Question 1

Two methods are available to prepare the operating activities section of a statement of cash flows. Which of the following statements regarding these two methods is false?

Accepted Answer

This statement is false because advocates of the direct method believe that the indirect method conceals too much by not showing readers gross amounts of cash receipts and cash payments from operations, not the other way around. Therefore, option C is the false statement. Options A, B, and D are all true statements.

Question 2

Which of the following statements is false regarding how the cash flow effects of the changes in the equipment and accumulated depreciation accounts would be reported on a statement of cash flows if the indirect method is used to prepare the operating activities section?

Accepted Answer

A loss on the sale of equipment would actually be added back to net income in the operating activities section since it represents a non-cash expense.

Question 3

Pilot Company reported the following information for 2015 and 2016. Prepaid insurance, December 31, 2015 $2,400
Prepaid insurance, December 31, 2016 1,500
Insurance expense--2016 14,200
How much cash was paid for insurance during 2016?

Accepted Answer

Prepaid insurance decreased by $900 ($2,400 - $1,500) during 2016. This means that $900 of prepaid insurance was used during the year. Since insurance expense was $14,200, the total cash paid for insurance during 2016 was $14,200 + $900 = $15,100.

Question 4

Tara Corp. reported the following information for 2015 and 2016.  How much cash was collected from customers during 2016?

Accepted Answer

The answer of Tara Corp. reported the following information for...

Question 5

Use the information below for Barton Shipping Corp. for 2015 and 2016 to answer the following question.  How much cash did Barton Shipping pay for dividends during 2016?

Accepted Answer

The answer of Use the information below for Barton Shipping...

Question 6

Carpet World Inc. reported the following information for 2015 and 2016.  If Carpet World uses the indirect method to prepare the operating activities section of the statement of cash flows, what amount will be reported as net cash inflow from operating activities for 2016?

Accepted Answer

The answer of Carpet World Inc. reported the following information...

Question 7

Use the information below for Shorter Inc. for 2015 and 2016 to answer the following question.  During 2016, Shorter Inc. sold equipment with a cost of $30,000 and accumulated depreciation of $25,000. A gain of $3,000 was recognized on the sale of the equipment this was the only equipment sale during the year.
Assume that all purchases of equipment were paid with cash. How much cash was paid by Shorter for the purchase of equipment during 2016?

Accepted Answer

The answer of Use the information below for Shorter Inc....

Question 8

Vencenzia Company reported the following information in its annual report for 2016.

Accepted Answer

The answer of Vencenzia Company reported the following information in...

Question 9

Where would you tell someone to find the information needed to compute the cash flow adequacy ratio?

Accepted Answer

The cash flow adequacy ratio requires information from both the statement of cash flows and the notes to the financial statements. The balance sheet alone does not provide sufficient information, and the income statement alone does not provide information on cash flows.

Question 10

Goldman Corp. reported the following information for 2015 and 2016.  How much cash was paid for merchandise purchases during 2016?

Accepted Answer

The answer of Goldman Corp. reported the following information for...

Question 11

Suma Corp. reported the following information for 2015 and 2016. Salaries payable, December 31, 2015 $3,700
Salaries payable, December 31, 2016 1,800
Salaries expense--2016 57,000
How much cash was paid for salaries during 2016?

Accepted Answer

To find the cash paid for salaries, adjust the salaries expense by the change in salaries payable: $57,000 (expense) + $3,700 (beginning payable) - $1,800 (ending payable) = $58,900.

Question 12

Use the information below for Focal Point Corp. for 2015 and 2016 to answer the following question.  Assume that there were no retained earnings transactions other than those dealing with dividends and net income. How much dividends did Focal Point declare during 2016?

Accepted Answer

The answer of Use the information below for Focal Point...

Question 13

Use the information below for Alpha Inc. for 2015 and 2016 to answer the following question.  During 2016, Alpha Inc. sold equipment with a cost of $30,000 and accumulated depreciation of $25,000. A gain of
$3,000 was recognized on the sale of the equipment This was the only equipment sale during the year.
What amount would be reported as the cash proceeds from the sale of equipment?

Accepted Answer

The answer of Use the information below for Alpha Inc....

Question 14

Use the information below for Flora Inc. for 2015 and 2016 to answer the following question.  During 2016, Flora Inc. sold equipment with a cost of $30,000 and accumulated depreciation of $25,000. A gain of
$3,000 was recognized on the sale of the equipment This was the only equipment sale during the year.
What was depreciation expense for 2016?

Accepted Answer

The answer of Use the information below for Flora Inc....

Question 15

Use the information below for Fargo Corp. for 2015 and 2016 to answer the following question.  At the end of 2016, Fargo issued bonds at par value for $800,000 cash. The proceeds from these bonds were used to retire the $500,000 bond issue outstanding at the end of 2015 before their maturity date. All interest expense was paid in cash during 2016.
How much did Fargo pay to retire the $500,000 bond issue during 2016?

Accepted Answer

The answer of Use the information below for Fargo Corp....

Question 16

Which of the following measures can be used to evaluate a company's ability to meet future debt obligations after paying income taxes and interest and making capital expenditures?

Accepted Answer

The cash flow adequacy ratio measures a company's ability to meet future debt obligations by determining if its cash inflows are sufficient to cover its cash outflows, including those related to interest, taxes, and capital expenditures. Earnings per share and net income do not take into account the effects of interest and capital expenditures, while the net increase or decrease in cash and cash equivalents only shows the change in cash during a specific period and does not provide information on the company's ability to meet future debt obligations.

Question 17

Tulsa Corp. reported the following information for 2015 and 2016. Interest payable, December 31, 2015 $5,700
Interest payable, December 31, 2016 6,200
Interest expense--2016 12,250
How much cash was paid for interest during 2016?

Accepted Answer

The cash paid for interest is calculated as: Interest expense (2016) + Interest payable (beginning of 2016) - Interest payable (end of 2016) = $12,250 + $5,700 - $6,200 = $11,750.

Question 18

Which of the following is an addition to net income when the indirect method is used?

Accepted Answer

A loss on sale of equipment is added back to net income when using the indirect method for cash flow statement preparation because it is a non-cash expense that reduced net income on the income statement.

Question 19

Dallas Corp. reported the following information for 2015 and 2016. Interest receivable, December 31, 2015 $1,100
Interest receivable, December 31, 2016 1,400
Interest income--2016 3,200
How much cash was received for interest during 2016?

Accepted Answer

The cash received for interest is calculated by adjusting the interest income for the change in interest receivable: $3,200 (interest income) - ($1,400 - $1,100) (increase in interest receivable) = $2,900.

Question 20

Washington Corp. reported the following information for 2015 and 2016.  If Washington uses the indirect method to prepare the operating activities section of the statement of cash flows, what amount will be reported as net cash inflow from operating activities for 2016?

Accepted Answer

The answer of Washington Corp. reported the following information for...

Quiz 12: The Statement of Cash Flows

Two methods are available to prepare the operating activities section of a statement of cash flows. Which of the following statements regarding these two methods is false?

Which of the following statements is false regarding how the cash flow effects of the changes in the equipment and accumulated depreciation accounts would be reported on a statement of cash flows if the indirect method is used to prepare the operating activities section?

Pilot Company reported the following information for 2015 and 2016. Prepaid insurance, December 31, 2015 $2,400 Prepaid insurance, December 31, 2016 1,500 Insurance expense--2016 14,200 How much cash was paid for insurance during 2016?

Tara Corp. reported the following information for 2015 and 2016. How much cash was collected from customers during 2016?

Use the information below for Barton Shipping Corp. for 2015 and 2016 to answer the following question. How much cash did Barton Shipping pay for dividends during 2016?

Carpet World Inc. reported the following information for 2015 and 2016. If Carpet World uses the indirect method to prepare the operating activities section of the statement of cash flows, what amount will be reported as net cash inflow from operating activities for 2016?

Vencenzia Company reported the following information in its annual report for 2016.

Where would you tell someone to find the information needed to compute the cash flow adequacy ratio?

Goldman Corp. reported the following information for 2015 and 2016. How much cash was paid for merchandise purchases during 2016?

Suma Corp. reported the following information for 2015 and 2016. Salaries payable, December 31, 2015 $3,700 Salaries payable, December 31, 2016 1,800 Salaries expense--2016 57,000 How much cash was paid for salaries during 2016?

Use the information below for Focal Point Corp. for 2015 and 2016 to answer the following question. Assume that there were no retained earnings transactions other than those dealing with dividends and net income. How much dividends did Focal Point declare during 2016?

Which of the following measures can be used to evaluate a company's ability to meet future debt obligations after paying income taxes and interest and making capital expenditures?

Tulsa Corp. reported the following information for 2015 and 2016. Interest payable, December 31, 2015 $5,700 Interest payable, December 31, 2016 6,200 Interest expense--2016 12,250 How much cash was paid for interest during 2016?

Which of the following is an addition to net income when the indirect method is used?

Dallas Corp. reported the following information for 2015 and 2016. Interest receivable, December 31, 2015 $1,100 Interest receivable, December 31, 2016 1,400 Interest income--2016 3,200 How much cash was received for interest during 2016?

Washington Corp. reported the following information for 2015 and 2016. If Washington uses the indirect method to prepare the operating activities section of the statement of cash flows, what amount will be reported as net cash inflow from operating activities for 2016?