Question 1

The conversion of nonparticipating preferred stock into common stock should be presented in a statement of cash flows as a(n)

Accepted Answer

A)  operating activity. 
B)  investing activity. 
C)  financing activity. 
D)  noncash exchange.

Question 2

Jacquin Corporation reports its income from investments under the equity method and recognized income of $15,000 from its investment in Trapper Company during the current year.Trapper declared no dividends during the current year.On Jacquin's statement of cash flows the $15,000 would

Accepted Answer

A)  be shown as cash from investing activities. 
B)  be shown as an addition to net income in the reconciliation of net income to cash from operations. 
C)  be shown as a deduction from net income in the reconciliation of net income to cash from operations. 
D)  not be shown.

Question 3

When preparing a reconciliation of net income to cash from operations,an increase in the ending inventory over the beginning inventory will result in an adjustment to reported net income because

Accepted Answer

A)  cash is increased because inventory is a current asset. 
B)  inventory is an expense deducted in computing net earnings,but is not a use of cash. 
C)  the net increase in inventory is part of the difference between cost of goods sold and cash paid to suppliers. 
D)  all changes in noncash accounts must be disclosed.

Question 4

A firm's accumulated depreciation account increased $30,000 for the year and total plant assets at cost increased $200,000.During the year,the firm purchased $350,000 of new equipment for cash,and sold equipment for $50,000 cash.This equipment had been depreciated $30,000 at the time of the sale.What is the complete disclosure of these events in the statement of cash flows prepared under the direct method?

Accepted Answer

A)  $300,000 investing cash outflow;$130,000 addition reconciling adjustment 
B)  $350,000 investing cash outflow;$50,000 investing cash inflow;$60,000 addition reconciling adjustment 
C)  $350,000 investing cash outflow;$50,000 investing cash inflow;$60,000 addition reconciling adjustment;$70,000 addition reconciling adjustment 
D)  $350,000 investing cash outflow;$50,000 investing cash inflow;$70,000 addition reconciling adjustment

Question 5

In preparing a statement of cash flows,the reconciliation of net income to cash from operating activities does NOT include

Accepted Answer

A)  loss on sale of operational assets. 
B)  bond discount or premium amortization for the period. 
C)  gain on sale of debt and equity securities classified as Trading Securities. 
D)  adjustment to record debt or equity securities classified as Securities Available for Sale at fair value.

Question 6

Which of the following transactions would not be reported on the statement of cash flows?

Accepted Answer

A)  Purchase of treasury stock 
B)  Declaration of a cash dividend which has not yet been paid 
C)  Patent amortization 
D)  Purchase of an operational asset by issuing common stock

Question 7

At the beginning of the year,a firm leased equipment on a capital lease,capitalizing $50,000 in both its lease liability and leased assets accounts.The contract calls for payments each December 31 of $10,000.The lessee's annual reporting period ends December 31 and the contract reflects 10% interest.The lessee made the first payment as required.Which of the following should be reflected on the statement of cash flows under the indirect method for the first year of the contract (ignoring noncash disclosures)?

Accepted Answer

A)  $10,000 financing cash outflow 
B)  $10,000 operating cash outflow 
C)  $5,000 operating cash outflow;$5,000 financing cash outflow 
D)  $5,000 addition in the reconciliation of earnings and net operating cash flow

Question 8

Amortization of the premium on bonds payable is subtracted from net income in the reconciliation of net income to cash flows from operations because

Accepted Answer

A)  interest expense understates the cash paid for interest by the amount of the premium amortization. 
B)  it reduces income without causing a cash outflow. 
C)  it increases income without causing a cash flow. 
D)  it is a financing cash outflow.

Question 9

A loss on the sale of machinery in the ordinary course of business should be presented in a statement of cash flows prepared under the indirect method as a(n)

Accepted Answer

A)  inflow from operating activities. 
B)  inflow from investing activities. 
C)  adjustment to reconcile net income to cash from operating activities. 
D)  outflow from investing activities.

Question 10

Under the direct method,cash paid to suppliers can be computed as cost of goods sold for the period

Accepted Answer

A)  minus a decrease in inventory and plus an increase in accounts payable. 
B)  plus a decrease in inventory and minus an increase in accounts payable. 
C)  minus an increase in inventory and plus an increase in accounts payable. 
D)  plus an increase in inventory and minus an increase in accounts

Question 11

Choose the combination that best reflects the appropriate classification of cash paid for investing and financing activities. Cash Paid for Cash Paid for
Investing Activities Financing Activities

Accepted Answer

A)  Treasury stock Operational assets 
B)  Treasury stock Dividends 
C)  Operational assets Investment securities 
D)  Investment securities Dividends

Question 12

Which of the following is NOT classified as an operating activity?

Accepted Answer

A)  Interest received 
B)  Interest paid 
C)  Dividends received 
D)  Dividends paid

Question 13

Which of the following is NOT required by generally accepted accounting principles?

Accepted Answer

A)  Statement of cash flows 
B)  Earnings per share 
C)  Cash per share 
D)  Disclosure in notes to financial statements of the projected benefit obligation of a defined-benefit pension plan

Question 14

Choose the combination that best reflects the appropriate classification of cash received from operating,investing and financing activities. Operating Investing Financing

Accepted Answer

A)  Cash paid by customers Sale of operational assets Issuance of bonds payable 
B)  Dividends received Cash paid by customers Issuance of bonds payable 
C)  Sale of operational assets Dividends received Cash paid by customers 
D)  Issuance of bonds payable Sale of operational assets Dividends received

Question 15

Which of the following would be reported in the operating,investing,or financing sections of the statement of cash flows prepared under the indirect method?

Accepted Answer

A)  Declaration of an unpaid cash dividend 
B)  Acquisition of a factory warehouse by issuing long-term debt 
C)  Gain on the sale of cash equivalents 
D)  Write-off of an uncollectible account receivable

Question 16

Choose the combination below that best reflects the appropriate classification of cash received from investing and financing activities. Cash Received from Cash Received from
Investing Activities Financing Activities

Accepted Answer

A)  Sale of treasury stock Proceeds from issuing common stock 
B)  Sale of treasury stock Sale of investment securities 
C)  Sale of investment securities Proceeds of issuing common stock 
D)  Proceeds from issuing common stock Sale of investment securities

Question 17

At the beginning of the year,a firm leased equipment on a capital lease,capitalizing $60,000 in its lease receivable account.The contract calls for December 31 payments of $15,000.The lessor's annual reporting period ends December 31 and the contract reflects 10% interest.The lessee made the first payment as required.The direct method statement of cash flows for the lessor should reflect which of the following in the first year of the lease contract (ignore noncash disclosures)?

Accepted Answer

A)  $15,000 operating cash flow 
B)  $6,000 operating cash flow;$9,000 investing cash flow 
C)  $6,000 operating cash flow;$9,000 addition reconciling adjustment 
D)  $9,000 investing cash flow

Question 18

Use the following information to compute the cash flow from operating activities under (1)the U.S.approach,and (2)the U.K.approach.

Accepted Answer

The answer of Use the following information to compute the...

Question 19

Which of the following investments should be classified as cash equivalents for Lastima Company in preparing the statement of cash flows?

Accepted Answer

A)  2,3 
B)  2,4 
C)  2,3,4 
D)  1,2,3,4

Question 20

Which of the following causes a change in the amount of cash held by a company?

Accepted Answer

A)  Write-off of a bad debt 
B)  Declaration of a cash dividend 
C)  Payment of a cash dividend declared in a previous period 
D)  Declaration and issuance of a stock dividend

Exam 21: Statement of Cash Flows Revisited