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The receipt of dividends and interest are both reported as cash inflows from investing activities on the statement of cash flows.

A) True
B) False

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How is the change in cash classified on the statement of cash flows?


A) It is found in the investing activities section of the statement.
B) It is found in the operating activities section of the statement.
C) It is found in the financing activities section of the statement.
D) It is the sum of the investing,operating,and financing activities sections.

E) B) and C)
F) All of the above

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Using the T-account approach:


A) Net income appears on the debit side of the Cash account under operating activities.
B) Payment of long-term debt appears on the debit side of the Cash account under financing activities.
C) Purchase of equipment appears on the credit side of the Cash account under operating activities.
D) An increase in Accounts Receivable appears on the debit side of the Cash account under operating activities.

E) A) and B)
F) A) and C)

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The management team of Wickersham Brothers Inc.is preparing its annual financial statements.The statements are complete except for the statement of cash flows.The completed comparative balance sheets and income statements are summarized. The management team of Wickersham Brothers Inc.is preparing its annual financial statements.The statements are complete except for the statement of cash flows.The completed comparative balance sheets and income statements are summarized. Other information from the company's records includes the following: • Bought equipment for cash,$50,000. • Paid $10,000 on long-term note payable. • Issued new shares of common stock for $20,000 cash. • Cash dividends of $16,000 were declared and paid to stockholders. • Accounts Payable arose from inventory purchases on credit. • Income Tax Expense ($4,000)and Interest Expense ($3,000)were paid in full at the end of both years and are included in Other Expenses. Required: Part a.Prepare the statement of cash flows using the indirect method.Include any supplemental disclosures. Part b.Interpret the statement of cash flows by explaining the main sources and uses of cash during the year. Other information from the company's records includes the following: • Bought equipment for cash,$50,000. • Paid $10,000 on long-term note payable. • Issued new shares of common stock for $20,000 cash. • Cash dividends of $16,000 were declared and paid to stockholders. • Accounts Payable arose from inventory purchases on credit. • Income Tax Expense ($4,000)and Interest Expense ($3,000)were paid in full at the end of both years and are included in Other Expenses. Required: Part a.Prepare the statement of cash flows using the indirect method.Include any supplemental disclosures. Part b.Interpret the statement of cash flows by explaining the main sources and uses of cash during the year.

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Part a
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Part b
Although operating activi...

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The Retained Earnings account has a beginning balance of $321,975 and an ending balance of $356,413.Net income is $40,251.Which of the following statements is correct?


A) $5,813 would be subtracted when determining cash flows from financing activities.
B) $40,251 would be added when determining cash flows from financing activities.
C) $34,438 would be added when determining cash flows from financing activities.
D) $321,975 would be added when determining cash flows from operating activities.

E) A) and C)
F) C) and D)

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When preparing the operating activities section of the statement of cash flows using the direct method,a gain or loss from selling equipment is reported in the operating activities section of the statement of cash flows.

A) True
B) False

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When preparing the operating activities section of the statement of cash flows using the direct method,net income must be adjusted for gains or losses realized when property,plant,and equipment is sold.

A) True
B) False

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When the direct method is used to determine the cash flows from operating activities,which of the following adjustments must be made to interest expense to determine total interest payments?


A) Add all changes in Interest Payable.
B) Add decreases in Interest Payable and subtract increases in Interest Payable.
C) Add increases in Interest Payable and subtract decreases in Interest Payable.
D) Subtract all changes in Interest Payable.

E) B) and C)
F) None of the above

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Assume that the direct method is used to prepare the operating activities section of the statement of cash flows.Which related balance sheet account will explain the difference between revenues on the income statement and cash collected from customers?


A) Inventory
B) Accounts Payable
C) Cost of Goods Sold
D) Accounts Receivable

E) All of the above
F) B) and C)

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A company has a net cash inflow from operating activities of $789,000,a net cash outflow of $50,000 from investing activities and a net cash inflow of $100,000 from financing activities.The company paid $124,000 in interest,$186,500 in income taxes,and $200,000 in cash dividends.Which of the following statements about the statement of cash flows is not correct?


A) The cash dividends of $200,000 paid will be reported as a cash outflow in the cash flow from investing activities section.
B) Supplemental disclosures required for a company using the indirect method include the amount of interest and the amount of income taxes paid.
C) The statement of cash flows will show a net increase in cash and cash equivalents of $839,000.
D) If the direct method is used,the $124,000 of interest paid and the $186,500 of income taxes paid will be reported in the cash flows from operating activities.

E) C) and D)
F) B) and C)

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Which of the following statements about the statement of cash flows is not correct?


A) The statement of cash flows can be used to assess the likelihood of a company paying dividends.
B) Net cash flow is the best measure of profitability since it does not rely on estimates.
C) A company can have positive net income but at the same time have negative cash flow.
D) The statement of cash flows is the only financial statement that reports business activities affecting cash.

E) B) and C)
F) A) and C)

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Which of the following equations is correct?


A) Change in cash = Change in noncash assets
B) Change in cash = Change in liabilities + Change in stockholders' equity
C) Change in cash = Change in liabilities + Change in stockholders' equity − Change in noncash assets
D) Change in cash = Change in liabilities + Change in stockholders' equity + Change in noncash assets

E) All of the above
F) B) and D)

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The Viviana Co.uses the indirect method to determine its cash flow from operations.Which of the following items will be subtracted from net income to find its cash flow from operations?


A) Decrease in Supplies.
B) Increase in Accounts Payable.
C) Depreciation Expense.
D) Increase in Accounts Receivable.

E) None of the above
F) A) and B)

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Match each term with the appropriate definition.Not all definitions will be used. -Free Cash Flow


A) Results from activities such as purchases of goods and assets,payment of debt,payment of cash dividends,and payment of taxes.
B) The starting point for calculating operating cash flows with the direct method.
C) The percent of a company's net cash flow that comes from investing and financing activities.
D) A balance sheet that shows the starting and ending balance of the different accounts;it is used to calculate the net cash flow provided by operating activities.
E) Purchases and sales of this are classified as operating activities.
F) Reported as supplement disclosures or in the notes section to the financial statements rather than within the body of the statement of cash flows.
G) Cash flows from operations in excess of amount paid to replace property,plant and equipment and to pay cash dividends to stockholders.
H) Cash flows in excess of net income.
I) Purchases and sales of this are classified as investing activities.
J) Results from activities such as sales of goods and assets,receipt of cash dividends,and receipts of interest.
K) A financial statement that tracks the flow of cash into and out of a company according to the three types of activities that generate the flows.
L) An adjustment made when using the indirect method of calculating cash flows from operating activities.
M) Cash a company receives that is not subject to income tax.
N) The starting point for calculating operating cash flows with the indirect method.

O) F) and M)
P) D) and G)

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The T-account approach:


A) may be used with the direct method.
B) creates one big T-account for cash that replaces separate schedules to show all the changes in the cash account.
C) shows cash provided as credits and cash used as debits.
D) does not determine the change in each balance sheet account.

E) B) and C)
F) C) and D)

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Cash flows from operating activities include all of the following except:


A) a purchase of land.
B) collections from customers on account.
C) payments to employees for hours worked.
D) receipt of cash dividends.

E) C) and D)
F) B) and C)

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Consider the following information:  Amortization Expense $36,000 Increase in Accounts Receivable 42,000 Increase in Accounts Payable 96,000 Decrease in Accrued Liabilities 48,000 Decrease in Inventory 105,00 Decrease in Prepaid Expenses 15,000 Net income 1,500,00\begin{array}{|l|r|}\hline\text { Amortization Expense } & \$ 36,000 \\\hline \text { Increase in Accounts Receivable } & 42,000 \\\hline \text { Increase in Accounts Payable } & 96,000 \\\hline \text { Decrease in Accrued Liabilities } & 48,000 \\\hline \text { Decrease in Inventory } & 105,00 \\\hline \text { Decrease in Prepaid Expenses } & 15,000 \\\hline \text { Net income } & 1,500,00 \\\hline\end{array} Required: Use the indirect method to compute the amount of net cash flows provided by (used in)operating activities.

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Harlow Industries reported net income of $56,000 for the current year.During the year,Inventory decreased by $19,600,Accounts Payable decreased by $22,400,Depreciation Expense was $28,000,and Accounts Receivable increased by $18,200.If the indirect method is used,what is the net cash provided by operating activities?


A) $29,400
B) $63,000
C) $107,800
D) $144,200

E) None of the above
F) A) and B)

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Company X paid Company Y $1.35 million for a new plant.During the same accounting period,Company X experienced the following changes in its balance sheet: Cash decreased by $350,000,Accounts Receivable increased by $321,300,Inventory increased by $275,800,Property,Plant,and Equipment increased by $752,900,and Bonds Payable increased by $1 million.The net cash flow provided by financing activities is:


A) An inflow of $1.35 million.
B) An outflow of $350,000.
C) An inflow of $1 million.
D) An inflow of $752,900.

E) B) and D)
F) None of the above

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Depreciation Expense is not reported on the statement of cash flows when prepared using the direct method.

A) True
B) False

Correct Answer

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