Deck 6: Measuring and Reporting Cash Flows

Question 1

Depreciation of plant and equipment will appear in which section of the statement of cash flows?

A)Does not appear in the statement.
B)Financing activities section.
C)Operating activities section.
D)Investing activities section.

Answer 1

A

Question 2

In the statement of cash flows, the total of net cash flows from operating activities, net cash flows from investing activities and net cash flows from financing activities for the period equals:

A)the cash balances at the beginning of the period.
B)the cash balances at the end of the period.
C)profit.
D)total net increase or decrease in cash held for the period.

Answer 2

D

Question 3

Which transaction would not appear in the body of a statement of cash flows?

A)Acquisition of assets by means of a share issue.
B)Purchase of a building by incurring a mortgage to the seller.
C)Conversion of a liability to equity.
D)All of the above.

Answer 3

D

Question 4

How would these items be classified in a statement of cash flows prepared for a hairdressing franchise?

i)Payment of $600 for hairdressing supplies.
Ii)Takings from customers for the month.
Iii)Capital paid into the business by the owner.

A)i. Operating outflow.
ii. Operating inflow.
Iii. Does not appear in the statement of cash flows.
B)i. Investing outflow.
ii. Operating inflow.
Iii. Financing inflow.
C)i. Operating outflow.
ii. Operating inflow.
Iii. Financing inflow.
D)i. Operating outflow.
ii. Operating inflow.
Iii. Investing inflow.

Question 5

Which item is not classified as a cash flow from investing activities?

A)payment for shares to be held as an investment.
B)cash purchase of office furniture.
C)receipt from the sale of premises.
D)dividends paid to investors.

Question 6

Cash inflows and outflows associated with changes in non-current liabilities and equity, not arising from profit, are included in which section of the statement of cash flows?

A)Non-current.
B)Operating.
C)Financing.
D)Investing.

Question 7

Which statement is correct?

A)The statement of comprehensive income and statement of financial position are accrual based and the statement of cash flows is cash based.
B)The statement of comprehensive income, statement of financial position and statement of cash flows are all accrual based.
C)The statement of financial position is accrual based and the income and statement of cash flows are cash based.
D)None of the statements is correct.

Question 8

Cash received from the issue of shares will appear in which section of the statement of cash flows?

A)Investing activities section.
B)Does not appear in the statement.
C)Operating activities section.
D)Financing activities section.

Question 9

The item that would not be included in the operating section of a statement of cash flows is:

A)Cash interest received.
B)Cash received from the sale of surplus machinery.
C)Cash received from sales.
D)Cash payment of expenses.

Question 10

The cash flow statement was added to reporting requirements because it was believed that the income statement and statement of financial position didn't concentrate enough on

A)profitability.
B)liquidity.
C)depreciation.
D)bad debt.

Question 11

Which of these items will appear in a statement of cash flows?

A)Carrying value of an asset sold.
B)Adjustment in the balance of an asset account caused by a revaluation.
C)Proceeds from the sale of a fixed asset.
D)All of the above.

Question 12

In a growing business that keeps its asset base up-to-date, total cash flow from investing activities will normally be:

A)more than cash flow from operations.
B)negative.
C)positive.
D)none of the above.

Question 13

With what are operating activities concerned?

A)borrowing or lending.
B)the sale or disposal of non-current assets.
C)the trading and/or service operations of the business.
D)none of the above.

Question 14

The income statement tends to obscure cash movements because it is

A)only produced annually.
B)accrual-based.
C)cash-based.
D)not audited.

Question 15

Which of the following are not operating cash flows?

A)income tax paid.
B)interest received.
C)payments to suppliers.
D)dividends paid to shareholders.

Question 16

The purpose of the statement of cash flows is to provide information on:

A)profits.
B)net worth.
C)losses.
D)cash inflows and outflows.

Question 17

Oriole Company had a long-term debt of $1,500,000. To extinguish this debt the company issued $1,500,000 of fully paid shares to the lender. This transaction would have the following impact on the statement of cash flows:

A)increase cash flow from financing activities by $1,500,000.
B)decrease cash by $1,500,000.
C)increase cash by $1,500,000.
D)nil impact.

Question 18

The difference between operating profit or loss after tax and net cash provided by operating activities is due to:

A)changes in non-current liabilities.
B)changes in non-current assets.
C)changes in working capital items.
D)changes in equity items.

Question 19

Which of the following statements is not true?

A)If a firm is operating profitably, it will automatically have plenty of cash.
B)The concept of cash underpinning the statement of cash flows is 'cash and cash equivalents.'
C)A bank overdraft is an example of a 'cash equivalent.'
D)Cash is the pre-eminent asset as it is the medium with which claims are normally settled.

Question 20

What is the report prepared to summarise the entity's cash transactions for the period?

A)statement of comprehensive income.
B)statement of changes in equity.
C)statement of cash flows.
D)statement of financial position.

Question 21

Indulgence Chocolates has provided the following information: $$\begin{array} { l r } \text { Cost of sales for the year } & \$ 190,000 \\\text { Opening balance of accounts payable } & \$ 50,000 \\\text { Closing balance of accounts payable } & \$ 60,000 \\\text { Opening balance of inventory } & \$ 20,000 \\\text { Closing balance of inventory } & \$ 36,000\end{array}$$ The cash payments made to suppliers during the year total:

A)$184,000.
B)$164,000.
C)$196,000.
D)$200,000.

Question 22

What is the effect on profit and cash of a firm paying a trade creditor?

A)Decrease in profit and decrease in cash.
B)No effect on profit and decrease in cash.
C)No effect on profit and no effect on cash.
D)Decrease in profit and no effect on cash.

Question 23

If 'other expenses' in the profit and loss report is $35,000 including $8,000 of depreciation, accrued 'other expenses' at the beginning of the year is $1,000 and $0 at the end of the year, the figure for 'other expenses' that will appear in the statement of cash flows for the year is:

A)$25,000.
B)$28,000.
C)$32,000.
D)$33,000.

Question 24

From the following information calculate the cash received from customers. $$\begin{array} { l r } \text { Accounts receivable opening balance } & \$ 20,000 \\\text { Credit Sales } & \$ 860,000 \\\text { Accounts receivable closing balance } & \$ 40,000\end{array}$$

A)$840,000.
B)$900,000.
C)$840,000
D)$820,000.

Question 25

Which of the following would not appear in a statement of cash flows?

A)the creation of an allowance for doubtful debts.
B)the upward revaluation of an asset.
C)a bonus issue of shares.
D)all of the above.

Question 26

What does the tax payment appearing in the statement of cash flows of a company reflect?

A)a prepayment for next year's tax liability.
B)last year's tax liability (due to the lag in payment to tax office).
C)this year's tax liability.
D)an estimate of this year's tax liability.

Question 27

GG Pty Ltd's accounting records show: $$\begin{array} { l c c } & \text { Beginning Balance } & \text { Ending Balance } \\& \text { '000 } & \text { '000 } \\& \$ & \$ \\\text { Accounts payable } & 12 & 8 \\\text { Inventory } & 25 & 21 \\\text { Cost of sales } & - & 50\end{array}$$ Determine the amount of cash paid for inventory for the period.

A)$42,000.
B)$48,000.
C)$58,000.
D)$50,000.

Question 28

An extract from the trial balance of RRR Pty Ltd as at 30 June 2018 shows: Income tax expense $20,000
If the income tax provided for at the end 2017 was $12,000 and taxation is paid in arrears in a lump sum, what amount will appear in the statement of cash flows for taxation paid by RRR Pty Ltd for the year ended 30 June 2018?

A)$20,000.
B)$12,000.
C)$16,000.
D)Nil.

Question 29

Which of these is a reason why a statement of cash flows could show a negative cash flow from operating activities even though the statement of comprehensive income showed a profit?

A)An increase in the amount of inventory held.
B)A decrease in the amount owing by debtors.
C)An increase in the amount owing by creditors.
D)An increase in depreciation charged.

Question 30

H Company's accounting records show: $$\begin{array} { l r } &\$\\\text { Credit sales for the year } & 650,000 \\\text { Discounts provided for early payment } & 15,000 \\\text { Opening balance of accounts receivable } & 100,000 \\\text { Closing balance of accounts receivable } & 90,000\end{array}$$ The cash received from customers is:

A)$595,000.
B)$590,000.
C)$645,000.
D)$610,000.

Question 31

Company W received $10,000 in cash in repayment of a loan made to B Free. In the statement of cash flows of Company W, the $10,000 would appear as:

A)an investing outflow.
B)an investing inflow.
C)a financing outflow.
D)a financing inflow.

Question 32

All purchases of inventory are for cash. If inventory at the beginning of the year is $63,000 and at the end $88,000 and the cost of sales is $200,000, the cash paid for inventory purchased for the year is:

A)$175,000.
B)$225,000.
C)$200,000.
D)none of the above.

Question 33

Calculate net cash flow from operating activities if: $$\begin{array}{l}\text { Statement of financial performance (extract) }\\\begin{array} { l r r } \text { Sales (credit) } & \$ 80,000 & \\\text { Less Expenses (cash) } & \$ 48,000 & \\ { \text { Profit } } & \$ 32,000 & \\& & \\\text { Ledger account (extract) } & & \\& \text { Start of } & \text { End of } \\& \text { Period } & \text { Period } \\& & \\\text { Accounts } & & \\\text { Receivable } &\$ 6,000 & \$ 9,000\end{array}\end{array}$$

A)$19,000.
B)$29,000.
C)$25,000.
D)$22,000.

Question 34

Which of the three main financial statements was chronologically the last to be required to be included as part of the external financial reports?

A)Statement of comprehensive income.
B)Statement of financial position.
C)Statement of cash flows.
D)None, all three reports have always been required to be included in external financial reports.

Question 35

Which of the following is an example of a non-cash investing or financing transaction?

A)charging depreciation.
B)sale of a parcel of shares.
C)repayment of a loan.
D)the purchase of a building paid for by an issue of shares direct to the vendor.

Question 36

State the effect on profit and cash of depreciating a non-current asset.

A)decrease in profit and decrease in cash.
B)no effect on profit and decrease in cash.
C)no effect on profit and no effect on cash.
D)decrease in profit and no effect on cash.

Question 37

$54,000 is owed to suppliers for inventory purchases at the beginning of the year and $44,000 is owed at the end of the year. If annual credit purchases of inventory are $180,000, the cash paid to suppliers for the year is:

A)$170,000.
B)$150,000.
C)$190,000.
D)$214,000.

Question 38

Under accrual accounting, the receipt of cash from a trade debtor will:

A)have no impact on profit and increase cash.
B)increase profit and increase cash.
C)decrease profit and decrease cash.
D)none of the above.

Question 39

If $90,000 is owed by customers at the beginning of the year, $75,000 is owed at the end and credit sales are $120,000, the cash received from customers is:

A)$120,000.
B)$80,000.
C)$125,000.
D)$135,000.

Question 40

Which of the following is a cash transaction?

A)declaration of a divided from a general reserve.
B)payment of a dividend to shareholders.
C)transfer from retained earnings to a general reserve.
D)all of the above.

Question 41

Which of these correctly shows the effect of charging depreciation on equipment for the period?

A)Decrease in accumulated depreciation; decrease in the carrying value of equipment.
B)Increase in accumulated depreciation; increase in the carrying value of equipment.
C)Increase in accumulated depreciation; decrease in the carrying value of equipment.
D)None of the above.

Question 42

From the following information, calculate net cash flow from operating activities. $$\begin{array}{l}\begin{array} { l r r } \text { Sales } & & \$ 185,000 \\\text { Less Salaries } & \$ 40,000 & \\\text { Depreciation } & \$ 13,000 & \\\text { Other expenses } & \$ 10,000 & \\\text { Interest expense } & \$ 5,000 & \$ 68,000 \\\text { Profit } & & \$ 117,000 \\\end{array}\\\\\text { Statement of financial position extract }\\\begin{array} { l r r } & \text { Start of } & \text { Endof } \\& \text { Period } & \text { Period } \\& \$ & \$ \\\text { Accounts payable } & 11,000 & 14,000 \\\text { Interest expense owing } & - & 1,000\end{array}\end{array}$$

A)$134,000.
B)$115,000.
C)$128,000.
D)$126,000.

Question 43

The statement of cash flows must include a note reconciling:

A)profit and cash flow from operations.
B)the business bank balance with the bank statement balance.
C)accrual accounting and historical cost accounting.
D)opening equity with closing equity.

Question 44

Calculate cash from operating activities using the following information: Profit $148,000.
Depreciation $40,000.
Inventory increased by $10,000.

A)$148,000.
B)$178,000.
C)$188,000.
D)$98,000.

Question 45

If credit sales for the year are $120,000 and the accounts receivable balance has increased by $10,500 over the year, how much cash was received from accounts receivable during the year?

A)$130,500.
B)$109,500.
C)$120,000.
D)$10,500.

Question 46

University Press showed wage and salary expenses of $250,000 on its 2018 statement of comprehensive income but reported cash paid to employees of $215,000 on its statement of cash flows. If the beginning balance of accrued wages and salaries payable was $18,000, the ending balance is:

A)$53,000.
B)$45,000.
C)$35,000.
D)$17,000.

Question 47

The following information is produced on an accrual basis and relates to Emily's Superior Photo Framers.
Statement of comprehensive income for the year ended 31 December 2018 Additional Information:
• Emily withdrew $25,000 through the year for her own use.
• No photo framing equipment was sold during the year.
REQUIRED:
a)Prepare a classified statement of cash flows for the year ended 31 December 2018 from the above information. Show all workings.
b)Prepare a statement reconciling profit with cash flow from operating activities.
c)Comment on what the statement of cash flows reveals about the cash situation of Emily's Superior Photo Framers.

Question 48

When reconciling profit with net cash flow from operating activities:

A)subtract increases in current assets and add increases in current liabilities.
B)add increases in current assets and subtract increases in current liabilities.
C)add increases in current assets and add increases in current liabilities.
D)none of the above.

Question 49

Xi Co provides you with the following information about its equipment account: Opening balance of equipment $\quad \$ 300,000$
Closing balance of equipment $\quad \$ 550,000$ If machinery that originally cost $100,000 was sold during the year, what was the value of new equipment purchased?

A)$250,000.
B)$350,000.
C)$550,000.
D)$150,000.

Question 50

If the opening balance of rent accrued at the beginning of the year was $1,000, rent expense for the year was $20,000 and the closing balance of rent accrued at the end of the year was $1,200, the amount paid in cash for rent during the year is:

A)$22,200.
B)$21,000.
C)$20,200.
D)$19,800.

Question 51

What is the rule for converting credit sales to cash received from debtors?

A)income - accounts receivable at the beginning + accounts receivable at the end = cash received.
B)income + accounts receivable at the beginning - accounts receivable at the end = cash received.
C)income + or - accounts receivable at the beginning + or - accounts receivable at the end = cash received.
D)none of the above.

Question 52

Generally, the dividend payment appearing in the financing section of the statement of cash flows represents:

A)interim dividends declared in the current year.
B)proposed dividends from last year that have been paid, plus any interim dividends declared and paid in the current year.
C)proposed dividends from last year.
D)current year's dividend.

Question 53

Wages expense in the income statement is $58,250 with the statement of financial position at the end of the year showing accrued wages of $2,000. If there were no accrued wages at the beginning of the period, how much was paid out in cash for wages during the year?

A)$54,250.
B)$56,250.
C)$2,000.
D)$58,250.

Question 54

Cameron's Screensavers Ltd
Statement of financial position as at 31 December 2018 (Extracts) $\begin{array}{l}&2017&2018\\&\$&\$\\\text { Shareholders' Equity }\\\text { Share capital (\$1 shares) } & 250,000 & 360,000 \\\text { Revaluation reserve } & 20,000 & 60,000 \\\text { General reserve } & 150,000 & 100,000 \\\text { Retained profits } & 66,000 & 76,000\\&\$486,000&\$596,000\end{array}$ Additional information:
• There was a bonus issue of 1 bonus share for every 5 existing shares held.
• Land and buildings was revalued by $40,000.
• A profit of $17,000 was earned during the year.
• Dividends of $6,000 were paid during the year that had been provided for in the prior year and $7,000 was provided as a final dividend at the end of the current year.
REQUIRED:
Show the financing section of the statement of cash flows for Cameron Screensavers for the year ended 31 December 2009.

Question 55

If prepaid interest at the beginning of the period was zero and at the end of the period was $4,000 and interest expense appears in the statement of comprehensive income for the year as $17,300, how much was paid out in cash for interest during the year?

A)$13,300.
B)$21,300.
C)$17,300.
D)$4,000.

Question 56

In the reconciliation attached to the statement of cash flows, operating cash flow is reconciled to:

A)operating profit after tax.
B)operating profit before tax.
C)operating profit before interest and tax.
D)gross profit.

Question 57

Which of these factors could cause operating profit to be more than cash flow from operations?

A)An increase in the balance of accounts receivable over the period.
B)An increase in the balance of inventory over the period.
C)An increase in the balance of accounts payable over the period.
D)Both A and B.

Question 58

Royal Plastics provides the following information about its moulding machinery: $$\begin{array} { l r } \text { Opening balance of machinery account } & \$ 500,000 \\\text { Closing balance of machinery account } & \$ 650,000 \\\text { Depreciation expense for the year } & \$ 50,000 \\\text { Depreciation charged on machinery sold } & \$ 130,000 \\\text { Profit on sale of machinery } & \$ 20,000 \\\text { Carrying value of machinery sold } & \$ 90,000\end{array}$$ How much cash was received from the disposal of machinery?

A)$100,000.
B)$20,000.
C)$110,000.
D)$90,000.

Question 59

When preparing the note attached to the statement of cash flows reconciling operating profit with cash flow from operations, which statement is not true?

A)An increase in current assets is deducted from profit.
B)A decrease current assets is added to profit.
C)An increase in current liabilities is deducted from profit.
D)All of the above are true.

Question 60

Calculate the cash from operating activities using the following information:

Profit $142,000.
Depreciation $46,000.
Accounts receivable increased by $10,000.
Accrued expense increased by $12,000.
Inventory increased by $14,000.

A)$176,000.
B)$186,000.
C)$165,000.
D)$200,000.

Question 61

Which of the following is a warning sign of problems in managing cash flows?

A)proceeds of borrowing that are continually greater than repayments of borrowings.
B)dividends paid to shareholders that are greater than profit.
C)cash flow from operating activities that is significantly lower than profit.
D)all of the above.

Question 62

A motor vehicle was purchased for $25,000, depreciated using the reducing-balance method for 3 years at 20% p.a. and was then sold for a price that was $1,600 more than the carrying amount of the vehicle. The cash received on the sale of the motor vehicle was:

A)$12,800.
B)$14,400.
C)$11,200.
D)$11,600.

Question 63

If the balance of the share capital account is $300,000 at the beginning of the year and $410,000 at the end of the year, and there has been a 1 for 6 bonus issue of shares at the start of the year, the amount that will appear in the statement of cash flows for proceeds from the issue of shares is:

A)$360,000.
B)$300,000.
C)$410,000.
D)$60,000.

Question 64

What does the statement of cash flows allow management to assess?

A)efficiency in earning profit.
B)efficiency in controlling expenses.
C)efficiency in managing cash flows.
D)efficiency in managing industrial relations.

Question 65

For The Book Co share capital increased by $200,000 in total over a year in which there was a bonus issue of 20,000 new shares at $2 per share. The cash flow from the issue of shares is:

A)$160,000.
B)$200,000.
C)$180,000.
D)$240,000.

Question 66

Royal Plastics provides the following information about its moulding machinery: $$\begin{array} { l r } \text { Opening balance of machinery account } & \$ 500,000 \\\text { Closing balance of machinery account } & \$ 650,000 \\\text { Depreciation expense for the year } & \$ 50,000 \\\text { Depreciation charged on machinery sold } & \$ 130,000 \\\text { Profit on sale of machinery } & \$ 20,000 \\\text { Carrying value of machinery } & \$ 90,000\end{array}$$ What is the total cost of machinery purchased during the year?

A)$370,000.
B)$200,000.
C)$280,000.
D)$300,000.

Question 67

If the opening balance of equity is $45,000, the closing balance is $60,000 and profit is $27,000, calculate the amount of dividends paid (assume all dividends declared have been paid)which will appear as a financing outflow in the statement of cash flows.

A)$15,000.
B)$42,000.
C)$12,000.
D)Nil.

Question 68

Motor vehicles are shown in the statement of financial position of Yong Ltd as: $$\begin{array} { l r r } & 2017 & 2018 \\\text { Motor Vehicles at Cost } & \$ 83,000 & \$ 95,000 \\\text { Less Accumulated Depreciation } & \$ 10,000 & \$ 15,000 \\\text { Carrying Value } & \$ 73,000 & \$ 80,000\end{array}$$ Assuming that no vehicles were sold, the value of vehicles purchased during 2015 was:

A)$7,000.
B)$12,000.
C)$5,000.
D)$17,000.

Question 69

In a healthy business, cash flow from operations will normally be:

A)negative.
B)less than the profit.
C)positive.
D)none of the above.

Question 70

In 2015, G Co repaid $45,000 to the bank on a mortgage loan. $35,000 was interest on the mortgage and $10,000 was repayment of the principal. The repayment would appear in the statement of cash flows as:

A)operating outflow $45,000.
B)operating outflow $35,000; investing outflow $10,000.
C)financing inflow $45,000.
D)operating outflow $35,000; financing outflow $10,000.