Question 1

A higher quality of income ratio implies that operations tend to be financed internally without having to rely on external financing sources.

Accepted Answer

A) True 
 B)False  True

Question 2

Which of the following transactions would not be reported within the investing section of the cash flow statement?

Accepted Answer

A)  The cash sale of land at a gain. 
B)  The purchase of a building for cash. 
C) The purchase of a stock investment for cash. 
D) The cash receipt of a dividend from a stock investment. 
A)  The cash sale of land at a gain. 
B)  The purchase of a building for cash. 
C) The purchase of a stock investment for cash. 
D) The cash receipt of a dividend from a stock investment. D

Question 3

Which of the following transactions decreases the quality of income ratio?

Accepted Answer

A)  The cash purchase of equipment. 
B)  The issue of stock in exchange for cash. 
C) Collecting cash for services to be provided in the future. 
D) Earning revenue that was previously recorded as unearned revenue. 
A)  The cash purchase of equipment. 
B)  The issue of stock in exchange for cash. 
C) Collecting cash for services to be provided in the future. 
D) Earning revenue that was previously recorded as unearned revenue. D

Question 4

Which of the following would not be a cash flow from investing activities?

Accepted Answer

A)  Purchase of long-term investments. 
B)  Sale of a patent. 
C) Collection of principal on a long-term note receivable. 
D) Collection of interest revenue on a long-term note receivable. 
A)  Purchase of long-term investments. 
B)  Sale of a patent. 
C) Collection of principal on a long-term note receivable. 
D) Collection of interest revenue on a long-term note receivable.

Question 5

Most companies use the direct method for disclosing their cash flows from operating activities rather than the indirect method.

Accepted Answer

A) True 
 B)False

Question 6

Amanda Company reported income tax expense of $250,000. Beginning income taxes payable was $30,000, while ending income taxes payable was $25,000, and accounts payable decreased $10,000. How much cash was paid for taxes?

Accepted Answer

A)  $280,000. 
B)  $255,000. 
C) $245,000. 
D) $265,000. 
A)  $280,000. 
B)  $255,000. 
C) $245,000. 
D) $265,000.

Question 7

Which of the following would be a financing activities cash flow?

Accepted Answer

A)  Common stock dividends received from an investment in another company. 
B)  Interest payments. 
C) Purchase of treasury stock. 
D) Purchase of a building by signing a note payable. 
A)  Common stock dividends received from an investment in another company. 
B)  Interest payments. 
C) Purchase of treasury stock. 
D) Purchase of a building by signing a note payable.

Question 8

When accrued liabilities increase from the beginning to the end of the year, it means accrued expenses were greater than cash payments of such expenses, and, under the indirect method, the increase in accrued liabilities would be added to net income to convert to cash flow from operating activities.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following items about the statement of cash flows is correct?

Accepted Answer

A)  Noncash expenses such as depreciation are subtracted from net income when using the indirect method for computing cash flows from operating activities. 
B)  Cash equivalents are highly liquid investments with maturities at the date of purchase of less than three months. 
C) The acquisition of land by issuing bonds payable would not appear on the statement of cash flows. 
D) Cash paid for interest would be classified as a financing cash flow. 
A)  Noncash expenses such as depreciation are subtracted from net income when using the indirect method for computing cash flows from operating activities. 
B)  Cash equivalents are highly liquid investments with maturities at the date of purchase of less than three months. 
C) The acquisition of land by issuing bonds payable would not appear on the statement of cash flows. 
D) Cash paid for interest would be classified as a financing cash flow.

Question 10

The financial statements for World Company show the following: Cost of goods sold, $725,000. $\begin{array}{lrr}&\text { Beginning Balance }&\text { Ending Balance }\
\text { Merchandise Inventory } & \$ 45,000 & \$ 56,000 \
\text { Accounts Receivable } & 53,000 & 50,000 \
\text { Accounts Pavable } & 37,000 & 42,000
\end{array}$ How much cash was paid to suppliers?

Accepted Answer

A)  $731,000. 
B)  $736,000. 
C) $719,000. 
D) $714,000. 
A)  $731,000. 
B)  $736,000. 
C) $719,000. 
D) $714,000.

Question 11

Under the indirect method, an increase in accounts receivable during the year will be added to net income.

Accepted Answer

A) True 
 B)False

Question 12

Halbur Company reported the following for its recent year of operation: $\begin{array}{lr}
\text { From the income statement: } \
\text { Depreciation expense } & \$ 1,000 \
\text { Loss on sale of equipment } & 3,000\
\text { From the comparative balance sheet: } & \
\text { Beginning balance, equipment } & \$ 12,500 \
\text { Ending balance, equipment } & 8,000 \
\text { Beginning balance, accumulated depreciation } & 2,000 \
\text { Ending balance, accumulated depreciation } & 2,400
\end{array}$ No new equipment was purchased during the year. What was the selling price of the equipment?

Accepted Answer

A)  $3,900. 
B)  $1,000. 
C) $900. 
D) $600. 
A)  $3,900. 
B)  $1,000. 
C) $900. 
D) $600.

Question 13

Atkins Corporation has provided the following information for the year ended December 31, 2014: • The equipment account balance increased $200,000.
• The equipment accumulated depreciation account increased $35,000.
• Equipment costing $50,000 was sold during the year resulting in a $10,000 gain.
• Depreciation expense recorded on the equipment during the year was $65,000.
How much was the investing activities cash inflow from the sale of the equipment? Assume that the equipment purchase and sale resulted in cash flows.

Accepted Answer

A)  $30,000. 
B)  $60,000. 
C) $40,000. 
D) $50,000. 
A)  $30,000. 
B)  $60,000. 
C) $40,000. 
D) $50,000.

Question 14

A company reported an increase in prepaid rent and an increase in accrued liabilities during 2014. Which of the following statements is correct?

Accepted Answer

A)  When determining cash paid for operating expenses, both the increase in prepaid rent and the increase in accrued liabilities are subtracted from operating expenses. 
B)  When determining cash paid for operating expenses, both the increase in prepaid rent and the increase in accrued liabilities are added to operating expenses. 
C) When determining cash paid for operating expenses, the increase in prepaid rent is added to operating expenses and the increase in accrued liabilities is subtracted from operating expenses. 
D) When determining cash paid for operating expenses, the increase in prepaid rent is subtracted from operating expenses and the increase in accrued liabilities is added to operating expenses. 
A)  When determining cash paid for operating expenses, both the increase in prepaid rent and the increase in accrued liabilities are subtracted from operating expenses. 
B)  When determining cash paid for operating expenses, both the increase in prepaid rent and the increase in accrued liabilities are added to operating expenses. 
C) When determining cash paid for operating expenses, the increase in prepaid rent is added to operating expenses and the increase in accrued liabilities is subtracted from operating expenses. 
D) When determining cash paid for operating expenses, the increase in prepaid rent is subtracted from operating expenses and the increase in accrued liabilities is added to operating expenses.

Question 15

Canadian Beer had a capital acquisitions ratio of 7.49, which means its net income exceeded its cash investment in property, plant and equipment by almost 7.5 times.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following would not be a cash flow from financing activities?

Accepted Answer

A)  Issuance of common stock for cash. 
B)  Borrowing cash on a long-term note payable. 
C) Collection of a cash dividend. 
D) Repayment of principal on a long-term note payable. 
A)  Issuance of common stock for cash. 
B)  Borrowing cash on a long-term note payable. 
C) Collection of a cash dividend. 
D) Repayment of principal on a long-term note payable.

Question 17

Which of the following statements about the quality of income ratio is incorrect?

Accepted Answer

A)  An increase in operating assets and a decrease in liabilities will reduce operating cash flows and thereby reduce the quality of income ratio. 
B)  Seasonal variations in sales and purchases of inventory can cause wide deviations in the quality of income ratio. 
C) When sales are growing, receivables and inventory normally increase at a faster rate than accounts payable, which often causes cash flows from operating activities to be less than net income. 
D) Aggressive revenue recognition tends to increase the quality of income ratio. 
A)  An increase in operating assets and a decrease in liabilities will reduce operating cash flows and thereby reduce the quality of income ratio. 
B)  Seasonal variations in sales and purchases of inventory can cause wide deviations in the quality of income ratio. 
C) When sales are growing, receivables and inventory normally increase at a faster rate than accounts payable, which often causes cash flows from operating activities to be less than net income. 
D) Aggressive revenue recognition tends to increase the quality of income ratio.

Question 18

Which of the following transactions is not reported in the statement of cash flows as a cash flow from investing activities?

Accepted Answer

A)  Selling a depreciable asset for cash at a loss. 
B)  Purchasing a patent using cash. 
C) Purchasing land in exchange for common stock. 
D) Purchasing shares of common stock of another company using cash. 
A)  Selling a depreciable asset for cash at a loss. 
B)  Purchasing a patent using cash. 
C) Purchasing land in exchange for common stock. 
D) Purchasing shares of common stock of another company using cash.

Question 19

Cash flows associated with issuance and retirement of long-term debt and equity are reported as cash flows from investing activities.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements regarding use of the direct and indirect methods of determining cash flows from operating activities is incorrect?

Accepted Answer

A)  The indirect method starts with net income. 
B)  The direct method calculates cash collected from customers. 
C) The majority of U.S. companies use the indirect method. 
D) The FASB recommends use of the indirect methoD.The FASB recommends use of the direct method. 
A)  The indirect method starts with net income. 
B)  The direct method calculates cash collected from customers. 
C) The majority of U.S. companies use the indirect method. 
D) The FASB recommends use of the indirect methoD.The FASB recommends use of the direct method.

A higher quality of income ratio implies that operations tend to be financed internally without having to rely on external financing sources.

Which of the following transactions would not be reported within the investing section of the cash flow statement?

Which of the following transactions decreases the quality of income ratio?

Which of the following would not be a cash flow from investing activities?

Most companies use the direct method for disclosing their cash flows from operating activities rather than the indirect method.

Amanda Company reported income tax expense of $250,000. Beginning income taxes payable was $30,000, while ending income taxes payable was $25,000, and accounts payable decreased $10,000. How much cash was paid for taxes?

Which of the following would be a financing activities cash flow?

When accrued liabilities increase from the beginning to the end of the year, it means accrued expenses were greater than cash payments of such expenses, and, under the indirect method, the increase in accrued liabilities would be added to net income to convert to cash flow from operating activities.

Which of the following items about the statement of cash flows is correct?

The financial statements for World Company show the following: Cost of goods sold, $725,000. Beginning Balance Ending Balance Merchandise Inventory \ 45,000 \ 56,000 Accounts Receivable 53,000 50,000 Accounts Pavable 37,000 42,000 How much cash was paid to suppliers?

Under the indirect method, an increase in accounts receivable during the year will be added to net income.

A company reported an increase in prepaid rent and an increase in accrued liabilities during 2014. Which of the following statements is correct?

Canadian Beer had a capital acquisitions ratio of 7.49, which means its net income exceeded its cash investment in property, plant and equipment by almost 7.5 times.

Which of the following would not be a cash flow from financing activities?

Which of the following statements about the quality of income ratio is incorrect?

Which of the following transactions is not reported in the statement of cash flows as a cash flow from investing activities?

Cash flows associated with issuance and retirement of long-term debt and equity are reported as cash flows from investing activities.

Which of the following statements regarding use of the direct and indirect methods of determining cash flows from operating activities is incorrect?

Financial Statements and Business Decisions

Investing and Financing Decisions and the Accounting System

Operating Decisions and the Accounting System

Adjustments, Financial Statements, and the Quality of Earnings

Communicating and Interpreting Accounting Information

Reporting and Interpreting Sales Revenue, Receivables, and Cash

Reporting and Interpreting Cost of Goods Sold and Inventory

Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

Reporting and Interpreting Liabilities

Reporting and Interpreting Bonds

Reporting and Interpreting Owners Equity

Analyzing Financial Statements

Reporting and Interpreting Investments in Other Corporations

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Exam 12: Statement of Cash Flows

A higher quality of income ratio implies that operations tend to be financed internally without having to rely on external financing sources.

Which of the following transactions would not be reported within the investing section of the cash flow statement?

Which of the following transactions decreases the quality of income ratio?

Which of the following would not be a cash flow from investing activities?

Most companies use the direct method for disclosing their cash flows from operating activities rather than the indirect method.

Amanda Company reported income tax expense of $250,000. Beginning income taxes payable was $30,000, while ending income taxes payable was $25,000, and accounts payable decreased $10,000. How much cash was paid for taxes?

Which of the following would be a financing activities cash flow?

Which of the following items about the statement of cash flows is correct?

The financial statements for World Company show the following: Cost of goods sold, $725,000. Beginning Balance Ending Balance Merchandise Inventory \ 45,000 \ 56,000 Accounts Receivable 53,000 50,000 Accounts Pavable 37,000 42,000 How much cash was paid to suppliers?

Under the indirect method, an increase in accounts receivable during the year will be added to net income.

A company reported an increase in prepaid rent and an increase in accrued liabilities during 2014. Which of the following statements is correct?

Canadian Beer had a capital acquisitions ratio of 7.49, which means its net income exceeded its cash investment in property, plant and equipment by almost 7.5 times.

Which of the following would not be a cash flow from financing activities?

Which of the following statements about the quality of income ratio is incorrect?

Which of the following transactions is not reported in the statement of cash flows as a cash flow from investing activities?

Cash flows associated with issuance and retirement of long-term debt and equity are reported as cash flows from investing activities.

Which of the following statements regarding use of the direct and indirect methods of determining cash flows from operating activities is incorrect?

Financial Statements and Business Decisions

Investing and Financing Decisions and the Accounting System

Operating Decisions and the Accounting System

Adjustments, Financial Statements, and the Quality of Earnings

Communicating and Interpreting Accounting Information

Reporting and Interpreting Sales Revenue, Receivables, and Cash

Reporting and Interpreting Cost of Goods Sold and Inventory

Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

Reporting and Interpreting Liabilities

Reporting and Interpreting Bonds

Reporting and Interpreting Owners Equity

Analyzing Financial Statements

Reporting and Interpreting Investments in Other Corporations

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