Question 1

A company bought $250,000 of equipment with an expected life of ten years and no residual value.After six years the company sold the equipment for $94,000.If the company uses straight-line depreciation and the indirect method is used to determine cash flows from operating activities,which of the following reflects how the sale of the equipment would be reported in the statement of cash flows?

Accepted Answer

A)  $94,000 is recorded as a cash inflow from investing activities and no other sections of the statement are affected. 
B)  $94,000 is recorded as a cash inflow from investing activities and $6,000 is added to convert net income to net cash flow provided by operating activities. 
C)  $94,000 is recorded as a cash inflow from investing activities and $6,000 is subtracted to convert net income to net cash flow provided by operating activities. 
D)  $94,000 is recorded as a cash inflow from operating activities.

Question 2

Almost all U.S.companies have used the indirect method of preparing the statement of cash flows:

Accepted Answer

A)  because most users of the financial statements do not understand the direct method. 
B)  in spite of the FASB's stated preference for the direct method. 
C)  because it usually requires less space in the annual report. 
D)  so that stockholders cannot determine how much cash was spent on executives' salaries.

Question 3

In calculating the net cash provided by or used in operations using the indirect method,which of the following items would be subtracted from net income?

Accepted Answer

A)  A decrease in Prepaid Rent 
B)  An increase in Accounts Receivable 
C)  An increase in long-lived assets 
D)  An increase in Salaries and Wages Payable

Question 4

Which of the following statements about cash flows from financing activities is correct?

Accepted Answer

A)  When a company borrows from lenders, a cash outflow from financing activities has occurred. 
B)  When a company receives cash dividends, a cash inflow from financing activities has occurred. 
C)  When a company repurchases its own stock, a cash outflow for financing activities has occurred. 
D)  When a company pays cash dividends, a cash inflow from financing activities has occurred.

Question 5

Which of the following items below will be subtracted in the financing cash flow portion of the statement of cash flows?

Accepted Answer

A)  Net income earned 
B)  Bank loans obtained 
C)  Payment of dividends 
D)  Disposal of equipment

Question 6

Using the indirect method,which of the following would be added to net income?

Accepted Answer

A)  A decrease in Supplies 
B)  An increase in Prepaid Insurance 
C)  A decrease in Salaries and Wages Payable 
D)  An increase in Equipment

Question 7

The payment of salaries and wages would be reported as an operating activity on the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 8

Accrual-basis accounting is superior to cash-basis accounting in that:

Accepted Answer

A)  it provides a better measure of profitability. 
B)  a statement of cash flows is not needed. 
C)  the cash balance reported will be greater. 
D)  there is only one method of preparing the operating activities of the statement of cash flows.

Question 9

When the direct method is used to determine the cash flows from operating activities,which of the following adjustments must be made to income tax expense to determine total income tax payments?

Accepted Answer

A)  Add all changes in income taxes and income taxes payable. 
B)  Add decreases in income taxes payable and subtract increases in income taxes payable. 
C)  Add increases in income taxes payable and subtract decreases in income taxes payable. 
D)  Subtract all changes in income taxes payable.

Question 10

Brighton,Inc.uses the indirect method to determine its net cash flows from operating activities.During the course of the year,the company's Accounts Receivable increased by $10,000 and its Accounts Payable decreased by $5,000.If these are the only two adjustments required to convert net income to net cash provided by operating activities,the combined effect will be a(n):

Accepted Answer

A)  subtraction of $5,000. 
B)  addition of $5,000. 
C)  addition of $15,000. 
D)  subtraction of $15,000.

Question 11

Which of the following would be reported on the statement of cash flows,using the direct method,as a cash flow from operating activities?

Accepted Answer

A)  Payment of income taxes 
B)  Payment of cash dividends 
C)  Purchase of a building 
D)  Purchase of treasury stock

Question 12

Free cash flow is a positive cash flow from operating activities:

Accepted Answer

A)  beyond what is needed to replace current property, plant, and equipment and pay cash 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 13

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

Accepted Answer

A)  If revenues are falling, a net loss could result even though the company reports a net cash inflow from operating activities. 
B)  If revenues are rising, net income could result even though the company reports a net cash outflow from operating activities. 
C)  Net income and net cash flows provided by operating activities will always agree. 
D)  The income statement doesn't explain changes in cash because it focuses on just the operating results of the business.

Question 14

Depreciation Expense is $20,000 and the beginning and ending Accumulated Depreciation balances are $150,000 and $155,000,respectively.What is the cash paid for depreciation?

Accepted Answer

A)  $20,000 
B)  $5,000 
C)  $0 
D)  $25,000

Question 15

Assume that the direct method is used to prepare the operating activities section of the statement of cash flows.When Accrued Liabilities increase,it means that the company:

Accepted Answer

A)  paid more cash than it recorded as operating expenses. 
B)  paid less cash than it recorded as operating expenses. 
C)  prepaid the operating expenses before they were incurred or recorded. 
D)  paid for the operating expenses as they were recorded.

Question 16

A corporation prepared its statement of cash flows for the year.The following information is taken from that statement:

What is the amount of net cash provided by (used in)financing activities?

Accepted Answer

A)  $15,400 
B)  ($3,300) 
C)  ($15,400) 
D)  $3,300

Question 17

The management team of Wickersham Brothers Inc.is preparing its annual financial statements.The statements are complete except for the statement of cash flows.The completed comparative balance sheets and income statements are summarized.
  
Other information from the company's records includes the following:
-Bought equipment for cash,$50,000.
-Paid $10,000 on long-term note payable.
-Issued new shares of common stock for $20,000 cash.
-Cash dividends of $16,000 were declared and paid to stockholders.
-Accounts Payable arose from inventory purchases on credit.
-Income Tax Expense ($4,000)and Interest Expense ($3,000)were paid in full at the end of both years and are included in Other Expenses.
Required:
Prepare a schedule summarizing operating,investing,and financing cash flows using the T-account approach

Accepted Answer

The answer of The management team of Wickersham Brothers Inc.is...

Question 18

Which of the following statements about calculation of cash flows from operating activities under the indirect method is correct?

Accepted Answer

A)  When the indirect method is used, changes in current liabilities are subtracted while changes in current assets are added to convert net income to net cash flow from operating activities. 
B)  When the indirect method is used, depreciation expense is added to net income as a step in the process of calculating net cash flow provided by operating activities. 
C)  When the indirect method is used, changes in long-term assets are added to convert net income to net cash flow provided by operating activities. 
D)  When the indirect method is used, changes in long-term liabilities are subtracted to convert net income to net cash flow provided by operating activities.

Question 19

When the indirect method is used to determine net cash provided by (used in)operating activities,subtracting an increase in Accounts Receivable from net income eliminates the effect of recording revenue that:

Accepted Answer

A)  increased net income, but did not impact cash. 
B)  decreased net income, but did not impact cash. 
C)  increased net income and increased cash flow. 
D)  decreased net income and decreased cash flow.

Question 20

-Use the information above to answer the following question.The company would report net cash provided by (used in)investing activities of:

Accepted Answer

A)  $(1,000). 
B)  $(2,000). 
C)  $5,000. 
D)  $7,000.

Exam 12: Reporting and Interpreting the Statement of Cash Flows