Question 1

KJ Company,a manufacturer,has provided the following information pertaining to its recent year of operation:
 Cash flow from operating activities,$136,000;
Accounts payable increased $11,000;
Prepaid assets decreased $8,000;
 Depreciation expense was $12,000;
 Accounts receivable increased $23,000;
 Loss on sale of a depreciable asset was $6,000;
Wages payable decreased $9,000;
 Unearned revenue decreased $19,000;
 Patent amortization expense was $3,000.
How much was KJ's net income?

Accepted Answer

Net cash inflow from operating activities ($136,000) = Net income (X = $147,000) + Accounts payable increase ($11,000) + Prepaid asset decrease ($8,000) + Depreciation expense ($12,000) - Accounts receivable increase ($23,000) + Loss on sale of depreciable asset ($6,000) - Wages payable decrease ($9,000) - Unearned revenue decrease ($19,000) + Patent amortization expense ($3,000)

Question 2

Flow Company has provided the following information for the year ended December 31,2010:
 Cash paid for interest,$20,000;
 Cash paid for dividends,$6,000;
Cash dividends received,$4,000;
 Cash proceeds from bank loan,$29,000;
Cash purchase of treasury stock,$11,000;
Cash paid for equipment purchase,$27,000;
Cash received from common stock sale,$37,000;
Cash received from sale of land with a $32,000 book value,$25,000;
Acquisition of land costing $51,000 in exchange for preferred stock issuance.
Paid a $100,000 note payable by exchanging used machinery with a $77,000 book value.
How much was Flow's net cash flow from financing activities?

Accepted Answer

Net cash outflow from financing activities (-$2,000) = Cash paid for dividends(-$6,000) + Cash received from bank loan ($29,000) + Cash purchase of treasury stock(-$11,000) + Cash received from common stock sale ($37,000)

Question 3

KAJ Incorporated purchased a machine costing $100,000 by paying $20,000 and signing an $80,000 note payable.How would this transaction be reported within the cash flow from investing activities section of the cash flow statement?

Accepted Answer

The investing cash flows section of the cash flow statement would include the $20,000 cash payment.

Question 4

Which of the following would not be considered a cash equivalent?

Accepted Answer

The ten-year note purchased over nine years ago will not become a cash equivalent.

Question 5

Which of the following is reported as a cash flow from investing activities?

Accepted Answer

The investing cash flows section of the cash flow statement includes cash flows from the sale of investments.

Question 6

Flow Company has provided the following information for the year ended December 31,2010:
 Cash paid for interest,$20,000;
Cash paid for dividends,$6,000;
Cash dividends received,$4,000;
Cash proceeds from bank loan,$29,000;
 Cash purchase of treasury stock,$11,000;
 Cash paid for equipment purchase,$27,000;
 Cash received from common stock sale,$37,000;
Cash received from sale of land with a $32,000 book value,$25,000;
 Acquisition of land costing $51,000 in exchange for preferred stock issuance.
 Paid a $100,000 note payable by exchanging used machinery with a $77,000 book value.
How much was Flow's net cash flow from investing activities?

Accepted Answer

Net cash outflow from investing activities (-$2,000) = Cash paid for equipment purchase (-$27,000) + Cash received from land sale ($25,000)

Question 7

DJ Company,a manufacturer,has provided the following information pertaining to its recent year of operation:
 Cash flow from operating activities,$272,000;
 Accounts payable decreased $21,000;
Prepaid assets increased $15,000;
 Depreciation expense was $27,000;
 Accounts receivable decreased $21,000;
 Loss on sale of a depreciable asset was $16,000;
 Wages payable increased $10,000;
Unearned revenue decreased $16,000;
 Patent amortization expense was $10,000.
How much was DJ's net income?

Accepted Answer

Net cash inflow from operating activities ($272,000) = Net income (X = $240,000) - Accounts payable decrease ($21,000) - Prepaid asset increase ($15,000) + Depreciation expense ($27,000) + Accounts receivable decrease ($21,000) + Loss on sale of depreciable asset ($16,000) + Wages payable increase ($10,000) - Unearned revenue decrease ($16,000) + Patent amortization expense ($10,000)

Question 8

Allen Company's 2010 income statement reported total revenues,$850,000 and total expenses (including $40,000 depreciation)of $720,000.The 2009 balance sheet reported the following:
Accounts receivable-beginning balance,$50,000 and ending balance,$40,000; accounts payable-beginning balance,$22,000 and ending balance,$28,000.Therefore,based only on this information,how much was the 2010 net cash inflow from operating activities?

Accepted Answer

Net cash inflow from operating activities ($136,000) = Net income ($850,000 - $720,000) + Depreciation expense ($40,000) + Accounts receivable decrease ($10,000) + Accounts payable increase ($6,000)

Question 9

RM Company,a manufacturer,has provided the following information pertaining to its recent year of operation:
 Net income,$300,000;
 Accounts payable increased $24,000;
 Prepaid rent decreased $10,000;
 Depreciation expense was $35,000;
 Accounts receivable increased $34,000;
 Gain on sale of a building was $11,000;
 Wages payable decreased $21,000;
 Unearned revenue increased $44,000.
How much was RM's net cash inflow from operating activities?

Accepted Answer

Net cash inflow from operating activities ($347,000) = Net income ($300,000) + Accounts payable increase ($24,000) + Prepaid rent decrease ($10,000) + Depreciation expense ($35,000) - Accounts receivable increase ($34,000) - Gain on sale of building ($11,000) - Wages payable decrease ($21,000) + Unearned revenue increase ($44,000)

Question 10

GJ Company,a manufacturer,has provided the following information pertaining to its recent year of operation:
 Net income,$500,000;
 Accounts payable decreased $42,000;
Prepaid assets increased $31,000;
 Depreciation expense was $53,000;
 Accounts receivable decreased $41,000;
Loss on sale of a depreciable asset was $31,000;
 Wages payable increased $19,000;
Unearned revenue decreased $31,000;
Patent amortization expense was $5,000.
How much was GJ's net cash inflow from operating activities?

Accepted Answer

Net cash inflow from operating activities ($545,000) = Net income ($500,000) - Accounts payable decrease ($42,000) - Prepaid asset increase ($31,000) + Depreciation expense ($53,000) + Accounts receivable decrease ($41,000) + Loss on sale of depreciable asset ($31,000) + Wages payable increase ($19,000) - Unearned revenue decrease ($31,000) + Patent amortization expense ($5,000)

Question 11

Which of the following statements about the statement of cash flows is correct?

Accepted Answer

Receipt of cash dividends are reported as operating cash flows.

Question 12

Which of the following statements about the quality of income ratio is incorrect?

Accepted Answer

Aggressive revenue recognition increases net income, the denominator, and therefore decreases the ratio.

Question 13

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

Accepted Answer

Collection of interest is an operations cash flow.

Question 14

Which of the following items about the statement of cash flows is correct?

Accepted Answer

Cash equivalents are highly liquid and have maturities at the date of purchase of three months or less.

Question 15

During 2010,Boogle reported net income of $785 million and net cash inflow from operations of $1,196 million.During 2009,their net income was $563 million and net cash inflow from operations was $1,237 million.Which of the following is incorrect about their quality of income ratios?

Accepted Answer

Having operating cash flows greater than net income tends to indicate good operations cash management.

Question 16

Which of the following is not reported as a cash flow from investing activities?

Accepted Answer

Purchasing land using common stock doesn't involve a cash flow and is therefore not reported within the investing cash flows section of the cash flow statement.

Question 17

Which statement regarding the indirect method is false?

Accepted Answer

An increase in accounts receivable is deducted from net income, because sales exceed cash collections.

Question 18

Which of the following statements about the quality of income ratio is correct?

Accepted Answer

Failure to accrue (incurred but unpaid) expenses increases net income (the denominator) and therefore decreases the ratio.

Question 19

KAJ Incorporated purchased a machine costing $100,000 by paying $20,000 cash and signing an $80,000 note payable.How would this transaction be reported within the cash flow from financing activities section of the cash flow statement?

Accepted Answer

There isn't a cash flow from a financing activity. The signing of the note payable did not involve a cash flow.

Question 20

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

Accepted Answer

Collection of a cash dividend is an operations cash flow.

Quiz 13: Statement of Cash Flows