Question 1

Reliance on the statement of cash flows by the investment community has increased because:
A)of the relative difficulty in manipulating the statement of cash flows compared with manipulating the income statement
B)all the options are correct
C)the comparison of profit or loss to the cash flow from operating activities can highlight how an entity is managing its working capital requirements
D)lenders can use the statement of cash flows to ascertain management efficiency and the ability of the entity to generate cash flow

Accepted Answer

The statement of cash flows is less susceptible to manipulation, provides insights into working capital management, and helps lenders assess management efficiency and cash generation ability, making all options correct.

Question 2

If profit is $53 000 and increases in the current assets,inventory and debtors,over the period total $18 000,net cash inflow from operating activities is:
A)$18 000
B)$71 000
C)$35 000
D)$53 000

Accepted Answer

The answer of If profit is $53 000 and increases...

Question 3

Which of the following statements is not true with respect to the thinking required to convert accruals basis information to cash basis to prepare the statement of cash flows using the indirect method (reconciliation)?
A)decrease in current assets means an increase in cash
B)increase in current assets means a reduction in cash
C)increase in current liabilities means a decrease in cash
D)decrease in current liabilities means a decrease in cash

Accepted Answer

An increase in current liabilities typically means an increase in cash, as it indicates that expenses have been incurred but not yet paid, thus conserving cash.

Question 4

Calculate net cash flows from operations by adjusting operating profit.
$\begin{array}{llcc}
  \text { Profit for the year } &\$ 75000 \
 \text { Depreciation } &13000\
 \text { Decrease in accounts receivable } &5000\
 \text {Decrease in accounts payable  } &1000\
\end{array}$

A)$82 000
B)$92 000
C)$56 000
D)$94 000

Accepted Answer

To calculate net cash flows from operations, start with the profit for the year ($75,000), add back non-cash expenses like depreciation ($13,000), add the decrease in accounts receivable ($5,000), and subtract the decrease in accounts payable ($1,000). This results in $75,000 + $13,000 + $5,000 - $1,000 = $92,000.

Question 5

If the opening balance of plant and equipment was $310 000,the closing balance was $350 000 and plant and equipment costing $30 000 was sold during the period,what was the cost of equipment purchased?
A)$40 000
B)$30 000
C)$70 000
D)$350 000

Accepted Answer

Cost of equipment purchased = Closing balance - Opening balance + Equipment sold
Cost of equipment purchased = $350 000 - $310 000 + $30 000 
Cost of equipment purchased = $70 000

Question 6

If the opening balance of Dividends Payable is $45 000,the closing balance is $35 000 and dividends of $25 000 were declared for the period,how much cash was paid for dividends in that period?
A)$25 000
B)$35 000
C)$45 000
D)$70 000

Accepted Answer

The answer of If the opening balance of Dividends Payable...

Question 7

If the opening balance of income tax payable is $19 000,the closing balance is $22 000 and income tax expense recorded is $$18 000,how much income tax was paid during the period?
A)$22 000
B)$15 000
C)$18 000
D)$19 000

Accepted Answer

The answer of If the opening balance of income tax...

Question 8

Assume all goods for resale are purchased for cash.If cash payments for inventory in the period are $67 000 and the expense cost of sales,calculated under the accrual basis,is $70 000:
A)Stocks of inventory on hand have increased by $3000 during the period
B)Stocks of inventory on hand have decreased by $3000 during the period
C)Creditors owe $3000 at the end of the period for the purchase of inventory
D)Creditors owe $70 000 at the end of the period for the purchase of inventory

Accepted Answer

The expense of cost of sales, under the accrual basis, reflects the cost of inventory that was sold during the period. The cash payments for inventory represent the cash outflows for the purchases of inventory made during the period. Therefore, if the cash payments are less than the cost of sales, it means that some inventory was purchased but not sold during the period, resulting in an increase in stocks of inventory on hand. In this case, the difference is $3,000 ($70,000 - $67,000), which means that stocks of inventory on hand have increased by $3,000. Therefore, choice A is the best answer.

Question 9

If cash received from customers is $234 000,cash paid for salaries and expenses is $130 000,depreciation of equipment,is $13 000,cash received from the sale of equipment is $25 000,gain on the sale of equipment is $12 000,cash flow from operating activities is:
A)$117 000
B)$91 000
C)$129 000
D)$104 000

Accepted Answer

Cash flow from operating activities is calculated as cash received from customers ($234,000) minus cash paid for salaries and expenses ($130,000), which equals $104,000. Depreciation is a non-cash expense and does not affect cash flow, and the gain on sale of equipment is not included in operating activities.

Question 10

$45 000 is owed to suppliers for inventory purchases at the beginning of the year and $24 000 is owed at the end of the year.If annual credit purchases of inventory are $120 000,the cash paid to suppliers for the year is:
A)$141 000
B)$99 000
C)$165 000
D)$144 000

Accepted Answer

The answer of $45 000 is owed to suppliers for...

Question 11

Which of these is an early warning sign indicating problems with cash flows?
A)Cash from operating activities is higher than profit
B)Dividends paid are greater than cash flow from operations
C)A large amount has been spent on the acquisition of fixed assets
D)Proceeds from financing activities are used to finance investment activities

Accepted Answer

The answer of Which of these is an early warning...

Question 12

A net cash outflow from investing activities:
A)indicates problems in an entity's management of its non-current assets
B)may indicate a healthy growing business which needs to replace its assets as they wear out and purchase new assets to increase its future profits
C)is always an indicator that an entity is well managed
D)all the options are true

Accepted Answer

The answer of A net cash outflow from investing activities:
A)indicates...

Question 13

If the opening balance of the motor vehicles asset account is $240 000 and the closing balance is $190 000 and motor vehicles that originally cost $85 000 were sold during the year the amount spent on purchases of motor vehicles for the year is:
A)$0
B)$105 000
C)$50 000
D)$35 000

Accepted Answer

The answer of If the opening balance of the motor...

Question 14

The correct statement in relation to converting accrual information to the cash basis is:
A)An increase in current assets means less cash
B)A decrease in current assets means less cash
C)An increase in current liabilities means less expense
D)A decrease in current liabilities means more cash

Accepted Answer

A decrease in current liabilities means more cash because it represents a reduction in obligations that require cash payment.

Question 15

Calculate net cash flows from operations by adjusting operating profit.
$\begin{array}{llcc}
  \text { Profit for the year } & \$122000 \
 \text {Depreciation  } &8000\
 \text {Increase in accounts receivable  } &5000\
 \text {Increase in accounts payable  } &2000\
\end{array}$

A)$111 000
B)$107 000
C)$127 000
D)$133 000

Accepted Answer

The answer of Calculate net cash flows from operations by...

Question 16

Free cash flow is:
A)the cash flow available to repay debt,pay dividends and expand operations.
B)cash balances on which no interest is paid.
C)the cash flow available to meet current liabilities.
D)the cash flow available to expand operations.

Accepted Answer

The answer of Free cash flow is:
A)the cash flow available...

Question 17

Which of the following items would be classified as financing activities in a statement of cash flows?
A)repayment of borrowings
B)proceeds from borrowings
C)proceeds from the issue of shares
D)all the item would be classified as financing activities

Accepted Answer

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

Question 18

Changes in the balance sheet items making up non-current liabilities and equity appear in the statement of cash flows under:
A)operating activities
B)investing activities
C)financing activities
D)the reconciliation of profit with cash flow from operating activities

Accepted Answer

The answer of Changes in the balance sheet items making...

Question 19

If $20 000 is owed by customers at the beginning of the year,$15 000 is owed at the end and credit sales are $100 000,the cash received from customers for the year is:
A)$120 000
B)$115 000
C)$100 000
D)$105 000

Accepted Answer

To find the cash received from customers, we need to account for the $20 000 that was owed at the beginning of the year and the credit sales of $100 000 made during the year. This gives us a total of $120 000 that could potentially be received. However, we also know that only $15 000 is owed at the end of the year, which means that $105 000 of the credit sales were actually paid for during the year. Therefore, the cash received from customers is $105 000.

Question 20

Which of the following would not be classified as a cash flow from investing activities?
A)proceeds from repayment of loans to other parties
B)proceeds from the sale of plant and equipment
C)proceeds from a loan to the entity
D)payment for plant and equipment

Accepted Answer

The answer of Which of the following would not be...

Quiz 7: Statement of Cash Flows

Reliance on the statement of cash flows by the investment community has increased because:

If profit is $53 000 and increases in the current assets,inventory and debtors,over the period total $18 000,net cash inflow from operating activities is:

Which of the following statements is not true with respect to the thinking required to convert accruals basis information to cash basis to prepare the statement of cash flows using the indirect method (reconciliation) ?

Calculate net cash flows from operations by adjusting operating profit. $\begin{array}{llcc} \text { Profit for the year } &\$ 75000 \\ \text { Depreciation } &13000\\ \text { Decrease in accounts receivable } &5000\\ \text {Decrease in accounts payable } &1000\\\end{array}$

If the opening balance of plant and equipment was $310 000,the closing balance was $350 000 and plant and equipment costing $30 000 was sold during the period,what was the cost of equipment purchased?

If the opening balance of Dividends Payable is $45 000,the closing balance is $35 000 and dividends of $25 000 were declared for the period,how much cash was paid for dividends in that period?

If the opening balance of income tax payable is $19 000,the closing balance is $22 000 and income tax expense recorded is $$18 000,how much income tax was paid during the period?

Assume all goods for resale are purchased for cash.If cash payments for inventory in the period are $67 000 and the expense cost of sales,calculated under the accrual basis,is $70 000:

If cash received from customers is $234 000,cash paid for salaries and expenses is $130 000,depreciation of equipment,is $13 000,cash received from the sale of equipment is $25 000,gain on the sale of equipment is $12 000,cash flow from operating activities is:

$45 000 is owed to suppliers for inventory purchases at the beginning of the year and $24 000 is owed at the end of the year.If annual credit purchases of inventory are $120 000,the cash paid to suppliers for the year is:

Which of these is an early warning sign indicating problems with cash flows?

A net cash outflow from investing activities:

If the opening balance of the motor vehicles asset account is $240 000 and the closing balance is $190 000 and motor vehicles that originally cost $85 000 were sold during the year the amount spent on purchases of motor vehicles for the year is:

The correct statement in relation to converting accrual information to the cash basis is:

Calculate net cash flows from operations by adjusting operating profit. $\begin{array}{llcc} \text { Profit for the year } & \$122000 \\ \text {Depreciation } &8000\\ \text {Increase in accounts receivable } &5000\\ \text {Increase in accounts payable } &2000\\\end{array}$

Free cash flow is:

Which of the following items would be classified as financing activities in a statement of cash flows?

Changes in the balance sheet items making up non-current liabilities and equity appear in the statement of cash flows under:

If $20 000 is owed by customers at the beginning of the year,$15 000 is owed at the end and credit sales are $100 000,the cash received from customers for the year is:

Which of the following would not be classified as a cash flow from investing activities?