Question 1

Which of the following statements is not true?

Accepted Answer

A)  The statement of cash flows can be used to assess the likelihood of a company paying dividends.
B)  Net cash flow is the best measure of profitability since it doesn't rely on estimates.
C)  A company can have positive net income but at the same time have negative cash flow.
D)  The statement of cash flows is the only financial statement that reports business activities.E) All of the above
F) A) and C)

Question 2

Assume a company uses the direct method to prepare its statement of cash flows.If the company's accounts receivable increase during the accounting period,the change in accounts receivable is:

Accepted Answer

A)  added to the change in the cash account to calculate cash collected from customers.
B)  subtracted from sales revenue to calculate the cash collected from customers.
C)  added to sales revenue to calculate the cash collected from customers.
D)  subtracted from the change in the cash account to calculate cash collected from customers.E) None of the above
F) A) and C)

Question 3

If a company's sales revenue was $171,356 and cash collected from customers was $167,803,which of the following would be consistent with this difference?

Accepted Answer

A)  Accounts receivable could have decreased.
B)  Cash payments could have been larger than the expense accounts.
C)  Accounts receivable could have increased.
D)  Cash payments could have been smaller than the expense accounts.E) None of the above
F) C) and D)

Question 4

Which of the following statements regarding preparation of the statement of cash flows is true?

Accepted Answer

A)  GAAP currently allows the indirect method only.
B)  IFRS currently allows the direct method only.
C)  The IASB and the FASB are considering requiring the direct method.
D)  The IASB and the FASB are considering requiring the indirect method.E) A) and B)
F) A) and C)

Question 5

A gain or loss from selling equipment is reported under cash flows from operating activities using the direct method.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following would be classified as an investing activity on the statement of cash flows?

Accepted Answer

A)  Cash received from sale of land.
B)  Cash paid for interest.
C)  Cash received from stock issuance.
D)  Dividends paid.E) B) and D)
F) A) and B)

Question 7

Which of the following statements regarding the reporting of operating cash flows using the direct method is true?

Accepted Answer

A)  Although most U.S.companies use the indirect method,the Financial Accounting Standards Board (FAS
B)  prefers the direct method of accounting for cash flows from operating activities.
B)  The FASB prefers the indirect method of calculating cash flows from operations because it gives a more accurate calculation of cash provided by operating activities.
C)  The direct method results in a larger amount of cash flow from operating activities than does the indirect method.
D)  The direct and indirect methods use different presentations for cash flows from investing and financing activities.E) A) and B)
F) A) and D)

Question 8

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

Accepted Answer

A)  Cash proceeds from sales.
B)  Cash received from a sale of land.
C)  Dividends paid to stockholders.
D)  Cash used to purchases of equipment.E) A) and B)
F) None of the above

Question 9

When preparing the operating activities section of the statement of cash flows using the indirect method,a decrease in accounts receivable is subtracted from net income.

Accepted Answer

A) True 
 B)False

Question 10

When using the spreadsheet approach for the indirect method to calculate cash flows from operating activities,net income would be found as:

Accepted Answer

A)  a debit to the Retained Earnings account.
B)  the difference between revenues and expenses.
C)  a credit to the Retained Earnings account.
D)  the difference between gains and losses.E) B) and D)
F) None of the above

Question 11

Assume a company uses the indirect method to prepare its statement of cash flows.If the supplies account increases and accounts payable decreases during an accounting period,what does the company do with the changes in these accounts to calculate cash flows from operating activities?

Accepted Answer

A)  Both are added to net income.
B)  The change in accounts payable is added to net income;the change in supplies is subtracted.
C)  Both are subtracted from net income.
D)  The change in supplies is added to net income;the change in accounts payable is subtracted.E) A) and C)
F) B) and D)

Question 12

If cost of goods sold is $145,000 and the beginning and ending inventory balances are $18,000 and $13,000,respectively,the net purchases of inventory are:

Accepted Answer

A)  $145,000
B)  $140,000
C)  $150,000
D)  $132,000E) None of the above
F) C) and D)

Question 13

Which of the following statements is true?

Accepted Answer

A)  Accrual-based net income can be manipulated because it is based on estimates.
B)  Cash flows are easily manipulated because they are based on estimates.
C)  Accrual-based net income is not easily manipulated because valuation for such items as bad debts and inventory are precise and based on objectively verifiable information.
D)  Cash flows are not easily manipulated because they are generated by internal transactions and do not involve external parties.E) B) and C)
F) A) and C)

Question 14

When the net cash flows from operating,investing,and financing activities are combined to arrive at the overall net change in cash,a net decrease in cash is subtracted from the beginning cash balance to calculate the ending cash balance.

Accepted Answer

A) True 
 B)False

Question 15

Cash flows from operating activities include all of the following except:

Accepted Answer

A)  a purchase of land.
B)  collections from customers on account.
C)  payments to employees for hours worked.
D)  receipt of dividends.E) A) and D)
F) All of the above

Question 16

A company has positive cash flow from investing and financing activities,but negative cash flow from operating activities.The likely result is

Accepted Answer

A)  investors may not buy the company's stock because dividends are unlikely.
B)  investors will continue to buy stock since the company's growth prospects are good.
C)  creditors will continue to lend money to the company.
D)  creditors will demand immediate repayment of all outstanding debt.E) B) and C)
F) A) and B)

Question 17

Which of the following statements regarding the calculation of cash flows from operating activities under the direct method is true?

Accepted Answer

A)  When the direct method is used,each revenue and expense account on the income statement is individually examined to calculate the cash flows from operating activities.
B)  Noncash revenues and expenses must be included in cash flows from operating activities when preparing a statement of cash flows using the direct method.
C)  Depreciation is reported as a cash inflow in the cash flows from operating activities when the direct method is used.
D)  A loss on the sale of a long-term asset is subtracted in the cash flows from operating activities when the direct method is used.E) None of the above
F) A) and B)

Question 18

Using the T-account approach:

Accepted Answer

A)  Net income appears on the debit side of the cash account under operating activities.
B)  Payment of long-term debt appears on the debit side of the cash account under financing activities.
C)  Purchase of equipment appears on the credit side of the cash account under operating activities.
D)  An increase in accounts receivable appears on the debit side of the cash account.E) A) and B)
F) A) and D)

Question 19

Which of the following statements regarding cash flows from investing activities is true?

Accepted Answer

A)  The proceeds from sales of investments are reported as cash inflows from investing activities.
B)  Cash flows from investing activities are calculated by making adjustments to net income.
C)  Cash paid to acquire long-lived assets is reported as a cash inflow from investing activities.
D)  Cash received from issuing a long-term payable is reported as a cash inflow from investing activities.E) A) and C)
F) B) and C)

Question 20

The purchase of $100,000 of equipment by issuing a note would be reported:

Accepted Answer

A)  as a $100,000 investing inflow,and a $100,000 financing outflow.
B)  as a $100,000 investing outflow,and a $100,000 financing inflow.
C)  as a $100,000 operating inflow,and a $100,000 financing outflow.
D)  in a supplementary schedule.E) All of the above
F) A) and B)

Exam 12: Statement of Cash Flows

Which of the following statements regarding cash flows from investing activities is true?

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Assume a company uses the direct method to prepare its statement of cash flows.If the company's accounts receivable increase during the accounting period,the change in accounts receivable is:

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Which of the following statements is not true?

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Using the T-account approach:

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The purchase of $100,000 of equipment by issuing a note would be reported:

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If a company's sales revenue was $171,356 and cash collected from customers was $167,803,which of the following would be consistent with this difference?

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Which of the following statements regarding the reporting of operating cash flows using the direct method is true?

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Cash flows from operating activities include all of the following except:

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Which of the following statements regarding the calculation of cash flows from operating activities under the direct method is true?

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When using the spreadsheet approach for the indirect method to calculate cash flows from operating activities,net income would be found as:

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Which of the following statements regarding preparation of the statement of cash flows is true?

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A gain or loss from selling equipment is reported under cash flows from operating activities using the direct method.

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When preparing the operating activities section of the statement of cash flows using the indirect method,a decrease in accounts receivable is subtracted from net income.

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Assume a company uses the indirect method to prepare its statement of cash flows.If the supplies account increases and accounts payable decreases during an accounting period,what does the company do with the changes in these accounts to calculate cash flows from operating activities?

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If cost of goods sold is $145,000 and the beginning and ending inventory balances are $18,000 and $13,000,respectively,the net purchases of inventory are:

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When the net cash flows from operating,investing,and financing activities are combined to arrive at the overall net change in cash,a net decrease in cash is subtracted from the beginning cash balance to calculate the ending cash balance.

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Which of the following would be classified as an investing activity on the statement of cash flows?

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A company has positive cash flow from investing and financing activities,but negative cash flow from operating activities.The likely result is

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

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Which of the following statements is true?

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