Question 1

What is the major advantage of using the direct method of preparing the statement of cash flows?

Accepted Answer

The direct method is easier fo

Question 2

What kinds of cash flows are reported as financing activities on the statement of cash flows?

Accepted Answer

Borrowing,whether in the form of bonds o

Question 3

All cash exchanges between a company and its owners are reported as investing activities in the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following statements best explains the correct handling of depreciation on the statement of cash flows when using the indirect method?

Accepted Answer

A)  Depreciation is subtracted from net income because it causes a loss when the related plant asset is sold. 
B)  Depreciation expense is a noncash expense that was subtracted to derive the accrual-basis net income, hence it is added to net income in the cash flows from operating activities section. 
C)  Depreciation is subtracted in the cash flows from investing activities section because it reduces the book value of the corresponding plant asset. 
D)  Depreciation adds to the company's cash account to help pay for new equipment. 
A)  Depreciation is subtracted from net income because it causes a loss when the related plant asset is sold. 
B)  Depreciation expense is a noncash expense that was subtracted to derive the accrual-basis net income, hence it is added to net income in the cash flows from operating activities section. 
C)  Depreciation is subtracted in the cash flows from investing activities section because it reduces the book value of the corresponding plant asset. 
D)  Depreciation adds to the company's cash account to help pay for new equipment.

Question 5

Cash from the sale of treasury stock would be classified as an investing cash flow.

Accepted Answer

A) True 
 B)False

Question 6

The following information was drawn from the year-end balance sheets of White,Inc. $$\begin{array} { l r r } 
 & \text { Year } 2 & \text { Year } 1 \
 \text { Bonds payable }& \$ 200,000 &  \$275,000 \
\text { Common stock } & 112,500 & 87,500 \
\text { Treasury stock } & 17,500 & 12,500 \
\text { Retained earnings }& 35,000 & 27,500
\end{array}$$
 White,Inc.,uses the cost method to account for treasury stock.No treasury stock was sold during the year.What is the amount of cash outflows for the purchase of treasury stock?

Accepted Answer

A)  $7,500 
B)  $17,500 
C)  $25,000 
D)  None of these answers are correct. 
A)  $7,500 
B)  $17,500 
C)  $25,000 
D)  None of these answers are correct.

Question 7

The amount of revenue a company recognizes on the income statement normally differs from the amount of cash collected from customers.

Accepted Answer

A) True 
 B)False

Question 8

The following information was drawn from the year-end balance sheets of White,Inc. $$\begin{array} { l r r } 
 & \text { Year } 2 & \text { Year } 1 \
 \text { Bonds payable }& \$ 200,000 &  \$275,000 \
\text { Common stock } & 112,500 & 87,500 \
\text { Treasury stock } & 17,500 & 12,500 \
\text { Retained earnings }& 35,000 & 27,500
\end{array}$$ The amount of net income shown on the Year 2 income statement was $17,500.There was no beginning or ending balance in the Dividends Payable account.What is the amount of cash outflows for dividends?

Accepted Answer

A)  $7,500 
B)  $25,000 
C)  $17,500 
D)  $10,000 
A)  $7,500 
B)  $25,000 
C)  $17,500 
D)  $10,000

Question 9

Both the indirect and direct methods of preparing a statement of cash flows begin with net income.

Accepted Answer

A) True 
 B)False

Question 10

During the year,the Abbot Company had the following changes in account balances:
1)The Accumulated Depreciation account had a beginning balance of $25,000 and an ending balance of $35,000.The increase was due to depreciation expense.
2)The long-term Notes Payable account had a beginning balance of $40,000 and an ending balance of $15,000.The decrease was due to repayment of debt.
3)The Accounts Receivable account had a beginning balance of $60,000 and an ending balance of $50,000.
4)The Equipment account had a beginning balance of $25,000 and an ending balance of $92,500.The increase was due to the purchase of equipment for cash.
5)The Long-Term Investments account (marketable securities)had a beginning balance of $18,000 and an ending balance of $12,500.The decrease was due to the sale of investments at cost.
6)The amount of cash dividends declared and paid during the year was $22,000.
7)The Interest Payable account had a beginning balance of $2,250 and an ending balance of $1,250.
What is the net cash flow from investing activities?

Accepted Answer

A) $62,000 outflow 
B) $62,000 inflow 
C) $72,000 inflow 
D) $72,000 outflow 
A) $62,000 outflow 
B) $62,000 inflow 
C) $72,000 inflow 
D) $72,000 outflow

Question 11

In preparing the statement of cash flows by the indirect method,a decrease in prepaid expenses would be added to net income.

Accepted Answer

A) True 
 B)False

Question 12

In preparing the statement of cash flows by the indirect method,a decrease in a current liability is deducted from net income.

Accepted Answer

A) True 
 B)False

Question 13

When using the indirect method to complete the cash flows from operating activities section,what is the proper treatment for an increase in the Inventory account?

Accepted Answer

A)  Deduct the increase to cash payments to suppliers 
B)  Add the increase to net income 
C)  Add the increase to cash collections from customers 
D)  Deduct the increase from net income 
A)  Deduct the increase to cash payments to suppliers 
B)  Add the increase to net income 
C)  Add the increase to cash collections from customers 
D)  Deduct the increase from net income

Question 14

Jennings Company issued a $250,000 note to purchase a building.Jennings would report the event as a noncash investing and financing activity.

Accepted Answer

A) True 
 B)False

Question 15

The following beginning and ending balances were drawn from the records of Grimes Company: $$\begin{array} { l r r } 
& \text { Begirning } & \text { Ending } \
\text { Equipment } & \$ 1,400 & \$ 1,100 \
\text { Accurnulated Depreciation } & \$ 700 & \$ 400
\end{array}$$ 
If Grimes Company sold equipment that had an original cost of $600 and accumulated depreciation of $300 for $250,how much did Grimes pay for new equipment?

Accepted Answer

A)  $255 
B)  $300 
C)  $200 
D)  $550 
A)  $255 
B)  $300 
C)  $200 
D)  $550

Question 16

When using the indirect method to complete the cash flows from operating activities section,what is the proper treatment for an increase in the accounts receivable balance?

Accepted Answer

A)  Add the increase to net income 
B)  Add the increase to cash collections from customers 
C)  Deduct the increase from net income 
D)  Add the increase to cash payments to suppliers 
A)  Add the increase to net income 
B)  Add the increase to cash collections from customers 
C)  Deduct the increase from net income 
D)  Add the increase to cash payments to suppliers

Question 17

Which of the following is incorrect regarding the financing activities section of a statement of cash flows?

Accepted Answer

A)  Increases in Contributed Capital accounts suggest cash inflows occurred from issuing equity instruments. 
B)  Decreases in Long-Term Debt accounts suggest cash outflows occurred for payment of debt. 
C)  Increases in Short-Term Notes Payable accounts suggest cash outflows occurred from issuing notes or bonds. 
D)  Decreases in retained earnings suggest cash outflows occurred to pay dividends. 
A)  Increases in Contributed Capital accounts suggest cash inflows occurred from issuing equity instruments. 
B)  Decreases in Long-Term Debt accounts suggest cash outflows occurred for payment of debt. 
C)  Increases in Short-Term Notes Payable accounts suggest cash outflows occurred from issuing notes or bonds. 
D)  Decreases in retained earnings suggest cash outflows occurred to pay dividends.

Question 18

Bowman Corporation's sales were $300,000,and the balance in its Accounts Receivable account increased by $8,000 during the year.Bowman collected $308,000 in cash from its customers.

Accepted Answer

A) True 
 B)False

Question 19

In preparing the statement of cash flows by the indirect method,noncash revenues and gains are added to net income.

Accepted Answer

A) True 
 B)False

Question 20

The following information is available for Kent Company Year 2.
 $$\begin{array} { l r } 
\text { Net income, Year 2 } & \$ 280,000 \
\text { Inventory, } 1 / 1 / \text { Year 2 } & 300,000 \
\text { Inventory, } 12 / 31 / \text { Year 2 } & 260,000 \
\text { Cost of goods sold, Year 2 } & 1,500,000 \
\text { Accounts payable, } 1 / 1 / \text { Year 2 } & 180,000 \
\text { Accounts payable, } 12 / 31 / \text { Year 2 } & 230,000
\end{array}$$ Required:
1)What amount of cash was paid for the purchase of merchandise?
2)How will the above items be shown on the statement of cash flows using the indirect method?
3)How will the amount computed in 1)be shown on the statement of cash flows using the direct method?

Accepted Answer

None

What is the major advantage of using the direct method of preparing the statement of cash flows?

What kinds of cash flows are reported as financing activities on the statement of cash flows?

All cash exchanges between a company and its owners are reported as investing activities in the statement of cash flows.

Which of the following statements best explains the correct handling of depreciation on the statement of cash flows when using the indirect method?

Cash from the sale of treasury stock would be classified as an investing cash flow.

The amount of revenue a company recognizes on the income statement normally differs from the amount of cash collected from customers.

Both the indirect and direct methods of preparing a statement of cash flows begin with net income.

In preparing the statement of cash flows by the indirect method,a decrease in prepaid expenses would be added to net income.

In preparing the statement of cash flows by the indirect method,a decrease in a current liability is deducted from net income.

When using the indirect method to complete the cash flows from operating activities section,what is the proper treatment for an increase in the Inventory account?

Jennings Company issued a $250,000 note to purchase a building.Jennings would report the event as a noncash investing and financing activity.

When using the indirect method to complete the cash flows from operating activities section,what is the proper treatment for an increase in the accounts receivable balance?

Which of the following is incorrect regarding the financing activities section of a statement of cash flows?

Bowman Corporation's sales were $300,000,and the balance in its Accounts Receivable account increased by $8,000 during the year.Bowman collected $308,000 in cash from its customers.

In preparing the statement of cash flows by the indirect method,noncash revenues and gains are added to net income.

Management Accounting and Corporate Governance

Cost Behavior, operating Leverage, and Profitability Analysis

Analysis of Cost, volume, and Pricing to Increase Profitability

Cost Accumulation,tracing,and Allocation

Cost Management in an Automated Business Environment: ABC, ABM, and TQM

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Responsibility Accounting

Planning for Capital Investments

Product Costing in Service and Manufacturing Entities

Job-Order, process, and Hybrid Costing Systems

Financial Statement Analysis

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Exam 14: Statement of Cash Flows

What is the major advantage of using the direct method of preparing the statement of cash flows?

What kinds of cash flows are reported as financing activities on the statement of cash flows?

All cash exchanges between a company and its owners are reported as investing activities in the statement of cash flows.

Which of the following statements best explains the correct handling of depreciation on the statement of cash flows when using the indirect method?

Cash from the sale of treasury stock would be classified as an investing cash flow.

The amount of revenue a company recognizes on the income statement normally differs from the amount of cash collected from customers.

Both the indirect and direct methods of preparing a statement of cash flows begin with net income.

In preparing the statement of cash flows by the indirect method,a decrease in prepaid expenses would be added to net income.

In preparing the statement of cash flows by the indirect method,a decrease in a current liability is deducted from net income.

When using the indirect method to complete the cash flows from operating activities section,what is the proper treatment for an increase in the Inventory account?

Jennings Company issued a $250,000 note to purchase a building.Jennings would report the event as a noncash investing and financing activity.

When using the indirect method to complete the cash flows from operating activities section,what is the proper treatment for an increase in the accounts receivable balance?

Which of the following is incorrect regarding the financing activities section of a statement of cash flows?

Bowman Corporation's sales were $300,000,and the balance in its Accounts Receivable account increased by $8,000 during the year.Bowman collected $308,000 in cash from its customers.

In preparing the statement of cash flows by the indirect method,noncash revenues and gains are added to net income.

Management Accounting and Corporate Governance

Cost Behavior, operating Leverage, and Profitability Analysis

Analysis of Cost, volume, and Pricing to Increase Profitability

Cost Accumulation,tracing,and Allocation

Cost Management in an Automated Business Environment: ABC, ABM, and TQM

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Responsibility Accounting

Planning for Capital Investments

Product Costing in Service and Manufacturing Entities

Job-Order, process, and Hybrid Costing Systems

Financial Statement Analysis

Filters