978-0134125053 Chapter 11 Part 2

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20) Changes in all current assets EXCEPT ________ are adjustments to net income in the

operating section of an indirect cash flow statement.

A) prepaid expenses

B) inventory

C) cash

D) notes receivable

Question Type: Concept

21) Which would be added back to net income in the operating section of an indirect cash flow

statement?

A) A decrease in Accounts Payable

B) Depreciation

C) An increase in Accounts Receivable

D) An increase in inventory

Question Type: Application

22) Which would NOT be subtracted from net income in the operating section of an indirect cash

flow statement?

A) An increase in Prepaid Rent

B) An increase in Accounts Payable

C) A decrease in Salary Payable

D) An increase in Accounts Receivable

Question Type: Application

23) Which would be subtracted from net income in the operating section of an indirect cash flow

statement?

A) A decrease in prepaid insurance

B) A decrease in bonds payable

C) An increase in interest payable

D) An increase in inventory

Question Type: Application

24) An example of a cash inflow from financing activities is:

A) cash receipts from sale of investments.

B) cash receipts from issuance of bonds.

C) selling a building.

D) gain on sale of land.

Question Type: Application

25) An example of a cash outflow from financing activities is:

A) paying off note payable.

B) paying for 6 months rent in advance.

C) purchasing land.

D) making payment on accounts payable.

Question Type: Application

26) An example of a cash outflow from investing activities is:

A) payment on bonds payable.

B) making a loan to another company.

C) paying cash dividends.

D) the purchase of treasury stock.

Question Type: Application

27) Which of the following is NOT a cash inflow or outflow from an investing activity?

A) Company A loans money to Company B

B) Company A purchases land

C) Company A purchases treasury stock

D) Company A sells off Company C stock that it had owned for 3 years

Question Type: Application

28) Under the indirect method of cash flow, which of the following adjustments would NOT be

made to net income when computing cash from operating activities?

A) Add an increase in Accounts Payable

B) Add Depreciation Expense

C) Add a decrease in Accounts Payable

D) Subtract the gain on sale of land

Question Type: Application

29) In the indirect method of Cash Flows, which of the following would be added to net income?

A) A decrease in Supplies

B) An increase in Prepaid Rent

C) A decrease in Sales Tax Payable

D) An increase in Inventory

Question Type: Application

30) When preparing the Statement of Cash Flows by the indirect method, if current liabilities

increase, the difference is:

A) added to net income.

B) added to investing activities.

C) deducted from net income.

D) deducted from investing activities.

Question Type: Concept

31) Under the indirect method, which of the following is NOT a proper adjustment to net income

under operating activities?

A) Adding a decrease in supplies

B) Subtracting an increase in interest payable

C) Subtracting an increase in prepaid insurance

D) Adding a loss on the sale of machinery

Question Type: Application

32) The Sales Tax Payable balance has decreased during the year. How would this affect the

Statement of Cash Flows operations section under the indirect method?

A) It is already included in the net income.

B) It would be added back to net income.

C) It would be subtracted from net income.

D) It does not affect the cash flow from operations.

Question Type: Application

33) The Prepaid Rent balance has decreased during the year. How would this affect the

Statement of Cash Flows operations section under the indirect method?

A) It is already included in the net income.

B) It would be added back to net income.

C) It would be subtracted from net income.

D) It does not affect the cash flow from operations.

Question Type: Application

34) The Cash balance has decreased during the year. How would this affect the Statement of

Cash Flows operations section under the indirect method?

A) It is already included in the net income.

B) It would be added back to net income.

C) It would be subtracted from net income.

D) It does not affect the cash flow from operations.

Question Type: Application

35) There was a gain on the sale of investment property. How would this affect the Statement of

Cash Flows operations section under the indirect method?

A) It is already included in the net income.

B) It would be added back to net income.

C) It would be subtracted from net income.

D) It does not affect the cash flow from operations.

Question Type: Application

36) Activities that increase and decrease as a result of selling a company‘s stock are:

A) marketing activities.

B) operating activities.

C) investing activities.

D) financing activities.

Question Type: Application

37) The balance in the Treasury Stock account has increased. This represents a cash _____ and is

properly categorized in the _______ activities section of the Statement of Cash Flows.

A) inflow, investing

B) outflow, investing

C) inflow, financing

D) outflow, financing

Question Type: Application

38) Of the following, which is NOT classified as an investing activity on the Statement of Cash

Flows?

A) Sale of equipment for cash

B) Purchasing land

C) Collecting the principal on loans

D) Selling goods and services

Question Type: Application

39) A transaction involving the exchange of stock for land would be classified as a(n):

A) operating activity.

B) investing activity.

C) financing activity.

D) noncash investing and financing activity.

Question Type: Application

40) A company issues common stock to settle a debt, this would be classified as a(n):

A) noncash investing and financing activity.

B) investing activity.

C) operating activity.

D) financing activity.

Question Type: Application

41) A Statement of Cash Flows would NOT disclose:

A) stock dividends declared.

B) bonds payable issued.

C) purchase of treasury stock.

D) capital stock issued.

Question Type: Concept

42) Caesario Company‘s Accounts Receivable increased by $39,000 and their Accounts Payable

decreased by $19,000. What is the net effect on cash from operations under the indirect method?

A) +$58,000

B) -$20,000

C) -$58,000

D) +$20,000

Question Type: Application

43) Goldman Company’s Accounts Receivable decreased by $23,000 and its Accounts Payable

increased by $12,000. What is the net effect on cash from operations under the indirect method?

A) +$35,000

B) -$11,000

C) -$35,000

D) +$11,000

Question Type: Application

44) Enterprise Industries’ Accounts Receivable decreased by $27,000 and its Accounts Payable

decreased by $17,000. What is the net effect on cash from operations under the indirect method?

A) +$44,000

B) -$44,000

C) -$10,000

D) +$10,000

Question Type: Application

45) TLR Productions’ Accounts Receivable increased by $44,000 and its Accounts Payable

increased by $29,000. What is the net effect on cash from operations under the indirect method?

A) +$73,000

B) +$15,000

C) -$15,000

D) –$73,000

Question Type: Application

46) Sterling Sails reported net income of $30,000; depreciation expenses of $19,000; an increase

in Accounts Payable of $2,000; and an increase in current notes receivable of $3,000. Net Cash

Flows from operating activities under the indirect method is:

A) $50,000.

B) $49,000.

C) $48,000.

D) $44,000.

Question Type: Application

47) Green Timber reported net income of $53,000; depreciation expenses of $11,000; a gain on a

land sale of $3,000; and a decrease in Accounts Receivable of $3,500. Under the indirect

method, net Cash Flows from operations is:

A) $57,500.

B) $64,500.

C) $67,500.

D) $70,500.

Question Type: Application

48) The records of Eclectic Lighting showed a net loss of $30,000; depreciation expense of

$24,000; and an increase in supplies on hand of $4,000. The amount of net cash flow from

operating activities using the indirect method is:

A) ($16,000).

B) ($10,000).

C) $16,000.

D) $20,000.

Question Type: Application

49) S&C’s records show Accounts Receivable amounted to $205,000 at the beginning of the year

and $240,000 at the end of the year. Income reported on the Income Statement for the year was

$310,000. The cash flow from operating activities on the cash flow statement using the indirect

method is:

A) $345,000.

B) $275,000.

C) $310,000.

D) $327,500.

Question Type: Application

50) Records for Serenity Sounds show net income of $35,000; depreciation expense of $11,000;

and cash dividends paid of $4,000. The cash flow from operating activities on the cash flow

statement using the indirect method is:

A) $50,000.

B) $46,000.

C) $39,000.

D) $28,000.

Question Type: Application

51) The Vintage Boutique had net income of $53,000. Accounts Receivable increased by

$28,000; inventory decreased by $18,000; accounts payable increased by $4,000 and salaries

payable decreased by $1,200. The amount of cash flow from operating activities under the

indirect method is:

A) $40,200.

B) $45,800.

C) $58,200.

D) $68,200.

Question Type: Application

52) If $9,000 was generated from operations (indirect method); $3,000 was used for investing

activities; and $8,000 was generated from financing activities, the cash balance:

A) increased by $8,000.

B) increased by $4,000.

C) increased by $14,000.

D) decreased by $20,000.

Question Type: Application

53) If $10,000 was generated from operations, $1,000 was used for investing activities and

$7,000 was generated from financing activities, the cash balance must have increased by:

A) $7,000.

B) $4,000.

C) $16,000.

D) $18,000.

Question Type: Application

54) The Betta Group had net income of $32,000. Accounts Receivable increased by $3,000;

accounts payable decreased by $4,000. Depreciation expense for the year was $1,400.

Additional transactions include: the purchase of land in exchange for stock $55,000; the sale of

treasury stock $3,500; issued bonds $3,000; acquired a building by issuing a note $79,000. Using

the indirect method, the net increase (decrease) in cash for the year is:

A) $(19,400)

B) $(94,400)

C) $32,900

D) $26,400

Question Type: Application

11.4 Prepare the statement of cash flows using the direct method

1) Under the direct method, amortization expense is added to net income.

Question Type: Concept

2) Under the direct method, gains and losses on the sale of a fixed asset are reported in the

investing section of the cash flow statement.

Question Type: Concept

3) The FASB recommends use of the direct method, rather than the indirect method, of preparing

a cash flow statement.

Question Type: Concept

4) Under the direct method, the only section that differs from the indirect method is the financing

activities section.

Question Type: Concept

5) In the direct method, each line of the Income Statement is converted from the accrual basis to

cash basis.

Question Type: Concept