Question 1

An outdoor water park that has a calendar year-end and is located in an area of the country that has warmer weather during April through September and colder weather during the rest of the year is likely to have:

Accepted Answer

A) unpredictable fluctuations in cash flow from quarter to quarter. 
B) the largest cash inflow from operating activities in the second and third quarters (April through September). 
C) a fairly stable cash flow across all four quarters. 
D) the largest cash inflow from operating activities in the fourth and first quarters (October through March).

Question 2

Augusta Company reported that its bonds with a face value of $40,000 and a carrying value of $42,400 are retired for $44,800 cash.The amount to be reported under cash flows from financing activities is:

Accepted Answer

A) ($42,400). 
B) ($2,400). 
C) ($44,800). 
D) $0;this is an operating activity.

Question 3

Wilson Co.uses the indirect method to determine its cash flow from operations.During the course of the year,Wilson's Accounts Receivable increased by $28,000 and its Accounts Payable decreased by $14,000.As a result of these two items,the net addition (or subtraction)to convert net income to cash flow from operations equals:

Accepted Answer

A) $14,000. 
B) ($14,000). 
C) $42,000. 
D) ($42,000).

Question 4

Which of the following statements about preparation of the statement of cash flows is correct?

Accepted Answer

A) GAAP allows the indirect method only. 
B) GAAP allows the direct method only. 
C) GAAP allows either the indirect or direct method. 
D) Although GAAP allows either method for the preparation of the operating activities section of the statement of cash flows,the indirect method must be used to prepare the investing activities section of the statement of cash flows.

Question 5

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 6

Which of the following journal entries has an effect on cash provided by (used in)operating activities?

Accepted Answer

A) Bad debts expense. 
B) Depreciation expense. 
C) Sale of an investment. 
D) Payment of interest on long-term notes payable.

Question 7

Match each term with the appropriate definition.Not all definitions will be used.
-Direct Method

Accepted Answer

A) A measure of the amount by which current assets exceed current liabilities. 
B) Cash inflows and outflows related to the sale or purchase of investments and long-lived assets. 
C) Include assets that are very liquid and are purchased by the entity within three months of maturity. 
D) These activities include only purchases made with borrowed funds. 
E) Must include cash paid for interest and income tax in a separate schedule.
F)Measures the ability of a company to finance its interest payments with its operating cash flow before taxes and interest.
G)Cash inflows and outflows related to financing sources external to the company (owners and lenders).
H)These activities include money lent by a company as well as money borrowed by a company.
I)Reports the components of cash flows from operating activities as gross receipts and gross payments.
J)This ratio uses net income instead of operating cash flow to analyze a company's ability to finance the cost of its debt.
K)Cash inflows and outflows related to components of net income.
L)Presents the operating activities section of the cash flow statement by adjusting net income to compute cash flows from operating activities.

Question 8

The payment of salaries and wages would be reported as an operating activity on the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 9

$\begin{array}{lr}
\text { Net income } & 14,000 \
\text { Cash dividends paid to stockholders } & 4,000 \
\text { Cash proceeds from sale of land } & 6,000 \
\text { Cash proceeds from bank loan } & 10,000 \
\text { Cash payment (principal) on bank loan } & 2,000 \
\text { Cash paid to purchase equipment } & 8,000
\end{array}$ The company would report net cash provided by (used in)investing activities of:

Accepted Answer

A) $(2,000). 
B) $(4,000). 
C) $10,000. 
D) $14,000.

Question 10

When the indirect method is used to determine net cash provided by (used in)operating activities,subtracting an increase in Accounts Receivable from net income eliminates the effect of recording revenue 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 11

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 12

When the indirect method is used,if a prepaid expense account increases during the accounting period,the change in the prepaid expense account is:

Accepted Answer

A) added to the change in the cash account. 
B) added to net income. 
C) subtracted from net income. 
D) subtracted from the change in the cash account.

Question 13

A general rule for the relationship between operating,investing,and financing cash flows and the financial statements is:

Accepted Answer

A) Option A 
B) Option B 
C) Option C 
D) Option D

Question 14

Identify whether each of the following list of items is an operating activity cash flow (O),an investing activity cash flow (I),a financing activity cash flow (F),or none of these (None).
1.________ Proceeds from sale of equipment
2.________ Cash collected from customers
3.________ Payments to suppliers
4.________ Stock repurchases
5.________ Repayment of bond principal
6.________ Payment of income tax
7.________ Purchases of bonds from other companies
8.________ Purchases of equipment financed with a note
9.________ Interest and cash dividends received
10.________ Payment of cash dividends

Accepted Answer

The answer of Identify whether each of the following list...

Question 15

If Cost of Goods Sold is $72,500 and the beginning and ending Inventory balances are $9,000 and $6,500,respectively,inventory purchases for cash equal:

Accepted Answer

A) $72,500. 
B) $70,000. 
C) $75,000. 
D) $66,000.

Question 16

Assume a company uses the direct method to prepare its statement of cash flows.If the company's inventory and accounts payable both increase during the accounting period,how would these changes affect cash flow calculations?

Accepted Answer

A) The changes in each account are both added to net income. 
B) The change in inventory is subtracted from cost of goods sold and the change in accounts payable is added to cost of goods sold to find the cash paid to suppliers. 
C) The changes in each account are both subtracted from net income. 
D) The change in inventory is added to cost of goods sold and the change in accounts payable is subtracted from cost of goods sold to find the cash paid to suppliers.

Question 17

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

Accepted Answer

A) It does not replace the income statement. 
B) It provides details as to how cash changed during a period. 
C) It provides information about cash receipts and cash payments over a period of time. 
D) It measures profitability.

Question 18

Blanton Ridge,Inc.'s Insurance Expense is $14,000 and the beginning and ending balances of Prepaid Insurance are $3,000 and $4,000,respectively,the cash paid for insurance is:

Accepted Answer

A) $14,000. 
B) $13,000. 
C) $10,000. 
D) $15,000.

Question 19

Cash flows from investing activities include all of the following except a(n):

Accepted Answer

A) purchase of an automobile. 
B) sale of a trademark. 
C) purchase of stock of another company. 
D) issuance of bonds.

Question 20

Treasury stock purchases made with cash are classified as cash outflows from financing activities on the statement of cash flows.

Accepted Answer