Question 1

Which of the following is NOT an adjustment to reconcile net income to cash from operating activities?

Accepted Answer

Cash dividends declared but not yet paid are related to financing activities, not operating activities. Adjustments for net income to cash from operating activities typically involve changes in working capital accounts (like accrued liabilities and prepaid expenses) and non-cash expenses (like amortization).

Question 2

On a statement of cash flows prepared using the direct method,cash from customers would be sales plus a(n)

Accepted Answer

On a statement of cash flows prepared using the direct method, cash from customers would be calculated as sales minus any decrease in accounts receivable. This is because any decrease in accounts receivable would represent an increase in cash received from customers (as they are paying off their outstanding balances). An increase in accounts receivable, on the other hand, would represent a decrease in cash received from customers (as they are not paying off their outstanding balances as quickly). Therefore, choice C - decrease in accounts receivable - is the best answer.

Question 3

In preparing a statement of cash flows,the reconciliation of net income to cash from operating activities does NOT include

Accepted Answer

Adjustments for securities classified as Available for Sale are not included in the operating activities section; they are part of other comprehensive income and affect the equity section of the balance sheet.

Question 4

Amortization of the premium on bonds payable is subtracted from net income in the reconciliation of net income to cash flows from operations because

Accepted Answer

The answer of Amortization of the premium on bonds payable...

Question 5

A loss on the sale of machinery in the ordinary course of business should be presented in a statement of cash flows prepared under the indirect method as a(n)

Accepted Answer

The loss on the sale of machinery in the ordinary course of business is added back to net income in the operating activities section of the cash flow statement when using the indirect method. This is because the loss is a non-cash expense that reduced net income, but it did not affect cash flows.

Question 6

The amortization of bond discount related to long-term debt should be presented in a statement of cash flows prepared using the indirect method as a(n)

Accepted Answer

The amortization of bond discount increases the amount of interest expense reported in the income statement, which reduces net income. However, this amortization is a non-cash expense. Therefore, in the statement of cash flows prepared using the indirect method, it is added back to net income in the adjustments section to reconcile net income to net cash provided by operating activities.

Question 7

Cash outflows from investing activities would include payments for all of the following except

Accepted Answer

Purchasing treasury stock is considered a financing activity, not an investing activity. Investing activities typically involve the acquisition and disposal of long-term assets and investment securities, not transactions related to the company's own equity.

Question 8

The amortization of patents should be presented in a statement of cash flows prepared using the indirect method as a(n)

Accepted Answer

Amortization of patents is a non-cash expense. In the statement of cash flows prepared using the indirect method, non-cash expenses are added back to net income in the adjustments section to reconcile net income to net cash provided by operating activities.

Question 9

Which of the following is a deduction from net income in reconciling net income to cash flow from operating activities?

Accepted Answer

Amortization of bond premium is a non-cash expense that is added back to net income in the reconciliation to cash flow from operating activities because it reduces net income but does not affect cash.

Question 10

On a reconciliation of net income to cash from operations,depreciation is added back to net income as depreciation

Accepted Answer

Depreciation is a non-cash expense that reduces net income but does not involve an outflow of cash. Therefore, it is added back to net income on a reconciliation of net income to cash from operations.

Question 11

The statement of cash flows and related disclosures would be of the least assistance in helping a potential investor assess

Accepted Answer

The statement of cash flows primarily provides information on a company's cash inflows and outflows over a period of time. It can give insight into a company's ability to generate cash, meet its obligations, and explain the reasons for differences between income and cash flows. However, it does not specifically address a company's ability to earn interest or other returns on its cash reserves, making option B the least suitable for assessment through the statement of cash flows.

Question 12

Choose the combination below that best reflects the appropriate classification of cash received from investing and financing activities. Cash Received from Cash Received from
Investing Activities Financing Activities

Accepted Answer

The sale of investment securities is classified as an investing activity because it involves the sale of long-term assets. Proceeds from issuing common stock are classified as a financing activity because it involves obtaining funds from owners.

Question 13

Choose the combination that best reflects the appropriate classification of cash paid for investing and financing activities. Cash Paid for Cash Paid for
Investing Activities Financing Activities

Accepted Answer

The answer of Choose the combination that best reflects the...

Question 14

Which of the following would be a cash outflow from operating activities for Poe Company?

Accepted Answer

The answer of Which of the following would be a...

Question 15

Which of the following is NOT added to net income as an adjustment to reconcile net income to cash from operating activities on the statement of cash flows?

Accepted Answer

Increases in deferred tax assets are not added back to net income in the reconciliation to cash from operating activities because they represent a future tax benefit, not a current cash flow. Adjustments like increases in accrued liabilities, amortization of discounts on bonds payable, and losses on sale of operational assets are added back because they are non-cash expenses that reduce net income but do not affect cash flow.

Question 16

Which of the following would NOT be a cash flow from financing activities for Carlton Company?

Accepted Answer

Cash from sale of Fern Company common stock is not a cash flow from financing activities for Carlton Company because it involves the sale of another company's stock and is therefore classified as a cash flow from investing activities. The other options involve the issuance of Carlton Company's own stock or bonds, which are classified as financing activities.

Question 17

Which of the following is not an inflow of cash?

Accepted Answer

Depletion expense is a non-cash expense that reflects the decrease in the value of natural resources such as oil or timber as they are extracted or used. It does not involve the actual inflow of cash. Choices A, B, and C all involve the actual receipt of cash.

Question 18

A company with substantial operating profits prepares its statement of cash flows using the indirect method.The gain on the sale of a long-term investment should be disclosed separately as a(n)

Accepted Answer

The gain on sale of a long-term investment is a non-operating item and hence should not be included in the cash flows from operating activities. It should be adjusted to the net income in the reconciliation of net income to cash from operating activities using the indirect method. Therefore, the gain should be disclosed separately as an adjustment to net income.

Question 19

Cash inflows from investing activities would include all of the following except

Accepted Answer

Cash inflows from investing activities would include proceeds from the sale of investments accounted for by the equity method, proceeds from the sale of operating assets, and proceeds from the sale of securities available for sale. Interest collected on notes receivable falls under the cash inflows from operating activities, not investing activities.

Question 20

Under the direct method,which one of the following would represent cash paid?

Accepted Answer

Interest expense, adjusted for changes in interest payable and amortization of bond premium or discount, represents cash paid for interest under the direct method of preparing the cash flow statement. This adjustment is necessary to reflect the actual cash flow related to interest, separate from the accrual accounting figures.

Quiz 21: Statement of Cash Flows Revisited