Question 1

The gain or loss from retirement of debt is reported under cash flows from operating activities on the statement of cash flows using the direct method.

Accepted Answer

A) True 
 B)False

Question 2

Mercury Company reports depreciation expense of $40,000 for Year 2.Also,equipment costing $150,000 was sold for its book value in Year 2.There were no other equipment purchases or sales during the year.The following selected information is available for Mercury Company from its comparative balance sheet.Compute the cash received from the sale of the equipment. $\begin{array}{lrr}
\text { At December 31 } & \text { Year 2 } & \text { Year 1 } \
\text { Equipment } & \$ 600,000 & \$ 750,000 \
\text { Accumulated Depreciation-Equipment } & 428,000 & 500,000
\end{array}$

Accepted Answer

A) $32,000. 
B) $68,000. 
C) $38,000. 
D) $40,000. 
E) $36,000. 
A) $32,000. 
B) $68,000. 
C) $38,000. 
D) $40,000. 
E) $36,000.

Question 3

Investing activities include (a)the purchase and sale of long-term assets,(b)the purchase and sale of short-term investments,and (c)lending and collecting on loans.

Accepted Answer

A) True 
 B)False

Question 4

The statement of cash flows helps analysts evaluate all but which of the following?

Accepted Answer

A) Ability of the company to generate profit. 
B) Source of cash used for plant expansion. 
C) Differences between net income and net operating cash flow. 
D) Source of cash used to finance investing activities. 
E) Source of cash used for debt repayments. 
A) Ability of the company to generate profit. 
B) Source of cash used for plant expansion. 
C) Differences between net income and net operating cash flow. 
D) Source of cash used to finance investing activities. 
E) Source of cash used for debt repayments.

Question 5

In preparing a company's statement of cash flows for the year just ended,the following information is available:   Net cash flows from financing activities for the year were:

Accepted Answer

A) $147,000 of net cash used. 
B) $26,000 of net cash used. 
C) $347,000 of net cash used. 
D) $51,000 of net cash used. 
E) $340,000 of net cash used. 
A) $147,000 of net cash used. 
B) $26,000 of net cash used. 
C) $347,000 of net cash used. 
D) $51,000 of net cash used. 
E) $340,000 of net cash used.

Question 6

The direct method for computing and reporting net cash flows from operating activities involves adjusting the net income figure to obtain net cash provided or used by operating activities.

Accepted Answer

A) True 
 B)False

Question 7

The statement of cash flows cannot help address questions such as:

Accepted Answer

A) How is the increase in investments financed? 
B) What is the source of cash for new plant assets? 
C) How much cash is generated from or used in operations? 
D) How much of the company's revenues have been retained as profit? 
E) Why is cash flow from operations different from income? 
A) How is the increase in investments financed? 
B) What is the source of cash for new plant assets? 
C) How much cash is generated from or used in operations? 
D) How much of the company's revenues have been retained as profit? 
E) Why is cash flow from operations different from income?

Question 8

Conversion of preferred stock to common stock is disclosed in the financing section of the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 9

Equipment costing $400,000 with accumulated depreciation of $260,000 is sold at a gain of $10,000.This implies that $150,000 cash was received from the sale.

Accepted Answer

A) True 
 B)False

Question 10

When preparing the operating activities section of the statement of cash flows using the indirect method,non-operating gains are added to net income.

Accepted Answer

A) True 
 B)False

Question 11

A machine with a cost of $130,000 and accumulated depreciation of $85,000 is sold for $50,000 cash.The amount that should be reported as a source of cash under cash flows from investing activities is:

Accepted Answer

A) $50,000. 
B) $5,000. 
C) $45,000. 
D) Zero.This is an operating activity. 
E) Zero.This is a financing activity. 
A) $50,000. 
B) $5,000. 
C) $45,000. 
D) Zero.This is an operating activity. 
E) Zero.This is a financing activity.

Question 12

When preparing the operating activities section of the statement of cash flows using the indirect method,non-operating losses are added to net income.

Accepted Answer

A) True 
 B)False

Question 13

All of the following statements related to preparation of the statement of cash flows under U.S.GAAP and IFRS are true except:

Accepted Answer

A) Both U.S.GAAP and IFRS permit the reporting of cash flows from operating activities using either the direct or indirect method. 
B) IFRS permits classification of cash outflows for interest expense under operating or financing based on which one results in better cash flows from operating activities. 
C) U.S.GAAP requires cash outflows for income tax be classified as operating activities. 
D) IFRS permits the splitting of income tax cash flows among operating,investing,and financing depending on the sources of that tax. 
E) IFRS permits classification of interest expense under operating or financing activities provided it is consistently applied across periods. 
A) Both U.S.GAAP and IFRS permit the reporting of cash flows from operating activities using either the direct or indirect method. 
B) IFRS permits classification of cash outflows for interest expense under operating or financing based on which one results in better cash flows from operating activities. 
C) U.S.GAAP requires cash outflows for income tax be classified as operating activities. 
D) IFRS permits the splitting of income tax cash flows among operating,investing,and financing depending on the sources of that tax. 
E) IFRS permits classification of interest expense under operating or financing activities provided it is consistently applied across periods.

Question 14

Cash flows are essentially the same as net income because they are both measured using accrual accounting principles.

Accepted Answer

A) True 
 B)False

Question 15

The statement of cash flows explains the difference between the beginning and ending balances of cash and cash equivalents.

Accepted Answer

A) True 
 B)False

Question 16

Companies have the option of using either the direct or indirect method to prepare the operating section of the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 17

A spreadsheet can help organize the information needed to prepare a statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 18

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 19

A company's transactions with its creditors to borrow money and/or to repay the principal amounts of both short- and long-term debt are reported as cash flows from:

Accepted Answer

A) Operating activities. 
B) Investing activities. 
C) Financing activities. 
D) Direct activities. 
E) Indirect activities. 
A) Operating activities. 
B) Investing activities. 
C) Financing activities. 
D) Direct activities. 
E) Indirect activities.

Question 20

An investment that is readily convertible to a known amount of cash and that is sufficiently close to its maturity date so that its market value is unaffected by interest rate changes is a(n):

Accepted Answer

A) Short-term marketable equity security. 
B) Operating activity. 
C) Common stock. 
D) Cash equivalent. 
E) Financing activity. 
A) Short-term marketable equity security. 
B) Operating activity. 
C) Common stock. 
D) Cash equivalent. 
E) Financing activity.

The gain or loss from retirement of debt is reported under cash flows from operating activities on the statement of cash flows using the direct method.

Investing activities include (a)the purchase and sale of long-term assets,(b)the purchase and sale of short-term investments,and (c)lending and collecting on loans.

The statement of cash flows helps analysts evaluate all but which of the following?

In preparing a company's statement of cash flows for the year just ended,the following information is available: Net cash flows from financing activities for the year were:

The direct method for computing and reporting net cash flows from operating activities involves adjusting the net income figure to obtain net cash provided or used by operating activities.

The statement of cash flows cannot help address questions such as:

Conversion of preferred stock to common stock is disclosed in the financing section of the statement of cash flows.

Equipment costing $400,000 with accumulated depreciation of $260,000 is sold at a gain of $10,000.This implies that $150,000 cash was received from the sale.

When preparing the operating activities section of the statement of cash flows using the indirect method,non-operating gains are added to net income.

A machine with a cost of $130,000 and accumulated depreciation of $85,000 is sold for $50,000 cash.The amount that should be reported as a source of cash under cash flows from investing activities is:

When preparing the operating activities section of the statement of cash flows using the indirect method,non-operating losses are added to net income.

All of the following statements related to preparation of the statement of cash flows under U.S.GAAP and IFRS are true except:

Cash flows are essentially the same as net income because they are both measured using accrual accounting principles.

The statement of cash flows explains the difference between the beginning and ending balances of cash and cash equivalents.

Companies have the option of using either the direct or indirect method to prepare the operating section of the statement of cash flows.

A spreadsheet can help organize the information needed to prepare a statement of cash flows.

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.

A company's transactions with its creditors to borrow money and/or to repay the principal amounts of both short- and long-term debt are reported as cash flows from:

An investment that is readily convertible to a known amount of cash and that is sufficiently close to its maturity date so that its market value is unaffected by interest rate changes is a(n):

Introducing Financial Statements

Financial Statements and the Accounting System

Adjusting Accounts for Financial Statements

Reporting and Analyzing Merchandising Operations

Reporting and Analyzing Inventories

Reporting and Analyzing Cash,fraud,and Internal Control

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Term Assets

Reporting and Analyzing Current Liabilities

Reporting and Analyzing Long-Term Liabilities

Reporting and Analyzing Equity

Analyzing and Interpreting Financial Statements

Applying Present and Future Values

Investments

International Operations

Filters

Exam 12: Reporting and Analyzing Cash Flows

The gain or loss from retirement of debt is reported under cash flows from operating activities on the statement of cash flows using the direct method.

Investing activities include (a)the purchase and sale of long-term assets,(b)the purchase and sale of short-term investments,and (c)lending and collecting on loans.

The statement of cash flows helps analysts evaluate all but which of the following?

In preparing a company's statement of cash flows for the year just ended,the following information is available: Net cash flows from financing activities for the year were:

The direct method for computing and reporting net cash flows from operating activities involves adjusting the net income figure to obtain net cash provided or used by operating activities.

The statement of cash flows cannot help address questions such as:

Conversion of preferred stock to common stock is disclosed in the financing section of the statement of cash flows.

Equipment costing $400,000 with accumulated depreciation of $260,000 is sold at a gain of $10,000.This implies that $150,000 cash was received from the sale.

When preparing the operating activities section of the statement of cash flows using the indirect method,non-operating gains are added to net income.

A machine with a cost of $130,000 and accumulated depreciation of $85,000 is sold for $50,000 cash.The amount that should be reported as a source of cash under cash flows from investing activities is:

When preparing the operating activities section of the statement of cash flows using the indirect method,non-operating losses are added to net income.

All of the following statements related to preparation of the statement of cash flows under U.S.GAAP and IFRS are true except:

Cash flows are essentially the same as net income because they are both measured using accrual accounting principles.

The statement of cash flows explains the difference between the beginning and ending balances of cash and cash equivalents.

Companies have the option of using either the direct or indirect method to prepare the operating section of the statement of cash flows.

A spreadsheet can help organize the information needed to prepare a statement of cash flows.

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.

A company's transactions with its creditors to borrow money and/or to repay the principal amounts of both short- and long-term debt are reported as cash flows from:

An investment that is readily convertible to a known amount of cash and that is sufficiently close to its maturity date so that its market value is unaffected by interest rate changes is a(n):

Introducing Financial Statements

Financial Statements and the Accounting System

Adjusting Accounts for Financial Statements

Reporting and Analyzing Merchandising Operations

Reporting and Analyzing Inventories

Reporting and Analyzing Cash,fraud,and Internal Control

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Term Assets

Reporting and Analyzing Current Liabilities

Reporting and Analyzing Long-Term Liabilities

Reporting and Analyzing Equity

Analyzing and Interpreting Financial Statements

Applying Present and Future Values

Investments

International Operations

Filters