Deck 12: Statement of Cash Flows

Question 1

On September 1,Year 1,Laredo Company purchased equipment making a down payment of $15,500 cash and signing a one-year note payable on the $22,500 balance.The note carried an interest rate of 6%,and all interest was to be paid on the maturity date.Which of the following correctly shows the combined effect of the purchase as well as the accrual of interest on December 31,Year 1?
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Cash Flows
Net Income $\quad$$\quad$$\quad$ Operating $\quad$$\quad$ Investing $\quad$$\quad$$\quad$ Financing

A)
B)
C)
D)

Answer 1

Question 2

[The following information applies to the questions displayed below.]

During Year 1, El Paso Company had the following changes in account balances:

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.
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.
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 other operational assets.
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.
The Dividends Payable account had a beginning balance of $12,000 and an ending balance of $10,000. There were $20,000 of dividends declared during the period.
The Interest Payable account had a beginning balance of $2,250 and an ending balance of $1,250. The difference was due to the payment of interest.


-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

Answer 2

$47,000 outflow

Question 3

Which of the following transactions affects cash flows?

A)Accrual of interest receivable
B)Issuance of a stock dividend
C)Recognition of depreciation expense
D)Payment of dividends declared in a previous year

Answer 3

Payment of dividends declared in a previous year

Question 4

Valdez Co.sold land that had cost $48,000 for $60,000 cash.Which of the following statements is true about this transaction?

A)The $12,000 gain would be subtracted from net income in the operating activities section using the direct method.
B)$48,000 would appear as a cash inflow from investing activities and $12,000 would be added in the operating activities section using the indirect method.
C)$60,000 would appear as a cash inflow from investing activities.
D)The $12,000 gain would be subtracted from net income in the operating activities section prepared using the indirect method and $60,000 would be reported as a cash inflow from investing activities.

Question 5

What is the name given to the sum of the subtotals of the three sections (operating activities,investing activities,financing activities)of the statement of cash flows?

A)Net income for the period
B)The change in the cash account balance between the beginning and ending of the period
C)The ending cash balance
D)The amount of cash inflow for the period

Question 6

Which of the following items would be classified as a cash flow from investing activities?

1) Issue common stock for cash
2) Payment on principal of note payable
3) Payment of dividends
4) Sale of equipment for cash

A)1 and 4
B)4 only
C)3 only
D)1,2,3,and 4

Question 7

[The following information applies to the questions displayed below.]

On August 1, Year 1, Jackson Company issued a one-year $80,000 face value interest-bearing note with a stated interest rate of 9% to Galaxy Bank. Jackson accrues interest expense on December 31, Year 1, its calendar year-end.


-What is the cash flow from financing activities that will be reported during the year ending December 31,Year 1?

A)$0
B)$80,000 inflow
C)$83,000 inflow
D)($87,200)outflow

Question 8

What effect does depreciation expense have on net income and cash flows?
Net Income $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Cash Flows

A)
B)
C)
D)

Question 9

How are interest expense and interest paid reported?

A)Interest expense is reported as an operating item on the income statement and interest paid is reported as an investing activity on the statement of cash flows.
B)Interest paid is reported as an operating activity on the statement of cash flows and interest expense is reported as a nonoperating expense on the income statement.
C)Interest expense is reported as an operating expense on the income statement and interest paid is reported as a financing activity on the statement of cash flows.
D)Interest paid is reported as a financing activity on the statement of cash flows and interest expense is reported as an operating item on the income statement.

Question 10

Which of the following is the correct sequence of the three sections that are presented on the statement of cash flows?

A)Operating,Investing,Financing
B)Investing,Operating,Financing
C)Operating,Financing,Investing
D)Financing,Investing,Operating

Question 11

On January 1,Year 1,Chisolm Company purchased equipment for $36,000 cash.On December 31,Year 1,depreciation of $9,000 was recorded.Which of the following correctly shows the combined effect of these two events on the income statement and statement of cash flows? Chisolm uses the direct method.
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Cash Flows
Net Income $\quad$$\quad$$\quad$ Operating $\quad$ $\quad$ Investing $\quad$$\quad$$\quad$$\quad$$\quad$ Financing

A)
B)
C)
D)

Question 12

How are cash receipts from interest on a note receivable classified on a statement of cash flows prepared using the direct method?

A)Operating activity
B)Investing activity
C)Financing activity
D)Noncash financing and investing activity

Question 13

What effect does the following journal entry have on the amount of cash generated by operating activities?

A)Decreases it
B)Increases it
C)Has no effect
D)Cannot be determined from the information given

Question 14

How would the issuance of a mortgage note in exchange for a building be reported on the statement of cash flows?

A)Financing activity
B)Investing activity
C)Operating activity
D)Noncash financing and investing activity

Question 15

How is the cash paid to purchase land reported in the statement of cash flows?

A)Cash outflow from financing activities
B)Schedule of noncash investing and financing activities
C)Cash outflow from investing activities
D)Cash inflow from operating activities

Question 16

[The following information applies to the questions displayed below.]

On August 1, Year 1, Jackson Company issued a one-year $80,000 face value interest-bearing note with a stated interest rate of 9% to Galaxy Bank. Jackson accrues interest expense on December 31, Year 1, its calendar year-end.


-What is the amount of interest expense and the total cash outflow related to the note during the year ending December 31,Year 2?
Interest Expense $\quad$$\quad$$\quad$$\quad$$\quad$ Cash Outflow

A)
B)
C)
D)

Question 17

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

A)Borrowing on a long-term note payable
B)Repayment of principal on bonds payable
C)Payment of interest on bonds payable
D)Payment of a cash dividend

Question 18

[The following information applies to the questions displayed below.]

During Year 1, El Paso Company had the following changes in account balances:

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.
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.
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 other operational assets.
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.
The Dividends Payable account had a beginning balance of $12,000 and an ending balance of $10,000. There were $20,000 of dividends declared during the period.
The Interest Payable account had a beginning balance of $2,250 and an ending balance of $1,250. The difference was due to the payment of interest.


-What is the net cash flow from investing activities?

A)$62,000 outflow
B)$62,000 inflow
C)$67,500 outflow
D)$73,000 outflow

Question 19

On January 1,Year 1,Mayer Corporation signed a contract to perform $25,000 worth of services for Phips Company over the next three years.Which of the following indicates the effects of this event on the Year 1 income statement and statement of cash flows of Mayer Corporation?
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Cash Flows
Net Income $\quad$$\quad$ Operating $\quad$$\quad$ Investing $\quad$$\quad$$\quad$$\quad$ Financing

A)
B)
C)
D)

Question 20

[The following information applies to the questions displayed below.]

On August 1, Year 1, Jackson Company issued a one-year $80,000 face value interest-bearing note with a stated interest rate of 9% to Galaxy Bank. Jackson accrues interest expense on December 31, Year 1, its calendar year-end.


-What is the amount of interest expense and the cash outflow for interest during the year ending December 31,Year 1?
Interest Expense $\quad$$\quad$$\quad$$\quad$$\quad$ Cash Outflow

A)
B)
C)
D)

Question 21

Which of the following is a correct statement of one of the rules for converting net income to the cash flow from operating activities using the indirect method?

A)All noncash expenses and losses are subtracted from net income.
B)Increases in current liabilities are added to net income.
C)Increases in current assets are added to net income.
D)Decreases in current assets are subtracted from net income.

Question 22

Which method of reporting cash flows from operating activities is used by most businesses in preparing the statement of cash flows?

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

Question 23

When using the indirect method to prepare the operating activities section of the statement of cash flows,how is an increase in noncash current assets handled?

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

Question 24

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

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

Question 25

On January 1,Year 2,the balance of Jacobs Corporation's Accounts Receivable was $40,000.Sales on account for Year 2 amounted to $320,000 and the ending balance of Accounts Receivable was $64,000.What is the amount of cash collected from customers?

A)$296,000
B)$256,000
C)$344,000
D)$360,000

Question 26

Phillips Co.reported total credit sales of $460,000 for Year 2.Its accounts receivable totaled $70,000 and $100,000 at the beginning and end of the year,respectively.What was the cash collected from customers during Year 2?

A)$530,000
B)$460,000
C)$490,000
D)$430,000

Question 27

When using the indirect method to complete the cash flows from operating activities section of the statement of cash flows,what is the proper disposition of a loss on disposal of equipment?

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 28

Which of the following transactions is a use of cash?

A)Short-term borrowing of cash
B)Acquisition of land by issuing a short-term note payable
C)Issuance of a stock dividend
D)Purchase of treasury stock

Question 29

Hilliard Company,a small consulting firm,charges all of its operating expenses on Accounts Payable.On January 1,Year 2,Hilliard's Accounts Payable balance was $24,000 and,during Year 2,an additional $216,000 of operating expenses were charged on account.On December 31,Year 2,the Accounts Payable balance was $72,000.What is the amount of cash paid for expenses during Year 2?

A)$264,000
B)$240,000
C)$168,000
D)$64,000

Question 30

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

Question 31

During Year 1,Mallard Company earned $165,000 of sales revenue on account and accrued $122,500 of operating expenses.The company also earned $26,400 of service revenue that had previously been recorded as unearned revenue.In addition,a $2,200 stock dividend was issued to the stockholders.What can be said about cash flows considering these transactions?

A)Cash outflows from financing activities are $2,200.
B)Cash inflows from operating activities are $68,900.
C)Cash inflows from operating activities are $42,500.
D)There are no cash inflows or outflows as a result of these activities.

Question 32

Erie Company reports the following comparative balance sheets and income statement information for the current year.
Comparative Balance Sheets
12/31/2015 12/31/2016


-What was the cash received from customers during the year?

A)$296,000
B)$264,000
C)$280,000
D)$248,000

Question 33

Erie Company reports the following comparative balance sheets and income statement information for the current year.
Comparative Balance Sheets
12/31/2015 12/31/2016


-Assuming accounts payable is used for inventory purchases only,what was the amount of cash paid for inventory purchases during the year?

A)$32,000
B)$176,000
C)$192,000
D)$160,000

Question 34

On January 1,Year 1,Colgate Corporation decided to switch from the direct method to the indirect method of preparing the statement of cash flows.Assuming a positive net income figure but a decrease in the cash balance,what can be said about the change in method of preparing the statement?

A)The direct method will yield a larger amount for cash flows from operating activities.
B)The only difference will be in the cash flows from financing activities section.
C)The indirect method will yield a larger amount for cash flows from operating activities.
D)There will be no difference in the totals on the statement of cash flows.

Question 35

The financial statements of Gregg Co.reported wages expense of $160,000 during Year 2,wages payable of $16,000 at the end of Year 1,and wages payable of $22,000 at the end of Year 2.What amount of cash was paid for wages during Year 2?

A)$176,000
B)$160,000
C)$154,000
D)$144,000

Question 36

Which of the following is an incorrect statement of one of the rules for converting net income to the cash flow from operating activities using the indirect method?

A)Increases in current assets are subtracted from net income.
B)Decreases in current assets are added to net income.
C)Gains are added to net income.
D)Increases in current liabilities are added to net income.

Question 37

When using the indirect method to prepare the operating activities section of the statement of cash flows,how is a decrease in current liabilities handled?

A)It is subtracted from net income in the cash flows from operating activities section.
B)It is subtracted from current assets in the cash flows from financing activities section.
C)It is added to net income in the cash flows from operating activities section.
D)It is added to inventory purchases in the cash flows from investing activities section.

Question 38

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

A)Operating activities
B)Investing activities
C)Financing activities
D)All of these answer choices are correct

Question 39

Ervin Company began the accounting period with $64,000 in accounts receivable.The ending balance in accounts receivable was $40,000.If the credit sales during the period were $588,000,what is the amount of cash received from customers?

A)$564,000
B)$612,000
C)$24,000
D)$548,000

Question 40

The following beginning and ending balances were drawn from the records of Allen Co.

If Allen Co.sold equipment that had an original cost of $175,000 and accumulated depreciation of $75,000 for $62,500,how much did Allen pay for new equipment?

A)$12,500
B)$25,000
C)$100,000
D)$250,000

Question 41

Which of the following would not be presented in the financing section of the statement of cash flows?

A)Purchased a new office building by issuing a note payable
B)Purchased treasury stock
C)Repayment of long-term bonds payable
D)Issuing of preferred stock

Question 42

Belvedere Corporation had a balance in its Equipment account on January 1,Year 1 of $320,000.During the year,equipment originally costing $85,000 and having Accumulated Depreciation of $20,000 was sold for $67,000.The ending balance of the Equipment Account was $275,000.How much did the company spend to purchase additional equipment during Year 1?

A)$40,000
B)$25,000
C)$90,000
D)$92,000

Question 43

Chisholm Associates uses the indirect method to prepare the operating activities section of the statement of cash flows.The following accounts and balances were drawn from the company's accounting records:

Net income for the period was $80,000.What is the net cash flows from operating activities?

A)$70,400
B)$65,600
C)$76,000
D)$94,400

Question 44

If cash from operating activities was $48,000,cash used for investing activities was ($88,000)and the net change in cash was $96,000,what was cash from/used for financing activities?

A)($144,000)
B)$48,000
C)$136,000
D)$96,000

Question 45

Which of the following cash flows would be included in the operating activities section of the statement of cash flows if the direct method is used?

A)Cash received from a bond issue
B)Cash paid to purchase equipment
C)Cash receipts from dividends
D)Cash gains and losses from the sale of operational assets

Question 46

Warren Corporation's balance sheet reports equipment that originally cost $65,000.The accumulated depreciation for the equipment is $25,000.Warren sells the equipment for $37,000.What would the effect be on its income statement and statement of cash flows?

A)
B)
C)
D)

Question 47

Which of the following describes the only difference between the direct and indirect methods of preparing the statement of cash flows?

A)The manner in which cash flows from operating activities is presented.
B)The manner in which cash flows from investing activities is presented.
C)The manner in which cash flows from financing activities is presented.
D)Whether a schedule of noncash items needs to be presented.

Question 48

Statler Corporation has beginning and ending accounts payable balances of $400 and $800,respectively.Inventory had beginning and ending balances of $700 and $600,respectively.If cost of goods sold was $2,800,how much cash was spent to purchase inventory?

A)$2,100
B)$2,500
C)$2,700
D)None of these answer choices is correct

Question 49

Baird Company reported depreciation expense of $10,000 and net income of $16,000 on its Year 1 income statement.During Year 1,the company's accounts receivable balance decreased by $4,000.Based on this information alone,what was the amount of cash flow from operating activities?

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

Question 50

The following information is for Cleveland Company:

Additional data for the current year:
(1)Sales on account for the period were $80,000.
(2)Operating expenses for the period were $52,000.
Based on this limited information,what was the net cash inflow from operating activities?

A)$18,000
B)$22,000
C)$28,000
D)$34,000

Question 51

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

A)Gain on the sale of equipment
B)Depreciation expense
C)Accrued interest receivable
D)Decrease in the balance of accounts payable

Question 52

Oglethorpe Corporation reported a beginning balance of $12,400 in its Prepaid Insurance account.During the year,Oglethorpe paid a total of $42,000 to purchase insurance,and the Prepaid Insurance account had an ending balance of $13,100.What was the amount of insurance expense for the year?

A)$42,000
B)$42,300
C)$42,700
D)$41,300

Question 53

Which of the following transactions would be disclosed on a schedule of noncash investing and financing activities?

A)A building acquired by issuing a mortgage note
B)Recording depreciation expense
C)The issuance of bonds for cash
D)All of these answer choices are correct

Question 54

For the year ended December 31,Year 1,Fields Company made cash payments of $50,000 for dividends,paid interest of $20,500,paid $30,000 cash to suppliers,and purchased equipment for $64,000 cash.What is the net cash used by investing activities for Year 1?

A)$114,000
B)$64,000
C)$20,500
D)$134,500

Question 55

Which of the following cash transactions is not classified as an operating activity?

A)Cash paid for interest.
B)Cash paid for dividends.
C)Cash received from dividends.
D)All of these answer choices would not be shown under operating activities.

Question 56

For the year ended December 31,Year 1,Carsem Company had cash collections from customers of $220,000,cash paid to employees of $32,000,cash paid to suppliers of $100,000,cash used to retire long-term bonds of $32,000,and cash payments for dividends of $20,000.Based on this information,what is the net cash provided from operating activities?

A)$68,000
B)$88,000
C)$188,000
D)$120,000

Question 57

Which of the following would not be reported in the body of the statement of cash flows?

A)The payment of a cash dividend
B)The issuance of preferred stock for cash
C)The purchase and retirement of treasury stock
D)A 2-for-1 stock split

Question 58

The following income statement was drawn from the annual report of Newtown Company:

What is the net cash flow from operating activities?

A)$18,000
B)$18,600
C)$13,000
D)$14,400

Question 59

Anton Company reported a beginning balance of $13,200 and an ending balance of $14,400 in its Unearned Revenue account for the current year.During the year,$36,000 of revenue (previously unearned)was recognized.Considering only this information,how much cash was received in advance from customers during the year?

A)$36,000
B)$37,200
C)$36,800
D)$27,600

Question 60

Grace Company sold equipment for $40,000 cash.The equipment has cost $70,000 and had accumulated depreciation of $44,000 at the time of the sale.Based on this information alone,which of the following statements is true?

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

Question 61

Investing activities on the statement of cash flows always involve long-term assets,including marketable securities.

Question 62

In preparing the statement of cash flows by the indirect method,increases in noncash current assets are subtracted from net income.

Question 63

If a company sells equipment at a loss,the loss from selling the equipment is reported in the investing activities section of the statement of cash flows.

Question 64

The final or bottom line on the statement of cash flows is the net increase or decrease in cash for the period.

Question 65

In preparing the operating activities section of the statement of cash flows by the indirect method,decreases in noncash current liabilities are added to net income.

Question 66

Jones Company requires prepayment from all customers.Jones Company reported revenue of $258,000 on its Year 1 income statement.The balance in its Unearned Revenue account was $12,000 at the start of Year 1 and $4,000 at the end of the year.Based on this information alone,the amount of cash that Jones collected from customers for Year 1 was $250,000.

Question 67

The amount of revenue a company recognizes on the income statement normally differs from the amount of cash collected from customers.

Question 68

Pittsburgh Company pays cash for all inventory purchases.The company had a beginning inventory of $18,500 and an ending inventory of $16,900.Their cost of goods sold amounted to $75,000.Based on this information,what was the amount of cash paid for inventory purchases?

A)$76,600
B)$73,400
C)$75,000
D)$81,800

Question 69

The indirect method for preparing the operating activities section of the statement of cash flows begins with the amount of sales revenue reported on the income statement.

Question 70

LePage Corporation reported a beginning balance of $2,200 in its Prepaid Insurance account.During the year,a total of $17,000 was recognized as Insurance Expense and the Prepaid Insurance account had an ending balance of $1,800.How much cash did LePage pay for insurance during the year?

A)$16,600
B)$17,400
C)$17,000
D)$18,800

Question 71

The three main sections of the statement of cash flows are,in order,operating activities,investing activities,and financing activities.

Question 72

On the statement of cash flows,cash receipts from interest and dividends are classified as investing activities.

Question 73

A cash payment to purchase treasury stock is reported on the statement of cash flows as a financing activity.

Question 74

Mercury 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 $3,400.During the year,Mercury recognized $16,600 of rent revenue.If the ending balance of Unearned Rent Revenue is $2,600,how much cash was received from the tenant for rent during the year?

A)$14,000
B)$16,600
C)$17,400
D)$15,800

Question 75

Bristol Corporation reported a beginning balance of $6,200 in accounts receivable.During the year,sales on account totaled $49,600.If the ending balance of accounts receivable amounts to $25,000,what was the amount of cash received from customers?

A)$24,600
B)$25,000
C)$30,800
D)$68,400

Question 76

The direct method of preparing the operating activities section of the statement of cash flows is preferred by the Financial Accounting Standards Board.

Question 77

Goodloe Corporation's credit sales for Year 1 were $500,000,and the balance in its accounts receivable increased by $26,000 during the year.In Year 1,Goodloe collected $526,000 in cash from its customers.

Question 78

Companies report significant noncash investing and financing activities on a schedule that accompanies the statement of cash flows.

Question 79

In preparing the operating activities section of the statement of cash flows by the indirect method,gains are added to net income.

Question 80

Middleton Corporation reported utilities expense of $18,200 on its income statement for Year 1.For the year,the beginning balance in Utilities Payable was $2,500 and the ending balance was $1,500.The amount of cash that Mayes paid for utilities in Year 1 was $19,200.