipment sales.
E) sales of common, rather than preferred, stock.

Question 6

Rail Corporation bought debt securities that it intends to hold as short-term investments. This purchase should be classified on Rail's statement of cash flows as a(an)

A) operating cash inflow.
B) operating cash outflow.
C) financing cash inflow.
D) financing cash outflow.
E) investing cash outflow.

Question 7

Anderson Corporation sold equity securities that were held as short-term investments. This sale should be classified on Anderson's statement of cash flows as a(an)

A) operating cash inflow.
B) operating cash outflow.
C) financing cash inflow.
D) investing cash inflow.
E) investing cash outflow.

Question 8

Joyner Corporation paid interest on long-term debt. This interest payment should be classified on Joyner's statement of cash flows as a(an)

A) operating cash inflow.
B) operating cash outflow.
C) financing cash inflow.
D) financing cash outflow.
E) investing cash outflow.

Question 9

Net cash flow from operating activities is determined by eliminating

A) noncash expenses from net income.
B) noncash revenues and noncash expenses from net income.
C) earned revenues from net income.
D) incurred expenses from net income.
E) none of the above.

Question 10

As used in the statement of cash flows, operating activities generally refer to transactions

A) that include the lending and collecting of loans receivable.
B) related to the production and delivery of goods and services by businesses.
C) that involve borrowing cash through short-term or long-term notes.
D) that include obtaining capital from owners and providing them with a return on, and a return of, their investment.
E) all of the above.

Question 11

The method of calculating net cash flows from operating activities that adjusts net income for noncash effects and changes in operating assets and liabilities is the

A) direct method.
B) indirect method.
C) adjustment method.
D) net income method.
E) gross income method.

Question 12

A statement of cash flows in which net income does not appear has been calculated using the

A) direct method.
B) indirect method.
C) present value method.
D) working capital method.
E) gross income method.

Question 13

Changes in which of the following accounts would be shown in the investing activities section of a statement of cash flows?

Question 14

Changes in which of the following accounts would be shown in the financing activities section of a statement of cash flows?

Question 15

In computing net cash flow from operating activities, a decrease in which of the following account balances from beginning to the end of the year would be shown as an addition to net income?

Question 16

In computing net cash flow from operating activities, an increase in which of the following account balances from beginning to the end of the year would be shown as an addition to net income?

Question 17

Which of the following items would be deducted as an adjustment from net income in computing net cash flow from operating activities?

Question 18

When preparing the operating activities section of a statement of cash flows using the indirect method,

A) depreciation and amortization expenses should be subtracted from net income.
B) increases in current assets should be added to net income.
C) gains from sale of plant, property, and equipment should be added to net income.
D) decreases in current liabilities should be subtracted from net income.
E) both b and d are correct.

Question 19

When preparing the operating activities section of a statement of cash flows using the indirect method, which of the following are added to and subtracted from net income?

Question 20

Use the following information to answer questions :
In 2010, Palacio Corporation sold an automobile for $5,000. The automobile had a book value of $7,500 at the time of the sale.


-In its statement of cash flows prepared on the indirect method, Palacio should

A) classify the actual $5,000 cash inflow as a component of cash flows from financing activities.
B) add the $2,500 loss that resulted from this transaction to net income.
C) subtract the $2,500 loss that resulted from this transaction from net income.
D) add the $4,000 gain that resulted from this transaction to net income.
E) subtract the $4,000 gain that resulted from this transaction from net income.

Question 21

Use the following information to answer questions :
In 2010, Palacio Corporation sold an automobile for $5,000. The automobile had a book value of $7,500 at the time of the sale.


-In its statement of cash flows prepared on the indirect method, Palacio

A) should show the $5,000 cash inflow as a component of cash flows from investing activities.
B) should show the $5,000 cash inflow as a component of cash flows from financing activities.
C) should show the $5,000 cash inflow as a component of cash flows from operating activities.
D) should show the $7,500 as a cash outflow from financing activities.
E) cannot determine how to show the $5,000 without knowing the original cost of the automobile.

Question 22

Where is interest paid or received shown on a statement of cash flows under the following accounting systems?

Question 23

In its first year of operations, Sweetness Co. reported net income of $158,000. Total sales (all on account) amounted to $575,000 and collections of receivables totaled $511,500. Sweetness recorded $17,000 of depreciation expense. Based on these facts alone, what is the net cash provided by operating activities?

A) $ 77,500
B) $ 94,500
C) $111,500
D) $158,000
E) $204,500

Question 24

During 2010, Bates Company earned net income of $275,000 which included depreciation expense of $34,000. The company had a loss on the sale of equipment of $2,000 and the following changes in account balances occurred:

Based upon this information, what amount will be shown for net cash provided by operating activities for 2010?

A) $289,000
B) $307,000
C) $321,000
D) $323,000
E) $325,000

Question 25

During 2010, Richards Company earned net income of $268,000 which included depreciation expense of $21,000. The company had a gain on the sale of equipment of $6,000 and the following changes in account balances occurred:

Based upon this information, what amount will be shown for net cash provided by operating activities for 2010?

A) $267,000
B) $269,000
C) $279,000
D) $289,000
E) $299,000

Question 26

At the beginning of 2010, Pablo owed $1,800 of taxes payable. Pablo's 2010 tax expense was $17,300 and the 2010 year-end balance in Income Taxes Payable was $300. How much did Pablo pay in income taxes during 2010?

A) $ 1,800
B) $15,800
C) $17,300
D) $18,800
E) $19,400

Question 27

Baskett Corp. bought equipment for $100,000 cash. This purchase should be classified on Baskett's statement of cash flows as a(an)

A) operating cash inflow.
B) operating cash outflow.
C) financing cash inflow.
D) financing cash outflow.
E) investing cash outflow.

Question 28

The collection of the principal amount of a note receivable is reported on the statement of cash flows as a(an)

A) a financing activity.
B) an investing activity.
C) a operating activity.
D) a noncash investing and financing activity.
E) both b amd c.

Question 29

Glover Corporation sold a building with a book value of $215,000 for $250,000. Information related to this sale should be classified on Glover's statement of cash flows as a

A) operating cash inflow.
B) operating cash outflow.
C) financing cash inflow.
D) investing cash inflow.
E) investing cash outflow.

Question 30

Tinashe Company had a $195,000 beginning and a $150,000 ending balance in its Property, Plant and Equipment account. Tinashe sold equipment with an original cost of $70,000 at a gain of $5,000. Tinashe also purchased some equipment during the year. Based solely on this information, net cash from investing activities would include a

A) $ 5,000 cash inflow.
B) $25,000 cash outflow.
C) $45,000 cash inflow.
D) $45,000 cash outflow.
E) $75,000 cash inflow.

Question 31

In 2010, Garon Corp. declared and paid $50,000 in cash dividends. This payment should be classified on Garon's statement of cash flows as a(an)

A) operating cash inflow.
B) operating cash outflow.
C) financing cash inflow.
D) financing cash outflow.
E) investing cash outflow.

Question 32

Saxton Corporation recently sold $100,000 of treasury stock. This sale should be classified on Saxton's statement of cash flows as a(an)

A) operating cash inflow.
B) operating cash outflow.
C) financing cash inflow.
D) investing cash inflow.
E) investing cash outflow.

Question 33

Stock dividends issued by a company will appear on the statement of cash flows in the

A) operating activities section as cash outflow.
B) operating activities section as a positive adjustment to net income.
C) operating activities section as a negative adjustment to net income.
D) financing activities section.
E) none of the above.

Question 34

How are dividends shown in a statement of cash flows?

Question 35

Use the following information to answer questions
Barron Company provided the following information on selected transactions during 2010:


-The net cash provided (used) by investing activities during 2010 is

A) $(145,000).
B) $(45,000).
C) $(20,000).
D) $155,000.
E) $180,000.

Question 36

Use the following information to answer questions
Barron Company provided the following information on selected transactions during 2010:


-The net cash provided (used) by financing activities during 2010 is

A) $ 0.
B) $ 125,000.
C) $ 150,000.
D) $ 175,000.
E) $(275,000).

Question 37

Brandt Corporation's office supplies account balance at the end of 2009 and 2010 was $110,000 and $150,000, respectively. During 2010, Brandt's office supplies expense was $75,000. During 2010, how many dollars of office supplies did Brandt purchase?

A) $ 35,000
B) $ 75,000
C) $115,000
D) $150,000
E) $225,000

Question 38

Skilling Corporation's accounts receivable account balance at the end of 2009 and 2010 was $1,000,000 and $1,750,000, respectively. During 2010, Skilling's sales were $3,000,000, and $100,000 of accounts receivable were written off. During 2010, how much cash did Skilling receive from its customers?

A) $2,150,000
B) $2,250,000
C) $3,650,000
D) $3,750,000
E) $4,750,000

Question 39

Onken Corporation's interest payable account balance at the end of 2009 and 2010 was $1,000 and $2,200, respectively. During 2010, Skilling's interest expense was $4,000. During 2010, how much cash did Onken pay for interest payments?

A) $1,000
B) $2,200
C) $2,800
D) $4,000
E) $5,200

Question 40

G Corp. began 2010 with $2,000,000 in its equipment account. During 2010, G sold equipment with a historical cost of $300,000 at a $20,000 gain. At the end of 2010, G Corp. had a $3,300,000 balance in the equipment account. G bought new equipment during the year by signing a $200,000 note payable; the note and interest are due in 2011. In 2010, how much cash did G Corp. pay for equipment purchases?

A) $1,100,000
B) $1,300,000
C) $1,400,000
D) $1,420,000
E) $1,600,000

Question 41

Dozier Corporation's Retained Earnings balance at the end of 2009 and 2010 was $220,000 and $370,000, respectively. During 2010, Dozier's net income was $170,000. All dividends declared and paid during 2010 were cash dividends. During 2010, how much cash did Dozier use for dividends?

A) $ 20,000
B) $150,000
C) $170,000
D) $300,000
E) $320,000

Question 42

Butler Corp.'s Retained Earnings balance at the end of 2009 and 2010 was $435,000 and $573,000, respectively. During 2010, Butler's net income was $295,000. Both cash and stock dividends were declared and settled during 2010. The total stock dividend was $28,000. During 2010, how much cash did Butler use for dividends?

A) $28,000
B) $129,000
C) $157,000
D) $267,000
E) none of the above

Question 43

Powell Corp.'s Inventory balance at the end of 2009 and 20102 was $500,000 and $540,000, respectively. During 2010, Powell's cost of goods sold was $2,000,000. How much inventory did Powell buy during 2010?

A) $1,460,000
B) $1,540,000
C) $1,960,000
D) $2,000,000
E) $2,040,000

Question 44

Dalton Corp.'s Accounts Payable balance at the end of 2009 and 2010 was $200,000 and $300,000, respectively. During 2010, Dalton bought $1,200,000 of inventory. How much cash did Dalton pay its vendors for inventory in 2010?

A) $1,100,000
B) $1,200,000
C) $1,300,000
D) $1,400,000
E) $1,500,000

Question 45

Rutledge Co.'s had the following account balances at the end of 2009 and 2010.

The company's Cost of Goods Sold for 2010 was $798,000. How much cash did Rutledge pay its vendors for inventory in 2010?

A) $ 22,900
B) $808,400
C) $810,500
D) $820,900
E) Cannot be determined from the information given

Question 46

At the beginning of 2010, Angelo Inc. owed $500 of taxes payable. Angelo's tax expense for 2010 was $15,600. Angelo's 2010 year-end balance in Income Taxes Payable is $2,300. What amount of taxes were paid by Angelo in 2010?

A) $13,300
B) $13,800
C) $15,600
D) $17,400
E) $17,900

Question 47

Use the following information to answer questions :Sami Co. had the following account balances at the beginning and end of 2010:

During 2010, Sami Co. sold a building that originally cost $200,000 for $22,000. The building had a book value of $25,000.

-What was the cost of the buildings purchased during 2010?

A) $560,000
B) $585,000
C) $598,000
D) $760,000
E) none of the above

Question 48

Use the following information to answer questions :Sami Co. had the following account balances at the beginning and end of 2010:

During 2010, Sami Co. sold a building that originally cost $200,000 for $22,000. The building had a book value of $25,000.

-How much depreciation expense was taken by Sami Co. during 2010?

A) $162,000
B) $137,000
C) $ 38,000
D) $ 13,000
E) Cannot be determined from the information provided

Question 49

Significant non-cash transactions are

A) shown in the statement of cash flows when the direct method of presentation is used.
B) included as part of the investing section of the statement of cash flows as equal cash inflows and outflows.
C) are included as part of the financing section of the statement of cash flows as equal cash inflows and outflows.
D) disclosed when the indirect method of preparing a statement of cash flows is used.
E) disclosed in a schedule that follows the statement of cash flows.

Question 50

The operating cash flow ratio is calculated as

A) change in cash balance divided by weighted average number of common shares.
B) cash flow from operating activities divided by current liabilities.
C) cash flow from operating activities divided by weighted average number of common shares.
D) cash inflows from operating activities divided by capital expenditures.
E) (cash inflows from operating activities plus interest expense plus tax expense) divided by interest expense.

Question 51

The cash interest coverage ratio is calculated as

A) (cash inflows from operating activities plus interest expense) divided by tax expense.
B) cash flow from operating activities divided by current liabilities.
C) cash flow from operating activities divided by weighted average number of common shares.
D) cash inflows from operating activities divided by capital expenditures.
E) (cash inflows from operating activities plus interest expense plus tax expense) divided by interest expense.

Question 52

Which of the following can be calculated for a given period as (net cash flow from operating activities minus preferred stock dividends) divided by the weighted average number of shares of common stock outstanding?

A) Cash burn rate
B) Earnings per share
C) Cash flow per share
D) Free cash flow
E) Earnings before income taxes

Question 53

Renz Corporation's 2010 net cash flows from operating activities are $120,000. Its 2010 common and preferred dividends were $30,000 and $25,000, respectively. On January 1, 2010, Renz's total number of outstanding common shares was 40,000 shares. On March 1, 2010, it issued another 12,000 shares. What is Renz's 2010 cash flow per share?

A) $1.73
B) $1.83
C) $1.90
D) $2.31
E) $2.38

Question 54

A measurement of the cash generated by a company's operations in excess of that needed to maintain current organizational productivity is called

A) cash burn rate.
B) earnings per share.
C) cash flow per share.
D) free cash flow.
E) earnings before income taxes.

Question 55

Companies with a high level of free cash flow

A) have high debt to total asset ratios.
B) may not be making sufficient amounts of capital investments.
C) always report that number in financial statements.
D) have made comparable computations.
E) all of the above.

Question 56

Most companies should be generating

A) about an equal amount of net income and free cash flow.
B) free cash flow that is at least twice net income.
C) net income that is at least twice free cash flow.
D) cash flow from operating activities approximately equal to free cash flow.
E) cash flow from investing activities approximately twice free cash flow.

Question 57

Business managers should be concerned with both generating revenues and properly managing their firms' cash resources.

Question 58

The objective of the statement of cash flows is to account for the change in an organization's cash balance during a given accounting period.

Question 59

Payments for purchasing debt and equity securities classified as short-term investments are investing cash flows.

Question 60

Financial statement users tend to focus on cash flow provided by operating activities.

Question 61

Receipts from the repayment of long-term loans receivable are operating cash flows.

Question 62

A decrease in a current asset is added to net income on a statement of cash flows prepared using the indirect method.

Question 63

Amortization of a patent is shown as a negative adjustment to net income on a statement of cash flows prepared using the indirect method.

Question 64

A purchase of treasury stock is an investing activity.

Question 65

The direct method involves listing specific operating cash inflows and outflows, while the indirect method shows net income adjustments.

Question 66

Losses from the sale of equipment are shown in the investing section of a statement of cash flows.

Question 67

Gains on the sale of land are shown as net income adjustments in the operating section of a statement of cash flows prepared on the direct basis.

Question 68

The direct and indirect methods of preparing a statement of cash flows will show the same investing and financing sections.

Question 69

Under IFRS, companies using the direct method of preparing a statement of cash flows must include a schedule reconciling net cash flow from operating activities with net income.

Question 70

Under U.S. GAAP, companies using the direct method of preparing a statement of cash flows must include a schedule reconciling net cash flow from operating activities with net income.

Question 71

Repayment of bond principal is an investing activity.

Question 72

Payment of interest on a long-term loan payable is a financing activity.

Question 73

Purchase of treasury stock is considered a financing activity on a statement of cash flows.

Question 74

Most companies prepare their statements of cash flows using the direct method.

Question 75

A consistently negative trend in operating cash flows should be analyzed carefully.

Question 76

Rather than using liquidity or solvency ratios, some analysts use cash flow information to make liquidity judgments about a company.

Question 77

U.S. companies often provide cash flow per share information in their annual reports.

Question 78

The "safe harbor" rule protects corporations against any effects of financial misstatement.

Question 79

Market valuations of companies are also often assessed on the basis of whether those valuations can be supported by free cash flows.

Question 80

The following information is from Hollywood Corporation's 2009 and 2010 year-end balance sheets and 2009 and 2010 income statements:

During 2010, Hollywood wrote-off a customer's $40,000 account receivable.
Required:
a. How much bad debt expense did Hollywood recognize in 2010?
b. If Hollywood prepares its statement of cash flows using the indirect method, how will bad debt expense appear on the statement of cash flows?
c. How much cash did Hollywood receive from its customers?
d. If Hollywood prepares its statement of cash flows using the direct method, how will cash receipts from customers appear on its statement of cash flows?