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| 1 | |
A cash equivalent must satisfy two criteria: (1) be readily marketable and (2) sufficiently close to maturity (that is, within one year). |
| | A) | True |
| | B) | False |
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| 2 | |
Investing activities include those transactions that determine net income. |
| | A) | True |
| | B) | False |
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| 3 | |
The lending of money to a customer who signs a long-term note receivable and the collection of the principal and interest are classified as investing activities on the statement of cash flows. |
| | A) | True |
| | B) | False |
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| 4 | |
Financing activities include those transactions and events that affect long-term assets and long-term liabilities. |
| | A) | True |
| | B) | False |
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| 5 | |
When a firm sells a piece of equipment for an amount in excess of book value, the sale of the equipment will be shown on the statement of cash flows as an investing activity that provided cash equal to the book value. |
| | A) | True |
| | B) | False |
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| 6 | |
The issuance of common stock for cash is an example of a financing activity. |
| | A) | True |
| | B) | False |
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| 7 | |
Purchasing a long-term asset using a long-term note payable is an example of a noncash transaction. |
| | A) | True |
| | B) | False |
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| 8 | |
Accounting standards require that a statement of cash flows be included in a complete set of financial statements. |
| | A) | True |
| | B) | False |
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| 9 | |
Free cash flows are cash flows available to shareholders after operating asset reinvestments and debt payments. |
| | A) | True |
| | B) | False |
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| 10 | |
Cash flow on total assets ratio is determined by dividing operating cash flow by average total assets. |
| | A) | True |
| | B) | False |
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| 11 | |
The first step in preparing a statement of cash flows is to compute the net increase or decrease in cash during the period. |
| | A) | True |
| | B) | False |
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| 12 | |
The direct method reports net income and then adjusts it for items necessary to obtain net cash provided (used) by operating activities. |
| | A) | True |
| | B) | False |
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| 13 | |
The FASB recommends the direct method of determining the cash flows provided (used) by operating activities. |
| | A) | True |
| | B) | False |
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| 14 | |
When the indirect method is used, depreciation is added back to net income in the computation of net cash provided (used) by operating activities. |
| | A) | True |
| | B) | False |
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| 15 | |
At the beginning of the year, no dividends payable were owed. Cash dividends declared totaled $45,000 and the Dividends Payable account had a balance of $35,000 at year-end. The statement of cash flows should report a cash outflow of $35,000 for dividend payments as a financing activity. |
| | A) | True |
| | B) | False |
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| 16 | |
Which statement is incorrect about a statement of cash flows? |
| | A) | A statement of cash flows is separated into operating, financing, and investing sections. |
| | B) | Cash equivalents are not included with the cash amount included at the bottom of the statement of cash flows unless they have been sold. |
| | C) | Two different methods may be used to compute the net cash flows from operating activities. |
| | D) | The cash flow statement reports the changes in cash. |
| | E) | Noncash investing and financing activities must be disclosed either in a note or separate schedule to the statement of cash flows. |
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| 17 | |
Which of the following activities is an operating activity? |
| | A) | Issuing stock for a building |
| | B) | Redemption of bonds at maturity |
| | C) | Collecting the interest on an investment |
| | D) | Purchasing the common stock of another corporation as an investment |
| | E) | Issuing bonds for an amount greater than the bond par value |
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| 18 | |
Which of the following activities would not be reported as an investing activity on a statement of cash flows? |
| | A) | Collection of the principal amount owed on a long-term note receivable |
| | B) | Purchase of a patent from an inventor |
| | C) | Sale of a plant asset at a price equal to its book value |
| | D) | Cash dividends received from an investment made in another company |
| | E) | Purchase of used production equipment |
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| 19 | |
Interest earned on a long-term note receivable would be included in which section of the statement of cash flows? |
| | A) | Operating |
| | B) | Financing |
| | C) | Investing |
| | D) | Noncash Investing and Financing Disclosure |
| | E) | Both Operating and Financing Sections |
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| 20 | |
Which of the following activities would not be considered a financing activity? |
| | A) | Retirement of preferred stock |
| | B) | Issuing bonds payable |
| | C) | Paying cash dividends |
| | D) | Borrowing money by issuing a short-term note |
| | E) | Purchasing land for cash |
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| 21 | |
Which of the following would be considered a noncash investing or financing transaction? |
| | A) | Purchase of a long-term asset using a long term note payable |
| | B) | Exchange of a building for stock |
| | C) | Retirement of debt by issuing stock |
| | D) | All of the above |
| | E) | None of the above |
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| 22 | |
A company issued common stock for land valued at $450,000. How would this transaction be reported? |
| | A) | On a statement of cash flows as both an investing and financing activity |
| | B) | On a statement of cash flows as an investing activity |
| | C) | On a separate schedule of non-cash activities on the statement of cash flows or in a note to the statement |
| | D) | On a statement of retained earnings |
| | E) | None of the above |
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| 23 | |
The cash provided from operations was $33,000. The net increase in cash was $22,000. If the net cash inflow from financing activities was $15,000, then what was the net cash flow from investing activities? |
| | A) | A net inflow of $26,000 |
| | B) | A net outflow of $26,000 |
| | C) | A net outflow of $24,000 |
| | D) | A net inflow of $11,000 |
| | E) | None of the above |
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| 24 | |
The company's statement of cash flows reported the following for the current year: cash flows provided by operating activities of $60,000, cash used by investing activities of $20,000, cash provided by financing activities of $10,000 and a net increase in cash and cash equivalents of $50,000. Assets totaled $900,000 at the beginning of the year and $1,100,000 at the end of the year. What is the cash flow on total assets ratio? |
| | A) | 1% |
| | B) | 2% |
| | C) | 5% |
| | D) | 6% |
| | E) | None of the above |
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| 25 | |
Which section is affected by the decision to use either the direct method or the indirect method to prepare the statement of cash flows? |
| | A) | Operating |
| | B) | Financing |
| | C) | Investing |
| | D) | Both Financing and Investing |
| | E) | All of the sections |
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| 26 | |
Which of the following statements is not correct regarding the indirect method of preparing a statement of cash flows? |
| | A) | An increase in accounts receivable is added to net income |
| | B) | An increase in merchandise inventory is subtracted from net income |
| | C) | Depreciation expense is added to net income |
| | D) | A decrease in taxes payable is subtracted from net income |
| | E) | A loss on sale of an investment added to net income |
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| 27 | |
Which of the following statements is correct regarding the indirect method of preparing a statement of cash flows? |
| | A) | Amortization expense is added |
| | B) | A loss on the sale of plant assets is added |
| | C) | A gain on the sale of plant assets is subtracted |
| | D) | All of the above |
| | E) | None of the above |
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| 28 | |
The following took place during the year: Decrease in accounts receivable $4,000; Deprecation expense $50,000; Gain on sale of investments $1,000; Increase in accounts payable $2,000; Net income $100,000; Payment of principal on long-term note payable $10,000; and Proceeds from sale of equipment $7,000.
Using this information, what is the cash provided (used) by operating activities using the indirect method? |
| | A) | $145,000 |
| | B) | $152,000 |
| | C) | $155,000 |
| | D) | $156,000 |
| | E) | None of the above |
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| 29 | |
The following events occurred during the accounting period. Cash of $56,000 was received from the issue of common stock. Cash dividends of $11,000 were paid to stockholders. Cash of $19,000 was received as the proceeds from the sale of a long-term investment. Cash of $14,000 was paid for interest payments to bondholders. Cash of $10,000 was used to retire preferred stock. What was the net cash provided or used by financing activities? |
| | A) | $54,000 provided |
| | B) | $39,000 provided |
| | C) | $35,000 provided |
| | D) | $45,000 used |
| | E) | None of the above |
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| 30 | |
The following events occurred during the accounting period. Cash of $43,000 was used to purchase a second-hand forklift. Cash of $12,000 was received from the sale of an investment at a loss. Cash of $15,000 was used to retire bonds. Plant assets were depreciated for $7,000 on the declining balance method. What was the cash provided or used by investing activities? |
| | A) | $31,000 used |
| | B) | $16,000 used |
| | C) | $1,000 used |
| | D) | $31,000 provided |
| | E) | None of the above |
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