Deck 12: Statement of Cash Flows

Question 1

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

Answer 1

True
Explanation: Noncash investing and financing activities, such as the purchase of property by issuing a mortgage note, are reported in the schedule of noncash investing and financing activities.

Question 2

FASB requires that companies report cash flow per share in their audited financial statements.

Answer 2

False
Explanation: There is no such requirement. The requirement is to report earnings per share, not cash flows.

Question 3

Greenleaf Corporation's credit sales for 2013 were $600,000, and the balance in its accounts receivable increased by $16,000 during the year. In 2013, Greenleaf collected $616,000 in cash from its customers.

Answer 3

False
Explanation: The increase in accounts receivable indicates that the company collected $16,000 less from customers than it recorded in credit sales. Therefore, collections would have been $584,000.

Question 4

Mayes Corporation reported utilities expense of $28,200 on its income statement for 2013. For the year, the beginning balance in Utilities Payable was $2,000 and the ending balance was $1,000. The amount of cash that Mayes paid for utilities in 2013 was $29,200.

Question 5

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 6

For many companies, cash flow from operating activities exceeds income from operations, due to the effect of depreciation, which decreases income from operations but does not decrease cash.

Question 7

In preparing the statement of cash flows by the indirect method, noncash revenues and gains are added to net income.

Question 8

Cash flow from operating activities is often less stable from year to year than is the amount of net income reported on the income statement.

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

Rapid growth of a company can cause it to be short of cash.

Question 19

Jarvis Company requires prepayment from all customers. Jarvis Company reported revenue of $248,000 on its 2013 income statement. The balance in its Unearned Revenue account was $12,000 at the start of 2013 and $4,000 at the end of the year. Based on this information alone, the amount of cash that Jarvis collected from customers for 2013 was $240,000.

Question 20

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

Question 21

On September 1, 2013, the Ling Company purchased equipment making a down payment of $5,500 cash and signing a one-year note payable on the $12,500 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, 2013?

A)Option A
B)Option B
C)Option C
D)Option D

Question 22

What is the net cash flow from financing activities?

A)$44,000 inflow
B)$50,000 inflow
C)$50,000 outflow
D)$94,000 outflow

Question 23

Which of the following items would be used to compute "Net Cash Flow from Investing Activities" on a Statement of Cash Flows? 1) issue common stock
2) payment on principal of note payable
3) depreciation expense
4) sale of equipment for cash

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

Question 24

What effect does depreciation expense have on net income and cash flows?

A)Option A
B)Option B
C)Option C
D)Option D

Question 25

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

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

Question 26

On January 1, 2012, Mayson Corporation signed a contract to perform $25,000 worth of services for the Phillips Company over the next three years. Which of the following indicates the effects of this event on the income statement and statement of cash flows of Mayson Corporation?

A)Option A
B)Option B
C)Option C
D)Option D

Question 27

Interest expense is shown as:

A)an operating activity on the statement of cash flows and a non-operating item on the income statement.
B)an operating item on the income statement and an investing activity on the statement of cash flows.
C)an operating item on the income statement and a financing activity on the statement of cash flows.
D)a financing activity on the statement of cash flows and an operating item on the income statement.

Question 28

Cash receipts from interest on a note receivable would be classified on the statement of cash flows in the:

A)financing activity section.
B)investing activity section.
C)operating activity section.
D)non-cash financing and investing section.

Question 29

The amount of increases in accounts receivable is added to credit sales to calculate the amount of cash inflow from customers when using the direct method to prepare the statement of cash flows.

Question 30

On January 1, 2013, the Adams Company purchased equipment for $36,000 cash. On December 31, 2013, 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? Adams uses the direct method.

A)Option A
B)Option B
C)Option C
D)Option D

Question 31

A cash purchase of land would appear in which of the following sections of the statement of cash flows?

A)Cash outflow from financing activities.
B)Cash inflow and cash outflow in a separate schedule of noncash investing and financing activities.
C)Cash inflow from operating activities.
D)Cash outflow from investing activities.

Question 32

What is the net cash flow from investing activities?

A)$124,000 outflow
B)$124,000 inflow
C)$144,000 inflow
D)$144,000 outflow

Question 33

When the direct method is used to prepare the statement of cash flows, cash inflows from customers and cash outflows for depreciation are among the categories of cash flows likely to be reported.

Question 34

The amount of cash inflow from financing activities on the 12/31/2013 statement of cash flows would be:

A)$40,000.
B)$0.
C)$41,500.
D)$43,600.

Question 35

The amount of interest expense and cash outflow shown on the 12/31/2013 financial statements would be:

A)Option A
B)Option B
C)Option C
D)Option D

Question 36

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 a cash dividend
D)Payment of interest on bonds payable

Question 37

The amount of interest expense and total cash outflows related to the note shown on the 12/31/2014 financial statements would be:

A)Option A
B)Option B
C)Option C
D)Option D

Question 38

The direct method of preparing the statement of cash flows shows increases and decreases in noncash current assets and current liabilities to arrive at cash flows from operating activities.

Question 39

A mortgage issued in exchange for a building would be reported on the statement of cash flows in the

A)financing activity section.
B)noncash financing and investing section.
C)operating activity section.
D)investing activity section.

Question 40

The investing activities section of the statement of cash flows distinguishes between acquisitions of long-term assets that expand operating capacity and those that replace old, worn-out assets.

Question 41

Ellison Company began the accounting period with $54,000 in accounts receivable. The ending balance in accounts receivable was $20,000. If the credit sales during the period were $88,000, what is the amount of cash received from customers?

A)$54,000
B)$88,000
C)$122,000
D)$162,000

Question 42

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

Question 43

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)Indirect method
C)Direct method
D)Computational method

Question 44

Assuming accounts payable is used for inventory purchases only, the amount of cash paid for inventory purchases during 2013 was:

A)$16,000.
B)$88,000.
C)$96,000.
D)$80,000.

Question 45

The following beginning and ending balances were drawn from the records of Brown Co. If Brown Co. sold equipment that had an original cost of $350 and accumulated depreciation of $150 for $125, how much did Brown pay for new equipment?

A)$25.
B)$50.
C)$200.
D)$500.

Question 46

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

Question 47

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

Question 48

The amount of cash revenue received from customers during 2013 was:

A)$124,000.
B)$132,000.
C)$140,000.
D)$148,000.

Question 49

The 2013 income statement of Peterson Co. reported total sales revenue of $230,000; the 2012 balance sheet showed a balance in accounts receivable of $35,000 while the 2013 balance sheet showed a balance in accounts receivable of $50,000. The amount of cash collected from customers was:

A)$265,000.
B)$245,000.
C)$215,000.
D)$230,000.

Question 50

When using the indirect method to prepare the statement of cash flows, an increase in noncash current assets 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 to equipment purchases in the cash flows from investing activities section.

Question 51

When using the indirect method to prepare the statement of cash flows, a decrease in current liabilities is:

A)subtracted from current assets 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 to inventory purchases in the cash flows from investing activities section.

Question 52

The 2013 income statement of Gonzales Co. reported wages expense of $320,000; the 2012 balance sheet showed a balance in wages payable of $32,000, while the 2013 balance sheet included wages payable of $44,000. What amount of cash was paid for wages in 2013?

A)$352,000.
B)$320,000.
C)$288,000.
D)$308,000.

Question 53

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 54

On January 1, 2013, the Carrington 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)There will be no difference in the totals on the statement of cash flows.
D)The indirect method will yield a larger amount for cash flows from operating activities.

Question 55

Which of the following is the correct sequence for the major components of the Statement of Cash Flows?

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

Question 56

On the statement of cash flows, the sum of the three major components (operating activities, investing activities, financing activities) adds up to

A)the change in the cash account balance between the beginning and ending of the period.
B)net income for the period.
C)the ending cash balance.
D)the amount of cash inflow for the perioD.The total of operating, investing, and financing activities is equal to the net change in cash. It is then added to the beginning cash balance to equal ending cash balance for the period.

Question 57

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)Non-cash revenue and gains are added to net income.
C)Decreases in current assets are added to net income.
D)Increases in current liabilities are added to net income.

Question 58

During the 2013 accounting period the Maynard Company earned $155,000 of sales revenue on account and accrued $112,500 of operating expenses. The company also earned $16,400 of service revenue that had previously been recorded as unearned revenue. In addition, a $12,200 stock dividend was issued to the stockholders. What can be said about cash flows considering these transactions?

A)Cash outflows from financing activities are $12,200.
B)Cash inflows from operating activities are $58,900.
C)Cash inflows from operating activities are $42,500.
D)There are no cash effects.

Question 59

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)Subtract the loss from net income.
D)Add the loss to net income.

Question 60

Which of the following transactions affects cash flows?

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

Question 61

If cash from operations was $24,000, cash from investing activities was ($44,000) and the net change in cash was $48,000, what was cash from financing activities?

A)($72,000)
B)$24,000
C)$48,000
D)$68,000

Question 62

The statement of cash flows would not disclose the effects of:

A)a 2-for-1 stock split.
B)a sale of equipment.
C)a purchase and retirement of treasury stock.
D)cash dividends declared and paiD.Stock splits do not involve cash, and would not be reported on the statement of cash flows.

Question 63

Net income for the period was $40,000. The net cash flows from operating activities would be:

A)$32,800.
B)$35,200.
C)$38,000.
D)$47,200.

Question 64

Wilson Corporation's balance sheet reports equipment that originally cost $64,000. The accumulated depreciation for the equipment is $24,000. Wilson sells the equipment for $36,000. What would the effect be on its income statement and statement of cash flows?

A)Option A
B)Option B
C)Option C
D)Option D

Question 65

When preparing a statement of cash flows, in which section is it permitted to use either the direct method or the indirect method?

A)Investing activities
B)Operating activities
C)Financing activities
D)All of these

Question 66

The Jensen Company reported depreciation expense of $20,000 and net income of $32,000 on its 2013 income statement. During 2013 the company's accounts receivable balance decreased by $8,000. Based on this information alone, what was the amount of cash flow from operating activities?

A)$24,000.
B)$32,000.
C)$60,000.
D)$64,000.

Question 67

For the year ended December 31, 2013, Carr Company had cash collections from customers of $200,000, 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, the amount of cash provided by operating activities for 2013 is:

A)$48,000.
B)$168,000.
C)$68,000.
D)$100,000.

Question 68

For the year ended December 31, 2013, Flynn Company made cash payments of $52,000 for dividends, paid interest of $20,800, paid $30,000 cash to suppliers, and purchased equipment for $68,000 cash. The amount of cash used by investing activities for 2013 is:

A)$68,000.
B)$72,800.
C)$100,800.
D)$170,800.

Question 69

Which of the following cash transactions would not be shown under operating activities?

A)Cash paid for dividends
B)Cash paid for interest
C)Cash received from dividends
D)All of these

Question 70

The only difference between the direct and indirect methods of preparing the statement of cash flows is the manner in which the

A)cash flows from financing activities is presented.
B)the schedule of non-cash items is presented.
C)cash flows from operating activities is presented.
D)cash flows from investing activities is presenteD.The direct and indirect methods only relate to cash flows from operating activities.

Question 71

Which of the following cash flows would be included in the operating activities section of the statement of cash flows? Assume use of the direct method.

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

Question 72

On January 1, 2013, the balance of Jackson Corporation's Accounts Receivable was $20,000. Sales on account for 2013 amounted to $160,000 and the ending balance of Accounts Receivable was $32,000. What is the amount of cash collected from customers?

A)$128,000
B)$148,000
C)$172,000
D)$180,000

Question 73

The following information is for Carson Company: Additional data for 2013: (1) Sales on account for the period were $160,000.
(2) Operating expenses for the period were $104,000.
Based on this limited information, what was the net cash inflow from operations?

A)$36,000.
B)$44,000.
C)$56,000.
D)$68,000.

Question 74

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)Decrease in the balance of accounts payable.
C)Accrued interest receivable.
D)Depreciation expense.

Question 75

Garcia Company sold equipment for $50,000 cash. The equipment has cost $80,000 and had accumulated depreciation of $44,000 at the time of the sale. Based on this information alone, select the true statement.

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 76

Sterling Corporation has beginning and ending accounts payable balances of $400 and $800, respectively. Inventory had beginning and ending balances of $700 and $500, respectively. If cost of goods sold was $2,800, how much cash was spent to obtain inventory:

A)$2,000.
B)$2,400.
C)$2,600.
D)None of these.

Question 77

The Bell Corporation had a balance in its Equipment account on January 1, 2013 of $325,000. 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 2013?

A)$20,000
B)$35,000
C)$85,000
D)$87,000

Question 78

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

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

Question 79

The following income statement was drawn from the annual report of Norton Company: The amount of cash flow from operating activities is

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

Question 80

Harrison Company, a small consulting firm, charges all of its operating expenses on Accounts Payable. On January 1, 2013, Harrison's Accounts Payable balance was $12,000 and, during the year, an additional $108,000 of operating expenses was charged on account. The ending Accounts Payable balance was $36,000. What is the amount of cash paid for expenses during 2013?

A)$132,000
B)$120,000
C)$84,000
D)$32,000