Deck 14: Statement of Cash Flows

Question 1

In preparing the statement of cash flows by the indirect method,which of the following is an incorrect statement of one of the general rules to convert net income to a cash-basis equivalent?

A) Increases in current assets are subtracted from net income.
B) Noncash revenue and gains are subtracted from net income.
C) Decreases in current assets are added to net income.
D) Increases in current liabilities are subtracted from net income.

Answer 1

D

Question 2

Which of the following statements best explains the correct handling of depreciation on the statement of cash flows when using the indirect method?

A) Depreciation is subtracted from net income because it causes a loss when the related plant asset is sold.
B) Depreciation expense is a noncash expense that was subtracted to derive the accrual-basis net income, hence it is added to net income in the cash flows from operating activities section.
C) Depreciation is subtracted in the cash flows from investing activities section because it reduces the book value of the corresponding plant asset.
D) Depreciation adds to the company's cash account to help pay for new equipment.

Answer 2

B

Question 3

The following beginning and ending balances were drawn from the records of Grimes Company: $$\begin{array} { l r r } & \text { Begirning } & \text { Ending } \\\text { Equipment } & \$ 1,400 & \$ 1,100 \\\text { Accurnulated Depreciation } & \$ 700 & \$ 400\end{array}$$
If Grimes Company sold equipment that had an original cost of $600 and accumulated depreciation of $300 for $250,how much did Grimes pay for new equipment?

A) $255
B) $300
C) $200
D) $550

Answer 3

$300

Question 4

Pierce Corporation reported a $3,600 balance in accounts receivable on January 1,Year 2.During the year,sales on account in the amount of $24,800 were made.If the ending balance of accounts receivable is $3,700,what is the amount of cash received from customers?

A) $21,200
B) $21,500
C) $28,400
D) $24,700

Question 5

Under the indirect method,which of the following items would be subtracted from net income to determine the cash flow from operating activities?

A) Loss on the sale of equipment.
B) Increase in the balance of accounts receivable.
C) Increase in accrued interest payable.
D) Depreciation expense.

Question 6

The Upton Company reported a beginning balance of $1,600 and an ending balance of $2,200 in its Unearned Revenue account for Year 2.During the year,$8,000 of revenue was recognized.Based on this information,how much cash was received from customers?

A) $8,000
B) $8,600
C) $8,200
D) $9,000

Question 7

What is the proper treatment of a loss on disposal of equipment when using the indirect method to complete the cash flows from operating activities section?

A) Disregard the loss because it relates to an investing activity.
B) Disregard the loss because it relates to a financing activity.
C) Add the loss to net income.
D) Subtract the loss from net income.

Question 8

Which method is used by the majority of U.S.companies to report cash flows from operating activities?

A) Accrual method
B) Direct method
C) Indirect method
D) Computational method

Question 9

The Ling Corporation reported a beginning balance of $1,200 in its Prepaid Insurance account.During the year,a total of $16,000 was recognized as insurance expense and the Prepaid Insurance account had an ending balance of $1,600.How much cash did Ling pay for insurance during the year?

A) $17,200
B) $16,000
C) $16,400
D) $14,800

Question 10

The Valz Corporation had a balance in its Equipment account at the beginning of the year of $650,000.During the year,equipment that originally cost $170,000 and had accumulated depreciation of $40,000 was sold for $134,000.The ending balance of the Equipment account was $550,000.What was the cost of the additional equipment purchased during the year?

A) $70,000
B) $40,000
C) $170,000
D) $174,000

Question 11

When using the indirect method to complete the cash flows from operating activities section,what is the proper treatment of depreciation expense?

A) Subtract depreciation expense from net income.
B) Add depreciation expense to net income.
C) Disregard depreciation expense because it relates to an investing activity.
D) Disregard depreciation expense because it is a noncash expense.

Question 12

Bates Company pays cash for all inventory purchases.Bates reports that it had a beginning inventory of $2,500 and an ending inventory of $900.Its cost of goods sold equaled $5,500.Based on this information,the amount of cash paid for inventory purchases was:

A) $3,900
B) $7,100
C) $1,400
D) $9,100

Question 13

In preparing the statement of cash flows by the indirect method,which of the following is a correct statement of one of the general rules to convert net income to a cash-basis equivalent?

A) Losses on the sale of long-term assets are subtracted from net income.
B) All noncash expenses and losses are subtracted from net income.
C) Increases in current assets are subtracted from net income.
D) Decreases in current liabilities are added to net income.

Question 14

The Knott Company reported depreciation expense of $10,000 and net income of $16,000 on its income statement.During the year,the company's accounts receivable balance decreased by $4,000.Based on this information,what was the net cash flow from operating activities?

A) $12,000.
B) $16,000.
C) $32,000.
D) $30,000.

Question 15

When using the indirect method,an increase in current liabilities is:

A) subtracted in the cash flows from financing activities section.
B) subtracted from net income in the cash flows from operating activities section.
C) added to net income in the cash flows from operating activities section.
D) added in the cash flows from investing activities section.

Question 16

Shaw Associates uses the indirect method for preparing the statement of cash flows.The following accounts and balances were drawn from the company's accounting records: $$\begin{array} { l c c } \text { Account Title } & \text { Beginning } & \text { Ending } \\\text { Accounts receivable } & \$ 30,000 & \$ 40,000 \\\text { Prepaid insurance } & \$ 24,600 & \$ 1,000 \\\text { Accounts payable } & \$ 24,000 & \$ 25,800 \\\text { Unearned revenue } & \$ 6,400 & \$ 3,800\end{array}$$ Net income for the period was $42,000.The net cash flows from operating activities equal:

A) $37,200.
B) $34,800.
C) $49,200.
D) $40,000.

Question 17

The Duke Company rents out a portion of its office space to another company.At the beginning of the year,the balance in the unearned rent revenue account was $1,200.During the year,Duke recognized $6,800 of rent revenue.If the ending balance of unearned rent revenue is $700,how much cash was received from the tenant for rent during the year?

A) $7,300
B) $6,800
C) $6,300
D) $7,500

Question 18

When using the indirect method,a decrease in a current asset (other than cash or cash equivalents)is:

A) subtracted from current liabilities in the cash flows from financing activities section.
B) subtracted from net income in the cash flows from operating activities section.
C) added to net income in the cash flows from operating activities section.
D) added in the cash flows from investing activities section.

Question 19

On January 1,the balance of Fink Corporation's accounts receivable was $10,000.Sales on account amounted to $80,000 during the Year.The ending balance of accounts receivable was $16,000.What is the amount of cash collected from customers?

A) $64,000
B) $90,000
C) $86,000
D) $74,000

Question 20

Bertram,Inc.had beginning and ending accounts payable balances of $400 and $450,respectively.Inventory had beginning and ending balances of $450 and $425,respectively.All inventory purchases are made on account.If cost of goods sold equaled $350,how much cash was spent to purchase inventory?

A) $275
B) $250
C) $400
D) $350

Question 21

During the year,the Abbot Company had the following changes in account balances:
1)The Accumulated Depreciation account had a beginning balance of $25,000 and an ending balance of $35,000.The increase was due to depreciation expense.
2)The long-term Notes Payable account had a beginning balance of $40,000 and an ending balance of $15,000.The decrease was due to repayment of debt.
3)The Accounts Receivable account had a beginning balance of $60,000 and an ending balance of $50,000.
4)The Equipment account had a beginning balance of $25,000 and an ending balance of $92,500.The increase was due to the purchase of equipment for cash.
5)The Long-Term Investments account (marketable securities)had a beginning balance of $18,000 and an ending balance of $12,500.The decrease was due to the sale of investments at cost.
6)The amount of cash dividends declared and paid during the year was $22,000.
7)The Interest Payable account had a beginning balance of $2,250 and an ending balance of $1,250.
What is the net cash flow from investing activities?

A)$62,000 outflow
B)$62,000 inflow
C)$72,000 inflow
D)$72,000 outflow

Question 22

Which section of the statement of cash flows may be prepared using either the direct method or the indirect method?

A) Operating activities
B) Investing activities
C) Financing activities
D) All of these answers are correct.

Question 23

The only difference between the cash flow statement prepared under the indirect method as opposed to the direct method is the manner in which the:

A) cash flows from financing activities are presented.
B) schedule of noncash items is presented.
C) cash flows from investing activities are presented.
D) cash flows from operating activities are presented.

Question 24

The income statement for Year 2 of Winter Co.reported wages expense of $160,000.At December 31,Year 1,the balance sheet showed a balance in wages payable of $16,000.At December 31,Year 2,the balance sheet showed a balance in wages payable of $22,000.What amount of cash was paid for wages during the year?

A) $176,000
B) $166,000
C) $154,000
D) $144,000

Question 25

During the year,the Abbot Company had the following changes in account balances:
1)The Accumulated Depreciation account had a beginning balance of $25,000 and an ending balance of $35,000.The increase was due to depreciation expense.
2)The long-term Notes Payable account had a beginning balance of $40,000 and an ending balance of $15,000.The decrease was due to repayment of debt.
3)The Accounts Receivable account had a beginning balance of $60,000 and an ending balance of $50,000.
4)The Equipment account had a beginning balance of $25,000 and an ending balance of $92,500.The increase was due to the purchase of equipment for cash.
5)The Long-Term Investments account (marketable securities)had a beginning balance of $18,000 and an ending balance of $12,500.The decrease was due to the sale of investments at cost.
6)The amount of cash dividends declared and paid during the year was $22,000.
7)The Interest Payable account had a beginning balance of $2,250 and an ending balance of $1,250.
What is the net cash flow from financing activities?

A)$22,000 inflow
B)$25,000 inflow
C)$25,000 outflow
D)$47,000 outflow

Question 26

During the year,Burton Company had cash collections from customers of $100,000,cash paid to employees of $16,000,cash paid to suppliers of $50,000,cash used to retire long-term bonds of $16,000,and cash payments for dividends of $10,000.The net cash flow from operating activities during the year was:

A) $8,000.
B) $34,000.
C) $18,000.
D) $50,000.

Question 27

During the year,the Property,Plant,and Equipment account increased by $25,000 and the Accumulated Depreciation account increased by $2,000.In addition,the company sold equipment that originally cost $12,000 and had $9,000 of accumulated depreciation for $4,500.What was the cash inflow from the sale of property,plant,and equipment?

A) $1,500
B) $4,500
C) $15,500
D) $12,000

Question 28

During the year,the Equipment account increased by $25,000 and the Accumulated Depreciation account increased by $2,000.In addition,the company sold equipment that originally cost $12,000 and had $9,000 of accumulated depreciation for $4,500. What was the cash outflow to purchase equipment?

A) $25,000
B) $37,000
C) $29,500
D) $13,000

Question 29

Erie Company began the accounting period with $27,000 in accounts receivable.The ending balance in accounts receivable was $10,000.If the credit sales during the period were $44,000,what is the amount of cash received from customers?

A) $27,000
B) $44,000
C) $81,000
D) $61,000

Question 30

The income statement of Collins Co.reported total sales revenue of $115,000 during the current year.Assume that all sales are credit sales.The company's comparative balance sheets reported a balance in accounts receivable of $17,500 at the beginning of the year and $25,000 at the end of the year.The cash inflow from customers during the current year equals:

A) $107,500.
B) $132,500.
C) $115,000.
D) $122,500.

Question 31

During the year,the Abbot Company had cash flow from operating activities of $133,000 and the following changes in account balances:
1)The Accumulated Depreciation account had a beginning balance of $25,000 and an ending balance of $35,000.The increase was due to depreciation expense.
2)The long-term Notes Payable account had a beginning balance of $40,000 and an ending balance of $15,000.The decrease was due to repayment of debt.
3)The Accounts Receivable account had a beginning balance of $60,000 and an ending balance of $50,000.
4)The Equipment account had a beginning balance of $25,000 and an ending balance of $92,500.The increase was due to the purchase of equipment for cash.
5)The Long-Term Investments account (marketable securities)had a beginning balance of $18,000 and an ending balance of $12,500.The decrease was due to the sale of investments at cost.
6)The amount of cash dividends declared and paid during the year was $22,000.
7)The Interest Payable account had a beginning balance of $2,250 and an ending balance of $1,250.
What was the net change in cash?

A)$24,000
B)$12,000
C)$10,000
D)($24,000)

Question 32

Winkler Company sold equipment for $25,000 cash.The equipment had cost $40,000 and had accumulated depreciation of $22,000 at the time of the sale.Based on this information alone,which of the following statements is correct?

A) Cash flow from investing activities would be less if the statement of cash flows is prepared by the direct method than if it is prepared under the indirect method.
B) Cash flow from investing activities would be the same regardless of whether the statement of cash flows is prepared by the direct method or the indirect method.
C) Cash flow from investing activities would be greater if the sale of equipment is reported on the statement of cash flows under the direct method than if it is reported under the indirect method.
D) The answer cannot be determined because the amount of the salvage value is unknown.

Question 33

The following account balances are for Curran Company: $$\begin{array} { l r r } & 12 / 31 / \text { Year } 1 & 12 / 31 / \text { Year } 2 \\\text { Accounts receivable } & \$ 84,000 & \$ 60,000 \\\text { Prepaid rent } & 8,000 & 4,000 \\\text { Long-tem marketable securities } & 80,000 & 70,000 \\\text { Dividends payable } & 6,000 & 2,000 \\\text { Salaries payable } & 8,000 & \$ 2,000 \\\text { Notes payable } & 44,000 & 34,000\end{array}$$ Additional data for Year 2:
(1)Sales on account for the period totaled $100,000.
(2)Salary expense was $14,000.
(3)Rent expense was $12,000.
Based on this information,what was the net cash inflow from operating activities for Year 2?

A) $88,000.
B) $84,000.
C) $92,000.
D) $74,000.

Question 34

Pace Associates,a small consulting firm,charges all of its expenses on accounts payable.Pace's accounts payable balance was $1,500 at the beginning of the year.During the year,expenses were incurred on account in the amount of $13,500.The ending accounts payable balance was $3,500.What is the amount of cash paid for expenses during the year?

A) $17,000
B) $11,500
C) $10,500
D) $15,500

Question 35

Arch Associates reports the following comparative balance sheets and income statement information. $\begin{array}{c}\text { Arch Associates}\\ \text { Comparative Balance Sheets}\\\\\begin{array}{lr}&12 / 31 / \text { Year } 1 &12 / 31 / \text { Year } 2\\\text { Cash } & \$ 12,000&\$22,000\\\text { Accounts receivable } & 4,000&8,000 \\\text { Prepaid insurance } & 10,000&8,000 \\\text { Inventory } & 6,000 &2,000\\\text { Property, plant and equipment } & \underline{12,000}&\underline{10,000} \\\text { Total assets } & \underline{ \$ 44,000}& \underline{50,000} \\\text { Accounts payable } & \$8, 000&\$12,000 \\\text { Salaries payable } & 10,000&4,000 \\\text { Long term notes payable } & 8,000 &6,000\\\text { Stockholders' equity } & \underline{18,000}& \underline{28,000} \\\text { Total liabilities and equity } & \underline{ \$ 44,000}& \underline{\$50,000}\end{array}\end{array}$
$\begin{array}{lcr} & \begin{array}{l}\text { Income Statement } \\\text { Year Ended 12/31/Year 2 }\end{array} \\\text { Revenue } & & 70,000\\\text { Cost of goods sold } & & \underline{40,000} \\\text { Gross margin } & &30,000 \\\text { Operating expense } & & \underline{20,000 }\\\text { Net income } & & \underline{\$10,000} \\\end{array}$
Which of the following cash flows would be included under the operating activities section of the cash flow statement? (Assume the direct method is used.)

A) Cash received from issuing bonds payable.
B) Cash paid to purchase equipment.
C) Cash receipts from dividends.
D) None of these answers are correct.

Question 36

The following income statement was drawn from the income statement of Gibbons Company for its first year of operations: $$\begin{array} { l r } \text { Cash revenue } & \$ 60,000 \\\text { Depreciation expense } & 20,000 \\\text { Accrued interest expense } & 6,000 \\\text { Cash operating expense } & 24,000 \\\text { Operating income } & 10,000 \\\text { Gain on the sale of equipment } & 1,200 \\\text { Net income } & \$ 11,200\end{array}$$ Using the direct method,the net cash flow from operating activities equals:

A) $37,200.
B) $26,000.
C) $36,000.
D) $24,800.

Question 37

During the year,the Abbot Company had the following changes in account balances:
1)The Accumulated Depreciation account had a beginning balance of $25,000 and an ending balance of $35,000.The increase was due to depreciation expense.
2)The long-term Notes Payable account had a beginning balance of $40,000 and an ending balance of $15,000.The decrease was due to repayment of debt.
3)The Accounts Receivable account had a beginning balance of $60,000 and an ending balance of $50,000.
4)The Equipment account had a beginning balance of $25,000 and an ending balance of $92,500.The increase was due to the purchase of equipment for cash.
5)The Long-Term Investments account (marketable securities)had a beginning balance of $18,000 and an ending balance of $12,500.The decrease was due to the sale of investments at cost.
6)The amount of cash dividends declared and paid during the year was $22,000.
7)The Interest Payable account had a beginning balance of $2,250 and an ending balance of $1,250.
Assume that a statement of cash flows has been prepared.The combination of the three major components (operating activities,investing activities,financing activities)equals the:

A)Net income for the period.
B)Change in the cash account balance between the beginning and end of the period.
C)Ending cash balance.
D)Amount of cash inflow for the period.

Question 38

Arch Associates reports the following comparative balance sheets and income statement information. $\begin{array}{c}\text { Arch Associates}\\ \text { Comparative Balance Sheets}\\\\\begin{array}{lr}&12 / 31 / \text { Year } 1 &12 / 31 / \text { Year } 2\\\text { Cash } & \$ 12,000&\$22,000\\\text { Accounts receivable } & 4,000&8,000 \\\text { Prepaid insurance } & 10,000&8,000 \\\text { Inventory } & 6,000 &2,000\\\text { Property, plant and equipment } & \underline{12,000}&\underline{10,000} \\\text { Total assets } & \underline{ \$ 44,000}& \underline{50,000} \\\text { Accounts payable } & \$8, 000&\$12,000 \\\text { Salaries payable } & 10,000&4,000 \\\text { Long term notes payable } & 8,000 &6,000\\\text { Stockholders' equity } & \underline{18,000}& \underline{28,000} \\\text { Total liabilities and equity } & \underline{ \$ 44,000}& \underline{\$50,000}\end{array}\end{array}$ $\begin{array}{lcr} & \begin{array}{l}\text { Income Statement } \\\text { Year Ended 12/31/Year 2 }\end{array} \\\text { Revenue } & & 70,000\\\text { Cost of goods sold } & & \underline{40,000} \\\text { Gross margin } & &30,000 \\\text { Operating expense } & & \underline{20,000 }\\\text { Net income } & & \underline{\$10,000} \\\end{array}$ All inventory purchases are made on account.The amount of cash paid for inventory purchases during Year 2 was:

A) $40,000.
B) $32,000.
C) $22,000.
D) $36,000.

Question 39

Arch Associates reports the following comparative balance sheets and income statement information. $\begin{array}{c}\text { Arch Associates}\\ \text { Comparative Balance Sheets}\\\\\begin{array}{lr}&12 / 31 / \text { Year } 1 &12 / 31 / \text { Year } 2\\\text { Cash } & \$ 12,000&\$22,000\\\text { Accounts receivable } & 4,000&8,000 \\\text { Prepaid insurance } & 10,000&8,000 \\\text { Inventory } & 6,000 &2,000\\\text { Property, plant and equipment } & \underline{12,000}&\underline{10,000} \\\text { Total assets } & \underline{ \$ 44,000}& \underline{50,000} \\\text { Accounts payable } & \$8, 000&\$12,000 \\\text { Salaries payable } & 10,000&4,000 \\\text { Long term notes payable } & 8,000 &6,000\\\text { Stockholders' equity } & \underline{18,000}& \underline{28,000} \\\text { Total liabilities and equity } & \underline{ \$ 44,000}& \underline{\$50,000}\end{array}\end{array}$ $\begin{array}{lcr} & \begin{array}{l}\text { Income Statement } \\\text { Year Ended 12/31/Year 2 }\end{array} \\\text { Revenue } & & 70,000\\\text { Cost of goods sold } & & \underline{40,000} \\\text { Gross margin } & &30,000 \\\text { Operating expense } & & \underline{20,000 }\\\text { Net income } & & \underline{\$10,000} \\\end{array}$
The amount of cash collected from customers during Year 2 was:

A) $66,000.
B) $62,000.
C) $74,000.
D) $70,000.

Question 40

Which of the following would not be reported as an investing activity on the statement of cash flows?

A) Cash dividends received from an investment in marketable securities.
B) Cash loaned to another company.
C) Cash received from the sale of equipment.
D) Cash paid to purchase production equipment.

Question 41

Which of the following is not an adjustment when arriving at net cash flow from operating activities under the indirect method?

A) Noncash expenses, such as depreciation expense
B) Gains and losses on the sale of long-term assets
C) Changes in a company's long-term assets
D) Changes in noncash current assets and current liability accounts

Question 42

Under the direct method,which of the following would not be included in the operating section of the cash flow statement?

A) Cash payments for income taxes
B) Cash payments to purchase insurance
C) Cash payments to purchase long-term equipment
D) Cash receipts from customers

Question 43

When the indirect method is used to prepare the statement of cash flows,what is the starting point of the operating activities section?

A) Net income as reported on the income statement
B) Total assets as reported on the balance sheet
C) Sales as reported on the income statement
D) Cash collections from customers

Question 44

The gain resulting from the sale of equipment shown when using the indirect method to prepare the statement of cash flows is reported in the:

A) operating section as a deduction.
B) investing section as a deduction.
C) operating section as an addition.
D) investing section as an addition.

Question 45

Which of the following would be shown as a deduction from net income when calculating net cash flow from operating activities using the indirect method?

A) Decrease in accounts payable for inventory purchases
B) Loss on the sale of equipment
C) Decrease in accounts receivable
D) Increase in salaries payable

Question 46

Depreciation for the year was $80,000 and net income was $323,000.Assume the rest of the company's transactions were cash transactions.How much was net cash from operating activities?

A) $243,000
B) $403,000
C) $323,000
D) None of these answers are correct.

Question 47

The difference between the direct and the indirect methods applies only to cash from what type of activity?

A) Operating
B) Investing
C) Financing
D) All of these answers are correct.

Question 48

All of the following are deducted from net income when preparing the statement of cash flows under the indirect method except:

A) an increase in accounts payable.
B) a decrease in accrued liabilities.
C) an increase in accounts receivable.
D) an increase in inventory.

Question 49

What are the two methods used to prepare the statement of cash flows?

A) Indirect and direct
B) Inflow and outflow
C) Sources and uses
D) Cash and noncash

Question 50

Which of the following statements is incorrect regarding the investing activities section of the statement of cash flows?

A) Investing activities deal with long-term liabilities (debt) and equity accounts.
B) Increases in long-term asset balances suggest cash outflows to purchase assets.
C) Decreases in long-term asset balances suggest cash inflows from selling assets.
D) Investing activities involve cash purchases and cash disposals of long-term assets.

Question 51

Pingry Company's accounts receivable balance increased by $14,000 during the year.The company's income statement reports sales revenue of $437,500,all on account.How much cash was collected from customers during the year?

A) $437,500
B) $451,500
C) $423,500
D) None of these answers are correct.

Question 52

Which of the following statements is incorrect regarding the use of the indirect method when preparing the operating activities of the statement of cash flows?

A) A decrease in accounts payable is deducted from net income
B) A decrease in prepaid insurance is added to net income
C) Gain on the retirement of bonds is deducted from net income
D) Depreciation expense is subtracted from net income

Question 53

Which of the following would be reported as a financing activity on the statement of cash flows?

A) Dividends collected from an investment in marketable securities.
B) Note payable issued to purchase equipment.
C) Purchase of investment securities.
D) Cash paid for the purchase of treasury stock.

Question 54

Under the indirect method,which of the following is not an item that is added back to net income in determining net cash flow from operating activities?

A) Decrease in accounts receivable
B) Decrease in inventory
C) Depreciation expense
D) Gain on sale of store fixtures

Question 55

Which of the following statements is incorrect regarding preparing a statement of cash flows using the direct method?

A) The direct method shows adjustments to net income.
B) The direct method shows the specific sources and uses of cash that are associated with operating activities.
C) Noncash expenses, gains, and losses are not used in the determination of net cash flow from operating activities.
D) A majority of companies use the indirect method rather than the direct method.

Question 56

All of the following are additions to net income when preparing the statement of cash flows under the indirect method except:

A) losses on sales of long-term assets.
B) a decrease in accounts payable.
C) a decrease in prepaid insurance.
D) a decrease in accounts receivable.

Question 57

When using the indirect method to complete the cash flows from operating activities section,what is the proper treatment for an increase in the Inventory account?

A) Deduct the increase to cash payments to suppliers
B) Add the increase to net income
C) Add the increase to cash collections from customers
D) Deduct the increase from net income

Question 58

When using the indirect method to complete the cash flows from operating activities section,what is the proper treatment for an increase in the accounts receivable balance?

A) Add the increase to net income
B) Add the increase to cash collections from customers
C) Deduct the increase from net income
D) Add the increase to cash payments to suppliers

Question 59

Wade Company reported wages expense of $32,000 during the year.The beginning balance in wages payable was $1,200,and at the end of the year,the balance in wages payable was $1,700.What was the amount of cash paid for employee wages during the year?

A) $29,100
B) $31,500
C) $34,400
D) $32,500

Question 60

Equipment with an original cost of $20,000 and accumulated depreciation of $7,500 was sold at a loss of $2,500.As a result of this transaction,cash would:

A) increase by $10,000.
B) decrease by $7,500.
C) increase by $20,000.
D) decrease by $10,000.

Question 61

On January 1,Steigel Company had a balance of $720,000 in its Land account.During the year,Steigel sold land that had cost $240,000 for $440,000 cash.The balance in the Land account was $980,000 on December 31.What is the net cash outflow from investing activities?

A) $60,000
B) $120,000
C) $200,000
D) $280,000

Question 62

Income tax expense was $137,500 for the year.The balance of the Income Tax Payable account was $7,500 at the beginning of the year and $10,000 at the end of the year.Cash payments for income tax reported on the cash flow statement using the direct method equal:

A) $130,000.
B) $137,500.
C) $147,500.
D) $135,000.

Question 63

The following information was drawn from the year-end balance sheets of White,Inc. $$\begin{array} { l r r } & \text { Year } 2 & \text { Year } 1 \\ \text { Bonds payable }& \$ 200,000 & \$275,000 \\\text { Common stock } & 112,500 & 87,500 \\\text { Treasury stock } & 17,500 & 12,500 \\\text { Retained earnings }& 35,000 & 27,500\end{array}$$ The amount of net income shown on the Year 2 income statement was $17,500.There was no beginning or ending balance in the Dividends Payable account.What is the amount of cash outflows for dividends?

A) $7,500
B) $25,000
C) $17,500
D) $10,000

Question 64

Style Monthly magazine reported $650,000 of revenue for the month.At the beginning of the month,its Unearned Revenue account had a balance of $190,000.At the end of the month,the account had a balance at $156,000.Based on this information,what is the amount of cash received from customers?

A) $460,000
B) $650,000
C) $684,000
D) $616,000

Question 65

Under the indirect method,depreciation expense would be subtracted from net income when determining the net cash flow from operating activities.

Question 66

The following information was drawn from the year-end balance sheets of White,Inc. $$\begin{array} { l r r } & \text { Year } 2 & \text { Year } 1 \\ \text { Bonds payable }& \$ 200,000 & \$275,000 \\\text { Common stock } & 112,500 & 87,500 \\\text { Treasury stock } & 17,500 & 12,500 \\\text { Retained earnings }& 35,000 & 27,500\end{array}$$
White,Inc.,uses the cost method to account for treasury stock.No treasury stock was sold during the year.What is the amount of cash outflows for the purchase of treasury stock?

A) $7,500
B) $17,500
C) $25,000
D) None of these answers are correct.

Question 67

Leo Company reported sales of $200,000 during Year 2.Assume that all sales are credit sales.Leo's balance sheets for Year 2 and Year 1 showed the following: $$\begin{array} { l r r } & \text { Year 2 } & \text { Year 1 } \\\text { Accounts receivable } & \$ 90,000 & \$ 80,000 \\\text { Accounts payable } & 64,000 & 60,000\end{array}$$ Based on this information,how much cash did Leo collect from sales during Year 2?

A) $204,000
B) $210,000
C) $290,000
D) $190,000

Question 68

Under the indirect method,the net cash flow from financing activities would be the same as if the direct method had been used.

Question 69

The following information was drawn from Empire's Year 2 and Year 1 year-end balance sheets. $\begin{array}{lrr}&\text { Year } 2&\text { Year } 1\\ \text { Investment Securities } &\$105,000&\$112,500\\\end{array}$
Empire incurred a $1,500 loss on the sale of investment securities during Year 2.No investment securities were purchased during Year 2.Based on this information alone,what is the amount of cash that was collected from the sale of securities?

A) $7,500
B) $6,000
C) $9,000
D) $1,500

Question 70

The following information was drawn from the year-end balance sheets of White,Inc. $$\begin{array} { l r r } & \text { Year } 2 & \text { Year } 1 \\ \text { Bonds payable }& \$ 200,000 & \$275,000 \\\text { Common stock } & 112,500 & 87,500 \\\text { Treasury stock } & 17,500 & 12,500 \\\text { Retained earnings }& 35,000 & 27,500\end{array}$$ White,Inc.,issued $30,000 in bonds during Year 2.The bonds were issued at face value.All bonds were retired at face value.What is the amount of cash outflow for the payment of bond liabilities?

A) $75,000
B) $25,000
C) $55,000
D) $105,000

Question 71

The following information was drawn from Eckerd Company's balance sheets at the end of Year 2 and Year 1. $\begin{array}{lrr}&\text { Year } 2&\text { Year } 1\\ \text {Bonds payable } &\$170,000&\$150,000\\\end{array}$
New bonds in the amount of $50,000 were issued at par during Year 2.What is the amount of cash flow associated with the repayment of bond liabilities?

A) $120,000
B) $150,000
C) $30,000
D) Cannot be determined

Question 72

Hansen Corporation reported net income of $328,000 for the current year.In addition,accounts payable increased $24,000 during the year,inventory increased by $15,000,and accounts receivable decreased by $20,000.Using the indirect method,what is the net cash flow from operating activities?

A) $387,000
B) $357,000
C) $328,000
D) $317,000

Question 73

Dennis Corporation prepared the following data (in dollars)for the current year: $\begin{array}{lrr} \text { Increase in accounts receivable } &\$6,000\\ \text { Decrease in inventory } &2,400\\ \text { Increase in prepaid expenses} &1,600\\ \text { Depreciation expense, equipment } &7,000\\ \text { Loss on sale of equipment } &1,500\\ \text { Net income} &130,000\\\end{array}$
Using the indirect method,what is the net cash flow from operating activities?

A) $146,800
B) $133,300
C) $101,200
D) $118,000

Question 74

Which of the following is incorrect regarding the financing activities section of a statement of cash flows?

A) Increases in Contributed Capital accounts suggest cash inflows occurred from issuing equity instruments.
B) Decreases in Long-Term Debt accounts suggest cash outflows occurred for payment of debt.
C) Increases in Short-Term Notes Payable accounts suggest cash outflows occurred from issuing notes or bonds.
D) Decreases in retained earnings suggest cash outflows occurred to pay dividends.

Question 75

Under the indirect method,losses would be added to net income when determining the net cash flow from operating activities.

Question 76

Street Corporation reported net income of $400,000 and a net cash flow from operating activities of $550,000 during the year.Which of the following could not have been a reason why Street's net cash flows from operating activities were greater than its net income?

A) Increase in accrued liabilities from the beginning of the year to the end of the year
B) Increase in accounts payable from the beginning of the year to the end of the year
C) Loss on the sale of equipment
D) Increase in accounts receivable

Question 77

Phibbs Company prepared the following data for the year. $$\begin{array} { l r } \text { Outflow to purchase treasury stock } & 30,000 \\\text { Inflow from sale of machinery } & 7,500 \\\text { Inflow from sale of marketable securities } & 3,750 \\\text { Outflow to purchase building } & 87,500 \\\text { Outflow to purchase land } & 12,500 \\\text { Outflow to pay dividends } & 7,500 \\\text { Outflow to pay interest } & 37,500\end{array}$$ What is the net cash flow from investing activities?

A) $88,750 outflow
B) $141,250 outflow
C) $152,500 outflow
D) $41,250 outflow

Question 78

Which of the following would be reported as an investing activity on the statement of cash flows?

A) Cash receipts from issuing common stock
B) Cash payments to purchase treasury stock
C) Cash payments to purchase investment securities
D) Cash payments for inventory purchases

Question 79

Which of the following would not be reported as a financing activity on the statement of cash flows?

A) Cash receipts from issuing common stock
B) Cash payments for interest
C) Cash payments to purchase treasury stock
D) Cash payments for dividends

Question 80

The following information was prepared for Standard Corporation: $$\begin{array} { l r } \text { Net income } & \$ 650,000 \\\text { Gain on sale of equipment } & 30,000 \\\text { Dividends paid } & 80,000 \\\text { Decrease in prepaid expenses } & 16,000 \\\text { Increase in accounts receivable } & 8,000\end{array}$$ Net cash flow from operating activities equals:

A) $672,000
B) $628,000
C) $658,000
D) $548,000