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88) Canada Company needs to purchase a property to build their headquarters. An investor is willing to
exchange land with a market value of $700,000 for shares of common stock. On the statement of cash
flows, this transaction would be shown as ________.
A) investing activities
B) non-cash investing and financing activities
C) operating activities
D) financing activities
89) Which of the following transactions would be shown in the non-cash investing and financing
activities section of the statement of cash flows?
A) sold equipment with book value of $8,000 in exchange for $8,000 cash
B) borrowed $32,000 cash on a note payable
C) issued 15,000 shares of common stock at $3 per share
D) purchased a building in exchange for 20,000 shares of common stock
90) Which of the following transactions would be shown in the non-cash investing and financing
activities section of the statement of cash flows?
A) sold equipment with book value of $6,500 in exchange for $6,500 cash
B) settled a long-term note payable by issuing common stock
C) issued 20,000 shares of stock at $4 per share
D) purchased land for $30,000 cash
91) Which of the following transactions would be shown in the non-cash investing and financing
activities section of the statement of cash flows?
A) sold equipment with book value of $15,000 in exchange for $15,000 cash
B) retired company bonds before the maturity date by paying a negotiated amount
C) issued 50,000 shares of stock at $2 per share
D) purchased land by signing a 10-year note for $500,000
92) Allen Services purchased 20 delivery vehicles by issuing a 20-year installment note payable for
$720,000. On the statement of cash flows, this transaction would be shown in the ________.
A) investing activities section
B) non-cash investing and financing activities section
C) operating activities section
D) financing activities section
1) Free cash flow is calculated by adding cash payments planned for investments in long-term assets and
cash dividends to the amount of net cash provided by operating activities.
2) Investors who want to know the amount of cash a company has available for new opportunities, such
as expanding into a new sales region, should analyze the company's free cash flow.
3) Free cash flow is the amount of cash available from operating activities before paying for planned
investments in long-term assets.
4) Many companies use free cash flow to estimate the amount of cash that would be available for
unexpected opportunities.
5) Investors who want to know the amount of cash a company has available for new opportunities, such
as expanding into a new sales region, should analyze the company's ________.
A) free cash flow
B) net cash flow from investing activities
C) acid ratio
D) earnings per share
6) Planned investments and cash dividends are deducted from ________ to arrive at free cash flow.
A) net cash provided by operating activities
B) net cash provided by investing activities
C) net cash provided by financing activities
D) net income
7) For the year ending December 31, 2018, Sparks Electric expects net cash provided by operations of
$328,000, net cash used by investing activities of $135,000, and net cash provided by financing activities of
$51,000. Sparks plans to spend $257,000 to add a warehouse for its operations and pays $31,000 in cash
dividends. What is the amount of free cash flow?
A) $244,000
B) $40,000
C) $71,000
D) $(64,000)
8) Outdoor Lighting Supply expects the following for 2018:
Net cash provided by operating activities of $284,000
Net cash provided by financing activities of $67,000
Net cash provided by investing activities of $76,000
Cash dividends paid to stockholders of $29,000
Outdoor expects to spend $150,000 to modernize its showroom.
How much free cash flow does Outdoor expect for 2018?
A) $134,000
B) $264,000
C) $105,000
D) $112,000
9) Murphy & Murphy Enterprises expects the following for 2018:
Net cash provided by operating activities of $226,000
Net cash provided by financing activities of $16,000
Net cash provided by investing activities of $70,000
Cash dividends paid to stockholders of $20,000
The business plans to spend $110,000 to purchase equipment.
What is the expected amount of free cash flow for 2018?
A) $96,000
B) $116,000
C) $62,000
D) $42,000
10) Use the following information to calculate the free cash flow of Jarvis, Inc.
Net cash provided by operating activities, $25,000
Net cash provided by financing activities, $35,000
Net cash used for planned investment in long-term assets, $12,000
Net cash used for investing activities, $20,000
Cash dividends paid, $10,000.
11) What does free cash flow represent? How is it used to evaluate business performance?
1) Although the direct method is easier to use, the Financial Accounting Standards Board (FASB) prefers
the indirect method of reporting cash flows from operating activities.
2) When preparing the statement of cash flows, the amount of net cash provided by operating activities
differs between the direct and indirect methods.
3) The net cash provided by operating activities is calculated in the same way, whether the company uses
the direct or the indirect method of preparing the statement of cash flows.
4) The cash flow from investing activities section appears exactly the same, whether the company uses the
direct or the indirect method to prepare the statement of cash flows.
5) The direct method of reporting cash flows from operating activities provides clearer information about
the sources and uses of cash than does the indirect method.
6) Most public companies use the indirect method to prepare their statement of cash flows because it is
the method the FASB prefers.
7) The only part that differs in a statement of cash flows prepared by the direct method from one
prepared by the indirect method is the ________.
A) financing activities section
B) investing activities section
C) operating activities section
D) non-cash investing and financing activities section
8) Tri-City Installations Company uses the direct method to prepare its statement of cash flows. Tri-City
has reported sales revenues of $200,000 on its income statement for 2018. If the balance in Accounts
Receivable has increased by $10,000 during the year, then $10,000 needs to be added to $200,000 to
calculate collections from customers.
9) Urban Installations Company uses the direct method to prepare its statement of cash flows. Urban has
reported cost of goods sold of $95,000 on its income statement for 2018. If the balance in the Merchandise
Inventory account decreased by $6,000 during the year, then $6,000 needs to be added to $95,000 to
calculate payments to suppliers for inventory purchases.
10) Greene Electric Company uses the direct method to prepare its statement of cash flows. Greene has
reported cost of goods sold of $85,000 on its income statement for 2018. If the balance in Accounts
Payable, for merchandise inventory suppliers only, has decreased by $8,000 during the year, then $8,000
needs to be subtracted from $85,000 to calculate payments to suppliers for merchandise inventory
purchases.
11) Lightning Electric Company uses the direct method to prepare its statement of cash flows. Lightning
has reported operating expenses of $63,000 on its income statement for the year 2019. If the balance in
accrued liabilities has increased by $6,000 during the year, then $6,000 needs to be added to $63,000 to
calculate payments to suppliers for operating expenses. Accrued liabilities relate to operating expenses.
12) Using the direct method, interest expense paid on a note payable is included in the operating
activities section of the statement of cash flows.
13) Mid-Town Auto Parts Company uses the direct method to prepare its statement of cash flows. Refer
to the following information reported for 2019:
1. Sales Revenue, $519,000
2. Accounts Receivable, beginning balance, $97,000
3. Accounts Receivable, ending balance, $65,000
Compute the collections from customers.
A) $551,000
B) $454,000
C) $162,000
D) $357,000
14) Boulevard, Inc. uses the direct method to prepare its statement of cash flows. Use the following
information reported for 2019:
Sales Revenue, $45,000
Interest Revenue, $800
Accounts Receivable, beginning balance, $13,100
Accounts Receivable, ending balance, $27,000
There were no amounts reported for Interest Receivable.
Compute the total cash receipts.
A) $27,000
B) $58,100
C) $31,900
D) $13,100
