Question 1

Cash flows from operating activities include:

Accepted Answer

A) changes in accounts receivable. 
B) paying principal to lenders. 
C) purchases of equipment. 
D) proceeds from stock issuance.

Question 2

Marvin Industries owns a piece of equipment with a cost of $78,000 and accumulated depreciation of $51,000.The equipment is sold for $30,000 cash.The amount that should be reported as a cash inflow from investing activities is:

Accepted Answer

A) $30,000. 
B) $3,000. 
C) $27,000. 
D) $0;this transaction is a financing activity.

Question 3

When the direct method is used to determine the cash flows from operating activities,other operating expenses are converted into cash outflows by:

Accepted Answer

A) adding changes in prepaid expenses and accrued liabilities to other expenses. 
B) subtracting increases in prepaid expenses and subtracting decreases in accrued liabilities from other expenses. 
C) adding increases in prepaid expenses and adding decreases in accrued liabilities to other expenses. 
D) subtracting changes in prepaid expenses and accrued liabilities from other expenses.

Question 4

Which of the following would be reported as a cash outflow from investing activities?

Accepted Answer

A) Donating an old piece of equipment to charity. 
B) Repaying the principal of a bond. 
C) Buying another company's bonds with cash. 
D) Acquiring an investment security by issuing company stock.

Question 5

Southview Company's interest revenue for the period is $28,000 and the beginning and ending interest receivable balances are $2,640 and $11,800,respectively,cash received for interest is:

Accepted Answer

A) $28,000. 
B) $18,840. 
C) $37,000. 
D) $16,200.

Question 6

The management team of Wickersham Brothers Inc.is preparing its annual financial statements.The statements are complete except for the statement of cash flows.The completed comparative balance sheets and income statements are summarized.
   Other information from the company's records includes the following:
• Bought equipment for cash,$50,000.
• Paid $10,000 on long-term note payable.
• Issued new shares of common stock for $20,000 cash.
• Cash dividends of $16,000 were declared and paid to stockholders.
• Accounts Payable arose from inventory purchases on credit.
• Income Tax Expense ($4,000)and Interest Expense ($3,000)were paid in full at the end of both years and are included in Other Expenses.
Required:
Prepare a schedule summarizing operating,investing,and financing cash flows using the T-account approach.

Accepted Answer

The answer of The management team of Wickersham Brothers Inc.is...

Question 7

Which of the following statements about financing activities is not correct?

Accepted Answer

A) Cash dividends paid to a company's stockholders are reported as cash outflows from financing activities. 
B) When a company issues stock for cash,it reports a cash inflow from financing activities. 
C) When a company repurchases stock with cash,it reports a cash outflow for financing activities. 
D) When a company repays a loan,it reports a cash inflow from financing activities.

Question 8

Scots Glenn Manufacturing took out $532,000 of new debt this year and repaid $800,000 of older debt in the same year.The company also issued stock for $353,600 cash and paid dividends of $79,200 for the year.The company's financing cash flows appearing the statement of cash flows will show:

Accepted Answer

A) Net cash used in financing activities of $347,200. 
B) Net cash used in financing activities of $268,000. 
C) Net cash provided by financing activities of $6,400. 
D) Net cash provided by financing activities of $85,600.

Question 9

Bracken,Inc.uses the direct method to determine its cash flow from operations.During the year,it had sales revenue of $480,000.Its beginning Accounts Receivable balance was $48,000,and its ending Accounts Receivable balance was $64,000.Its cash collected from customers for the year was:

Accepted Answer

A) $480,000. 
B) $464,000. 
C) $496,000. 
D) $592,000.

Question 10

A machine with a cost of $234,000 and accumulated depreciation of $153,000 is sold for $63,000 cash.
Required:
Part a.Prepare the journal entry to record this transaction.
Part b.Explain how this transaction would be reported on the statement of cash flows prepared using the indirect method.

Accepted Answer

The answer of A machine with a cost of $234,000...

Question 11

When a company uses the direct method to determine the cash flows from operating activities,cash flows from operating activities will:

Accepted Answer

A) be identical to the amount reported using the indirect method. 
B) be larger if there is a net cash inflow and smaller if there is a net cash outflow compared to the amount reported using the indirect method. 
C) always be larger than the amount reported using the indirect method. 
D) be larger if there is a net cash outflow and smaller if there is a net cash inflow compared to the amount reported using the indirect method.

Question 12

Which of the following statements about the statement of cash flows is not correct?

Accepted Answer

A) The statement of cash flows can be used to assess the likelihood of a company paying dividends. 
B) Net cash flow is the best measure of profitability since it does not rely on estimates. 
C) A company can have positive net income but at the same time have negative cash flow. 
D) The statement of cash flows is the only financial statement that reports business activities affecting cash.

Question 13

Depreciation is added back to net income in a statement of cash flows prepared using the indirect method because it:

Accepted Answer

A) reduces net income but not cash. 
B) is a cash inflow. 
C) is a revenue. 
D) is a valuation concept.

Question 14

The information below was obtained from the financial statements of Faraday Corp.Based on this information,what was the amount of the net cash provided by operating activities during the current year?

Accepted Answer

A) $713,000 
B) $721,000 
C) $661,000 
D) $637,000

Question 15

Which of the following statements about the reporting of operating cash flows using the direct method is correct?

Accepted Answer

A) Although most U.S.companies use the indirect method,the Financial Accounting Standards Board (FAS
B) prefers the direct method of accounting for cash flows from operating activities. 
B) The FASB prefers the indirect method of calculating cash flows from operating activities because it gives a more accurate calculation of cash provided by operating activities. 
C) The direct method results in a larger amount of cash flow from operating activities than does the indirect method. 
D) The direct and indirect methods use different presentations for cash flows from investing and financing activities.

Question 16

Subtracting a decrease in Unearned Revenue from net income eliminates the effect of recording revenue that:

Accepted Answer

A) increased net income,but did not impact cash this period. 
B) decreased net income,but did not impact cash this period. 
C) increased net income and increased cash flow this period. 
D) decreased net income and decreased cash flow this period.

Question 17

Assume that the direct method is used to prepare the operating activities section of the statement of cash flows.Why is a decrease in Accounts Receivable decrease added to sales revenue when computing cash collected from customers?

Accepted Answer

A) There were more cash sales than credit sales during the year. 
B) There were more collections of Accounts Receivable than sales on account during the year. 
C) There were more credit sales than cash sales during the year. 
D) There were more sales on account than collections of Accounts Receivable during the year.

Question 18

When the indirect method is used to determine net cash provided by (used in)operating activities,adding an increase in Interest Payable to net income eliminates the effect of recording expenses that:

Accepted Answer

A) increased net income,but did not impact cash. 
B) decreased net income,but did not impact cash. 
C) increased net income and increased cash flow. 
D) decreased net income and decreased cash flow.

Question 19

The T-account approach:

Accepted Answer

A) may be used with the direct method. 
B) creates one big T-account for cash that replaces separate schedules to show all the changes in the cash account. 
C) shows cash provided as credits and cash used as debits. 
D) does not determine the change in each balance sheet account.

Question 20

When the direct method is used to determine the cash flows from operating activities,which of the following adjustments must be made to interest expense to determine total interest payments?

Accepted Answer

A) Add all changes in Interest Payable. 
B) Add decreases in Interest Payable and subtract increases in Interest Payable. 
C) Add increases in Interest Payable and subtract decreases in Interest Payable. 
D) Subtract all changes in Interest Payable.

Exam 12: Statement of Cash Flows