Question 1

Which of the following transactions would not create a cash flow?

Accepted Answer

A)   Payment of a cash dividend.
B)   The company purchased some of its own stock from a stockholder.
C)   Amortization of patent for the period.
D)   Sale of equipment at book value (i.e. no gain or loss) . C

Question 2

A company in the growth phase of its product life cycle will normally have which of the following patterns of cash flows?

Accepted Answer

A)   Negative cash flows from operations, negative cash flows from investing and positive cash flows from financing.
B)   Negative or positive cash flows from operations, negative cash flows from investing and positive cash flows from financing.
C)   Positive cash flows from operations, positive cash flows from investing and positive cash flows from financing.
D)   Negative or positive cash flows from operations, negative cash flows from investing and negative cash flows from financing. B

Question 3

The length of the operating cycle is another factor that may cause cash flow from operations to differ from __________________________________________________.

Accepted Answer

working capital from operations

Question 4

When preparing the statement of cash flows using the indirect method, the payment of dividends would appear as:

Accepted Answer

A)   a decrease in the operating activities section
B)   an increase in the operating activities section
C)   a use of cash in the financing activities section
D)   a source of cash in the financing activities section

Question 5

Outback Corp. recorded sales of $1,300,000 in 2010, in addition the company's accounts receivable balance grew from $120,000 at the beginning of 2010 to $165,000 at the end of 2010. How much cash did Outback collect from customers in 2010?

Accepted Answer

A)   $1,300,000
B)   $1,345,000
C)   $1,255,000
D)   $1,135,000

Question 6

The calculation of cash flow from operations under the indirect method involves two types of adjustments. Discuss each type of adjustment and provide an example of each type of adjustment.

Accepted Answer

The answer of The calculation of cash flow from operations...

Question 7

Luke Corporation is a manufacturer of home furnishings. Selected financial information about Luke is listed below:
· Borrowed $850,000 from a bank.
Purchased equipment for $210,000 in cash.
· Purchase investments for $285,000.
· Received dividends of $51,000 from an investment in Davis Corp.
· Paid dividends of $55,000.
· Issued shares of preferred stock for $500,000.
Repurchased outstanding common shares using $100,000 in cash.
·Purchased land for $100,000 cash.
· Paid $36,000 interest expense on a bank loan.
· Increased Inventories by $320,000
· Increased accounts receivable by $217,000.
· Increased accounts payable $85,000.
Use the above information to calculate Luke's:
a. cash used or provided by investing activities
b. cash used or provided by financing activities

Accepted Answer

The answer of Luke Corporation is a manufacturer of home...

Question 8

Under the ______________________________ of preparing the statement of cash flow's operating activities section firms list the cash flows from selling goods and services and then subtract the cash outflows to providers of goods and services.

Accepted Answer

The answer of Under the ______________________________ of preparing the statement...

Question 9

One factor that may cause cash flow from operations to differ from net income is the length of the ______________________________.

Accepted Answer

The answer of One factor that may cause cash flow...

Question 10

Norton Company reported total sales revenue of $55,000, total expenses of $45,000, and net income of $10,000 on its income statement for the year ended December 31, 2010. During 2010, accounts receivable increased by $4,000, merchandise inventory increased by $6,000, accounts payable decreased by $2,000, and depreciation of $18,000 was recorded. Therefore, based only on this information, the net cash flow from operating activities using the indirect method for 2010 was:

Accepted Answer

A)   $30,000
B)   $10,000
C)   $16,000
D)   $19,000

Question 11

As products move through the maturity phase, companies invest to ___________ productive capacity.

Accepted Answer

A)   increase
B)   decrease
C)   maintain
D)   Not enough information to answer this question.

Question 12

All of the following are firms that may experience a long lag between the expenditures of cash and the receipt of cash from customers, except :

Accepted Answer

A)   restaurants
B)   wineries
C)   construction companies
D)   aerospace manufacturers

Question 13

Under the _________________________, firms begin with net income to calculate cash flow from operations for the period.

Accepted Answer

The answer of Under the _________________________, firms begin with net...

Question 14

Interest expense and interest revenue would be classified as ____________________ activities in the statement of cash flows.

Accepted Answer

The answer of Interest expense and interest revenue would be...

Question 15

Which of the following is a cash flow from operating activities?

Accepted Answer

A)   Sale of long-term investments in common stock.
B)   Purchase of merchandise for resale.
C)   Payment of a note payable.
D)   Sale of a piece of land no longer used in operations.

Question 16

The receipt of cash when employees exercise stock options is a(n) ____________________ activity.

Accepted Answer

The answer of The receipt of cash when employees exercise...

Question 17

One rationale for the statement of cash flows is to:

Accepted Answer

A)   ensure that the cash account balances at year-end.
B)   reconcile differences between net income and cash receipts and disbursements.
C)   calculate the company's free cash flow.
D)   examine the cash effects of income from discontinued operations, extraordinary items and changes in accounting principles.

Question 18

Normally, cash flows from operations will peak during which phase of the product life cycle?

Accepted Answer

A)   Introduction
B)   Growth
C)   Maturity
D)   Decline

Question 19

Cash collected from customers would appear in the operating activities section of a statement of cash flows prepared using the ____________________ method

Accepted Answer

The answer of Cash collected from customers would appear in...

Question 20

Discuss operating, investing, and financing cash flows in relation to the various stages of the product life cycle.

Accepted Answer

The answer of Discuss operating, investing, and financing cash flows...

Exam 3: Income Flows Versus Cash Flows: Understanding the Statement of Cash Flows