Deck 5: Measuring and Reporting Cash Flows

Question 1

The cash transaction is:

A) payment of a dividend to shareholders.
B) declaration of a divided from a general reserve.
C) transfer from retained earnings to a general reserve.
D) All are cash transactions.

Answer 1

A

Question 2

Calculate cash from operating activities using the following information:

A) $188,000
B) $98,000
C) $148,000
D) $178,000

Answer 2

D

Question 3

Vacation Services Co provides you with the following information about its equipment account: If machinery that originally cost $100,000 was sold during the year, what was the value of new equipment purchased?

A) $350,000
B) $250,000
C) $550,000
D) $150,000

Answer 3

A

Question 4

The purpose of the cash flow statement is to provide information on:

A) losses.
B) cash inflows and outflows.
C) net worth.
D) profits.

Question 5

A transaction that would not appear in a cash flow statement is:

A) the upward revaluation of an asset.
B) the creation of an allowance for doubtful debts.
C) a bonus issue of shares.
D) all of the above.

Question 6

The item that is not classified as a cash flow from investing activities is:

A) receipt for the sale of premises.
B) dividend received from an investment in government bonds.
C) cash purchase of office furniture.
D) payment for shares to be held as an investment.

Question 7

How would these items be classified in a cash flow statement prepared for a hairdressing franchise? i. Payment of $600 for hairdressing supplies
Ii) Takings from customers for the month
Iii) Capital paid into the business by the owner

A) i. investing outflow; ii. operating inflow; iii. financing inflow
B) i. operating outflow; ii. operating inflow; iii. does not appear in the cash flow statement
C) i. operating outflow; ii. operating inflow; iii. investing inflow
D) i. operating outflow; ii. operating inflow; iii. financing inflow

Question 8

When preparing the note attached to the cash flow statement reconciling operating profit with cash flow from operations, which statement is not true?

A) An increase in current liabilities is deducted from profit.
B) A decrease in current assets is added to profit.
C) An increase in current assets is deducted from profit.
D) All of the above are true.

Question 9

Royal Plastics provides the following information about its moulding machinery: How much cash was received from the disposal of machinery?

A) $100,000
B) $ 90,000
C) $20,000
D) $110,000

Question 10

Motor vehicles are shown in the balance sheet of Yong Ltd as: Assuming that no vehicles were sold, the value of vehicles purchased during 2014 was:

A) $12,000
B) $5,000
C) $7,000
D) $17,000

Question 11

University Press showed wage and salary expenses of $250,000 on its 2014 statement of comprehensive income but reported cash paid to employees of $215,000 on its cash flow statement. If the beginning balance of accrued wages and salaries payable was $18,000, the ending balance is?

A) $53,000
B) $45,000
C) $17,000
D) $35,000

Question 12

If the balance of the share capital account is $300,000 at the beginning of the year and $410,000 at the end of the year, and there has been a 1 for 6 bonus issue of shares at the start of the year, the amount that will appear in the cash flow statement for proceeds from the issue of shares is:

A) $300,000
B) $60,000
C) $360,000
D) $410,000

Question 13

Cash inflows and outflows associated with changes in non-current liabilities and equity, not arising from profit, are included in which section of the cash flow statement?

A) investing
B) non-current
C) operating
D) financing

Question 14

All of the following are operating cash flows, except:

A) payments to suppliers.
B) interest received.
C) dividends paid to shareholders.
D) income tax paid.

Question 15

$54,000 is owed to suppliers for inventory purchases at the beginning of the year and $44,000 is owed at the end of the year. If annual credit purchases of inventory are $160,000, the cash paid to suppliers for the year is:

A) $150,000
B) $214,000
C) $160,000
D) $170,000

Question 16

When reconciling profit with net cash flow from operating activities:

A) add increases in current assets and subtract increases in current liabilities.
B) subtract increases in current assets and add increases in current liabilities.
C) add increases in current assets and add increases in current liabilities.
D) none of the above

Question 17

Which of the three main financial statements was chronologically the last to be required to be included as part of the external financial reports?

A) income statement
B) cash flow statement
C) balance sheet
D) None, all three reports have always been required to be included in external financial reports.

Question 18

Warning signs of problems in managing cash flows are:

A) dividends paid to shareholders that are greater than profit.
B) proceeds of borrowing that are continually greater than repayments of borrowings.
C) cash flow from operating activities that is significantly lower than profit.
D) all of the above.

Question 19

Which statement is correct?

A) The statement of comprehensive income and the balance sheet are accrual based and the cash flow statement is cash based.
B) The balance sheet is accrual based and the income and cash flow statements are cash based.
C) The statement of comprehensive income, balance sheet and cash flow statement are all accrual based.
D) None of the statements is correct.

Question 20

Generally, the dividend payment appearing in the financing section of the cash flow statement represents:

A) current year's dividend.
B) proposed dividends from last year that have been paid, plus any interim dividends declared and paid in the current year.
C) proposed dividends from last year.
D) interim dividends declared in the current year.

Question 21

In a healthy business, cash flow from operations will normally be:

A) less than the profit.
B) negative.
C) positive.
D) none of the above.

Question 22

The rule for converting credit sales to cash received from debtors is:

A) income +/- debtors at the beginning +/- debtors at the end = cash received.
B) income + debtors at the beginning - debtors at the end = cash received.
C) income - debtors at the beginning + debtors at the end = cash received.
D) none of the above.

Question 23

GG Ltd's accounting records show: Determine the amount of cash paid for inventory for the period.

A) $50, 000
B) $48,000
C) $42,000
D) $58,000

Question 24

Which item would not be included in the operating section of a cash flow statement?

A) cash received from the sale of surplus machinery
B) cash payment of expenses
C) cash received from sales
D) cash dividends received

Question 25

Which of these factors could cause operating profit to be more than cash flow from operations?

A) an increase in the balance of accounts receivable over the period
B) an increase in the balance of inventory over the period
C) an increase in the balance of accounts payable over the period
D) both A and B

Question 26

Calculate net cash flow from operating activities if:

A) $25,000
B) $19,000
C) $22,000
D) $28,000

Question 27

In the reconciliation attached to the cash flow statement, operating cash flow is reconciled to:

A) operating profit before tax.
B) operating profit before interest and tax.
C) operating profit after tax.
D) gross profit.

Question 28

All purchases of inventory are for cash. If inventory at the beginning of the year is $63,000 and at the end is $88,000 and the cost of sales is $200,000, the cash paid for inventory purchased for the year is:

A) $225,000
B) $200,000
C) $175,000
D) none of the above

Question 29

For The Book Co, share capital increased by $200,000 in total over a year in which there was a bonus issue of 20,000 new shares at $2 per share. The cash flow from the issue of shares is:

A) $240,000
B) $200,000
C) $180,000
D) $160,000

Question 30

An example of a non-cash investing or financing transaction is:

A) repayment of a loan.
B) charging depreciation.
C) sale of a parcel of shares.
D) the purchase of a building paid for by an issue of shares direct to the vendor.

Question 31

Select the statement that is not true.

A) A bank overdraft is an example of a 'cash equivalent'.
B) Cash is the pre-eminent asset as it is the medium with which claims are normally settled.
C) The concept of cash underpinning the cash flow statement is 'cash and cash equivalents'.
D) If a firm is operating profitably, it will automatically have plenty of cash.

Question 32

Cash received from the issue of shares will appear in which section of the cash flow statement?

A) operating activities section
B) investing activities section
C) financing activities section
D) does not appear in the statement

Question 33

Indulgence Chocolates has provided the following information: The cash payments made to suppliers during the year total:

A) $196,000
B) $184,000
C) $200,000
D) $164,000

Question 34

The difference between operating profit or loss after tax and net cash provided by operating activities is due to:

A) changes in non-current assets.
B) changes in working capital items.
C) changes in equity items.
D) changes in non-current liabilities.

Question 35

Which transaction would not appear in the body of a cash flow statement?

A) purchase of a building by incurring a mortgage to the seller
B) acquisition of assets by means of a share issue
C) conversion of a liability to equity
D) all of the above

Question 36

Wages expense in the income report is $56,250, with the balance sheet at the end of the year showing accrued wages of $2,000. If there were no accrued wages at the beginning of the period, how much was paid out in cash for wages during the year?

A) $54,250
B) $58,250
C) $56,250
D) $2,000

Question 37

In 2015 Gee Co repaid $45,000 to the bank on a mortgage loan. $35,000 was interest on the mortgage and $10,000 was repayment of the principal. The repayment would appear in the cash flow statement as:

A) operating outflow $35,000; investing outflow $10,000
B) operating outflow $45,000
C) financing inflow $45,000
D) operating outflow $35,000; financing outflow $10,000

Question 38

If the opening balance of equity is $45,000, the closing balance is $60,000 and profit is $27,000, calculate the amount of drawings which will appear as a financing outflow in the cash flow statement.

A) nil
B) $15,000
C) $12,000
D) $42,000

Question 39

If $80,000 is owed by customers at the beginning of the year, $75,000 is owed at the end and credit sales are $120,000, the cash received from customers is:

A) $115,000
B) $125,000
C) $80,000
D) $120,000

Question 40

The cash flow statement must include a note reconciling:

A) profit and cash flow from operations.
B) accrual accounting and historical cost accounting.
C) the business bank balance with the bank statement balance.
D) opening equity with closing equity.

Question 41

The report prepared to summarise an entity's cash transactions for the period is the:

A) statement of changes in equity.
B) balance sheet.
C) statement of comprehensive income.
D) cash flow statement.

Question 42

The tax payment appearing in the cash flow statement of a company reflects:

A) an estimate of this year's tax liability.
B) a prepayment for next year's tax liability.
C) last year's tax liability (due to the lag in payment to Inland Revenue Department).
D) this year's tax liability.

Question 43

Which of these is a reason why a cash flow statement could show a negative cash flow from operating activities even though the statement of comprehensive income showed a profit?

A) an increase in the amount of inventory held
B) an increase in depreciation charged
C) a decrease in the amount owing by debtors
D) an increase in the amount owing by creditors

Question 44

In a growing business that keeps its asset base up-to-date, total cash flow from investing activities will normally be:

A) negative.
B) more than cash flow from operations.
C) positive.
D) none of the above.

Question 45

The cash flow statement allows management to assess:

A) efficiency in managing industrial relations.
B) efficiency in managing cash flows.
C) efficiency in earning profit.
D) efficiency in controlling expenses.

Question 46

Which of these items will appear in a cash flow statement?

A) carrying value of an asset sold
B) proceeds from the sale of a fixed asset
C) adjustment in the balance of an asset account caused by a revaluation
D) all of the above

Question 47

If credit sales for the year are $120,000 and the trade receivables balance has increased by $10,500 over the year, how much cash was received from trade receivables during the year?

A) $130,500
B) $120,000
C) $10,500
D) $109,500

Question 48

Calculate the cash from operating activities using the following information: Profit $142,000 Depreciation $46,000
Accounts receivable increased by $10,000 Accrued expense increased by $12,000 Inventory increased by $14,000

A) $200,000
B) $176,000
C) $165,000
D) $186,000

Question 49

Which of these correctly shows the effect of charging depreciation on equipment for the period?

A) increase in accumulated depreciation; decrease in the carrying value of equipment
B) decrease in accumulated depreciation; decrease in the carrying value of equipment
C) increase in accumulated depreciation; increase in the carrying value of equipment
D) none of the above

Question 50

Under accrual accounting, the receipt of cash from a trade debtor will:

A) decrease profit and decrease cash.
B) increase profit and increase cash.
C) have no impact on profit and increase cash.
D) none of the above

Question 51

If the opening balance of rent accrued at the beginning of the year was $1,000, rent expense for the year was $20,000 and the closing balance of rent accrued at the end of the year was $1,200, the amount paid in cash for rent during the year is:

A) $22,200
B) $19,800
C) $21,000
D) $20,200

Question 52

State the effect on profit and cash of a firm paying a trade payable.

A) no effect on profit; decrease in cash
B) decrease in profit; no effect on cash
C) no effect on profit; no effect on cash
D) decrease in profit; decrease in cash

Question 53

Baltimore Company had a long-term debt of $1,000,000. To extinguish this debt the company issued $1,000,000 of fully paid shares to the lender. This transaction would have the following impact on the cash flow statement:

A) no impact.
B) increase cash by $1,000,000.
C) increase cash flow from financing activities by $1,000,000.
D) decrease cash by $1,000,000.

Question 54

An extract from the trial balance of RRR Ltd as at 30 June 2011 shows: Income tax expense $20,000 If the income tax provided for at the end of 2013 was $16,000 and taxation is paid in arrears in a lump sum, what amount will appear in the cash flow statement for taxation paid by RRR Ltd for the year ended 30 June 2014?

A) $20,000
B) $16,000
C) nil
D) $12,000

Question 55

Royal Plastics provides the following information about its moulding machinery: What is the total cost of machinery purchased during the year?

A) $280,000
B) $300,000
C) $200,000
D) $370,000

Question 56

The effect on profit and cash of depreciating a non-current asset is:

A) decrease in profit; no effect on cash
B) no effect on profit; decrease in cash
C) decrease in profit; decrease in cash
D) no effect on profit; no effect on cash

Question 57

A motor vehicle was purchased for $25,000, depreciated using the reducing-balance method for 3 years at 20% p.a., and was then sold for a price that was $1,600 more than the carrying amount of the vehicle. The cash received on the sale of the motor vehicle was:

A) $11,600
B) $12,800
C) $11,200
D) $14,400

Question 58

If prepaid interest at the beginning of the period was zero and at the end of the period was $4,000, and interest expense appears in the income statement for the year as $17,300, how much was paid out in cash for interest during the year?

A) $13,300
B) $17,300
C) $21,300
D) $4,000

Question 59

In the cash flow statement, the total of net cash flows from operating activities, net cash flows from investing activities and net cash flows from financing activities for the period equals:

A) profit.
B) the cash balances at the beginning of the period.
C) total net increase or decrease in cash held for the period.
D) the cash balances at the end of the period.

Question 60

Depreciation of plant and equipment will appear in which section of the cash flow statement?

A) does not appear in the statement
B) operating activities section
C) financing activities section
D) investing activities section

Question 61

Operating activities are concerned with:

A) the trading and/or service operations of the business.
B) borrowing or lending.
C) the sale or disposal of non-current assets.
D) none of the above.