Question 1

Cinders Inc, reported net income of $75,000 and a loss on the sale of plant assets of $17,000. The cash received from the sale of the plant assets was $52,000. Cinders also issued additional shares of stock for $25,000 and paid dividends of $6,200. Calculate the net cash provided or used by investing activities.
A)$35,000 net cash provided.
B)$69,000 net cash used.
C)$52,000 net cash provided
D)$20,800 net cash used.

Accepted Answer

The answer of Cinders Inc, reported net income of $75,000...

Question 2

Windwhirl Company reported net income of $150,000 and a $5,000 gain on the sale of equipment. The cash received from the sale of equipment was $27,000. Windwhirl issued additional shares of stock for $237,000, paid off a $196,000 bond issue recorded at par and paid $51,000 in dividends during the year. Calculate the net cash provided or (used)by financing activities.
A)($5,000).
B)$17,000.
C)($10,000).
D)$162,000.

Accepted Answer

Net cash used by financing activities is calculated as: Cash from issuing stock ($237,000) minus cash used to pay off bonds ($196,000) minus dividends paid ($51,000), resulting in a net cash use of $10,000.

Question 3

Generally, if a short-term investment is to be classified as a cash equivalent,:
A)1 month from the date it was acquired.
B)3 months from the date it was acquired.
C)6 months from the date it was acquired.
D)12 months from the date it was acquired.

Accepted Answer

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Generally, they are investments with original maturities of three months or less from the date of acquisition.

Question 4

Chattel Company sold equipment that originally cost $46,000 and accumulated depreciation in the amount of $38,200 for $8,000 cash. 
-What amount is reported in the Cash Flows from Operating Activities section of the Statement of Cash Flows for the sale of this equipment?
A)$7,800
B)($200)
C)$8,000
D)$0

Accepted Answer

The answer of Chattel Company sold equipment that originally cost...

Question 5

An increase in accounts payable is:
A)added to the cash flows from investing activities.
B)subtracted from the net income when determining the net cash provided by operating activities.
C)added to the net income when determining the net cash provided by operating activities.
D)not used to calculate the net cash provided by operating activities.

Accepted Answer

An increase in accounts payable indicates that a company has incurred expenses for which it has not yet paid cash. In the context of the cash flow statement, this increase is added back to net income when calculating net cash provided by operating activities because it represents a source of cash (i.e., expenses incurred without a corresponding cash outflow).

Question 6

When using the indirect method of preparing the statement of cash flows, the payment of interest is considered to be:
A)an outflow of cash that results from a financing activity.
B)an outflow of cash that results from an investing activity.
C)an outflow of cash that results from an operating activity.
D)an activity that is not reported on the statement of cash flows.

Accepted Answer

The payment of interest is considered to be an outflow of cash that results from an operating activity when using the indirect method of preparing the statement of cash flows. This is because the interest payment is related to the cost of borrowing funds to support the company's ongoing operations. Therefore, it is included in the operating activities section along with other cash flows related to the company's core business activities.

Question 7

Which of the following would be reported as an investing activity on the statement of cash flows:
A)the issue of preferred stock.
B)the purchase of equipment for cash.
C)the issue of bonds and notes payable.
D)the resale of treasury stock.

Accepted Answer

The purchase of equipment for cash is considered an investing activity because it involves the acquisition of long-term assets that are necessary for the company's operations.

The other options are not considered investing activities:
A) Issuing preferred stock would be reported as a financing activity because it involves raising funds from investors.
C) Issuing bonds and notes payable would also be reported as a financing activity because it represents borrowing funds from lenders.
D) Reselling treasury stock would be reported as a financing activity because it involves changes to the company's equity accounts.

Question 8

Doff Manufacturing Co. sold equipment that cost $13,300 and accumulated depreciation of $11,000 for $3,000 cash. How is the Cash Flows from Operating Activities affected?
A)The book value of $2,300 is added to Net Income
B)The gain of $700 is deducted from Net Income
C)The gain of $700 is added to Net Income
D)The $3,000 cash received from the sale is added to Net Income

Accepted Answer

When an asset is sold, the difference between the selling price and the book value (cost minus accumulated depreciation) is either a gain or a loss, depending on whether the selling price is higher or lower than the book value. In this case, the selling price of $3,000 is lower than the book value of $2,300 ($13,300 - $11,000), so the difference is a gain of $700 ($3,000 - $2,300). However, this gain is not part of the company's core operating activities (i.e. selling products, paying creditors, etc.), so it is deducted from Net Income in the Cash Flows from Operating Activities section of the cash flow statement. The $3,000 cash received from the sale is part of the Operating Activities section, but it is not added to Net Income - it is simply reported as a cash inflow. Therefore, option B is the correct answer.

Question 9

Transactions that provide cash to the business to fund its activities are:
A)operating activities.
B)financing activities.
C)investing activities.
D)outflows or uses of cash.

Accepted Answer

Financing activities relate to transactions that involve raising capital, such as issuing stock, obtaining loans or repaying them, and paying dividends. These activities provide cash to the business, which can be used to fund its operations. Therefore, financing activities are the best choice for this question. Operating activities are transactions related to the core business operations, such as sales and expenses, that generate revenue or incur costs, while investing activities involve the acquisition or disposal of long-term assets, such as property, plant, and equipment or investments in other companies. Outflows or uses of cash can refer to any transaction that results in a decrease in cash balances, including payments for expenses or investments.

Question 10

When the net cash provided by operating activities is determined, the amortization of bond premium:
A)should be added to the net income.
B)should be subtracted from the net income.
C)should not be used in the calculation.
D)be subtracted from the net cash amount after other calculations have been made.

Accepted Answer

The amortization of bond premium is a non-cash expense, and it should be subtracted from net income when calculating net cash provided by operating activities using the indirect method. This adjustment is necessary because the premium amortization was added to interest expense to arrive at net income, but it does not represent an actual cash outflow.

Question 11

Cannon Manufacturing Co. sold equipment that cost $18,000 for $6,000. A gain on sale of $1,000 was recorded. How is the Cash Flows from Operating Activities affected?
A)The gain of $1,000 is added to Net Income.
B)The gain of $1,000 is deducted from Net Income.
C)The $6,000 cash received is deducted from Net Income.
D)The $11,000 accumulated depreciation is added to Net Income.

Accepted Answer

The gain of $1,000 is deducted from Net Income in the Cash Flows from Operating Activities section because gains are added back to net income when calculating cash flows from operating activities, effectively reversing the gain to reflect the cash transaction accurately.

Question 12

Chattel Company sold equipment that originally cost $46,000 and accumulated depreciation in the amount of $38,200 for $8,000 cash.
- What amount is reported in the Cash Flows from Investing Activities section of the Statement of Cash Flows for the sale of this equipment?
A)$7,800
B)$200
C)$8,000
D)$0

Accepted Answer

The amount reported in the Cash Flows from Investing Activities section for the sale of equipment is the cash received from the sale, which is $8,000. The original cost and accumulated depreciation of the equipment do not affect the cash flow amount reported for the sale.

Question 13

Polyglot Services, Inc. sold equipment that cost $52,800 for $14,650 cash. The accumulated depreciation on the equipment on the date of the sale amounted to $37,600. What amount is reported in the Cash Flows from Investing Activities section of the Statement of Cash Flows for this sale of equipment?
A)$15,200
B)$0
C)$14,650
D)$550

Accepted Answer

The cash received from the sale of equipment is reported in the Cash Flows from Investing Activities section of the Statement of Cash Flows, so the amount reported is $14,650. The cost of the equipment and accumulated depreciation are not reported in the Statement of Cash Flows.

Question 14

On a statement of cash flows, an increase in a prepaid expense:
A)is included in computing cash flows from operating activities.
B)is included in computing cash flows from investing activities.
C)is included in computing cash flows from financing activities.
D)is not used in computing cash flows.

Accepted Answer

An increase in a prepaid expense is an operating activity because prepaid expenses are payments made in advance for goods and services that will be used within a certain period of time. Therefore, they are included in the computation of cash flows from operating activities.

Question 15

When calculating the net cash provided by operating activities, an increase in income taxes payable is:
A)subtracted from the net cash amount after other calculations have been made.
B)subtracted from the net income.
C)added to the net income.
D)not used in the calculation.

Accepted Answer

An increase in income taxes payable is added to the net income because it represents an expense that has been incurred but not yet paid, thus increasing the cash available from operating activities.

Question 16

Transactions for the acquisition or disposal of long-term assets are:
A)investing activities.
B)operating activities.
C)financing activities.
D)outflows or uses of cash.

Accepted Answer

The answer of Transactions for the acquisition or disposal of...

Question 17

Anders Inc, reported that its bonds with a par value of $500,000 and a carrying value of $545,000 were retired for $525,000 resulting in a gain of $20,000. The amounts to be reported on the statement of cash flows include:
A)a $45,000 decrease in cash for financing activities
B)a $525,000 decrease in cash for investing activities and a $45,000 increase in financing activities.
C)a $20,000 decrease in cash from operating activities and a $525,000 decrease in cash for financing activities.
D)$20,000 increase in cash from operating activities and a $545,000 decrease in cash used for financing activities.

Accepted Answer

The answer of Anders Inc, reported that its bonds with...

Question 18

On a statement of cash flows, depreciation expense is:
A)subtracted from net income in the computation of the net cash provided by operating activities.
B)added to net income in the computation of the net cash provided by operating activities.
C)treated as a cash outflow in the computation of the net cash used in investing activities.
D)treated as a cash inflow in the computation of the net cash used in investing activities.

Accepted Answer

Depreciation expense is a non-cash charge that reduces net income on the income statement. On the statement of cash flows, it is added back to net income in the operating activities section to adjust for the fact that it did not involve an actual outflow of cash.

Question 19

The method most often used by companies to prepare the statement of cash flows is the:
A)accrual method.
B)direct method.
C)indirect method.
D)deferral method.

Accepted Answer

The most commonly used method by companies to prepare a statement of cash flows is the indirect method. This method starts with net income and adjusts for non-cash items such as depreciation, as well as changes in current assets and liabilities, to arrive at the net cash flow from operating activities. The direct method is an alternative approach, where each individual cash receipt and payment is listed, but it is less common due to its complexity. The accrual method and deferral method are accounting methods used for recording transactions and do not directly relate to the preparation of the statement of cash flows.

Question 20

Chattel Company sold equipment that originally cost $46,000 and accumulated depreciation in the amount of $38,200 for $8,000 cash. 
-What amount is reported in the Cash Flows from Financing Activities section of the Statement of Cash Flows for the sale of this equipment?
A)$8,000
B)$7,800
C)$200
D)$0

Accepted Answer

The sale of equipment is reported in the Cash Flows from Investing Activities section of the Statement of Cash Flows, not the Financing Activities section. Therefore, $0 is reported in the Cash Flows from Financing Activities section for the sale of this equipment.

Quiz 24: The Statement of Cash Flows

Generally, if a short-term investment is to be classified as a cash equivalent,:

Chattel Company sold equipment that originally cost $46,000 and accumulated depreciation in the amount of $38,200 for $8,000 cash. -What amount is reported in the Cash Flows from Operating Activities section of the Statement of Cash Flows for the sale of this equipment?

An increase in accounts payable is:

When using the indirect method of preparing the statement of cash flows, the payment of interest is considered to be:

Which of the following would be reported as an investing activity on the statement of cash flows:

Doff Manufacturing Co. sold equipment that cost $13,300 and accumulated depreciation of $11,000 for $3,000 cash. How is the Cash Flows from Operating Activities affected?

Transactions that provide cash to the business to fund its activities are:

When the net cash provided by operating activities is determined, the amortization of bond premium:

Cannon Manufacturing Co. sold equipment that cost $18,000 for $6,000. A gain on sale of $1,000 was recorded. How is the Cash Flows from Operating Activities affected?

Chattel Company sold equipment that originally cost $46,000 and accumulated depreciation in the amount of $38,200 for $8,000 cash. - What amount is reported in the Cash Flows from Investing Activities section of the Statement of Cash Flows for the sale of this equipment?

On a statement of cash flows, an increase in a prepaid expense:

When calculating the net cash provided by operating activities, an increase in income taxes payable is:

Transactions for the acquisition or disposal of long-term assets are:

Anders Inc, reported that its bonds with a par value of $500,000 and a carrying value of $545,000 were retired for $525,000 resulting in a gain of $20,000. The amounts to be reported on the statement of cash flows include:

On a statement of cash flows, depreciation expense is:

The method most often used by companies to prepare the statement of cash flows is the:

Chattel Company sold equipment that originally cost $46,000 and accumulated depreciation in the amount of $38,200 for $8,000 cash. -What amount is reported in the Cash Flows from Financing Activities section of the Statement of Cash Flows for the sale of this equipment?