Question 1

The indirect and direct methods of preparing the statement of cash flows are identical except for the
A) significant noncash activity section.
B) operating activities section.
C) investing activities section.
D) financing activities section.

Accepted Answer

The indirect and direct methods of preparing the statement of cash flows differ only in the operating activities section. The indirect method adjusts net income for changes in non-cash working capital items and non-operating gains and losses, while the direct method lists all cash receipts and payments from operating activities.

Question 2

Which of the following transactions would not be classified as a financing activity?
A) Purchase of treasury stock
B) Payment of dividends
C) Issuance of bonds at a discount
D) Purchase of a long-term investment in bonds

Accepted Answer

Purchasing a long-term investment in bonds would be classified as an investing activity, not a financing activity. The other options are all financing activities: purchasing treasury stock reduces equity, paying dividends to shareholders is a distribution of profits to owners, and issuing bonds at a discount increases liabilities from financing activities.

Question 3

Which of the following would not be needed to determine net cash provided by operating activities?
A) Depreciation expense
B) Change in accounts receivable
C) Payment of cash dividends
D) Change in prepaid expenses

Accepted Answer

Payment of cash dividends would be reported in the financing activities section of the statement of cash flows, not the operating activities section. The other options are all necessary to calculate net cash provided by operating activities. Depreciation expense is a non-cash expense that is added back to net income, while changes in accounts receivable and prepaid expenses represent changes in operating assets that affect cash flows.

Question 4

The following data are available for Sampson Corporation. $$\begin{array} { l r } 
\text { Net income } & \$ 200,000 \
\text { Depreciation expense } & 60,000 \
\text { Dividends paid } & 90,000 \
\text { Loss on sale of land } & 15,000 \
\text { Decrease in accounts receivable } & 30,000 \
\text { Decrease in accounts payable } & 45,000
\end{array}$$ Net cash provided by operating activities is:
A) $140000.
B) $260000.
C) $160000.
D) $240000.

Accepted Answer

Net cash provided by operating activities is calculated by starting with net income and adjusting for non-cash expenses, gains and losses, and changes in working capital. Here, start with net income of $200,000, add back depreciation expense ($60,000) and loss on sale of land ($15,000), and adjust for changes in working capital (increase in accounts receivable by $30,000, decrease in accounts payable by $45,000). The dividends paid are not considered in operating activities. Thus, the calculation is $200,000 + $60,000 + $15,000 + $30,000 - $45,000 = $260,000.

Question 5

On the statement of cash flows using the indirect method patent amortization expense will
A) be added to net income in the operating section.
B) be deducted from net income in the operating section.
C) appear as an inflow of cash in the investing section.
D) appear as an outflow of cash in the investing section.

Accepted Answer

Patent amortization expense is a non-cash expense that is added back to net income in the operating section of the cash flow statement when using the indirect method. This adjustment is made because the expense reduces net income on the income statement, but it does not involve an actual outflow of cash.

Question 6

The following data are available for Two-off Company. $$\begin{array} { l r } 
\text { Increase in accounts payable } & \$ 120,000 \
\text { Increase in bonds payable } & 300,000 \
\text { Sale of investments } & 150,000 \
\text { Issuance of common stock } & 160,000 \
\text { Payment of cash dividends } & 90,000
\end{array}$$ Net cash provided by financing activities is:
A) $180000.
B) $370000.
C) $360000.
D) $420000.

Accepted Answer

Net cash provided by financing activities includes the issuance of common stock ($160,000) and the increase in bonds payable ($300,000), but excludes the payment of cash dividends ($90,000). Thus, the net cash provided by financing activities is $160,000 + $300,000 - $90,000 = $370,000.

Question 7

Land acquired from the issuance of common stock is reported
A) as a financing activity.
B) as an investing activity.
C) as an operating activity.
D) in a separate schedule at the bottom of the statement of cash flows.

Accepted Answer

When land is acquired through the issuance of common stock, it is a non-cash transaction and does not appear in the main body of the cash flow statement. Instead, it is reported in a separate schedule at the bottom of the statement of cash flows to provide details of significant non-cash transactions.

Question 8

The statement of cash flows
A) is prepared instead of an income statement under generally accepted accounting principles.
B) is used to assess an entity's ability to pay dividends and meet obligations.
C) is prepared from comparative income statements.
D) reflects earnings per share figures on a cash basis and on an accrual basis in the body of the statement.

Accepted Answer

The statement of cash flows is used to assess an entity's ability to pay dividends and meet obligations. It shows the cash flows from operating, investing, and financing activities for a period, which can be used to evaluate a company's liquidity and financial flexibility. It is prepared in addition to an income statement and provides important information about how cash is being generated and used by the entity. The other options are incorrect as the statement of cash flows is not prepared instead of an income statement, is not prepared from comparative income statements, and does not reflect earnings per share figures on a cash basis and on an accrual basis in the body of the statement.

Question 9

When equipment is sold for cash the amount received is reflected as a cash
A) inflow in the operating section.
B) inflow in the financing section.
C) inflow in the investing section.
D) outflow in the operating section.

Accepted Answer

When equipment is sold for cash, it is considered an investing activity as it involves a change in long-term assets. Therefore, the amount received should be reflected as an inflow in the investing section of the cash flow statement.

Question 10

In Alona Company net income is $285000. If accounts receivable increased $140000 and accounts payable decreased $40000 net cash provided by operating activities using the indirect method is:
A) $105000.
B) $185000.
C) $385000.
D) $465000.

Accepted Answer

The net cash provided by operating activities is calculated by adjusting the net income for changes in working capital. Starting with the net income of $285,000, subtract the increase in accounts receivable ($140,000) and the decrease in accounts payable ($40,000). This results in $285,000 - $140,000 - $40,000 = $105,000.

Question 11

In Lynne Company there was an increase in the land account during the year of $43000. Analysis reveals that the change resulted from a cash sale of land at cost $115000 and a cash purchase of land for $158000. In the statement of cash flows the change in the land account should be reported in the investment section:
A) as a net purchase of land $43000.
B) only as a purchase of land $158000.
C) as a purchase of land $158000 and a sale of land $115000.
D) only as a sale of land $115000.

Accepted Answer

The change in the land account resulted from both a purchase of land for $158,000 and a sale of land for $115,000. Therefore, it should be reported in the investment section as a purchase of land for $158,000 and a sale of land for $115,000, resulting in a net increase of $43,000.

Question 12

The statement of cash flows will not provide insight into
A) why dividends were not increased.
B) whether cash flow is greater than net income.
C) the exact proceeds of a future bond issue.
D) how the retirement of debt was accomplished.

Accepted Answer

The statement of cash flows reports on past cash flows and does not provide information about future bond issues.

Question 13

In Ramon Company Treasury Stock increased $20000 from a cash purchase and Retained Earnings increased $80000 as a result of net income of $120000 and cash dividends paid of $40000. Net cash used by financing activities is:
A) $20000.
B) $40000.
C) $120000.
D) $60000.

Accepted Answer

The increase in Treasury Stock is considered a financing activity because it represents the company buying back its own stock. Therefore, the $20,000 increase in Treasury Stock is subtracted from the retained earnings increase of $80,000, resulting in a net increase of $60,000 in financing activities. Since there were no other financing activities mentioned in the question, the answer is $60,000. Therefore, the correct choice is D.

Question 14

Which of the following changes in retained earnings during a period will be reported in the financing activities section of the statement of cash flows?
1) Declaration and payment of a cash dividend during the period.
2) Net income for the period.
A) 1
B) 2
C) Neither 1 nor 2.
D) Both 1 and 2.

Accepted Answer

The declaration and payment of a cash dividend during the period would decrease retained earnings and is therefore considered a financing activity. Net income for the period would increase retained earnings but is not reported in the financing activities section of the statement of cash flows. It is reported in the operating activities section.

Question 15

If $250000 of bonds are issued during the year but $130000 of old bonds are retired during the year the statement of cash flows will show a(n)
A) net increase in cash of $120000.
B) net decrease in cash of $120000.
C) increase in cash of $250000 and a decrease in cash of $130000.
D) net gain on retirement of bonds of $120000.

Accepted Answer

Issuing $250,000 of bonds increases cash, while retiring $130,000 of bonds decreases cash. The statement of cash flows will separately report these two activities, showing both the increase and decrease in cash flows.

Question 16

The following data are available for Alamo Corporation. $$\begin{array} { l r } 
\text { Sale of land } & \$ 225,000 \
\text { Sale of equipment } & \$ 130,000 \
\text { Issuance of common stock } & 140,000 \
\text { Purchase of equipment } & 70,000 \
\text { Payment of cash dividends } & 120,000
\end{array}$$ Net cash provided by investing activities is:
A) $285000.
B) $260000.
C) $305000.
D) $425000.

Accepted Answer

Net cash provided by investing activities is calculated by subtracting cash outflows from cash inflows related to investments. Cash inflows include the sale of land ($225,000) and sale of equipment ($130,000), totaling $355,000. Cash outflows include the purchase of equipment ($70,000). Therefore, net cash provided by investing activities is $355,000 - $70,000 = $285,000.

Question 17

In preparing the statement of cash flows determining the net increase or decrease in cash requires the use of
A) the adjusted trial balance.
B) the current period's balance sheet.
C) a comparative balance sheet.
D) a comparative income statement.

Accepted Answer

A comparative balance sheet, which shows the balances of assets, liabilities, and equity at the beginning and end of the period, is used to determine the changes in cash balance over the period.

Question 18

To determine the net cash provided (used) by operating activities it is necessary to analyze
A) the current year's income statement.
B) a comparative balance sheet.
C) additional information.
D) All of these answers are correct.

Accepted Answer

To determine the net cash provided (used) by operating activities, we need to analyze the current year's income statement, a comparative balance sheet, and additional information. Therefore, option D is the best answer as it includes all three elements needed for such analysis.

Question 19

Free cash flow equals cash provided by
A) operations less capital expenditures and cash dividends.
B) operations less cash dividends.
C) investing activities less capital expenditures and cash dividends.
D) operations less capital expenditures.

Accepted Answer

Free cash flow is calculated as cash provided by operations less capital expenditures and cash dividends.

Question 20

A measure that describes the cash remaining from operations after adjustment for capital expenditures and dividends is
A) adjusted cash from operations.
B) cash provided by operations.
C) free cash flow.
D) net cash provided by operating activities.

Accepted Answer

Free cash flow measures the cash remaining from operations after adjusting for capital expenditures and dividends. It is calculated as cash flow from operations minus capital expenditures minus dividends. Therefore, option C is the correct choice. Options A, B, and D do not specifically describe this measure.

Quiz 17: Statement of Cash Flows

The indirect and direct methods of preparing the statement of cash flows are identical except for the

Which of the following transactions would not be classified as a financing activity?

Which of the following would not be needed to determine net cash provided by operating activities?

On the statement of cash flows using the indirect method patent amortization expense will

Land acquired from the issuance of common stock is reported

The statement of cash flows

When equipment is sold for cash the amount received is reflected as a cash

In Alona Company net income is $285000. If accounts receivable increased $140000 and accounts payable decreased $40000 net cash provided by operating activities using the indirect method is:

The statement of cash flows will not provide insight into

In Ramon Company Treasury Stock increased $20000 from a cash purchase and Retained Earnings increased $80000 as a result of net income of $120000 and cash dividends paid of $40000. Net cash used by financing activities is:

Which of the following changes in retained earnings during a period will be reported in the financing activities section of the statement of cash flows? 1) Declaration and payment of a cash dividend during the period. 2) Net income for the period.

If $250000 of bonds are issued during the year but $130000 of old bonds are retired during the year the statement of cash flows will show a(n)

In preparing the statement of cash flows determining the net increase or decrease in cash requires the use of

To determine the net cash provided (used) by operating activities it is necessary to analyze

Free cash flow equals cash provided by

A measure that describes the cash remaining from operations after adjustment for capital expenditures and dividends is