Deck 12: How Is the Statement of Cash Flows Prepared and Used

Question 1

Cash payments to reduce long-term debt are included in the operating activities

Answer 1

False

Question 2

A capital expenditure ratio greater than 1.0 indicates the company was able to generate enough operating cash to cover investments in property,plant and equipment.

Answer 2

True

Question 3

When preparing the operating activities

Answer 3

True

Question 4

When using the indirect method,losses related to investing activities are adjusted by adding them to net income in the operating activities

Question 5

The direct method of preparing a statement of cash flows results in the same cash provided by operating activities than the indirect method.

Question 6

When preparing the operating activities

Question 7

Which of the following are the three major categories of activities included in the statement of cash flows?

A)Financing,investing and purchasing.
B)Operating,capital,and financing.
C)Operating,investing,and financing.
D)Investing,operating and capital.
E)None of the answer choices is correct.

Question 8

The operating activities

Question 9

Firms with significant net income always have significant cash generated from operating activities.

Question 10

Free cash flow is computed by subtracting current liabilities from cash provided by operating activities.

Question 11

The operating cash flow ratio is calculated as cash provided by operating activities divided by current liabilities.

Question 12

Operating cash flow ratios are always greater than 1.0.

Question 13

Factory equipment sold for cash would appear in the financing activities

Question 14

When using the indirect method to prepare the statement of cash flows,the financing activities

Question 15

Only information from the income statement is needed to make adjustments when preparing the operating activities

Question 16

Most companies prefer to use the indirect method when preparing a statement of cash flows.

Question 17

When using the indirect method for the statement of cash flows,depreciation expense is added to net income to obtain cash provided by operating activities.

Question 18

The end goal of preparing the statement of cash flows is to show what caused the change in cash from the beginning of the period to the end of the period.

Question 19

Free cash flow provides information regarding how much cash generated from daily operations is remaining after investing in fixed assets.

Question 20

The issuance of common stock would be included in the financing activities

Question 21

With respect to the statement of cash flows,activities that affect common stock accounts are referred to as:

A)capital activities.
B)operating activities.
C)investing activities.
D)financing activities.
E)None of the answer choices is correct.

Question 22

Using the indirect method for preparing the statement of cash flows,which of the following would not be included as an adjustment to net income?

A)A decrease in Prepaid Insurance.
B)An increase in Accounts Payable.
C)An increase in Equipment.
D)An increase in Accounts Receivable.
E)None of the answer choices is correct.

Question 23

Dayton Company reported a net loss of $88,000 for the year.During the year,the company had $22,000 of Depreciation Expense and incurred a $68,000 loss on the cash sale of equipment.In addition,the company had the following changes in balance sheet accounts during the year:

Using the indirect method,what is the amount of cash provided (used)by operating activities?

A)$10,000
B)($10,000)
C)$14,000
D)($58,000)
E)None of the answer choices is correct.

Question 24

Exhibit 12-3
Stalwart Inc.accounting records show the following changes during the company's most recent fiscal year.1.Gain on sale of2.Loss on sale of long-term investments3.Decrease in prepaid expenses4.Increase in accounts receivable5.Decrease in merchandise inventory6.Decrease in wages payable7.Increase in accounts payable8.Payment of cash dividends9.Purchase of machinery10.Payments of principal on bonds payable10.Payments of principal on bonds payable
Refer to Exhibit 12-3.Which of these would be added to net income as part of the operating activities

A)1,4,& 6
B)3,5,& 7
C)2,3,5,7,8,& 9
D)2,3,5,& 7
E)None of the answer choices is correct.

Question 25

Where would cash payments for insurance appear in the statement of cash flows?

A)Operating activities
B)Financing activities
C)Investing activities
D)Capital activities
E)None of the answer choices is correct.

Question 26

Exhibit 12-2
Carr Company has the following cash flows to account for:
(1)Cash receipts for the sale of common stock.
(2)Cash payments for the purchases of merchandise.
(3)Cash receipts from the collection of accounts receivable.
(4)Cash receipts from the collection of principal on loans made to others.
(5)Cash payments to shareholders for dividends.
(6)Cash payments for the purchase of machinery.
Refer to Exhibit 12-2.Which of these items would appear in the operating activities

A)2,3,4,& 6
B)1 & 5
C)2 & 3
D)4 & 6
E)None of the answer choices is correct.

Question 27

Exhibit 12-2
Carr Company has the following cash flows to account for:
(1)Cash receipts for the sale of common stock.
(2)Cash payments for the purchases of merchandise.
(3)Cash receipts from the collection of accounts receivable.
(4)Cash receipts from the collection of principal on loans made to others.
(5)Cash payments to shareholders for dividends.
(6)Cash payments for the purchase of machinery.
Refer to Exhibit 12-2.Which of these items would appear in the investing activities

A)1,3,4,& 6
B)1 & 5
C)2 & 3
D)4 & 6
E)None of the answer choices is correct.

Question 28

Exhibit 12-3
Stalwart Inc.accounting records show the following changes during the company's most recent fiscal year.1.Gain on sale of2.Loss on sale of long-term investments3.Decrease in prepaid expenses4.Increase in accounts receivable5.Decrease in merchandise inventory6.Decrease in wages payable7.Increase in accounts payable8.Payment of cash dividends9.Purchase of machinery10.Payments of principal on bonds payable10.Payments of principal on bonds payable
Refer to Exhibit 12-3.Which of these would be deducted from net income as part of the operating activities

A)2,3,5,7,8,& 10
B)1,4,& 6
C)2,3,5,& 7
D)3,4,5,6,& 7
E)None of the answer choices is correct.

Question 29

Exhibit 12-4
Manning Company uses the indirect method to prepare the statement of cash flows.The following amounts are shown in its December 31,2013,financial statements.

Refer to Exhibit 12-4.How will the change in accounts receivable be reported in the operating activities

A)The increase of $63,000 will be subtracted from net income.
B)The increase of $63,000 will be subtracted from sales revenue.
C)The increase of $63,000 will be added to net income.
D)The increase of $63,000 will be added to sales revenue.
E)None of the answer choices is correct.

Question 30

Exhibit 12-2
Carr Company has the following cash flows to account for:
(1)Cash receipts for the sale of common stock.
(2)Cash payments for the purchases of merchandise.
(3)Cash receipts from the collection of accounts receivable.
(4)Cash receipts from the collection of principal on loans made to others.
(5)Cash payments to shareholders for dividends.
(6)Cash payments for the purchase of machinery.
Refer to Exhibit 12-2.Which of these items would appear in the financing activities

A)1 & 6
B)2 & 3
C)1 & 5
D)4 & 6
E)None of the answer choices is correct.

Question 31

If cash is paid to purchase a factory building,in which

A)Operating activities
B)Investing activities
C)Financing activities
D)Capital activities
E)None of the answer choices is correct.

Question 32

Exhibit 12-1
Ellie Inc.has the following cash flows to account for:
(1)Cash receipts from the sale of long-term bonds.
(2)Cash receipts from the sale of equipment.
(3)Cash payments for income taxes.
(4)Cash receipts from the sale of stock.
(5)Cash payments for the purchase of a factory building.
Refer to Exhibit 12-1.Which of these items would appear in the operating activities

A)1 & 4
B)3 & 5
C)2 & 5
D)3
E)None of the answer choices is correct.

Question 33

Exhibit 12-3
Stalwart Inc.accounting records show the following changes during the company's most recent fiscal year.1.Gain on sale of2.Loss on sale of long-term investments3.Decrease in prepaid expenses4.Increase in accounts receivable5.Decrease in merchandise inventory6.Decrease in wages payable7.Increase in accounts payable8.Payment of cash dividends9.Purchase of machinery10.Payments of principal on bonds payable10.Payments of principal on bonds payable
Refer to Exhibit 12-3.Which of these would be added as part of the cash flows from investing activities when preparing the statement of cash flows?

A)11,
B)1,9 & 11
C)9 & 11
D)1,2,9 & 11
E)None of the answer choices is correct.

Question 34

Exhibit 12-1
Ellie Inc.has the following cash flows to account for:
(1)Cash receipts from the sale of long-term bonds.
(2)Cash receipts from the sale of equipment.
(3)Cash payments for income taxes.
(4)Cash receipts from the sale of stock.
(5)Cash payments for the purchase of a factory building.
Refer to Exhibit 12-1.Which of these items would appear in the investing activities

A)1 & 4
B)2 & 5
C)3
D)2,4,& 5
E)None of the answer choices is correct.

Question 35

The bottom of the statement of cash flows shows a net increase in cash of $350,000.What is this increase linked to elsewhere in the financial statements?

A)The income statement.
B)The statement of owners' equity.
C)The balance sheet.
D)The income statement,the balance sheet,and the statement of owners' equity.
E)None of the answer choices is correct.

Question 36

Exhibit 12-4
Manning Company uses the indirect method to prepare the statement of cash flows.The following amounts are shown in its December 31,2013,financial statements.

Refer to Exhibit 12-4.How will the change in inventory be reported in the operating activities

A)The decrease of $105,000 will be subtracted from net income.
B)The decrease of $105,000 will be subtracted from cost of goods sold.
C)The decrease of $105,000 will be added to cost of goods sold.
D)The decrease of $105,000 will be added to net income.
E)None of the answer choices is correct.

Question 37

Which of the following is not an advantage of using the indirect method to prepare the statement of cash flows?

A)The indirect method provides a link between net income and cash flows from operating activities by reconciling the two amounts.
B)The indirect method typically takes less time to prepare than the direct method..
C)Accounting systems are better suited to generate information needed for the indirect method.
D)The indirect method is more accurate than the direct method.
E)None of the answer choices is correct.

Question 38

Exhibit 12-4
Manning Company uses the indirect method to prepare the statement of cash flows.The following amounts are shown in its December 31,2013,financial statements.

Refer to Exhibit 12-4.How will the change in accounts payable be reported in the operating activities

A)The increase of $60,000 will be subtracted from sales revenue.
B)The increase of $60,000 will be added to net income.
C)The increase of $60,000 will be added to sales revenue.
D)The increase of $60,000 will be subtracted from net income.
E)None of the answer choices is correct.

Question 39

Exhibit 12-3
Stalwart Inc.accounting records show the following changes during the company's most recent fiscal year.1.Gain on sale of2.Loss on sale of long-term investments3.Decrease in prepaid expenses4.Increase in accounts receivable5.Decrease in merchandise inventory6.Decrease in wages payable7.Increase in accounts payable8.Payment of cash dividends9.Purchase of machinery10.Payments of principal on bonds payable10.Payments of principal on bonds payable
Refer to Exhibit 12-3.Which of these would be deducted as part of the cash flows from financing activities

A)1,2,8,9,10,& 11
B)8,9,& 10
C)8 & 10
D)2,8,9,& 10
E)None of the answer choices is correct.

Question 40

Exhibit 12-1
Ellie Inc.has the following cash flows to account for:
(1)Cash receipts from the sale of long-term bonds.
(2)Cash receipts from the sale of equipment.
(3)Cash payments for income taxes.
(4)Cash receipts from the sale of stock.
(5)Cash payments for the purchase of a factory building.
Refer to Exhibit 12-1.Which of these items would appear in the financing activities

A)1 & 4
B)3 & 5
C)2 & 5
D)1,2,& 4
E)None of the answer choices is correct.

Question 41

Using the direct method,which of the following would appear on the statement of cash flows?

A)Loss on sale of equipment.
B)Cash received from issuance of long-term debt.
C)Net income.
D)Depreciation of equipment.
E)None of the answer choices is correct.

Question 42

The following information is from the noncurrent asset portion of Raggetti Company's balance sheet.

The following activities occurred during 2013:
$\bullet$ Sold equipment with an original cost of $120,000 and a book value of $24,000 for $21,000 cash.
$\bullet$ Depreciation expense for the year totaled $186,000.
$\bullet$ Purchased property for $270,000 cash.
$\bullet$ Purchased long-term investments for $99,000 cash.
What is the amount of cash used by investing activities?

A)$159,000
B)$249,000
C)$348,000
D)$534,000
E)None of the answer choices is correct.

Question 43

When using the direct method to prepare the statement of cash flows,two adjustments must be made to cost of goods sold to calculate cash paid to suppliers.Which of the following correctly explains the two adjustments?

A)Decreases in inventory are added to cost of goods sold and decreases in accounts payable are added to cost of goods sold.
B)Increases in inventory are added to cost of goods sold and increases in accounts payable are deducted from cost of goods sold.
C)Increases in inventory are deducted from cost of goods sold and increases in accounts payable are deducted from cost of goods sold.
D)Decreases in inventory are deducted from cost of goods sold and decreases in accounts payable are deducted from cost of goods sold.
E)None of the answer choices is correct.

Question 44

Exhibit 12-4
Manning Company uses the indirect method to prepare the statement of cash flows.The following amounts are shown in its December 31,2013,financial statements.


-The following information is from the noncurrent asset portion of Randle Company's balance sheet.

The following activities occurred during 2013:
$\bullet$ Sold equipment with an original cost of $8,000 and a book value of $2,500 for $2,000 cash.
$\bullet$ Depreciation expense for the year totaled $18,000.
$\bullet$ Purchased property for $23,000 cash.
$\bullet$ Purchased long-term investments for $12,000 cash.
What is the amount of cash used by investing activities?

A)$27,000
B)$51,000
C)$33,000
D)$14,500
E)None of the answer choices is correct.

Question 45

The beginning and ending balances of long-term debt for the most recent fiscal year are $43,850 and $27,000,respectively.During the year,cash payments for long-term debt amounted to $23,450.How much new long-term debt was issued during the year?

A)$6,600
B)$20,400
C)$3,550
D)$16,850
E)None of the answer choices is correct.

Question 46

The operating cash flow ratio measures:

A)the company's ability to generate enough cash from daily operations to cover capital expenditures.
B)the company's ability to generate enough cash from daily operations to cover long-term liabilities.
C)the company's ability to generate enough cash from daily operations to cover current liabilities.
D)the company's ability to generate enough cash from financing operations to cover current liabilities.
E)None of the answer choices is correct.

Question 47

eBook Company's most recent balance sheet,income statement,and other important information for 2013 are presented below.


Additional data for 2013
$\bullet$ Sold equipment with a book value of $38,000 (= $198,000 cost - $160,000 accumulated depreciation)for $78,000 cash.
$\bullet$ Purchased equipment for $278,000 cash.
$\bullet$ Sold long-term investments for $74,000 cash.These investments had an original cost of $80,000.
$\bullet$ Purchased long-term investments for $10,000 cash.
$\bullet$ Issued bonds for $186,000 cash.
$\bullet$ Issued common stock for $22,000 cash.
$\bullet$ Declared and paid $52,000 in cash dividends.
Prepare a statement of cash flows for the year ended December 31,2013,using the indirect method.
The owner of eBook Company wants to know why cash decreased from $720,000 to $590,000 given the company's net income of $74,000.Use the information in the statement of cash flows to briefly explain why cash decreased.

Question 48

Exhibit 12-5
Myers Inc.uses the indirect method to prepare the statement of cash flows.The following amounts are shown in its December 31,2013,financial statements.

Refer to Exhibit 12-5.How will the change in salaries payable be reported in the operating activities

A)The decrease of $8,000 will be added to sales revenue.
B)The decrease of $8,000 will be subtracted from cost of goods sold.
C)The decrease of $8,000 will be added to net income.
D)The decrease of $8,000 will be subtracted from net income.
E)None of the answer choices is correct.

Question 49

Exhibit 12-5
Myers Inc.uses the indirect method to prepare the statement of cash flows.The following amounts are shown in its December 31,2013,financial statements.

Refer to Exhibit 12-5.How will the change in inventory be reported in the operating activities

A)The increase of $50,000 will be added to cost of goods sold.
B)The increase of $50,000 will be added to net income.
C)The increase of $50,000 will be subtracted from net income.
D)The increase of $50,000 will be subtracted from cost of goods sold.
E)None of the answer choices is correct.

Question 50

Significant noncash financing and investing activities are reported in:

A)a note below the statement of cash flows.
B)the investing activities
C)the financing activities
D)the operating activities
E)None of the answer choices is correct.

Question 51

Free cash flow measures:

A)the company's ability to generate enough cash from investing activities to cover capital expenditures,and determines how much cash is remaining to invest elsewhere in the company.
B)the company's ability to generate enough cash from daily operations to cover capital expenditures,and determines how much cash is remaining to invest elsewhere in the company.
C)the company's ability to generate enough cash from daily operations to cover current liabilities.
D)the company's ability to generate enough cash from financing operations to cover current liabilities.
E)None of the answer choices is correct.

Question 52

If a company purchases land with its common stock,and no cash changes hands,where would this activity be presented on the statement of cash flows?

A)The financing
B)The investing
C)The operating
D)A note below the statement of cash flows.
E)None of the answer choices is correct.

Question 53

During the most recent fiscal year,a company's inventory account increased $45,200 and its accounts payable account decreased $20,800.If the accounts payable is solely related to inventory purchases and sales are $1,500,000 and cost of goods sold is $1,030,000,then what is the amount of payments made to inventory suppliers?

A)$536,000
B)$66,000
C)$1,054,400
D)$1,096,000
E)None of the answer choices is correct.

Question 54

The information below is for Vail Corporation for the most recent fiscal year.

What is Vail's capital expenditure ratio?

A)3.0
B)2.0
C)0.3
D)4.0
E)None of the answer choices is correct.

Question 55

Exhibit 12-5
Myers Inc.uses the indirect method to prepare the statement of cash flows.The following amounts are shown in its December 31,2013,financial statements.

Refer to Exhibit 12-5.How will the change in accounts payable be reported in the operating activities

A)The decrease of $40,000 will be subtracted from net income.
B)The decrease of $40,000 will be subtracted from sales revenue.
C)The decrease of $40,000 will be added to sales revenue.
D)The decrease of $40,000 will be added to net income.
E)None of the answer choices is correct.

Question 56

During Benson Company's most recent fiscal year,beginning plant assets,net of depreciation,totaled $150,000,and ending plant assets totaled $187,500.Depreciation expense of $10,500 and a loss on sale of equipment of $1,125 was reported on the income statement.The company purchased plant assets for $60,050 during the year.How much will be reported as cash received from the sale of equipment in the investing activities

A)$22,550
B)$10,925
C)$21,425
D)$36,375
E)None of the answer choices is correct.

Question 57

Nickels Inc.prepares its statement of cash flows using the direct method.If Nickels sells equipment for a gain of $35,000 when the book value is $100,000,what amount will be reported on the statement of cash flows operating activities

A)$0
B)($35,000)
C)($65,000)
D)$65,000
E)None of the answer choices is correct.

Question 58

The capital expenditure ratio is calculated as:

A)Cash provided by operating activities divided by capital expenditures.
B)Cash provided by operating activities plus capital expenditures.
C)Cash provided by operating activities divided by current liabilities.
D)Capital expenditures divided by cash provided by operating activities.
E)None of the answer choices is correct.

Question 59

Exhibit 12-5
Myers Inc.uses the indirect method to prepare the statement of cash flows.The following amounts are shown in its December 31,2013,financial statements.

Refer to Exhibit 12-5.How will the change in accounts receivable be reported in the operating activities

A)The decrease of $60,000 will be added to sales revenue.
B)The decrease of $60,000 will be subtracted from sales revenue.
C)The decrease of $60,000 will be subtracted from net income.
D)The decrease of $60,000 will be added to net income.
E)None of the answer choices is correct.

Question 60

Exhibit 12-4
Manning Company uses the indirect method to prepare the statement of cash flows.The following amounts are shown in its December 31,2013,financial statements.

Refer to Exhibit 12-4.How will the change in salaries payable be reported in the operating activities

A)The increase of $15,000 will be added to net income.
B)The increase of $15,000 will be subtracted from cost of goods sold.
C)The increase of $15,000 will be subtracted from net income.
D)The increase of $15,000 will be added to sales revenue.
E)None of the answer choices is correct.

Question 61

The following selected financial statement information is for Stevens Company.

a.Using the indirect method,prepare the operating activities
b.Calculate the following cash measures:
(1)Operating cash flow ratio (round to the nearest tenth of a percent).
(2)Capital expenditure ratio (round to the nearest tenth of a percent).
(3)Free cash flow.

Question 62

The following selected financial information is for Javier Inc.


Using the direct method,prepare the operating activities

Question 63

The following selected financial statement information is for Abel Inc.


Using the indirect method,prepare the operating activities

Question 64

The following selected financial statement information is for Palmer and Associates.

The following activities occurred during 2013:
$\bullet$ Issued bonds for $100,000 cash.
$\bullet$ Issued common stock for $110,000 cash.
$\bullet$ Earned net income totaling $88,000.
$\bullet$ Paid cash dividends totaling $8,000.
(1)Prepare the financing activities

Question 65

The following information is from the noncurrent asset portion of Gomez Company's balance sheet.

The following activities occurred during 2013:
$\bullet$ Sold equipment with a book value of $6,000 (= $26,000 cost - $20,000 accumulated depreciation)for $16,000 cash.Depreciation expense for the year totaled $50,000.
$\bullet$ Purchased property for $80,000 cash.
$\bullet$ Purchased long-term investments for $24,000 cash.
(1)Prepare the investing activities