Deck 12: The Statement of Cash Flows

Question 1

Which of the following statements is true?

A)Investments in commercial paper or U.S.Treasury bills must be treated as cash equivalents.
B)Investments in stock cannot be treated as cash equivalents because they are not convertible into a known amount of cash.
C)Investments which are convertible into a known amount of cash and mature within three months after the balance sheet date are treated as cash equivalents.
D)Investments in money market accounts cannot be treated as cash equivalents because they do not have a specific maturity date.

Answer 1

B

Question 2

Which of the following statements is false?

A)A balance sheet reports a company's cash balance at a specific date.
B)An income statement reports the amounts of revenue and expense on an accrual basis,not the amount of cash received from revenues or paid for expenses.
C)A statement of retained earnings reports the amount of cash received from operating activities and the amount of cash paid for dividends.
D)A statement of cash flows explains the changes in cash from operating,investing,and financing activities.

Answer 2

C

Question 3

Which of the following statements is true?

A)If a company reports net income on its income statement,it should report an increase in cash on its statement of cash flows.
B)If a company reports a net loss on its income statement,it should report a decrease in cash on its statement of cash flows.
C)If a company uses the accrual basis of accounting,it will improve its cash position if it reports net income for the same period.
D)If a company uses the accrual basis of accounting,its cash balance can increase even if it reports a net loss.

Answer 3

D

Question 4

Cash flows from issuing and repurchasing stock or issuing and repaying (retiring)debt are classified as

A)operating activities.
B)investing activities.
C)financing activities.
D)borrowing activities.

Question 5

Which of the following is not a current reporting requirement for a statement that reports changes in cash over a period of time?

A)This statement must classify cash flows into three categories: operating,investing,and financing activities.
B)Cash equivalents must be combined with cash in preparing this statement.
C)Working capital may be used as a substitute for cash in preparing this statement.
D)The title for this statement is "Statement of Cash Flows."

Question 6

Josh Co.reported a net loss of $30,000 for 2014,yet its cash balance increased during the year.Which financial statement should Josh's management refer to for an explanation of this situation?

A)Balance sheet
B)Income statement
C)Statement of Retained Earnings
D)Statement of Cash Flows

Question 7

Cash flows from borrowing and paying off a 90-day bank loan are classified as

A)operating activities.
B)investing activities.
C)financing activities.
D)purchasing activities.

Question 8

Which of the following items would be considered a cash equivalent if it was held at the balance sheet date?

A)U.S.Treasury bill purchased when there were 90 days until maturity.
B)Commercial paper with a 6-month maturity which was purchased at the issue date.
C)The common stock of a company traded on the New York Stock Exchange which was purchased 30 days before the balance sheet date.
D)U.S.Treasury note which matures 2 years after it is issued and which was purchased 4 months before the balance sheet date.

Question 9

Cash flows from acquiring and selling products are classified as

A)operating activities.
B)investing activities.
C)financing activities.
D)distribution activities.

Question 10

Which of the following statements is false?

A)Cash equivalents are included in cash on the balance sheet and on the statement of cash flows.
B)Investments in cash equivalents and investments in stock have the same economic effect--assets increase and decrease by the same amount.
C)An investment is a cash equivalent if it is convertible into a known amount of cash and has an original maturity of 3 months or less when purchased.
D)Investments in stock are reported as a financing activity on the statement of cash flows.

Question 11

Which of the following is not an operating activity?

A)Cash collections from credit customers.
B)Cash payments for operating expenses.
C)Cash receipts for interest earned.
D)Cash payments for dividends to stockholders.

Question 12

Planet & Co.reported net income for the current year.Which of the following business transactions would cause cash from operating activities to be higher than the amount of net income?

A)Cash dividends were paid to stockholders during the year.
B)Depreciation expense was recorded for the year.
C)A bank loan was repaid during the year.
D)Equipment was purchased for cash during the year.

Question 13

Jose Exports Inc.reported net income of $150,000 for 2013,but its cash balance decreased $40,000.Which financial statement should Jose Exports' management refer to for an explanation of this situation?

A)Balance Sheet
B)Income Statement
C)Statement of Retained Earnings
D)Statement of Cash Flows

Question 14

Which of the following items is treated as a cash equivalent?

A)Commercial paper with a 6-month maturity when purchased and 4 months until maturity at the balance sheet date.
B)Investment in corporate stocks which management intends to sell within 3 months after the balance sheet date.
C)Money market funds which can be obtained overnight from a bank or brokerage firm.
D)Investments in corporate bonds which have 5 years until maturity when they are purchased.

Question 15

The primary purpose of the statement of cash flows is to provide information about

A)the financial position of the company.
B)the profitability of the company.
C)the investing and financing activities of the company.
D)the cash inflows and outflows of the company.

Question 16

Which of the following is not an investing activity?

A)Purchase of investments for cash.
B)Purchase of equipment for cash.
C)Sale of merchandise for cash.
D)Sale of land for cash.

Question 17

Which of the following statements regarding the statement of cash flows is true?

A)The statement of cash flows analyzes the changes in consecutive balance sheets in conjunction with the income statement.
B)The statement of cash flows is organized as cash inflows less cash outflows.
C)The statement of cash flows analyzes only the changes in current assets and current liabilities.
D)The statement of cash flows is an optional financial statement.

Question 18

Which of the following items is not a cash equivalent?

A)Commercial paper.
B)A three-year Treasury note purchased two months before its maturity
C)Money market funds .
D)A corporate bond investment which has 5 years until maturity when they are purchased.

Question 19

Cash flows from acquiring and disposing of long-term assets are classified as

A)operating activities.
B)investing activities.
C)financing activities.
D)purchasing activities.

Question 20

The statement of cash flows

A)along with the balance sheet and income statement is prepared on the accrual basis.
B)along with the balance sheet and statement of retained earnings is dated as of a specific year end date.
C)along with the balance sheet is used to analyze liquidity.
D)ties the balance sheet to the statement of retained earnings.

Question 21

In 2013,Daytona Company purchased equipment for $363,000 and also sold some special purpose machinery with a book value of $155,000 for $182,000.In its statement of cash flows for 2013,Daytona should report the following with respect to the above transactions:

A)$363,000 cash used by operating activities;$182,000 cash provided by financing activities.
B)$181,000 net cash used by investing activities.
C)$181,000 net cash used by investing activities;$27,000 net cash provided by operating activities.
D)$363,000 net cash used by investing activities.

Question 22

Alberto's Texas Cantina had the following results for December 31,2013 and 2014,respectively: What was the amount of cash flows from investing activities for 2014?

A)Cash inflow of $378,000
B)Cash outflow of $378,000
C)Cash outflow of $7,000
D)Cash outflow of $391,000

Question 23

Below are the transactions for Jacksonville Company: Based on these transactions,what is the net cash flow from financing activities?

A)$285,000 net cash provided by financing activities.
B)$275,000 net cash used for financing activities.
C)$0,because cash inflows equal cash outflows from financing activities.
D)$440,000 net cash provided by financing activities.

Question 24

Upon review of Young's Garden Center statement of cash flows,the following was noted: From this information,the most likely explanation is that Young's is

A)using cash from operations and selling long-term assets to pay back debt.
B)using cash from operations and borrowing to purchase long-term assets.
C)using its profits to expand growth.
D)using cash from investors to provide for operations

Question 25

Dino's Italian Grille purchased $6,000 of napkins for its business.One-fourth of the bill is unpaid.Upon review of the napkins still on hand,20% were still available.What combination of amounts would affect the income statement and statement of cash flows? Statement of Cash Flow Income Statement

A)($6,000) ($6,000)
B)($4,500) ($6,000)
C)($4,500) ($4,800)
D)($6,000) ($4,800)

Question 26

Which of the following should be classified as an investing activity on the statement of cash flows?

A)interest on notes payable
B)payment to suppliers for inventory
C)payment of dividends
D)None of these

Question 27

Which balance sheet accounts are most affected by operating activities?

A)Current assets and current liabilities.
B)Long-term assets.
C)Long-term liabilities.
D)Stockholders' equity.

Question 28

Which balance sheet accounts are most affected by investing activities?

A)Current assets and current liabilities.
B)Long-term assets.
C)Long-term liabilities.
D)Stockholders' equity.

Question 29

Melo's purchased a $25,000 truck for catering from its restaurant.It made a down payment of one-fourth of the price.What combination of amounts would affect the income statement and statement of cash flows for the purchase of the truck? Statement of Income
Cash Flow Statement

A)$ -0- $25,000
B)($25,000) $ -0-
C)($ 6,250) $25,000
D)($ 6,250) $ -0-

Question 30

Which of the following is not a financing activity?

A)Issuing bonds for cash.
B)Selling an investment in IBM stock for cash.
C)Purchasing a company's own stock (treasury stock)for cash.
D)Making a cash payment to repay a bank loan.

Question 31

Which method of preparing the operating activities section of a statement of cash flows adjusts net income to remove the effects of deferrals and accruals for revenues and expenses?

A)The direct method
B)The indirect method
C)Both the direct and indirect methods
D)Neither the direct method nor the indirect method

Question 32

Upon review of Jan's Lakeside Resort statement of cash flows,the following was noted: From this information,the most likely explanation is that Jan is

A)using cash from operations and selling long-term assets to pay back debt
B)using cash from operations and borrowing to purchase long-term assets.
C)using its profits to expand growth.
D)using cash from investors to provide for operations.

Question 33

Which balance sheet accounts are most affected by financing activities

A)Current assets.
B)Current liabilities.
C)Long-term assets.
D)Long-term liabilities and stockholders' equity.

Question 34

Which of the following statements is true?

A)The method of preparing the operating activities section of a statement of cash flows which adjusts net income to remove the effects of deferrals and accruals for revenues and expenses is the direct method.
B)The method of preparing the operating activities section of a statement of cash flows which reports major classes of gross cash receipts and cash payments for revenues and expenses is the indirect method.
C)The FASB prefers the indirect method of preparing the operating activities section of the statement of cash flows.
D)Most companies use the indirect method of preparing the operating activities section of the statement of cash flows.

Question 35

Upon review of Jerry's Canoe Gallery statement of cash flows,the following was noted: From this information,the most likely explanation is that Jerry is

A)using cash from operations and selling long-term assets to pay back debt.
B)using cash from operations and borrowing to purchase long-term assets.
C)using its profits to expand growth.
D)using cash from investors to provide for operations.

Question 36

Turtle Island Music Store reported net income of $200,000.Cash from operations

A)will be more than $200,000.
B)will be less than $200,000.
C)will be equal to $200,000.
D)cannot be determined without more information.

Question 37

A mortgage incurred in exchange for an office building would be reported in the statement of cash flows in

A)the cash flows from financing activities section
B)the cash flows from investing activities section
C)a separate schedule
D)the cash flows from operating activities section

Question 38

Which method of preparing the operating activities section of a statement of cash flows reports major classes of gross cash receipts and cash payments for revenues and expenses?

A)The direct method
B)The indirect method
C)Both the direct method and the indirect method
D)Neither the direct method nor the indirect method

Question 39

Operating,investing,and financing activities affect certain balance sheet accounts.Which of the following statements is true?

A)Operating activities primarily involve transactions which affect noncurrent assets.
B)Investing activities primarily involve U.S.government securities and long-term productive assets.
C)Financing activities primarily involve transactions which affect current liabilities.
D)Different balance sheet accounts are affected depending on whether the direct or indirect method is used.

Question 40

Below is information for Fargo Corp.for 2013 and 2014: At the end of 2014,Fargo issued bonds at par value for $800,000 cash.The proceeds from these bonds were used to retire the $500,000 bond issue outstanding at the end of 2013 (before their maturity date).All interest expense was paid in cash during 2014.
The following statements describe how Fargo reported the cash flow effects of the items described above on its 2014 statement of cash flows.The indirect method is used to prepare the operating activities section.Which of the following has been reported incorrectly by Fargo?

A)Proceeds of $800,000 from the issuance of bonds were reported as a cash inflow in the financing activities section.
B)The loss on bond retirement of $15,000 was added to net income in the operating activities section.
C)Payments of $560,000 were reported as a cash outflow in the investing activities section.
D)Interest expense of $45,000 was not reported separately because it is included in net income in the operating activities section.

Question 41

When using the direct method,how are salaries paid to employees reported on the statement of cash flows?

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

Question 42

Klein Corp.acquired land by issuing its common stock.How should this transaction be disclosed when a statement of cash flows is prepared?

A)In a supplemental schedule of noncash investing and financing activities or in a note.
B)The acquisition of land should be reported as an investing activity and the issuance of the stock as a financing activity.
C)Using the master T-account approach.
D)The transaction does not need to be disclosed.

Question 43

Presented below is the operating activities section of the statement of cash flows for Feline Friends Corp.for 2012: Which method of preparing the operating activities section has Feline used?

A)The direct method.
B)The indirect method.
C)Either method.
D)Cannot be determined without further information.

Question 44

During 2013,the accounts receivable balance of Dawson Corp.increased.Which of the following statements is true?

A)This indicates that Dawson sold more than it collected in cash during the period.
B)This increase is added to net income in the operating activities section of a statement of cash flows prepared under the indirect method.
C)This increase is added to sales recognized on the income statement to determine the cash collections from customers during the period
D)This increase is considered only when the operating activities section of a statement of cash flows is prepared under the indirect method.

Question 45

The following items were reported on the balance sheets and income statement for Power Wash Company: How would the change in accounts receivable be reported in the operating activities section of the statement of cash flows under the indirect method?

A)As an addition to sales.
B)As a deduction from sales.
C)As an addition to net income.
D)As a deduction from net income.

Question 46

The following items were reported on the balance sheets and income statement for Kensington Co.: What amount would be reported in the operating activities section of the statement of cash flows for collections from customers under the direct method assuming that all sales are on credit?

A)$850,000
B)$857,000
C)$843,000
D)Cannot be determined without further information.

Question 47

When using the direct method,how is the issuance of stock for cash shown on the statement of cash flows?

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

Question 48

Which of the following statements is false?

A)The method of preparing the operating activities section of a statement of cash flows which adjusts net income to remove the effects of deferrals and accruals for revenues and expenses is the indirect method.
B)The method of preparing the operating activities section of a statement of cash flows which reports major classes of gross cash receipts and cash payments for revenues and expenses is the direct method.
C)The FASB prefers the direct method of preparing the operating activities section of the statement of cash flows.
D)Most companies use the direct method of preparing the operating activities section of the statement of cash flows.

Question 49

During 2012,the accounts payable balance of Bennington Corp.decreased.Which of the following statements is true?

A)This decrease indicates that Bennington paid less during the period than it recognized as expenses on the income statement.
B)This decrease is added to net income in the operating activities section of a statement of cash flows prepared under the indirect method.
C)This decrease is deducted from net income in the operating activities section of a statement of cash flows prepared under the indirect method.
D)This decrease is considered only when the operating activities section of a statement of cash flows is prepared under the direct method.

Question 50

When using the direct method,how is the purchase of equipment for cash shown on the statement of cash flows?

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

Question 51

Occasionally,companies engage in important investing and financing activities which do not affect cash.If the amount of the transaction is significant,how should it be disclosed when financial statements are prepared?

A)In a separate section in the cash flow statement.
B)In a supplemental schedule of all cash investing and financing activities.
C)In a note to the financial statements or in a supplemental schedule.
D)The transaction does not need to be disclosed.

Question 52

The following items were reported on the balance sheets and income statement for Infantini Corp.: How would the change in accounts payable be reported in the operating activities section of the statement of cash flows under the indirect method?

A)As an addition to operating expenses.
B)As a deduction from operating expenses.
C)As an addition to net income.
D)As a deduction from net income.

Question 53

The following items were reported on the balance sheets and income statement for Oxford Inc. ,a service company: What amount would be reported in the operating activities section of the statement of cash flows for payments for operating expenses under the direct method?

A)$186,000
B)$154,000
C)$180,000
D)$170,000

Question 54

When using the direct method,how is depreciation expense recorded on the statement of cash flows?

A)Operating activity
B)Investing activity
C)Financing activity
D)Not reported on the statement of cash flows

Question 55

Which of the following transactions is a significant noncash investing and financing activity?

A)Land is purchased for cash.
B)Bonds are issued for cash.
C)Cash equivalents are purchased.
D)Equipment is acquired by issuing a long-term note.

Question 56

When using the direct method,how is the retirement of bonds payable at their maturity date shown on the statement of cash flows?

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

Question 57

When using the direct method,how is the payment of a cash dividend shown on the statement of cash flows?

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

Question 58

Presented below is the operating activities section of the statement of cash flows for Golden Consulting for 2012: Which method of preparing the operating activities section has Golden Consulting used?

A)The direct method.
B)The indirect method.
C)Either method.
D)Cannot be determined without further information.

Question 59

When using the direct method,how is the collection of cash from customers shown on the statement of cash flows?

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

Question 60

Each of the following transactions would be classified as either an investing or a financing activity except

A)investments in stock are purchased.
B)a bank loan is obtained.
C)stock is issued to acquire land.
D)dividends are paid.

Question 61

When using the indirect method,how would the retirement of bonds payable at their maturity date be shown on the statement of cash flows?

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

Question 62

When using the indirect method,how is the decrease in accounts payable shown on the statement of cash flows?

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

Question 63

Rent expense in Volusia Company's 2014 income statement is $420,000.If Prepaid Rent was $70,000 at December 31,2013,and is $95,000 at December 31,2014,the cash paid for rent during 2014 is:

A)$480,000
B)$445,000
C)$395,000
D)$420,000

Question 64

When using the indirect method,how is the receipt of cash from the sale of long-term investments treated on the statement of cash flows?

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

Question 65

When using the indirect method,how is depreciation expense recorded on the statement of cash flows?

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

Question 66

Fitch Company reported an increase of $370,000 in its accounts receivable during the year 2013.The company's statement of cash flows for 2013 reported $1 million of cash received from customers.What amount of net sales must Fitch have recorded in 2013?

A)$370,000
B)$1,000,000
C)$1,370,000
D)$630,000

Question 67

Use the equation presented below to answer the question that follows: Cash = CL + LTL + CS + RE - NCCA - LTA
Which of the following activities results in a cash inflow?

A)Increases in noncash current assets (NCCA)
B)Decreases in current liabilities (CL)
C)Increases in common stock (CS)
D)Decreases in retained earnings (RE)

Question 68

Use the equation presented below to answer the question that follows: Cash = CL + LTL + CS + RE - NCCA - LTA
Which of the following activities results in a cash outflow?

A)Decreases in noncash current assets (NCCA)
B)Decreases in long-term assets (LTA)
C)Increases in long-term liabilities (LTL)
D)Decreases in retained earnings (RE)

Question 69

When using the indirect method,where is the gain from selling a long-term investment recognized? (The proceeds from selling the investment are considered separately. )

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

Question 70

When using the indirect method,how would the declaration and payment of cash dividends be shown on the statement of cash flows?

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

Question 71

Yen Co.reported the following information at the end of 2013 and 2014: An analysis of Yen's records indicated that there were no cash flow effects resulting from the changes in the two accounts presented above.How should Yen report the changes in these accounts on a statement of cash flows?

A)Yen should report $65,000 for the acquisition of land as an investing activity and $65,000 for the issuance of stock as a financing activity.
B)Yen should report $65,000 as a noncash investing and financing activity for the acquisition of land by issuing common stock.
C)Yen should report the issuance of common stock to acquire land in the financing activity section with a net cash flow effect of zero.
D)Yen should report the acquisition of land by issuing common stock in the investing activity section with a net cash flow effect of zero

Question 72

Which of the following financing activities results in a cash inflow?

A)Buying treasury stock
B)Issuing bonds
C)Repaying a bank loan
D)Paying cash dividends

Question 73

O'Bryan Company began the year with a balance of $18,000 in Salaries and Wages Payable and ended the year with $11,000 in the account.Salaries and Wages Expense for the period amounted to $91,000.Under the direct method,O'Bryan will report cash payments for salaries and wages of:

A)$84,000
B)$102,000
C)$109,000
D)$98,000

Question 74

Gaulle Company began the year with a balance of $6,000 in Accounts Receivable and ended the year with $9,000 in the account.Revenues for the period amounted to $38,000.Under the direct method,Gaulle will report cash collected from customers of:

A)$44,000
B)$35,000
C)$41,000
D)$47,000

Question 75

At the end of the first year of operations,the balance sheet of West Palm Beach Industries had the following balances: Accounts Receivable,$5,000;Accounts Payable,$6,000;Inventory,$3,000;and Unexpired Insurance,$2,000.The corporation reported net income of $79,000 for the year,including depreciation expense of $5,000,and uses the indirect method of computing net cash flow from operating activities.Based on this information,net cash flow from operating activities is:

A)$82,000
B)$78,000
C)$80,000
D)$77,000

Question 76

When using the direct method,how is the sale of long-term investments for cash reported on the statement of cash flows?

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

Question 77

When using the indirect method,how is the issuance of stock to retire a long-term debt shown on a statement of cash flows?

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

Question 78

When using the indirect method,how is the purchase of equipment for cash shown on the statement of cash flows?

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

Question 79

When using the indirect method,how is an increase in accounts receivable during the year shown on the statement of cash flows?

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

Question 80

When using the indirect method,how is the issuing of stock for cash shown on the statement of cash flows?

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