Question 1

When using the T-account approach to preparing the indirect method of the statement of cash flows,which of the following would be associated with amounts entered on the credit side of the Cash T-account?

Accepted Answer

A)  Increase in Inventory
B)  Decrease in Accounts Receivable
C)  Decrease in Inventory
D)  Increase in Accrued LiabilitiesE) B) and C)
F) A) and D)

Question 2

What is the purpose of the statement of cash flows?

Accepted Answer

A)  It is intended to provide a cash-based view of a company.
B)  It illustrates the profitability of a company.
C)  It reports the financial position of a company at a specific point in time.
D)  It outlines the changes in stockholders' equity accounts from the beginning of the period to the end of the period.E) None of the above
F) All of the above

Question 3

What is the starting point for calculating cash flows from operations when the indirect method is used?

Accepted Answer

A)  Net income from the income statement.
B)  Calculate the net change in the cash account.
C)  Add the change in accounts receivable to sales revenue.
D)  Identify the balance sheet accounts that relate to operating activities.E) B) and C)
F) All of the above

Question 4

When the direct method is used to determine the cash flows from operating activities,which of the following adjustments must be made to income tax expense to determine total income tax payments?

Accepted Answer

A)  Add all changes in income taxes and income taxes payable.
B)  Add decreases in income taxes payable and subtract increases in income taxes payable.
C)  Add increases in income taxes payable and subtract decreases in income taxes payable.
D)  Subtract all changes in income taxes payable.E) All of the above
F) A) and C)

Question 5

The difference between net income and cash flow may be due to all of the following except:

Accepted Answer

A)  use of the direct method of presenting cash flows from operating activities.
B)  the company being brand new.
C)  fraudulent financial reporting.
D)  seasonal variations in a company's operating activities.E) None of the above
F) A) and B)

Question 6

Depreciation is added back to net income in a statement of cash flows prepared using the indirect method because it:

Accepted Answer

A)  reduces net income but not cash.
B)  is a cash inflow.
C)  is a revenue.
D)  is a valuation concept.E) None of the above
F) B) and C)

Question 7

When preparing the operating activities section of the statement of cash flows using the indirect method,an increase in Income Taxes Payable is added to net income.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements about cash flows from financing activities is correct?

Accepted Answer

A)  When a company borrows from lenders,a cash outflow from financing activities has occurred.
B)  When a company receives cash dividends,a cash inflow from financing activities has occurred.
C)  When a company repurchases its own stock,a cash outflow for financing activities has occurred.
D)  When a company pays cash dividends,a cash inflow from financing activities has occurred.E) None of the above
F) B) and C)

Question 9

Match each term with the appropriate definition.Not all definitions will be used.
-Supplemental Disclosures

Accepted Answer

A)  A measure of the amount by which current assets exceed current liabilities.
B)  Cash inflows and outflows related to the sale or purchase of investments and long-lived assets.
C)  Include assets that are very liquid and are purchased by the entity within three months of maturity.
D)  These activities include only purchases made with borrowed funds.
E)  Must include cash paid for interest and income tax in a separate schedule.F) Measures the ability of a company to finance its interest payments with its operating cash flow before taxes and interest.G) Cash inflows and outflows related to financing sources external to the company (owners and lenders) .H) These activities include money lent by a company as well as money borrowed by a company.I) Reports the components of cash flows from operating activities as gross receipts and gross payments.J) This ratio uses net income instead of operating cash flow to analyze a company's ability to finance the cost of its debt.K) Cash inflows and outflows related to components of net income.L) Presents the operating activities section of the cash flow statement by adjusting net income to compute cash flows from operating activities.M) A) and D)
N) G) and L)

Question 10

The payment of interest on bonds is classified as a cash outflow from operating activities on the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 11

Match each term with the appropriate definition.Not all definitions will be used.
-Financing Activities

Accepted Answer

A)  A measure of the amount by which current assets exceed current liabilities.
B)  Cash inflows and outflows related to the sale or purchase of investments and long-lived assets.
C)  Include assets that are very liquid and are purchased by the entity within three months of maturity.
D)  These activities include only purchases made with borrowed funds.
E)  Must include cash paid for interest and income tax in a separate schedule.F) Measures the ability of a company to finance its interest payments with its operating cash flow before taxes and interest.G) Cash inflows and outflows related to financing sources external to the company (owners and lenders) .H) These activities include money lent by a company as well as money borrowed by a company.I) Reports the components of cash flows from operating activities as gross receipts and gross payments.J) This ratio uses net income instead of operating cash flow to analyze a company's ability to finance the cost of its debt.K) Cash inflows and outflows related to components of net income.L) Presents the operating activities section of the cash flow statement by adjusting net income to compute cash flows from operating activities.M) C) and E)
N) I) and J)

Question 12

Match each term with the appropriate definition.Not all definitions will be used.
-Cash Inflow

Accepted Answer

A)  Results from activities such as purchases of goods and assets,payment of debt,payment of cash dividends,and payment of taxes.
B)  The starting point for calculating operating cash flows with the direct method.
C)  The percent of a company's net cash flow that comes from investing and financing activities.
D)  A balance sheet that shows the starting and ending balance of the different accounts;it is used to calculate the net cash flow provided by operating activities.
E)  Purchases and sales of this are classified as operating activities.F) Reported as supplement disclosures or in the notes section to the financial statements rather than within the body of the statement of cash flows.G) Cash flows from operations in excess of amount paid to replace property,plant and equipment and to pay cash dividends to stockholders.H) Cash flows in excess of net income.I) Purchases and sales of this are classified as investing activities.J) Results from activities such as sales of goods and assets,receipt of cash dividends,and receipts of interest.K) A financial statement that tracks the flow of cash into and out of a company according to the three types of activities that generate the flows.L) An adjustment made when using the indirect method of calculating cash flows from operating activities.M) Cash a company receives that is not subject to income tax.N) The starting point for calculating operating cash flows with the indirect method.O) E) and I)
P) B) and F)

Question 13

Repayments of loans will be reported as a:

Accepted Answer

A)  cash outflow under financing activities.
B)  cash inflow under financing activities.
C)  cash outflow under investing activities.
D)  cash inflow under investing activities.E) All of the above
F) A) and B)

Question 14

Strawbale,Inc.purchases a $600,000 building,paying $400,000 in cash and signing a $200,000 promissory note.What will be reported on the statement of cash flows as a result of this transaction?

Accepted Answer

A)  A $600,000 cash outflow from investing activities
B)  A $400,000 cash outflow from investing activities and a $200,000 cash inflow from financing activities
C)  A $400,000 cash outflow from investing activities and a $200,000 noncash transaction
D)  A $600,000 cash outflow from investing activities and a $200,000 cash inflow from financing activitiesE) A) and D)
F) B) and D)

Question 15

Using the T-account approach to preparing the statement of cash flows,an increase in Accounts Payable would appear on the debit side of the Cash account.

Accepted Answer

A) True 
 B)False

Question 16

All of the following might be used to evaluate cash flow performance,except:

Accepted Answer

A)  the absolute amount of cash flow.
B)  whether cash flow is positive or negative.
C)  the relationship between net income and cash flow.
D)  the trend in sales and operating expenses.E) All of the above
F) None of the above

Question 17

Marvin Industries owns a piece of equipment with a cost of $78,000 and accumulated depreciation of $51,000.The equipment is sold for $30,000 cash.The amount that should be reported as a cash inflow from investing activities is:

Accepted Answer

A)  $30,000.
B)  $3,000.
C)  $27,000.
D)  $0;this transaction is a financing activity.E) A) and C)
F) C) and D)

Question 18

Which of the following would be included in cash flows from operating activities?

Accepted Answer

A)  Cash received from customers.
B)  Cash received from an issuance of bonds.
C)  Cash dividends paid to stockholders.
D)  Cash used for purchases of equipment.E) B) and C)
F) A) and B)

Question 19

Assume that the indirect method is used to determine net cash provided by (used in) operating activities and that Prepaid Insurance decreased during the year.That decrease is added to net income because:

Accepted Answer

A)  the company paid additional premiums this period in excess of the Insurance Expense recorded on the income statement.
B)  a decrease in Prepaid Insurance causes an increase in Insurance Expense and a decrease in net income,but it does not involve cash so it is added back to net income.
C)  it includes the impact of increasing cash and increasing net income.
D)  it accounts for purchasing more insurance during the period than has been expensed.E) A) and B)
F) A) and C)

Question 20

The approach to preparing the cash flow statement relies on the following rearrangement of the balance sheet equation:
Change in cash = Change in (Liabilities + Stockholders' Equity + Noncash Assets).

Accepted Answer

A) True 
 B)False

Exam 12: Statement of Cash Flows

Strawbale,Inc.purchases a $600,000 building,paying $400,000 in cash and signing a $200,000 promissory note.What will be reported on the statement of cash flows as a result of this transaction?

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What is the purpose of the statement of cash flows?

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The payment of interest on bonds is classified as a cash outflow from operating activities on the statement of cash flows.

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Repayments of loans will be reported as a:

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Which of the following would be included in cash flows from operating activities?

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When using the T-account approach to preparing the indirect method of the statement of cash flows,which of the following would be associated with amounts entered on the credit side of the Cash T-account?

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When the direct method is used to determine the cash flows from operating activities,which of the following adjustments must be made to income tax expense to determine total income tax payments?

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Assume that the indirect method is used to determine net cash provided by (used in) operating activities and that Prepaid Insurance decreased during the year.That decrease is added to net income because:

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What is the starting point for calculating cash flows from operations when the indirect method is used?

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When preparing the operating activities section of the statement of cash flows using the indirect method,an increase in Income Taxes Payable is added to net income.

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The difference between net income and cash flow may be due to all of the following except:

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Match each term with the appropriate definition.Not all definitions will be used. -Financing Activities

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Using the T-account approach to preparing the statement of cash flows,an increase in Accounts Payable would appear on the debit side of the Cash account.

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Which of the following statements about cash flows from financing activities is correct?

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Marvin Industries owns a piece of equipment with a cost of $78,000 and accumulated depreciation of $51,000.The equipment is sold for $30,000 cash.The amount that should be reported as a cash inflow from investing activities is:

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All of the following might be used to evaluate cash flow performance,except:

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Match each term with the appropriate definition.Not all definitions will be used. -Cash Inflow

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Depreciation is added back to net income in a statement of cash flows prepared using the indirect method because it:

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The approach to preparing the cash flow statement relies on the following rearrangement of the balance sheet equation: Change in cash = Change in (Liabilities + Stockholders' Equity + Noncash Assets).

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Match each term with the appropriate definition.Not all definitions will be used. -Supplemental Disclosures

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