Deck 13: Statement of Cash Flows

Question 1

The difference between the indirect and direct methods of cash flow determination only affects the determination of investing activities cash flows.

Answer 1

False
Explanation: The direct and indirect methods are options with respect to determining operations cash flows.

Question 2

If sales revenue was $1,800,000 and accounts receivable decreased $40,000 while unearned revenue increased $10,000 during the year,then cash collected from customers equals $1,850,000.

Answer 2

True
Explanation: Cash collected from customers ($1,850,000) = Sales ($1,800,000) + Accounts receivable decrease ($40,000) + Unearned revenue increase ($10,000)

Question 3

Under the indirect method,depreciation expense is added to net income,because it decreases net income but doesn't consume a cash flow.

Answer 3

True
Explanation: Under the indirect method, depreciation expense is added to net income, because it is a noncash expense.

Question 4

The statement of cash flows explains how the cash balance changed during a particular period of time.

Question 5

Under the indirect method,a decrease in inventory is deducted from net income,because inventory purchases are less than cost of goods sold.

Question 6

Collection of principal on a note receivable is a cash flow from financing activities.

Question 7

Only highly liquid investments with original maturities of less than six months at the date of purchase qualify as cash equivalents.

Question 8

Under the indirect method,an increase in prepaid expenses is deducted from net income,because the cash prepayments exceed the related expenses.

Question 9

Cash flows associated with property,plant,and equipment acquisition and disposition are reported as cash flows from investing activities.

Question 10

The quality of income ratio decreases when cash is used to pay accounts payable.

Question 11

Cash collected from customers is a cash flow from operating activities,which is calculated using the indirect method in preparing the statement of cash flows

Question 12

Under the indirect method,an increase in accounts receivable during the year will be added to net income.

Question 13

The quality of income ratio increases when depreciation expense is recorded.

Question 14

The quality of income ratio measures the portion of net income that generated cash flow from operating activities.

Question 15

The quality of income ratio can only be interpreted based on knowledge of a company's business operations and strategies.

Question 16

Most companies use the direct method for disclosing their cash flows from operating activities rather than the indirect method.

Question 17

Cash flows associated with issuance and retirement of long-term debt and equity are reported as cash flows from investing activities.

Question 18

A higher quality of income ratio implies that operations tend to be more self-supporting.

Question 19

When accrued liabilities increase from the beginning to the end of the year,it means accrued expenses were greater than cash payment of such expenses so the increase would be added to net income to convert to cash flow from operating activities under the indirect method.

Question 20

The payment of interest on a note payable is a cash flow from a financing activity.

Question 21

Free cash flow measures the sufficiency of cash flow from operating activities to cover both capital expenditures for property,plant and equipment as well as the payment of dividends.

Question 22

Darwin Company,a manufacturer,has provided the following information pertaining to its recent year of operation:
Net income,$200,000;
Accounts receivable increased $18,000;
Prepaid insurance increased $7,000;
Depreciation expense was $25,000;
Loss on sale of a building was $22,000;
Wages payable increased $14,000;
Unearned revenue decreased $21,000.
How much was Darwin's net cash inflow from operating activities?

A)$227,000
B)$215,000
C)$171,000
D)$257,000

Question 23

Which of the following transactions would not create a cash flow from operating activities?

A)Collecting cash from a customer.
B)Paying cash to a supplier.
C)Paying cash to stockholders for dividends.
D)Paying cash for a utility bill.

Question 24

Rice Company,a retailer,has provided the following information pertaining to its recent year of operation:
Net income,$100,000;
Accounts receivable increased $9,000;
Prepaid insurance decreased $3,000;
Depreciation expense was $15,000;
Gain on sale of land,$2,000;
Wages payable decreased $7,000;
Unearned revenue increased $11,000.
How much was Rice's net cash inflow from operating activities?

A)$89,000
B)$115,000
C)$125,000
D)$111,000

Question 25

When a company sells equipment for cash at a loss,cash flows from investing activities decreases.

Question 26

Which of the following statements regarding use of the direct and indirect methods of determining cash flows from operating activities is incorrect?

A)The indirect method starts with net income.
B)The direct method calculates cash collected from customers.
C)The majority of U.S.companies use the indirect method.
D)The FASB recommends use of the indirect method.

Question 27

Cash flows from financing activities include those cash flows with respect to issuing and retiring long-term debt and equity.

Question 28

Amortization of a patent reduces cash flows from investing activities.

Question 29

Which of the following transactions would not create a cash flow?

A)A company purchased some of its own stock from a stockholder.
B)Amortization of a patent.
C)Payment of a cash dividend.
D)Sale of equipment at book value.

Question 30

Canadian Beer had a capital acquisitions ratio of 7.49,which means its net income exceeded its cash investment in property,plant and equipment by almost 7.5 times.

Question 31

Which of the following would be deducted from net income when determining cash flows from operating activities under the indirect method?

A)An increase in accounts payable.
B)Depreciation expense.
C)A decrease in prepaid insurance.
D)A gain on the sale of a depreciable asset.

Question 32

Which of the following would be added to net income when determining cash flows from operating activities under the indirect method?

A)A decrease in accounts payable.
B)Patent amortization expense.
C)An increase in prepaid insurance.
D)A gain on the sale of a depreciable asset.

Question 33

Which of the following would be deducted from net income when determining cash flows from operating activities under the indirect method?

A)A decrease in utilities payable.
B)Patent amortization expense.
C)A decrease in prepaid rent.
D)A loss on the sale of a depreciable asset.

Question 34

Cash flows from financing activities include those cash flows with respect to paying previously declared dividends.

Question 35

Wish Corporation acquired a computer for $15,000 and paid for it in full by issuing 1,000 shares of its own common stock,par $10 (current market price $15 share).This transaction should not be reported on the statement of cash flows because cash was neither paid out nor received.

Question 36

When a company both borrows $150 million during the year and repays $120 million of notes,the company can disclose the $30 million net amount as excess of borrowings over repayments in the financing activities section of the statement of cash flows.

Question 37

The capital acquisitions ratio represents the portion of property,plant,and equipment purchases which could have been financed with cash flow from operations.

Question 38

Which of the following transactions would be reported as a cash flow from financing activities?

A)The cash payment of interest expense.
B)Acquiring land by signing a note payable.
C)Paying cash to stockholders for dividends.
D)Purchasing shares of stock of another company using cash.

Question 39

Which of the following transactions would not be reported as a cash flow from investing activities?

A)Selling a depreciable asset for cash at a loss.
B)Purchasing a patent using cash.
C)Purchasing land in exchange for stock.
D)Purchasing shares of stock of another company using cash.

Question 40

When a company purchases equipment using common stock,the equipment purchase is reported as a financing activity.

Question 41

KJ Company,a manufacturer,has provided the following information pertaining to its recent year of operation:
Cash flow from operating activities,$136,000;
Accounts payable increased $11,000;
Prepaid assets decreased $8,000;
Depreciation expense was $12,000;
Accounts receivable increased $23,000;
Loss on sale of a depreciable asset was $6,000;
Wages payable decreased $9,000;
Unearned revenue decreased $19,000;
Patent amortization expense was $3,000.
How much was KJ's net income?

A)$185,000
B)$135,000
C)$147,000
D)$131,000

Question 42

Flow Company has provided the following information for the year ended December 31,2010:
Cash paid for interest,$20,000;
Cash paid for dividends,$6,000;
Cash dividends received,$4,000;
Cash proceeds from bank loan,$29,000;
Cash purchase of treasury stock,$11,000;
Cash paid for equipment purchase,$27,000;
Cash received from common stock sale,$37,000;
Cash received from sale of land with a $32,000 book value,$25,000;
Acquisition of land costing $51,000 in exchange for preferred stock issuance.
Paid a $100,000 note payable by exchanging used machinery with a $77,000 book value.
How much was Flow's net cash flow from financing activities?

A)A net outflow of $51,000.
B)A net inflow of $29,000.
C)A net outflow of $53,000.
D)A net inflow of $49,000.

Question 43

KAJ Incorporated purchased a machine costing $100,000 by paying $20,000 and signing an $80,000 note payable.How would this transaction be reported within the cash flow from investing activities section of the cash flow statement?

A)An outflow of $100,000.
B)An outflow of $80,000.
C)An outflow of $20,000.
D)It would have no effect.

Question 44

Which of the following would not be considered a cash equivalent?

A)A 30-day certificate of deposit.
B)A ten-year treasury note purchased over nine years ago, which matures in two months.
C)A three-month Treasury bill.
D)A ten-year Treasury note purchased two months before maturity.

Question 45

Which of the following is reported as a cash flow from investing activities?

A)Cash received from dividends earned.
B)Purchasing land in exchange for common stock.
C)Selling a long-term investment at a loss for cash.
D)Cash received from interest earned.

Question 46

Flow Company has provided the following information for the year ended December 31,2010:
Cash paid for interest,$20,000;
Cash paid for dividends,$6,000;
Cash dividends received,$4,000;
Cash proceeds from bank loan,$29,000;
Cash purchase of treasury stock,$11,000;
Cash paid for equipment purchase,$27,000;
Cash received from common stock sale,$37,000;
Cash received from sale of land with a $32,000 book value,$25,000;
Acquisition of land costing $51,000 in exchange for preferred stock issuance.
Paid a $100,000 note payable by exchanging used machinery with a $77,000 book value.
How much was Flow's net cash flow from investing activities?

A)A net outflow of $2,000.
B)A net inflow of $2,000.
C)A net outflow of $53,000
D)A net inflow of $49,000

Question 47

DJ Company,a manufacturer,has provided the following information pertaining to its recent year of operation:
Cash flow from operating activities,$272,000;
Accounts payable decreased $21,000;
Prepaid assets increased $15,000;
Depreciation expense was $27,000;
Accounts receivable decreased $21,000;
Loss on sale of a depreciable asset was $16,000;
Wages payable increased $10,000;
Unearned revenue decreased $16,000;
Patent amortization expense was $10,000.
How much was DJ's net income?

A)$256,000
B)$210,000
C)$198,000
D)$240,000

Question 48

Allen Company's 2010 income statement reported total revenues,$850,000 and total expenses (including $40,000 depreciation)of $720,000.The 2009 balance sheet reported the following:
Accounts receivable-beginning balance,$50,000 and ending balance,$40,000; accounts payable-beginning balance,$22,000 and ending balance,$28,000.Therefore,based only on this information,how much was the 2010 net cash inflow from operating activities?

A)$126,000
B)$166,000
C)$174,000
D)$186,000

Question 49

RM Company,a manufacturer,has provided the following information pertaining to its recent year of operation:
Net income,$300,000;
Accounts payable increased $24,000;
Prepaid rent decreased $10,000;
Depreciation expense was $35,000;
Accounts receivable increased $34,000;
Gain on sale of a building was $11,000;
Wages payable decreased $21,000;
Unearned revenue increased $44,000.
How much was RM's net cash inflow from operating activities?

A)$259,000
B)$327,000
C)$347,000
D)$358,000

Question 50

GJ Company,a manufacturer,has provided the following information pertaining to its recent year of operation:
Net income,$500,000;
Accounts payable decreased $42,000;
Prepaid assets increased $31,000;
Depreciation expense was $53,000;
Accounts receivable decreased $41,000;
Loss on sale of a depreciable asset was $31,000;
Wages payable increased $19,000;
Unearned revenue decreased $31,000;
Patent amortization expense was $5,000.
How much was GJ's net cash inflow from operating activities?

A)$545,000
B)$607,000
C)$514,000
D)$463,000

Question 51

Which of the following statements about the statement of cash flows is correct?

A)A company with a net loss on the income statement will always have a net cash outflow from operating activities.
B)A purchase of equipment is classified as a cash inflow from investing activities.
C)Cash dividends received on stock investments are classified as cash flows from operating activities.
D)Cash dividends paid are classified as cash flows from operating activities.

Question 52

Which of the following statements about the quality of income ratio is incorrect?

A)An increase in operating assets and a decrease in liabilities will reduce operating cash flows, thereby reducing the ratio.
B)Seasonal variations in sales and purchases of inventory can cause wide deviations in the quality of income ratio.
C)When sales are growing, receivables and inventory normally increase at a faster rate than accounts payable often causing operating cash flows to be less than income.
D)Aggressive revenue recognition tends to increase the ratio.

Question 53

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

A)Purchase of long-term investments.
B)Sale of a patent.
C)Collection of principal on a long-term note receivable.
D)Collection of interest revenue on a long-term note receivable.

Question 54

Which of the following items about the statement of cash flows is correct?

A)Non-cash expenses such as depreciation are deducted from net income with the indirect method in computing cash flows from operating activities.
B)Cash equivalents are highly liquid investments with maturities at the date of purchase of less than three months.
C)The acquisition of land by issuing bonds payable would not appear on the statement of cash flows.
D)Cash paid for interest would be classified as a financing cash flow.

Question 55

During 2010,Boogle reported net income of $785 million and net cash inflow from operations of $1,196 million.During 2009,their net income was $563 million and net cash inflow from operations was $1,237 million.Which of the following is incorrect about their quality of income ratios?

A)In 2009 the ratio was 2.2 and in 2010 it was 1.5.
B)Their ratio in 2009 was better than their ratio in 2010.
C)Boogle's quality of income ratios indicates poor performance because net income is less than cash flow.
D)The ratio in both years shows the company's ability to generate good cash flow from its operating activities.

Question 56

Which of the following is not reported as a cash flow from investing activities?

A)Sale of a depreciable asset for cash.
B)Purchasing land in exchange for common stock.
C)Selling a long-term investment at a loss for cash.
D)Purchase of a patent in exchange for cash.

Question 57

Which statement regarding the indirect method is false?

A)Depreciation expense is added to net income.
B)An increase in accounts receivable is added to net income.
C)An increase in accounts payable is added to net income.
D)An increase in merchandise inventory is subtracted from net income.

Question 58

Which of the following statements about the quality of income ratio is correct?

A)When sales are growing, receivables and inventory normally increase faster than accounts payable so the ratio increases.
B)Seasonal variations in sales have no impact on the quality of income ratio.
C)Failure to accrue appropriate expenses will inflate net income and reduce the quality of income ratio.
D)The quality of income ratio is computed by dividing net income by cash flow from operating activities.

Question 59

KAJ Incorporated purchased a machine costing $100,000 by paying $20,000 cash and signing an $80,000 note payable.How would this transaction be reported within the cash flow from financing activities section of the cash flow statement?

A)An outflow of $100,000.
B)An outflow of $80,000.
C)An outflow of $20,000.
D)It would have no effect.

Question 60

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

A)Issuance of common stock for cash.
B)Borrowing cash on a long-term note payable.
C)Collection of a cash dividend.
D)Repayment of principal on a long-term note payable.

Question 61

A company's 2010 income statement reported total sales revenue of $1,200,000; accounts receivable increased by $25,000 and the unearned revenue account decreased $15,000 during 2010.How much cash was collected from customers during 2010?

A)$1,225,000
B)$1,160,000
C)$1,175,000
D)$1,185,000

Question 62

Roberts Company sold equipment for $250,000,purchased a building for $6,500,000,sold short-term investments for $280,000,repaid principal on a note payable for $2,300,000 plus $230,000 of interest,and paid cash dividends of $20,000.How much was the net cash flow from investing activities?

A)$6,250,000 outflow
B)$8,320,000 outflow
C)$8,270,000 outflow
D)$5,970,000 outflow

Question 63

Which of the following is correct?

A)Repayments of principal and interest reduce financing activities cash flows.
B)Repurchase of treasury shares is a cash outflow connected to investing activities.
C)If a company borrows $450 million in long-term notes and repays $380 million of long-term notes, and then these items must both be disclosed and not netted against each other in the financing section.
D)Issuing common stock in exchange for the purchase of a building creates both a financing activity and investing activity cash flow.

Question 64

The financial statements for World Company show the following:
Cost of goods sold,$725,000. $\begin{array}{lrlrl}&\text { Beginning Balance } & \text { Ending Balance } \\\text { Merchandise Inventory } & \$ 45,000 & \$ 56,000 \\\text { Accounts Receivable } & 53,000 & 50,000 \\\text { Accounts Payable } & 37,000 & 42,000\end{array}$ How much cash was paid to suppliers?

A)$731,000
B)$736,000
C)$719,000
D)$714,000

Question 65

Which of the following statements about the capital acquisitions ratio is correct?

A)A high ratio indicates less need for outside financing of property, plant and equipment.
B)The ratio is computed by dividing cash flow from operations by the average net property, plant and equipment.
C)A low ratio may indicate a failure to update property, plant and equipment which can limit a company's ability to compete in the future.
D)The ratio is comparable across industries.

Question 66

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

A)Issuing common stock for cash.
B)Cash dividend payments.
C)Purchasing treasury stock.
D)Purchase of a building by signing a note payable.

Question 67

Lab Industries,Inc.,issued $50,000 of bonds,paid cash dividends of $8,000,sold long-term investments for $12,000,received $5,000 of dividend revenue,purchased treasury stock for $15,000,and purchased new equipment for $19,000.What is the net cash flow from financing activities?

A)$70,000 inflow
B)$27,000 inflow
C)$80,000 inflow
D)$20,000 outflow

Question 68

Roberts Company sold equipment for $250,000,purchased a building for $6,500,000,sold short-term investments for $280,000,repaid principal on a note payable for $2,300,000 plus $230,000 of interest,and paid cash dividends of $20,000.How much was the net cash flow from financing activities?

A)$2,300,000 outflow
B)$2,320,000 outflow
C)$2,530,000 outflow
D)$2,550,000 outflow

Question 69

Madison Company had sales of $154,000.Additional information from the balance sheet is below: $\begin{array}{lrr}&\text { Beginning Balance } & \text { Ending Balance } \\\text { Accounts Receivable } & \$ 22,000 & \$ 28,000 \\\text { Accounts Payable } & 21,000 & 25,000\end{array}$ How much cash was collected from customers?

A)$148,000
B)$150,000
C)$154,000
D)$160,000

Question 70

During 2010,Edna Enterprises had a capital acquisitions ratio of 7.9.During 2010,Carlos' Corporation had a capital acquisitions ratio of 3.6.The amount of cash flow from operations was $5,968,000 for Edna's and $5,054,000 for Carlos.Which of the following statements is incorrect?

A)Edna used less cash for investments in property, plant and equipment during 2010 than did Carlos.
B)Edna has less need for external financing of its investments in property, plant and equipment indicated by its higher capital acquisitions ratio compared to Carlos.
C)Edna invested approximately $755,000 in property, plant and equipment during 2010.
D)Carlos invested approximately $182,000 in property, plant and equipment during 2010.

Question 71

Milliken Company paid $2.2 million to purchase stock in another company,$1.0 million to repurchase treasury shares,$.5 million to buy short-term investments,sold used equipment for $.8 million when its book value was $.6 million,and purchased new equipment for $3.4 million.How much will be reported as net investing cash flow?

A)$6.3 million net cash outflow.
B)$5.3 million net cash outflow.
C)$5.1 million net cash outflow.
D)$4.8 million net cash outflow.

Question 72

Amanda Company reported income tax expense of $250,000.Beginning income taxes payable was $30,000,while ending income taxes payable was $25,000,and accounts payable decreased $10,000.How much cash was paid for taxes?

A)$280,000
B)$255,000
C)$245,000
D)$265,000

Question 73

Bold Company's 2010 income statement reported total sales revenue of $250,000.During 2010,accounts receivable decreased by $20,000 and accounts payable increased $10,000.How much cash was collected from customers during 2010?

A)$230,000
B)$270,000
C)$250,000
D)$280,000

Question 74

Burich Co.reported short-term borrowings of $2.5 million,long-term borrowings of $6.8 million,repayments of long-term borrowings of $3.5 million,interest payments of $780,000,repurchase of treasury shares of $.5 million and cash dividends declared of $1.1 million.What is the cash flow from financing activities?

A)$5,300,000 net cash inflow
B)$4,200,000 net cash inflow
C)$1,700,000 net cash inflow
D)$2,800,000 net cash inflow

Question 75

During 2010,Eva's Enterprises cash paid for property,plant and equipment was $755 million and cash flow from operations was $5,968 million.The average property,plant and equipment from the comparative balance sheets were $6,094 million.Compute Eva's Enterprises capital acquisitions ratio for 2010.

A)1.0
B)5.3
C)7.9
D)6.0

Question 76

Which of the following statements about the capital acquisitions ratio is incorrect?

A)The ratio is computed by dividing cash flow from operations by cash paid for property, plant and equipment.
B)Because the need for investment in property, plant and equipment differs dramatically across industries, a firm's ratio should only be compared with its prior years' ratio or with firms in the same industry.
C)A high ratio indicates more need for outside financing of current and future purchases of property, plant and equipment.
D)It increases when an account receivable is collected.

Question 77

Canadian Beer reported they sold equipment for $222 million cash and purchased $1,515 million of new equipment using cash.The equipment sold had a net book value of $150 million.Cash flow from investing activities would show

A)an inflow of $222 million and outflow of $1,515 million.
B)an inflow of $222 million and outflow of $150 million.
C)cash paid for equipment of $1,293 million.
D)a net outflow of $1,365 million.

Question 78

During 2010,Tommy's Toys reported the following:
Long-term debt repayments,$503 million; interest paid,$143 million; proceeds from exercise of stock options,$27 million,and issue of common stock in exchange for land costing $10 million.How much is the 2010 net cash flow from financing activities?

A)$476 million net cash outflow.
B)$530 million net cash outflow.
C)$673 million net cash outflow.
D)$76 million net cash outflow.

Question 79

Which of the following would be a financing activities cash flow?

A)Common stock dividends distributed.
B)Interest payments.
C)Repurchase of treasury shares.
D)Purchase of a building by signing a note payable.

Question 80

Aaron Inc.reported operating expenses during 2011 of $765,000 (including $80,000 of depreciation expense).Prepaid expenses increased $25,000 while accrued liabilities increased $43,000.How much cash was paid for operating expenses during 2011?

A)$702,000
B)$622,000
C)$667,000
D)$703,000