Question 1

Compute the amount of New World's cash payments for purchases of merchandise during the current year.

Accepted Answer

A)  $1,627,500. 
B)  $1,622,250. 
C)  $1,638,000. 
D)  $2,157,750. 
A)  $1,627,500. 
B)  $1,622,250. 
C)  $1,638,000. 
D)  $2,157,750.

Question 2

To determine cash dividends paid, subtract the increase in dividends payable from the amount of dividends declared.

Accepted Answer

A) True 
 B)False

Question 3

The cash proceeds received by Kenny Corporation in 2010 for the sale of marketable securities was:

Accepted Answer

A)  $230,000. 
B)  $280,000. 
C)  $195,000. 
D)  $180,000. 
A)  $230,000. 
B)  $280,000. 
C)  $195,000. 
D)  $180,000.

Question 4

When using the indirect method, depreciation expense:

Accepted Answer

A)  Increases net cash flow from operations. 
B)  Decreases net cash flow from operations. 
C)  Does not affect net income. 
D)  Does not affect net cash flow from operations. 
A)  Increases net cash flow from operations. 
B)  Decreases net cash flow from operations. 
C)  Does not affect net income. 
D)  Does not affect net cash flow from operations.

Question 5

The principal purpose of a statement of cash flows is to measure the profitability of a business that maintains its accounting records on the cash basis.

Accepted Answer

A) True 
 B)False

Question 6

In the statement of cash flows, the purchase of supplies is classified as:

Accepted Answer

A)  Operating activities. 
B)  Financing activities. 
C)  Investing activities. 
D)  This would not appear on a statement of cash flows. 
A)  Operating activities. 
B)  Financing activities. 
C)  Investing activities. 
D)  This would not appear on a statement of cash flows.

Question 7

Which of the following statements regarding the direct and indirect methods of reporting cash flow from operating activities is false?

Accepted Answer

A)  Although both methods result in the same net increase or decrease in cash for the year, net cash flow from operating activities will be different under the two methods. 
B)  The direct method shows the specific cash inflows and outflows constituting the operating activities of the business. 
C)  Under the indirect method, the computation of net cash flow from operating activities begins with net income as shown in the income statement. 
D)  The FASB permits both the direct and the indirect methods, but has expressed a preference for the direct method. 
A)  Although both methods result in the same net increase or decrease in cash for the year, net cash flow from operating activities will be different under the two methods. 
B)  The direct method shows the specific cash inflows and outflows constituting the operating activities of the business. 
C)  Under the indirect method, the computation of net cash flow from operating activities begins with net income as shown in the income statement. 
D)  The FASB permits both the direct and the indirect methods, but has expressed a preference for the direct method.

Question 8

If Global Data's income statement for 2009 reports interest expense of $25,200, then:

Accepted Answer

A)  Interest payable decreased by $16,800 in 2009. 
B)  Interest payable increased by $16,800 in 2009. 
C)  Interest payable at the end of 2009 amounts to $16,800. 
D)  Either the amount reported in the income statement or the interest payment shown above must be incorrect. 
A)  Interest payable decreased by $16,800 in 2009. 
B)  Interest payable increased by $16,800 in 2009. 
C)  Interest payable at the end of 2009 amounts to $16,800. 
D)  Either the amount reported in the income statement or the interest payment shown above must be incorrect.

Question 9

The accountant for Foster Institute, Inc., determined the cash flow for several transactions to be as follows: On the basis of the above transactions alone, determine the net cash flow from financing activities.

Accepted Answer

A)  $275,000 net cash used for financing activities. 
B)  $440,000 net cash provided by financing activities. 
C)  Zero: cash inflows equal cash outflows from financing activities. 
D)  $285,000 net cash provided by financing activities. 
A)  $275,000 net cash used for financing activities. 
B)  $440,000 net cash provided by financing activities. 
C)  Zero: cash inflows equal cash outflows from financing activities. 
D)  $285,000 net cash provided by financing activities.

Question 10

The comparative balance sheets of Friends, Inc. show a net increase in accounts receivable of $650 and a net decrease in inventory of $500. To determine net cash flow from operating activities under the indirect method, net income should be:

Accepted Answer

A)  Reduced by $650. 
B)  Increased by $650. 
C)  Reduced by $150. 
D)  Increased by $150. 
A)  Reduced by $650. 
B)  Increased by $650. 
C)  Reduced by $150. 
D)  Increased by $150.

Question 11

Companies that show profits on the income statement will always show positive cash flows from operating activities.

Accepted Answer

A) True 
 B)False

Question 12

Computation of cash flows
An analysis of changes in selected balance sheet accounts of Gable Corporation shows the following for the current year:
$$\begin{array}{l}
\text { Marketable Securities account: }\
\begin{array} { | l | l | } 
\hline \text { Debit entries } & \$ 250,000 \
\hline \text { Credit entries } & \$ 400,000 \
\hline \text { Plant and equipment accounts: } & \
\hline \text { Debit entries to asset accounts } & \$ 700,000 \
\hline \text { Credit entries to asset accounts } & \$ 900,000 \
\hline \text { Debit entries to accumulated depreciation accounts } & \
\hline \text { (resulting from the sale of plant assets } & \$ 300,000 \
\hline \text { Credit entries to accumulated depreciation accounts } & \
\hline \text { (representing depreciation for the current year) } & \$ 125,000 \
\hline
\end{array}
\end{array}$$ 
The income statement for the current year included the following items relating to the transactions summarized above:
$$\begin{array} { | l | r | } 
\hline \text { Gain on sales of marketable securities } & \$ 85,000 \
\hline \text { Loss on sales of plant assets } & 150,000 \
\hline
\end{array}$$ 
All payments and proceeds relating to these transactions were in cash. Using this information, compute the following cash flows for the current year:

Accepted Answer

(a) $250,000 (debit entries to

Question 13

The comparative balance sheets of Greenvale Games, Inc. show a net decrease in unexpired insurance of $400 and a net decrease in interest payable of $250. In order to reconcile net income with net cash flow from operating activities, net income should be:

Accepted Answer

A)  Increased by $650. 
B)  Reduced by $650. 
C)  Increased by $150. 
D)  Reduced by $150. 
A)  Increased by $650. 
B)  Reduced by $650. 
C)  Increased by $150. 
D)  Reduced by $150.

Question 14

Relationship of cash flows to accrual accounting
(a) The 2010 statement of cash flows of Citation Corporation shows the amount of cash received from customers as $800,000. Comparative balance sheets report accounts receivable to be $70,000 at January 1 and $100,000 at December 31, 2010. Compute the amount of net sales reported in Citation Corporation's income statement for 2010: $_______________
(b) The supplementary schedule for noncash investing and financing activities accompanying Citation Corporation's 2010 statement of cash flows disclosed the following:
$\begin{array}{|l|c|}
\hline \text { Sales of land } & \$ 1,400,000 \
\hline \text { Less: portion consisting of long-term note receivable } & (\$ 850,000) \
\hline \text { Proceeds from sale of land } & \$ 550,000 \
\hline
\end{array}$
Citation Corporation's 2010 income statement reports a $61,000 loss on the disposal of land. Prepare the journal entry made by Citation in 2010 to record this sale of land.

Accepted Answer

(a) Net sales (in the income statement):

Question 15

Computation of operating cash flows
The financial statements of Custom Corporation provide the following information for the current year:
$\begin{array}{lrr}&\begin{array}{c}
\text { End of } \
\text { Year }
\end{array} & \begin{array}{c}
\text { Beginning } \
\text { of Year }
\end{array} \
\text { Accounts receivable } & \$ 201,000 & \$ 221,000 \
\text { Inventory } & \$ 249,000 & \$ 233,000 \
\text { Short-term prepayments } & \$ 12,000 & \$ 9,500 \
\text { Accounts payable (for merchandise) } & \$ 177,000 & \$ 170,000 \
\text { Accrued operating expenses payable } & \$ 25,500 & \$ 33,200 \
\text { Accrued income taxes payable } & \$ 12,600 & \$ 15,500 \
\text { Net sales } & \$ 801,000 & \
\text { Cost of goods sold } & \$ 465,000 & \
\text { Operating expenses (including depreciation of } \$ 40,000) & \$ 300,000 & \
\text { Income taxes expense } & \$ 39,000 &
\end{array}$ 
Using this information, compute for the current year:

Accepted Answer

(a) Cash received from customers: $801,0

Question 16

Both FASB and IASB require the cash flow statement to be organized in three categories, operating activities, investing activities, and financing activities.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is an investing activity?

Accepted Answer

A)  Purchase of equipment. 
B)  Payment of interest. 
C)  Issuing common stock. 
D)  Issuing long-term debt. 
A)  Purchase of equipment. 
B)  Payment of interest. 
C)  Issuing common stock. 
D)  Issuing long-term debt.

Question 18

Significance of cash flows
Saxony, Inc. is a relatively new business. In its first three years of operations, the company has recorded positive and increasing net cash flows from its operating activities. In each of these three years, the company has also reported a net loss on its income statement. Suggest at least one plausible explanation for these financial results. Given the net losses in the first three years of operations, should investors be concerned about the solvency and future profitability of Saxony? Explain.

Accepted Answer

In its first years of operations, Saxony

Question 19

On the basis of the above information alone, what is Global Data's net cash flow from financing activities?

Accepted Answer

A)  $147,000 net cash used for financing activities. 
B)  $145,500 net cash used for financing activities. 
C)  $206,100 net cash used for financing activities. 
D)  $500,100 net cash used for financing activities. 
A)  $147,000 net cash used for financing activities. 
B)  $145,500 net cash used for financing activities. 
C)  $206,100 net cash used for financing activities. 
D)  $500,100 net cash used for financing activities.

Question 20

Free cash flow arises out of:

Accepted Answer

A)  Operating activities. 
B)  Investing activities. 
C)  Financing activities. 
D)  All three types of activities. 
A)  Operating activities. 
B)  Investing activities. 
C)  Financing activities. 
D)  All three types of activities.

Exam 13: Statement of Cash Flows

Compute the amount of New World's cash payments for purchases of merchandise during the current year.

To determine cash dividends paid, subtract the increase in dividends payable from the amount of dividends declared.

The cash proceeds received by Kenny Corporation in 2010 for the sale of marketable securities was:

When using the indirect method, depreciation expense:

The principal purpose of a statement of cash flows is to measure the profitability of a business that maintains its accounting records on the cash basis.

In the statement of cash flows, the purchase of supplies is classified as:

Which of the following statements regarding the direct and indirect methods of reporting cash flow from operating activities is false?

If Global Data's income statement for 2009 reports interest expense of $25,200, then:

The accountant for Foster Institute, Inc., determined the cash flow for several transactions to be as follows: On the basis of the above transactions alone, determine the net cash flow from financing activities.

The comparative balance sheets of Friends, Inc. show a net increase in accounts receivable of $650 and a net decrease in inventory of $500. To determine net cash flow from operating activities under the indirect method, net income should be:

Companies that show profits on the income statement will always show positive cash flows from operating activities.

The comparative balance sheets of Greenvale Games, Inc. show a net decrease in unexpired insurance of $400 and a net decrease in interest payable of $250. In order to reconcile net income with net cash flow from operating activities, net income should be:

Both FASB and IASB require the cash flow statement to be organized in three categories, operating activities, investing activities, and financing activities.

Which of the following is an investing activity?

On the basis of the above information alone, what is Global Data's net cash flow from financing activities?

Free cash flow arises out of:

Accounting: Information for Decision Making

Basic Financial Statements

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Inventories and the Cost of Goods Sold

Plant and Intangible Assets

Liabilities

Stockholders Equity: Paid-In Capital

Income and Changes in Retained Earnings

Financial Statement Analysis

Global Business and Accounting

Management Accounting: a Business Partner

Job Order Cost Systems and Overhead Allocations

Process Costing

Costing and the Value Chain

Cost-Volume-Profit Analysis

Incremental Analysis

Responsibility Accounting and Transfer Pricing

Operational Budgeting

Standard Cost Systems

Rewarding Business Performance

Capital Budgeting

Forms of Business Organization

The Time Value of Money: Future Amounts and Present Values Answer Key

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