Question 1

When preparing a statement of cash flows using the direct method, accrual of payroll expense is:
A)Reported as an operating activity.
B)Reported as an investing activity.
C)Reported as a financing activity.
D)None of the above is correct.

Accepted Answer

The accrual of payroll expense is not directly reported in the statement of cash flows using the direct method. Instead, cash payments for payroll are reported as operating activities.

Question 2

Ludwig Company's prepaid rent was $9,000 at December 31, 2012, and $13,000 at December 31, 2013. Ludwig reported rent expense of $19,000 on the 2013 income statement. What amount would be reported in the statement of cash flows as rent paid using the direct method?
A)$15,000.
B)$19,000.
C)$23,000.
D)None of the above is correct.

Accepted Answer

To determine the amount of rent paid using the direct method, we need to adjust the rent expense for the change in prepaid rent. The prepaid rent increased by $4,000 ($13,000 - $9,000), meaning that $4,000 of rent was paid in advance and not included in the rent expense. Therefore, the amount of rent paid using the direct method is equal to $19,000 - $4,000 = $15,000. However, we need to add back the decrease in prepaid rent to the rent paid, which is $13,000 - $9,000 = $4,000. Thus, the amount reported in the statement of cash flows as rent paid using the direct method is $15,000 + $4,000 = $23,000 (Choice C).

Question 3

Which of the following is reported as an operating activity in the statement of cash flows?
A)The payment of dividends.
B)The sale of office equipment.
C)The payment of interest on long-term notes.
D)The issuance of a stock dividend.

Accepted Answer

The payment of interest on long-term notes is reported as an operating activity in the statement of cash flows, as it reflects the company's ongoing operational costs. The payment of dividends is reported as a financing activity, the sale of office equipment is reported as an investing activity, and the issuance of a stock dividend is not reported in the statement of cash flows at all.

Question 4

In a statement of cash flows in which operating activities are reported by the direct method, which of the following would increase reported cash flows from operating activities?
A)Gain on sale of equipment.
B)Interest revenue.
C)Gain on early extinguishment of bonds.
D)Proceeds from sale of lanD.The two gains are not cash flows.Proceeds from the sale of land are reported as a component of investing activities.

Accepted Answer

Interest revenue is a cash inflow from operating activities and would increase reported cash flows from operating activities. The other options, gain on sale of equipment and gain on early extinguishment of bonds, are not cash inflows from operating activities and therefore would not increase reported cash flows from operating activities. Proceeds from the sale of land are reported as a component of investing activities, not operating activities.

Question 5

On December 31, 2013, Wellstone Company reported net income of $70,000 and sales of $210,000. The company also reported beginning and ending accounts receivable at $20,000 and $25,000, respectively. Wellstone will report cash collected from customers in its 2013 statement of cash flows (direct method) in the amount of:
A)$215,000.
B)$285,000.
C)$135,000.
D)$205,000.

Accepted Answer

The cash collected from customers is calculated by adjusting sales for the change in accounts receivable. The increase in accounts receivable ($25,000 - $20,000 = $5,000) indicates that not all sales were collected in cash. Therefore, cash collected = Sales - Increase in Accounts Receivable = $210,000 - $5,000 = $205,000.

Question 6

Cash equivalents generally would not include short-term investments in:
A)Commercial paper.
B)Certificates of deposit.
C)Held-to-maturity securities.
D)Money market funds.

Accepted Answer

Held-to-maturity securities are not considered cash equivalents. Cash equivalents are highly liquid investments that have a maturity date of three months or less from the date of purchase, such as commercial paper, certificates of deposit, and money market funds. Held-to-maturity securities, on the other hand, are longer-term investments that a company intends to hold until maturity, and therefore are not considered highly liquid or readily convertible to cash.

Question 7

A firm reported salary expense of $239,000 for the current year. The beginning and ending balances in salaries payable were $40,000 and $15,000, respectively. What was the amount of cash paid for salaries?
A)$214,000.
B)$289,000.
C)$264,000.
D)$239,000.

Accepted Answer

To find the cash paid for salaries, we need to adjust for the change in salaries payable. The formula is:
Cash paid for salaries = Salary expense + Beginning salaries payable balance - Ending salaries payable balance
Plugging in the numbers, we get:
Cash paid for salaries = $239,000 + $40,000 - $15,000 = $264,000
Therefore, the correct answer is C.

Question 8

Which of the following is reported as an operating activity in the statement of cash flows?
A)The purchase of long-lived assets.
B)The acquisition of treasury stock.
C)The retirement of bonds.
D)The payment of prepaid insurance.

Accepted Answer

The payment of prepaid insurance is a reported operating activity in the statement of cash flows, as it is an expense that arises in the course of ordinary business operations. The purchase of long-lived assets, the acquisition of treasury stock, and the retirement of bonds are all investing or financing activities and would be reported in those sections of the statement of cash flows.

Question 9

When a company purchases a security it considers a cash equivalent, the cash outflow is:
A)Reported as an operating activity.
B)Reported as an investing activity.
C)Reported as a financing activity.
D)Not reported on a statement of cash flows.

Accepted Answer

The answer of When a company purchases a security it...

Question 10

Cost of goods sold as reported in the income statement will be less than cash paid to suppliers if:
A)The increase in accounts payable is greater than the increase in inventory during the period.
B)The decrease in accounts payable is equal to the increase in inventory during the period.
C)The decrease in accounts payable is less than the decrease in inventory during the period.
D)The increase in accounts payable is equal to the decrease in inventory during the period.

Accepted Answer

The answer of Cost of goods sold as reported in...

Question 11

Dooling Corporation reported balances in the following accounts for the current year:  Cost of goods sold was $7,500. What was the amount of cash paid to suppliers?
A)$7,000.
B)$7,200.
C)$7,300.
D)$7,500.

Accepted Answer

The answer of Dooling Corporation reported balances in the following...

Question 12

Cash paid to suppliers under the direct method is computed as:
A)Cost of goods sold plus a decrease in inventory and minus an increase in accounts payable.
B)Cost of goods sold plus an increase in inventory and minus an increase in accounts payable.
C)Cost of goods sold minus a decrease in inventory and plus an increase in accounts payable.
D)Cost of goods sold minus an increase in inventory and plus an increase in accounts payable.

Accepted Answer

The answer of Cash paid to suppliers under the direct...

Question 13

Using the direct method, cash received from customers is calculated as sales:
A)On account.
B)On account plus cash sales.
C)Plus an increase in accounts receivable.
D)Plus a decrease in accounts receivable.

Accepted Answer

The answer of Using the direct method, cash received from...

Question 14

A firm reported ($ in millions) net cash inflows (outflows) as follows: operating $75, investing ($200), and financing $350. The beginning cash balance was $250. What was the ending cash balance?
A)$875.
B)$25.
C)$475.
D)$125.

Accepted Answer

$75 - $200 + $350 + $250 = $475

Question 15

Pickering Company's prepaid insurance was $8,000 at December 31, 2012, and $10,000 at December 31, 2013. Pickering reported insurance expense of $15,000 on the 2013 income statement. What amount would be reported in the statement of cash flows as insurance paid using the direct method?
A)$13,000.
B)$17,000.
C)$15,000.
D)$23,000.

Accepted Answer

To determine the amount of insurance paid using the direct method, we need to find the change in the prepaid insurance balance during the year and adjust for any non-cash expenses.

Change in prepaid insurance balance = $10,000 - $8,000 = $2,000 (increase)

Insurance expense reported on the income statement = $15,000

Adjusting for non-cash expense:

Increase in prepaid insurance balance = $2,000

Insurance paid = Insurance expense - Increase in prepaid insurance balance

Insurance paid = $15,000 - $2,000 = $13,000

Therefore, the amount reported in the statement of cash flows as insurance paid using the direct method would be $17,000.

Question 16

If bond interest expense is $800,000, bond interest payable increased by $8,000 and bond discount decreased by $2,000, cash paid for bond interest is:
A)$790,000.
B)$784,000.
C)$806,000.
D)$910,000.

Accepted Answer

Cash paid for bond interest can be calculated by taking bond interest expense and adjusting for any changes in bond interest payable and bond discount.
Cash paid for bond interest = Bond interest expense + Increase in bond interest payable - Decrease in bond discount
= $800,000 + $8,000 - (-$2,000)
= $810,000
However, we are asked for the cash paid, which is the opposite of the change in bond interest payable and bond discount. Therefore, the answer is:
Cash paid for bond interest = Bond interest expense - Increase in bond interest payable + Decrease in bond discount
= $800,000 - $8,000 + $2,000
= $790,000

Question 17

During the year, cash increased by $300 million. Investing and financing activities created positive cash flow totaling $500 million. What were net cash flows from operating activities in the statement of cash flows?
A)Inflow of $300 million.
B)Outflow of $200 million.
C)Outflow of $300 million.
D)Inflow of $600 million.

Accepted Answer

$300 - $500 = ($200)

Question 18

Cash equivalents have each of the following characteristics except:
A)Little risk of loss.
B)Highly liquid.
C)Maturity of at least three months.
D)Short-term.

Accepted Answer

Cash equivalents are typically short-term, highly liquid investments with little risk of loss. However, there is no set maturity requirement for a cash equivalent, so option C is not a true characteristic of cash equivalents.

Question 19

Bowers Corporation reported the following ($ in 000s) for the year:  Sales on account were $1,900 for the year. How much cash was collected from customers on account?
A)$1,627.
B)$1,642.
C)$1,638.
D)$2,142.

Accepted Answer

The answer of Bowers Corporation reported the following ($ in...

Question 20

Lite Travel Company's accounting records include the following information:  What is the amount of net cash provided by operating activities indicated by the amounts provided?
A)$50,000.
B)$73,000.
C)$94,000.
D)$129,000.

Accepted Answer

Net cash provided by operating activities can be calculated using the indirect method from the statement of cash flows. The adjustments to net income are as follows:
Depreciation expense: $35,000 (added back)
Decrease in accounts receivable: $20,000 (added back)
Increase in prepaid expenses: $8,000 (subtracted)
Increase in accounts payable: $4,000 (added back)
Increase in income taxes payable: $6,000 (added back)
Net cash provided by operating activities = $35,000 + $20,000 + $4,000 + $6,000 - $8,000 = $73,000. Therefore, the best choice is B, $73,000.

Quiz 21: The Statement of Cash Flows Revisited

When preparing a statement of cash flows using the direct method, accrual of payroll expense is:

Ludwig Company's prepaid rent was $9,000 at December 31, 2012, and $13,000 at December 31, 2013. Ludwig reported rent expense of $19,000 on the 2013 income statement. What amount would be reported in the statement of cash flows as rent paid using the direct method?

Which of the following is reported as an operating activity in the statement of cash flows?

In a statement of cash flows in which operating activities are reported by the direct method, which of the following would increase reported cash flows from operating activities?

Cash equivalents generally would not include short-term investments in:

A firm reported salary expense of $239,000 for the current year. The beginning and ending balances in salaries payable were $40,000 and $15,000, respectively. What was the amount of cash paid for salaries?

Which of the following is reported as an operating activity in the statement of cash flows?

When a company purchases a security it considers a cash equivalent, the cash outflow is:

Cost of goods sold as reported in the income statement will be less than cash paid to suppliers if:

Dooling Corporation reported balances in the following accounts for the current year: Cost of goods sold was $7,500. What was the amount of cash paid to suppliers?

Cash paid to suppliers under the direct method is computed as:

Using the direct method, cash received from customers is calculated as sales:

A firm reported ($ in millions) net cash inflows (outflows) as follows: operating $75, investing ($200) , and financing $350. The beginning cash balance was $250. What was the ending cash balance?

Pickering Company's prepaid insurance was $8,000 at December 31, 2012, and $10,000 at December 31, 2013. Pickering reported insurance expense of $15,000 on the 2013 income statement. What amount would be reported in the statement of cash flows as insurance paid using the direct method?

If bond interest expense is $800,000, bond interest payable increased by $8,000 and bond discount decreased by $2,000, cash paid for bond interest is:

During the year, cash increased by $300 million. Investing and financing activities created positive cash flow totaling $500 million. What were net cash flows from operating activities in the statement of cash flows?

Cash equivalents have each of the following characteristics except:

Bowers Corporation reported the following ($ in 000s) for the year: Sales on account were $1,900 for the year. How much cash was collected from customers on account?

Lite Travel Company's accounting records include the following information: What is the amount of net cash provided by operating activities indicated by the amounts provided?