Question 1

A company had net cash flows from operations of $341,000, net income of $286,000 and average total assets of $1,850,000. The cash flow on total assets ratio equals:
A) 646.9%
B) 15.5%
C) 83.9%
D) 542.5%
E) 18.4%

Accepted Answer

The answer of A company had net cash flows from...

Question 2

A company had average total assets of $1,660,000, total cash flows of $1,320,000, cash flows from operations of $205,000, and cash flows from financing of $750,000. The cash flow on total assets ratio equals:
A) 22.0%.
B) 79.5%.
C) 11.65%.
D) 12.3%.
E) 45.2%.

Accepted Answer

The answer of A company had average total assets of...

Question 3

Use the following information to calculate cash paid for wages and salaries: $$\begin{array} { | l | r } 
\text { Salaries expense } & \$ 168,000 \
\hline \text { Salaries payable, January 1 } & 6,400 \
\hline \text { Salaries payable, December 31 } & 10,600
\end{array}$$
A) $172,200.
B) $157,400.
C) $168,000.
D) $163,800.
E) $174,400.

Accepted Answer

The answer of Use the following information to calculate cash...

Question 4

When using the indirect method to calculate and report the net cash provided or used by operating activities, net income is adjusted for all but which of the following?
A) Depreciation and amortization expense.
B) Changes in current liabilities related to operating activities.
C) Gains and losses from nonoperating items.
D) Revenues and expenses that did not provide or use cash.
E) Changes in noncurrent assets and noncurrent liabilities.

Accepted Answer

Changes in noncurrent assets and noncurrent liabilities are not adjusted in the operating activities section when using the indirect method; they are typically considered in the investing and financing sections.

Question 5

The direct method for the preparation of the operating activities section of the statement of cash flows:
A) Reports adjustments to reconcile net income to net cash provided or used by operating activities in the statement.
B) Is required by the FASB.
C) Reports a different amount of cash flows from operations than if the indirect method is used.
D) Separately lists each major item of operating cash receipts and cash payments.
E) Is required if the company is a merchandiser.

Accepted Answer

The direct method separately lists each major item of operating cash receipts and cash payments, providing a detailed breakdown of the cash flows from operating activities. This method is not required by the FASB and may result in the same or different amount of cash flows from operations compared to the indirect method. Being a merchandiser does not impact the choice of method. Option A describes the indirect method.

Question 6

The statement of cash flows helps analysts evaluate all but which of the following?
A) Source of cash used for debt repayments.
B) Differences between net income and net operating cash flow.
C) Ability of the company to generate profit.
D) Source of cash used to finance investing activities.
E) Source of cash used for plant expansion.

Accepted Answer

The statement of cash flows helps analysts evaluate the sources and uses of cash for a company, including debt repayments, investing activities such as plant expansion, and financing activities such as issuing stocks or paying dividends. However, it does not directly evaluate the ability of the company to generate profit, as this is typically assessed through the income statement and other financial ratios.

Question 7

The direct method of reporting operating cash flows:
A) Is considered supplementary disclosure.
B) Is not recommended by the FASB, but is commonly used.
C) Is used by most companies.
D) Must be used by all companies.
E) Is recommended but not required by the FASB.

Accepted Answer

The direct method of reporting operating cash flows is recommended but not required by the FASB. It is considered a more informative approach to presenting cash flows from operating activities but is not commonly used as it requires more detailed information and can be more time-consuming.

Question 8

The indirect method for the preparation of the operating activities section of the statement of cash flows:
A) Separately lists each major item of operating cash payments.
B) Is required if the company is a merchandiser.
C) Must not be used in all circumstances.
D) Separately lists each major item of operating cash receipts.
E) Reports net income and then adjusts it for items necessary to determine net cash provided or used by operating activities.

Accepted Answer

The indirect method adjusts net income for non-cash items such as depreciation, changes in working capital, and other non-operating items to determine net cash provided or used by operating activities. It is commonly used and required by GAAP. Choices A, B, and D describe aspects of the direct method, which is an alternative way to prepare the operating activities section. Choice C is incorrect because the indirect method can be used in all circumstances.

Question 9

A company had net cash flows from operations of $120,000, cash flows from financing of $330,000, total cash flows of $500,000, and average total assets of $2,500,000. The cash flow on total assets ratio equals:
A) 20.0%.
B) 24.0%.
C) 5.0%.
D) 20.8%.
E) 4.8%.

Accepted Answer

The cash flow on total assets ratio is calculated as (Net cash flows from operations / Average total assets) * 100. So, ($120,000 / $2,500,000) * 100 = 4.8%.

Question 10

Of the following, which one affects cash during a period?
A) The declaration of a cash dividend.
B) The payment of interest expense accrued in a previous accounting period.
C) The declaration of a stock dividend.
D) Writing off an uncollectible account receivable.
E) An adjusting entry recognizing the expiration of prepaid insurance.

Accepted Answer

The payment of interest expense accrued in a previous accounting period affects cash because it involves an actual cash outflow to settle the liability.

Question 11

The statement of cash flows cannot help address questions such as:
A) Why is cash flow from operations different from income?
B) What is the source of cash for new plant assets?
C) How much of the company's revenues have been retained as profit?
D) How much cash is generated from or used in operations?
E) How is the increase in investments financed?

Accepted Answer

The statement of cash flows provides information on the cash inflows and outflows of a company during a specific period. It shows how the company generated and used cash, but it does not provide information on how much of the company's revenues have been retained as profit, which is related to the income statement. The statement of cash flows can answer questions related to cash flow from operations, sources of cash for new plant assets, cash generated from or used in operations, and how the increase in investments is financed.

Question 12

Preparation of the statement of cash flows does not involve:
A) Computing the net increase or decrease in cash.
B) Computing the profit compared to the net increase or decrease in cash.
C) Computing and reporting net cash provided or used by operations.
D) Computing and reporting net cash provided or used by investing activities.
E) Computing and reporting net cash provided or used by financing activities.

Accepted Answer

The preparation of the statement of cash flows involves computing the net increase or decrease in cash, reporting net cash provided or used by operations, investing activities, and financing activities. However, it does not involve computing the profit compared to the net increase or decrease in cash.

Question 13

The cash flow on total assets ratio:
A) Is the same as profit margin.
B) Can be an indicator of earnings quality.
C) Is highly affected by accounting principles of income recognition and measurement.
D) Is the same as return on assets.
E) Is average net assets divided by cash flows from operations.

Accepted Answer

The cash flow on total assets ratio can be an indicator of earnings quality, as it measures a company's ability to generate cash flow from its assets. This ratio takes into account the firm's operating cash flow, which is a better measure of a company's earnings quality compared to net income, which can be affected by accounting principles. Options A, C, D, and E are all incorrect as they do not accurately describe the cash flow on total assets ratio.

Question 14

The reporting of net cash provided or used by operating activities that lists the major items of operating cash receipts, such as receipts from customers, and subtracts the major items of operating cash disbursements, such as cash paid for merchandise, is referred to as the:
A) Direct method of reporting net cash provided or used by operating activities.
B) Indirect method of reporting net cash provided or used by operating activities.
C) Classified statement of cash flows.
D) Cash basis of accounting.
E) Net method of reporting cash flows from operating activities.

Accepted Answer

The direct method of reporting net cash provided or used by operating activities lists the major items of operating cash receipts and subtracts the major items of operating cash disbursements. This method provides a more detailed and transparent view of a company's operating cash flows compared to the indirect method.

Question 15

The first line item in the operating activities section of a spreadsheet for a statement of cash flows prepared using the indirect method is:
A) Net income (loss).
B) Adjustments to net income.
C) Cash received from customers.
D) Cash.
E) Increase (decrease) in accounts receivable.

Accepted Answer

The indirect method starts with net income (loss) and adjusts for changes in balance sheet accounts to convert it to cash flow from operating activities.

Question 16

A statement of cash flows explains the differences between the beginning and ending balances of:
A) Cash, cash equivalents, and short-term investments.
B) Cash and cash equivalents.
C) Net income.
D) Working capital.
E) Equity.

Accepted Answer

A statement of cash flows specifically reconciles the beginning and ending balances of cash and cash equivalents, showing how cash is generated and used during a period.

Question 17

When using the indirect method to calculate and report net cash provided or used by operating activities, which of the following is subtracted from net income?
A) Decrease in income taxes payable.
B) Depreciation expense.
C) Bad debts expense.
D) Amortization of intangible assets.
E) Decrease in merchandise inventory.

Accepted Answer

A decrease in income taxes payable indicates that cash was used to pay off tax liabilities, so it is subtracted from net income in the indirect method.

Question 18

The cash flow on total assets ratio is calculated by:
A) Dividing cash flows from operations by average total assets.
B) Dividing total cash flows by average total assets.
C) Dividing average total assets by cash flows from investing activities.
D) Total cash flows divided by average total assets times 365.
E) Dividing average total assets by total cash flows.

Accepted Answer

The cash flow on total assets ratio is calculated by dividing cash flows from operations by average total assets. This ratio helps to identify how much cash is generated for each dollar invested in the business.

Question 19

When preparing a statement of cash flows using the indirect method, each of the following should be classified as an operating cash flow except:
A) A decrease in accounts payable.
B) Proceeds from the disposal of a long-term asset with no gain or loss.
C) An increase in accounts receivable.
D) A decrease in accrued expenses payable.
E) An increase in prepaid expenses.

Accepted Answer

Option B, proceeds from disposal of long-term assets, should be classified as an investing cash flow, not an operating cash flow. The other options listed are changes in current assets or liabilities, which are classified as operating cash flows.

Question 20

A company's Inventory balance at the end of the year was $188,000 and $200,000 at the beginning of the year. Its Accounts Payable balance at the end of the year was $84,000 and $80,000 at the beginning of the year, and its cost of goods sold for the year was $720,000. The company's total amount of cash payments for merchandise during the year equals:
A) $720,000.
B) $736,000.
C) $712,000.
D) $728,000.
E) $704,000.

Accepted Answer

The answer of A company's Inventory balance at the end...

Quiz 16: Reporting the Statement of Cash Flows

A company had net cash flows from operations of $341,000, net income of $286,000 and average total assets of $1,850,000. The cash flow on total assets ratio equals:

A company had average total assets of $1,660,000, total cash flows of $1,320,000, cash flows from operations of $205,000, and cash flows from financing of $750,000. The cash flow on total assets ratio equals:

Use the following information to calculate cash paid for wages and salaries: $\begin{array} { | l | r } \text { Salaries expense } & \$ 168,000 \\\hline \text { Salaries payable, January 1 } & 6,400 \\\hline \text { Salaries payable, December 31 } & 10,600\end{array}$

When using the indirect method to calculate and report the net cash provided or used by operating activities, net income is adjusted for all but which of the following?

The direct method for the preparation of the operating activities section of the statement of cash flows:

The statement of cash flows helps analysts evaluate all but which of the following?

The direct method of reporting operating cash flows:

The indirect method for the preparation of the operating activities section of the statement of cash flows:

A company had net cash flows from operations of $120,000, cash flows from financing of $330,000, total cash flows of $500,000, and average total assets of $2,500,000. The cash flow on total assets ratio equals:

Of the following, which one affects cash during a period?

The statement of cash flows cannot help address questions such as:

Preparation of the statement of cash flows does not involve:

The cash flow on total assets ratio:

The reporting of net cash provided or used by operating activities that lists the major items of operating cash receipts, such as receipts from customers, and subtracts the major items of operating cash disbursements, such as cash paid for merchandise, is referred to as the:

The first line item in the operating activities section of a spreadsheet for a statement of cash flows prepared using the indirect method is:

A statement of cash flows explains the differences between the beginning and ending balances of:

When using the indirect method to calculate and report net cash provided or used by operating activities, which of the following is subtracted from net income?

The cash flow on total assets ratio is calculated by:

When preparing a statement of cash flows using the indirect method, each of the following should be classified as an operating cash flow except: