978-1337276337 Test Bank Chapter 12 Part 3

Chapter 12

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102. When using the direct method, how is the sale of long-term investments for cash reported on the statement of cash

flows?

a. As an operating activity

b. As an investing activity

c. As a financing activity

d. As a noncash investing and financing activity

103. When using the indirect method, how is depreciation expense shown on the statement of cash flows?

a. As an operating activity

b. As an investing activity

c. As a financing activity

d. As a noncash investing and financing activity

104. When using the indirect method, how is the purchase of equipment for cash shown on the statement of cash flows?

a. As an operating activity

b. As an investing activity

c. As a financing activity

d. As a noncash investing and financing activity

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105. When using the indirect method, how is the issuing of stock for cash shown on the statement of cash flows?

a. As an operating activity

b. As an investing activity

c. As a financing activity

d. As a Noncash investing and financing activity

106. When using the indirect method, how is the receipt of cash from the sale of long-term investments treated on the

statement of cash flows?

a. As an operating activity

b. As an investing activity

c. As a financing activity

d. As a noncash investing or financing activity

107. When using the indirect method, how is an increase in accounts receivable during the year shown on the statement of

cash flows?

a. As an operating activity

b. As an investing activity

c. As a financing activity

d. As a noncash investing and financing activity

108. When using the indirect method, how would the retirement of bonds payable at their maturity date be shown on the

statement of cash flows?

a. As an operating activity

b. As an investing activity

c. As a financing activity

d. As a noncash investing and financing activity

Chapter 12

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109. When using the indirect method, how would the declaration and payment of cash dividends be shown on the

statement of cash flows?

a. As an operating activities

b. As an investing activities

c. As a financing activities

d. As a noncash investing and financing activities

110. When using the indirect method, how is the decrease in accounts payable shown on the statement of cash flows?

a. As an operating activity

b. As an investing activity

c. As a financing activity

d. As a noncash investing and financing activity

111. When using the indirect method, the gain from selling a long-term investment is recognized in which of the

following?

a. In the Operating Activities and Investing Activities sections of the statement of cash flows

b. In the Financing Activities section of the statement of cash flows

c. In the noncash Investing or Financing Activities supplemental section of the statement of cash flows

d. Gains are not recognized in the statement of cash flows under the indirect method

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113. Pound Co. reported the following information at the end of 2017 and 2018:

2017 2018

Land $ 35,000 $100,000

Common stock 200,000 265,000

An analysis of Pound’s records indicated that there were no cash flow effects resulting from the changes in the two

accounts presented above. How should Pound report the changes in these accounts on a statement of cash flows?

a. Pound should report $65,000 for the acquisition of land as an investing activity and $65,000 for the issuance of

stock as a financing activity.

b. Pound should report $65,000 as a noncash investing and financing activity for the acquisition of land by issuing

common stock.

c. Pound should report the issuance of common stock to acquire land in the Financing Activities section with a net

cash flow effect of zero.

d. Pound should report the acquisition of land by issuing common stock in the Investing Activities section with a net

cash flow effect of zero.

114. Gaulle Company began the year with a balance of $6,000 in Accounts Receivable and ended the year with $9,000 in

the account. Revenues for the period amounted to $38,000. Under the direct method, Gaulle will report cash collected

from customers of

a. $44,000.

b. $35,000.

c. $41,000.

d. $47,000.

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115. Parks Company reported an increase of $370,000 in its accounts receivable during the year 2017. The company’s

statement of cash flows for 2017 using the direct method reported $1 million of cash received from customers. What

amount of net sales must Parks have recorded in 2017?

a. $370,000

b. $1,000,000

c. $1,370,000

d. $630,000

116. Rent expense in Volusia Company’s 2018 income statement is $420,000. If prepaid rent was $70,000 at December

31, 2017, and is $95,000 at December 31, 2018, the cash paid for rent during 2018 is

a. $480,000.

b. $445,000.

c. $395,000.

d. $420,000.

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117. At the end of the first year of operations, the balance sheet of Huntington Beach Co. Industries had the following

balances: Accounts Receivable, $5,000; Accounts Payable, $6,000; Inventory, $3,000; and Unexpired Insurance, $2,000.

The corporation reported net income of $79,000 for the year, including depreciation expense of $5,000, and uses the

indirect method of computing net cash flow from operating activities. Based on this information, net cash flow from

operating activities is

a. $82,000.

b. $78,000.

c. $70,000.

d. $77,000.

118. O’Bryan Company began the year with a balance of $18,000 in Salaries and Wages Payable and ended the year with

$11,000 in the account. Salaries and Wages Expense for the period amounted to $91,000. Under the direct method,

O’Bryan will report cash payments for salaries and wages of

a. $84,000.

b. $102,000.

c. $109,000.

d. $98,000.

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119. Use the equation presented below to answer the question that follows:

Cash = CL + LTL + CS + RE – NCCA – LTA

where: CL = Current liabilities

LTL = Long-term liabilities

CS = Common stock

RE = Retained earnings

NCCA = Noncash current assets

LTA = Long-term assets

Which of the following activities results in a cash outflow?

a. Decreases in noncash current assets (NCCA)

b. Decreases in long-term assets (LTA)

c. Increases in long-term liabilities (LTL)

d. Decreases in retained earnings (RE)

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120. Use the equation presented below to answer the question that follows:

Cash = CL + LTL + CS + RE – NCCA – LTA

where: CL = Current liabilities

LTL = Long-term liabilities

CS = Common stock

RE = Retained earnings

NCCA = Noncash current assets

LTA = Long-term assets

Which of the following activities results in a cash inflow?

a. Increases in noncash current assets (NCCA)

b. Decreases in current liabilities (CL)

c. Increases in common stock (CS)

d. Decreases in retained earnings (RE)

121. Which of the following financing activities results in a cash inflow?

a. Buying treasury stock

b. Issuing bonds

c. Repaying a bank loan

d. Paying cash dividends

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122. Which of the following operating activities results in a cash outflow?

a. Paying creditors for merchandise

b. Collecting accounts receivable

c. Making cash sales

d. Receiving deposits recorded as unearned revenue

123. Which of the following activities is most likely to have a cash flow effect?

a. Investing in money market funds

b. Declaring cash dividends

c. Reissuing treasury stock

d. Issuing stock to acquire a patent

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124. Caler Corp. reported the following information for 2017 and 2018:

Accounts receivable, December 31, 2017 $ 67,000

Accounts receivable, December 31, 2018 63,000

Sales (all on credit)—2018 745,000

How much cash was collected from customers during 2018?

a. $741,000

b. $745,000

c. $749,000

d. $753,000

125. Goldman Corp. reported the following information for 2017 and 2018.

Accounts payable, December 31, 2017 $ 51,000

Accounts payable, December 31, 2018 46,000

Purchases—2018 467,000

Assuming all purchases are on credit, how much cash was paid for merchandise during 2018?

a. $421,000

b. $462,000

c. $467,000

d. $472,000

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126. Pilot Company reported the following information for 2017 and 2018:

Prepaid insurance, December 31, 2017 $ 2,400

Prepaid insurance, December 31, 2018 1,500

Insurance expense—2018 14,200

How much cash was paid for insurance during 2018?

a. $13,300

b. $14,200

c. $15,100

d. $15,700

127. Kelly Corp. reported the following information for 2017 and 2018.

Salaries payable, December 31, 2017 $ 3,700

Salaries payable, December 31, 2018 1,800

Salaries expense—2018 57,000

How much cash was paid for salaries during 2018?

a. $55,100

b. $55,200

c. $57,000

d. $58,900

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128. Tulsa Corp. reported the following information for 2017 and 2018:

Interest payable, December 31, 2017 $ 5,700

Interest payable, December 31, 2018 6,200

Interest expense—2018 12,250

How much cash was paid for interest during 2018?

a. $11,750

b. $12,250

c. $12,500

d. $12,750

129. Dallas Corp. reported the following information for 2017 and 2018:

Interest receivable, December 31, 2017 $1,100

Interest receivable, December 31, 2018 1,400

Interest income—2018 3,200

How much cash was received for interest during 2018?

a. $2,900

b. $3,200

c. $3,500

d. $3,800

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130. Use the information below for Soho Inc. for 2017 and 2018 to answer the following question:

Equipment, December 31, 2017 $65,000

Equipment, December 31, 2018 72,000

Accumulated depreciation, December 31, 2017 39,000

Accumulated depreciation, December 31, 2018 30,000

During 2017, Soho Inc. sold equipment with a cost of $30,000 and accumulated depreciation of $25,000 for cash. A gain

of $3,000 was recognized on the sale of the equipment. This was the only equipment sale during the year.

What amount would be reported as the cash proceeds from the sale of equipment?

a. $2,000

b. $3,000

c. $5,000

d. $8,000

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131. Use the information below for Shorter Inc. for 2017 and 2018 to answer the following question:

Equipment, December 31, 2017 $65,000

Equipment, December 31, 2018 72,000

Accumulated depreciation, December 31, 2017 39,000

Accumulated depreciation, December 31, 2018 30,000

During 2018, Shorter Inc. sold equipment with a cost of $30,000 and accumulated depreciation of $25,000. A gain of

$3,000 was recognized on the sale of the equipment. This was the only equipment sale during the year.

Assume that all purchases of equipment were paid with cash. How much cash was paid by Shorter for the purchase of

equipment during 2018?

a. $7,000

b. $30,000

c. $37,000

d. $72,000

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132. Use the information below for Flora Inc. for 2017 and 2018 to answer the following question:

Equipment, December 31, 2017 $65,000

Equipment, December 31, 2018 72,000

Accumulated depreciation, December 31, 2017 39,000

Accumulated depreciation, December 31, 2018 30,000

During 2018, Flora Inc. sold equipment with a cost of $30,000 and accumulated depreciation of $25,000. A gain of $3,000

was recognized on the sale of the equipment. This was the only equipment sale during the year.

What was depreciation expense for 2018?

a. $9,000

b. $16,000

c. $21,000

d. $30,000

133. Which of the following statements is false regarding how the cash flow effects of the changes in the Equipment and

Accumulated Depreciation accounts would be reported on a statement of cash flows if the indirect method is used to

prepare the Operating Activities section?

a. Cash proceeds from the sale of the equipment would be reported as a cash inflow in the Investing Activities

section.

b. The cash paid to purchase equipment would be reported as a cash outflow in the Investing Activities section

c. Depreciation expense would be added to net income in the Operating Activities section.

d. A loss on the sale of the equipment would be subtracted from net income in the Operating Activities section

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134. Use the information below for Focal Point Corp. for 2017 and 2018 to answer the following question:

Retained earnings, December 31, 2017 $300,000

Retained earnings, December 31, 2018 345,000

Dividends payable, December 31, 2017 19,000

Dividends payable, December 31, 2018 29,000

Net income—2018 150,000

Assume that there were no retained earnings transactions other than those dealing with dividends and net income. How

much dividends did Focal Point declare during 2018?

a. $95,000

b. $105,000

c. $140,000

d. $150,000

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135. Use the information below for Barton Shipping Corp. for 2017 and 2018 to answer the following question:

Retained earnings, December 31, 2017 $300,000

Retained earnings, December 31, 2018 345,000

Dividends payable, December 31, 2017 19,000

Dividends payable, December 31, 2018 29,000

Net income—2018 150,000

How much cash did Barton Shipping pay for dividends during 2018?

a. $95,000

b. $105,000

c. $115,000

d. $140,000

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136. Use the information below for Dakota Corp. for 2017 and 2018 to answer the following question:

Bonds payable, December 31, 2017 $500,000

Bonds payable, December 31, 2018 800,000

Loss on bond retirement—2018 15,000

Interest expense on bonds—2018 45,000

At the end of 2018, Dakota issued bonds at par value for $800,000 cash. The proceeds from these bonds were used to

retire the $500,000 bond issue outstanding at the end of 2017 (before their maturity date). All interest expense was paid in

cash during 2018.

How much did Dakota pay to retire the $500,000 bond issue during 2018?

a. $485,000

b. $500,000

c. $515,000

d. $560,000

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137. Carpet World Inc. reported the following information for 2017 and 2018:

2017 2018

Accounts receivable $51,000 $57,000

Inventories 42,000 39,000

Accounts payable 43,000 48,000

Net income 60,000

Depreciation expense 8,000

If Carpet World uses the indirect method to prepare the Operating Activities section of the statement of cash flows, what

amount will be reported as net cash inflow from operating activities for 2018?

a. $64,000

b. $66,000

c. $68,000

d. $70,000