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Quiz Chapter 13
All
possible Questions with answers.
TRUE-FALSE
STATEMENTS
The
statement of cash flows is a required statement that must be prepared along
with an income statement, balance sheet, and retained earnings statement.
Ans: LO:
1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting
For
external reporting, a company must prepare either an income statement or a
statement of cash flows, but not both.
Ans: LO:
1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting
A
primary objective of the statement of cash flows is to show the income or loss
on investing and financing transactions.
Ans: LO:
1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting
A
statement of cash flows indicates the sources and uses of cash during a period.
Ans: LO:
1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting
A
statement of cash flows should help investors and creditors assess the entity’s
ability to generate future income.
Ans: LO:
1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN:
Measurement, AICPA PC: Problem Solving, IMA: FSA
The
information in a statement of cash flows helps investors and creditors assess
the company’s ability to pay dividends and meet obligations.
Ans: LO:
1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting
Financial
statement readers can determine future investing and financing transactions by
examining a company’s statement of cash flows.
Ans: LO:
1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting
In
preparing a statement of cash flows, the issuance of debt should be reported
separately from the retirement of debt.
Ans: LO:
2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Measurement,
AICPA PC: Problem Solving, IMA: FSA
Noncash
investing and financing activities must be reported in the body of a statement
of cash flows.
Ans: LO:
2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting
The
statement of cash flows classifies cash receipts and payments as operating,
nonoperating, financial, and extraordinary activities.
Ans: LO:
2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting
The sale
of land for cash would be classified as a cash inflow from an investing
activity.
Ans: LO:
2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting
Cash
flow from investing activities is considered the most important category on the
statement of cash flows because it is considered the best measure of expected
income.
Ans: LO:
2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting
The
receipt of dividends from long-term investments in stock is classified as a
cash inflow from investing activities.
Ans: LO:
2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting
The
payment of interest on bonds payable is classified as a cash outflow from
operating activities.
Ans: LO:
2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting
Any item
that appears on the income statement would be considered as either a cash
inflow or cash outflow from operating activities.
Ans: LO:
2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Measurement, AICPA PC: None, IMA: FSA
The acquisition
of a building by issuing bonds would be considered an investing and financing
activity that did not affect cash.
Ans: LO:
2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting
All
major financing and investing activities affect cash.
Ans: LO:
2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: FSA
Cash provided
by operations is generally equal to operating income.
Ans: LO:
3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting
Using
the indirect method, an increase in accounts receivable during a period is
deducted from net income in calculating cash provided by operations.
Ans: LO:
3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting
Using
the indirect method, an increase in accounts payable during a period is
deducted from net income in calculating cash provided by operations.
Ans: LO:
3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting
A loss
on disposal of equipment is added to net income in determining cash provided by
operations under the indirect method.
Ans: LO:
3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting
In
preparing a statement of cash flows, an increase in the Common Stock and
Treasury Stock accounts during a period would be an investing activity.
Ans: LO:
3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting
A
company must deduct depreciation expense from net income to determining net cash
provided by operating activities.
Ans: LO:
3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting
A gain
on disposal of plant assets is deducted from net income in determine net cash
provided by operating activities.
Ans: LO:
3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting
The
measurement of free cash flow provides additional insight regarding a company's
cash-generating ability.
Ans: LO:
4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting
Cash provided
by operating activities fails to take into account that a company must invest
in new fixed assets just to maintain its current level of operations.
Ans: LO:
4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting
Free
cash flow equals cash provided by operations less capital expenditures and cash
dividends.
Ans: LO:
4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting
a28. The
use of a worksheet to prepare a statement of cash flows is optional.
Ans: LO:
5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector,
AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
a29.
During the year, Income Tax Expense amounted to $30,000 and Income Taxes
Payable increased by $4,000; therefore, the cash paid for income taxes was
$26,000.
Ans: LO:
6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector,
AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
a30. The
Loss on Disposal of Plant Assets is a debit to the operating section of the
Cash account.
Ans: LO:
6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
a31. The
change in cash is equal to the change in liabilities less the change in equity
plus the change in noncash assets.
Ans: LO:
6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
During a
period, cost of goods sold + an increase in inventory + an increase in accounts
payable = cash paid to suppliers.
Ans: LO:
6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector,
AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
Operating
expenses + an increase in prepaid expenses – a decrease in accrued expenses
payable = cash payments for operating expenses.
Ans: LO:
6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector,
AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
The
statement of cash flows classifies cash receipts and cash payments into two
categories: operating activities and nonoperating activities.
Ans: LO:
2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting
Financing
activities include the obtaining of cash from issuing debt and repaying the
amounts borrowed.
Ans: LO:
2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Measurement, AICPA PC: None, IMA: FSA
The
adjusted trial balance is the only item needed to prepare the Statement of Cash
Flows.
Ans: LO:
2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Measurement, AICPA PC: None, IMA: FSA
Under
the indirect method, retained earnings is adjusted for items that affected
reported net income but did not affect cash.
Ans: LO:
3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
The
reconciling entry for depreciation expense in a worksheet is a credit to
Accumulated Depreciation and a debit to Operating-Depreciation Expense.
Ans: LO:
5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
Under
the direct method, the formula for computing cash collections from customers is
sales revenues plus the increase in accounts receivable or minus the decrease
in accounts receivable.
Ans: LO:
6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
MULTIPLE
CHOICE QUESTIONS
The
statement of cash flows should help investors and creditors assess each of the
following except the
entity's
ability to generate future income.
entity's
ability to pay dividends.
reasons
for the difference between net income and net cash provided by operating
activities.
cash
investing and financing transactions during the period.
Ans: LO:
1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
The
statement of cash flows
must be
prepared on a daily basis.
summarizes
the operating, financing, and investing activities of an entity.
is
another name for the income statement.
is a
special section of the income statement.
Ans: LO:
1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Which
one of the following items is not generally used in preparing a statement of
cash flows?
Adjusted
trial balance
Comparative
balance sheets
Current
income statement
Additional
information
Ans: LO:
1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Measurement, AICPA PC: None, IMA: FSA
The
primary purpose of the statement of cash flows is to
provide
information about the investing and financing activities during a period.
prove
that revenues exceed expenses if there is a net income.
provide
information about the cash receipts and cash payments during a period.
facilitate
banking relationships.
Ans: LO:
1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
If a
company reports a net loss, it
may
still have a net increase in cash.
will not
be able to pay cash dividends.
will not
be able to get a loan.
will not
be able to make capital expenditures.
Ans: LO:
1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
In
addition to the three basic financial statements, which of the following is
also a required financial statement?
the
"Cash Budget"
the
Statement of Cash Flows
the
Statement of Cash Inflows and Outflows
the
"Cash Reconciliation"
Ans: LO:
1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
The
statement of cash flows will not report the
amount
of checks outstanding at the end of the period.
sources
of cash in the current period.
uses of
cash in the current period.
change
in the cash balance for the current period.
Ans: LO:
1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
The
statement of cash flows reports each of the following except
cash
receipts from operating activities.
cash
payments from investing activities.
the net
change in cash.
cash
sales.
Ans: LO:
1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Each of
the following are particularly interested in the statement of cash flows except
creditors.
employees.
shareholders.
government
agencies.
Ans: LO:
1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Lending
money and collecting the loans are
operating
activities.
investing
activities.
financing
activities.
non-cash
investing and financing activities.
Ans: LO:
2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
The cash
effects of transactions that create revenues and expenses are
financing
activities.
investing
activities.
operating
activities.
processing
activities.
Ans: LO:
2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector,
AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics
The acquisition
of land by issuing common stock is
a
noncash transaction which is not reported in the body of a statement of cash
flows.
a cash
transaction and would be reported in the body of a statement of cash flows.
a
noncash transaction and would be reported in the body of a statement of cash
flows.
only
reported if the statement of cash flows is prepared using the direct method.
Ans: LO:
2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
The
order of presentation of activities on the statement of cash flows is
operating,
investing, and financing.
operating,
financing, and investing.
financing,
operating, and investing.
financing,
investing, and operating.
Ans: LO:
2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Financing
activities involve
lending
money.
acquiring
investments.
issuing
debt.
acquiring
long-lived assets.
Ans: LO:
2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Investing
activities include
collecting
cash on loans made.
obtaining
cash from creditors.
obtaining
capital from owners.
repaying
money previously borrowed.
Ans: LO:
2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Generally,
the most important category on the statement of cash flows is cash flows from
operating
activities.
investing
activities.
financing
activities.
significant
noncash activities.
Ans: LO:
2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
The
category that is generally considered to be the best measure of a company's
ability to continue as a going concern is
cash
flows from operating activities.
cash
flows from investing activities.
cash
flows from financing activities.
usually
different from year to year.
Ans: LO:
2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Cash
receipts from interest and dividends are classified as
financing
activities.
investing
activities.
operating
activities.
either
financing or investing activities.
Ans: LO:
2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Each of
the following is an example of a significant noncash activity except
conversion
of bonds into common stock.
exchanges
of plant assets.
issuance
of debt to purchase assets.
stock
dividends.
Ans: LO:
2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
If a
company has both an inflow and outflow of cash related to property, plant, and
equipment, the
two cash
effects can be netted and presented as one item in the investing activities
section.
cash inflow
and cash outflow should be reported separately in the investing activities
section.
two cash
effects can be netted and presented as one item in the financing activities
section.
cash
inflow and cash outflow should be reported separately in the financing
activities section.
Ans: LO:
2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Of the
items below, the one that appears first on the statement of cash flows is
noncash
investing and financing activities.
net
increase (decrease) in cash.
cash at
the end of the period.
cash at
the beginning of the period.
Ans: LO:
2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Which of
the following transactions does not affect cash during a period?
Write-off
of an uncollectible account
Collection
of an accounts receivable
Sale of
treasury stock
Exercise
of the call option on bonds payable
Ans: LO:
2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Significant
noncash transactions would not include
conversion
of bonds into common stock.
asset
acquisition through bond issuance.
treasury
stock acquisition.
exchange
of plant assets.
Ans: LO:
2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
In
preparing a statement of cash flows, a conversion of bonds into common stock
will be reported in
the
financing section.
the
"extraordinary" section.
a
separate schedule or note to the financial statements.
the
stockholders' equity section.
Ans: LO:
2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
64.
Indicate where the event paid income taxes would appear, if at all, on the
statement of cash flows.
Operating
activities section
Investing
activities section
Financing
activities section
Does not
represent a cash flow
Ans: LO:
2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Indicate
where the event common stock issued for cash would appear, if at all, on the
indirect statement of cash flows.
Operating
activities section
Investing
activities section
Financing
activities section
Does not
represent a cash flow
Ans: LO:
2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Indicate
where the event purchased land for cash would appear, if at all, on the
indirect statement of cash flows.
Operating
activities section
Investing
activities section
Financing
activities section
Does not
represent a cash flow
Ans: LO:
2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Indicate
where the event purchased land and a building with a mortgage would appear, if
at all, on the indirect statement of cash flows.
Operating
activities section
Investing
activities section
Financing
activities section
Does not
represent a cash flow
Ans: LO:
2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Joan’s
Vegetable Market had the following transactions during 2013:
Issued
$60,000 of par value common stock for cash.
Repaid a
6 year note payable in the amount of $21,000.
Acquired
land by issuing common stock of par value $50,000.
Declared
and paid a cash dividend of $5,000.
Sold a
long-term investment (cost $63,000) for cash of $6,000.
Acquired
an investment in IBM stock for cash of $10,000.
What is
the net cash provided by financing activities?
$34,000
$80,000
$39,000
$0
Ans: LO:
2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Joan’s
Vegetable Market had the following transactions during 2013:
Issued
$50,000 of par value common stock for cash.
Repaid a
6 year note payable in the amount of $22,000.
Acquired
land by issuing common stock of par value $100,000.
Declared
and paid a cash dividend of $2,000.
Sold a
long-term investment (cost $63,000) for cash of $6,000.
Acquired
an investment in IBM stock for cash of $12,000.
What is
the net cash provided by investing activities?
$12,000
$32,000
($6,000)
$6,000
Ans: LO:
2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Miracle
Company purchased treasury stock with a cost of $15,000 during 2013. During the
year, the company paid dividends of $20,000 and issued bonds payable for
proceeds of $866,000. Cash flows from financing activities for 2013 total
$846,000
net cash inflow.
$861,000
net cash inflow.
$866,000
net cash outflow.
$831,000
net cash inflow.
Ans: LO:
2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Carrot
Company issued common stock for proceeds of $381,000 during 2013. The company
paid dividends of $90,000 and issued a long-term note payable for $95,000 in
exchange for equipment during the year. The company also purchased treasury
stock that had a cost of $18,000. The financing section of the statement of
cash flows will report net cash inflows of
$273,000.
$489,000.
$183,000.
$363,000.
Ans: LO:
2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
In
Garland Company, land decreased $140,000 because of a cash sale for $140,000,
the equipment account increased $40,000 as a result of a cash purchase, and
Bonds Payable increased $130,000 from issuance for cash at face value. The net
cash provided by investing activities is
$140,000.
$230,000.
$100,000.
$110,000.
Ans: LO:
2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Accounts
receivable arising from sales to customers amounted to $85,000 and $75,000 at
the beginning and end of the year, respectively. Income reported on the income
statement for the year was $285,000. Exclusive of the effect of other
adjustments, the cash flows from operating activities to be reported on the
statement of cash flows is
$285,000.
$295,000.
$445,000.
$275,000.
Ans: LO:
3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Accounts
receivable arising from sales to customers amounted to $45,000 and $50,000 at
the beginning and end of the year, respectively. Income reported on the income
statement for the year was $160,000. Exclusive of the effect of other
adjustments, the cash flows from operating activities to be reported on the
statement of cash flows is
$160,000.
$165,000.
$205,000.
$155,000.
Ans: LO:
3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Winston
Company reported net income of $50,000 for the year. During the year, accounts
receivable decreased by $7,000, accounts payable increased by $3,000 and
depreciation expense of $5,000 was recorded. Net cash provided by operating
activities for the year is
$40,000.
$65,000.
$49,000.
$45,000.
Ans: LO:
3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Blocker
Company reported a net loss of $5,000 for the year ended December 31, 2013.
During the year, accounts receivable increased $14,000, merchandise inventory
decreased $10,000, accounts payable decreased by $20,000, and depreciation
expense of $10,000 was recorded. During 2013, operating activities
used net
cash of $19,000.
used net
cash of $27,000.
provided
net cash of $27,000.
provided
net cash of $17,000.
Ans: LO:
3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
The net
income reported on the income statement for the current year was $225,000.
Depreciation recorded on plant assets was $38,000. Accounts receivable and
inventories increased by $2,000 and $8,000, respectively. Prepaid expenses and
accounts payable decreased by $1,000 and $11,000 respectively. How much cash
was provided by operating activities?
$205,000
$243,000
$225,000
$259,000
Ans: LO:
3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
The net
income reported on the income statement for the current year was $240,000.
Depreciation was $50,000. Account receivable and inventories decreased by
$10,000 and $30,000, respectively. Prepaid expenses and accounts payable
increased, respectively, by $1,000 and $8,000. How much cash was provided by
operating activities?
$301,000
$337,000
$321,000
$329,000
Ans: LO:
3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
If a
gain of $15,000 is incurred in selling (for cash) office equipment having a
book value of $100,000, the total amount reported in the cash flows from
investing activities section of the statement of cash flows is
$95,000.
$115,000.
$100,000.
$15,000.
Ans: LO:
3, Bloom: K, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
If a
loss of $20,000 is incurred in selling (for cash) office equipment having a
book value of $80,000, the total amount reported in the cash flows from
investing activities section of the statement of cash flows is
$60,000.
$80,000.
$100,000.
$20,000.
Ans: LO:
3, Bloom: K, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Madison
Company reported net income of $100,000 for the year ended December 31, 2013.
During the year, inventories decreased by $12,000, accounts payable decreased
by $18,000, depreciation expense was $20,000 and a gain on disposal of
equipment of $9,000 was recorded. Net cash provided by operating activities in
2013 using the indirect method was
$154,000.
$105,000.
$112,000.
$90,000.
Ans: LO:
3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
The
third (final) step in preparing the statement of cash flows is to
analyze
changes in noncurrent asset and liability accounts.
compare
the net change in cash with the change in the cash account reported on the
balance sheet.
determine
net cash provided by operating activities.
list the
noncash activities.
Ans: LO:
3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Measurement, AICPA PC: None, IMA: FSA
Which
one of the following items is not necessary in preparing a statement of cash
flows?
Determine
the change in cash
Determine
the cash provided by operations
Determine
cash from financing and investing activities
Determine
the cash in all bank accounts
Ans: LO:
3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Measurement, AICPA PC: None, IMA: FSA
If
accounts receivable have increased during the period,
revenues
on an accrual basis are less than revenues on a cash basis.
revenues
on an accrual basis are greater than revenues on a cash basis.
revenues
on an accrual basis are the same as revenues on a cash basis.
expenses
on an accrual basis are greater than expenses on a cash basis.
Ans: LO:
3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Measurement, AICPA PC: None, IMA: FSA
If
accounts payable have increased during a period,
revenues
on an accrual basis are less than revenues on a cash basis.
expenses
on an accrual basis are less than expenses on a cash basis.
expenses
on an accrual basis are greater than expenses on a cash basis.
expenses
on an accrual basis are the same as expenses on a cash basis.
Ans: LO:
3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Measurement, AICPA PC: None, IMA: FSA
Which
one of the following affects cash during a period?
Recording
depreciation expense
Declaration
of a cash dividend
Write-off
of an uncollectible account receivable
Payment
of an accounts payable
Ans: LO:
3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
In
calculating cash flows from operating activities using the indirect method, a
gain on the sale of equipment is
added to
net income.
deducted
from net income.
ignored
because it does not affect cash.
not
reported on a statement of cash flows.
Ans: LO:
3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Dino
Company reported net income of $72,000 for the year. During the year, accounts
receivable increased by $7,000, accounts payable decreased by $3,000 and
depreciation expense of $5,000 was recorded. Net cash provided by operating
activities for the year is
$67,000.
$87,000.
$71,000.
$72,000.
Ans: LO:
3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Fare
Company reported a net loss of $31,000 for the year ended December 31, 2013.
During the year, accounts receivable decreased $15,000, merchandise inventory
increased $24,000, accounts payable increased by $30,000, and depreciation
expense of $15,000 was recorded. During 2013, operating activities
used net
cash of $5,000.
used net
cash of $23,000.
provided
net cash of $5,000.
provided
net cash of $23,000.
Ans: LO:
3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Starting
with net income and adjusting it for items that affected reported net income
but which did not affect cash is called the
direct
method.
indirect
method.
working
capital method.
cost-benefit
method.
Ans: LO:
3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
In
calculating net cash provided by operating activities using the indirect
method, an increase in prepaid expenses during a period is
deducted
from net income.
added to
net income.
ignored
because it does not affect income.
ignored
because it does not affect expenses.
Ans: LO:
3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Measurement, AICPA PC: None, IMA: FSA
Using
the indirect method, patent amortization expense for the period
is
deducted from net income.
causes
cash to increase.
causes
cash to decrease.
is added
to net income.
Ans: LO:
3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Measurement, AICPA PC: None, IMA: FSA
In
developing the cash flows from operating activities, most companies in the U.
S.
use the
direct method.
use the
indirect method.
present
both the indirect and direct methods in their financial reports.
prepare
the operating activities section on the accrual basis.
Ans: LO:
3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Measurement, AICPA PC: None, IMA: FSA
Each of
the following is added to net income in computing net cash provided by
operating activities except
amortization
expense.
an
increase in accrued expenses payable.
a gain
on sale of equipment.
a
decrease in inventory.
Ans: LO:
3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Which of
the following would be subtracted from net income using the indirect method?
Depreciation
expense
An
increase in accounts receivable
An
increase in accounts payable
A
decrease in prepaid expenses
Ans: LO:
3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Which of
the following would be added to net income using the indirect method?
An
increase in accounts receivable
An
increase in prepaid expenses
Depreciation
expense
A
decrease in accounts payable
Ans: LO:
3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Measurement, AICPA PC: None, IMA: FSA
Which of
the following would not be an adjustment to net income using the indirect
method?
Depreciation
Expense
An
increase in Prepaid Insurance
Amortization
Expense
An
increase in Land
Ans: LO:
3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Measurement, AICPA PC: None, IMA: FSA
In
calculating cash flows from operating activities using the indirect method, a
loss on the sale of equipment will appear as a(n)
subtraction
from net income.
addition
to net income.
addition
to cash flow from investing activities.
subtraction
from cash flow from investing activities.
Ans: LO:
3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Which of
the following adjustments to convert net income to net cash provided by
operating activities is correct?
Add to
Net Income Deduct from Net Income
Accounts
Receivable increase decrease
Prepaid
Expenses increase decrease
Inventory
decrease increase
Taxes
Payable decrease increase
Ans: LO:
3, Bloom: C, Difficulty: Easy, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Which of
the following adjustments to convert net income to net cash provided by
operating activities is incorrect?
Add to
Net Income Deduct from Net Income
Accounts
Receivable decrease increase
Prepaid
Expenses increase decrease
Inventory
decrease increase
Accounts
Payable increase decrease
Ans: LO:
3, Bloom: C, Difficulty: Easy, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Which of
the following adjustments to convert net income to net cash provided by
operating activities is not added to net income?
Gain on
Sale of Equipment
Depreciation
Expense
Patent
Amortization Expense
Depletion
Expense
Ans: LO:
3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Measurement, AICPA PC: None, IMA: FSA
Using
the indirect method, if equipment is sold at a gain, the
sale
proceeds received are deducted in the operating activities section.
sale
proceeds received are added in the operating activities section.
amount
of the gain is added in the operating activities section.
amount
of the gain is deducted in the operating activities section.
Ans: LO:
3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
A
company had net income of $210,000. Depreciation expense is $26,000. During the
year, Accounts Receivable and Inventory increased $15,000 and $40,000,
respectively. Prepaid Expenses and Accounts Payable decreased $2,000 and
$4,000, respectively. There was also a loss on the sale of equipment of $3,000.
How much cash was provided by operating activities?
$176,000
$182,000
$256,000
$268,000
Ans: LO:
3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
On the
statement of cash flows using the indirect method, patent amortization expense
will
be added
to net income in the operating section.
be
deducted from net income in the operating section.
appear
as an inflow of cash in the investing section.
appear
as an outflow of cash in the investing section.
Ans: LO:
3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
The
indirect and direct methods of preparing the statement of cash flows are
identical except for the
significant
noncash activity section.
operating
activities section.
investing
activities section.
financing
activities section.
Ans: LO:
3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Land
acquired from the issuance of common stock is reported
as a
financing activity.
as an
investing activity.
as an
operating activity.
in a
separate schedule at the bottom of the statement.
Ans: LO:
3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
In Numar
Company, Treasury Stock increased $25,000 from a cash purchase, and Retained
Earnings increased $75,000 as a result of net income of $120,000 and cash
dividends paid of $45,000. Net cash used by financing activities is:
$25,000.
$45,000.
$120,000.
$70,000.
Ans: LO:
3, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
In Flagg
Company, net income is $280,000. If accounts receivable increased $145,000 and
accounts payable decreased $50,000, net cash provided by operating activities
using the indirect method is:
$85,000.
$185,000.
$375,000.
$475,000.
Ans: LO:
3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
In
Stretch Company, there was an increase in the land account during the year of
$48,000. Analysis reveals that the change resulted form a cash sale of land at
cost $110,000, and a cash purchase of land for $158,000. In the statement of
cash flows, the change in the land account should be reported in the investment
section:
as a net
purchase of land, $48,000.
only as
a purchase of land $158,000.
as a
purchase of land $158,000 and a sale of land $110,000.
only as
a sale of land $110,000.
Ans: LO:
3, Bloom: AP, Difficulty: Hard, Min: 4, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
The
following data are available for Simpson Corporation.
Net
income $300,000
Depreciation
expense 60,000
Dividends
paid 90,000
Gain on
sale of land 15,000
Decrease
in accounts receivable 30,000
Decrease
in accounts payable 45,000
Net cash
provided by operating activities is:
$240,000.
$330,000.
$360,000.
$420,000.
Ans: LO:
3, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
The
following data are available for Nemo Corporation.
Sale of
land $250,000
Sale of
equipment $125,000
Issuance
of common stock 140,000
Purchase
of equipment 60,000
Payment
of cash dividends 120,000
Net cash
provided by investing activities is:
$315,000.
$260,000.
$335,000.
$455,000.
Ans: LO:
3, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
The
following data are available for Quarter Company.
Increase
in accounts payable $120,000
Increase
in bonds payable 400,000
Sale of
investments 150,000
Issuance
of common stock 180,000
Payment
of cash dividends 90,000
Net cash
provided by financing activities is:
$280,000.
$490,000.
$460,000.
$520,000.
Ans: LO:
3, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
If
$250,000 of bonds are issued during the year but $100,000 of old bonds are
retired during the year, the statement of cash flows will show a(n)
net
increase in cash of $150,000.
net
decrease in cash of $150,000.
increase
in cash of $250,000 and a decrease in cash of $100,000.
net gain
on retirement of bonds of $150,000.
Ans: LO:
3, 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
Which of
the following changes in retained earnings during a period will be reported in
the financing activities section of the statement of cash flows?
Declaration
and payment of a cash dividend during the period.
Net income
for the period.
1
2
Neither
1 nor 2.
Both 1
and 2.
Ans: LO:
3, 6, Bloom: C, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
The
statement of cash flows
is prepared
instead of an income statement under generally accepted accounting principles.
is used
to assess an entity's ability to pay dividends and meet obligations.
is
prepared from comparative income statements.
reflects
earnings per share figures on a cash basis and on an accrual basis in the body
of the statement.
Ans: LO:
3, 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
In
preparing the statement of cash flows, determining the net increase or decrease
in cash requires the use of
the
adjusted trial balance.
the
current period's balance sheet.
a
comparative balance sheet.
a
comparative income statement.
Ans: LO:
3, 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA
To
determine the net cash provided (used) by operating activities, it is necessary
to analyze
the
current year's income statement.
a
comparative balance sheet.
additional
information.
all of
these.
Ans: LO:
3, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
The
following data are available for Quarter Company.
Increase
in accounts payable $120,000
Increase
in bonds payable 400,000
Sale of
investments 150,000
Issuance
of common stock 180,000
Payment
of cash dividends 90,000
Net cash
provided by financing activities is:
$280,000.
$490,000.
$460,000.
$520,000.
Ans: LO:
3, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
If
$250,000 of bonds are issued during the year but $100,000 of old bonds are
retired during the year, the statement of cash flows will show a(n)
net
increase in cash of $150,000.
net
decrease in cash of $150,000.
increase
in cash of $250,000 and a decrease in cash of $100,000.
net gain
on retirement of bonds of $150,000.
Ans: LO:
3, 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
Which of
the following changes in retained earnings during a period will be reported in
the financing activities section of the statement of cash flows?
Declaration
and payment of a cash dividend during the period.
Net income
for the period.
1
2
Neither
1 nor 2.
Both 1
and 2.
Ans: LO:
3, 6, Bloom: C, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
The
statement of cash flows
is prepared
instead of an income statement under generally accepted accounting principles.
is used
to assess an entity's ability to pay dividends and meet obligations.
is
prepared from comparative income statements.
reflects
earnings per share figures on a cash basis and on an accrual basis in the body
of the statement.
Ans: LO:
3, 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
In
preparing the statement of cash flows, determining the net increase or decrease
in cash requires the use of
the
adjusted trial balance.
the
current period's balance sheet.
a
comparative balance sheet.
a
comparative income statement.
Ans: LO:
3, 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA
To
determine the net cash provided (used) by operating activities, it is necessary
to analyze
the
current year's income statement.
a
comparative balance sheet.
additional
information.
all of
these.
Ans: LO:
3, 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Which of
the following would not be needed to determine net cash provided by operating
activities?
Depreciation
expense
Change
in accounts receivable
Payment
of cash dividends
Change
in prepaid expenses
Ans: LO:
3, 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
When
equipment is sold for cash, the amount received is reflected as a cash
inflow
in the operating section.
inflow
in the financing section.
inflow
in the investing section.
outflow
in the operating section.
Ans: LO:
3, 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
The
statement of cash flows will not provide insight into
why
dividends were not increased.
whether
cash flow is greater than net income.
the
exact proceeds of a future bond issue.
how the
retirement of debt was accomplished.
Ans: LO:
3, 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA:
Business Economics
Which of
the following transactions would not be classified as a financing activity?
Purchase
of treasury stock
Payment
of dividends
Issuance
of bonds at a discount
Purchase
of a long-term investment in bonds
Ans: LO:
3, 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
A
measure that describes the cash remaining from operations after adjustment for
capital expenditures and dividends is
adjusted
cash from operations.
cash
provided by operations.
free
cash flow.
net cash
provided by operating activities.
Ans: LO:
4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Free
cash flow equals cash provided by
operations
less capital expenditures and cash dividends.
operations
less cash dividends.
investing
activities less capital expenditures and cash dividends.
operations
less capital expenditures.
Ans: LO:
4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Collins
Pest Control Products has the following information available:
Net
Income $25,000
Cash
Provided by Operations 31,000
Cash
Sales 65,000
Capital
Expenditures 11,000
Dividends
Paid 3,000
What is
Collins’ free cash flow?
$28,000
$20,000
$17,000
$11,000
Ans: LO:
4, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting
During
2013, Forman Industries reported cash provided by operations of $690,000, cash
used in investing of $1,029,000, and cash used in financing of $135,000. In
addition, cash spent for fixed assets during the period was $414,000. No
dividends were paid. Based on this information, what was Forman's free cash
flow?
($339,000)
$1,440,000
$276,000
($888,000)
Ans: LO:
4, Bloom: AN, Difficulty: Hard, Min: 5, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
All of
the following statements about free cash flow are false except:
Significant
free cash flow indicates less potential to finance new investments.
Free
cash flow is most commonly calculated by subtracting capital expenditures from
cash provided by operations and then adding cash dividends.
Free
cash flow is not reported on the statement of cash flows.
Significant
free cash flow indicates less potential to pay additional dividends.
Ans: LO:
4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
In the
Gannett Company, the beginning and ending balances in Land were $198,000 and
$240,000 respectively. During the year, land costing $50,000 was sold for
$50,000 cash, and land costing $92,000 was purchased for cash. The entries in
the reconciling columns of the worksheet will include a:
credit
to Land $50,000 and a debit to Sale of Land $50,000 under investing activities.
debit to
Land $92,000 and a credit to Purchase of Land $92,000 under financing
activities.
net
debit to Land $42,000 and a credit to Purchase of Land $42,000 under investing
activities.
credit
to Land $50,000 and a debit to Sale of Land $50,000 under financing activities.
Ans: LO:
5, Bloom: C, Difficulty: Hard, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting
When
listing accounts in the statement of cash flows worksheet, the accumulated
depreciation account is shown
with
accounts that have credit balances.
with
accounts that have debit balances.
as a
credit under the reconciling items.
as a
debit under the reconciling items.
Ans: LO:
5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
In the
bottom portion of the statement of cash flows worksheet,
inflows
of cash are debits in the reconciling columns.
outflows
of cash are debits in the reconciling columns.
information
pertaining to investing and financing activities only is entered.
only
significant noncash transactions are entered.
Ans: LO:
5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Measurement, AICPA PC: None, IMA: FSA
On the
statement of cash flows worksheet,
significant
noncash investing and financing activities are not entered in the reconciling
columns.
a
decrease in cash will be offset by a debit in the reconciling items columns at
the bottom of the worksheet.
an
increase in cash will be offset by a debit in the reconciling items column at
the bottom of the worksheet.
income
statement accounts are listed after balance sheet accounts in the top half of
the worksheet under the indirect method.
Ans: LO:
5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Measurement, AICPA PC: None, IMA: FSA
In the
Paper Corporation, cash receipts from customers were $138,000, cash payments
for operating expenses were $102,000, and one-third of the company's $6,300
income taxes were paid during the year. Net cash provided by operating
activities is:
$36,000.
$29,700.
$33,900.
$31,800.
Ans: LO:
6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
a 132.
Each of the following would be reported under operating activities except cash
receipts
from
sales of goods.
from
sales of investments.
of
interest on loans.
of
dividends from investments.
Ans: LO:
6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Which of
the following statements concerning the statement of cash flows is true?
The
statement of cash flows is usually more accurate when using the indirect
method.
If the
direct method is used, a supplementary schedule reconciling the net income to
net cash from operating activities must still be provided.
The
statement of cash flows reflects both earnings per share and cash per share.
The
statement of cash flows is an optional financial statement for external
reporting purposes.
Ans: LO:
6, Bloom: K, Difficulty: Easy, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
Crush
Company reports the following:
End of
Year Beginning of Year
Inventory
$27,000 $42,000
Accounts
Payable 32,000 12,000
If cost
of goods sold for the year is $210,000, the amount of cash paid to suppliers is
$215,000.
$205,000.
$175,000.
$245,000.
Ans: LO:
6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
During
the year, Salaries and Wages Payable decreased by $6,000. If Salaries Expense
amounted to $170,000 for the year, the cash paid to employees (including
deductions from gross pay) is
$176,000.
$170,000.
$164,000.
$182,000.
Ans: LO:
6, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
Gore
Company reports a $16,000 increase in inventory and a $6,000 increase in
accounts payable during the year. Cost of Goods Sold for the year was $160,000.
The cash payments made to suppliers were
$160,000.
$170,000.
$140,000.
$155,000.
Ans: LO:
6, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
Ranger
Company had credit sales of $550,000. The beginning accounts receivable balance
was $40,000 and the ending accounts receivable balance was $140,000. What were
the cash collections from customers during the period?
$650,000
$550,000
$450,000
$590,000
Ans: LO:
6, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
Hark
Inc. had cash sales of $400,000 and credit sales of $1,100,000. The accounts
receivable balance increased $25,000 during the year. How much cash did Hark
receive from its customers during the year?
$1,475,000
$1,075,000
$1,500,000
$725,000
Ans: LO:
6, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
Barry
Company had a cost of purchases of $250,000. The comparative balance sheet
analysis revealed a $10,000 decrease in inventory and a $20,000 increase in
accounts payable. What were Barry's cash payments to suppliers?
$230,000
$220,000
$260,000
$280,000
Ans: LO:
6, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
Thomas
Company had an increase in inventory of $45,000. The cost of goods sold was
$90,000. There was a $6,000 decrease in accounts payable from the prior period.
What were Thomas’ cash payments to suppliers?
$141,000
$51,000
$129,000
$96,000
Ans: LO:
6, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
Monitor
Company has other operating expenses of $250,000. There has been an increase in
prepaid expenses of $15,000 during the year, and accrued liabilities are
$22,000 lower than in the prior period. Using the direct method of reporting
cash flows from operating activities, what were Monitor's cash payments for
operating expenses?
$243,000
$257,000
$213,000
$287,000
Ans: LO:
6, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
a142.
Lager Company has other operating expenses of $75,000. There has been a
decrease in prepaid expenses of $4,000 during the year, and accrued liabilities
are $6,000 larger than in the prior period. What were Lager's cash payments for
operating expenses?
$77,000
$73,000
$65,000
$75,000
Ans: LO:
6, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
a143.
Damien Corporation shows income tax expense of $80,000. There has been a $5,000
decrease in federal income taxes payable and a $8,000 increase in state income
taxes payable during the year. What was Damien's cash payment for income taxes?
$80,000
$77,000
$75,000
$93,000
Ans: LO:
6, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
Which of
the following would not appear in the operating activities section of a
statement of cash flows prepared under the direct method?
Cash
receipts from customers
Cash
paid for income taxes
Gain on
sale of equipment
Cash
paid to employees
Ans: LO:
6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
The cost
of goods sold during the year was $185,000. Merchandise inventory decreased by
$6,000 during the year and accounts payable decreased by $3,000 during the
year. Using the direct method of reporting cash flows from operating
activities, cash payments for merchandise total
$188,000.
$182,000.
$176,000.
$194,000.
Ans: LO:
6, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
Bongo
Company reports a $25,000 increase in inventory and a $10,000 decrease in
accounts payable during the year. Cost of Goods Sold for the year was $180,000.
Using the direct method of reporting cash flows from operating activities, cash
payments made to suppliers were
$180,000.
$190,000.
$215,000.
$135,000.
Ans: LO:
6, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
During
2013, Uma Company had $160,000 in cash sales and $1,200,000 in credit sales.
The accounts receivable balances were $180,000 and $212,000 at December 31,
2012 and 2013, respectively. Using the direct method of reporting cash flows
from operating activities, what was the total cash collected from all customers
during 2013?
$1,168,000
$1,392,000
$1,360,000
$1,328,000
Ans: LO:
6, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
The
operating section of the Cash account includes debits for each fo the following
except:
depreciation
expense.
net
income.
a loss
on disposal of equipment.
an
increase in prepaid expenses.
Which of
the following steps is not required in preparing the statement of cash flows?
Determine
the net change in cash.
Determine
the net cash provided by operating activities.
Determine
cash from investing and financing activities.
Determine
the change in current assets.
Ans: LO:
2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
Financing
activities involve
lending
money to other entities and collecting on those loans.
cash
receipts from sales of goods and services.
acquiring
and disposing of productive long-lived assets.
long-term
liability and owners' equity items.
Ans: LO:
2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
The
information to prepare the statement of cash flows usually comes from each of
the following except
the
comparative balance sheet.
the
retained earnings statement.
additional
information.
the
current income statement.
Ans: LO:
2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Measurement, AICPA PC: None, IMA: FSA
The
statement of cash flows is prepared from all of the following except
the
adjusted trial balance.
comparative
balance sheets.
selected
transaction data.
the
current income statement.
Ans: LO:
2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
The
information in a statement of cash flows will not help investors to assess the
entity's ability to
generate
future cash flows.
obtain
favorable borrowing terms at a bank.
pay
dividends.
pay its
obligations when they become due.
Ans: LO:
1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
In
converting net income to net cash provided by operating activities, under the
indirect method:
decreases
in accounts receivable and increases in prepaid expenses are added.
decreases
in inventory and increases in accrued liabilities are added.
decreases
in accounts payable and decreases in inventory are deducted.
increases
in accounts receivable and increases in accrued liabilities are deducted.
Ans: LO:
3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
In the
Rogers Company, land decreased $75,000 because of a cash sale for $75,000, the
equipment account increased $20,000 as a result of a cash purchase, and Bonds
Payable increased $70,000 from an issuance for cash at face value. The net cash
provided by investing activities is
$75,000.
$125,000.
$55,000.
$50,000.
Ans: LO:
3, 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
a156.
When a worksheet is used, all but one of the following statements is correct.
The incorrect statement is
Reconciling
items on the worksheet are not journalized or posted.
The
bottom portion of the worksheet shows the statement of cash flows effects.
The
balance sheet accounts portion of the worksheet is divided into two parts:
assets, and liabilities and stockholders' equity.
Each
line pertaining to a balance sheet account should foot across.
Ans: LO:
5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory,
AICPA FN: Measurement, AICPA PC: None, IMA: FSA
Corgan
Company uses the direct method in determining net cash provided by operating
activities, During the year, operating expenses were $290,000, prepaid expenses
increased $20,000, and accrued expenses payable increased $30,000. Cash
payments for operating expenses were
$240,000.
$340,000.
$300,000.
$280,000.
Ans: LO:
6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
Bath Company
uses the direct method in determining net cash provided by operating
activities. The income statement shows income tax expense $80,000. Income taxes
payable were $35,000 at the beginning of the year and $25,000 at the end of the
year. Cash payments for income taxes are
$50,000.
$80,000.
$90,000.
$140,000.
Ans: LO:
6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: None, AICPA BB:
Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
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