Question 1

Under the _______________________________, the net cash flow from operating activities is computed by adjusting net income to remove the effect of all deferrals of past operating cash receipts and payments, and all accruals of future operating cash receipts or payments.

Accepted Answer

The answer of Under the _______________________________, the net cash flow...

Question 2

Cash flows from purchases of merchandise are classified as investing activities.

Accepted Answer

A) True 
 B)False

Question 3

Occasionally, companies engage in important investing and financing activities which do not affect cash.If the amount of the transaction is significant, how should it be disclosed when financial statements are prepared?

Accepted Answer

A)  In the investing section if the amount of investing activities are greater than the financing activities amount. 
B)  In the financing section if the amount of financing activities are greater than the investing activities amount. 
C)  In a note to the financial statements or in a supplemental schedule. 
D)  The transaction does not need to be disclosed.

Question 4

Cash flows from operating activities usually relate to an increase or decrease in either a current asset or a current liability.

Accepted Answer

A) True 
 B)False

Question 5

The following items were reported on the balance sheets and income statement for Carlton Co.: $\begin{array}{lr}
\text { Accounts receivable, December } 31,2016 & \$ 185,000 \
\text { Accounts receivable, December } 31,2017 & 178,000 \
\text { Sales-2017 } & 850,000
\end{array}$ What amount would be reported in the operating activities section of the statement of cash flows for collections from customers under the direct method assuming that all sales are on credit?

Accepted Answer

A)  $850,000 
B)  $857,000 
C)  $843,000 
D)  Cannot be determined without further information.

Question 6

Which balance sheet accounts are most affected by operating activities?

Accepted Answer

A)  Current assets and current liabilities 
B)  Long-term assets 
C)  Long-term liabilities 
D)  Stockholders' equity

Question 7

Assuming the indirect method for preparing the statement of cash flows is used, indicate whether these items should be added to net income (A), deducted from net income (D), or not be reported in the operating section of the statement under the indirect method (NR).
-Exchange of a note for equipment

Accepted Answer

A) Added (
A)  
B) Deducted (
D)  
C) Not reported (NR)

Question 8

Klein Corp.acquired land by issuing its common stock.How should this transaction be disclosed when a statement of cash flows is prepared?

Accepted Answer

A)  In a supplemental schedule of noncash investing and financing activities or in a note. 
B)  The acquisition of land should be reported as an investing activity and the issuance of the stock as a financing activity. 
C)  Using the master T-account approach. 
D)  The transaction does not need to be disclosed.

Question 9

For each of the following items, indicate whether it would appear on a statement of cash flows prepared using the Direct method (a) or the Indirect method (b).
-Net income

Accepted Answer

A) Direct 
B) Indirect

Question 10

Lincoln Company reported the following information in its annual report for 2016. $\begin{array}{lr}
\text { Cash flows from operating activities } & \$ 300,000 \
\text { Capital Expenditures } & 225,000 \
\text { Average amount of debt maturing over the next } 5 \text { years } & 200,000
\end{array}$ What is the cash flow adequacy ratio for 2016 for Lincoln Company?

Accepted Answer

A)  0.38 
B)  1.50 
C)  1.88 
D)  7.50

Question 11

When using the indirect method, how would the declaration and payment of cash dividends be shown on the statement of cash flows?

Accepted Answer

A)  Operating activities 
B)  Investing activities 
C)  Financing activities 
D)  Noncash investing and financing activity

Question 12

For each of the following items, indicate whether it would appear on a statement of cash flows prepared using the Direct method (a) or the Indirect method (b).
-Gain on early retirement of bonds

Accepted Answer

A) Direct 
B) Indirect

Question 13

At the end of the first year of operations, the balance sheet of Huntington Beach Co.Industries had the following 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.Based on this information, net cash flow from operating activities is:

Accepted Answer

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

Question 14

Washington Corp.reported the following information for 2016 and 2017. $\begin{array}{lrr}
& \mathbf{2 0 1 6} & \mathbf{2 0 1 7} \
\text { Accounts receivable } & \$ 101,000 & \$ 93,000 \
\text { Prepaid expenses } & 5,000 & 6,000 \
\text { Accounts payable } & 71,000 & 76,000 \
\text { Salaries payable } & 5,000 & 4,000 \
\text { Net income } & & 80,000 \
\text { Depreciation expense } & & 9,000 \
\text { Gain on sale of equipment } & & 5,000\
\end{array}$ If Washington uses the indirect method to prepare the operating activities section of the statement of cash flows, what amount will be reported as net cash inflow from operating activities for 2017?

Accepted Answer

A)  $73,000 
B)  $83,000 
C)  $95,000 
D)  $105,000

Question 15

Planet & Co.reported net income for the current year.Which of the following business transactions would cause cash from operating activities to be higher than the amount of net income?

Accepted Answer

A)  Cash dividends were paid to stockholders during the year. 
B)  Depreciation expense was recorded for the year. 
C)  A bank loan was repaid during the year. 
D)  Equipment was purchased for cash during the year.

Question 16

Which of the following statements is false?

Accepted Answer

A)  A balance sheet reports a company's cash balance at a specific date. 
B)  An income statement reports the amounts of revenue and expense on an accrual basis, not the amount of cash received from revenues or paid for expenses. 
C)  A statement of retained earnings reports the amount of cash received from operating activities and the amount of cash paid for dividends. 
D)  A statement of cash flows explains the changes in cash from operating, investing, and financing activities.

Question 17

Nordic Exports Inc.reported net income of $150,000 for 2016, but its cash balance decreased $40,000.Which financial statement should Nordic Exports' management refer to for an explanation of this situation?

Accepted Answer

A)  Balance Sheet 
B)  Income Statement 
C)  Statement of Retained Earnings 
D)  Statement of Cash Flows

Question 18

If the December 31, 2016, balance of accounts receivable is higher than the January 1, 2016, balance, then the amount of cash collections will be less than the sales on account for the year.

Accepted Answer

A) True 
 B)False

Question 19

Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method.
-Received cash from the sale of securities.

Accepted Answer

A) Operating activity-add to net income 
B) Operating activity-deduct from net income 
C) Inflow from investing activity 
D) Outflow from investing activity 
E) Inflow from financing activity
F)Outflow from financing activity
G)Noncash investing and financing activity
H)Not reported on statement of cash flows

Question 20

For each of the following items, indicate whether it would appear on a statement of cash flows prepared using the Direct method (a) or the Indirect method (b).
-Increase in accounts receivable

Accepted Answer

A) Direct 
B) Indirect

Exam 12: The Statement of Cash Flows

Under the _______________________________, the net cash flow from operating activities is computed by adjusting net income to remove the effect of all deferrals of past operating cash receipts and payments, and all accruals of future operating cash receipts or payments.

Cash flows from purchases of merchandise are classified as investing activities.

Occasionally, companies engage in important investing and financing activities which do not affect cash.If the amount of the transaction is significant, how should it be disclosed when financial statements are prepared?

Cash flows from operating activities usually relate to an increase or decrease in either a current asset or a current liability.

Which balance sheet accounts are most affected by operating activities?

Klein Corp.acquired land by issuing its common stock.How should this transaction be disclosed when a statement of cash flows is prepared?

For each of the following items, indicate whether it would appear on a statement of cash flows prepared using the Direct method (a) or the Indirect method (b) . -Net income

When using the indirect method, how would the declaration and payment of cash dividends be shown on the statement of cash flows?

For each of the following items, indicate whether it would appear on a statement of cash flows prepared using the Direct method (a) or the Indirect method (b) . -Gain on early retirement of bonds

Planet & Co.reported net income for the current year.Which of the following business transactions would cause cash from operating activities to be higher than the amount of net income?

Which of the following statements is false?

Nordic Exports Inc.reported net income of $150,000 for 2016, but its cash balance decreased $40,000.Which financial statement should Nordic Exports' management refer to for an explanation of this situation?

If the December 31, 2016, balance of accounts receivable is higher than the January 1, 2016, balance, then the amount of cash collections will be less than the sales on account for the year.

Use the following codes to indicate how the cash flow effect, if any, of each transaction or event would be reported on a statement of cash flows if the operating activities section is prepared using the indirect method. -Received cash from the sale of securities.

For each of the following items, indicate whether it would appear on a statement of cash flows prepared using the Direct method (a) or the Indirect method (b) . -Increase in accounts receivable