Question 1

Which of the following concerning the preparation of the statement of cash flows is correct?

Accepted Answer

A)  The T-account work sheet for preparing the statement of cash flows provides built-in checks to ensure the full recognition of the effects of each transaction on various accounts.
B)  The accountant often prepares a T-account work sheet at the end of the period after preparing the balance sheet and income statement.The work sheet provides the information for preparing the statement of cash flows.
C)  The accountant often prepares a T-account work sheet during the period .The work sheet provides the information for preparing the statement of cash flows.
D)  Both statement a and b are correct.
E)  None of the above are correct. D

Question 2

Which of the following statements is/are not true?

Accepted Answer

A)  The statement of cash flows reports flows, or changes in cash over time.
B)  The balance sheet reports changes in the amounts of cash over time.
C)  The last few lines of each statement of cash flows report the amount of cash on each firm's balance sheet at the beginning and the end of each period.
D)  Both U.S.GAAP and IFRS require that the statement of cash flows explain changes in cash and cash equivalents.
E)  All of the above are not true. B

Question 3

Examples of nonmonetary transactions is/are:

Accepted Answer

A)  the acquisition of equipment in exchange for shares of common stock.
B)  the conversion of a firm's debt into common shares.
C)  paying interest.
D)  paying dividends.
E)  both choices a and b. E

Question 4

The disposal of equipment for an amount of cash greater than the carrying value of the equipment results in a cash receipt equal to the carrying value of the equipment plus the gain on the disposal, which appears in net income.

Accepted Answer

A) True 
 B)False

Question 5

Under U.S.GAAP, the statement of cash flows classifies cash expenditures for interest on debt as a(n) _____ activity and classifies cash expenditures for dividends to shareholders as a(n) _____ activity.

Accepted Answer

A)  operating; operating
B)  operating: investing
C)  operating; financing
D)  financing; operating
E)  financing; financing

Question 6

Both U.S.GAAP and IFRS permit considerable flexibility with respect to the display of information in the statement of cash flows. Within the investing and financing cash flow categories, the presentation for most items should _____.

Accepted Answer

A)  not net cash inflows against cash outflows
B)  net cash inflows against cash outflows
C)  net cash inflows against net income
D)  net cash inflows against free cash flows
E)  net free cash flows against cash outflows

Question 7

U.S.GAAP requires the classification of

Accepted Answer

A)  the cash outflow for interest expense as an operating activity and the dividends that a firm pays to its shareholders as a financing activity.
B)  the cash outflow for interest expense and the dividends that a firm pays to its shareholders as a financing activity.
C)  the cash outflow for interest expense and the dividends that a firm pays to its shareholders as an investing activity.
D)  the cash outflow for interest expense and the dividends that a firm pays to its shareholders as an operating activity.
E)  the cash inflow for interest expense and the dividends that a firm pays to its shareholders as an operating activity.

Question 8

The statement of cash flows reports the effects of a firm's operating, investing, and financing activities on cash flows.Information in the statement helps in understanding which of the following concept(s)?

Accepted Answer

A)  The effect of operations on the liquidity of a firm.
B)  The level of capital expenditures needed to support ongoing and growing levels of activity.
C)  The major changes in the financing of a firm.
D)  all of the above
E)  none of the above

Question 9

On the statement of cash flows, cash sale of property, plant and equipment used for the last 5 years in the company's operations is treated as an operating activity.

Accepted Answer

A) True 
 B)False

Question 10

To prepare the statement of cash flows requires analyzing changes in balance sheet accounts during the accounting period. As an outcome of correct double-entry recording of all transactions, the net change in cash will equal the net change in all noncash accounts.

Accepted Answer

A) True 
 B)False

Question 11

Given the following information, prepare the cash flows from operations section of the statement of cash flows using the indirect method.
 $\begin{array}{lll}
\text { The Wayne Corporation}\
\text { Income Statement}\
\text { For the Year Ending December 31, Year 2}\
\text { Sales } & & \$ 500,000 \
\text { Expenses: } & & \
\text { Cost of goods sold } & \$ 150,000 & \
\text { Depreciation expense } & 15,000 &\
\text { Salary expense}&\underline{35,000}&\underline{200,000}\
\text { Net income}&&\underline{\$300,000}\
\text { Additional Information: } & & \
\text { Accounts receivable } & \$ 6,000 & \text { Decrease } \
\text { Merchandise inventory } & 12,000 & \text { Increase } \
\text { Accounts payable } & 900 & \text { Increase } \
\text { Salaries payable } & 600 & \text { Decrease }
\end{array}$

Accepted Answer

The answer of Given the following information, prepare the cash...

Question 12

Although the guidance in U.S.GAAP and IFRS states a preference that companies present cash flows from operations using the _____, most companies present cash flows from operations as _____.

Accepted Answer

A)  a reconciliation of net income to operating cash flow (the direct method) ; direct method
B)  direct method; a reconciliation of net income to operating cash flow (the indirect method) 
C)  cash method; accrual method
D)  accrual method; cash method
E)  none of the above

Question 13

Which of the following is the method of reporting amounts of cash received from customers less cash disbursed to various suppliers, employees, lenders for interest payments, and taxing authorities, allowed by U.S.GAAP?

Accepted Answer

A)  the direct method
B)  the indirect method
C)  both the direct method and the indirect method
D)  the schedule of cash receipts and cash disbursements
E)  the funds flow statement

Question 14

The statement of cash flows provides information about

Accepted Answer

A)  the cumulative effects of operations over several years.
B)  the balances in shareholders' equity accounts.
C)  the relationship between operations and liquidity of a firm.
D)  the success of management's cash management strategy.
E)  all of the above.

Question 15

Most firms prefer to prepare the statement of cash flows after they have prepared the income statement and the balance sheet.In the preparation of the T-account work sheet, an error

Accepted Answer

A)  often results from the partial recording of a transaction in which debits do not equal credits.
B)  usually becomes evident only on completion of the work sheet.
C)  requires the preparer to retrace each of the entries to discover the source of the error.
D)  all of the above.
E)  none of the above

Question 16

Given the following information, indicate the cash flow amounts in the blanks provided.(Note that the ABCCompany uses a just-in-time inventory system and there is no beginning or ending inventory).
 $\begin{array}{llcc}
\text {ABC Company}\
\text {Income Statement}\
\text {For the Year Ended December 31, Year 2}\
&&\underline{\text { Cash Flow }}\
  \text {Sales revenue, \( 75 \% $ on credit  } &\$200,000&\$\underline{\quad\quad}\
 \text { Accounts receivable balance } &\
 \text { December 31, Year 1, $ \$ 50,000 $} &\
 \text { December 31, Year 2, $ \$ 60,000 $ } &\
 \text {Cost of good sold. $ 100 \% $ on credit  } &\$60,000&\$\underline{\quad\quad}\
 \text {Accounts payable balance   } &\
  \text {December 31, Year $ 1, \$ 15,000 $   } &\
 \text {December 31 , Year $ 2, \$ 12,000 $   } &\
 \text {  Expenses:} &\
 \text { Salaries and Wages } &\$26,000&\$\underline{\quad\quad}\
 \text { Accrued wages payable balance } &\
 \text { December 31, Year 1, $ \$ 1,500 $ } &\
  \text {December 31, Year 2, $ \$ 1,600 $  } &\
 \text {  Depreciation expense} &\$2,500&\$\underline{\quad\quad}\
 \text { Rent expense } &\$1,500&\$\underline{\quad\quad}\
 \text {No accruals  } &\
 \text {Income tax expense  } &\underline{\$5,500}&\$\underline{\quad\quad}\
 \text {Taxes payable balance  } &\
  \text {  December 31, Year 1, $ \$ 1,000 $} &\
 \text { December 31 , Year $ 2, \$ 2,000 $ } &\
 \text {Total expenses  } &\underline{\$35,500}\
 \text {Net income  } &&\underline{\$104,500}\
 \text {  Cash flow from operating activities} &&\$\underline{\quad\quad}\
\end{array}\)

Accepted Answer

The answer of Given the following information, indicate the cash...

Question 17

While the indirect method is prevalent in the construction of cash flow statements in the U.S., why might a firm choose to construct its cash flow statement using the direct method?

Accepted Answer

A)  The direct method will always show a higher net change in cash.
B)  The direct method is usually easier for users to understand.
C)  The direct method is required by some industries.
D)  The direct method will always make the firm's management look better.
E)  None of the above answer choices is correct.

Question 18

Firms using the direct approach for the statement of cash flows must also present a reconciliation of cash flow from operations to net income.

Accepted Answer

A) True 
 B)False

Question 19

To prepare the statement of cash flows requires analyzing changes in balance sheet accounts during the accounting period. As an outcome of correct double-entry recording of all transactions, the net change in cash will be _____ the net change in all noncash accounts.

Accepted Answer

A)  greater than
B)  less than
C)  equal to
D)  greater than or be less than
E)  greater than or be equal to

Question 20

A profitable firm can never run out of cash.

Accepted Answer

A) True 
 B)False

Exam 6: Statement of Cash Flows

Which of the following concerning the preparation of the statement of cash flows is correct?

Which of the following statements is/are not true?

Examples of nonmonetary transactions is/are:

The disposal of equipment for an amount of cash greater than the carrying value of the equipment results in a cash receipt equal to the carrying value of the equipment plus the gain on the disposal, which appears in net income.

Under U.S.GAAP, the statement of cash flows classifies cash expenditures for interest on debt as a(n) _ activity and classifies cash expenditures for dividends to shareholders as a(n) _ activity.

Both U.S.GAAP and IFRS permit considerable flexibility with respect to the display of information in the statement of cash flows. Within the investing and financing cash flow categories, the presentation for most items should _____.

U.S.GAAP requires the classification of

The statement of cash flows reports the effects of a firm's operating, investing, and financing activities on cash flows.Information in the statement helps in understanding which of the following concept(s) ?

On the statement of cash flows, cash sale of property, plant and equipment used for the last 5 years in the company's operations is treated as an operating activity.

To prepare the statement of cash flows requires analyzing changes in balance sheet accounts during the accounting period. As an outcome of correct double-entry recording of all transactions, the net change in cash will equal the net change in all noncash accounts.

Although the guidance in U.S.GAAP and IFRS states a preference that companies present cash flows from operations using the _, most companies present cash flows from operations as _.

Which of the following is the method of reporting amounts of cash received from customers less cash disbursed to various suppliers, employees, lenders for interest payments, and taxing authorities, allowed by U.S.GAAP?

The statement of cash flows provides information about

Most firms prefer to prepare the statement of cash flows after they have prepared the income statement and the balance sheet.In the preparation of the T-account work sheet, an error

While the indirect method is prevalent in the construction of cash flow statements in the U.S., why might a firm choose to construct its cash flow statement using the direct method?

Firms using the direct approach for the statement of cash flows must also present a reconciliation of cash flow from operations to net income.

To prepare the statement of cash flows requires analyzing changes in balance sheet accounts during the accounting period. As an outcome of correct double-entry recording of all transactions, the net change in cash will be _____ the net change in all noncash accounts.

A profitable firm can never run out of cash.