Question 1

Free cash flow refers to the excess of cash inflows over cash outflows.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is not classified among the financing activities in a statement of cash flows?

Accepted Answer

A)  Long-term borrowing. 
B)  Payment of dividends to stockholders. 
C)  Payment of interest to creditors. 
D)  Short-term borrowing. 
A)  Long-term borrowing. 
B)  Payment of dividends to stockholders. 
C)  Payment of interest to creditors. 
D)  Short-term borrowing.

Question 3

All of the following are considered cash equivalents except:

Accepted Answer

A)  Marketable securities. 
B)  Money market funds. 
C)  Commercial paper. 
D)  Treasury bills. 
A)  Marketable securities. 
B)  Money market funds. 
C)  Commercial paper. 
D)  Treasury bills.

Question 4

The indirect method of computing cash flows from operations begins with net income.

Accepted Answer

A) True 
 B)False

Question 5

Shown below is a list of various cash payments and cash receipts: Cash paid to suppliers and employees $420,000
Dividends paid $18,000
Interest paid $12,000
Purchases of plant assets $45,000
Interest and dividends received $17,000
Payments to settle short-term bank loans $29,000
Income taxes paid $23,000
Cash received from customers $601,000
Based only on the above items, net cash flows from operating activities are:

Accepted Answer

A)  $138,000. 
B)  $91,000. 
C)  $120,000. 
D)  $163,000. 
A)  $138,000. 
B)  $91,000. 
C)  $120,000. 
D)  $163,000.

Question 6

Which of the following correctly describes a difference between the direct method and the indirect method of computing operating cash flow?

Accepted Answer

A)  The direct method is used when accounting records are kept on a cash basis; the indirect method is used when accounting records are maintained on an accrual basis. 
B)  The direct method may be used only when a company maintains special journals for cash receipts and cash disbursements; the indirect method is used in all other situations. 
C)  Both the direct and the indirect methods result in the same net cash flow from operating activities, but the format of this section of the statement of cash flows is different under the alternative methods. 
D)  The direct method is used when all accounting records and bank statements are available; the indirect method is used when some accounting records or documents are missing or have been destroyed. 
A)  The direct method is used when accounting records are kept on a cash basis; the indirect method is used when accounting records are maintained on an accrual basis. 
B)  The direct method may be used only when a company maintains special journals for cash receipts and cash disbursements; the indirect method is used in all other situations. 
C)  Both the direct and the indirect methods result in the same net cash flow from operating activities, but the format of this section of the statement of cash flows is different under the alternative methods. 
D)  The direct method is used when all accounting records and bank statements are available; the indirect method is used when some accounting records or documents are missing or have been destroyed.

Question 7

Rag Dolls' cash flow from operating activities during 2010 is:

Accepted Answer

A)  $45,000 net cash provided by operating activities. 
B)  $1,155,000 net cash used by operating activities. 
C)  $240,000 net cash provided by operating activities. 
D)  $195,000 net cash provided by operating activities. 
A)  $45,000 net cash provided by operating activities. 
B)  $1,155,000 net cash used by operating activities. 
C)  $240,000 net cash provided by operating activities. 
D)  $195,000 net cash provided by operating activities.

Question 8

The amount of cash paid by Johnson to acquire plant assets during the current year was:

Accepted Answer

A)  $53,000. 
B)  $267,000. 
C)  $42,000. 
D)  $160,000. 
A)  $53,000. 
B)  $267,000. 
C)  $42,000. 
D)  $160,000.

Question 9

Hamilton Company reported an increase of $370,000 in its accounts receivable during the year 2009. The company's statement of cash flows for 2009 reported $1 million of cash received from customers. What amount of net sales must Hamilton have recorded in 2009?

Accepted Answer

A)  $630,000. 
B)  $1,370,000. 
C)  $1,000,000. 
D)  $370,000 
A)  $630,000. 
B)  $1,370,000. 
C)  $1,000,000. 
D)  $370,000

Question 10

The FASB permits a company to use the direct method or the indirect method for the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 11

The amount of cash paid by Korman Corporation in 2009 for the purchase of marketable securities was:

Accepted Answer

A)  $240,000. 
B)  $160,000. 
C)  $200,000. 
D)  $190,000. 
A)  $240,000. 
B)  $160,000. 
C)  $200,000. 
D)  $190,000.

Question 12

The comparative balance sheets of Apollo Rocket, Inc. show a net increase in inventory of $79,000 and a net decrease in accounts payable of $42,000 during 2009. In computing net cash flow from operating activities under the indirect method, net income for 2009 should be:

Accepted Answer

A)  Increased by $37,000. 
B)  Reduced by $37,000. 
C)  Increased by $121,000. 
D)  Reduced by $121,000. 
A)  Increased by $37,000. 
B)  Reduced by $37,000. 
C)  Increased by $121,000. 
D)  Reduced by $121,000.

Question 13

The cash proceeds received by Korman Corporation in 2009 for the sale of marketable securities was:

Accepted Answer

A)  $160,000. 
B)  $230,000. 
C)  $240,000. 
D)  $280,000. 
A)  $160,000. 
B)  $230,000. 
C)  $240,000. 
D)  $280,000.

Question 14

Cigna Corporation's 2010 net income is smaller than net cash flow from operating activities. Which of the following would not be an explanation of why net income is smaller than net cash flow from operating activities?

Accepted Answer

A)  Cigna paid dividends to shareholders during 2010. 
B)  Cigna's accounts payable increased during 2010. 
C)  Cigna recognized depreciation expense in 2010. 
D)  Cigna sold equipment at a loss in 2010. 
A)  Cigna paid dividends to shareholders during 2010. 
B)  Cigna's accounts payable increased during 2010. 
C)  Cigna recognized depreciation expense in 2010. 
D)  Cigna sold equipment at a loss in 2010.

Question 15

Both the direct method and the indirect method of computing net cash flow from operating activities convert accrual-based income statement amounts into cash flows.

Accepted Answer

A) True 
 B)False

Question 16

Net cash flow from operating activities for the current year is:

Accepted Answer

A)  $595,875. 
B)  $596,400. 
C)  $556,500. 
D)  $580,125. 
A)  $595,875. 
B)  $596,400. 
C)  $556,500. 
D)  $580,125.

Question 17

The operating activities section of the cash flow statement includes the cash effects of those transactions reported on the income statement.

Accepted Answer

A) True 
 B)False

Question 18

Early in 2010, Larsen Corporation purchased marketable securities at a cost of $90,000. In September, dividends of $6,600 were received; Larsen sold the securities in December at a gain of $5,600. How would these transactions be reported on Larsen's statement of cash flows for 2010?

Accepted Answer

A)  $5,600 net cash provided by investing activities; $6,600 included in cash provided by operating activities. 
B)  $12,200 net cash provided by investing activities. 
C)  $95,600 cash provided by investing activities; $90,000 cash used in financing activities. 
D)  $84,400 net cash used in investing activities; $95,600 cash provided by investing activities. 
A)  $5,600 net cash provided by investing activities; $6,600 included in cash provided by operating activities. 
B)  $12,200 net cash provided by investing activities. 
C)  $95,600 cash provided by investing activities; $90,000 cash used in financing activities. 
D)  $84,400 net cash used in investing activities; $95,600 cash provided by investing activities.

Question 19

Royal Corporation uses the indirect method of computing net cash flow from operating activities and reported the following for 2009: accounts receivable decreased by $10,300, merchandise inventory increased by $15,300, accounts payable decreased by $4,000, and income taxes payable increased by $18,800. If Royal Corporation reported net income for 2009 of $157,800 (including $34,800 of depreciation expense), net cash flow from operating activities for 2009 is:

Accepted Answer

A)  $202,400. 
B)  $132,800. 
C)  $164,800. 
D)  $221,700. 
A)  $202,400. 
B)  $132,800. 
C)  $164,800. 
D)  $221,700.

Question 20

If accounts receivable decrease during the period, cash received from customers probably exceeds net sales.

Accepted Answer

A) True 
 B)False

Exam 13: Statement of Cash Flows

Free cash flow refers to the excess of cash inflows over cash outflows.

Which of the following is not classified among the financing activities in a statement of cash flows?

All of the following are considered cash equivalents except:

The indirect method of computing cash flows from operations begins with net income.

Which of the following correctly describes a difference between the direct method and the indirect method of computing operating cash flow?

Rag Dolls' cash flow from operating activities during 2010 is:

The amount of cash paid by Johnson to acquire plant assets during the current year was:

Hamilton Company reported an increase of $370,000 in its accounts receivable during the year 2009. The company's statement of cash flows for 2009 reported $1 million of cash received from customers. What amount of net sales must Hamilton have recorded in 2009?

The FASB permits a company to use the direct method or the indirect method for the statement of cash flows.

The amount of cash paid by Korman Corporation in 2009 for the purchase of marketable securities was:

The comparative balance sheets of Apollo Rocket, Inc. show a net increase in inventory of $79,000 and a net decrease in accounts payable of $42,000 during 2009. In computing net cash flow from operating activities under the indirect method, net income for 2009 should be:

The cash proceeds received by Korman Corporation in 2009 for the sale of marketable securities was:

Cigna Corporation's 2010 net income is smaller than net cash flow from operating activities. Which of the following would not be an explanation of why net income is smaller than net cash flow from operating activities?

Both the direct method and the indirect method of computing net cash flow from operating activities convert accrual-based income statement amounts into cash flows.

Net cash flow from operating activities for the current year is:

The operating activities section of the cash flow statement includes the cash effects of those transactions reported on the income statement.

Early in 2010, Larsen Corporation purchased marketable securities at a cost of $90,000. In September, dividends of $6,600 were received; Larsen sold the securities in December at a gain of $5,600. How would these transactions be reported on Larsen's statement of cash flows for 2010?

If accounts receivable decrease during the period, cash received from customers probably exceeds net sales.

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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