11.3-21 On an indirect method statement of cash flows, a gain on the sale of PPE is:
A) reported in the financing activities section.
B) added to net income.
C) reported in the investing activities section.
D) deducted from net income.
11.3-22 All of the following might appear as adjustments to net income on an indirect method statement
of cash flows except:
A) gain on sale of PPE.
B) payment of cash dividends.
C) an increase in Accounts Receivable.
D) depreciation expense.
11.3-23 Under the indirect method of preparing a statement of cash flows, cash disbursed for the
acquisition of PPE is:
A) subtracted in the operating activities section.
B) subtracted in the investing activities section.
C) added in the investing activities section.
D) added in the financing activities section.
11.3-24 Under the indirect method of preparing a statement of cash flows, depreciation expense for the
current period is:
A) added in the operating activities section.
B) subtracted in the operating activities section.
C) not reported.
D) reported in the investing activities section.
11.3-25 Which statement is FALSE?
A) An increase in another current asset decreases cash.
B) A decrease in another current asset increases cash.
C) A decrease in a current liability increases cash.
D) An increase in a current liability increases cash.
11.3-26 On an indirect method statement of cash flows, dividends paid during the year are:
A) added to net income.
B) reflected in the investing activities section.
C) reflected in the financing activities section.
D) deducted from net income.
11.3-27 On a statement of cash flows prepared using the indirect method, an increase in Accounts Payable
during the period is:
A) deducted from net income to determine net cash provided by operating activities.
B) added to net income to determine net cash provided by financing activities.
C) added to net income to determine net cash provided by operating activities.
D) deducted from net income to determine net cash provided by financing activities.
11.3-28 On a statement of cash flows prepared using the indirect method, an increase in Accounts
Receivable during the period is:
A) added to net income to determine net cash provided by investing activities.
B) deducted from net income to determine net cash provided by investing activities.
C) deducted from net income to determine net cash provided by operating activities.
D) added to net income to determine net cash provided by operating activities.
11.3-29 Rock Company uses the indirect method to prepare its statement of cash flows. Rock’s
Accumulated Depreciation-Equipment account increased during the period. Rock did not
purchase or sell equipment during the period. The increase in Accumulated Depreciation-
Equipment is:
A) deducted from net income to determine net cash provided by operating activities.
B) reported in the investing activities section.
C) not reported.
D) added to net income to determine net cash provided by operating activities.
11.3-30 Hubble Corporation, which uses the indirect method to prepare its statement of cash flows, sold
used equipment for cash. Which statement regarding this sale is TRUE?
A) The cash from operating activities will be greater if the direct method is used to prepare the
statement of cash flows.
B) The effect on cash from operating activities depends on whether there was a gain or loss on
sale.
C) The cash from operating activities will be less if the direct, rather than indirect, method is
used to prepare the statement of cash flows.
D) The cash from operating activities will not be reported if the indirect method is used to
prepare the statement of cash flows.
11.3-31 The following data is provided for last year. Net income was $210,000. Current receivables and
prepaid expenses increased by $10,000 and $2,000, respectively. Current payables decreased by
$8,000. Under the indirect method, the cash flows from operating activities would be:
A) $190,000.
B) $206,000.
C) $230,000.
D) $214,000.
11.3-32 The following data is provided for last year. Net income was $30,000. Current assets (other than
cash) increased by $12,000 and current liabilities increased by $8,000. Under the indirect method,
the cash flows from operating activities would be:
A) $34,000.
B) $10,000.
C) $30,000.
D) $26,000.
11.3-33 Tryout Corporation’s balance in its land account, which represented one piece of land, was
$100,000. During the year, the piece of land was sold for $165,000. The amount reported in the
operating activities section of the statement of cash flows, using the indirect method, would be
a(n):
A) $100,000 increase to net income.
B) $165,000 decrease to net income.
C) $ 65,000 increase to net income.
D) $ 65,000 decrease to net income.
11.4-1 Activities that affect long-term assets are:
A) investing activities.
B) operating activities.
C) financing activities.
D) noncash investing and financing activities.
11.4-2 Cash receipts from investing activities include:
A) issuing shares for cash.
B) selling treasury shares.
C) acquisition of PPE.
D) sale of PPE.
11.4-3 Cash payments from investing activities do NOT include:
A) issuing shares for cash.
B) acquisition of PPE.
C) making loans to others.
D) purchase of investments that are not cash equivalents.
11.4-4 Naraval Corporation sold used equipment with a book value of $31,000 for $27,000. The indirect
method statement of cash flows will reflect:
A) an addition of $27,000 in the investing activities section and an addition of $4,000 in the
operating activities section.
B) an addition of $27,000 in the investing activities section and a deduction of $4,000 in the
operating activities section.
C) an addition of $31,000 in the investing activities section and an addition of $4,000 in the
operating activities section.
D) an addition of $31,000 in the investing activities section and a deduction of $4,000 in the
operating activities section.
11.4-5 Phoenix Rising Corporation sold an unused building for $177,000. The building’s book value on
the date of sale was $172,000. How will this transaction appear in a statement of cash flows
prepared using the indirect method?
A) A $172,000 increase in investing activities and $5,000 increase in operating activities
B) A $177,000 increase in investing activities and $5,000 increase in operating activities
C) A $177,000 increase in investing activities and $5,000 decrease in operating activities
D) A $172,000 increase in investing activities and $5,000 decrease in operating activities
11.4-6 Thunder Corporation had a beginning balance in net PPE of $220,000. During the year, Thunder
purchased $60,000 of new PPE. Depreciation expense for the year was $30,000, and there was a
net gain on the sale of PPE was $3,000. The ending balance in net PPE was $170,000. The book
value of the PPE sold was:
A) $ 80,000.
B) $140,000.
C) $ 40,000.
D) none of the above.
11.4-7 Thunder Corporation had a beginning balance in net PPE of $220,000. During the year, Thunder
purchased $60,000 of new PPE. Depreciation expense for the year was $30,000 and there was a
net gain on the sale of PPE was $3,000. The ending balance in net PPE was $170,000. The cash
received from the sale of the PPE was:
A) $80,000.
B) $88,000.
C) $83,000.
D) none of the above.
11.4-8 Tryout Corporation’s balance in its land account, which represented one piece of land, was
$100,000. During the year, the piece of land was sold for $165,000. The amount reported in the
investing activities section of the statement of cash flows would be:
A) $100,000.
B) $165,000.
C) $ 65,000.
D) none of the above.
11.4-9 Lightning Corporation had a beginning balance in long-term investments of $350,000. During
the year, Lightning sold $80,000 of investments and recorded a loss on the sale of $5,000. The ending balance in
long-term investments was $300,000. During the year, Lightning Corporation purchased long-term investments
totaling:
A) $35,000.
B) $25,000.
C) $30,000.
D) none of the above.
11.4-10 Lightning Corporation had a beginning balance in long-term investments of $350,000. During
the year, Lightning sold $80,000 of investments and recorded a loss on the sale of $5,000. The
ending balance in long-term investments was $300,000. The amount of cash received from the
sale of long-term investments was:
A) $80,000.
B) $75,000.
C) $85,000.
D) none of the above.
11.5-1 Activities that affect long-term liabilities and shareholders’ equity are:
A) investing activities.
B) operating activities.
C) financing activities.
D) noncash investing and financing activities.
11.5-2 Cash receipts from financing activities do NOT include:
A) issuing shares for cash.
B) selling treasury shares.
C) purchase of treasury shares.
D) borrowing on long-term notes payable.
11.5-3 Cash payments from financing activities include:
A) issuing shares for cash.
B) selling treasury shares.
C) acquisition of PPE.
D) payment of dividends.
11.5-4 Yanks Company acquired a building by issuing ordinary shares with a market value of $490,000.
This transaction would be recorded on the statement of cash flows as a(n):
A) investing activity.
B) operating activity.
C) financing activity.
D) noncash investing and financing activity on a separate schedule on the statement of cash
flows.
11.5-5 Which of the following transactions would be recorded on the schedule of noncash investing and
financing activities ?
A) Issuance of ordinary shares for cash
B) Issuance of ordinary shares for land
C) Payment of dividends on ordinary shares
D) Purchase of treasury shares
11.5-6 Rain Forever Corporation had a beginning balance in ordinary shares of $30,000 and additional
paid in capital-ordinary shares of $350,000. At the end of the year the balances in the accounts
were $40,000 and $410,000, respectively. The only transaction involving shares was the sale of
shares. Cash received from the sale of shares was:
A) $ 50,000.
B) $ 70,000.
C) $830,000.
D) none of the above.
11.5-7 Rain Forever Corporation had a beginning balance in retained earnings of $80,000 and had net
income for the year of $40,000. At the end of the year the balance in retained earnings was
$100,000. Rain Forever declared dividends of:
A) $20,000.
B) $40,000.
C) $80,000.
D) none of the above.
11.5-8 Analysts rely solely on the statement of cash flows as a predictor of eventual success for a given
company.
11.5-9 Analysts find the statement of cash flows more helpful for spotting weakness than for gauging
success.
11.5-10 On the statement of cash flows of a healthy company, net cash from operating activities generally
exceeds net income.
11.5-11 If over a period of time, a company’s major source of cash is from the sale of PPE, this may be a
sign of financial difficulty.
11.5-12 On the statement of cash flows of a healthy company, net cash from operating activities generally
exceeds net income because of the add-back of depreciation.
11.5-13 When analyzing the statement of cash flows, which of the following statements is TRUE?
A) A company with a large cash balance is ensured success.
B) A shortage of cash can lead a company to bankruptcy.
C) Cash has no affect on the success of the company.
D) Cash is ignored when analyzing a company.
11.5-14 Analyzing the statement of cash flows may help analysts determine the financial health of a
company. Which of the following signs below is NOT an indicator of a financially healthy
company?
A) The company’s operations are a major use (not a source) of cash.
B) The company’s operations are a major source (not a use) of cash.
C) The company’s financing activities are not dominated by borrowing.
D) The company’s investing activities include more purchases than sales of long-term assets.
11.5-15 On a statement of cash flows of a financially healthy company, net income should ordinarily be:
A) less than cash provided by operating activities.
B) less than depreciation expense.
C) more than depreciation expense.
D) more than cash provided by operating activities.
11..6-1 The direct method of preparing the statement of cash flows requires more computation than the
indirect method.
11.6-2 Under the direct method of preparing the statement of cash flows, the major source of cash receipts is
cash received from customers.
11.6-3Only the investing activities section of a statement of cash flows differs between the direct and indirect
methods.
11.6-4 The direct method of preparing the statement of cash flows provides the clearest picture of the sources
and uses of cash from investing activities.
11.6-5 Under the direct method, cash receipts from dividend revenue affect both the statement of cash
flows and the income statement.
11.6-6 Cash received from interest revenue is combined with the cash received from the related note
receivable and reported in the investing activities section of the statement of cash flows.
11.6-7 Cost of Goods Sold and Inventory are the only two accounts needed to analyze the cash payments
for inventory.
11.6-8 A decrease in Accounts Receivable during the reporting period indicates that cash collections
from customers exceeded credit sales on the income statement.
11.6-9 A decrease in Interest Payable during the reporting period indicates that cash paid for interest
exceeded Interest Expense on the income statement.
11.6-10 Noncash investing and financing activities are disclosed in a separate schedule that accompanies
the statement of cash flows.
11.6-11 Assume that a statement of cash flows reports cash received from customers. Which of the
following is true?
A) Cash received from customers is not reported on the statement of cash flows.
B) Cash received from customers is reported when using both the direct and indirect methods.
C) The statement was prepared using the direct method.
D) The statement was prepared using the indirect method.
11.6-12 The direct method of preparing the statement of cash flows:
A) is preferred by FASB.
B) reports where cash came from and how it was spent on operating activities.
C) is much easier for companies to compute.
D) is both A and B.
11.6-13 Under the direct method of preparing the statement of cash flows, cash receipts from operating
activities do NOT include:
A) collections from customers.
B) receipt of dividends on investments.
C) payments to suppliers.
D) receipt of interest on investments.
11.6-14 Under the direct method of preparing the statement of cash flows, cash payments from operating
activities do NOT include:
A) payment of dividends.
B) payments to suppliers.
C) payments to employees.
D) payments of income tax.
11.6-15 Under the direct method of preparing the statement of cash flows, cash payments from investing
activities include:
A) payment of dividends.
B) payments to suppliers.
C) purchase of treasury shares.
D) acquisition of PPE.
11.6-16 Under the direct method of preparing the statement of cash flows, to determine collections from
customers:
A) beginning accounts receivable is subtracted from sales.
B) ending accounts receivable is added to sales.
C) the net change in accounts receivable is added or subtracted from sales.
D) none of the above is true.
11.6-17 Which statement is TRUE regarding the direct method of preparing the statement of cash flows?
A) Depreciation is a cash payment under operating activities.
B) Sales on credit is listed under cash receipts in the operating section.
C) Collections from customers are the cash receipts listed in the operating section.
D) Proceeds from the issuance of long-term debt is listed as a cash receipt in the operating
section.
11.6-18 Under the direct method of preparing the statement of cash flows, which statement is CORRECT
regarding the method of computing cash payments to suppliers?
A) cost of goods sold plus an increase in inventory plus an increase in accounts payable.
B) cost of goods sold less a decrease in inventory plus an increase in accounts payable.
C) cost of goods sold plus a decrease in inventory plus an increase in accounts payable.
D) cost of goods sold plus an increase in inventory less a decrease in accounts payable.