Deck 11: Statement of Cash Flows

Question 1

The indirect and direct methods:

A) are used by companies about equally in actual practice.
B) affect the presentations of operating, investing, and financing activities.
C) arrive at different amounts for net cash flows from operating activities.
D) are two allowable methods to present operating activities in the statement of cash flows.

Answer 1

D

Question 2

Which of the following is not true regarding cash flows?

A) Operating activities include the payment of dividends.
B) Investing activities involve long-term investments.
C) Financing activities involve long-term liabilities and equities.
D) Purchasing a building with a note is considered a noncash activity.

Answer 2

A

Question 3

The issuance of notes payable for borrowing is classified in the statement of cash flows as a(n):

A) Operating activity.
B) Investing activity.
C) Financing activity.
D) Noncash activity.

Answer 3

C

Question 4

Under what section of the Statement of Cash Flows would you classify the purchase of equipment by issuing a long-term note payable?

A) Operating.
B) Investing.
C) Financing.
D) Noncash activity.

Question 5

Dividends received from an investment is classified as a(an) __________ cash flow, and paying dividends on stock issued is classified as a(an) ____________ cash flow on the Statement of Cash Flows.

A) Operating; Operating.
B) Operating; Financing.
C) Financing; Operating.
D) Investing; Financing.

Question 6

The purchase of treasury stock is classified in the statement of cash flows as a(n):

A) Operating activity.
B) Investing activity.
C) Financing activity.
D) Noncash activity.

Question 7

Which of the following is correct about the statement of cash flows?

A) A company with a net loss on the income statement will always have a net cash outflow from operating activities.
B) A purchase of equipment is classified as a cash inflow from investing activities.
C) Cash dividends received on stock investments are classified as cash flows from operating activities.
D) Cash dividends paid are classified as cash flows from operating activities.

Question 8

The collection of cash from customers would be classified as which type of cash flow on the Statement of Cash Flows?

A) Financing.
B) Investing.
C) Operating.
D) Not reported on the statement of cash flows.

Question 9

Arrow Printers paid $2,000 interest on short-term notes payable, $10,000 interest on long-term bonds, and $6,000 in dividends on its common stock. Arrow would report cash outflows from activities, as follows:

A) Operating, $2,000; Financing $16,000.
B) Operating, $0; Financing $18,000.
C) Operating, $12,000; Financing $6,000.
D) Operating, $18,000; Financing $0.

Question 10

The statement of cash flows reports cash flows from the activities of:

A) Operating, purchasing, and investing.
B) Borrowing, paying, and investing.
C) Operating, investing, and financing.
D) Using, investing, and financing.

Question 11

Which of the following is an example of a noncash activity?

A) Sale of land for less than its cost.
B) Purchase of land by issuing debt.
C) Sale of land for more than its cost.
D) Purchase of land using cash proceeds from issuance of common stock.

Question 12

Under what section of the Statement of Cash Flows would you classify dividends paid on common stock?

A) Operating.
B) Investing.
C) Financing.
D) Noncash activity.

Question 13

In the operating activities section of the statement of cash flows, we start with net income when using:

A) the direct method.
B) the indirect method.
C) both the direct and the indirect method.
D) neither the direct nor the indirect method.

Question 14

Bad Brad's would report net cash inflows (outflows) from operating activities in the amount of:

A) $(80).
B) $120.
C) $200.
D) $420.

Question 15

Which of the following transactions would not create a cash flow?

A) The company purchased some of its own stock from a stockholder.
B) Payment of a dividend.
C) The company purchased land by issuing common stock.
D) Sale of equipment at book value.

Question 16

Which one of the following is correct about the statement of cash flows?

A) A company with a net loss will always have a cash outflow from operating activities.
B) Collecting interest earned from a note receivable creates a cash inflow from investing activities.
C) Paying dividends to investors creates a cash outflow from financing activities.
D) The repayment of long-term debt is a cash inflow from financing activities.

Question 17

Operating cash flows exclude:

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

Question 18

The purchase of land is classified in the statement of cash flows as a(n):

A) Operating activity.
B) Investing activity.
C) Financing activity.
D) Noncash activity.

Question 19

All classifications on the Balance Sheet have a general relationship with sections identified on the Statement of Cash Flows. Indicate which relationships are correctly identified in the table below. $\begin{array}{|c|c|c|}\hline \# & \begin{array}{c}\text { Classification on the Balance } \\\text { Sheet }\end{array} & \begin{array}{c}\text { Section on Statement of Cash } \\\text { Flows }\end{array} \\\hline \text { I } & \text { Bonds Payable } & \text { Financing } \\\hline \text { II } & \text { Equipment } & \text { Operating } \\\hline \text { III } & \text { Common Stock } & \text { Financing } \\\hline \text { IV } & \text { Accounts Payable } & \text { Operating } \\\hline \text { V } & \text { Accounts Receivable } & \text { Operating } \\\hline\end{array}$

A) IV, V.
B) I, II, III.
C) I, III, IV, V.
D) All five are correct.

Question 20

The Statement of Cash Flows:

A) lists all cash flows over the life of a company.
B) breaks down all cash transactions into Investing and Financing cash flows.
C) shows that the change in total cash from one year to the next is equal to the net operating, investing, and financing cash flows.
D) has two methods for Investing Cash Flows - direct and indirect.

Question 21

Kela Corporation reports net income of $450,000 that includes depreciation expense of $70,000. Also, cash of $50,000 was borrowed on a 5-year note payable. Based on this data, total cash inflows from operating activities are:

A) $380,000.
B) $470,000.
C) $520,000.
D) $570,000.

Question 22

Which of the following is an example of a cash outflow from an investing activity?

A) Payment of cash for treasury stock.
B) Payment of cash for the purchase of land.
C) Payment of cash for inventory.
D) Payment on a long-term note payable.

Question 23

Nevada Boot Co. reported net income of $205,000 Beginning and ending Inventory balances were $40,000 and $45,000, respectively. Accounts Payable balances at the beginning and end of the year were $35,000 and $33,000, respectively. Assuming that all relevant information has been presented, Nevada Boot would report operating cash flows of:

A) $202,000.
B) $198,000.
C) $212,000.
D) $205,000.

Question 24

In preparing a statement of cash flows under the indirect method, a decrease in accounts receivable would be reported or included as a(n):

A) Addition to net income in the operating activities section.
B) Deduction from net income in the operating activities section.
C) Financing activity.
D) Investing activity.

Question 25

Which of the following is NOT a correct practice when adjusting net income to net operating cash flows?

A) Subtract depreciation expense.
B) Add losses on sales of assets.
C) Subtract increase in Accounts Receivable.
D) Add increase in Accounts Payable.

Question 26

Which of the following is deducted from net income as an adjustment under the indirect method of preparing the statement of cash flows?

A) Salaries payable decrease.
B) Inventory decrease.
C) Depreciation expense.
D) Accounts receivable decrease.

Question 27

Which of the following statements is true?
A. Investment in another company's common stock is classified as a cash outflow from financing activities on the Statement of Cash Flows.
B. Repayment of long-term debt is classified as a cash outflow from investing activities on the Statement of Cash Flows.
C. Losses on the sale of long-term assets are an adjustment reported in the operating activities section of the Statement of Cash Flows under the indirect method.
D. Dividends paid are classified as a cash outflow from operating activities on the Statement of Cash Flows.

Question 28

Assuming Net Income for the year is $115,000, what is the Operating Cash Flows given the following information: $$\begin{array} { l r } \text { Increase in Salaries Payable } & \$ 15,000 \\\text { Depreciation Expense } & \$ 6,000 \\\text { Increase in Prepaid Rent } & \$ 24,000 \\\text { Loss on sale of asset } & \$ 1,000 \\\text { Increase in Accounts Payable } & \$ 25,000 \\\text { Increase in Inventory } & \$ 50,000\end{array}$$

A) $112,000.
B) $88,000.
C) $118,000.
D) $188,000.

Question 29

Assume net income was $100,000, depreciation expense was $8,000, accounts receivable decreased by $7,500, and accounts payable decreased by $2,500. The amount of cash flows from operating activities is:

A) $103,000.
B) $100,000.
C) $108,000.
D) $113,000.

Question 30

Which of the following is an example of a cash inflow from a financing activity?

A) Issuance of bonds.
B) Sale of an intangible asset.
C) Receipt of cash dividends.
D) Purchase of land.

Question 31

In preparing a statement of cash flows under the indirect method, an increase in accounts payable would be reported as a(n):

A) Addition to net income in the operating activities section.
B) Deduction from net income in the operating activities section.
C) Financing activity.
D) Investing activity.

Question 32

Given the items below, which of the following is a subtraction from net income to arrive at Operating Cash Flows using the indirect method? I. Loss on sale of assets
II. Increase in Supplies
III. Increase in Accounts Payable
IV. Depreciation expense

A) II. only.
B) IV. only.
C) I. and II.
D) II. and III.

Question 33

Allen Company's income statement reported total revenues, $850,000 and total expenses (including $40,000 depreciation) of $720,000. The balance sheet reported the following: Accounts Receivable-beginning balance, $50,000 and ending balance, $60,000; Accounts Payable-beginning balance, $22,000 and ending balance, $28,000. Therefore, based only on this information, the net cash inflows from operating activities were:

A) $126,000.
B) $166,000.
C) $174,000.
D) $186,000.

Question 34

Which of the following is added to net income as an adjustment under the indirect method of preparing the statement of cash flows?

A) Salaries payable increase.
B) Gain on the sale of land.
C) Inventory increase.
D) Accounts receivable increase.

Question 35

Rachel's Recordings reported net income of $200,000. Beginning balances in Accounts Receivable and Accounts Payable were $15,000 and $20,000, respectively. Ending balances in these accounts were $12,000 and $22,000, respectively. Assuming that all relevant information has been presented, Rachel's cash flows from operating activities would be:

A) $200,000.
B) $195,000.
C) $205,000.
D) $199,000.

Question 36

We can identify operating activities from income statement information and changes in

A) Long-term asset accounts.
B) Long-term liability accounts.
C) Current asset and current liability accounts.
D) Stockholders' equity accounts.

Question 37

Bad Brad's would report net cash inflows (outflows) from investing activities in the amount of:

A) $(4,000).
B) $100.
C) $(3,900).
D) $(1,900).

Question 38

Bad Brad's would report net cash inflows (outflows) from financing activities in the amount of:

A) $1,100.
B) $(1,100).
C) $820.
D) $900.

Question 39

Mary's Music Store reported net income of $135,000. Beginning balances in Accounts Receivable and Accounts Payable were $29,000 and $26,000, respectively. Ending balances in these accounts were $30,000 and $24,000, respectively. Assuming that all relevant information has been presented, Mary's cash flows from operating activities would be:

A) $132,000.
B) $134,000.
C) $136,000.
D) $138,000.

Question 40

Lense Laboratories' net income was $250,000. Given the account information below, what is the net operating cash flows for Lense Laboratories? $$\begin{array} { | l | r | } \hline \text { Increase in Accounts Receivable } & \$ 60,000 \\\hline \text { Increase in Salaries Payable } & \$ 50,000 \\\hline \text { Decrease in Inventory } & \$ 30,000 \\\hline \text { Depreciation Expense } & \$ 45,000 \\\hline \text { Increase in Prepaid Insurance } & \$ 3,000 \\\hline\end{array}$$

A) $152,000.
B) $278,000.
C) $312,000.
D) $438,000.

Question 41

We can separate cash return on assets into:

A) Cash flow to sales and return on assets.
B) Cash flow to sales and asset turnover.
C) Cash flow to sales and profit margin.
D) Profit margin and asset turnover.

Question 42

Cash flows from investing activities do not include:

A) Proceeds from the sale of land.
B) Proceeds from the issuance of common stock.
C) Proceeds from the sale of marketable securities.
D) Cash outflows from acquiring land.

Question 43

We calculate cash return on assets as

A) The change in cash divided by average total assets.
B) Net cash flows from operating activities divided by average total assets.
C) The change in cash divided by ending total assets.
D) Met cash flows from operating activities divided by ending total assets.

Question 44

Cash flows from investing activities do not include cash flows from:

A) Lending.
B) The sale of equipment.
C) Borrowing.
D) The purchase of land and buildings.

Question 45

Which of the following statements is not true relating to cash flow analysis?

A) Cash return on assets indicates the amount of operating cash flow generated for each dollar invested in assets.
B) To maximize cash flow from operations, a company strives to increase both cash flow per dollar of sales and sales per dollar of assets invested.
C) Cash return on assets can be separated to examine two important business strategies: cash flow to sales and asset turnover.
D) Positive cash flow from operations is not important to a company's survival in the long-run.

Question 46

Cash flows from financing activities include:

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

Question 47

The balance sheet of Sound Designs reports total assets of $750,000 and $800,000 at the beginning and end of the year, respectively. Sales revenues are $1.5 million ($1.2 million in the previous year), net income is $150,000, and net cash flows from operating activities are $175,000. What is Sound Designs' cash return on assets?

A) 19.4%.
B) 21.9%.
C) 22.6%.
D) 18.8%.

Question 48

The balance sheet of Tech Track reports total assets of $400,000 and $500,000 at the beginning and end of the year, respectively. Sales revenues are $1.1 million ($0.8 million in the previous year), net income is $40,000, and net cash flows from operating activities are $50,000. How does Tech Track's cash flow to sales ratio compare to the industry average of 5%?

A) Better.
B) Worse.
C) Same as.
D) Cannot be determined with the data provideD.

Question 49

Cash received from issuing common stock would be classified in which section of the Statement of Cash Flows?

A) Operating
B) Investing
C) Financing
D) Not shown

Question 50

Cash paid for financing activities would include cash paid for:

A) the stock of another company.
B) dividends to stockholders.
C) the purchase of treasury stock.
D) b and c.

Question 51

The balance sheet of Tech Track reports total assets of $400,000 and $500,000 at the beginning and end of the year, respectively. Sales revenues are $1.1 million ($0.8 million in the previous year), net income is $40,000, and net cash flows from operating activities are $50,000. How does Tech Track's cash return on assets compare to the industry average of 10%?

A) Better.
B) Worse.
C) Same as.
D) Cannot be determined with the data provideD.

Question 52

During 2012, Smithson Corp. had the following cash flows: receipt from customers, $10,000; receipt from the bank for long-term borrowing, $6,000; payment to suppliers, $5,000; payment of dividends, $1,000, payment to workers, $2,000; and payment for machinery, $8,000. What amount would be reported for investing cash flows on the Statement of Cash Flows?

A) $5,000.
B) $2,000.
C) $6,000.
D) ($8,000).

Question 53

_________ is an investing cash flow and ________ is a financing cash flow, as reported on the Statement of Cash Flows.

A) Issuing bonds; selling investments.
B) Purchasing land; repaying a bank loan.
C) Receiving cash from the sale of inventory; paying cash dividends.
D) Purchasing treasury stock; lending cash to an employee.

Question 54

The following information pertains to Alpha Computing at the end of 2012: $$\begin{array} { | l | r | } \hline \text { Assets } & \$ 970,000 \\\hline \text { Liabilities } & \$ 560,000 \\\hline \text { Net Income } & \$ 90,000 \\\hline \text { Common Stock } & \$ 350,000 \\\hline\end{array}$$ Alpha Computing's Retained Earnings account had a zero balance at the beginning of 2012. What amount of dividends did the company pay in 2012?

A) $280,000.
B) $150,000.
C) $30,000.
D) $80,000.

Question 55

The balance sheet of Tech Track reports total assets of $400,000 and $500,000 at the beginning and end of the year, respectively. Sales revenues are $1.1 million ($0.8 million in the previous year), net income is $40,000, and net cash flows from operating activities are $50,000. How does Tech Track's asset turnover compare to the industry average of 2.4 times?

A) Better.
B) Worse.
C) Same as.
D) Cannot be determined with the data provideD.

Question 56

Shively Mfg. Co. sold land costing $10,000 for $12,000. Shively would report:

A) Operating cash inflows of $12,000.
B) Investing cash inflows of $12,000.
C) Financing cash inflows of $12,000.
D) Financing cash inflows of $2,000.

Question 57

Which of the following would be classified as an investing cash flow?

A) Issue bonds.
B) Receive cash in advance from a customer.
C) Sell a piece of equipment below cost.
D) Repurchase the company's own shares of common stock.

Question 58

During 2012, Smithson Corp. had the following cash flows: receipt from customers, $10,000; receipt from the bank for long-term borrowing, $6,000; payment to suppliers, $5,000; payment of dividends, $1,000, payment to workers, $2,000; and payment for machinery, $8,000. What amount would be reported for financing cash flows on the Statement of Cash Flows?

A) $5,000.
B) $2,000.
C) $6,000.
D) ($8,000).

Question 59

The balance sheet of Sound Designs reports total assets of $750,000 and $800,000 at the beginning and end of the year, respectively. Sales revenues are $1.5 million ($1.2 million in the previous year), net income is $150,000, and net cash flows from operating activities are $175,000. What is Sound Designs' asset turnover?

A) 2.0 times.
B) 1.7 times.
C) 0.5 times.
D) 1.9 times.

Question 60

The balance sheet of Sound Designs reports total assets of $750,000 and $800,000 at the beginning and end of the year, respectively. Sales revenues are $1.5 million ($1.2 million in the previous year), net income is $150,000, and net cash flows from operating activities are $175,000. What is Sound Designs' cash flow to sales?

A) 22.6%.
B) 11.7%.
C) 14.6%.
D) 13.0%.

Question 61

The three primary categories of cash flows are cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities.

Question 62

A company's Income Tax Payable account decreased from $14 million to $12 million during the year. If its income tax expense was $80 million, what would be shown as cash paid for income taxes under the direct method?

A) A cash outflow of $12 million.
B) A cash outflow of $78 million.
C) A cash outflow of $80 million.
D) A cash outflow of $82 million.

Question 63

Wireless Technologies reports cost of goods sold of $40 million. Inventory at the beginning and end of the year are $4 million and $3 million, respectively. Accounts payable at the beginning and end of the year are $3 million and $6 million, respectively. What is the amount of cash paid to suppliers?

A) $40 million.
B) $36 million.
C) $44 million.
D) $42 million.

Question 64

Operating activities are both inflows and outflows of cash resulting from the external financing of a business.
Financing activities are both inflows and outflows of cash resulting from the external financing of a business.

Question 65

Which of the following items is reported in the statement of cash flows using the direct method?

A) Depreciation expense.
B) Gain on sale of an asset.
C) Cash received from customers.
D) Loss on sale of an asset.

Question 66

Wireless Technologies reports operating expenses of $2 million. Operating expenses include rent expense. Prepaid rent at the beginning and end of the year are $20,000 and $70,000, respectively. All other operating expenses were paid in cash as incurred. What is the amount of cash paid for operating expenses?

A) $2,000,000.
B) $2,070,000.
C) $1,950,000.
D) $2,050,000.

Question 67

A statement of cash flows provides a summary of cash inflows and cash outflows during the reporting period.

Question 68

Wireless Technologies reports sales of $50 million. Accounts receivable at the beginning and end of the year are $5 million and $7 million, respectively. What is the amount of cash received from customers?

A) $50 million.
B) $52 million.
C) $48 million.
D) $55 million.

Question 69

Data Solutions reports income tax expense of $1,700,000. Income taxes payable at the beginning and end of the year are $250,000 and $370,000, respectively. What is the amount of cash paid for income taxes?

A) $1,700,000.
B) $1,820,000.
C) $2,070,000.
D) $1,580,000.

Question 70

Data Solutions reports cost of goods sold of $75 million. Inventory at the beginning and end of the year are $8 million and $9 million, respectively. Accounts payable at the beginning and end of the year are $5 million and $3 million, respectively. What is the amount of cash paid to suppliers?

A) $78 million.
B) $72 million.
C) $75 million.
D) $76 million.

Question 71

Data Solutions reports operating expenses of $5 million. Operating expenses include rent expense. Prepaid rent at the beginning and end of the year are $120,000 and $80,000, respectively. All other operating expenses were paid in cash as incurred. What is the amount of cash paid for operating expenses?

A) $5,000,000.
B) $5,040,000.
C) $4,960,000.
D) $5,080,000.

Question 72

Which of the following items is not reported in the operating section of the statement of cash flows using the direct method?

A) Depreciation expense.
B) Cash paid to suppliers.
C) Cash received from customers.
D) Cash paid for income taxes.

Question 73

The balance sheet of Storage Solutions reports total assets of $300,000 and $350,000 at the beginning and end of the year, respectively. The cash return on assets for the year is 10%. What is Storage Solutions' net cash flows from operating activities for the year?

A) $25,000.
B) $30,000.
C) $32,500.
D) $35,000.

Question 74

Data Solutions reports sales of $100 million. Accounts receivable at the beginning and end of the year are $6 million and $9 million, respectively. What is the amount of cash received from customers?

A) $100 million.
B) $103 million.
C) $97 million.
D) $109 million.

Question 75

We report interest and dividends received from investments with investing activities.
We report interest and dividends received from investments with operating activities rather than investing activities.

Question 76

Schneider Inc. purchases its inventory from suppliers on account. During the year, its Inventory account increased by $10 million and its accounts payable to suppliers decreased by $3 million. Cost of goods sold was $440 million, its cash outflows to inventory suppliers totaled:

A) $453 million.
B) $447 million.
C) $433 million.
D) $427 million.

Question 77

Financing activities include cash receipts and cash payments for transactions relating to revenue and expense activities.
Operating activities include cash receipts and cash payments for transactions relating to revenue and expense activities.

Question 78

Wireless Technologies reports income tax expense of $800,000. Income tax payable at the beginning and end of the year are $50,000 and $70,000, respectively. What is the amount of cash paid for income taxes?

A) $780,000.
B) $800,000.
C) $820,000.
D) $870,000.

Question 79

In 2012, Hope Company incurred sales on account of $100,000. The company also has the following information: $$\begin{array} { | l | c | c | } \hline & \text { December 31, 2011 } & \text { December 31, 2012 } \\\hline \text { Accounts Receivable } & \$ 50,000 & \$ 20,000 \\\hline \text { Accounts Payable } & \$ 65,000 & \$ 40,000 \\\hline\end{array}$$ What is the amount of cash received from customers for Hope Company in 2012?

A) $100,000.
B) $45,000.
C) $130,000.
D) $70,000.

Question 80

Investing activities include cash transactions involving the purchase and sale of long-term assets and current investments.