64) Which of the following is not true regarding cash flows?
A) Operating activities include the payment of dividends.
B) Investing activities involve long-term investments.
C) Financing activities involve long-term liabilities and equities.
D) Purchasing a building with a note is considered a noncash activity.
65) Dividends received from an investment is classified as a(n) ________ cash flow, and paying
dividends on stock issued is classified as a(n) ________ cash flow on the Statement of Cash Flows.
A) Operating; Operating
B) Operating; Financing
C) Financing; Operating
D) Investing; Financing
66) The collection of cash from customers would be classified as which type of cash flow on the
Statement of Cash Flows?
A) Financing.
B) Investing.
C) Operating.
D) Not reported on the statement of cash flows.
67) Arrow Printers paid $2,000 interest on short-term notes payable, $10,000 interest on long-term
bonds, and $6,000 in dividends on its common stock. Arrow would report cash outflows from
activities, as follows:
A) Operating, $2,000; Financing, $16,000.
B) Operating, $0; Financing, $18,000.
C) Operating, $12,000; Financing, $6,000.
D) Operating, $18,000; Financing, $0.
68) The Statement of Cash Flows:
A) Lists all cash flows over the life of a company.
B) Breaks down all cash transactions into investing and financing cash flows.
C) Shows that the change in total cash from one year to the next is equal to the net operating,
investing, and financing cash flows.
D) Has two methods for investing cash flows—direct and indirect.
69) The balance of cash reported in the balance sheet this year minus the balance of cash reported
in the balance sheet last year equals:
A) Net cash flows from operating activities only.
B) Net income.
C) Net cash flows from operating, investing, and financing activities.
D) Net cash flows from financing activities only.
70) The indirect and direct methods:
A) Are used by companies about equally in actual practice.
B) Affect the presentations of operating, investing, and financing activities.
C) Arrive at different amounts for net cash flows from operating activities.
D) Are two allowable methods to present operating activities in the statement of cash flows.
71) In the operating activities section of the statement of cash flows, we start with net income when
using:
A) The direct method.
B) The indirect method.
C) Both the direct and the indirect method.
D) Neither the direct nor the indirect method.
72) We can identify operating activities from income statement information and changes in:
A) Long-term asset accounts.
B) Long-term liability accounts.
C) Current asset and current liability accounts.
D) Stockholders’ equity accounts.
73) Operating cash flows can be described as:
A) Change in total cash for the year.
B) Purchase and sale of long-term assets.
C) Cash-basis net income.
D) Total revenues minus total expenses.
74) In preparing a statement of cash flows under the indirect method, a decrease in accounts
receivable would be reported as a(n):
A) Addition to net income in the operating activities section.
B) Deduction from net income in the operating activities section.
C) Financing activity.
D) Investing activity.
75) In preparing a statement of cash flows under the indirect method, an increase in accounts
payable would be reported as a(n):
A) Addition to net income in the operating activities section.
B) Deduction from net income in the operating activities section.
C) Financing activity.
D) Investing activity.
76) Which of the following is not a correct practice when adjusting net income to net operating
cash flows?
A) Subtract depreciation expense.
B) Add losses on sales of assets.
C) Subtract increase in Accounts Receivable.
D) Add increase in Accounts Payable.
77) Which of the following is added to net income as an adjustment under the indirect method of
preparing the statement of cash flows?
A) Salaries payable increase.
B) Gain on the sale of land.
C) Inventory increase.
D) Accounts receivable increase.
78) Which of the following is subtracted from net income as an adjustment under the indirect
method of preparing the statement of cash flows?
A) Gain on the sale of land.
B) Accounts receivable decrease.
C) Inventory decrease.
D) Salaries payable increase.
79) Consider the following items:
(a) Decrease in accounts receivable
(f) Gain on the sale of equipment
(b) Issuance of common stock
(g) Depreciation expense
(c) Increase in interest receivable
(h) Payment of dividends
(d) Purchase of land
(i) Decrease in utilities payable
(e) Decrease in accounts payable
(j) Increase in inventory
How many of these items would be added to net income when using the indirect method to prepare
the operating activities section of the statement of cash flows?
A) 2
B) 4
C) 1
D) 3
80) Consider the following items:
(a) Decrease in accounts receivable
(f) Gain on the sale of equipment
(b) Issuance of common stock
(g) Depreciation expense
(c) Increase in interest receivable
(h) Payment of dividends
(d) Purchase of land
(i) Decrease in utilities payable
(e) Decrease in accounts payable
(j) Increase in inventory
How many of these items would be subtracted from net income when using the indirect method to
prepare the operating activities section of the statement of cash flows?
A) 5
B) 4
C) 1
D) 2
81) Which of the following is subtracted from net income as an adjustment under the indirect
method of preparing the statement of cash flows?
A) Salaries payable decrease.
B) Inventory decrease.
C) Depreciation expense.
D) Accounts receivable decrease.
82) Which of the following is not subtracted from net income as an adjustment under the indirect
method of preparing the statement of cash flows?
A) Depreciation expense.
B) Interest receivable increase.
C) Increase in inventory.
D) Salaries payable decrease.
83) Given the items below, which of the following is a subtraction from net income to arrive at
operating cash flows using the indirect method?
I. Loss on sale of assets
II. Increase in Supplies
III. Increase in Accounts Payable
IV. Depreciation expense
A) II. only.
B) IV. only.
C) I. and II.
D) II. and III.
84) Given the items below, which of the following is an addition to net income to arrive at
operating cash flows using the indirect method?
I. Loss on sale of assets
II. Increase in Supplies
III. Increase in Accounts Payable
IV. Increase in Accounts Receivable
A) I. and III.
B) I. only.
C) III. and IV.
D) II. and III.
85) Rachel’s Recordings reported net income of $200,000. Beginning balances in Accounts
Receivable and Accounts Payable were $15,000 and $20,000, respectively. Ending balances in
these accounts were $12,000 and $22,000, respectively. Assuming that all relevant information
has been presented, Rachel’s net cash flows from operating activities would be:
A) $200,000.
B) $195,000.
C) $205,000.
D) $199,000.
86) Mary’s Music Store reported net income of $135,000. Beginning balances in Accounts
Receivable and Accounts Payable were $29,000 and $26,000, respectively. Ending balances in
these accounts were $30,000 and $24,000, respectively. Assuming that all relevant information
has been presented, Mary’s net cash flows from operating activities would be:
A) $132,000.
B) $134,000.
C) $136,000.
D) $138,000.
87) Kela Corporation reports net income of $450,000 that includes depreciation expense of
$70,000. Also, cash of $50,000 was borrowed on a five-year note payable. Based on this data, total
cash inflows from operating activities are:
A) $380,000.
B) $470,000.
C) $520,000.
D) $570,000.
88) Assume net income was $100,000, depreciation expense was $8,000, accounts receivable
decreased by $7,500, and accounts payable decreased by $2,500. The amount of net cash flows
from operating activities is:
A) $103,000.
B) $100,000.
C) $108,000.
D) $113,000.
89) Innovative Products reported net income of $205,000. Beginning and ending Inventory
balances were $40,000 and $45,000, respectively. Accounts Payable balances at the beginning and
end of the year were $35,000 and $33,000, respectively. Assuming that all relevant information
has been presented, the company would report net operating cash flows of:
A) $202,000.
B) $198,000.
C) $212,000.
D) $205,000.
90) Lenses Laboratories’ net income was $250,000. Given the account information below, what is
the net cash flows from operating activities for Lenses Laboratories?
Increase in Accounts Receivable
$
60,000
Increase in Salaries Payable
$
50,000
Decrease in Inventory
$
30,000
Depreciation Expense
$
45,000
Increase in Prepaid Insurance
$
3,000
A) $152,000.
B) $278,000.
C) $312,000.
D) $438,000.
Net income
$
205,000
from operating activities
Depreciation Expense:
45,000
Increase in Accounts Receivable
(60,000
)
Decrease in Inventory
30,000
Increase in Prepaid insurance
)
Increase in Salaries Payable
50,000
Net Cash Flows from Operating Activities
$
312,000
91) Servo Industries’ net income was $300,000. Given the account information below, what is the
net cash flows from operating activities for Servo Industries?
Decrease in Accounts Receivable
$
50,000
Decrease in Salaries Payable
$
75,000
Decrease in Inventory
$
20,000
Depreciation Expense
$
35,000
Increase in Interest Payable
$
7,000
A) $487,000.
B) $323,000.
C) $337,000.
D) $237,000.
Net income
$
300,000
from operating activities
Depreciation Expense
35,000
Decrease in Accounts Receivable
50,000
Decrease in Inventory
20,000
Increase in Interest Payable
Decrease in Salaries Payable
(75,000
)
Net Operating Cash Flows from Operating Activities
$
337,000
92) Laser World’s income statement reported total revenues of $850,000 and total expenses
(including $40,000 depreciation) of $720,000. The balance sheet reported the following: Accounts
Receivable—beginning balance, $50,000 and ending balance, $60,000; Accounts
Payable—beginning balance, $22,000 and ending balance, $28,000. Therefore, based only on this
information, the net cash flows from operating activities were:
A) $126,000.
B) $166,000.
C) $174,000.
D) $186,000.
93) Assuming net income for the year is $115,000, what is the net cash flows from operating
activities given the following information:
Increase in Salaries Payable
$
15,000
Depreciation Expense
$
6,000
Increase in Prepaid Rent
$
24,000
Loss on sale of asset
$
1,000
Increase in Accounts Payable
$
25,000
Increase in Inventory
$
50,000
A) $112,000.
B) $88,000.
C) $118,000.
D) $188,000.
Net income
$
from operating activities:
Depreciation Expense
Loss on sale of asset
Increase in Prepaid Rent
(24,000
)
Increase in Inventory
(50,000
)
Increase in Accounts Payable
Increase in Salaries Payable
Net Operating Cash Flows from Operating Activities
$
94) Which of the following statements is true?
A) Investment in another company’s common stock is classified as a cash outflow from financing
activities in the statement of cash flows.
B) Repayment of long-term debt is classified as a cash outflow from investing activities in the
statement of cash flows.
C) Losses on the sale of long-term assets are an adjustment reported in the operating activities
section of the statement of cash flows under the indirect method.
D) Dividends paid are classified as a cash outflow from operating activities in the statement of
cash flows.
95) Which of the following is an example of a cash outflow from an investing activity?
A) Payment of cash for treasury stock.
B) Payment of cash for the purchase of land.
C) Payment of cash for inventory.
D) Payment on a long-term note payable.
96) Which of the following transactions would generally result in an investing cash inflow?
A) Receive cash from borrowing at the bank.
B) Receive cash from the sale of land.
C) Receive cash from customers.
D) Receive cash from stockholders for the issuance of common stock.
97) Which of the following is an example of a cash inflow from a financing activity?
A) Issuance of bonds.
B) Sale of an intangible asset.
C) Receipt of cash dividends.
D) Purchase of land.
98) ________ is an investing cash flow and ________ is a financing cash flow, as reported in the
Statement of Cash Flows.
A) Issuing bonds; selling investments
B) Purchasing land; repaying a bank loan
C) Receiving cash from the sale of inventory; paying cash dividends
D) Purchasing treasury stock; lending cash to an employee
99) Cash flows from investing activities do not include cash flows from:
A) Lending.
B) The sale of equipment.
C) Borrowing.
D) The purchase of land and buildings.
100) Cash flows from investing activities do not include:
A) Proceeds from the sale of land.
B) Proceeds from the issuance of common stock.
C) Proceeds from the sale of marketable securities.
D) Cash outflows from acquiring land.
101) Cash flows from investing activities include:
A) Proceeds from the issuance of common stock.
B) Cash outflows from acquiring land.
C) Retirement of bonds payable.
D) Interest received.
102) Shively Mfg. Co. sold land costing $10,000 for $12,000. Shively would report:
A) Operating cash inflows of $12,000.
B) Investing cash inflows of $12,000.
C) Financing cash inflows of $12,000.
D) Financing cash inflows of $2,000.
103) Cash flows from financing activities include:
A) Interest received.
B) Interest paid.
C) Dividends received.
D) Cash dividends paid.
104) Cash flows from financing activities do not include:
A) Retirement of bonds payable.
B) Cash dividends paid.
C) Issuance of common stock.
D) Interest received.
105) Sammy’s Pizza had the following financial information for the year as follows ($ in millions):
Net income
$
9,200
Obtain loan from the bank
4,600
Depreciation expense
1,800
Purchase equipment
5,400
Increase in accounts receivable
3,900
Pay dividends
2,200
Increase in salaries payable
1,700
Sale of land
3,500
Sammy’s Pizza would report net cash inflows (outflows) from operating activities in the amount
of:
A) $7,000.
B) $8,800.
C) $6,600.
D) $7,400.