Question 1

For a firm using the indirect method,an increase in a deferred tax liability should be added back to net income to arrive at cash flow from operating activities.

Accepted Answer

A) True 
 B)False

Question 2

Both the direct method and indirect method will arrive at the same amount for cash flow from operating activities.

Accepted Answer

A) True 
 B)False

Question 3

An increase in inventory of $7,000 for the year

Accepted Answer

A) decreases cash flow from operating activities by $7,000. 
B) increases cash from operating activities by $7,000. 
C) decreases cash flow from operating activities by $14,000. 
D) increases cash flow from operating activities by $14,000. 
A) decreases cash flow from operating activities by $7,000. 
B) increases cash from operating activities by $7,000. 
C) decreases cash flow from operating activities by $14,000. 
D) increases cash flow from operating activities by $14,000.

Question 4

Under IFRS firms that use bank overdrafts repayable on demand as part of their normal cash management activities must include those overdrafts as part of financing activities.

Accepted Answer

A) True 
 B)False

Question 5

The direct method and the indirect method are alternative presentations for presenting cash flows from

Accepted Answer

A) investing activities. 
B) operating activities. 
C) financing activities. 
D) research activities. 
A) investing activities. 
B) operating activities. 
C) financing activities. 
D) research activities.

Question 6

When the year-to-year changes in comparative balance sheet accounts do not coincide with the changes implied from amounts reported on the statement of cash flows,the analyst may find useful information for reconciliation in notes to the financial statements and the

Accepted Answer

A) operating activities section of the cash flow statement. 
B) capital stock account. 
C) balance sheet. 
D) investments account. 
A) operating activities section of the cash flow statement. 
B) capital stock account. 
C) balance sheet. 
D) investments account.

Question 7

Which of the following statements does not correctly describe an issue pertaining to the comparability of the cash flow statement across firms?

Accepted Answer

A) The proportion of leases treated as operating leases versus capital leases varies substantially across firms. 
B) GAAP requires computer software development companies to expense all software development costs until the software reaches technological feasibility.However,GAAP does not have any criteria for determining technological feasibility which therefore allows companies flexibility with respect to this determination. 
C) Companies selling their accounts receivable at year-end are distorting their cash flows in the current year relative to their competitors that do not sell their receivables at year-end. 
D) Companies that aggressively manage their working capital can't easily manage the short-run appearance of their operating cash flows relative to those companies that do not aggressively manage their working capital. 
A) The proportion of leases treated as operating leases versus capital leases varies substantially across firms. 
B) GAAP requires computer software development companies to expense all software development costs until the software reaches technological feasibility.However,GAAP does not have any criteria for determining technological feasibility which therefore allows companies flexibility with respect to this determination. 
C) Companies selling their accounts receivable at year-end are distorting their cash flows in the current year relative to their competitors that do not sell their receivables at year-end. 
D) Companies that aggressively manage their working capital can't easily manage the short-run appearance of their operating cash flows relative to those companies that do not aggressively manage their working capital.

Question 8

From a lessee's perspective,total cash flows will be the same whether a lease is classified as a capital lease or an operating lease.

Accepted Answer

A) True 
 B)False

Question 9

During 2015,Lang Corporation reported cost of goods sold of $775,000.During the year inventory decreased $25,000 and accounts payable increased $12,500.How much cash was paid to suppliers during 2015?

Accepted Answer

A) $737,500 
B) $787,500 
C) $762,500 
D) $812,500 
A) $737,500 
B) $787,500 
C) $762,500 
D) $812,500

Question 10

Which of the following statements does not correctly describe an adjustment to net income when determining cash flows from operating activities when using the indirect method?

Accepted Answer

A) A decrease in accounts receivable will be added to net income. 
B) An increase in inventory will be added to net income. 
C) An increase in accounts payable will be added to net income. 
D) Amortization of bond premium will be deducted from net income. 
A) A decrease in accounts receivable will be added to net income. 
B) An increase in inventory will be added to net income. 
C) An increase in accounts payable will be added to net income. 
D) Amortization of bond premium will be deducted from net income.

Question 11

Changes in the balance sheet accounts at June 30, 2014 and 2015 for the Poker Company are presented below:
$\begin{array}{lr}
\text { Assets } & \begin{array}{r}
\text { Increase } \
\text { (Decrease }
\end{array} \
\text { Cash } & \$ 80,000 \
\text { Accounts receivable } & 200,000 \
\text { Lnventory } & 300,000 \
\text { Long-term investments } & 200,000 \
\text { Equipment } & (200,000 \
\text { Accumulated depreciation } & (60,000)\\
\text { Liabilities and Stockholders' Equity }\
\text {Accounts payable }&\$(40,000)\
\text {Dividends payable}&400,000\
\text {Notes payable-Current }&(200,000)\
\text {Notes payable-Long-term }&400,000\
\text {Common stock, $ \$ 1.00 $ par }&300,000\
\text {Additional paid-in capital }&100,000\
\text {Retained eamings }&80,000\
\end{array}$
Additional Information for 2015:
Net income was $480,000 and dividends of $400,000 were declared.
Common stock was issued for cash.
A Long-term investment was sold for $160,000.
A new Long-term investment was acquired for $360,000.
Equipment that cost $600,000 was sold for $200,000. The book value of those assets was $150,000.
-The cash flow from financing activities for 2015 is a

Accepted Answer

A) $200,000 outflow. 
B) $400,000 inflow. 
C) $600,000 inflow. 
D) $700,000 inflow. 
A) $200,000 outflow. 
B) $400,000 inflow. 
C) $600,000 inflow. 
D) $700,000 inflow.

Question 12

When the change in the balance sheet account for property,plant,and equipment does not reconcile with the account change included in the statement of cash flows because of a write-off due to impairments,the analyst would most likely learn of this through examination of the

Accepted Answer

A) notes to the financial statements. 
B) balance sheet. 
C) capital stock account. 
D) investments account. 
A) notes to the financial statements. 
B) balance sheet. 
C) capital stock account. 
D) investments account.

Question 13

The Keweenaw Sunshine Development Corporation reported the following for the year ended December 31,2014: $$\begin{array}{l}
\begin{array} { l c c } 
 & \underline { 1 / 1 / 14 } & \underline { 12 / 31 / 14 } \
\text { Discount on Bonds Payable } & \$ 17,500 & \$ 15,750 \
\text { Interest Payable } & \$ 19,500 & \$ 17,350
\end{array}\
\text { Interest Expense } \$ 47,750
\end{array}$$
How much cash did Keweenaw pay for interest during 2014?

Accepted Answer

A) $51,650 
B) $43,850 
C) $48,150 
D) $46,350 
A) $51,650 
B) $43,850 
C) $48,150 
D) $46,350

Question 14

The following information has been provided to you by your controller: $$\begin{array} { l r } 
\text { Net income } & \$ 100,000 \
\text { Decrease in accounts payable } & \$ 38,000 \
\text { Decrease in inventory } & \$ 7,500 \
\text { Increase in accounts receivable } & \$ 8,000 \
\text { Decrease in bonds payable } & \$ 75,000 \
\text { Amortization of bond discount } & \$ 9,400 \
\text { Depreciation expense } & \$ 20,000 \
\text { Increase in income taxes payable } & \$ 6,000
\end{array}$$
What is the net cash flow from operating activities?

Accepted Answer

A) $96,900 
B) $97,900 
C) $112,900 
D) $94,100 
A) $96,900 
B) $97,900 
C) $112,900 
D) $94,100

Question 15

Which of the following transactions would be reported within the financing activities section of the cash flow statement?

Accepted Answer

A) An issue of preferred stock in exchange for a parcel of land. 
B) The accrual of a cash dividend. 
C) The cash payment of interest associated with bonds payable. 
D) The sale of treasury stock for cash. 
A) An issue of preferred stock in exchange for a parcel of land. 
B) The accrual of a cash dividend. 
C) The cash payment of interest associated with bonds payable. 
D) The sale of treasury stock for cash.

Question 16

Analysts prefer the indirect method for the preparation of the cash flow statement because the size and direction of the items reconciling net income to net cash flow from operating activities provide a yardstick for measuring the

Accepted Answer

A) current ratio. 
B) return on assets. 
C) quality of earnings. 
D) rate of dividends. 
A) current ratio. 
B) return on assets. 
C) quality of earnings. 
D) rate of dividends.

Question 17

Which of the following statements concerning IFRS and the statement of cash flows is correct?

Accepted Answer

A) When large foreign companies that follow IFRS prepare the statement of cash flows they overwhelmingly use the direct method to prepare the cash flow from operating activities section. 
B) IFRS permits companies to classify interest paid,interest received,and dividends received as part of either investing or operating activities. 
C) IFRS rules permit firms that use bank overdrafts repayable on demand as part of their normal cash management activities to include those amounts as a component of cash and cash equivalents. 
D) IFRS rules require firms that use the direct method to also provide a reconciliation of net income to cash flows from operating activities (essentially the indirect method). 
A) When large foreign companies that follow IFRS prepare the statement of cash flows they overwhelmingly use the direct method to prepare the cash flow from operating activities section. 
B) IFRS permits companies to classify interest paid,interest received,and dividends received as part of either investing or operating activities. 
C) IFRS rules permit firms that use bank overdrafts repayable on demand as part of their normal cash management activities to include those amounts as a component of cash and cash equivalents. 
D) IFRS rules require firms that use the direct method to also provide a reconciliation of net income to cash flows from operating activities (essentially the indirect method).

Question 18

A cash collection from a customer pertaining to a sale from the prior year will result in cash flow being reported in this year's statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements does not accurately describe issues pertaining to preparation of the cash flow statement?

Accepted Answer

A) The retirement of a fixed asset that is not fully depreciated resulting in a loss equal to the retired asset's book value creates a discrepancy with respect to changes in the balance sheet relative to what is reported in the investing activities section of the cash flow statement. 
B) Simultaneous non-cash financing and investing activities such as the purchase of a building by incurring a mortgage do not need to be reported within the investing and financing activities sections of the cash flow statement. 
C) Changes in working capital accounts and fixed asset accounts will always have to correspond with the changes in these accounts within the statement of cash flows. 
D) The increase in the fixed asset accounts due only to a translation adjustment resulting from the fall of the dollar will not create an investing cash flow within the investing activities section of the cash flow statement. 
A) The retirement of a fixed asset that is not fully depreciated resulting in a loss equal to the retired asset's book value creates a discrepancy with respect to changes in the balance sheet relative to what is reported in the investing activities section of the cash flow statement. 
B) Simultaneous non-cash financing and investing activities such as the purchase of a building by incurring a mortgage do not need to be reported within the investing and financing activities sections of the cash flow statement. 
C) Changes in working capital accounts and fixed asset accounts will always have to correspond with the changes in these accounts within the statement of cash flows. 
D) The increase in the fixed asset accounts due only to a translation adjustment resulting from the fall of the dollar will not create an investing cash flow within the investing activities section of the cash flow statement.

Question 20

A decrease in accounts receivable of $16,000 for the year

Accepted Answer

A) decreases cash flow from operating activities by $8,000. 
B) increases cash flow from operating activities by $8,000. 
C) decreases cash flow from operating activities by $16,000. 
D) increases cash flow from operating activities by $16,000. 
A) decreases cash flow from operating activities by $8,000. 
B) increases cash flow from operating activities by $8,000. 
C) decreases cash flow from operating activities by $16,000. 
D) increases cash flow from operating activities by $16,000.

For a firm using the indirect method,an increase in a deferred tax liability should be added back to net income to arrive at cash flow from operating activities.

Both the direct method and indirect method will arrive at the same amount for cash flow from operating activities.

An increase in inventory of $7,000 for the year

Under IFRS firms that use bank overdrafts repayable on demand as part of their normal cash management activities must include those overdrafts as part of financing activities.

The direct method and the indirect method are alternative presentations for presenting cash flows from

When the year-to-year changes in comparative balance sheet accounts do not coincide with the changes implied from amounts reported on the statement of cash flows,the analyst may find useful information for reconciliation in notes to the financial statements and the

Which of the following statements does not correctly describe an issue pertaining to the comparability of the cash flow statement across firms?

From a lessee's perspective,total cash flows will be the same whether a lease is classified as a capital lease or an operating lease.

During 2015,Lang Corporation reported cost of goods sold of $775,000.During the year inventory decreased $25,000 and accounts payable increased $12,500.How much cash was paid to suppliers during 2015?

Which of the following statements does not correctly describe an adjustment to net income when determining cash flows from operating activities when using the indirect method?

When the change in the balance sheet account for property,plant,and equipment does not reconcile with the account change included in the statement of cash flows because of a write-off due to impairments,the analyst would most likely learn of this through examination of the

The Keweenaw Sunshine Development Corporation reported the following for the year ended December 31,2014: Discount on Bonds Payable \ 17,500 \ 15,750 Interest Payable \ 19,500 \ 17,350 Interest Expense \ 47,750 How much cash did Keweenaw pay for interest during 2014?

Which of the following transactions would be reported within the financing activities section of the cash flow statement?

Analysts prefer the indirect method for the preparation of the cash flow statement because the size and direction of the items reconciling net income to net cash flow from operating activities provide a yardstick for measuring the

Which of the following statements concerning IFRS and the statement of cash flows is correct?

A cash collection from a customer pertaining to a sale from the prior year will result in cash flow being reported in this year's statement of cash flows.

Which of the following statements does not accurately describe issues pertaining to preparation of the cash flow statement?

A decrease in accounts receivable of $16,000 for the year

The Economic and Institutional Setting for Financial Reporting

Accrual Accounting and Income Determination

Additional Topics in Income Determination

Structure of the Balance Sheet and Statement of Cash Flows

Essentials of Financial Statement Analysis

The Role of Financial Information in Valuation and Credit Risk Assessment

The Role of Financial Information in Contracting

Receivables

Inventories

Long-Lived Assets

Financial Instruments As Liabilities

Financial Reporting for Leases

Income Tax Reporting

Pensions and Postretirement Benefits

Financial Reporting for Owners Equity

Intercorporate Equity Investments

Filters

Exam 17: Statement of Cash Flows

For a firm using the indirect method,an increase in a deferred tax liability should be added back to net income to arrive at cash flow from operating activities.

Both the direct method and indirect method will arrive at the same amount for cash flow from operating activities.

An increase in inventory of $7,000 for the year

Under IFRS firms that use bank overdrafts repayable on demand as part of their normal cash management activities must include those overdrafts as part of financing activities.

The direct method and the indirect method are alternative presentations for presenting cash flows from

When the year-to-year changes in comparative balance sheet accounts do not coincide with the changes implied from amounts reported on the statement of cash flows,the analyst may find useful information for reconciliation in notes to the financial statements and the

Which of the following statements does not correctly describe an issue pertaining to the comparability of the cash flow statement across firms?

From a lessee's perspective,total cash flows will be the same whether a lease is classified as a capital lease or an operating lease.

During 2015,Lang Corporation reported cost of goods sold of $775,000.During the year inventory decreased $25,000 and accounts payable increased $12,500.How much cash was paid to suppliers during 2015?

Which of the following statements does not correctly describe an adjustment to net income when determining cash flows from operating activities when using the indirect method?

When the change in the balance sheet account for property,plant,and equipment does not reconcile with the account change included in the statement of cash flows because of a write-off due to impairments,the analyst would most likely learn of this through examination of the

The Keweenaw Sunshine Development Corporation reported the following for the year ended December 31,2014: Discount on Bonds Payable \ 17,500 \ 15,750 Interest Payable \ 19,500 \ 17,350 Interest Expense \ 47,750 How much cash did Keweenaw pay for interest during 2014?

Which of the following transactions would be reported within the financing activities section of the cash flow statement?

Analysts prefer the indirect method for the preparation of the cash flow statement because the size and direction of the items reconciling net income to net cash flow from operating activities provide a yardstick for measuring the

Which of the following statements concerning IFRS and the statement of cash flows is correct?

A cash collection from a customer pertaining to a sale from the prior year will result in cash flow being reported in this year's statement of cash flows.

Which of the following statements does not accurately describe issues pertaining to preparation of the cash flow statement?

A decrease in accounts receivable of $16,000 for the year

The Economic and Institutional Setting for Financial Reporting

Accrual Accounting and Income Determination

Additional Topics in Income Determination

Structure of the Balance Sheet and Statement of Cash Flows

Essentials of Financial Statement Analysis

The Role of Financial Information in Valuation and Credit Risk Assessment

The Role of Financial Information in Contracting

Receivables

Inventories

Long-Lived Assets

Financial Instruments As Liabilities

Financial Reporting for Leases

Income Tax Reporting

Pensions and Postretirement Benefits

Financial Reporting for Owners Equity

Intercorporate Equity Investments

Filters