Question 1

Which of the following is not a purpose of the statement of cash flows?
A)To show cash flow from operations
B)To show cash flow from financing activities
C)To show cash flow from investing activities
D)To show all investing and financing transactions
E)To show operating expenses for a period of time

Accepted Answer

The statement of cash flows does not show operating expenses for a period of time. Its main purpose is to provide information on the cash inflows and outflows of a company categorized into operating, investing, and financing activities.

Question 2

In a statement of cash flows (indirect method),depreciation expense should be presented as:
A)a cash flow from financing activities.
B)a cash flow from investing activities.
C)a deduction from net income.
D)an addition to net income.
E)a financial activity.

Accepted Answer

Depreciation expense is a non-cash charge that reduces net income on the income statement. In the statement of cash flows (indirect method), it is added back to net income because it does not involve an outflow of cash, thus adjusting net income to arrive at cash provided by operating activities.

Question 3

Which of the following is not a typical cash flow under financing activities?
A)Cash inflow from sale of equity securities
B)Cash inflow from sale of bonds
C)Cash outflow for payment of dividends
D)Cash outflow for loans to other entities
E)Cash outflow for payment of amounts borrowed

Accepted Answer

The other options are examples of typical cash flows under financing activities, such as issuing equity or receiving funds from the sale of bonds. Paying dividends and interest on borrowed funds are also common cash outflows. However, providing loans to other entities would be considered a cash flow under investing activities, not financing activities.

Question 4

Working capital is defined as:
A)total assets less intangible assets.
B)current assets divided by current liabilities.
C)current assets less current liabilities.
D)total assets less current assets.
E)current assets less liabilities.

Accepted Answer

Working capital is the difference between a company's current assets and its current liabilities. It represents the funds that a company has available to cover its short-term financial obligations. Option A refers to net assets, option B is the current ratio, option D is incorrect as it subtracts current assets twice, and option E is incomplete as it does not specify which type of liabilities are subtracted from current assets.

Question 5

Which of the following accounts is not part of working capital?
A)Cash
B)Accounts receivable
C)Inventory
D)Accounts payable
E)Investments

Accepted Answer

Working capital refers to the current assets and liabilities that are used in the day-to-day operations of a business. Cash, accounts receivable, inventory, and accounts payable are all part of working capital. Investments are not considered part of working capital because they are long-term assets held for investment purposes and not used in the day-to-day operations of the business.

Question 6

Tim Company had sales of $30,000,increase in accounts payable of $5,000,decrease in accounts receivable of $1,000,increase in inventories of $4,000,and depreciation expense of $4,000.What was the cash collected from customers?
A)$31,000
B)$35,000
C)$34,000
D)$25,000
E)$26,000

Accepted Answer

The cash collected from customers can be calculated by adjusting the sales for changes in accounts receivable. Since there was a decrease in accounts receivable of $1,000, it means that $1,000 of sales that were previously not collected in cash are now collected. Therefore, the cash collected from customers is $30,000 (sales) + $1,000 (decrease in accounts receivable) = $31,000. Changes in accounts payable, inventories, and depreciation expense do not affect the cash collected from customers directly.

Question 7

The retirement of debt by the issuance of common stock should be presented in a statement of cash flows in which of the following sections?
A)
Supplemental schedule of noncash investing and financing activities
B)Cash flows from operating activities
C)Cash flows from investing activities
D)Cash flows from financing activities
E)Supplemental schedule to reconcile net income to net cash provided by operations

Accepted Answer

The retirement of debt by issuing common stock is a noncash transaction that does not affect the cash flows directly. Therefore, it should be reported in the supplemental schedule of noncash investing and financing activities, not in the main body of the cash flow statement.

Question 8

Which of the following is not a typical cash flow under investing activities?
A)Cash inflow from receipt of loans
B)Cash inflow from sale of property,plant,and equipment
C)Cash outflow for payment of amounts borrowed
D)Cash outflow for loans to other entities
E)Cash outflow for purchase of property,plant,and equipment

Accepted Answer

Cash outflow for payment of amounts borrowed is typically classified under financing activities, not investing activities.

Question 9

Which of the following should not be considered as part of "cash and cash equivalents"?
A)Cash on hand
B)Cash on deposit
C)Highly liquid investments
D)Investments in short-term securities (<90 day maturity)
E)Cash restricted for retirement of bonds

Accepted Answer

Cash restricted for retirement of bonds would not be considered part of "cash and cash equivalents" because it is designated for a specific purpose and cannot be used for general business operations.

Question 10

Which of the following accounts will not be considered when computing cash flow from operations?
A)Accounts receivable
B)Inventories
C)Equipment
D)Accounts payable
E)Taxes payable

Accepted Answer

Accounts receivable, inventories, accounts payable, and taxes payable are all considered when computing cash flow from operations. However, equipment is a non-current asset and its purchase or sale would be reflected in the investing section of the cash flow statement.

Question 11

Which of the following transactions is not reflected in a statement of cash flows?
A)Sale of treasury stock
B)Declaration of a stock dividend
C)Purchase of foreign subsidiary with cash
D)Issuance of convertible bonds
E)Purchase of equipment with cash

Accepted Answer

Declaration of a stock dividend does not involve any cash transactions, hence it would not be reflected in a statement of cash flows. The other options involve cash transactions and would be reflected in the statement of cash flows.

Question 12

Francis Company had operating expenses of $20,000 and depreciation expenses of $4,000.Assuming no other transactions,what was the cash paid for operating expenses?
A)$24,000
B)$22,000
C)$16,000
D)$20,400
E)$23,000

Accepted Answer

Depreciation expenses are non-cash expenses, which means no cash was actually paid for it. Therefore, the cash paid for operating expenses would be equal to the total operating expenses, which is $20,000. So the correct answer is option C, $16,000.

Question 13

Which of the following is not a typical cash flow under operating activities?
A)Cash inflows from sale of goods or services
B)Cash inflows from interest
C)Cash outflows to employees
D)Cash outflows to suppliers
E)Cash inflows from sale of property,plant,and equipment

Accepted Answer

Cash inflows from the sale of property, plant, and equipment would fall under investing activities, not operating activities.

Question 14

Conroy Company had sales of $50,000,increase in accounts payable of $4,000,decrease in accounts receivable of $3,000,tax expense of $5,000,and an increase in taxes payable of $1,000.What was the cash outflow for taxes?
A)$54,000
B)$4,000
C)$6,000
D)$53,000
E)$45,000

Accepted Answer

The cash outflow for taxes is calculated by taking the tax expense and adjusting for changes in taxes payable. The tax expense is $5,000, and since taxes payable increased by $1,000, the cash outflow for taxes is $5,000 - $1,000 = $4,000.

Question 15

Management should not use the statement of cash flows for which of the following purposes?
A)To determine dividend policy
B)To determine cash flow from operations
C)To determine cash flow from investing activities
D)To determine cash flow from financing activities
E)To determine the balance in accounts receivable

Accepted Answer

The statement of cash flows does not provide information about the balance in specific accounts such as accounts receivable. It only provides information about the changes in cash and cash equivalents over a period of time. The other options listed are all appropriate uses of the statement of cash flows.

Question 16

Which of the following is the focus for the statement of cash flows?
A)Cash
B)Cash and cash equivalents
C)Current assets
D)Working capital
E)None of the answers are correct.

Accepted Answer

The statement of cash flows focuses on the movement of cash and cash equivalents during a specific period, including operating, investing, and financing activities. Therefore, choice B is the best answer as it specifically includes cash and cash equivalents.

Question 17

The statement of cash flows became a required statement in which year?
A)1995
B)1978
C)1971
D)1987
E)1993

Accepted Answer

The statement of cash flows became a required statement in 1987 as per the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 95.

Question 18

The statement of cash flows is presented on a working capital basis.

Accepted Answer

The statement of cash flows is presented on a cash basis, not a working capital basis. Working capital is a measure of a company's liquidity and is calculated as current assets minus current liabilities. The statement of cash flows focuses on the sources and uses of cash during a specific period of time.

Question 19

Amortization of patents can be added to income in the operations section of the statement of cash flows because:
A)it is not a tax deductible expense.
B)it results in an increase in income.
C)it does not require the outlay of cash.
D)patent amortization is not an expense.
E)it represents an inflow of cash.

Accepted Answer

Patents are considered intangible assets and their amortization is a non-cash expense. Therefore, it does not require the outlay of cash and can be added back to net income in the operations section of the statement of cash flows.

Question 20

Which of the following is not an item added back to income in the operations section of the statement of cash flows when using the indirect presentation?
A)Depreciation
B)Amortization of goodwill
C)Increase in deferred income taxes
D)Amortization of bond premium
E)Amortization of patents

Accepted Answer

Amortization of bond premium is not added back to income; instead, it is subtracted because it represents a reduction in interest expense.

Quiz 10: Statement of Cash Flows

Which of the following is not a purpose of the statement of cash flows?

In a statement of cash flows (indirect method) ,depreciation expense should be presented as:

Which of the following is not a typical cash flow under financing activities?

Working capital is defined as:

Which of the following accounts is not part of working capital?

Tim Company had sales of $30,000,increase in accounts payable of $5,000,decrease in accounts receivable of $1,000,increase in inventories of $4,000,and depreciation expense of $4,000.What was the cash collected from customers?

The retirement of debt by the issuance of common stock should be presented in a statement of cash flows in which of the following sections?

Which of the following is not a typical cash flow under investing activities?

Which of the following should not be considered as part of "cash and cash equivalents"?

Which of the following accounts will not be considered when computing cash flow from operations?

Which of the following transactions is not reflected in a statement of cash flows?

Francis Company had operating expenses of $20,000 and depreciation expenses of $4,000.Assuming no other transactions,what was the cash paid for operating expenses?

Which of the following is not a typical cash flow under operating activities?

Conroy Company had sales of $50,000,increase in accounts payable of $4,000,decrease in accounts receivable of $3,000,tax expense of $5,000,and an increase in taxes payable of $1,000.What was the cash outflow for taxes?

Management should not use the statement of cash flows for which of the following purposes?

Which of the following is the focus for the statement of cash flows?

The statement of cash flows became a required statement in which year?

The statement of cash flows is presented on a working capital basis.

Amortization of patents can be added to income in the operations section of the statement of cash flows because:

Which of the following is not an item added back to income in the operations section of the statement of cash flows when using the indirect presentation?