Question 1

Which of the following does not decrease the cash flow from operating activities?

Accepted Answer

A) The prepayment of an expense. 
B) The purchase of operating equipment. 
C) The payment of interest. 
D) The prepayment of an expense,the purchase of operating equipment,and the payment of interest all decrease cash from operating activities. 
A) The prepayment of an expense. 
B) The purchase of operating equipment. 
C) The payment of interest. 
D) The prepayment of an expense,the purchase of operating equipment,and the payment of interest all decrease cash from operating activities.

Question 2

Which of the following would indicate a cash disbursement?

Accepted Answer

A) Selling equipment at a loss. 
B) A decrease in accounts receivable. 
C) An increase in prepaid expenses. 
D) A decrease in inventory. 
A) Selling equipment at a loss. 
B) A decrease in accounts receivable. 
C) An increase in prepaid expenses. 
D) A decrease in inventory.

Question 3

A net decrease in accounts payable to suppliers indicates that cash payments to suppliers were less than purchases made during the period.

Accepted Answer

A) True 
 B)False

Question 4

At the end of the first year of operations,the balance sheet of Midwood Medical Supply showed the following account balances: 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 5

Interest paid belongs in the operating activities section of the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 6

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 7

Which method will yield higher cash flows from operating activities?

Accepted Answer

A) The indirect method. 
B) The direct method. 
C) Both direct and indirect methods will yield the same amount. 
D) Depends upon the situation. 
A) The indirect method. 
B) The direct method. 
C) Both direct and indirect methods will yield the same amount. 
D) Depends upon the situation.

Question 8

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 9

When preparing a statement of cash flows,money held in cash equivalents is considered the same as cash.

Accepted Answer

A) True 
 B)False

Question 10

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 11

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 12

Free cash flow is computed as net cash flow from operating activities plus cash used to acquire plant assets minus cash paid for dividends.

Accepted Answer

A) True 
 B)False

Question 13

Collections of interest revenue are classified as operating activities.

Accepted Answer

A) True 
 B)False

Question 14

Free cash flow is computed as net cash flow from operating activities plus cash used to acquire plant assets minus cash paid for dividends.

Accepted Answer

A) True 
 B)False

Question 15

At the end of 2015,Schenck Corporation sold its only piece of equipment for $9,000 cash,a price which resulted in a loss of $3,000.During 2015,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 16

Haven Corporation issued $700,000 of 10-year bonds payable at par in 2011.During 2015 Haven paid $50,000 interest and an additional $233,333 to retire one-third of the bonds at par.These activities would be reported in Haven's statement of cash flows for 2015 as:

Accepted Answer

A) $283,333 net cash provided by financing activities. 
B) $283,333 net cash used in financing activities. 
C) $233,333 net cash used in financing activities,and $50,000 cash disbursed for operating activities. 
D) $466,667 net cash provided by financing activities,and $50,000 cash disbursed for operating activities. 
A) $283,333 net cash provided by financing activities. 
B) $283,333 net cash used in financing activities. 
C) $233,333 net cash used in financing activities,and $50,000 cash disbursed for operating activities. 
D) $466,667 net cash provided by financing activities,and $50,000 cash disbursed for operating activities.

Question 17

During 2015,Gillespie Corporation made a loan of $155,000 to a major customer.By the end of 2015 the customer had paid back $60,000 of the loan plus interest of $12,000.In the statement of cash flows for 2015,Gillespie Corporation would report:

Accepted Answer

A) A net decrease in cash and cash equivalents of $72,000 for 2015. 
B) $72,000 net cash used for investing activities. 
C) $95,000 net cash used for investing activities,and $12,000 cash provided from operating activities. 
D) $155,000 net cash used for investing activities,$60,000 net cash provided by financing activities,and $12,000 cash provided by operating activities. 
A) A net decrease in cash and cash equivalents of $72,000 for 2015. 
B) $72,000 net cash used for investing activities. 
C) $95,000 net cash used for investing activities,and $12,000 cash provided from operating activities. 
D) $155,000 net cash used for investing activities,$60,000 net cash provided by financing activities,and $12,000 cash provided by operating activities.

Question 18

Comparison of cash flows and accrual basis
Underhill Corporation's statement of cash flows for 2015 shows the following information regarding investing activities:   Underhill Corporation's income statement for 2015 includes the following items:   (a)All payments and proceeds relating to these transactions were in cash.Using this information,compute the following:   (b)Underhill Corporation's balance sheet at the end of 2014 showed Land of $3,057,000 and Investment in Marketable Securities of $2,218,000.On the basis of the data presented above,compute the amount to be reported for Land and for Investment in Marketable Securities on Underhill Corporation's balance sheet at December 31,2015.

Accepted Answer

(a)(1)$425,000 (cash proceeds)- $179,000

Question 19

Relationship of cash flows to accrual accounting
(a)The 2015 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 31,2015.Compute the amount of net sales reported in Citation Corporation's income statement for 2015: $_______________
(b)The supplementary schedule for noncash investing and financing activities accompanying Citation Corporation's 2015 statement of cash flows disclosed the following:   Citation Corporation's 2015 income statement reports a $61,000 loss on the disposal of land.Prepare the journal entry made by Citation in 2015 to record this sale of land.

Accepted Answer

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

Question 20

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.

Exam 13: Statement of Cash Flows

Which of the following does not decrease the cash flow from operating activities?

Which of the following would indicate a cash disbursement?

A net decrease in accounts payable to suppliers indicates that cash payments to suppliers were less than purchases made during the period.

Interest paid belongs in the operating activities section of the statement of cash flows.

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

Which method will yield higher cash flows from operating activities?

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

When preparing a statement of cash flows,money held in cash equivalents is considered the same as cash.

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.

Free cash flow is computed as net cash flow from operating activities plus cash used to acquire plant assets minus cash paid for dividends.

Collections of interest revenue are classified as operating activities.

Free cash flow is computed as net cash flow from operating activities plus cash used to acquire plant assets minus cash paid for dividends.

Haven Corporation issued $700,000 of 10-year bonds payable at par in 2011.During 2015 Haven paid $50,000 interest and an additional $233,333 to retire one-third of the bonds at par.These activities would be reported in Haven's statement of cash flows for 2015 as:

During 2015,Gillespie Corporation made a loan of $155,000 to a major customer.By the end of 2015 the customer had paid back $60,000 of the loan plus interest of $12,000.In the statement of cash flows for 2015,Gillespie Corporation would report:

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

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

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