Question 1

On September 1,Year 1,Laredo Company purchased equipment making a down payment of $15,500 cash and signing a one-year note payable on the $22,500 balance.The note carried an interest rate of 6%,and all interest was to be paid on the maturity date.Which of the following correctly shows the combined effect of the purchase as well as the accrual of interest on December 31,Year 1?
$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $Cash Flows
Net Income$\quad $$\quad $$\quad $ Operating $\quad $$\quad $Investing $\quad $$\quad $$\quad $Financing
A) 
B) 
C) 
D)

Accepted Answer

Interest expense = $22,500 × 6% × 4/12 = $450
Interest expense of $450 decreases net income,but the accrual of interest expense is not reported on the statement of cash flows because no interest is paid in Year 1.The $15,500 cash paid as a down payment on the equipment is reported as a cash outflow in the investing activities section of the statement of cash flows.The issuance of the note for $22,500 is a noncash investing and financing activity,which is reported in the schedule of noncash investing and financing activities.

Question 2

[The following information applies to the questions displayed below.]

During Year 1, El Paso Company had the following changes in account balances:

The Accumulated Depreciation account had a beginning balance of $25,000 and an ending balance of $35,000. The increase was due to depreciation expense. 
The Long-Term Notes Payable account had a beginning balance of $40,000 and an ending balance of $15,000. The decrease was due to repayment of debt. 
The Equipment Account had a beginning balance of $25,000 and an ending balance of $92,500. The increase was due to the purchase of other operational assets. 
The Long-Term Investments Account (Marketable Securities) had a beginning balance of $18,000 and an ending balance of $12,500. The decrease was due to the sale of investments at cost. 
The Dividends Payable account had a beginning balance of $12,000 and an ending balance of $10,000. There were $20,000 of dividends declared during the period. 
The Interest Payable account had a beginning balance of $2,250 and an ending balance of $1,250. The difference was due to the payment of interest.

-What is the net cash flow from financing activities?
A)$22,000 inflow
B)$25,000 inflow
C)$25,000 outflow
D)$47,000 outflow

Accepted Answer

Cash flows reported as financing activities include cash receipts (inflows)from borrowing money and issuing stock and cash payments (outflows)to repay debt,purchase treasury stock,and pay dividends.
Ending balance of notes payable of $15,000 = Beginning balance of notes payable of $40,000 + Increase due to issuing notes payable of $0 - Decrease due to payment of notes payable (the unknown)
Outflow for repayment of long-term notes payable = $40,000 - $15,000 = $25,000
Ending balance in dividends payable of $10,000 = Beginning balance in dividends payable of $12,000 + Increase due to declaring dividends of $20,000 - Decrease due to payment of dividends (the unknown)
Outflow for payment of dividends = $12,000 - $10,000 + $20,000 = $22,000
Net cash outflow from financing activities = $25,000 (outflow)+ $22,000 (outflow)= $47,000

Question 3

Which of the following transactions affects cash flows?
A)Accrual of interest receivable
B)Issuance of a stock dividend
C)Recognition of depreciation expense
D)Payment of dividends declared in a previous year

Accepted Answer

Cash flows reported as financing activities include cash payments (outflows)to pay dividends.The other choices do not affect cash,and therefore do not affect cash flows.

Question 4

Valdez Co.sold land that had cost $48,000 for $60,000 cash.Which of the following statements is true about this transaction?
A)The $12,000 gain would be subtracted from net income in the operating activities section using the direct method.
B)$48,000 would appear as a cash inflow from investing activities and $12,000 would be added in the operating activities section using the indirect method.
C)$60,000 would appear as a cash inflow from investing activities.
D)The $12,000 gain would be subtracted from net income in the operating activities section prepared using the indirect method and $60,000 would be reported as a cash inflow from investing activities.

Accepted Answer

Gain on sale = Proceeds of $60,000- Book value of $48,000 = $12,000
Because the gain increased net income,but did not provide cash from operating activities,it is subtracted from net income to arrive at cash flow from operating activities using the indirect method.Cash flows reported as investing activities include cash receipts (inflows)from selling land.

Question 5

What is the name given to the sum of the subtotals of the three sections (operating activities,investing activities,financing activities)of the statement of cash flows?
A)Net income for the period
B)The change in the cash account balance between the beginning and ending of the period
C)The ending cash balance
D)The amount of cash inflow for the period

Accepted Answer

The total of operating,investing,and financing activities is equal to the net change in cash.It is then added to the beginning cash balance to arrive at the ending cash balance for the period.

Question 6

Which of the following items would be classified as a cash flow from investing activities?

1) Issue common stock for cash 
2) Payment on principal of note payable 
3) Payment of dividends 
4) Sale of equipment for cash

A)1 and 4
B)4 only
C)3 only
D)1,2,3,and 4

Accepted Answer

Cash flows reported as investing activities include cash receipts (inflows)from selling property,plant,equipment (item 4),or marketable securities,as well as collections from credit instruments such as notes or mortgages receivable.Cash flows reported as investing activities also include cash payments (outflows)for purchasing property,plant,equipment,or marketable securities,as well as for making loans to borrowers.The other items listed (2,3,and 4)are cash flows reported as financing activities.

Question 7

[The following information applies to the questions displayed below.]

On August 1, Year 1, Jackson Company issued a one-year $80,000 face value interest-bearing note with a stated interest rate of 9% to Galaxy Bank. Jackson accrues interest expense on December 31, Year 1, its calendar year-end.

-What is the cash flow from financing activities that will be reported during the year ending December 31,Year 1?
A)$0
B)$80,000 inflow
C)$83,000 inflow
D)($87,200)outflow

Accepted Answer

Cash flows reported as financing activities include cash receipts (inflows)from borrowing money.

Question 8

What effect does depreciation expense have on net income and cash flows?
Net Income $\quad $$\quad $$\quad $$\quad $$\quad $$\quad $Cash Flows
A) 
B) 
C) 
D)

Accepted Answer

Depreciation expense decreases net income,but it is a noncash expense.

Question 9

How are interest expense and interest paid reported?
A)Interest expense is reported as an operating item on the income statement and interest paid is reported as an investing activity on the statement of cash flows.
B)Interest paid is reported as an operating activity on the statement of cash flows and interest expense is reported as a nonoperating expense on the income statement.
C)Interest expense is reported as an operating expense on the income statement and interest paid is reported as a financing activity on the statement of cash flows.
D)Interest paid is reported as a financing activity on the statement of cash flows and interest expense is reported as an operating item on the income statement.

Accepted Answer

Even though interest expense is reported as a nonoperating expense after operating income on the income statement,interest paid is reported as an operating activity on the statement of cash flows.

Question 10

Which of the following is the correct sequence of the three sections that are presented on the statement of cash flows?
A)Operating,Investing,Financing
B)Investing,Operating,Financing
C)Operating,Financing,Investing
D)Financing,Investing,Operating

Accepted Answer

The statement of cash flows reports operating,investing,and financing activities,in that order.

Question 11

On January 1,Year 1,Chisolm Company purchased equipment for $36,000 cash.On December 31,Year 1,depreciation of $9,000 was recorded.Which of the following correctly shows the combined effect of these two events on the income statement and statement of cash flows? Chisolm uses the direct method.
$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $Cash Flows
Net Income$\quad $$\quad $$\quad $Operating $\quad $ $\quad $Investing  $\quad $$\quad $$\quad $$\quad $$\quad $Financing
A) 
B) 
C) 
D)

Accepted Answer

The purchase of equipment for $36,000 cash is reported as a cash outflow in the investing activities section of the statement of cash flows.Depreciation expense of $9,000 decreases net income,but this noncash expense does not impact cash flows.

Question 12

How are cash receipts from interest on a note receivable classified on a statement of cash flows prepared using the direct method?
A)Operating activity
B)Investing activity
C)Financing activity
D)Noncash financing and investing activity

Accepted Answer

Cash flows reported as operating activities include cash receipts from revenues,including interest revenue.

Question 13

What effect does the following journal entry have on the amount of cash generated by operating activities?

A)Decreases it
B)Increases it
C)Has no effect
D)Cannot be determined from the information given

Accepted Answer

While cash flows reported as operating activities include cash receipts from revenues,including interest,the accrual of interest revenue does not impact cash.

Question 14

How would the issuance of a mortgage note in exchange for a building be reported on the statement of cash flows?
A)Financing activity
B)Investing activity
C)Operating activity
D)Noncash financing and investing activity

Accepted Answer

This transaction is a noncash investing and financing activity,which is reported in the schedule of noncash investing and financing activities.

Question 15

How is the cash paid to purchase land reported in the statement of cash flows?
A)Cash outflow from financing activities
B)Schedule of noncash investing and financing activities
C)Cash outflow from investing activities
D)Cash inflow from operating activities

Accepted Answer

Cash paid for the purpose of any long-term asset,such as land,is reported as an investing activity.

Question 16

[The following information applies to the questions displayed below.]

On August 1, Year 1, Jackson Company issued a one-year $80,000 face value interest-bearing note with a stated interest rate of 9% to Galaxy Bank. Jackson accrues interest expense on December 31, Year 1, its calendar year-end.

-What is the amount of interest expense and the total cash outflow related to the note during the year ending December 31,Year 2?
Interest Expense $\quad $$\quad $$\quad $$\quad $$\quad $Cash Outflow
A) 
B) 
C) 
D)

Accepted Answer

Year 2 Interest expense = $80,000 × 9% × 7/12 months = $4,200
Year 2 Payment of interest = $80,000 × 9% × 12/12 months = $7,200
Year 2 Cash outflows = Interest paid of $7,200 (operating activities)and Principal repayment of $80,000 (financing activities)= $87,200

Question 17

Which of the following would not be a cash flow from financing activities?
A)Borrowing on a long-term note payable
B)Repayment of principal on bonds payable
C)Payment of interest on bonds payable
D)Payment of a cash dividend

Accepted Answer

Cash flows reported as financing activities include cash receipts (inflows)from borrowing money and issuing stock and cash payments (outflows)to repay debt,purchase treasury stock,and pay dividends.Cash flows reported as operating activities include cash payments for expenses,including interest expense.

Question 18

[The following information applies to the questions displayed below.]

During Year 1, El Paso Company had the following changes in account balances:

The Accumulated Depreciation account had a beginning balance of $25,000 and an ending balance of $35,000. The increase was due to depreciation expense. 
The Long-Term Notes Payable account had a beginning balance of $40,000 and an ending balance of $15,000. The decrease was due to repayment of debt. 
The Equipment Account had a beginning balance of $25,000 and an ending balance of $92,500. The increase was due to the purchase of other operational assets. 
The Long-Term Investments Account (Marketable Securities) had a beginning balance of $18,000 and an ending balance of $12,500. The decrease was due to the sale of investments at cost. 
The Dividends Payable account had a beginning balance of $12,000 and an ending balance of $10,000. There were $20,000 of dividends declared during the period. 
The Interest Payable account had a beginning balance of $2,250 and an ending balance of $1,250. The difference was due to the payment of interest.

-What is the net cash flow from investing activities?
A)$62,000 outflow
B)$62,000 inflow
C)$67,500 outflow
D)$73,000 outflow

Accepted Answer

Cash flows reported as investing activities include cash receipts (inflows)from selling property,plant,equipment,or marketable securities,as well as collections from credit instruments such as notes or mortgages receivable and cash payments (outflows)for purchasing property,plant,equipment,or marketable securities,as well as for making loans to borrowers.
Ending balance of equipment of $92,500 = Beginning balance of equipment of $25,000 + Increase due to purchase of equipment (the unknown)- Decrease due to cost of equipment sold of $0
Outflow for purchase of equipment = $92,500 -$25,000 = $67,500
Ending balance of long-term investments of $12,500 = Beginning balance of long-term investments of $18,000 + Increase due to purchase of long-term investments of $0 - Decrease due to cost of long-term investments (the unknown)
Decrease due to cost of long-term investments sold = $18,000 - $12,500 = $5,500
The long-term investments were sold at cost,thus $5,500 is the inflow.
Net cash outflow from investing activities = $67,500 (outflow)- $5,500 (inflow)= $62,000

Question 19

On January 1,Year 1,Mayer Corporation signed a contract to perform $25,000 worth of services for Phips Company over the next three years.Which of the following indicates the effects of this event on the Year 1 income statement and statement of cash flows of Mayer Corporation?
$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $Cash Flows
Net Income$\quad $$\quad $Operating$\quad $$\quad $ Investing$\quad $$\quad $$\quad $$\quad $ Financing
A) 
B) 
C) 
D)

Accepted Answer

Simply signing a contract does not affect the income statement or the statement of cash flows.It is not recorded in Mayson's financial statements.

Question 20

[The following information applies to the questions displayed below.]

On August 1, Year 1, Jackson Company issued a one-year $80,000 face value interest-bearing note with a stated interest rate of 9% to Galaxy Bank. Jackson accrues interest expense on December 31, Year 1, its calendar year-end.

-What is the amount of interest expense and the cash outflow for interest during the year ending December 31,Year 1?
Interest Expense$\quad $$\quad $$\quad $$\quad $$\quad $ Cash Outflow
A) 
B) 
C) 
D)

Accepted Answer

Year 1 Interest expense = $80,000 × 9% × 5/12 months = $3,000
At December 31,Year 1,the accrual of interest expense does not affect cash flows.At maturity (in Year 2),the payment of interest will be reported as a cash outflow from operating activities.

Quiz 12: Statement of Cash Flows

Which of the following transactions affects cash flows?

Valdez Co.sold land that had cost $48,000 for $60,000 cash.Which of the following statements is true about this transaction?

What is the name given to the sum of the subtotals of the three sections (operating activities,investing activities,financing activities) of the statement of cash flows?

Which of the following items would be classified as a cash flow from investing activities? 1) Issue common stock for cash 2) Payment on principal of note payable 3) Payment of dividends 4) Sale of equipment for cash

What effect does depreciation expense have on net income and cash flows? Net Income $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ Cash Flows

How are interest expense and interest paid reported?

Which of the following is the correct sequence of the three sections that are presented on the statement of cash flows?

How are cash receipts from interest on a note receivable classified on a statement of cash flows prepared using the direct method?

What effect does the following journal entry have on the amount of cash generated by operating activities?

How would the issuance of a mortgage note in exchange for a building be reported on the statement of cash flows?

How is the cash paid to purchase land reported in the statement of cash flows?

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

Quiz 12: Statement of Cash Flows

Which of the following transactions affects cash flows?

Valdez Co.sold land that had cost $48,000 for $60,000 cash.Which of the following statements is true about this transaction?

What is the name given to the sum of the subtotals of the three sections (operating activities,investing activities,financing activities) of the statement of cash flows?

Which of the following items would be classified as a cash flow from investing activities? 1) Issue common stock for cash 2) Payment on principal of note payable 3) Payment of dividends 4) Sale of equipment for cash

What effect does depreciation expense have on net income and cash flows? Net Income \quad \quad \quad \quad \quad \quad Cash Flows

How are interest expense and interest paid reported?

Which of the following is the correct sequence of the three sections that are presented on the statement of cash flows?

How are cash receipts from interest on a note receivable classified on a statement of cash flows prepared using the direct method?

What effect does the following journal entry have on the amount of cash generated by operating activities?

How would the issuance of a mortgage note in exchange for a building be reported on the statement of cash flows?

How is the cash paid to purchase land reported in the statement of cash flows?

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

What effect does depreciation expense have on net income and cash flows? Net Income $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ Cash Flows