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com chapter 13 Accounting 2

MULTIPLE CHOICE QUESTIONS

1. The statement of cash flows should help investors and creditors assess each of the
following except the
a. entity's ability to generate future income.
b. entity's ability to pay dividends.
c. reasons for the difference between net income and net cash provided by operating
activities.
d. cash investing and financing transactions during the period.

2. The statement of cash flows

a. must be prepared on a daily basis.
b. summarizes the operating, financing, and investing activities of an entity.
c. is another name for the income statement.
d. is a special section of the income statement.

3. Which one of the following items is not generally used in preparing a statement of cash
flows?
a. Adjusted trial balance
b. Comparative statements of financial position
c. Current income statement
d. Additional information

4. The primary purpose of the statement of cash flows is to

a. provide information about the investing and financing activities during a period.
b. prove that revenues exceed expenses if there is a net income.
c. provide information about the cash receipts and cash payments during a period.
d. facilitate banking relationships.

5. By examining the statement of cash flows, investors can make predictions of the
a. amounts of future cash flows.
b. timing of future cash flows.
c. uncertainty of future cash flows.
d. All of the above.

6. In addition to the three basic financial statements, which of the following is also a required
financial statement?
a. the "Cash Budget"
b. the Statement of Cash Flows
c. the Statement of Cash Inflows and Outflows
d. the "Cash Reconciliation"

7. The statement of cash flows will not report the

a. amount of checks outstanding at the end of the period.
b. sources of cash in the current period.
c. uses of cash in the current period.
d. change in the cash balance for the current period.

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8. The statement of cash flows reports each of the following except

a. cash receipts from operating activities.
b. cash payments from investing activities.
c. the net change in cash.
d. cash sales.

9. Each of the following are particularly interested in the statement of cash flows except
a. creditors.
b. employees.
c. shareholders.
d. government agencies.

10. Lending money and collecting the loans are

a. operating activities.
b. investing activities.
c. financing activities.
d. Non-cash investing and financing activities.

11. The best measure of a company's ability to generate sufficient cash to continue as a going
concern is net cash provided by
a. financing activities.
b. investing activities.
c. operating activities.
d. processing activities.

12. The acquisition of land by issuing ordinary shares is

a. a non-cash transaction which is not reported in the body of a statement of cash flows.
b. a cash transaction and would be reported in the body of a statement of cash flows.
c. a non-cash transaction and would be reported in the body of a statement of cash
flows.
d. only reported if the statement of cash flows is prepared using the direct method.

13. The order of presentation of activities on the statement of cash flows is

a. operating, investing, and financing.
b. operating, financing, and investing.
c. financing, operating, and investing.
d. financing, investing, and operating.
14. Financing activities include
a. lending money.
b. acquiring investments.
c. issuing debt.
d. acquiring long-lived assets.

15. Investing activities include

a. collecting cash on loans made.
b. obtaining cash from creditors.
c. obtaining capital from owners.
d. repaying money previously borrowed.
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16. Generally, the most important category on the statement of cash flows is cash flows from
a. operating activities.
b. investing activities.
c. financing activities.
d. significant non-cash activities.

17. The category that is generally considered to be the best measure of a company's ability to
continue as a going concern is
a. cash flows from operating activities.
b. cash flows from investing activities.
c. cash flows from financing activities.
d. usually different from year to year.

18. Cash receipts from interest and dividends are classified as

a. financing activities.
b. investing activities.
c. operating activities.
d. either financing or investing activities.

19. Each of the following is an example of a significant noncash activity except

a. conversion of bonds into ordinary shares.
b. exchanges of plant assets.
c. issuance of debt to purchase assets.
d. share dividends.

20. If a company has both an inflow and outflow of cash related to property, plant, and
equipment, the
a. two cash effects can be netted and presented as one item in the investing activities
section.
b. cash inflow and cash outflow should be reported separately in the investing activities
section.
c. two cash effects can be netted and presented as one item in the financing activities
section.
d. cash inflow and cash outflow should be reported separately in the financing activities
section.

21. Of the items below, the one that appears first on the statement of cash flows is
a. non-cash investing and financing activities.
b. net increase (decrease) in cash.
c. cash at the end of the period.
d. cash at the beginning of the period.

22. Which of the following transactions does not affect cash during a period?
a. Write-off of an uncollectible account
b. Collection of an accounts receivable
c. Sale of treasury shares
d. Exercise of the call option on bonds payable

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23. Significant non-cash transactions would not include

a. conversion of bonds into ordinary shares.
b. asset acquisition through bond issuance.
c. treasury share acquisition.
d. exchange of plant assets.

24. In preparing a statement of cash flows, a conversion of bonds into ordinary shares will be
reported in
a. the financing section.
b. the operating section.
c. a separate note or supplementary schedule to the financial statements.
d. the equity section.

25. Indicate where the event paid income taxes would appear, if at all, on the statement of
cash flows.
a. Operating activities section
b. Investing activities section
c. Financing activities section
d. Does not represent a cash flow

26. Indicate where the event ordinary shares issued for cash would appear, if at all, on the
indirect statement of cash flows.
a. Operating activities section
b. Investing activities section
c. Financing activities section
d. Does not represent a cash flow

27. Indicate where the event purchased land for cash would appear, if at all, on the indirect
statement of cash flows.
a. Operating activities section
b. Investing activities section
c. Financing activities section
d. Does not represent a cash flow

28. Indicate where the event purchased land and a building with a mortgage would appear, if
at all, on the indirect statement of cash flows.
a. Operating activities section
b. Investing activities section
c. Financing activities section
d. Does not represent a cash flow

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29. Joy Elle’s Vegetable Market had the following transactions during 2011:
1. Issued $50,000 of par value ordinary shares for cash.
2. Repaid a 6 year note payable in the amount of $22,000.
3. Acquired land by issuing ordinary shares of par value $100,000.
4. Declared and paid a cash dividend of $2,000.
5. Sold a non-current investment (cost $63,000) for cash of $6,000.
6. Acquired an investment in IBM shares for cash of $12,000.
What is the net cash provided by financing activities?
a. $26,000
b. $50,000
c. $28,000
d. $18,000

30. Joy Elle’s Vegetable Market had the following transactions during 2011:
1. Issued $50,000 of par value ordinary shares for cash.
2. Repaid a 6 year note payable in the amount of $22,000.
3. Acquired land by issuing ordinary shares of par value $100,000.
4. Declared and paid a cash dividend of $2,000.
5. Sold a non-current investment (cost $63,000) for cash of $6,000.
6. Acquired an investment in IBM shares for cash of $12,000.
What is the net cash provided by investing activities?
a. $12,000
b. $32,000
c. ($6,000)
d. $6,000

31. Miller Company purchased treasury shares with a cost of $15,000 during 2011. During the
year, the company paid dividends of $20,000 and issued bonds payable for proceeds of
$866,000. Cash flows from financing activities for 2011 total
a. $846,000 net cash inflow.
b. $861,000 net cash inflow.
c. $866,000 net cash outflow.
d. $831,000 net cash inflow.

32. Cline Company issued ordinary shares for proceeds of $372,000 during 2011. The
company paid dividends of $66,000 and issued a non-current note payable for $90,000 in
exchange for equipment during the year. The company also purchased treasury shares
that had a cost of $14,000. The financing section of the statement of cash flows will report
net cash inflows of
a. $292,000.
b. $404,000.
c. $306,000.
d. $358,000.

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33. In Gentry Company, land decreased $140,000 because of a cash sale for $140,000, the
equipment account increased $40,000 as a result of a cash purchase, and Bonds Payable
increased $130,000 from issuance for cash at face value. The net cash provided by
investing activities is
a. $140,000.
b. $230,000.
c. $100,000.
d. $110,000.

34. Accounts receivable arising from sales to customers amounted to ¥800,000 and ¥700,000
at the beginning and end of the year, respectively. Income reported on the income
statement for the year was ¥2,800,000. Exclusive of the effect of other adjustments, the
cash flows from operating activities to be reported on the statement of cash flows is
a. ¥2,800,000.
b. ¥2,900,000.
c. ¥3,500,000.
d. ¥2,700,000.

35. Accounts receivable arising from sales to customers amounted to ¥350,000 and ¥400,000
at the beginning and end of the year, respectively. Income reported on the income
statement for the year was ¥1,500,000. Exclusive of the effect of other adjustments, the
cash flows from operating activities to be reported on the statement of cash flows is
a. ¥1,500,000.
b. ¥1,550,000.
c. ¥1,850,000.
d. ¥1,450,000.

36. Wilton Company reported net income of $50,000 for the year. During the year, accounts
receivable decreased by $7,000, accounts payable increased by $3,000 and depreciation
expense of $5,000 was recorded. Net cash provided by operating activities for the year is
a. $40,000.
b. $65,000.
c. $49,000.
d. $45,000.

37. Buster Company reported a net loss of $6,000 for the year ended December 31, 2011.
During the year, accounts receivable increased $14,000, merchandise inventory
decreased $10,000, accounts payable decreased by $20,000, and depreciation expense
of $10,000 was recorded. During 2011, operating activities
a. used net cash of $20,000.
b. used net cash of $28,000.
c. provided net cash of $28,000.
d. provided net cash of $18,000.

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38. The net income reported on the income statement for the current year was ¥2,250,000.
Depreciation recorded on plant assets was ¥380,000. Accounts receivable and inventories
increased by ¥20,000 and ¥80,000, respectively. Prepaid expenses and accounts payable
decreased by ¥10,000 and ¥110,000 respectively. How much cash was provided by
operating activities?
a. ¥2,050,000
b. ¥2,430,000
c. ¥2,250,000
d. ¥2,590,000

39. The net income reported on the income statement for the current year was ¥2,400,000.
Depreciation was ¥500,000. Account receivable and inventories decreased by ¥100,000
and ¥300,000, respectively. Prepaid expenses and accounts payable increased,
respectively, by ¥10,000 and ¥80,000. How much cash was provided by operating
activities?
a. ¥3,010,000
b. ¥3,370,000
c. ¥3,210,000
d. ¥3,290,000

40. If a gain of $15,000 is incurred in selling (for cash) office equipment having a book value
of $100,000, the total amount reported in the cash flows from investing activities section of
the statement of cash flows is
a. $95,000.
b. $115,000.
c. $100,000.
d. $15,000.

41. If a loss of $20,000 is incurred in selling (for cash) office equipment having a book value of
$80,000, the total amount reported in the cash flows from investing activities section of the
statement of cash flows is
a. $60,000.
b. $80,000.
c. $100,000.
d. $20,000.

42. Harbor Company reported net income of $90,000 for the year ended December 31, 2011.
During the year, inventories decreased by $12,000, accounts payable decreased by
$18,000, depreciation expense was $20,000 and a gain on disposal of equipment of
$9,000 was recorded. Net cash provided by operating activities in 2011 using the indirect
method was
a. $149,000.
b. $95,000.
c. $107,000.
d. $85,000.

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43. The third (final) step in preparing the statement of cash flows is to
a. analyze changes in non-current asset and liability accounts.
b. compare the net change in cash with the change in the cash account reported on the
statement of financial position.
c. determine net cash provided by operating activities.
d. list the non-cash activities.

44. Which one of the following items is not necessary in preparing a statement of cash flows?
a. Determine the change in cash
b. Determine the cash provided by operations
c. Determine cash from financing and investing activities
d. Determine the cash in all bank accounts

45. If accounts receivable have increased during the period,

a. revenues on an accrual basis are less than revenues on a cash basis.
b. revenues on an accrual basis are greater than revenues on a cash basis.
c. revenues on an accrual basis are the same as revenues on a cash basis.
d. expenses on an accrual basis are greater than expenses on a cash basis.

46. If accounts payable have increased during a period,

a. revenues on an accrual basis are less than revenues on a cash basis.
b. expenses on an accrual basis are less than expenses on a cash basis.
c. expenses on an accrual basis are greater than expenses on a cash basis.
d. expenses on an accrual basis are the same as expenses on a cash basis.

47. Which one of the following affects cash during a period?

a. Recording depreciation expense
b. Declaration of a cash dividend
c. Write-off of an uncollectible account receivable
d. Payment of an accounts payable

48. In calculating cash flows from operating activities using the indirect method, a gain on the
sale of equipment is
a. added to net income.
b. deducted from net income.
c. ignored because it does not affect cash.
d. not reported on a statement of cash flows.

49. Meyer Company reported net income of €70,000 for the year. During the year, accounts
receivable increased by €7,000, accounts payable decreased by €3,000 and depreciation
expense of €5,000 was recorded. Net cash provided by operating activities for the year is
a. €65,000.
b. €85,000.
c. €69,000.
d. €70,000.

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50. Flynn Company reported a net loss of $30,000 for the year ended December 31, 2011.
During the year, accounts receivable decreased $15,000, merchandise inventory
increased $24,000, accounts payable increased by $30,000, and depreciation expense of
$15,000 was recorded. During 2011, operating activities
a. used net cash of $6,000.
b. used net cash of $24,000.
c. provided net cash of $6,000.
d. provided net cash of $24,000.

51. Starting with net income and adjusting it for items that affected reported net income but
which did not affect cash is called the
a. direct method.
b. indirect method.
c. working capital method.
d. cost-benefit method.

52. In calculating net cash provided by operating activities using the indirect method, an
increase in prepaid expenses during a period is
a. deducted from net income.
b. added to net income.
c. ignored because it does not affect income.
d. ignored because it does not affect expenses.

53. Using the indirect method, patent amortization expense for the period
a. is deducted from net income.
b. causes cash to increase.
c. causes cash to decrease.
d. is added to net income.

54. In developing the cash flows from operating activities, most companies in the U. S.
a. use the direct method.
b. use the indirect method.
c. present both the indirect and direct methods in their financial reports.
d. prepare the operating activities section on the accrual basis.

55. Each of the following is added to net income in computing net cash provided by operating
activities except
a. amortization expense.
b. an increase in accrued expenses payable.
c. a gain on sale of equipment.
d. a decrease in inventory.

56. Which of the following would be subtracted from net income using the indirect method?
a. Depreciation expense
b. An increase in accounts receivable
c. An increase in accounts payable
d. A decrease in prepaid expenses

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57. Which of the following would be added to net income using the indirect method?
a. An increase in accounts receivable
b. An increase in prepaid expenses
c. Depreciation expense
d. A decrease in accounts payable

58. Which of the following would not be an adjustment to net income using the indirect
method?
a. Depreciation Expense
b. An increase in Prepaid Insurance
c. Amortization Expense
d. An increase in Land

59. In calculating cash flows from operating activities using the indirect method, a loss on the
sale of equipment will appear as a(n)
a. subtraction from net income.
b. addition to net income.
c. addition to cash flow from investing activities.
d. subtraction from cash flow from investing activities.

60. Which of the following adjustments to convert net income to net cash provided by
operating activities is correct?
Add to Net Income Deduct from Net Income
a. Accounts Receivable increase decrease
b. Prepaid Expenses increase decrease
c. Inventory decrease increase
d. Taxes Payable decrease increase

61. Which of the following adjustments to convert net income to net cash provided by
operating activities is incorrect?
Add to Net Income Deduct from Net Income
a. Accounts Receivable decrease increase
b. Prepaid Expenses increase decrease
c. Inventory decrease increase
d. Accounts Payable increase decrease

62. Which of the following adjustments to convert net income to net cash provided by
operating activities is not added to net income?
a. Gain on Sale of Equipment
b. Depreciation Expense
c. Patent Amortization Expense
d. Depletion Expense

63. Using the indirect method, if equipment is sold at a gain, the

a. sale proceeds received are deducted in the operating activities section.
b. sale proceeds received are added in the operating activities section.
c. amount of the gain is added in the operating activities section.
d. amount of the gain is deducted in the operating activities section.

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64. A company had net income of ¥2,100,000. Depreciation expense is ¥260,000. During the
year, Accounts Receivable and Inventory increased ¥150,000 and ¥400,000, respectively.
Prepaid Expenses and Accounts Payable decreased ¥20,000 and ¥40,000, respectively.
There was also a loss on the sale of equipment of ¥30,000. How much cash was provided
by operating activities?
a. ¥1,760,000
b. ¥1,820,000
c. ¥2,560,000
d. ¥2,680,000

65. On the statement of cash flows using the indirect method, patent amortization expense will
a. be added to net income in the operating section.
b. be deducted from net income in the operating section.
c. appear as an inflow of cash in the investing section.
d. appear as an outflow of cash in the investing section.

66. The indirect and direct methods of preparing the statement of cash flows are identical
except for the
a. significant non-cash activity section.
b. operating activities section.
c. investing activities section.
d. financing activities section.

67. Land acquired from the issuance of ordinary shares is reported

a. as a financing activity.
b. as an investing activity.
c. as an operating activity.
d. in a separate note or supplementary schedule to the financial statements.

68. In Rooney Company, Treasury Shares increased $30,000 from a cash purchase, and
Retained Earnings increased $80,000 as a result of net income of $124,000 and cash
dividends paid of $44,000. Net cash used by financing activities is:
a. $30,000.
b. $44,000.
c. $110,000.
d. $74,000.

69. In Wallace Company, net income is $260,000. If accounts receivable increased $140,000
and accounts payable decreased $40,000, net cash provided by operating activities using
the indirect method is:
a. $80,000.
b. $160,000.
c. $360,000.
d. $440,000.

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70. In Shannon Company, there was an increase in the land account during the year of
$48,000. Analysis reveals that the change resulted from a cash sale of land at a cost
$110,000, and a cash purchase of land for $158,000. In the statement of cash flows, the
change in the land account should be reported in the investment section:
a. as a net purchase of land, $48,000.
b. only as a purchase of land $158,000.
c. as a purchase of land $158,000 and a sale of land $110,000.
d. only as a sale of land $110,000.

71. The following data are available for Springer Corporation.

Net income ₤300,000
Depreciation expense 60,000
Dividends paid 90,000
Gain on sale of land 15,000
Decrease in accounts receivable 30,000
Decrease in accounts payable 45,000
Net cash provided by operating activities is:
a. ₤240,000.
b. ₤330,000.
c. ₤360,000.
d. ₤420,000.

72. The following data are available for Nichols Corporation.

Sale of land $200,000
Sale of equipment 100,000
Issuance of ordinary shares 140,000
Purchase of equipment 60,000
Payment of cash dividends 120,000

Net cash provided by investing activities is:

a. $240,000.
b. $260,000.
c. $300,000.
d. $380,000.

73. The following data are available for Cole Company.

Increase in accounts payable $120,000
Increase in bonds payable 300,000
Sale of investments 150,000
Issuance of ordinary shares 180,000
Payment of cash dividends 90,000

Net cash provided by financing activities is:

a. $270,000.
b. $390,000.
c. $480,000.
d. $510,000.

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74. If $250,000 of bonds are issued during the year but $100,000 of old bonds are retired
during the year, the statement of cash flows will show a(n)
a. net increase in cash of $150,000.
b. net decrease in cash of $150,000.
c. increase in cash of $250,000 and a decrease in cash of $100,000.
d. net gain on retirement of bonds of $150,000.

75. Which of the following changes in retained earnings during a period will be reported in the
financing activities section of the statement of cash flows?
1. Declaration of a cash dividend paid during the period.
2. Net income for the period.
a. 1
b. 2
c. Neither 1 nor 2.
d. Both 1 and 2.

76. The statement of cash flows

a. is prepared instead of an income statement under IFRS.
b. is used to assess an entity's ability to pay dividends and meet obligations.
c. is prepared from comparative income statements.
d. reflects earnings per share figures on a cash basis and on an accrual basis in the
body of the statement.

77. In preparing the statement of cash flows, determining the net increase or decrease in cash
requires the use of
a. the adjusted trial balance.
b. the current period's statement of financial position.
c. a comparative statement of financial position.
d. a comparative income statement.

78. To determine the net cash provided (used) by operating activities, it is necessary to analyze
a. the current year's income statement.
b. a comparative statement of financial position.
c. additional information.
d. all of these.

79. Which of the following would not be needed to determine net cash provided by operating
activities?
a. Depreciation expense
b. Change in accounts receivable
c. Payment of cash dividends
d. Change in prepaid expenses

80. When equipment is sold for cash, the amount received is reflected as a cash
a. inflow in the operating section.
b. inflow in the financing section.
c. inflow in the investing section.
d. outflow in the operating section.

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81. The statement of cash flows will not provide insight into
a. why dividends were not increased.
b. whether cash flow is greater than net income.
c. the exact proceeds of a future bond issue.
d. how the retirement of debt was accomplished.

82. Which of the following transactions would not be classified as a financing activity?
a. Purchase of treasury shares
b. Payment of dividends
c. Issuance of bonds at a discount
d. Purchase of a long-term investment in bonds

83. A measure that describes the cash remaining from operations after adjustment for capital
expenditures and dividends is
a. adjusted cash from operations.
b. cash provided by operations.
c. free cash flow.
d. net cash provided by operating activities.

84. Free cash flow equals cash provided by

a. operations less capital expenditures and cash dividends.
b. operations less cash dividends.
c. investing activities less capital expenditures and cash dividends.
d. operations less capital expenditures.

85. LF’s Pest Control Products has the following information available:
Net Income $25,000
Cash Provided by Operations 31,000
Cash Sales 65,000
Capital Expenditures 11,000
Dividends Paid 3,000
What is LF’s free cash flow?
a. $28,000
b. $20,000
c. $17,000
d. $11,000

86. During 2011, Klugman Industries reported cash provided by operations of €690,000, cash
used in investing of €1,029,000, and cash used in financing of €135,000. In addition, cash
spent for fixed assets during the period was €414,000. No dividends were paid. Based on
this information, what was Klugman's free cash flow?
a. (€339,000)
b. €1,440,000
c. €276,000
d. (€888,000)

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87. All of the following statements about free cash flow are false except:
a. Significant free cash flow indicates less potential to finance new investments.
b. Free cash flow is most commonly calculated by subtracting capital expenditures from
cash provided by operations and then adding cash dividends.
c. Free cash flow is not reported on the statement of cash flows.
d. Significant free cash flow indicates less potential to pay additional dividends.

88. Which of the following steps is not required in preparing the statement of cash flows?
a. Determine the net change in cash.
b. Determine the net cash provided by operating activities.
c. Determine cash from investing and financing activities.
d. Determine the change in current assets.

89. Financing activities involve

a. lending money to other entities and collecting on those loans.
b. cash receipts from sales of goods and services.
c. acquiring and disposing of productive long-lived assets.
d. non-current liability and equity items.

90. The information to prepare the statement of cash flows usually comes from each of the
following except
a. the comparative statement of financial position.
b. the retained earnings statement.
c. additional information.
d. the current income statement.

91. The statement of cash flows is prepared from all of the following except
a. the adjusted trial balance.
b. comparative statement of financial position.
c. selected transaction data.
d. the current income statement.

92. The information in a statement of cash flows will not help investors to assess the entity's
ability to
a. generate future cash flows.
b. obtain favorable borrowing terms at a bank.
c. pay dividends.
d. pay its obligations when they become due.

93. In converting net income to net cash provided by operating activities, under the indirect
method:
a. decreases in accounts receivable and increases in prepaid expenses are added.
b. decreases in inventory and increases in accrued liabilities are added.
c. decreases in accounts payable and decreases in inventory are deducted.
d. increases in accounts receivable and increases in accrued liabilities are deducted.

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94. In the Freyfogle Company, land decreased $75,000 because of a cash sale for $75,000,
the equipment account increased $20,000 as a result of a cash purchase, and Bonds
Payable increased $70,000 from an issuance for cash at face value. The net cash
provided by investing activities is
a. $75,000.
b. $125,000.
c. $55,000.
d. $50,000.

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