Question 1

Under the indirect method of preparing the statement of cash flows, add backs to net income include all of the following except :

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Question 2

All of the following are firms that may experience a long lag between the expenditures of cash and the receipt of cash from customers, except :

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Question 3

The expense incurred by issuing stock options should be:

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Question 4

Kraco Corporation reported 2010 net income of $450,000, including the effects of depreciation expense of $60,000, and amortization expense on a patent of $10,000. Also, cash of $50,000 was borrowed on a 5-year note payable. Based on this data, total cash inflow from operating activities using the indirect method for 2010 was:

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Question 5

Academic research has found that market rates of return on common stock are the most highly correlated with:

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Question 6

A firm's cash flows will differ from net income each period for all of the following reasons except :

Accepted Answer

The reasons listed in option A, B, and D are all valid reasons why a firm's cash flows may differ from net income. However, sustaining losses each period would not affect the timing of cash inflows and outflows, which is the main reason why cash flows would differ from net income.

Question 7

Which of the following companies would you expect to report significant amounts of cash provided by financing activities?

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Question 8

Which of the following would not be a cash flow from investing activities?

Accepted Answer

Collection of interest revenue on a long-term note receivable would be considered a cash flow from operating activities, not investing activities. The other options all represent cash flows related to investing activities.

Question 9

Lag os Corp. recorded sales of $345,000 in 2010. In addition, its accounts receivable and accounts payable balances at the beginning and end of 2010 were as follows:
 How much cash did Lagos collect from customers in 2010?

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Question 10

Which of the following is a cash flow from operating activities?

Accepted Answer

Cash flow from operating activities includes transactions related to the primary operations of a business, such as buying and selling merchandise for resale. Options A, C, and D are related to investing and financing activities.

Question 11

Norton Company reported total sales revenue of $55,000, total expenses of $45,000, and net income of $10,000 on its income statement for the year ended December 31, 2010. During 2010, accounts receivable increased by $4,000, merchandise inventory increased by $6,000, accounts payable decreased by $2,000, and depreciation of $18,000 was recorded. Therefore, based only on this information, the net cash flow from operating activities using the indirect method for 2010 was:

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Question 12

Tinker Company reported sales revenue of $500,000 and total expenses of $450,000 (including depreciation) for the year ended December 31, 2010. During 2010, accounts receivable decreased by $5,000, merchandise inventory increased by $4,000, accounts payable increased by $6,000, and depreciation expense of $10,000 was recorded. Assuming no other data is needed and using the indirect method, the net cash inflow from operating activities for 2010 was:

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Question 13

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

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Question 14

Adophus, Inc.'s 2010 income statement reported total revenues of $850,000 and total expenses (including $40,000 depreciation) of $720,000. The 2010 balance sheet reported the following: accounts receivable beginning balance of $50,000 and ending balance of $40,000; accounts payable beginning balance of $22,000 and ending balance of $28,000. Therefore, based only on this information and using the indirect method, the 2010 net cash inflow from operating activities was:

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Question 15

As products move through the maturity phase, companies invest to ___________ productive capacity.

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Question 16

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

Accepted Answer

Amortization of patent is a non-cash transaction, meaning it does not involve any inflow or outflow of cash. A payment of cash dividend (A) and the purchase of stock (B) both involve a cash outflow, while the sale of equipment at book value (D) involves a cash inflow.

Question 17

As a complement to the balance sheet and the income statement, the statement of cash flows is an informative statement for analysts for all the following reasons except :

Accepted Answer

The existence of negative cash flows from operations cannot be eliminated by using the statement of cash flows. Instead, it can be used to identify the reasons for negative cash flows from operations and to analyze the sources and uses of a company's cash.

Question 18

A cash inflow from financing activities includes:

Accepted Answer

A cash inflow from financing activities includes the proceeds from the issuance of bonds payable. Options A, B, and D are examples of cash inflows from operating, investing, and financing activities, respectively.

Question 19

When net income is high relative to operating cash flows, we describe the firm as having recorded:

Accepted Answer

When net income is high relative to operating cash flows, it indicates that the firm has recorded income-increasing accruals. This suggests that the firm may be increasing its reported income through non-cash items, such as accounts receivables or inventory, rather than through actual cash inflows from operating activities.

Question 20

When net income is low relative to operating cash flows, we describe the firm as having recorded:

Accepted Answer

When net income is low relative to operating cash flows, it suggests that the firm may have recorded income-decreasing accruals. This means that the firm has recognized expenses before they have actually been paid or has delayed recognizing revenue until it is received in cash. This can artificially lower net income while still generating positive operating cash flows.

Quiz 3: Income Flows Versus Cash Flows: Understanding the Statement of Cash Flows