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80 Cards in this Set

  • Front
  • Back
The only difference in presenting a statement of cash flows using the direct method rather than the
indirect method is the details given for investing activities.
False
Only investments with original maturities of less than three months qualify as cash equivalents.
True
The payment of interest on a note payable is a cash flow from an operating activity.
True
Collection of principal on a note receivable is a cash flow from investing activities.
True
Very few companies use the direct method for disclosing their cash flows from operating activities.
True
When accrued liabilities increase from the beginning to the end of the year, it means cash was not
expended for some of the company's operating expenses so the increase would be added to net
income to convert to cash flow from operating activities under the indirect method.
True
Under the indirect method, an increase in accounts receivable during the year will be deducted from
net income to convert to cash flow from operating activities.
True
If sales revenue was $1,800,000 and accounts receivable decreased $40,000 while unearned revenue
increased $10,000 during the year, then cash collected from customers equals $1,840,000.
False
A growing difference between net income and cash flow from operations can be a sign of
management manipulation of earnings.
True
The quality of income ratio can only be interpreted based on knowledge of a company's business
operations and strategies.
True
When a company purchases equipment, the cash outflows would be classified as financing activity.
False
Only long-term investments in other companies' stocks and bonds would be disclosed in the investing
activities section, while short-term investments would be in the operating activities section.
False
From 2009 to 2010, Canadian Beer had a capital acquisitions ratio of 7.49 which means its net
income exceeded its cash investment in property, plant and equipment by almost 7.5 times.
Fale
A low capital acquisitions ratio could indicate a higher need to obtain outside financing to expand
roperty, plant, and equipment assets.
True
Free cash flow measures the sufficiency of cash flow from operating activities to cover both capital
expenditures for property, plant and equipment as well as the payment of dividends.
False
When a company both borrows $150 million during the year and repays $120 million of notes, the
company can disclose the $30 million net cash inflow in of borrowings net of repayments in the
financing activities section of the statement of cash flows.
False
When a cash dividend is declared, it would affect the balance sheet but not the statement of cash
flows.
True
Wish Corporation acquired a computer for $15,000 and paid for it in full by issuing 1,000 shares of
its own common stock, par $10 (current market price $15 share). This transaction should reported on the statement of cash flows because cash was neither paid out nor received.
False
A transaction that does not cause an inflow or outflow of cash should be reported on the statement of
cash flows only if it is an adjustment to convert net income on an accrual basis to cash basis.
False
When using the indirect method, a loss on the sale of equipment should be added to net income to
derive cash flows from operating activities.
True
The statement of cash flows reports directly on the
A. financial position of the business.
B. accrual basis in accordance with GAAP.
C. causes of the inflows and outflows of cash.
D. financial operating performance of the business.
C
Which of the following transactions would not create a cash flow?
A. The company purchased some of its own stock from a stockholder.
B. Amortization of patent for the period.
C. Payment of a cash dividend.
D. Sale of equipment at book value (i.e. no gain or loss).
B
Which of the following transactions is not a direct use of cash?
A. Acquisition of inventory for cash.
B. Exchanges of bonds payable for land.
C. Purchase of treasury stock with cash.
D. Cash dividend paid.
B
The statement of cash flows should be dated as follows:
A. December 31, 2010.
B. For the Year Ended December 31, 2010.
C. At Year-End December 31, 2010.
D. At December 31, 2010.
B
Which of the following transactions is not a typical use of cash?
A. Payment of short-term debt with cash.
B. Purchase of treasury stock for cash.
C. Acquisition of a building for cash.
D. Sale of equipment for less than book value
D
Which of the following would not be a cash flow from investing activities?
A. Purchase of long-term investments.
B. Sale of a patent.
C. Collection of principal of a note receivable.
D. Collection of interest revenue on a long-term note receivable.
D
Which of the following would not be a cash flow from financing activities?
A. Issuance of common stock.
B. Borrowing on a long-term note payable.
C. Collection of a cash dividend.
D. Repayment of principal on a long-term note payable.
C
Which of the following is a cash flow from operating activities?
A. Purchase of merchandise for resale.
B. Sale of a piece of land no longer used in operations.
C. Sale of long-term investments in common stock.
D. Payment of a note payable.
A
Which of the following would least likely be a cash equivalent?
A. A $10,000, 30 day certificate of deposit.
B. 500 shares of IBM stock.
C. A three-month Treasury bill.
D. A ten-year Treasury note purchased two months before maturity.
B
A cash inflow from financing activities includes
A. proceeds from selling investments in equity securities of another company.
B. proceeds from selling equipment.
C. proceeds from issuance of bonds payable.
D. receipt of interest payments.
C
For an investment to qualify as a cash equivalent, it must be readily convertible to a known amount
of cash and
A. it must be identified as a cash equivalent on the income statement.
B. must be sufficiently close to its maturity date so that its market value is relatively insensitive to
interest rate changes.
C. the investment must have a known foreign exchange rate.
D. it must mature within 4 months.
B
A cash inflow from operating activities includes
A. collection of the principal of a loan.
B. receipt of interest on an investment.
C. proceeds from issuance of notes payable.
D. collection of sales of equipment used in operations of the business.
B
Which of the following statements about the statement of cash flows is correct?
A. A company with a net loss on the income statement will always have a net cash outflow from
operating activities.
B. A purchase of equipment is classified as a cash inflow from investing activities.
C. Cash dividends received on stock investments are classified as cash flows from operating
activities.
D. Cash dividends paid are classified as cash flows from operating activities.
C
Which of the following items about the statement of cash flows is correct?
A. Non-cash expenses such as depreciation are deducted from net income with the indirect method in
computing cash flows from operating activities.
B. Cash equivalents are highly liquid investments with maturities at the date of purchase of less than
three months.
C. The acquisition of land by issuing bonds payable would not appear on the statement of cash flows.
D. Cash paid for interest on debt would be classified as a financing cash flow.
B
Kela Corporation reported 2009 net income of $450,000 including the effects of depreciation
expense, $60,000 and amortization expense on a patent, $10,000. Also, cash of $50,000 was
borrowed on a 5-year note payable. Based on this data, total cash inflow from operating activities for
2009 was
A. $440,000
B. $470,000
C. $520,000
D. $570,000
C
Allen Company's 2009 income statement reported total revenues, $850,000 and total expenses
(including $40,000 depreciation) of $720,000. The 2009 balance sheet reported the following:
accounts receivable—beginning balance, $50,000 and ending balance, $40,000; accounts
payable—beginning balance, $22,000 and ending balance, $28,000. Therefore, based only on this
information, the 2009 net cash inflow from operating activities was
A. $126,000
B. $166,000
C. $174,000
D. $186,000
D
Creston Company gathered the following data to prepare its 2010 statement of cash flows:

Net Income: 70,000
Depreciation Expense: 10,000
Accounts recievable decrease: 5,000
Wages Payable Increase: 6,000
Amoritization of patent: 2,000
Income Tax Payable decrease: 4,000

Based only on the above data, the net cash inflow from operating activities during 2010 was
A. $83,000.
B. $89,000.
C. $91,000.
D. $97,000.
B
Newton Company reported total sales revenue of $55,000 total expenses of $45,000 and net income
of $10,000 on its income statement for the year ended December 31, 2009. During 2009, accounts
receivable decreased by $4,000, merchandise inventory decreased by $6,000, accounts payable
increased by $2,000 and depreciation of $8,000 was recorded. Therefore, based only on this
information, the net cash flow from operating activities for 2009 was:
A. $10,000.
B. $18,000.
C. $19,000.
D. $30,000.
D
Drake Company reported total sales revenue of $150,000 total expenses of $152,000 and a net loss of
$2,000 for the year ended December 31, 2009. During 2009, accounts receivable decreased by
$1,000, trade payables increased by $5,000, wages payable increased by $3,000, and $18,000 in
depreciation expense was recorded. Assuming no other adjustments are needed, the "net cash flow
from operating activities" for 2009 was (parentheses indicate net cash outflow)
A. $29,000.
B. $25,000.
C. $23,000.
D. ($1,000).
B
Thomas Company reported sales revenue of $500,000 and total expenses of $450,000 (including
depreciation) for the year ended December 31, 2009. During 2009, accounts receivable decreased by
$5,000, merchandise inventory increased by $4,000, accounts payable increased by $6,000, and
depreciation expense of $10,000 was recorded. Assuming no other data is needed, the net cash inflow
from operating activities for 2009 was
A. $44,000.
B. $51,000.
C. $60,000.
D. $67,000.
D
During 2009, Alpha Corporation reported net income of $10,000. During the year, depreciation
expense was $5,000, accounts payable increased $2,000 and accounts receivable increased $4,000.
Therefore, based upon this information, the "cash inflow from operating activities" was
A. $21,000.
B. $20,000.
C. $16,000.
D. $13,000.
D
Ballet Company reported total sales revenue of $80,000 total expenses of $72,000 and net income of
$8,000 for the year ended December 31, 2009. During 2009, accounts receivable increased by
$3,000, merchandise inventory decreased by $2,000, accounts payable increased by $1,000, and
$5,000 in depreciation expense was recorded. Assuming no other adjustments to net income are
needed, the net cash inflow from operating activities was
A. $10,000.
B. $11,000.
C. $13,000.
D. $19,000.
C
The statement of cash flows (indirect method) reports depreciation expense as an addition to net
income because depreciation
A. causes an inflow of funds for the replacement of assets.
B. reduces reported net income of the period but does not involve an outflow of cash for that period.
C. is a direct use of cash.
D. reduces reported net income and causes an inflow of cash.
B
To prepare a statement of cash flows (indirect method), which of the following items should be added
back to net income to derive "cash flow from operating activities"?
A. Depreciation expense.
B. Increase in accounts receivable.
C. Gain on a sale of equipment.
D. Decrease in taxes payable.
A
Austin Company reported net income for 2009 of $60,000, depreciation expense of $10,000, and
amortization expense (patent) of $5,000. Also, accounts payable increased by $3,000 and inventory
decreased by $2,000. The amount of "cash flows from operating activities" for 2009 was
A. $74,000.
B. $75,000.
C. $76,000.
D. $80,000.
D
The 2009 income statement of Coen Company reported total sales revenue of $106,000 and total
expenses of $108,000 and a net loss of $2,000. Expenses were: depreciation, $10,000 and patent
amortization, $5,000. There was an increase in inventory of $1,000. Cash flow from operating
activities during 2009, was (parentheses indicate a cash outflow)
A. $ 7,000.
B. $14,000.
C. $12,000.
D. ($3,000).
C
The 2009 income statement for McGrath Corporation showed the following:

Net Income: 140,000
Depreciation expense: 30,000
The Balance Sheet Showed:
Account Recievable Expense: 8,000
Prepaid Expenses decrease: 5,000

Cash flow from operating activities is
A. $190,000.
B. $183,000.
C. $170,000.
D. $167,000.
D
Which statement regarding the indirect method is false?
A. Depreciation expense is added to net income.
B. An increase in accounts receivable is added to net income.
C. An increase in accounts payable is added to net income.
D. An increase in merchandise inventory is subtracted from net income.
B
Which of the following statements about cash flows from operating activities, in a statement of cash
flows prepared under the indirect method, is correct?
A. An increase in accounts receivable would be subtracted from net income.
B. An increase in salaries payable would be subtracted from net income.
C. An increase in inventory would be added to net income.
D. Depreciation expense would be subtracted from net income.
A
Assume the 2009 income statement reported total sales revenue of $1,200,000. The 2008-2009,
comparative balance sheets showed that accounts receivable increased by $25,000 and the unearned
revenue account decreased $15,000. The cash inflow from customers for 2009 would be
A. $1,225,000
B. $1,160,000
C. $1,175,000
D. $1,185,000
B
Bold Company's 2009 income statement reported total sales revenue of $250,000. The 2008-2009,
comparative balance sheets showed that accounts receivable decreased by $20,000. The 2009 "cash
receipts from customers" would be
A. $230,000.
B. $270,000.
C. $250,000.
D. $ 40,000.
B
The financial statements for World Company show the following:
Cost of goods sold $725,000

Cash paid for merchandise is
A. $731,000.
B. $736,000.
C. $719,000.
D. $714,000.
A
Madison Company had sales of $154,000. Additional information from the balance sheet is below:
Cash collected from customers is
A. $148,000.
B. $150,000.
C. $154,000.
D. $160,000.
A
Amanda Company reported income tax expense of $250,000. Beginning income taxes payable was
30,000 while ending income taxes payable was $25,000. What cash was paid for taxes?
A. $280,000
B. $255,000
C. $245,000
D. It cannot be computed with the given information.
B
Aaron Inc. reported operating expenses in 2009 of $765,000 (including $80,000 of depreciation
expense). Prepaid expenses increased $25,000 while accrued liabilities increased $43,000. How much
cash was paid for operating expenses in 2009?
A. $702,000
B. $622,000
C. $667,000
D. $703,000
C
Which of the following statements about the quality of income ratio is true?
A. When sales are growing, receivables and inventory normally increase faster than accounts payable
so the ratio increases.
B. Seasonal variations in sales have no impact on the quality of income ratio.
C. Failure to accrue appropriate expenses will inflate net income and reduce the quality of income
ratio.
D. The quality of income ratio is computed by dividing net income by cash flow from operating
activities.
C
Which of the following statements about the quality of income ratio is true?
A. An increase in operating assets and a decrease in liabilities will reduce operating cash flows,
thereby reducing the ratio.
B. Seasonal variations in sales and purchases of inventory can cause wide deviations in the quality of
income ratio.
C. When sales are growing, receivables and inventory normally increase at a faster rate than accounts
payable often causing operating cash flows to be less than income.
D. All of the answers are true.
D
In 2009, Boogle reported net income of $785 million and positive cash flow from operations of
$1,196 million. In 2008, their net income was $563 million and positive cash flow from operations
was $1,237 million. Which of the following is false about their quality of income ratios?
A. In 2008 their ratio was 2.2 and in 2009 it was 1.5.
B. Their ratio in 2008 was better than their ratio in 2009.
C. Boogle's quality of income ratios indicates poor performance because net income is less than cash
flow.
D. The ratio in both years shows the company's ability to generate good cash flow from its operating
activities.
C
In 2009, Irish Eyes reported a quality of income ratio of 1.2. In 2008 and 2007 the ratio was 1.3 and
1.6 respectively. Which of the following was the most likely cause of the decrease in the ratio?
A. An increase in current assets such as receivables and inventory.
B. An increase in accounts payable and accrued liabilities.
C. A decrease in sales revenue.
D. Both an increase in current assets such as receivables and inventory and a decrease in sales
revenue are likely causes.
D
Which of the following is a cash outflow connected to investing activities?
A. Repurchase of treasury stock.
B. Purchase of short-term investments.
C. Purchase of property, plant and equipment
D. Both purchases of short-term investments and purchases of property, plant and equipment are
outflows connected to investing activities.
D
Which of the following is true?
A. Cash paid to repurchase treasury stock is an investing cash outflow.
B. Purchase of a patent is an investing cash outflow.
C. A cash dividend is an operating cash outflow.
D. Cash paid to acquire stock in another company is a financing outflow.
B
Canadian Beer reported they sold equipment for $222 million and purchased $1,515 million of new
equipment. The equipment sold had a net book value of $150 million. Cash flow from investing
activities would show
A. an inflow of $222 million and outflow of $1,515 million.
B. an inflow of $150 million and outflow of $1,515 million.
C. a net outflow of $1,293 million.
D. a net outflow of $1,365 million.
A
Which of the following is false?
A. Purchase of equipment is an investing cash outflow.
B. Purchase of short-term investments is an investing cash outflow.
C. Sale of equipment creates investing cash inflow equal to its selling price.
D. Purchase of a patent is an investing cash outflow.
C
Milliken Company paid $2.2 million to purchase stock in another company, $1.0 million to
repurchase treasury shares, $.5 million to buy short-term investments, sold used equipment for $.8
million when its book value was $.6 million, and purchased new equipment for $3.4 million. How
much will be reported as net investing cash flow?
A. $6.3 million net cash outflow.
B. $5.3 million net cash outflow.
C. $5.1 million net cash outflow.
D. $4.8 million net cash outflow.
B
Roberts Company sold equipment for $250,000, purchased a building for $6,500,000, sold short-term
investments for $280,000, and repaid a note payable for $2,300,000 plus $230,000 of interest. The
net cash flow from investing activities was
A. $6,250,000 outflow.
B. $8,320,000 outflow.
C. $8,270,000 outflow.
D. $5,970,000 outflow.
D
Which of the following statements about the capital acquisitions ratio is true?
A. A high ratio indicates less need for outside financing of property, plant and equipment.
B. The ratio is computed by dividing cash flow from operations by the average property, plant and
equipment, net from the balance sheet.
C. A low ratio may indicate a failure to update property, plant and equipment which can limit a
company's ability to compete in the future.
D. Both a high ratio indicates less need for outside financing of property, plant and equipment and a
low ratio may indicate a failure to update property, pcompany's ability to compete in the future are true.
A
Which of the following statements about the capital acquisitions ratio is false?
A. The ratio is computed by dividing cash flow from operations by cash paid for property, plant and
equipment.
B. Because the need for investment in property, plant and equipment differs dramatically across
industries, a firm's ratio should only be compared with its prior years' ratio or with firms in the
same industry.
C. A high ratio indicates more need for outside financing of current and future purchases of property,
plant and equipment.
D. None of the other answers is false.
C
In 2009, Eva's Enterprises disclosed cash paid for property, plant and equipment of $755 million and
cash flow from operations of $5,968 million. Their average property, plant and equipment from the
comparative balance sheet was $6,094 million. Compute Eva's Enterprises capital acquisitions ratio
for 2009.
A. 1.0
B. 5.3
C. 7.9
D. 6.0
C
In 2008, Eva's Enterprises had a capital acquisitions ratio of 7.9. In 2008, Carlos' Corporation had a
ratio of 3.6. The amount of cash flow from operations was $5,968,000 for Eva's Enterprises and
$5,054,000 for Carlos Corporation. Which of the following statements is correct?
A. Eva's Enterprises used less cash for investments in property, plant and equipment during 2008
than did Carlos Corporation.
B. Eva's Enterprises has less need for external financing of its investments in property, plant and
equipment indicated by its higher capital acquisitions ratio compared to Carlos Corporation.
C. Eva's Enterprises invested about $785,000 in property, plant and equipment during 2008.
D. All of the answers are correct.
D
From 2007-2010, Canadian Beer's capital acquisitions ratio was 7.49 while American Beer's was
4.19. Which of the following statements is true?
A. American Beer's ratio is lower because they are experiencing slow growth.
B. American Beer's ratio shows this company will have less difficulty financing expansion from
operating cash flows than Canadian Beer.
C. American Beer needed to borrow money or issue more stock to cover their investments in
property, plant and equipment since they had an inadequate capital acquisitions ratio.
D. American Beer's lower ratio may indicate a failure to update plant and equipment.
C
In 2009, Tommy's Toys reported the following: long-term debt repayments of $503 million; interest
paid, $143 million; and proceeds from exercise of stock options, $27 million. How much is net cash
flow from financing activities in 2009?
A. $476 million net cash outflow.
B. $530 million net cash outflow.
C. $673 million net cash outflow.
D. $ 76 million net cash outflow.
A
Burich Co. reported proceeds from short-term borrowings of $2.5 million, proceeds from long-term
borrowings of $6.8 million, repayments of long-term borrowings of $3.5 million, interest payments
of $780,000, repurchase of treasury shares of $500,000 and cash dividends declared of $1.1 million.
Net cash flow from financing activities equals
A. $5,300,000 net cash inflow.
B. $4,200,000 net cash inflow.
C. $1,700,000 net cash inflow.
D. $2,800,000 net cash inflow.
A
Which of the following is true?
A. Repayments of principal and interest reduce financing cash flows.
B. Repurchase of treasury shares is a cash outflow connected to investing activities.
C. If a company borrows $450 million in long-term notes and repays $380 million of long-term
notes, and then these items must both be disclosed and not netted against each other in the
financing section.
D. Both repayments of principal and interest reduce financing cash flows and if a company borrows
$450 million in long-term notes and repays $380 million of long-term notes, then these items must
both be disclosed and not netted against each other in the financing section are true statements.
C
Which of the following would be a financing cash outflow?
A. Cash dividends declared.
B. Interest paid.
C. Repurchase of treasury shares.
D. Purchase of a building on credit.
C
Borderline Corp. borrowed $1.2 million in short-term notes and $6.4 million in long-term notes. The
company repaid $4.8 million of long-term notes plus $.6 million of interest. Borderline issued $8.7
million of common stock and paid a cash dividend of $1.2 million.
Net cash flow from financing activities equals
A. $9.7 million net cash inflow.
B. $10.3 million net cash inflow.
C. $9.1 million net cash inflow.
D. $7.9 million net cash inflow.
B
Lab Industries, Inc., issued $50,000 of bonds, paid cash dividends of $8,000, sold long-term
investments for $12,000, received $5,000 of dividend revenue, purchased treasury stock for $15,000,
and purchased new equipment for $19,000. The net cash flow from financing activities would be
A. $70,000.
B. $27,000.
C. $80,000.
D. ($20,000).
B
Non-cash financing and investing activities
A. must be reported in the notes to the financial statements.
B. are transactions that do not cause a direct inflow or outflow of cash.
C. are disclosed in a separate schedule on the statement of cash flows.
D. include only activities over 5% of the available cash balance.
C
A company acquired some land (independently appraised at $12,000) and paid for it by issuing 1,000
shares of its common stock (par $10 per share; no market price was quoted). How should this be
reported on the statement of cash flows?
A. Report $12,000 as inflow and outflow of cash.
B. Report $12,000 as an inflow of cash.
C. Should not be reported on the statement of cash flows.
D. Report in the schedule of significant noncash transactions.
D
Slipper Company sold a productive asset, a machine, for cash. It originally cost $20,000. The
accumulated depreciation at the date of disposal was $15,000. A gain on the disposal of $2,000 was
reported. Therefore, the cash inflow from these transactions was
A. $7,000.
B. $3,000.
C. $4,000.
D. $5,000.
A
Halbur Company collected the following data in its accounting records in 2009:

From the income Statement:
Depreciation Expense: 1,0000
Loss of Sale of Equipment: 3,000
From the balance Sheet
Beginning balance, eq: 12.500
Ending Balance eq: 8,000
Beg Balance, depreciation: 2.000

No new equipment was purchased during the year. The equipment was sold at the end of the year.
What was the cash in-flow from the sale of equipment in 2009?
A. $3,900.
B. $1,000.
C. $ 900.
D. $ 600.
C