Question 1

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

Accepted Answer

To determine the market value of assets

Question 2

Which of the following activities would be classified as an investing activity on the statement of cash flows?

Accepted Answer

Purchase of equipment for $50,000

Question 3

A company reports net income of $$100,000. During the year, accounts receivable increased by 10$$,000, inventory decreased by $$5,000, and accounts payable increased by 7$$,000. Using the indirect method, what is the net cash provided by operating activities?

Accepted Answer

$$102,000 = 100,000 - 10,000 + 5,000 + 7,000$$

Question 4

Which of the following adjustments is made to net income under the indirect method when calculating cash flows from operating activities?

Accepted Answer

Add depreciation expense

Question 5

A company sold equipment with a book value of $$20,000 for 25$$,000. How is this transaction reported on the statement of cash flows?

Accepted Answer

A $$5,000 gain is subtracted from net income in operating activities and 25$$,000 is reported as an investing inflow

Question 6

Which of the following is TRUE regarding the direct method of preparing the statement of cash flows?

Accepted Answer

Cash receipts and cash payments from operating activities are reported directly

Question 7

If a company issues $100,000 of common stock for cash, how is this reported on the statement of cash flows?

Accepted Answer

As an inflow in financing activities

Question 8

Which of the following would NOT be included as a cash flow from operating activities under the direct method?

Accepted Answer

Cash paid for equipment

Question 9

A company declared and paid $20,000 in cash dividends during the year. How is this reported on the statement of cash flows?

Accepted Answer

As an outflow in financing activities

Question 10

Which of the following is an example of a noncash investing and financing activity?

Accepted Answer

Acquisition of land by issuing common stock

Question 11

Under the indirect method, how is an increase in prepaid expenses during the year treated when reconciling net income to net cash provided by operating activities?

Accepted Answer

It is subtracted from net income

Question 12

Which of the following best describes the relationship between net income and cash flows from operating activities?

Accepted Answer

Net income is adjusted for noncash items and changes in current assets and liabilities to determine cash flows from operating activities

Question 13

A company had the following transactions during the year: purchased inventory for $$120,000 on credit, paid suppliers 110$$,000, and inventory increased by $5,000. What is the cash paid to suppliers reported under the direct method?

Accepted Answer

$110,000

Question 14

Which of the following is a reason why the FASB and IASB prefer the direct method for reporting operating cash flows?

Accepted Answer

It provides clearer information about the sources and uses of cash

Question 15

If accounts payable decreased by $8,000 during the year, how is this reflected in the operating section of the statement of cash flows using the indirect method?

Accepted Answer

Subtract $8,000 from net income

Question 16

Which of the following is TRUE regarding depreciation expense on the statement of cash flows?

Accepted Answer

It is added back to net income under the indirect method

Question 17

A company made a loan of $10,000 to another company. How is this transaction reported on the statement of cash flows?

Accepted Answer

As an investing outflow of $10,000

Question 18

Which of the following would increase cash flows from operating activities under the indirect method?

Accepted Answer

A decrease in inventory

Question 19

Which of the following is NOT a cash flow from financing activities?

Accepted Answer

Purchase of plant assets

Question 20

A company had the following balances in accounts receivable: beginning balance $$50,000, ending balance 60$$,000, and sales on credit during the year of $200,000. What were the cash collections from customers?

Accepted Answer

$190,000

Statement of Cash Flows: Financial Accounting Chapter 11 Study Notes

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