Question 1

Which of the following independent transactions would cause net income to be more than cash from operating activities?
A) A decrease in the accounts receivable account
B) An increase in the merchandise inventory account
C) An increase in the accounts payable account
D) An increase in the accrued wages payable account

Accepted Answer

An increase in the merchandise inventory account would cause net income to be more than cash from operating activities because it represents an increase in assets without a corresponding decrease in cash. This results in a decrease in cash flow from operating activities, but it is not necessarily indicative of lower profitability. The other options would either decrease assets or increase liabilities, both of which would decrease net income.

Question 2

Which of the following items involving current trade accounts receivable is most likely to appear in a statement of cash flows?
A) The balance in the allowance for doubtful accounts
B) The change in net sales
C) Sales returns and allowances
D) Collection of an account previously written off

Accepted Answer

Collection of an account previously written off would be included in the cash flows from operating activities section of the statement of cash flows, as it represents cash received for a previous sale. The balance in the allowance for doubtful accounts (A) represents an estimate of potential bad debts and is not a cash transaction. The change in net sales (B) and sales returns and allowances (C) are both components of net sales and are included in the determination of operating cash flows, but they do not directly involve current trade accounts receivable.

Question 3

Jacquin Corporation reports its income from investments under the equity method and recognized income of $15,000 from its investment in Trapper Company during the current year.Trapper declared no dividends during the current year.On Jacquin's statement of cash flows the $15,000 would
A) be shown as cash from investing activities.
B) be shown as an addition to net income in the reconciliation of net income to cash from operations.
C) be shown as a deduction from net income in the reconciliation of net income to cash from operations.
D) not be shown.

Accepted Answer

The $15,000 income from the investment in Trapper Company is recognized under the equity method, which means that it is included as a part of net income. However, since Trapper declared no dividends, there is no cash flow related to this income. Therefore, the $15,000 would need to be deducted from net income in the reconciliation of net income to cash from operations on Jacquin's statement of cash flows.

Question 4

Which of the following investments should be classified as cash equivalents for Lastima Company in preparing the statement of cash flows? 
A) 2,3
B) 2,4
C) 2,3,4
D) 1,2,3,4

Accepted Answer

The answer of Which of the following investments should be...

Question 5

On a statement of cash flows prepared using the direct method,cash paid for income taxes would be income tax expense minus
A) an increase in income taxes payable.
B) a decrease in income taxes payable.
C) beginning income taxes payable.
D) ending income taxes payable.

Accepted Answer

On a statement of cash flows prepared using the direct method, cash paid for income taxes is calculated by subtracting any change in income taxes payable from income tax expense. Therefore, the correct answer is A, which represents income tax expense minus an increase in income taxes payable.

Question 6

Which of the following is a non-cash transaction that should be disclosed in a schedule accompanying the statement of cash flows?
A) Sale of an investment for cash
B) Purchase of a machine for cash
C) Issuance of common stock in exchange for land
D) Declaration and payment of a cash dividend on common stock

Accepted Answer

The issuance of common stock in exchange for land is a non-cash transaction that should be disclosed in a schedule accompanying the statement of cash flows. Non-cash transactions are events that do not involve the exchange of cash, but have an impact on cash or cash equivalents. The sale of an investment for cash and the purchase of a machine for cash are both cash transactions and would be reflected in the statement of cash flows. The declaration and payment of a cash dividend on common stock would also be reflected in the statement of cash flows.

Question 7

Proceeds from the sale of investments in common stock accounted for by the equity method would be classified into which of the following sections of the statement of cash flows?
A) Operating
B) Investing
C) Financing
D) Non-cash item

Accepted Answer

Proceeds from the sale of investments in common stock are considered to be investing activities, as they involve the sale of a long-term asset. Operating activities involve the day-to-day operations of the business, while financing activities involve the acquisition or repayment of long-term liabilities or equity. Non-cash items refer to items that do not involve the exchange of cash, such as depreciation or amortization expenses.

Question 8

Which of the following is NOT required by generally accepted accounting principles?
A) Statement of cash flows
B) Earnings per share
C) Cash per share
D) Disclosure in notes to financial statements of the projected benefit obligation of a defined-benefit pension plan

Accepted Answer

While a statement of cash flows and earnings per share are required under GAAP, cash per share is not a recognized financial statement. Additionally, while disclosure of pension plan obligations is required, it is not specifically required to be disclosed in the notes to the financial statements.

Question 9

When preparing a reconciliation of net income to cash from operations,an increase in the ending inventory over the beginning inventory will result in an adjustment to reported net income because
A) cash is increased because inventory is a current asset.
B) inventory is an expense deducted in computing net earnings,but is not a use of cash.
C) the net increase in inventory is part of the difference between cost of goods sold and cash paid to suppliers.
D) all changes in noncash accounts must be disclosed.

Accepted Answer

The net increase in inventory indicates that the company has more inventory at the end of the period than at the beginning, which suggests that the company has purchased more inventory than it has sold (in terms of cost of goods sold). This difference is part of the reconciliation between the cost of goods sold (an expense that reduces net income) and the actual cash paid to suppliers, as not all inventory purchased might have been sold within the period.

Question 10

Which of the following would appear in both the operating activities section of the direct method format and the reconciliation of earnings to net operating cash flow format?
A) Sale of cash equivalents at a gain
B) Sale of cash equivalents at cost
C) Dividends received on equity method investments
D) Collection of an account receivable previously written off

Accepted Answer

Dividends received on equity method investments appear in the operating activities section under both the direct method and the reconciliation (indirect) method because they are considered operating cash inflows.

Question 11

In the preparation of a statement of cash flows,adjustments to net income to reconcile net income to cash from operating activities include
A) amortization of organization cost.
B) the difference between the purchase price and the resale price of treasury stock (assuming the cost method of accounting for treasury stock).
C) dividends received.
D) redemption premium on preferred stock redeemed during the period.

Accepted Answer

The preparation of a statement of cash flows involves adjusting net income to reconcile it with cash from operating activities. Amortization of organization cost is a non-cash expense that is added back to net income to arrive at cash flows from operating activities. Options B, C, and D do not involve adjustments to net income for the purpose of reconciling it with cash from operating activities.

Question 12

Choose the combination that best reflects the appropriate classification of cash paid for operating,investing and financing activities. Operating Investing Financing
A) Cash paid to suppliers Interest paid Dividends paid
B) Interest paid Cash paid to suppliers Income taxes paid
C) Income taxes paid Purchase of stock of another entity Dividends paid
D) Dividends paid Income taxes paid Cash paid to suppliers

Accepted Answer

Operating activities include transactions related to the primary operations of the company, such as income taxes paid and cash paid to suppliers. Investing activities involve the purchase and sale of long-term assets and investment securities, like the purchase of stock of another entity. Financing activities involve transactions with creditors and investors, such as paying dividends.

Question 13

Which of the following causes a change in the amount of cash held by a company?
A) Write-off of a bad debt
B) Declaration of a cash dividend
C) Payment of a cash dividend declared in a previous period
D) Declaration and issuance of a stock dividend

Accepted Answer

The payment of a cash dividend declared in a previous period results in an outflow of cash, thus changing the amount of cash held by the company.

Question 14

Which of the following would be reported in the operating,investing,or financing sections of the statement of cash flows prepared under the indirect method?
A) Declaration of an unpaid cash dividend
B) Acquisition of a factory warehouse by issuing long-term debt
C) Gain on the sale of cash equivalents
D) Write-off of an uncollectible account receivable

Accepted Answer

A gain on the sale of cash equivalents would be reported in the operating section of the statement of cash flows under the indirect method, as it is an adjustment to net income.

Question 15

A change in unearned revenue would be classified into which of the following categories for purposes of disclosure in the statement of cash flows?
A) Operating cash flow
B) Investing cash flow
C) Financing cash flow
D) As an item reconciling earnings and operating cash flow

Accepted Answer

Changes in unearned revenue are not considered cash transactions, but rather a reconciliation item between earnings and operating cash flow. As such, they are reported as an adjustment in the operating activities section of the statement of cash flows. Therefore, option D is the correct answer.

Question 16

Choose the combination that best reflects the appropriate classification of cash received from operating,investing and financing activities. Operating Investing Financing
A) Cash paid by customers Sale of operational assets Issuance of bonds payable
B) Dividends received Cash paid by customers Issuance of bonds payable
C) Sale of operational assets Dividends received Cash paid by customers
D) Issuance of bonds payable Sale of operational assets Dividends received

Accepted Answer

Cash received from operating activities includes cash from customers for goods or services provided. 
Cash received from investing activities includes cash from the sale of operational assets such as property, plant, and equipment. 
Cash received from financing activities includes cash from the issuance of bonds payable.

Question 17

Under the direct method,cash paid to suppliers can be computed as cost of goods sold for the period
A) minus a decrease in inventory and plus an increase in accounts payable.
B) plus a decrease in inventory and minus an increase in accounts payable.
C) minus an increase in inventory and plus an increase in accounts payable.
D) plus an increase in inventory and minus an increase in accounts

Accepted Answer

Under the direct method, cash paid to suppliers is calculated by taking the cost of goods sold, adding any increase in inventory (since more inventory means more cash spent), and subtracting any increase in accounts payable (since an increase in payables means less cash was paid out).

Question 18

Which of the following transactions would not be reported on the statement of cash flows?
A) Purchase of treasury stock
B) Declaration of a cash dividend which has not yet been paid
C) Patent amortization
D) Purchase of an operational asset by issuing common stock

Accepted Answer

The declaration of a cash dividend that has not yet been paid is not reported on the statement of cash flows because it does not involve an actual cash transaction until the dividend is paid.

Question 19

A gain on the sale of a plant assets should be included in which of the following sections of a statement of cash flows prepared using the indirect method?
A) Investing activities
B) Operating activities
C) Financing activities
D) Non-cash investing and financing activities

Accepted Answer

In the indirect method, gains on the sale of plant assets are subtracted from net income in the operating activities section because they are non-cash items that were included in net income.

Question 20

Which of the following is NOT classified as an operating activity?
A) Interest received
B) Interest paid
C) Dividends received
D) Dividends paid

Accepted Answer

Dividends paid are classified as financing activities, not operating activities. Operating activities include the cash flows directly related to earning income, such as interest received, interest paid, and dividends received.

Quiz 21: Statement of Cash Flows Revisited

Which of the following independent transactions would cause net income to be more than cash from operating activities?

Which of the following items involving current trade accounts receivable is most likely to appear in a statement of cash flows?

Jacquin Corporation reports its income from investments under the equity method and recognized income of $15,000 from its investment in Trapper Company during the current year.Trapper declared no dividends during the current year.On Jacquin's statement of cash flows the $15,000 would

Which of the following investments should be classified as cash equivalents for Lastima Company in preparing the statement of cash flows?

On a statement of cash flows prepared using the direct method,cash paid for income taxes would be income tax expense minus

Which of the following is a non-cash transaction that should be disclosed in a schedule accompanying the statement of cash flows?

Proceeds from the sale of investments in common stock accounted for by the equity method would be classified into which of the following sections of the statement of cash flows?

Which of the following is NOT required by generally accepted accounting principles?

When preparing a reconciliation of net income to cash from operations,an increase in the ending inventory over the beginning inventory will result in an adjustment to reported net income because

Which of the following would appear in both the operating activities section of the direct method format and the reconciliation of earnings to net operating cash flow format?

In the preparation of a statement of cash flows,adjustments to net income to reconcile net income to cash from operating activities include

Choose the combination that best reflects the appropriate classification of cash paid for operating,investing and financing activities. Operating Investing Financing

Which of the following causes a change in the amount of cash held by a company?

Which of the following would be reported in the operating,investing,or financing sections of the statement of cash flows prepared under the indirect method?

A change in unearned revenue would be classified into which of the following categories for purposes of disclosure in the statement of cash flows?

Choose the combination that best reflects the appropriate classification of cash received from operating,investing and financing activities. Operating Investing Financing

Under the direct method,cash paid to suppliers can be computed as cost of goods sold for the period

Which of the following transactions would not be reported on the statement of cash flows?

A gain on the sale of a plant assets should be included in which of the following sections of a statement of cash flows prepared using the indirect method?

Which of the following is NOT classified as an operating activity?