Question 1

Which of the following transactions would be classified as a cash outflow from investing activities on the statement of cash flows?

Accepted Answer

Purchase of equipment

Question 2

A company reported net income of $50,000. During the year, accounts receivable increased by $10,000, inventory decreased by $5,000, and accounts payable decreased by $2,000. What is the net cash provided by operating activities using the indirect method?

Accepted Answer

$43,000

Question 3

Which of the following adjustments would increase net cash flow from operating activities when using the indirect method?

Accepted Answer

Depreciation expense

Question 4

If a company has a positive net income but a negative cash flow from operating activities, which of the following is the most likely explanation?

Accepted Answer

Significant increases in accounts receivable and inventory

Question 5

Which of the following would result in net cash flow from operating activities being lower than net income?

Accepted Answer

Increase in accounts receivable

Question 6

A company had beginning retained earnings of $3,600, net income of $1,050, and ending retained earnings of $4,450. How much in dividends did the company pay during the year?

Accepted Answer

$200

Question 7

Which of the following is NOT a purpose of the statement of cash flows?

Accepted Answer

To determine the company's profitability for the period

Question 8

Which of the following would be classified as a cash inflow from financing activities?

Accepted Answer

Borrowing from a bank

Question 9

If a company reports a gain on the sale of an asset, how is this gain treated in the operating section of the statement of cash flows using the indirect method?

Accepted Answer

It is subtracted from net income

Question 10

Which of the following best explains why a profitable company might still face bankruptcy?

Accepted Answer

The company is unable to generate sufficient cash flows to meet its obligations

Question 11

A decrease in accrued liabilities during the year will have what effect on net cash provided by operating activities (using the indirect method)?

Accepted Answer

Decrease net cash provided by operating activities

Question 12

Which of the following is a key insight that can be gained from analyzing the statement of cash flows?

Accepted Answer

The company’s ability to generate cash flows from operations

Question 13

Which of the following would be added to net income in the operating section of the statement of cash flows using the indirect method?

Accepted Answer

Decrease in interest receivable

Question 14

A company purchased a new building by issuing common stock. How would this transaction be reported on the statement of cash flows?

Accepted Answer

It would be disclosed as a non-cash investing and financing activity

Question 15

Which of the following best describes the effect of an increase in deferred revenue on net cash flow from operating activities?

Accepted Answer

It increases net cash flow from operating activities

Question 16

A company had the following cash flows: net cash provided by operating activities $1,010, net cash used for investing activities $(560)$, and net cash used by financing activities $(100)$. What is the increase in cash for the period?

Accepted Answer

$350

Question 17

Which of the following would be considered a cash outflow from financing activities?

Accepted Answer

Payment of dividends

Question 18

If a company consistently uses external sources to generate the majority of its cash, what should an analyst be most concerned about?

Accepted Answer

The sustainability of the company’s operations without external financing

Question 19

Which of the following is a reason why cash flow from operations is considered more important than net income for assessing a company’s financial health?

Accepted Answer

Cash flow from operations shows the actual cash generated to meet obligations

Question 20

A company’s statement of cash flows shows a large cash inflow from the sale of marketable securities. How should this be interpreted?

Accepted Answer

It is a cash inflow from investing activities and may not be sustainable for future operations

Statement of Cash Flows: Concepts, Analysis, and Applications

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