Accounting Chapter 11 A company reports operating expenses of $2 million

139) At the beginning of the period, Utilities Payable equals $500. At the end of the period,

Utilities Payable equals $700. If Utilities Expense for the period equals $1,500, what was the cash

paid for utilities for the period?

A) $500.

B) $1,500.

C) $1,300.

D) $700.

140) At the beginning of the period, Accounts Receivable equals $1,700. At the end of the period,

Accounts Receivable equals $2,200. If Service Revenue for the period equals $15,400, what was

the cash received from customers for the period?

A) $13,200.

B) $15,900.

C) $14,900.

D) $15,400.

141) A company reports cost of goods sold of $40 million. Inventory at the beginning and end of

the year is $4 million and $3 million, respectively. Accounts payable at the beginning and end of

the year are $3 million and $6 million, respectively. What is the amount of cash paid to suppliers?

A) $40 million.

B) $36 million.

C) $44 million.

D) $42 million.

142) A company reports operating expenses of $2 million. Operating expenses include rent

expense. Prepaid rent at the beginning and end of the year is $20,000 and $70,000, respectively.

All other operating expenses were paid in cash as incurred. What is the amount of cash paid for

operating expenses?

A) $2,000,000.

B) $2,070,000.

C) $1,950,000.

D) $2,050,000.

143) A company reports income tax expense of $800,000. Income tax payable at the beginning and

end of the year is $50,000 and $70,000, respectively. What is the amount of cash paid for income

taxes?

A) $780,000.

B) $800,000.

C) $820,000.

D) $870,000.

144) A company reports sales of $100 million. Accounts receivable at the beginning and end of the

year are $6 million and $9 million, respectively. What is the amount of cash received from

customers?

A) $100 million.

B) $103 million.

C) $97 million.

D) $109 million.

145) A company reports cost of goods sold of $75 million. Inventory at the beginning and end of

the year is $8 million and $9 million, respectively. Accounts payable at the beginning and end of

the year are $5 million and $3 million, respectively. What is the amount of cash paid to suppliers?

A) $78 million.

B) $72 million.

C) $75 million.

D) $76 million.

146) A company reports operating expenses of $5 million. Operating expenses include rent

expense. Prepaid rent at the beginning and end of the year is $120,000 and $80,000, respectively.

All other operating expenses were paid in cash as incurred. What is the amount of cash paid for

operating expenses?

A) $5,000,000.

B) $5,040,000.

C) $4,960,000.

D) $5,080,000.

147) A company reports income tax expense of $1,700,000. Income taxes payable at the beginning

and end of the year are $250,000 and $370,000, respectively. What is the amount of cash paid for

income taxes?

A) $1,700,000.

B) $1,820,000.

C) $2,070,000.

D) $1,580,000.

148) A company purchases its inventory from suppliers on account. During the year, its Inventory

account increased by $10 million and its accounts payable to suppliers decreased by $3 million. If

cost of goods sold was $440 million, its cash outflows to inventory suppliers totaled:

A) $453 million.

B) $447 million.

C) $433 million.

D) $427 million.

149) A company’s Income Tax Payable account decreased from $14 million to $12 million during

the year. If its income tax expense was $80 million, what would be shown as cash paid for income

taxes under the direct method?

A) A cash outflow of $12 million.

B) A cash outflow of $78 million.

C) A cash outflow of $80 million.

D) A cash outflow of $82 million.

150) A company began operations in Year 1. The following information is provided at the end of

each year:

Year 1

Year 2

Total salaries earned by employees

$

150,000

$

180,000

Salaries payable

20,000

30,000

What would be the cash paid to employees in Year 2?

A) $150,000.

B) $160,000.

C) $170,000.

D) $180,000.

151) A company collects $50,000 from customers for the year. Accounts Receivable at the

beginning of the year is $5,000, and Accounts Receivable at the end of the year is $15,000. What is

Sales Revenue for the year?

A) $60,000.

B) $55,000.

C) $65,000.

D) $40,000.

152) Which of the following items is not reported in the operating section of the statement of cash

flows using the direct method?

A) Depreciation expense.

B) Cash paid to suppliers.

C) Cash received from customers.

D) Cash paid for income taxes.

153) Which of the following items is reported in the operating section of the statement of cash

flows using the direct method?

A) Depreciation expense.

B) Gain on sale of an asset.

C) Cash received from customers.

D) Loss on sale of an asset.

69

Match the following:

A) Inflow from investing activities

B) Add to net income

C) Subtract from net income

D) Outflow from financing activities

E) Outflow from investing activities

F) Inflow from financing activities

154) Gain on sale of land.

Difficulty: 2 Medium

Topic: Classification of Transactions; Operating Activities – Indirect Method; Investing

Activities; Financing Activities

Learning Objective: 11-01 Classify cash transactions as operating, investing, or financing

activities.; 11-03 Prepare the operating activities section of the statement of cash flows using the

indirect method.; 11-04 Prepare the investing activities section of the statement of cash flows.;

11-05 Prepare the financing activities section of the statement of cash flows.

Bloom’s: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking

155) Purchase equipment.

Difficulty: 2 Medium

Topic: Classification of Transactions; Operating Activities – Indirect Method; Investing

Activities; Financing Activities

Learning Objective: 11-01 Classify cash transactions as operating, investing, or financing

activities.; 11-03 Prepare the operating activities section of the statement of cash flows using the

indirect method.; 11-04 Prepare the investing activities section of the statement of cash flows.;

11-05 Prepare the financing activities section of the statement of cash flows.

Bloom’s: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking

156) Obtain loan from the bank.

Difficulty: 2 Medium

Topic: Classification of Transactions; Operating Activities – Indirect Method; Investing

Activities; Financing Activities

Learning Objective: 11-01 Classify cash transactions as operating, investing, or financing

activities.; 11-03 Prepare the operating activities section of the statement of cash flows using the

indirect method.; 11-04 Prepare the investing activities section of the statement of cash flows.;

11-05 Prepare the financing activities section of the statement of cash flows.

Bloom’s: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking

70

157) Sale of investments.

Difficulty: 2 Medium

Topic: Classification of Transactions; Operating Activities – Indirect Method; Investing

Activities; Financing Activities

Learning Objective: 11-01 Classify cash transactions as operating, investing, or financing

activities.; 11-03 Prepare the operating activities section of the statement of cash flows using the

indirect method.; 11-04 Prepare the investing activities section of the statement of cash flows.;

11-05 Prepare the financing activities section of the statement of cash flows.

Bloom’s: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking

158) Increase in salaries payable.

Difficulty: 2 Medium

Topic: Classification of Transactions; Operating Activities – Indirect Method; Investing

Activities; Financing Activities

Learning Objective: 11-01 Classify cash transactions as operating, investing, or financing

activities.; 11-03 Prepare the operating activities section of the statement of cash flows using the

indirect method.; 11-04 Prepare the investing activities section of the statement of cash flows.;

11-05 Prepare the financing activities section of the statement of cash flows.

Bloom’s: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking

159) Pay dividends.

Difficulty: 2 Medium

Topic: Classification of Transactions; Operating Activities – Indirect Method; Investing

Activities; Financing Activities

Learning Objective: 11-01 Classify cash transactions as operating, investing, or financing

activities.; 11-03 Prepare the operating activities section of the statement of cash flows using the

indirect method.; 11-04 Prepare the investing activities section of the statement of cash flows.;

11-05 Prepare the financing activities section of the statement of cash flows.

Bloom’s: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking

71

Match the following:

A) Outflow from investing activities

B) Inflow from financing activities

C) Inflow from investing activities

D) Subtract from net income

E) Add to net income

F) Outflow from financing activities

160) Depreciation expense.

Difficulty: 2 Medium

Topic: Classification of Transactions; Operating Activities – Indirect Method; Investing

Activities; Financing Activities

Learning Objective: 11-01 Classify cash transactions as operating, investing, or financing

activities.; 11-03 Prepare the operating activities section of the statement of cash flows using the

indirect method.; 11-04 Prepare the investing activities section of the statement of cash flows.;

11-05 Prepare the financing activities section of the statement of cash flows.

Bloom’s: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking

161) Issue common stock.

Difficulty: 2 Medium

Topic: Classification of Transactions; Operating Activities – Indirect Method; Investing

Activities; Financing Activities

Learning Objective: 11-01 Classify cash transactions as operating, investing, or financing

activities.; 11-03 Prepare the operating activities section of the statement of cash flows using the

indirect method.; 11-04 Prepare the investing activities section of the statement of cash flows.;

11-05 Prepare the financing activities section of the statement of cash flows.

Bloom’s: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking

162) Increase in prepaid rent.

Difficulty: 2 Medium

Topic: Classification of Transactions; Operating Activities – Indirect Method; Investing

Activities; Financing Activities

Learning Objective: 11-01 Classify cash transactions as operating, investing, or financing

activities.; 11-03 Prepare the operating activities section of the statement of cash flows using the

indirect method.; 11-04 Prepare the investing activities section of the statement of cash flows.;

11-05 Prepare the financing activities section of the statement of cash flows.

Bloom’s: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking

72

163) Sale of building.

Difficulty: 2 Medium

Topic: Classification of Transactions; Operating Activities – Indirect Method; Investing

Activities; Financing Activities

Learning Objective: 11-01 Classify cash transactions as operating, investing, or financing

activities.; 11-03 Prepare the operating activities section of the statement of cash flows using the

indirect method.; 11-04 Prepare the investing activities section of the statement of cash flows.;

11-05 Prepare the financing activities section of the statement of cash flows.

Bloom’s: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking

164) Repay amount borrowed from the bank.

Difficulty: 2 Medium

Topic: Classification of Transactions; Operating Activities – Indirect Method; Investing

Activities; Financing Activities

Learning Objective: 11-01 Classify cash transactions as operating, investing, or financing

activities.; 11-03 Prepare the operating activities section of the statement of cash flows using the

indirect method.; 11-04 Prepare the investing activities section of the statement of cash flows.;

11-05 Prepare the financing activities section of the statement of cash flows.

Bloom’s: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking

165) Purchase of equipment.

Difficulty: 2 Medium

Topic: Classification of Transactions; Operating Activities – Indirect Method; Investing

Activities; Financing Activities

Learning Objective: 11-01 Classify cash transactions as operating, investing, or financing

activities.; 11-03 Prepare the operating activities section of the statement of cash flows using the

indirect method.; 11-04 Prepare the investing activities section of the statement of cash flows.;

11-05 Prepare the financing activities section of the statement of cash flows.

Bloom’s: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking

73

Match the following:

A) Indirect method

B) Asset turnover

C) Investing activities

D) Operating activities

E) Direct method

F) Noncash activities

G) Financing activities

H) Statement of cash flows

I) Cash return on assets

J) Cash flow to sales

166) Begins with net income and then lists adjustments to net income in order to arrive at operating

cash flows.

Difficulty: 2 Medium

Topic: Classification of Transactions; Basic Steps and Formatting of the Statement of Cash

Flows; Operating Activities – Indirect Method; Investing Activities; Financing Activities; Analysis

– Cash Return on Assets; Analysis – Components of Cash Return on Assets; Operating Activities –

Direct Method

Learning Objective: 11-01 Classify cash transactions as operating, investing, or financing

activities.; 11-02 Understand the steps and basic format in preparing the statement of cash flows.;

11-03 Prepare the operating activities section of the statement of cash flows using the indirect

method.; 11-04 Prepare the investing activities section of the statement of cash flows.; 11-05

Prepare the financing activities section of the statement of cash flows.; 11-06 Perform financial

analysis using the statement of cash flows.; 11-07 Prepare the operating activities section of the

statement of cash flows using the direct method.

Bloom’s: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking

167) Significant investing and financing activities that do not affect cash.

Difficulty: 2 Medium

Topic: Classification of Transactions; Basic Steps and Formatting of the Statement of Cash

Flows; Operating Activities – Indirect Method; Investing Activities; Financing Activities; Analysis

– Cash Return on Assets; Analysis – Components of Cash Return on Assets; Operating Activities –

Direct Method

Learning Objective: 11-01 Classify cash transactions as operating, investing, or financing

activities.; 11-02 Understand the steps and basic format in preparing the statement of cash flows.;

11-03 Prepare the operating activities section of the statement of cash flows using the indirect

method.; 11-04 Prepare the investing activities section of the statement of cash flows.; 11-05

Prepare the financing activities section of the statement of cash flows.; 11-06 Perform financial

analysis using the statement of cash flows.; 11-07 Prepare the operating activities section of the

statement of cash flows using the direct method.

Bloom’s: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking

74

168) Sales revenue divided by average total assets; measures the sales revenue generated per dollar

of assets.

Difficulty: 2 Medium

Topic: Classification of Transactions; Basic Steps and Formatting of the Statement of Cash

Flows; Operating Activities – Indirect Method; Investing Activities; Financing Activities; Analysis

– Cash Return on Assets; Analysis – Components of Cash Return on Assets; Operating Activities –

Direct Method

Learning Objective: 11-01 Classify cash transactions as operating, investing, or financing

activities.; 11-02 Understand the steps and basic format in preparing the statement of cash flows.;

11-03 Prepare the operating activities section of the statement of cash flows using the indirect

method.; 11-04 Prepare the investing activities section of the statement of cash flows.; 11-05

Prepare the financing activities section of the statement of cash flows.; 11-06 Perform financial

analysis using the statement of cash flows.; 11-07 Prepare the operating activities section of the

statement of cash flows using the direct method.

Bloom’s: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking

169) Includes cash receipts and cash payments for transactions relating to revenue and expense

activities.

Difficulty: 2 Medium

Topic: Classification of Transactions; Basic Steps and Formatting of the Statement of Cash

Flows; Operating Activities – Indirect Method; Investing Activities; Financing Activities; Analysis

– Cash Return on Assets; Analysis – Components of Cash Return on Assets; Operating Activities –

Direct Method

Learning Objective: 11-01 Classify cash transactions as operating, investing, or financing

activities.; 11-02 Understand the steps and basic format in preparing the statement of cash flows.;

11-03 Prepare the operating activities section of the statement of cash flows using the indirect

method.; 11-04 Prepare the investing activities section of the statement of cash flows.; 11-05

Prepare the financing activities section of the statement of cash flows.; 11-06 Perform financial

analysis using the statement of cash flows.; 11-07 Prepare the operating activities section of the

statement of cash flows using the direct method.

Bloom’s: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking

75

170) Net cash flows from operating activities divided by average total assets; measures the

operating cash flow generated per dollar of assets.

Difficulty: 2 Medium

Topic: Classification of Transactions; Basic Steps and Formatting of the Statement of Cash

Flows; Operating Activities – Indirect Method; Investing Activities; Financing Activities; Analysis

– Cash Return on Assets; Analysis – Components of Cash Return on Assets; Operating Activities –

Direct Method

Learning Objective: 11-01 Classify cash transactions as operating, investing, or financing

activities.; 11-02 Understand the steps and basic format in preparing the statement of cash flows.;

11-03 Prepare the operating activities section of the statement of cash flows using the indirect

method.; 11-04 Prepare the investing activities section of the statement of cash flows.; 11-05

Prepare the financing activities section of the statement of cash flows.; 11-06 Perform financial

analysis using the statement of cash flows.; 11-07 Prepare the operating activities section of the

statement of cash flows using the direct method.

Bloom’s: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking

171) A summary of cash inflows and cash outflows during the reporting period sorted by

operating, investing, and financing activities.

Difficulty: 2 Medium

Topic: Classification of Transactions; Basic Steps and Formatting of the Statement of Cash

Flows; Operating Activities – Indirect Method; Investing Activities; Financing Activities; Analysis

– Cash Return on Assets; Analysis – Components of Cash Return on Assets; Operating Activities –

Direct Method

Learning Objective: 11-01 Classify cash transactions as operating, investing, or financing

activities.; 11-02 Understand the steps and basic format in preparing the statement of cash flows.;

11-03 Prepare the operating activities section of the statement of cash flows using the indirect

method.; 11-04 Prepare the investing activities section of the statement of cash flows.; 11-05

Prepare the financing activities section of the statement of cash flows.; 11-06 Perform financial

analysis using the statement of cash flows.; 11-07 Prepare the operating activities section of the

statement of cash flows using the direct method.

Bloom’s: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking

76

172) Net cash flows from operating activities divided by sales revenue; measures the operating

cash flow generated per dollar of sales.

Difficulty: 2 Medium

Topic: Classification of Transactions; Basic Steps and Formatting of the Statement of Cash

Flows; Operating Activities – Indirect Method; Investing Activities; Financing Activities; Analysis

– Cash Return on Assets; Analysis – Components of Cash Return on Assets; Operating Activities –

Direct Method

Learning Objective: 11-01 Classify cash transactions as operating, investing, or financing

activities.; 11-02 Understand the steps and basic format in preparing the statement of cash flows.;

11-03 Prepare the operating activities section of the statement of cash flows using the indirect

method.; 11-04 Prepare the investing activities section of the statement of cash flows.; 11-05

Prepare the financing activities section of the statement of cash flows.; 11-06 Perform financial

analysis using the statement of cash flows.; 11-07 Prepare the operating activities section of the

statement of cash flows using the direct method.

Bloom’s: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking

173) Includes cash transactions resulting from the external financing of a business.

Difficulty: 2 Medium

Topic: Classification of Transactions; Basic Steps and Formatting of the Statement of Cash

Flows; Operating Activities – Indirect Method; Investing Activities; Financing Activities; Analysis

– Cash Return on Assets; Analysis – Components of Cash Return on Assets; Operating Activities –

Direct Method

Learning Objective: 11-01 Classify cash transactions as operating, investing, or financing

activities.; 11-02 Understand the steps and basic format in preparing the statement of cash flows.;

11-03 Prepare the operating activities section of the statement of cash flows using the indirect

method.; 11-04 Prepare the investing activities section of the statement of cash flows.; 11-05

Prepare the financing activities section of the statement of cash flows.; 11-06 Perform financial

analysis using the statement of cash flows.; 11-07 Prepare the operating activities section of the

statement of cash flows using the direct method.

Bloom’s: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking

77

174) Includes cash transactions involving the purchase and sale of long-term assets and current

investments.

Difficulty: 2 Medium

Topic: Classification of Transactions; Basic Steps and Formatting of the Statement of Cash

Flows; Operating Activities – Indirect Method; Investing Activities; Financing Activities; Analysis

– Cash Return on Assets; Analysis – Components of Cash Return on Assets; Operating Activities –

Direct Method

Learning Objective: 11-01 Classify cash transactions as operating, investing, or financing

activities.; 11-02 Understand the steps and basic format in preparing the statement of cash flows.;

11-03 Prepare the operating activities section of the statement of cash flows using the indirect

method.; 11-04 Prepare the investing activities section of the statement of cash flows.; 11-05

Prepare the financing activities section of the statement of cash flows.; 11-06 Perform financial

analysis using the statement of cash flows.; 11-07 Prepare the operating activities section of the

statement of cash flows using the direct method.

Bloom’s: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking

175) Adjusts the items on the income statement to show items such as cash received from

customers, and cash paid for inventory, salaries, rent, interest, and taxes.

Difficulty: 2 Medium

Topic: Classification of Transactions; Basic Steps and Formatting of the Statement of Cash

Flows; Operating Activities – Indirect Method; Investing Activities; Financing Activities; Analysis

– Cash Return on Assets; Analysis – Components of Cash Return on Assets; Operating Activities –

Direct Method

Learning Objective: 11-01 Classify cash transactions as operating, investing, or financing

activities.; 11-02 Understand the steps and basic format in preparing the statement of cash flows.;

11-03 Prepare the operating activities section of the statement of cash flows using the indirect

method.; 11-04 Prepare the investing activities section of the statement of cash flows.; 11-05

Prepare the financing activities section of the statement of cash flows.; 11-06 Perform financial

analysis using the statement of cash flows.; 11-07 Prepare the operating activities section of the

statement of cash flows using the direct method.

Bloom’s: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking

176) For each of the following ten transactions, indicate by letter whether the cash effect of each

transaction is reported in a statement of cash flows as an operating (O), investing (I), financing (F),

or noncash (NC) activity. Also, indicate whether the transaction is a cash inflow (CI), cash outflow

(CO), or no effect on cash (NE). The first answer is provided as an example.

Type of

Activity

Cash Inflow

or Outflow

Transaction

O

CO

Payment of employee salaries

1. Issuance of bonds

2. Payment of income taxes

3. Payment of a long-term note payable

4. Sale of treasury stock

5. Payment of an account payable

6. Sale of land for cash

7. Purchase of long-term assets by issuing debt

8. Collection of an account receivable

9. Issuance of common stock

10. Purchase of inventory

Type of

Activity

Cash Inflow

or Outflow

Transaction

O

CO

Payment of employee salaries

1. Issuance of bonds

O

CO

2. Payment of income taxes

CO

3. Payment of a long-term note payable

4. Sale of treasury stock

O

CO

5. Payment of an account payable

6. Sale of land for cash

NC

NE

7. Purchase of long-term assets by issuing debt

O

8. Collection of an account receivable

9. Issuance of common stock

O

CO

10. Purchase of inventory

177) For each of the following five transactions, indicate by letter whether the cash effect of each

transaction is reported in a statement of cash flows as an operating (O), investing (I), financing (F),

or noncash (NC) activity.

Type of

Activity

Transaction

1. Investment in bonds

2. Payment of interest on bonds payable

3. Payment of a cash dividend

4. Purchase of a building

5. Collection of a note receivable

Activity

Transaction

1. Investment in bonds

2. Payment of interest on bonds payable

3. Payment of a cash dividend

4. Purchase of a building

5. Collection of a note receivable

178) For each of the following five transactions, indicate by letter whether the cash effect of each

transaction is reported in a statement of cash flows as an operating (O), investing (I), financing (F),

or noncash (NC) activity.

Type of

Activity

Transaction

1. Issuance of common stock

2. Sale of land for cash

3. Purchase of treasury stock

4. Collection of an account receivable

5. Issuance of a note payable

Activity

Transaction

1. Issuance of common stock

2. Sale of land for cash

3. Purchase of treasury stock

4. Collection of an account receivable

5. Issuance of a note payable