Question 1

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 2

[The following information applies to the questions displayed below.]
An analysis of Korman Corporation's Investment in Marketable Securities account during 2018 disclosed the following:
   Korman's 2018 income statement included a $40,000 gain on sale of marketable securities and $30,000 dividend income from marketable securities.All payments and proceeds relating to marketable securities transactions were in cash.
-Based solely on the above information,Korman's net cash flow from investing activities for 2018 is:

Accepted Answer

A) $80,000 net cash used by investing activities. 
B) $80,000 net cash provided by investing activities. 
C) $120,000 net cash provided by investing activities. 
D) $240,000 net cash provided by investing activities. 
A) $80,000 net cash used by investing activities. 
B) $80,000 net cash provided by investing activities. 
C) $120,000 net cash provided by investing activities. 
D) $240,000 net cash provided by investing activities.

Question 3

The Nelson Corporation reported net income in excess of its net cash flow from operating activities for the current year.An explanation for this may be:

Accepted Answer

A) A loss on the sale of equipment in the current year. 
B) An increase in accounts payable during the year. 
C) Depreciation expense recognized for the year. 
D) A gain on the sale of investments during the year. 
A) A loss on the sale of equipment in the current year. 
B) An increase in accounts payable during the year. 
C) Depreciation expense recognized for the year. 
D) A gain on the sale of investments during the year.

Question 4

A cash dividend paid to shareholders is reported on the:

Accepted Answer

A) Financing activities section of the statement of cash flows. 
B) Balance sheet. 
C) Income statement. 
D) Operating activities section of the statement of cash flows. 
A) Financing activities section of the statement of cash flows. 
B) Balance sheet. 
C) Income statement. 
D) Operating activities section of the statement of cash flows.

Question 5

At the end of the first year of operations,Meacham's balance sheet showed the following account balances: Accounts Receivable,$13,400;Inventory,$9,400;and Accounts Payable,$14,650.The company's income statement reports net income of $37,400,including depreciation expense of $10,400.Using only the given information,compute Meacham's net cash flow from operating activities using the indirect method.

Accepted Answer

A) $65,250 
B) $39,650 
C) $24,350 
D) $26,650 
A) $65,250 
B) $39,650 
C) $24,350 
D) $26,650

Question 6

Indicate how each of the following events should be classified in a statement of cash flows for the current calendar year.Use the following code: O = operating activities,I = investing activities,and F = financing activities
Assume this company uses the direct method.If the event does not involve a cash flow that should be included in the statement of cash flows,use an X.
________ (a)Declared a dividend to be paid early next year.
________ (b)Recorded depreciation expense for the current year.
________ (c)At year-end,paid rent in advance for the next six months.
________ (d)Issued capital stock for cash;management plans to use this cash to invest in marketable securities.
________ (e)Sold a parcel of unused land at a loss.
________ (f)Collected principal amount due on a note receivable.
________ (g)Used the cash received in d,above,to purchase marketable securities.
________ (h)Collected interest due on note receivable described in f,above.
________ (i)Made an adjusting entry to accrue interest payable at year-end.
________ (j)Collected account receivable from a customer who made a large credit purchase in a prior period.
Answer: X
(a)Declared a dividend to be paid early next year.
X (b)Recorded depreciation expense for the current year.
O (c)At year-end,paid rent in advance for the next six months.
F (d)Issued capital stock for cash;management plans to use this cash to invest in marketable securities.
I (e)Sold a parcel of unused land at a loss.
I (f)Collected principal amount due on a note receivable.
I (g)Used the cash received in d,above,to purchase marketable securities.
O (h)Collected interest due on note receivable described in f,above.
X (i)Made an adjusting entry to accrue interest payable at year-end.
O (j)Collected account receivable from a customer who made a large credit purchase in a prior period.
Difficulty: 1 Easy
Topic: Cash Flows from Operating Activities;Cash Flows from Investing Activities
Learning Objecti: 13-03 Compute the major cash flows relating to operating activities. ;13-04 Compute the cash flows relating to investing and financing activities.
Bloom's: Remember
AACSB: Analytical Thinking
-Computation of operating cash flows
The financial statements of Packard Corporation provide the following information for the current year:
   Using this information,compute for the current year:

Accepted Answer

(a)Cash received from customers: $848,00

Question 7

The 2018 statement of cash flows of Dickens Corporation shows $500,000 cash paid for dividends.If dividends in Dickens' statement of retained earnings are reported at $550,000 then:

Accepted Answer

A) Dickens' dividends payable account must amount to $50,000 at the end of 2018. 
B) Dickens' Cash account must have increased by $50,000 in 2018. 
C) Dickens' dividends payable account must have increased by $50,000 in 2018. 
D) Dickens' dividends payable account must have decreased by $50,000 in 2018. 
A) Dickens' dividends payable account must amount to $50,000 at the end of 2018. 
B) Dickens' Cash account must have increased by $50,000 in 2018. 
C) Dickens' dividends payable account must have increased by $50,000 in 2018. 
D) Dickens' dividends payable account must have decreased by $50,000 in 2018.

Question 8

In the long run,it is more important for a business to generate positive cash flows from investing activities than from operating activities.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

[The following information applies to the questions displayed below.]
An analysis of changes in selected balance sheet accounts of Johnson Corporation shows the following for the current year:
   Johnson's income statement for the current year includes a $14,000 loss on disposal of plant assets.All payments and proceeds relating to purchase or sale of plant assets were in cash.
-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 11

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 12

Indicate how each of the following events should be classified in a statement of cash flows for the current calendar year.Use the following code: O = operating activities,I = investing activities,and F = financing activities.
Assume use of the direct method.If the event does not involve a cash flow that should be included in the statement of cash flows,use an X.
________ (a)Paid an account payable for inventory purchased in a prior accounting period.
________ (b)On December 28,made a large credit sale;terms,2/10,n/30.
________ (c)Received a dividend from an investment in IBM common stock.
________ (d)Paid a dividend to stockholders.
________ (e)Paid the interest on a note payable to First Bank.
________ (f)Paid the principal amount due on the note payable to First Bank.
________ (g)Transferred cash from a checking account into a money market fund.
________ (h)Made an adjusting entry to record accrued wages payable at the end of the period.
________ (i)Recorded depreciation expense for the current year.
________ (j)Purchased plant assets for cash.
Answer: O
(a)Paid an account payable for inventory purchased in a prior accounting period.
X (b)On December 28,made a large credit sale;terms,2/10,n/30.
O (c)Received a dividend from an investment in IBM common stock.
F (d)Paid a dividend to stockholders.
O (e)Paid the interest on a note payable to First Bank.
F (f)Paid the principal amount due on the note payable to First Bank.
X (g)Transferred cash from a checking account into a money market fund.
X (h)Made an adjusting entry to record accrued wages payable at the end of the period.
X (i)Recorded depreciation expense for the current year.
I (j)Purchased plant assets for cash.
Difficulty: 1 Easy
Topic: Classification of Cash Flows
Learning Objecti: 13-02 Describe how cash transactions are classified in a statement of cash flows.
Bloom's: Remember
AACSB: Analytical Thinking
-The following information was obtained from the Champion Company for the year ending December 31.
   Using the direct method,prepare a statement of cash flows.

Accepted Answer

The answer of Indicate how each of the following events...

Question 13

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 14

An example of a non-cash investing or financing activity that is disclosed in a supplementary schedule accompanying the statement of cash flows is:

Accepted Answer

A) Recording depreciation expense for the current year. 
B) Declaring,but not paying,dividends on common stock. 
C) Selling land in exchange for a note receivable. 
D) Transferring cash from a checking account into a money market fund. 
A) Recording depreciation expense for the current year. 
B) Declaring,but not paying,dividends on common stock. 
C) Selling land in exchange for a note receivable. 
D) Transferring cash from a checking account into a money market fund.

Question 15

The SEC requires public companies to use the indirect method for the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following would be presented in the cash from operating activities section of the statement of cash flows when the indirect method is used?

Accepted Answer

A) Gain on the sale of investments. 
B) Depreciation expense. 
C) Neither a gain on the sale of investments nor depreciation expense would be shown. 
D) Both a gain on the sale of investments and depreciation expense would be shown. 
A) Gain on the sale of investments. 
B) Depreciation expense. 
C) Neither a gain on the sale of investments nor depreciation expense would be shown. 
D) Both a gain on the sale of investments and depreciation expense would be shown.

Question 17

In a statement of cash flows,the term "cash" includes:

Accepted Answer

A) Only money on deposit in bank accounts. 
B) Only bank accounts and cash on hand. 
C) Bank accounts,cash on hand,and cash equivalents. 
D) Bank accounts,cash on hand,cash equivalents,and marketable securities classified as current assets. 
A) Only money on deposit in bank accounts. 
B) Only bank accounts and cash on hand. 
C) Bank accounts,cash on hand,and cash equivalents. 
D) Bank accounts,cash on hand,cash equivalents,and marketable securities classified as current assets.

Question 18

Deferring income taxes by using legal accounting methods is one strategy to permanently improve cash flow.

Accepted Answer

A) True 
 B)False

Question 19

If interest receivable was $6,300 at December 31,2017,and is $10,500 at the end of 2018,interest revenue reported in Global Data's income statement for 2018 must have been:

Accepted Answer

A) $16,800. 
B) $21,000. 
C) $35,700. 
D) $4,200. 
A) $16,800. 
B) $21,000. 
C) $35,700. 
D) $4,200.

Question 20

All of the following are advantages of an increasing cash flow from operations except:

Accepted Answer

A) A company is likely to pay its current bills with cash from operations not earnings. 
B) A company with cash is in a better position to fund growth. 
C) Large cash flows eliminate the need for borrowing. 
D) Earnings are viewed better if cash flows from operations closely match net income. 
A) A company is likely to pay its current bills with cash from operations not earnings. 
B) A company with cash is in a better position to fund growth. 
C) Large cash flows eliminate the need for borrowing. 
D) Earnings are viewed better if cash flows from operations closely match net income.

Exam 13: Statement of Cash Flows

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

The Nelson Corporation reported net income in excess of its net cash flow from operating activities for the current year.An explanation for this may be:

A cash dividend paid to shareholders is reported on the:

The 2018 statement of cash flows of Dickens Corporation shows $500,000 cash paid for dividends.If dividends in Dickens' statement of retained earnings are reported at $550,000 then:

In the long run,it is more important for a business to generate positive cash flows from investing activities than from operating activities.

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

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

Which of the following would indicate a cash disbursement?

An example of a non-cash investing or financing activity that is disclosed in a supplementary schedule accompanying the statement of cash flows is:

The SEC requires public companies to use the indirect method for the statement of cash flows.

Which of the following would be presented in the cash from operating activities section of the statement of cash flows when the indirect method is used?

In a statement of cash flows,the term "cash" includes:

Deferring income taxes by using legal accounting methods is one strategy to permanently improve cash flow.

If interest receivable was $6,300 at December 31,2017,and is $10,500 at the end of 2018,interest revenue reported in Global Data's income statement for 2018 must have been:

All of the following are advantages of an increasing cash flow from operations except:

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

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

the Time Value of Money: Future Amounts and Present Values

Forms of Business Organization

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