Question 1

At certain times of the year, many retail companies experience a rapid increase in inventory as they prepare for a period of high sales. All other things equal, this would cause:

Accepted Answer

A)  both the quality of income ratio and the capital acquisitions ratio to fall. 
B)  the quality of income ratio to fall while the capital acquisitions ratio would remain the same. 
C)  the quality of income ratio to rise while the capital acquisitions ratio would remain the same. 
D)  both the quality of income ratio and the capital acquisitions ratio to rise.

Question 2

If Insurance Expense is $7,000 and the beginning and ending balances of Prepaid Insurance are $1,500 and $2,000, respectively, the cash paid for insurance

Accepted Answer

A)  $7,000 
B)  $6,500 
C)  $5,000 
D)  $7,500

Question 3

Which of the following statements regarding the reporting of operating cash flows using the direct method is true?

Accepted Answer

A)  The Financial Accounting Standards Board (FAS
B)  prefers the direct method of accounting for cash flows from operating activities. 
B)  The FASB prefers the indirect method of calculating cash flows fro m operations because it gives a more accurate calculation of cash provided by operating activities. 
C)  The direct method results in a larger amount of cash flow from operating activities than does the indirect method. 
D)  The direct and indirect methods use different presentations for cash flows from investing and financing activities.

Question 4

A company has net income of $43,560 with a net cash flow from operating activities of $91,476 and a net increase in cash of $84,942. The company paid $33,524 for income taxes and $25,000 for interest during the year. The company's quality of income ratio is:

Accepted Answer

A)  2.1. 
B)  1.1. 
C)  1.95. 
D)  0.48.

Question 5

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

Accepted Answer

A)  Cash received from sale of land. 
B)  Cash paid for interest. 
C)  Cash received from stock issuance. 
D)  Dividends paid.

Question 6

The following information is taken from the 2011 income statement of Muir Company:  Based on this information, what is the net cash flows from operating activities?

Accepted Answer

A)  $149,000 
B)  $140,000 
C)  $99,000 
D)  $134,000

Question 7

When the indirect method is used, if prepaid expenses decrease during the accounting period, the change in prepaid expenses is:

Accepted Answer

A)  added to the change in the cash account. 
B)  subtracted from net income. 
C)  added to net income. 
D)  subtracted from the change in the cash account.

Question 8

A piece of equipment with a cost of $130,000 and accumulated depreciation of $85,000 is sold for $50,000 cash. The amount that should be reported as a cash inflow from investing activities is:

Accepted Answer

A)  $50,000. 
B)  $5,000. 
C)  $45,000 
D)  $0. This is a financing activity.

Question 9

Financing activities include receiving cash from issuing debt and receiving cash dividends from investments in stock of other companies.

Accepted Answer

A) True 
 B)False

Question 10

A company's income statement for the year shows a net loss of $90,000. Additional information for the year follows:  What is the net cash flows from operating activities?

Accepted Answer

A)  ($99,000) 
B)  $27,000 
C)  $13,000 
D)  ($45,000)

Question 11

A growing, start-up company may have a cash flow pattern of borrowing cash to offset a cash shortage from the cash flows from operating activities and to purchase additional productive assets.

Accepted Answer

A) True 
 B)False

Question 12

The starting and ending balances for relevant asset and liability accounts that changed during the year are presented below. Net income was $650,000 for the year and dividends paid were $150,000. Depreciation expense for 2011 was $7,000, and all other changes in accumulated depreciation and property, plant, and equipment related to the sale of property at book value. No other non-cash transactions occurred. Use this information to calculate the net cash inflows (outflows) from investing and financing activities in 2011.

Accepted Answer

The answer of The starting and ending balances for relevant...

Question 13

If a company uses the direct method of calculating net cash flows from operating activities, it must adjust net income for gains or losses when selling property, plant, and equipment.

Accepted Answer

A) True 
 B)False

Question 14

Assume a company uses the direct method to prepare its statement of cash flows. If the company's accounts receivable increase during the accounting period, the change in accounts receivable
Is:

Accepted Answer

A)  added to the change in the cash account to calculate cash collected from customers. 
B)  subtracted from sales revenue to calculate the cash collected from customers. 
C)  added to sales revenue to calculate the cash collected from customers. 
D)  subtracted from the change in the cash account to calculate cash collected from customers.

Question 15

Suppose a company generally records revenues and expenses before receiving or making cash payments. Which of the following statements is NOT true?

Accepted Answer

A)  If sales are falling, net losses could occur even though the company reports net cash inflows from operating activities. 
B)  If sales are rising, net profits could occur even though the company reports net cash outflows from operating activities. 
C)  Net income and cash flows will always agree because even though revenues and expenses can be recorded in different time periods than their related cash flows the differences will cancel out and the results will be the same. 
D)  When the indirect method is used, net cash flows from operating activities includes adjustments for non-cash expenses such as depreciation which would cause net cash from operating activities to be different from net

Question 16

Free cash flow is a positive cash flow:

Accepted Answer

A)  beyond what is needed to replace current property, plant, and equipment and pay dividends. 
B)  across all three activity components of the statement of cash flows. 
C)  beyond what has been allotted for future property, plant, and equipment replacement and expansion. 
D)  across both financing and investing activities.

Question 17

Cash and cash equivalents include:

Accepted Answer

A)  assets that have stable long-term value. 
B)  assets that are short-term, highly liquid, and are purchased within three months of maturity. 
C)  assets that consistently grow in value over the long run. 
D)  assets that are expected to be used up within a year.

Question 18

Corporation X has no short-term investments, carries only a minimal amount of cash, and has a capital acquisitions ratio of 0.7. Which of the following is suggested by these facts?

Accepted Answer

A)  The corporation probably needed external financing to fund property, plant, and equipment replacement this period. 
B)  The corporation is efficient at managing debt; each $.70 of debt generates $1 of asset value. 
C)  The corporation is efficient at generating cash; each $1 of assets acquired generates $.70 of cash. 
D)  The corporation is likely to need to replace equipment at a rate of 70% of its net income.

Question 19

Which of the following journal entries would change the Net Cash Flows from Operating Activities line of the statement of cash flows?

Accepted Answer

A)  Recording bad debts. 
B)  Recording depreciation. 
C)  Recording loss on sale of investment. 
D)  Recording cash paid for interest on long-term note payable.

Question 20

Which of the following represent cash inflows from financing activities?

Accepted Answer

A)  Issuing stock in exchange for another company's stock. 
B)  Paying a bond's face value at maturity. 
C)  Issuing long-term bonds at a discount. 
D)  Receiving interest on promissory notes.

Exam 12: Reporting and Interpreting the Statement of Cash Flows

At certain times of the year, many retail companies experience a rapid increase in inventory as they prepare for a period of high sales. All other things equal, this would cause:

If Insurance Expense is $7,000 and the beginning and ending balances of Prepaid Insurance are $1,500 and $2,000, respectively, the cash paid for insurance

Which of the following statements regarding the reporting of operating cash flows using the direct method is true?

A company has net income of $43,560 with a net cash flow from operating activities of $91,476 and a net increase in cash of $84,942. The company paid $33,524 for income taxes and $25,000 for interest during the year. The company's quality of income ratio is:

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

The following information is taken from the 2011 income statement of Muir Company: Based on this information, what is the net cash flows from operating activities?

When the indirect method is used, if prepaid expenses decrease during the accounting period, the change in prepaid expenses is:

A piece of equipment with a cost of $130,000 and accumulated depreciation of $85,000 is sold for $50,000 cash. The amount that should be reported as a cash inflow from investing activities is:

Financing activities include receiving cash from issuing debt and receiving cash dividends from investments in stock of other companies.

A company's income statement for the year shows a net loss of $90,000. Additional information for the year follows: What is the net cash flows from operating activities?

A growing, start-up company may have a cash flow pattern of borrowing cash to offset a cash shortage from the cash flows from operating activities and to purchase additional productive assets.

If a company uses the direct method of calculating net cash flows from operating activities, it must adjust net income for gains or losses when selling property, plant, and equipment.

Assume a company uses the direct method to prepare its statement of cash flows. If the company's accounts receivable increase during the accounting period, the change in accounts receivable Is:

Suppose a company generally records revenues and expenses before receiving or making cash payments. Which of the following statements is NOT true?

Free cash flow is a positive cash flow:

Cash and cash equivalents include:

Corporation X has no short-term investments, carries only a minimal amount of cash, and has a capital acquisitions ratio of 0.7. Which of the following is suggested by these facts?

Which of the following journal entries would change the Net Cash Flows from Operating Activities line of the statement of cash flows?

Which of the following represent cash inflows from financing activities?