Deck 5: Communicating and Interpreting Accounting Information

Question 1

Jackson Company gathered the following data to prepare its 20B statement of cash flows: Based only on the above data,the net cash inflow from operating activities during 20B was which of the following?

A)$43,000.
B)$45,000.
C)$51,000.
D)$53,000.

Answer 1

C

Question 2

Which of the following transactions is not a direct source of cash?

A)Disposal of inventory for cash.
B)Borrowing cash.
C)Sale and issuance of shares for cash.
D)Sale of services on credit.

Answer 2

D

Question 3

How should the statement of cash flows be dated?

A)December 31,20X.
B)At Year-End December 31,20X.
C)For the Year Ended December 31,20X.
D)At December 31,20X.

Answer 3

C

Question 4

Which of the following statements about the statement is correct?

A)The sale of an investment in bonds for less than the carrying value of the investment would be reported as cash outflow from financing activities.
B)The sale and issuance of common shares for cash would be reported as a cash inflow from financing activities.
C)The retirement of bonds payable by the issuance of common shares would be reported as a cash inflow from investing activities.
D)Collecting cash interest revenue on a note receivable would be reported as a cash inflow from investing activities.

Question 5

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

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

Question 6

Which of the following would not be a cash equivalent?

A)A $10,000,30 day certificate of deposit.
B)500 shares of RIM shares.
C)A three-month Treasury bill.
D)A ten-year Treasury note purchased two months before maturity.

Question 7

Winn Company's 20B income statement reported total revenues,$110,000,and total expenses (including $10,000 depreciation),$70,000 .The 20B balance sheet reported the following: trade receivables--beginning balance,$16,000 and ending balance,$14,000; wages payable--beginning balance,$2,000 and ending balance,$1,500.Therefore,based only on this information,the 20B net cash inflow from operating activities was which of the following?

A)$48,500.
B)$50,000.
C)$51,500.
D)$59,500.

Question 8

For an investment to qualify as a cash equivalent,it must be readily convertible to a known amount of cash and which of the following?

A)it must be identified as a cash equivalent on the income statement.
B)it must mature within 4 months.
C)the investment must have a known foreign exchange rate.
D)must be sufficiently close to its maturity date so that its market value is relatively insensitive to interest rate changes.

Question 9

Toga Corporation reported profit of $50,000 for the year.During the year,trade receivables increased by $8,000,trade payables decreased by $4,000 and depreciation expense of $6,000 was recorded.Net cash provided by operating activities for the year,using the indirect method,is

A)$54,000.
B)$44,000.
C)$56,000.
D)$50,000.

Question 10

Which of the following is a cash flow from operating activities?

A)Purchase of merchandise for resale.
B)Sale of a piece of land no longer used in operations.
C)Sale of long-term investments in common shares.
D)Payment of a note payable.

Question 11

Which of the following is a cash inflow from financing activities?

A)proceeds from selling investments in equity securities of another company.
B)proceeds from selling equipment.
C)proceeds from issuance of bonds payable.
D)receipt of interest payments.

Question 12

Which of the following transactions is not a direct use of cash?

A)Acquisition of inventory for cash.
B)Purchase of treasury shares with cash.
C)Exchanges of bonds payable for land.
D)Cash dividend paid.

Question 13

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

A)The company purchased some of its own shares from a shareholder.
B)Amortization of patent for the period.
C)Payment of a cash dividend.
D)Sale of equipment at book value (i.e.no gain or loss).

Question 14

The category that is generally considered to be the best measure of a company's ability to continue as a going concern is

A)cash flows from investing activities.
B)cash flows from financing activities.
C)cash flows from operating activities.
D)usually different from year to year.

Question 15

Which of the following transactions is not a typical use of cash?

A)Payment of short-term debt with cash.
B)Purchase of treasury shares for cash.
C)Acquisition of a building for cash.
D)Sale of equipment for less than book value.

Question 16

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

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

Question 17

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

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

Question 18

A cash inflow from operating activities includes which of the following?

A)collection of the principal of a loan.
B)collection of sales price of equipment used in operations of the business.
C)proceeds from issuance of notes payable.
D)receipt of interest on an investment.

Question 19

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

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

Question 20

Which one of the following items is not generally used in preparing a statement of cash flows?

A)Comparative statements of financial position
B)Current income statement
C)Additional information
D)Adjusted trial balance

Question 21

The 20B income statement for Ryan Corporation showed the following: What was the cash flow from operating activities?

A)$66,000.
B)$70,000.
C)$82,000.
D)$86,000.

Question 22

WT Company reported sales revenue of $100,000 and total expenses of $90,000 (including depreciation)for the year ended December 31,20A.During 20A,trade receivables decreased by $4,000,merchandise inventory increased by $3,000,trade payables increased by $2,000,and depreciation expense of $6,000 was recorded.Assuming no other data are needed,what was the net cash inflow from operating activities for 20A?

A)$19,000.
B)$20,000.
C)$21,000.
D)$24,000.

Question 23

Which of the following statements about the quality of earnings ratio is false?

A)An increase in operating assets and a decrease in liabilities will reduce operating cash flows,thereby reducing the ratio.
B)Seasonal variations in sales and purchases of inventory can cause wide deviations in the quality of earnings ratio.
C)When sales are growing,receivables and inventory normally increase at a faster rate than trade payables often causing operating cash flows to be less than profit.
D)Seasonal variations in sales have no impact on the quality of earnings ratio.

Question 24

Which of the following is not true of the direct method of preparing a statement of cash flows?

A)it gives the user a sense of the magnitude of gross dollars flowing in and out of the company.
B)it has the same cash flows from investing and financing activities as the indirect method.
C)it has a different net cash inflow (outflow)from operating activities than the indirect method.
D)it reports the same net increase or decrease in cash as the indirect method.

Question 25

Travis Company reported a profit for 20B of $20,000,building depreciation expense of $6,000,and amortization expense (patent)of $5,000.Also,trade payables increased by $7,000 and inventory decreased by $2,000.What was the amount of "cash flows from operating activities" for 20B?

A)$34,000.
B)$35,000.
C)$36,000.
D)$40,000.

Question 26

The statement of cash flows (indirect method)reports depreciation expense as an addition to profit because depreciation does which of the following?

A)causes an inflow of funds for the replacement of assets.
B)reduces reported profit of the period but does not involve an outflow of cash for that period.
C)is a direct use of cash.
D)reduces reported profit and causes an inflow of cash.

Question 27

To prepare a statement of cash flows (indirect method),which of the following items should be added back to profit to derive "cash flow from operating activities"?

A)Depreciation expense.
B)Increase in trade receivables.
C)Gain on a sale of equipment.
D)Decrease in trade payables.

Question 28

Restless Company's 20B income statement reported total sales revenue of $100,000.The 20A-20B,comparative statements of financial position showed that trade receivables decreased by $10,000.What were the 20B "cash receipts from customers"?

A)$80,000.
B)$90,000.
C)$100,000.
D)$110,000.

Question 29

The financial statements of Juliet Company show the following: How much cash was collected from customers?

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

Question 30

The 20B income statement of Dunn Company reported total sales revenue of $106,000 and total expenses of $108,000 .Expenses were: building depreciation,$10,000 and patent amortization,$5,000.There was an increase in inventory of $1,000.What was cash flow from operating activities during 20B (parentheses indicate outflow)?

A)($3,000).
B)$7,000.
C)$12,000.
D)$14,000.

Question 31

Which of the following statements about the quality of earnings ratio is true?

A)When sales are growing,receivables and inventory normally increase faster than trade payable so the ratio increases.
B)Seasonal variations in sales have no impact on the quality of income ratio.
C)Failure to accrue appropriate expenses will inflate profit and reduce the quality of income ratio.
D)Failure to accrue appropriate expenses will inflate net profit and increase the quality of income ratio.

Question 32

Which of the following statements about cash flows from operating activities,in a statement of cash flows prepared under the indirect method,is correct?

A)An increase in trade receivables would be subtracted from profit.
B)An increase in salaries payable would be subtracted from profit.
C)An increase in inventory would be added to profit.
D)Depreciation expense would be subtracted from profit.

Question 33

Matlock Company reported total sales revenue of $55,000 and total expenses amounting to $45,000 on its income statement for the year ended December 31,20B.During 20B,trade receivables decreased by $4,000,merchandise inventory decreased by $6,000,trade payables increased by $2,000 and depreciation of $8,000 was recorded.Therefore,based only on this information,the net cash flow from operating activities for 20B was which of the following?

A)$10,000.
B)$18,000.
C)$19,000.
D)$30,000.

Question 34

Which statement regarding the indirect method is false?

A)Depreciation expense is added back to profit.
B)An increase in trade receivables is added to profit.
C)An increase in trade payables is added to profit.
D)An increase in merchandise inventory is subtracted from profit.

Question 35

ABC Company reported total sales revenue of $80,000 and total expenses of $72,000 for the year ended December 31,20X.During 20X,trade receivables increased by $3,000,merchandise inventory decreased by $2,000,trade payables increased by $1,000,and $5,000 in depreciation expense was recorded.Assuming no other adjustments to profit are needed,what was the net cash inflow from operating activities?

A)$10,000.
B)$11,000.
C)$13,000.
D)$19,000.

Question 36

In 2012,The W D Company reported profit of $1.3 billion and cash flow from operations of $5.6 billion.In 2011,it profit was $1.9 billion and cash flow from operations was $5.1 billion.What were their quality of income ratios for 2012 and 2011 respectively?

A).23 and .37
B).91 and 1.46
C)1.10 and .68
D)4.31 and 2.68

Question 37

Trade receivables arising from sales to customers amounted to $35,000 and $40,000 at the beginning and end of the year,respectively.Profit reported on the income statement for the year was $120,000.Exclusive of the effect of other adjustments,the cash flows from operating activities,prepared using the indirect method,is

A)$120,000.
B)$155,000.
C)$115,000.
D)$125,000.

Question 38

Allen Company reported total sales revenue of $150,000 and total expenses of $152,000 for the year ended December 31,20D.During 20D,trade receivables decreased by $1,000,trade payables increased by $5,000,wages payable increased by $3,000,and $18,000 in depreciation expense was recorded.Assuming no other adjustments are needed,what was the "net cash flow from operating activities" for 20D (parentheses indicate net cash outflow)?

A)($1,000).
B)$23,000.
C)$25,000.
D)$29,000.

Question 39

Assume the 20D income statement reported total sales revenue of $160,000.The 20C-20D,comparative statements of financial position showed that trade receivables increased by $10,000.What was the "cash inflow from customers" for 20D?

A)$140,000.
B)$150,000.
C)$160,000.
D)$170,000.

Question 40

The financial statements for Ozzie Company show the following: How much cash was paid for merchandise?

A)$117,000.
B)$119,000.
C)$121,000.
D)$124,000.

Question 41

Nelson Company collected the following data in its accounting records in 20B: No new equipment was purchased during the year.What was the cash inflow from the sale of equipment in 20B?

A)$600.
B)$900.
C)$1,000.
D)$3,900.

Question 42

When the statement of cash flows is prepared in conformity with IFRS there is only one acceptable way to measure and report cash flows from operating activities.

Question 43

A company acquired some land (independently appraised at $12,000)and paid for it by issuing 1,000 shares of its common shares (par $10 per share; no market price was quoted).How should this be reported on the statement of cash flows?

A)Report $12,000 as inflow and outflow of cash.
B)Report $12,000 as an inflow of cash.
C)Should not be reported on the statement of cash flows.
D)Report on a schedule of significant noncash transactions if it is material.

Question 44

In the years 2005-2008,B Co.'s capital acquisitions ratio was 2.74 and from 2009-2012,it was 1.24.From 2009-2012,R Co.'s ratio was .30.Which of the following statements about B Co.'s capital acquisitions ratio is correct?

A)B Co.'s capital acquisitions ratio is relatively low and indicates inability to finance property,plant and equipment with cash flow from operations.
B)It appears that R Co.is more aggressive about investing in additional property,plant and equipment than is B Co.
C)B Co.'s ratio has improved in the period 2009-2012.
D)It appears that B Co.is more aggressive about investing in additional property,plant and equipment than is R Co.

Question 45

The statement of cash flows is dated exactly like the income statement but unlike the statement of financial position.

Question 46

When a cash dividend is paid,the cash outflow is classified as an operating activity.

Question 47

If there is a change in cash,there will be a change in one or more noncash accounts.

Question 48

Short-term investments in marketable equity securities are considered the equivalent of cash (i.e.,they are combined with cash)in preparing the statement of cash flows.

Question 49

The net cash inflow or outflow for the year is the same amount as the increase or decrease in cash and cash equivalents for the year.

Question 50

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

A)($20,000).
B)$27,000.
C)$70,000.
D)$80,000.

Question 51

If a loss of $20,000 is incurred in selling (for cash)office equipment that cost $90,000 and had accumulated depreciation of $22,500,the total amount reported in the investing activities section of the statement of cash flows is

A)$70,000.
B)$67,500.
C)$47,500.
D)$87,500.

Question 52

The statement of cash flows and the statement of cash flows both report on the causes of the changes in the cash of the business.

Question 53

Cash equivalents are highly liquid investments with original maturities of less than six months.

Question 54

Typical financing activities do NOT include the following:

A)Proceeds from issuance of short- and long-term borrowings.
B)Principal payments on short- and long-term borrowings.
C)Purchase of short- or long-term investments for cash.
D)Purchase of shares for retirement.

Question 55

The income statement,statement of financial position and statement of cash flows all are prepared on the accrual basis.

Question 56

Lori Company sold an operational asset,a machine,for cash.It originally cost $20,000.The accumulated depreciation at the date of disposal was $15,000.A gain on the disposal of $2,000 was reported.What was the cash inflow from this transaction?

A)$3,000.
B)$4,000.
C)$5,000.
D)$7,000.

Question 57

Cash equivalents are defined as short-term,highly liquid investments that are readily convertible into known amounts of cash and are so near their maturity that there is insignificant risk of changes in their value due to interest rate changes.

Question 58

In 2012,C Co.disclosed cash paid for property,plant and equipment of $1.069 million and cash flow from operations of $3.883 million.Their average property,plant and equipment from the comparative statement of financial position was $3.968 million.Compute C Co.'s capital acquisitions ratio for 2012.

A).28
B).77
C).98
D)3.63

Question 59

In 2012,C Co.reported a quality of earnings ratio of 1.60.In 2011 and 2010 the ratio was .97 and .98 respectively.Which of the following was the most likely cause of the large increase in the ratio?

A)An increase in current assets such as receivables and inventory.
B)An increase in trade payables and accrued liabilities.
C)An increase in sales revenue while profit remained the same.
D)None of these is a likely cause.

Question 60

The net cash inflow (or outflow)from operating activities is computed by adjusting the reported accrual profit for noncash revenue and noncash expense items.

Question 61

The sales revenue reported on the income statement for 20A totaled $96,000,of which one third was on credit.The 20A beginning balance of trade receivables was zero and the 20A ending balance reported on the statement of financial position was $10,000; therefore,the 20A cash inflow from customer sales was $86,000.
Calculation: $96,000-10,000 = $86,000

Question 62

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

Question 63

The indirect method for reporting cash flows from operating activities presents a conversion of profit to net cash flow from operating activities.

Question 64

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

Question 65

Cash collected from customers is a cash flow from a financing activity.

Question 66

Expenses reported on the income statement for 20A (the first year of operations),totaled $60,000,which included depreciation expense of $8,000,and wages payable increased to $3,000 by the end of 20A.Therefore,the 20A cash outflow for expenses was $71,000.
Calculation: $60,000-8,000-3,000 = $49,000

Question 67

The statement of cash flows is the only financial statement prepared on the cash basis of accounting rather than on the accrual basis of accounting.

Question 68

The quality of earnings ratio (Cash Flow from Operating Activities ¸ Profit)measures the portion of profit that was generated in cash.

Question 69

The payment to shareholders for repurchase of treasury shares is a cash flow from a financing activity.

Question 70

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

Question 71

In order to prepare the statement of cash flows,the accountant must analyze current asset and current liability balances.

Question 72

The amortization of a patent is treated in a similar manner to depreciation of a building when preparing the operating activities section of the statement of cash flows using the indirect method.

Question 73

Depreciation expense has the immediate effect of increasing the cash account.

Question 74

Depreciation expense does not cause a cash outflow for the current period; therefore,it should never be shown on the statement of cash flows.

Question 75

Increases in current liabilities are added to profit while decreases in current liabilities are subtracted from profit to derive the net cash flows.

Question 76

The date in the heading of a statement of cash flows should say,"At December 31,20A," rather than "For the Year Ended December 31,20A."

Question 77

Dividends collected from a long-term investment are cash flows from investing activities.

Question 78

The net increase (or decrease)in cash that is reported on the statement of cash flows should be the same as the change in the balance of the cash account for the two most recent years on the comparative statements of financial position.

Question 79

Very few companies use the direct method for disclosing their cash flows from operating activities.

Question 80

Loans to other companies (notes receivable)are cash flows from investing activities.