Question 1

On the statement of cash flows, the cash flows from operating activities section include:
A)receipts from the issuance of capital stock.
B)receipts from the sale of investments.
C)payments for the acquisition of investments.
D)depreciation expense on fixed assets.

Accepted Answer

Cash flows from operating activities include the changes in cash resulting from the primary operations of the business, such as the sale of goods or services, payments to suppliers, and operating expenses. Depreciation is a non-cash expense that reduces net income but doesn't involve any cash outlays. As a result, depreciation is added back to net income when calculating cash flows from operating activities. Receipts from the issuance of capital stock and the sale or acquisition of investments are classified as cash flows from financing and investing activities, respectively.

Question 2

The retirement of bonds for cash is reported under which of the following sections of the statement of cash flows?
A)Financing Activities
B)Operating Activities
C)Investing Activities
D)Disclosures

Accepted Answer

The retirement of bonds for cash is a financing activity, as it involves the repayment of borrowed capital. Therefore, it is reported under the financing activities section of the statement of cash flows.

Question 3

The purchase or resale of treasury stock is reported in which section of the statement of cash flows?
A)Disclosures
B)Operating Activities
C)Investing Activities
D)Financing Activities

Accepted Answer

The purchase or resale of treasury stock is a financing activity because it involves the use of funds from or to shareholders, and it affects the company's equity position. Therefore, it should be reported in the financing activities section of the statement of cash flows.

Question 4

Bastion Corporation paid $36,500 on its mortgage loan during the year. The principal portion of the payments totaled $15,000 and the interest was $21,500. How would the $15,000 be reported on the Statement of Cash Flows?
A)an outflow of cash under the investing activities section
B)an outflow of cash under the operating activities section
C)an outflow of cash under the financing activities section
D)a disclosure of the interest paid

Accepted Answer

The payment of a mortgage loan is considered a financing activity and not an operating or investing activity. The principal portion of the payments is also considered a financing activity, as it represents a reduction in the company's long-term debt. Therefore, the $15,000 would be reported as an outflow of cash under the financing activities section of the statement of cash flows. The interest paid would also be disclosed in the financing activities section, but it would not be considered an outflow of cash as it is a non-cash expense.

Question 5

The Natural Company's cash balance at December 31, 2019, was $150,000. The following information was reported on the company's statement of cash flows for 2020:

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The Natural Company's Statement of Cash Flows would report Cash Flows from Financing Activities totaling:
A)$160,000
B)$125,000
C)$400,000
D)$365,000

Accepted Answer

Cash flows from financing activities include the issuance of long-term debt and the repayment of long-term debt, as well as the issuance of stock and the payment of dividends. 
From the given information, the company had no long-term debt or stock transactions during the year. 
So, the only financing activity reported in the statement of cash flows was the payment of dividends of $25,000. 
Therefore, the Cash Flows from Financing Activities would total $25,000, which is option B.

Question 6

The following information is taken from the accounting records of the Gilford Corporation. Use this information to prepare Gilford's statement of cash flows for the year ended December 31, 2019.
  
(a)Plant construction costing $40,000 in cash was completed.
(b)Equipment was purchased for $20,000 in cash.
(c)Common stock was sold for $50,000 in cash.
(d)Bonds were issued for $15,000 in cash.
(e)Common stock dividends of $20,000 were paid in cash.
(f)Net income after income taxes was $35,000.

Accepted Answer

The answer of The following information is taken from the...

Question 7

The following transactions occurred at the Lionel Corporation in 2019. Use this information to prepare Lionel's schedule of cash flows from investing activities.
A)The company sold a used truck for $6,500 in cash. The original cost of the truck was $22,000. Depreciation of $16,000 had been deducted.
B)The company purchased some new equipment for $36,000.

Accepted Answer

The answer of The following transactions occurred at the Lionel...

Question 8

An increase in Accounts Payable would be reported in the statement of cash flows as:
A)an increase in the Operating section.
B)an increase in the Financing section.
C)a decrease in the Operating section.
D)an increase in the Investing section.

Accepted Answer

An increase in Accounts Payable is a liability, which is a component of working capital. As such, it is reported in the Operating section of the statement of cash flows since it relates to cash flows from day-to-day operations.

Question 9

Cash paid to purchase long-term investments would be reported in the statement of cash flows as:
A)a decrease in the Operating section.
B)a decrease in the Investing section.
C)an increase in the Financing section.
D)an increase in the Operating section.

Accepted Answer

Cash paid to purchase long-term investments would be reported in the Investing section of the statement of cash flows as it is an investing activity. The Investing section reports cash inflows and outflows related to the acquisition or disposal of long-term assets such as property, plant, and equipment, long-term investments, and intangible assets.

Question 10

The current assets and liabilities of the Lionel Corporation on December 31, 2019 and 2018, are listed below. Lionel's net income for 2019 was $75,000. Included in its expenses was depreciation of $17,000. Prepare a schedule of cash flows from operating activities for 2019.

Accepted Answer

The answer of The current assets and liabilities of the...

Question 11

Eleemosynary Organization acquired land valued at $56,000 for 4,200 shares of its stock. Where on the Statement of Cash flows is this transaction reported?
A)Operating Activities
B)Investing Activities
C)Financing Activities
D)Disclosures

Accepted Answer

This transaction is a non-cash investing and financing activity, which means it does not appear in the cash flows from operating, investing, or financing activities sections but is disclosed in the notes to the financial statements.

Question 12

The Natural Company's cash balance at December 31, 2019, was $150,000. The following information was reported on the company's statement of cash flows for 2020:

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The Natural Company's Statement of Cash Flows would report Cash Flows from Investing Activitie totaling:
A)($355,000)
B)$477,000
C)($332,000)
D)($416,000)

Accepted Answer

Cash flows from investing activities typically include cash transactions for the purchase and sale of long-term assets and investments. The negative sign indicates a net cash outflow, which is common when a company invests in assets.

Question 13

A list of sources and uses of cash are given below. Indicate on the line provided whether each is an operating, investing, or financing activity.
-----(a) purchase of land
-----(b) repayment of bond indebtedness
-----(c) sale of merchandise
-----(d) pay salaries and wages
-----(e) pay interest expense
-----(f) sale of office equipment
-----(g) dividends paid
-----(h) resale of Treasury Stock
-----(i) borrowing through a note payable
-----(j) dividend income

Accepted Answer

The answer of A list of sources and uses of...

Question 14

Define cash equivalents and list three examples other than coin, currency, and bank accounts.

Accepted Answer

The answer of Define cash equivalents and list three examples...

Question 15

The following transactions occurred at the Lionel Corporation in 2019. Use this information to prepare Lionel's schedule of cash flows from financing activities.
A)The company issued 450 shares of its $50 par value common stock at par.
B)Cash dividends of $26,000 were paid on common stock during the year.

Accepted Answer

The answer of The following transactions occurred at the Lionel...

Question 16

The Natural Company's cash balance at December 31, 2019, was $150,000. The following information was reported on the company's statement of cash flows for 2020:

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The Natural Company's Statement of Cash Flows would report Cash Flows from Operating Activities of:
A)$191,000.
B)$346,000.
C)$214,000.
D)$407,000.

Accepted Answer

Cash flows from operating activities are calculated by adjusting net income for non-cash expenses and changes in current assets and liabilities. The change in accounts receivable was an increase of $14,000, indicating that sales were made but not yet collected. The change in inventory was a decrease of $53,000, indicating that inventory was sold during the year. Accounts payable increased by $28,000, indicating that the company purchased goods on credit. Depreciation expense of $120,000 is a non-cash expense that is added back to net income. Therefore, the cash flows from operating activities can be calculated as follows: 
Net income + Depreciation expense - Increase in accounts receivable - Decrease in inventory + Increase in accounts payable 
$250,000 + $120,000 - $14,000 - (-$53,000) + $28,000 = $214,000.

Question 17

On the statement of cash flows, a $5,000 gain on the sale of investments would be:
A)a decrease in the Investing section.
B)an increase in the Financing section.
C)a decrease in the Operating section.
D)an increase in the Investing section.

Accepted Answer

Gains on the sale of investments are adjustments in the Operating section of the statement of cash flows to reconcile net income to net cash provided by operating activities, as they are non-cash income that increased net income but did not affect cash.

Question 18

The Natural Company's cash balance at December 31, 2019, was $150,000. The following information was reported on the company's statement of cash flows for 2020:
 
-

The Natural Company's balance sheet would report the balance of Cash on December 31, 2020.
A)$150,000
B)($16,000)
C)$134,000
D)$192,000

Accepted Answer

The statement of cash flows shows that the company had cash inflows of $258,000 during the year and cash outflows of $140,000. Adding the cash balance at the beginning of the year, the company's ending cash balance would be ($150,000 + $258,000 - $140,000) = $134,000. Therefore, the balance sheet would report cash balance of $134,000 at December 31, 2020.

Question 19

Cannon Manufacturing Co. sold equipment that cost $18,000 for $5,000. A gain on sale of $1,000 was recorded. How is the Cash Flows from Investing Activities affected?
A)A cash inflow of $5,000 is recorded.
B)A cash inflow of $6,000 is recorded.
C)A cash inflow of $11,000 is recorded.
D)A cash inflow of $12,000 is recorded.

Accepted Answer

The cash inflow from investing activities is $5,000, which is the cash received from the sale of the equipment. The gain or loss on sale does not affect the cash flow amount.

Question 20

Corporations do not commonly use the direct method for the Statement of Cash Flows because
A)of the many additional disclosures and schedules that must accompany the statement.
B)the FASB prefers the indirect method.
C)the direct method does not follow GAAP.
D)there are fewer disclosures required under the indirect method.

Accepted Answer

The direct method for the Statement of Cash Flows requires a detailed disclosure of cash receipts and payments, which often necessitates additional schedules and disclosures compared to the indirect method. This complexity and the additional effort required to prepare these disclosures are why corporations commonly prefer the indirect method.

Quiz 24: The Statement of Cash Flows

On the statement of cash flows, the cash flows from operating activities section include:

The retirement of bonds for cash is reported under which of the following sections of the statement of cash flows?

The purchase or resale of treasury stock is reported in which section of the statement of cash flows?

Bastion Corporation paid $36,500 on its mortgage loan during the year. The principal portion of the payments totaled $15,000 and the interest was $21,500. How would the $15,000 be reported on the Statement of Cash Flows?

The Natural Company's cash balance at December 31, 2019, was $150,000. The following information was reported on the company's statement of cash flows for 2020: - The Natural Company's Statement of Cash Flows would report Cash Flows from Financing Activities totaling:

An increase in Accounts Payable would be reported in the statement of cash flows as:

Cash paid to purchase long-term investments would be reported in the statement of cash flows as:

The current assets and liabilities of the Lionel Corporation on December 31, 2019 and 2018, are listed below. Lionel's net income for 2019 was $75,000. Included in its expenses was depreciation of $17,000. Prepare a schedule of cash flows from operating activities for 2019.

Eleemosynary Organization acquired land valued at $56,000 for 4,200 shares of its stock. Where on the Statement of Cash flows is this transaction reported?

The Natural Company's cash balance at December 31, 2019, was $150,000. The following information was reported on the company's statement of cash flows for 2020: - The Natural Company's Statement of Cash Flows would report Cash Flows from Investing Activitie totaling:

Define cash equivalents and list three examples other than coin, currency, and bank accounts.

The Natural Company's cash balance at December 31, 2019, was $150,000. The following information was reported on the company's statement of cash flows for 2020: - The Natural Company's Statement of Cash Flows would report Cash Flows from Operating Activities of:

On the statement of cash flows, a $5,000 gain on the sale of investments would be:

The Natural Company's cash balance at December 31, 2019, was $150,000. The following information was reported on the company's statement of cash flows for 2020: - The Natural Company's balance sheet would report the balance of Cash on December 31, 2020.

Cannon Manufacturing Co. sold equipment that cost $18,000 for $5,000. A gain on sale of $1,000 was recorded. How is the Cash Flows from Investing Activities affected?

Corporations do not commonly use the direct method for the Statement of Cash Flows because