Question 1

Compute the amount of cash payments for purchases of merchandise during the current year.

Accepted Answer

A)  $813,750. 
B)  $811,125. 
C)  $819,000. 
D)  $1,078,875. 
A)  $813,750. 
B)  $811,125. 
C)  $819,000. 
D)  $1,078,875.

Question 2

At the end of 2010, Schenck Corporation sold its only piece of equipment for $9,000 cash, a price which resulted in a loss of $3,000. During 2010, depreciation expense recognized by Schenck was $1,000. Schenck uses the indirect method to compute net cash flow from operating activities. In reconciling net income to net cash flow from operating activities under the indirect method, the required adjustments based upon the given data:

Accepted Answer

A)  Increase net income by $4,000. 
B)  Increase net income by $1,000. 
C)  Decrease net income by $4,000. 
D)  Increase net income by $3,000. 
A)  Increase net income by $4,000. 
B)  Increase net income by $1,000. 
C)  Decrease net income by $4,000. 
D)  Increase net income by $3,000.

Question 3

Collections of interest revenue are classified as operating activities.

Accepted Answer

A) True 
 B)False

Question 4

Large cash flows from operations are more important to financial statement analysts over the long term than cash flows from financing or investing.

Accepted Answer

A) True 
 B)False

Question 5

When applying the direct method in a statement of cash flows, the amount of depreciation is added to net income.

Accepted Answer

A) True 
 B)False

Question 6

Compute the amount of cash received from customers during the current year.

Accepted Answer

A)  $3,097,500. 
B)  $3,129,000. 
C)  $3,066,000. 
D)  $3,612,000. 
A)  $3,097,500. 
B)  $3,129,000. 
C)  $3,066,000. 
D)  $3,612,000.

Question 7

Cash flow from operations activities-indirect method
An analysis of the 2010 financial statements of Portside Provisions reveals the following:
(a) Accounts payable to suppliers of merchandise decreased by $65,000 during 2010.
(b) Dividends of $135,000 were declared in November 2010, to be paid in January 2011.
(c) Dividends of $120,000, declared in November 2009, were paid in January 2010.
(d) Inventory levels increased by $91,000 during 2010.
(e) Depreciation expense for 2010 amounted to $53,000.
(f) Land, which had a cost of $350,000, was sold in 2010 for $400,000 cash, resulting in a gain of $50,000.
(g) Net income for 2010 was $745,000.
Using only the above information, follow the indirect method to compute Portside Provisions' net cash flows from operating activities for 2010.

Accepted Answer

The answer of Cash flow from operations activities-indirect method
An analysis...

Question 8

Chapin Company reported net income of $410,000 for 2009. Balances of selected current asset and current liability accounts are as shown on the indicated dates: Depreciation expense for 2009 amounted to $65,000. Using only the above information, compute Chapin's net cash flow from operating activities (indirect method) for 2009:

Accepted Answer

A)  $470,600. 
B)  $467,400. 
C)  $460,600. 
D)  $448,600. 
A)  $470,600. 
B)  $467,400. 
C)  $460,600. 
D)  $448,600.

Question 9

When net cash flow from operating activities is presented by the direct method, the statement of cash flows is accompanied by a supplementary schedule reconciling:

Accepted Answer

A)  Net cash flow from operating activities with net sales. 
B)  Net income with the net increase or decrease in cash and cash equivalents. 
C)  Net income with net cash flow from operating activities. 
D)  Net cash flow from operating activities shown in the statement with that which would result from use of the indirect method. 
A)  Net cash flow from operating activities with net sales. 
B)  Net income with the net increase or decrease in cash and cash equivalents. 
C)  Net income with net cash flow from operating activities. 
D)  Net cash flow from operating activities shown in the statement with that which would result from use of the indirect method.

Question 10

The purchase of equipment for the manufacturing of inventory belongs in the operations section of the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 11

At the end of the first year of operations, the balance sheet of Midwood Medical Supply showed the following: Accounts Receivable, $5,000; Accounts Payable, $6,000; Inventory, $3,000; and Unexpired Insurance, $2,000. The corporation reported net income of $79,000 for the year, including depreciation expense of $5,000, and uses the indirect method of computing net cash flow from operating activities. Solely on the basis of this information, net cash flow from operating activities is:

Accepted Answer

A)  $78,000. 
B)  $82,000. 
C)  $77,000. 
D)  $80,000. 
A)  $78,000. 
B)  $82,000. 
C)  $77,000. 
D)  $80,000.

Question 12

The FASB classifies interest received on investments and interest paid on debt financing as part of operating cash flows, while the IASB:

Accepted Answer

A)  Allows interest received to be classified as either operating or investing and interest paid as either operating or financing. 
B)  Allows interest received to be classified as either operating or financing and interest paid as either operating or investing. 
C)  Allows interest received to be classified only as investing and interest paid only as financing. 
D)  Allows interest received to be classified only as financing and interest paid only as investing. 
A)  Allows interest received to be classified as either operating or investing and interest paid as either operating or financing. 
B)  Allows interest received to be classified as either operating or financing and interest paid as either operating or investing. 
C)  Allows interest received to be classified only as investing and interest paid only as financing. 
D)  Allows interest received to be classified only as financing and interest paid only as investing.

Question 13

Computation of operating cash flows
The financial statements of Packard Corporation provide the following information for the current year:
$\begin{array}{lrr}&\begin{array}{c}
\text { End of } \
\text { Year }
\end{array} & \begin{array}{c}
\text { Beginning } \
\text { of Year }
\end{array} \
\text { Accounts receivable } & \$ 106,000 & \$ 98,000 \
\text { Inventory } & \$ 105,000 & \$ 120,000 \
\text { Prepaid expenses } & \$ 31,000 & \$ 29,000 \
\text { Accounts payable (for merchandise) } & \$ 74,000 & \$ 70,000 \
\text { Accrued liabilities } & \$ 30,000 & \$ 28,000 \
\text { Net sales } & \$ 848,000 & \
\text { Cost of goods sold } & \$ 318,000 & \
\text { Expenses (including depreciation of } \$ 43,000) & \$ 258,000 &
\end{array}$ 
Using this information, compute for the current year:

Accepted Answer

(a) Cash received from customers: $848,0

Question 14

Based solely on the data provided above, Johnson's net cash flow from investing activities for the current year is:

Accepted Answer

A)  $160,000 net cash used by investing activities. 
B)  $147,000 net cash used by investing activities. 
C)  $13,000 net cash provided by investing activities. 
D)  $91,000 net cash used by investing activities. 
A)  $160,000 net cash used by investing activities. 
B)  $147,000 net cash used by investing activities. 
C)  $13,000 net cash provided by investing activities. 
D)  $91,000 net cash used by investing activities.

Question 15

A statement of cash flows is not intended to assist investors in evaluating:

Accepted Answer

A)  Reasons for differences between the amount of net income and net cash flow from operations. 
B)  The company's ability to meet its obligations and to pay dividends. 
C)  Non-cash aspects of investing and financing activities. 
D)  The profitability of business operations. 
A)  Reasons for differences between the amount of net income and net cash flow from operations. 
B)  The company's ability to meet its obligations and to pay dividends. 
C)  Non-cash aspects of investing and financing activities. 
D)  The profitability of business operations.

Question 16

In a statement of cash flows, the term cash includes both cash and cash equivalents.

Accepted Answer

A) True 
 B)False

Question 17

Peak pricing charges:

Accepted Answer

A)  A higher price when demand is high and a lower price when demand is low. 
B)  A lower price when demand is high and a higher price when demand is low. 
C)  A low price when demand is high and a lower price when demand is low. 
D)  A high price when demand is high and a higher price when demand is low. 
A)  A higher price when demand is high and a lower price when demand is low. 
B)  A lower price when demand is high and a higher price when demand is low. 
C)  A low price when demand is high and a lower price when demand is low. 
D)  A high price when demand is high and a higher price when demand is low.

Question 18

Which of the following does not create a difference between net income and the net cash flow from operations?

Accepted Answer

A)  Non-operating gains and losses. 
B)  Depreciation expense. 
C)  Timing differences between credit sales and collections from customers. 
D)  Payment of a cash dividend. 
A)  Non-operating gains and losses. 
B)  Depreciation expense. 
C)  Timing differences between credit sales and collections from customers. 
D)  Payment of a cash dividend.

Question 19

Which of the following business strategies is most likely to increase the net cash flows of a software developer in the short run but reduce them over a longer term?

Accepted Answer

A)  Develop software that is more costly to create but easier to update and improve. 
B)  Lower the price of existing versions of products as customer demand begins to fall. 
C)  Reduce expenditures for the purpose of developing new products. 
D)  Purchase the building in which the business operates (assume the company currently rents this location). 
A)  Develop software that is more costly to create but easier to update and improve. 
B)  Lower the price of existing versions of products as customer demand begins to fall. 
C)  Reduce expenditures for the purpose of developing new products. 
D)  Purchase the building in which the business operates (assume the company currently rents this location).

Question 20

Cash flows from operating activities-indirect method
In the computation of net cash flows from operating activities for 2009 by the indirect method, determine whether each of the following items would be added to net income, deducted from net income, or omitted from the computation. Indicate your answer by using the following symbols: + (added to net income), - (deducted from net income), or 0 (omitted from computation).
____ (a) A decrease in accounts payable to suppliers of merchandise during 2009.
____ (b) A loss recognized on the sale of office equipment during 2009.
____ (c) Depreciation expense for 2009.
____ (d) Dividends, declared at the end of last year, paid to shareholders during the current year.
____ (e) An increase in inventory levels during 2009.
____ (f) A decrease in accounts receivable from customers during 2009.

Accepted Answer

(a) -
(b)

Exam 13: Statement of Cash Flows

Compute the amount of cash payments for purchases of merchandise during the current year.

Collections of interest revenue are classified as operating activities.

Large cash flows from operations are more important to financial statement analysts over the long term than cash flows from financing or investing.

When applying the direct method in a statement of cash flows, the amount of depreciation is added to net income.

Compute the amount of cash received from customers during the current year.

When net cash flow from operating activities is presented by the direct method, the statement of cash flows is accompanied by a supplementary schedule reconciling:

The purchase of equipment for the manufacturing of inventory belongs in the operations section of the statement of cash flows.

The FASB classifies interest received on investments and interest paid on debt financing as part of operating cash flows, while the IASB:

Based solely on the data provided above, Johnson's net cash flow from investing activities for the current year is:

A statement of cash flows is not intended to assist investors in evaluating:

In a statement of cash flows, the term cash includes both cash and cash equivalents.

Peak pricing charges:

Which of the following does not create a difference between net income and the net cash flow from operations?

Which of the following business strategies is most likely to increase the net cash flows of a software developer in the short run but reduce them over a longer term?

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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