Question 1

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. 
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 2

Which of the following would be included in cash flows from financing activities?

Accepted Answer

A)  Cash proceeds from sales 
B)  Cash received from a sale of land 
C)  Cash dividends paid 
D)  Cash used to purchases of equipment 
A)  Cash proceeds from sales 
B)  Cash received from a sale of land 
C)  Cash dividends paid 
D)  Cash used to purchases of equipment

Question 3

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.
The income statement reports expenses of the period, but cash flow from operating activities must reflect the cash payments. Cash prepayments increase the balance in prepaid expenses, and recording of expenses decreases the balance in prepaid expenses. A decrease in Prepaid Expenses means that cash prepayments this period were less than expenses. These extra cash prepayments must be added to net income. 
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.
The income statement reports expenses of the period, but cash flow from operating activities must reflect the cash payments. Cash prepayments increase the balance in prepaid expenses, and recording of expenses decreases the balance in prepaid expenses. A decrease in Prepaid Expenses means that cash prepayments this period were less than expenses. These extra cash prepayments must be added to net income.

Question 4

The introductory phase of a company's life cycle will most likely have net cash:

Accepted Answer

A)  provided by investing activities. 
B)  used in financing activities. 
C)  used in investing activities. 
D)  provided by operating activities. 
A)  provided by investing activities. 
B)  used in financing activities. 
C)  used in investing activities. 
D)  provided by operating activities.

Question 5

Which of the following statements about the reporting of operating cash flows using the direct method is correct?

Accepted Answer

A)  Although most U.S. companies use the indirect method, the Financial Accounting Standards Board (FAS
B)  prefers the direct method of accounting for cash flows from operating activities. 
B)  The FASB prefers the indirect method of calculating cash flows from operating activities because it gives a more accurate calculation of cash provided by operating activities. 
C)  The direct method results in a larger amount of cash flow from operating activities than does the indirect method. 
D)  The direct and indirect methods use different presentations for cash flows from investing and financing activities. 
A)  Although most U.S. companies use the indirect method, the Financial Accounting Standards Board (FAS
B)  prefers the direct method of accounting for cash flows from operating activities. 
B)  The FASB prefers the indirect method of calculating cash flows from operating activities because it gives a more accurate calculation of cash provided by operating activities. 
C)  The direct method results in a larger amount of cash flow from operating activities than does the indirect method. 
D)  The direct and indirect methods use different presentations for cash flows from investing and financing activities.

Question 6

Cash flows from investing activities include all of the following except a(n):

Accepted Answer

A)  purchase of an automobile. 
B)  sale of a trademark. 
C)  purchase of stock of another company. 
D)  issuance of bonds. 
A)  purchase of an automobile. 
B)  sale of a trademark. 
C)  purchase of stock of another company. 
D)  issuance of bonds.

Question 7

Identify whether each of the following list of items is an operating activity cash flow (O), an investing activity cash flow (I), a financing activity cash flow (F), or none of these (None).
_____ Proceeds from sale of equipment
_____ Cash collected from customers
_____ Payments to suppliers
_____ Stock repurchases
_____ Repayment of bond principal
_____ Payment of income tax
_____ Purchases of bonds from other companies
_____ Purchases of equipment financed with a note
_____ Interest and cash dividends received
_____ Payment of cash dividends

Accepted Answer

I, O, O, F

Question 8

When preparing the operating activities section of the statement of cash flows using the indirect method, a decrease in accounts receivable is subtracted from net income

Accepted Answer

A) True 
 B)False

Question 9

Cash flows from operating activities include all of the following except:

Accepted Answer

A)  a purchase of land. 
B)  collections from customers on account. 
C)  payments to employees for hours worked. 
D)  receipt of cash dividends. 
A)  a purchase of land. 
B)  collections from customers on account. 
C)  payments to employees for hours worked. 
D)  receipt of cash dividends.

Question 10

A toy store with a calendar year-end is likely to have:

Accepted Answer

A)  unpredictable fluctuations in cash flow from quarter to quarter. 
B)  the largest cash inflow from operating activities in the second and third quarters (April - September). 
C)  a fairly stable cash flow across all four quarters. 
D)  the largest cash inflow from operating activities in the fourth and firstquarters (October - March). 
A)  unpredictable fluctuations in cash flow from quarter to quarter. 
B)  the largest cash inflow from operating activities in the second and third quarters (April - September). 
C)  a fairly stable cash flow across all four quarters. 
D)  the largest cash inflow from operating activities in the fourth and firstquarters (October - March).

Question 11

Equipment with a cost of $10,000 and a book value of $3,000 was sold during the year for cash of $9,000. Additional equipment was purchased during the year for cash. What was the amount of cash paid for purchases of equipment during the year?

Accepted Answer

A)  $40,000 
B)  $43,000 
C)  $50,000 
D)  $31,000 
A)  $40,000 
B)  $43,000 
C)  $50,000 
D)  $31,000

Question 12

When preparing the operating activities section of the statement of cash flows using the direct method, net income must be adjusted for gains or losses realized when property, plant, and equipment is sold

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements is correct?

Accepted Answer

A)  The Accumulated Depreciation account includes cash flows that may be categorized as both operating and investing. 
B)  Inventory includes cash flows that may be categorized as both operating and investing. 
C)  Retained Earnings includes cash flows that may be categorized as both operating and investing. 
D)  Bonds Payable includes cash flows that may be categorized as both operating and financing. 
A)  The Accumulated Depreciation account includes cash flows that may be categorized as both operating and investing. 
B)  Inventory includes cash flows that may be categorized as both operating and investing. 
C)  Retained Earnings includes cash flows that may be categorized as both operating and investing. 
D)  Bonds Payable includes cash flows that may be categorized as both operating and financing.

Question 14

If Cost of Goods Sold is $145,000 and the beginning and ending Inventory balances are $18,000 and $13,000, respectively, inventory purchases equal:

Accepted Answer

A)  $145,000. 
B)  $140,000. 
C)  $150,000. 
D)  $132,000. 
A)  $145,000. 
B)  $140,000. 
C)  $150,000. 
D)  $132,000.

Question 15

A company has positive cash flow from investing and financing activities, but negative cash flow from operating activities. The likely result is:

Accepted Answer

A)  investors may not buy the company's stock because the receipt of dividends is unlikely. 
B)  investors will continue to buy stock since the company's growth prospects are good. 
C)  Creditors will continue to lend money to the company. 
D)  Creditors will demand immediate repayment of all outstanding debt. 
A)  investors may not buy the company's stock because the receipt of dividends is unlikely. 
B)  investors will continue to buy stock since the company's growth prospects are good. 
C)  Creditors will continue to lend money to the company. 
D)  Creditors will demand immediate repayment of all outstanding debt.

Question 16

When the net cash flows from operating, investing, and financing activities are combined to arrive at the overall net change in cash, a net decrease in cash is subtracted from the beginning cash balance to calculate the ending cash balance

Accepted Answer

A) True 
 B)False

Question 17

Which of the following would be reported as a cash outflow from investing activities?

Accepted Answer

A)  Donating an old piece of equipment to charity 
B)  Repaying the principal of a bond 
C)  Buying another company's bonds with cash 
D)  Acquiring an investment security by issuing company stock 
A)  Donating an old piece of equipment to charity 
B)  Repaying the principal of a bond 
C)  Buying another company's bonds with cash 
D)  Acquiring an investment security by issuing company stock

Question 18

Braden and Sons, Inc. borrowed $700,000 cash from Trenton Savings and Loan last year. In addition, the company repaid a $450,000 note payable to First National Bank. How should these transactions be listed in the Statement of Cash Flows?

Accepted Answer

A)  Braden can combine the transactions and show an increase to cash of $250,000 in the investing activities section of the statement. 
B)  Braden can combine the transactions and show an increase to cash of $250,000 in the financing activities section of the statement. 
C)  A decrease to cash for $450,000 is listed in the investing activities section and an increase of $700,000 is in the financing activities section. 
D)  Transactions must be shown separately as a decrease to cash for $450,000 and an increase of $700,000 in the financing activities section. 
A)  Braden can combine the transactions and show an increase to cash of $250,000 in the investing activities section of the statement. 
B)  Braden can combine the transactions and show an increase to cash of $250,000 in the financing activities section of the statement. 
C)  A decrease to cash for $450,000 is listed in the investing activities section and an increase of $700,000 is in the financing activities section. 
D)  Transactions must be shown separately as a decrease to cash for $450,000 and an increase of $700,000 in the financing activities section.

Question 19

Assume that the direct method is used to prepare the operating activities section of the statement of cash flows. Which related balance sheet account will explain the difference between revenues on the income statement and cash collected from customers?

Accepted Answer

A)  Inventory 
B)  Accounts Payable 
C)  Cost of Goods Sold 
D)  Accounts Receivable 
A)  Inventory 
B)  Accounts Payable 
C)  Cost of Goods Sold 
D)  Accounts Receivable

Question 20

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.
When a company repurchases its own stock, a cash outflow for financing activities has occurreD.
When a company borrows from lenders, a cash inflow (rather than an outflow) from financing activities has occurreD.
When a company receives cash dividends, a cash inflow from operating (rather than financing) activities has occurreD.
When a company pays cash dividends, a cash outflow (rather than an inflow) from financing activities has occurreD. 
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.
When a company repurchases its own stock, a cash outflow for financing activities has occurreD.
When a company borrows from lenders, a cash inflow (rather than an outflow) from financing activities has occurreD.
When a company receives cash dividends, a cash inflow from operating (rather than financing) activities has occurreD.
When a company pays cash dividends, a cash outflow (rather than an inflow) from financing activities has occurreD.

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

Which of the following would be included in cash flows from financing activities?

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:

The introductory phase of a company's life cycle will most likely have net cash:

Which of the following statements about the reporting of operating cash flows using the direct method is correct?

Cash flows from investing activities include all of the following except a(n):

When preparing the operating activities section of the statement of cash flows using the indirect method, a decrease in accounts receivable is subtracted from net income

Cash flows from operating activities include all of the following except:

A toy store with a calendar year-end is likely to have:

Equipment with a cost of $10,000 and a book value of $3,000 was sold during the year for cash of $9,000. Additional equipment was purchased during the year for cash. What was the amount of cash paid for purchases of equipment during the year?

When preparing the operating activities section of the statement of cash flows using the direct method, net income must be adjusted for gains or losses realized when property, plant, and equipment is sold

Which of the following statements is correct?

If Cost of Goods Sold is $145,000 and the beginning and ending Inventory balances are $18,000 and $13,000, respectively, inventory purchases equal:

A company has positive cash flow from investing and financing activities, but negative cash flow from operating activities. The likely result is:

When the net cash flows from operating, investing, and financing activities are combined to arrive at the overall net change in cash, a net decrease in cash is subtracted from the beginning cash balance to calculate the ending cash balance

Which of the following would be reported as a cash outflow from investing activities?

Braden and Sons, Inc. borrowed $700,000 cash from Trenton Savings and Loan last year. In addition, the company repaid a $450,000 note payable to First National Bank. How should these transactions be listed in the Statement of Cash Flows?

Assume that the direct method is used to prepare the operating activities section of the statement of cash flows. Which related balance sheet account will explain the difference between revenues on the income statement and cash collected from customers?

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

Introduction to Managerial Accounting

Job-Order Costing

Process Costing

Activity-Based Cost Management

Cost Behavior and Estimation

Cost-Volume-Profit Analysis

Incremental Analysis for Short-Term Decision Making

Budgeting and Planning

Standard Costing and Variances

Decentralized Performance Evaluation

Capital Budgeting

Financial Statement Analysis

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Exam 12: Statement of Cash Flows

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

Which of the following would be included in cash flows from financing activities?

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:

The introductory phase of a company's life cycle will most likely have net cash:

Which of the following statements about the reporting of operating cash flows using the direct method is correct?

Cash flows from investing activities include all of the following except a(n):

When preparing the operating activities section of the statement of cash flows using the indirect method, a decrease in accounts receivable is subtracted from net income

Cash flows from operating activities include all of the following except:

A toy store with a calendar year-end is likely to have:

Equipment with a cost of $10,000 and a book value of $3,000 was sold during the year for cash of $9,000. Additional equipment was purchased during the year for cash. What was the amount of cash paid for purchases of equipment during the year?

When preparing the operating activities section of the statement of cash flows using the direct method, net income must be adjusted for gains or losses realized when property, plant, and equipment is sold

Which of the following statements is correct?

If Cost of Goods Sold is $145,000 and the beginning and ending Inventory balances are $18,000 and $13,000, respectively, inventory purchases equal:

A company has positive cash flow from investing and financing activities, but negative cash flow from operating activities. The likely result is:

When the net cash flows from operating, investing, and financing activities are combined to arrive at the overall net change in cash, a net decrease in cash is subtracted from the beginning cash balance to calculate the ending cash balance

Which of the following would be reported as a cash outflow from investing activities?

Braden and Sons, Inc. borrowed $700,000 cash from Trenton Savings and Loan last year. In addition, the company repaid a $450,000 note payable to First National Bank. How should these transactions be listed in the Statement of Cash Flows?

Assume that the direct method is used to prepare the operating activities section of the statement of cash flows. Which related balance sheet account will explain the difference between revenues on the income statement and cash collected from customers?

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

Introduction to Managerial Accounting

Job-Order Costing

Process Costing

Activity-Based Cost Management

Cost Behavior and Estimation

Cost-Volume-Profit Analysis

Incremental Analysis for Short-Term Decision Making

Budgeting and Planning

Standard Costing and Variances

Decentralized Performance Evaluation

Capital Budgeting

Financial Statement Analysis

Filters