Question 1

Ashley Co.uses the direct method in calculating its cash flow from operations.Which of the following items will not have an effect on cash flow from operating activities?

Accepted Answer

A)  Increase in inventory 
B)  Payment of dividends to stockholders 
C)  Cash collections from customers 
D)  Payment of interest to lenders

Question 2

Negative operating cash flow may indicate all of the following except:

Accepted Answer

A)  the company may not be able to replace property, plant and equipment. 
B)  stockholders may not receive a dividend. 
C)  the company may be in the introductory phase of its life cycle. 
D)  the company did not earn a profit from its core business activity.

Question 3

A company reported that its bonds with a face value of $50,000 and a carrying value of $53,000 are retired for $56,000 cash.The amount to be reported under cash flows from financing activities is:

Accepted Answer

A)  ($53,000). 
B)  ($3,000). 
C)  ($56,000) 
D)  $0; this is an operating activity.

Question 4

Indicate whether each of the following would be added to or subtracted from net income when using the indirect method to reconcile net income to cash flows from operating activities.

Accepted Answer

The answer of Indicate whether each of the following would...

Question 5

Assume that the indirect method is used to determine net cash provided by (used in)operating activities and that Prepaid Insurance decreased during the year.That decrease is added to net income because:

Accepted Answer

A)  the company paid additional premiums this period in excess of the Insurance Expense recorded on the income statement. 
B)  a decrease in Prepaid Insurance causes an increase in Insurance Expense and a decrease in net income, but it does not involve cash so it is added back to net income. 
C)  it includes the impact of increasing cash and increasing net income. 
D)  it accounts for purchasing more insurance during the period than has been expensed.

Question 6

When the direct method is used to determine the cash flows from operating activities,other operating expenses are converted into cash outflows by:

Accepted Answer

A)  adding changes in prepaid expenses and accrued liabilities to other expenses. 
B)  subtracting increases in prepaid expenses and subtracting decreases in accrued liabilities from other expenses. 
C)  adding increases in prepaid expenses and adding decreases in accrued liabilities to other expenses. 
D)  subtracting changes in prepaid expenses and accrued liabilities from other expenses.

Question 7

Which of the following journal entries has an effect on cash provided by (used in)operating activities?

Accepted Answer

A)  Bad debts expense 
B)  Depreciation expense 
C)  Sale of an investment 
D)  Payment of interest on long-term notes payable

Question 8

Cash flows from financing activities:

Accepted Answer

A)  includes all cash inflows and outflows associated with a company's lending activities. 
B)  includes all cash inflows and outflows between a company and its stockholders. 
C)  are always negative because of the payments of cash dividends as well as interest and principal on debt. 
D)  are always positive unless the company is experiencing serious financial trouble.

Exam 12: Reporting and Interpreting the Statement of Cash Flows