Question 1

The first item reported in the operating activities section for a statement of cash flows prepared according to the indirect method is:

Accepted Answer

A)  Cash. 
B)  Net income. 
C)  Increase decrease) in accounts receivable. 
D)  Cash received from customers. 
E)  Adjustments to net income.

Question 2

The statement of cash flows helps analysts evaluate whether a company has enough cash to:

Accepted Answer

A)  Pay for unexpected law suits. 
B)  Pay for future plant expansion. 
C)  Make debt repayments. 
D)  Finance investments. 
E)  All of these answers are correct.

Question 3

Using the indirect method to calculate the net cash provided or used) by operating activities, net income is adjusted for:

Accepted Answer

A)  Gains and losses from investing and financing activities and revenues and expenses that did not provide or use cash. 
B)  Changes in noncash current assets and current liabilities related to operating activities. 
C)  Gains and losses from investing and financing activities. 
D)  Revenues and expenses that did not provide or use cash. 
E)  All of these answers are correct.

Question 4

Financing activities include a) the purchase and sale of non-current assets, b) the purchase and sale of trading investments, and c) lending and collecting on loans.

Accepted Answer

A) True 
 B)False

Question 5

Reporting of financing activities is the same under both the direct and the indirect methods.

Accepted Answer

A) True 
 B)False

Question 6

In each of the following cases, use the information provided about the current year operations of Lora Company to calculate the indicated cash flow item.

Accepted Answer

A)  Case A = $14,500; Case B = $81,900. 
B)  Case A = $14,900; Case B = $84,000. 
C)  Case A = $15,300; Case B = $86,100. 
D)  Case A = $15,300; Case B = $81,900. 
E)  Case A = $14,500; Case B = $86,100.

Question 7

Bank overdrafts repayable on demand may be included in the cash and cash equivalent balance.

Accepted Answer

A) True 
 B)False

Question 8

If a company borrows money from a bank, the interest paid should be reported on the statement of cash flows as an):

Accepted Answer

A)  Financing activity. 
B)  Operating activity. 
C)  Investing activity. 
D)  Noncash investing and financing activity. 
E)  Cannot be determined from the information given.

Question 9

Which one of the following is representative of typical cash flows from operating activities?

Accepted Answer

A)  Proceeds from collecting the principal amount of loans. 
B)  Repayment of cash loans. 
C)  Receipts of cash dividends. 
D)  Payments to acquire equity securities of other companies. 
E)  Proceeds from the issuance of bonds and notes payable.

Question 10

Activities that involve the production or purchase of merchandise and the sale of goods and services to customers, including expenditures related to administering the business are:

Accepted Answer

A)  Investing activities. 
B)  Operating activities. 
C)  Direct activities. 
D)  Financing activities. 
E)  Indirect activities.

Question 11

Deena Inc. reported $32,000 of cash provided by operating activities and the following data:

Accepted Answer

A)  $36,000 loss 
B)  $30,000 profit 
C)  $18,000 loss 
D)  $20,000 loss

Question 12

When using the direct method, which of the following should be reported as a source of cash from operating activities?

Accepted Answer

A)  Sale of treasury shares. 
B)  Collections from customers. 
C)  Credit sales. 
D)  Depreciation expense. 
E)  Sale of a building.

Question 13

A transfer from retained earnings to common shares in a share dividend transaction should be reported in the statement of cash flows as:

Accepted Answer

A)  A note or separate schedule. 
B)  An investing activity. 
C)  A financing activity. 
D)  An operating activity. 
E)  Should not be reported in the statement of cash flows.

Question 14

The statement of cash flows reports:

Accepted Answer

A)  Owners' equity, net income, and dividends. 
B)  Cash inflows and outflows for an accounting period and owners' equity, net income, and dividends. 
C)  Revenues, gains, expenses, and losses. 
D)  Assets, liabilities, and owners' equity. 
E)  Cash inflows and outflows for an accounting period.

Question 15

An investment that must be readily convertible to known amounts of cash, that issubject to insignificant risk of changes in value, and normally qualifies only when it has a short maturity of three months or less from the date of acquisition is called an):

Accepted Answer

A)  Financing activity. 
B)  Cash equivalent. 
C)  Operating activity. 
D)  Trading security. 
E)  Treasury bill, commercial paper, or equity security.

Question 16

A purchase of land in exchange for shares is disclosed in a separate schedule attached to the statement of cash flows or in a note to the statement.

Accepted Answer

A) True 
 B)False

Question 17

The Merchandise Inventory for Year 1 was $100,000 and for Year 2 was $94,000. The Accounts Payable account for Year 1 was $40,000 and for Year 2 was $42,000. Cost of goods sold for Year 2 was $460,000. What was the total amount for cash payments for merchandise for Year 2?

Accepted Answer

A)  $452,000. 
B)  $456,000. 
C)  $448,000. 
D)  $84,000. 
E)  $449,000.

Question 18

Changes in notes payable, non-current liabilities, and equity accounts are usually used in calculating and reporting:

Accepted Answer

A)  Non-cash balance sheet accounts. 
B)  Cash flows from investing activities. 
C)  Non-cash financing activities. 
D)  Cash flows from financing activities. 
E)  Cash flows from operating activities.

Question 19

Explain how the cash flows from operating activities section of the statement ofcash flows is prepared using the indirect method.

Accepted Answer

The answer of Explain how the cash flows from operating...

Question 20

Typical cash flows from investing activities include:

Accepted Answer

A)  Payments to purchase property, plant and equipment or other productive assets excluding merchandise inventory). 
B)  Payments to acquire debt securities of other entities. 
C)  Proceeds from collecting the principal amount of loans. 
D)  Proceeds from the sale discounting) of loans made by the enterprise. 
E)  All of these answers are correct.

Exam 16: Reporting and Analyzing Cash Flows

The first item reported in the operating activities section for a statement of cash flows prepared according to the indirect method is:

The statement of cash flows helps analysts evaluate whether a company has enough cash to:

Using the indirect method to calculate the net cash provided or used) by operating activities, net income is adjusted for:

Financing activities include a) the purchase and sale of non-current assets, b) the purchase and sale of trading investments, and c) lending and collecting on loans.

Reporting of financing activities is the same under both the direct and the indirect methods.

In each of the following cases, use the information provided about the current year operations of Lora Company to calculate the indicated cash flow item.

Bank overdrafts repayable on demand may be included in the cash and cash equivalent balance.

If a company borrows money from a bank, the interest paid should be reported on the statement of cash flows as an) :

Which one of the following is representative of typical cash flows from operating activities?

Activities that involve the production or purchase of merchandise and the sale of goods and services to customers, including expenditures related to administering the business are:

Deena Inc. reported $32,000 of cash provided by operating activities and the following data:

When using the direct method, which of the following should be reported as a source of cash from operating activities?

A transfer from retained earnings to common shares in a share dividend transaction should be reported in the statement of cash flows as:

The statement of cash flows reports:

An investment that must be readily convertible to known amounts of cash, that issubject to insignificant risk of changes in value, and normally qualifies only when it has a short maturity of three months or less from the date of acquisition is called an) :

A purchase of land in exchange for shares is disclosed in a separate schedule attached to the statement of cash flows or in a note to the statement.

The Merchandise Inventory for Year 1 was $100,000 and for Year 2 was $94,000. The Accounts Payable account for Year 1 was $40,000 and for Year 2 was $42,000. Cost of goods sold for Year 2 was $460,000. What was the total amount for cash payments for merchandise for Year 2?

Changes in notes payable, non-current liabilities, and equity accounts are usually used in calculating and reporting:

Explain how the cash flows from operating activities section of the statement ofcash flows is prepared using the indirect method.

Typical cash flows from investing activities include: