Question 1

Under the indirect method of preparing the statement of cash flows,add backs to net income include all of the following except:

Accepted Answer

A)  depreciation expense 
B)  deferred tax expense 
C)  gains on sale of equipment 
D)  share-based compensation

Question 2

In 2010,Lamar Industries reported the following: Sales $700,000;Accounts receivable beginning of 2010 $450,000;Accounts receivable end of 2010 $369,200;Depreciation expense $55,400;Rent Expense $30,000.What is the net cash provided (used)by operating activities

Accepted Answer

The answer of In 2010,Lamar Industries reported the following: Sales...

Question 3

An example of an item that is deducted from net income when preparing the operating activities section of the statement of cash using the indirect method is:

Accepted Answer

A)  depreciation expense. 
B)  compensation expense related to stock option plans. 
C)  income from an investment accounted for using the equity method. 
D)  unrealized losses on trading investments

Question 4

When net income is low relative to operating cash flows,we describe the firm as having recorded:

Accepted Answer

A)  income-decreasing accruals. 
B)  income-increasing accruals. 
C)  income neutral accruals. 
D)  abnormal accruals.

Question 5

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 6

Which of the following statements is false?

Accepted Answer

A)  Purchase of equipment is an investing cash outflow. 
B)  Sale of equipment creates investing cash outflow equal to its selling price. 
C)  Purchase of short-term investments is an investing cash outflow. 
D)  Purchase of a patent is an investing cash outflow.

Question 7

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.

Question 8

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 9

____________________ activities relate to the acquisition and sale of noncurrent assets,particularly property,plant and equipment.

Accepted Answer

The answer of ____________________ activities relate to the acquisition and...

Question 10

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 11

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 12

In a statement of cash flows,interest received from sources other than a company's investments would be classified as cash inflows from:

Accepted Answer

A)  lending activities. 
B)  operating activities. 
C)  investing activities. 
D)  financing activities.

Question 13

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 14

Lagos Corp.recorded sales of $345,000 in 2010.In addition,its accounts receivable and accounts payable balances at the beginning and end of 2010 were as follows:  How much cash did Lagos collect from customers in 2010?

Accepted Answer

A)  $345,000 
B)  $320,000 
C)  $324,000 
D)  $316,000

Question 15

Discuss the correlations that have been found between net income,net income plus or minus Type 1 adjustments (i.e. ,adjustments to net income for revenues,expenses,gains,and losses that are recognized in income and are associated with changes in noncurrent assets,noncurrent liabilities,and shareholders' equity,but do not affect cash by the same amounts for the period),and cash flow from operations.

Accepted Answer

The answer of Discuss the correlations that have been found...

Question 16

Which of the following is an adjustment that would need to be made to net income when calculating cash flows from operations under the indirect method?

Accepted Answer

A)  Subtract amortization expense 
B)  subtract gain on sale of subsidiary 
C)  add an increase in accounts receivable 
D)  add a decrease in accounts payable

Question 17

For the following types of companies,discuss whether you think their cash flows from operations,investing,and financing will be positive (the activity provides cash)or negative (the activity uses cash).Provide support for your answer.

Accepted Answer

The answer of For the following types of companies,discuss whether...

Question 18

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 19

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 20

Kraco Corporation reported 2010 net income of $450,000,including the effects of depreciation expense of $60,000,and amortization expense on a patent of $10,000.Also,cash of $50,000 was borrowed on a 5-year note payable.Based on this data,total cash inflow from operating activities using the indirect method for 2010 was:

Accepted Answer

A)  $570,000 
B)  $520,000 
C)  $470,000 
D)  $440,000

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