CHAPTER 13
Statement of Cash Flows
Summary of Questions by Objectives and Bloom’s Taxonomy
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True-False Statements
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Multiple Choice Questions
31.
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Matching
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Exercises
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Challenge Exercises
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Short-Answer Essays
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13-2 Test Bank to accompany Jiambalvo Managerial Accounting 6th Edition
TRUE-FALSE STATEMENTS
1. For purposes of a statement of cash flows, cash is defined to include cash and investments
such as those in stock of other companies.
2. A firm may have a significant amount of net income, as computed under the accrual basis of
accounting, yet have an insignificant net inflow of cash.
3. A statement of cash flows provides information on cash inflows and outflows for a specified
period of time.
4. Cash equivalents are short-term investments that are highly liquid and can be readily
converted into cash.
5. Cash proceeds from issuing a long-term note payable is classified as an operating activity.
6. Cash used to retire long-term debt that was used to build a new factory is classified as an
investing activity.
7. Cash payments for salaries to employees are classified as an operating activity.
8. Financing activities are presented as the first classification on a statement of cash flows
because a company must first obtain financing when it begins operations before it can
acquire assets to start operations.
9. Financial statement users focus a great deal of attention on cash flows related to operating
activities, because, over the long run, a business must generate positive cash flows from its
profit-oriented activities to be successful.
10. Cash received from customers includes cash from current period sales plus cash from
customer payments on account.
11. Cash paid for interest expense is shown as an operating activity under the direct method.
12. Under the direct method, a gain on the sale of equipment is included in net income and
subtracted in the operating activities section of the statement of cash flows because it is not
a cash flow.
13. The format of a statement of cash flows prepared using the direct method is much like an
income statement prepared on the cash-flow basis.
14. When the indirect method is used, GAAP requires a separate schedule reconciling cash
flows from operating activities to net income.
15. Cost of goods sold less any increase in accounts payable equals cash paid for inventory.
16. A loss on the sale of a building is added to net income in the operating activities section of
the statement of cash flows under the direct method.
17. Cash paid for wages and salaries is determined by adding a decrease in wages payable or
subtracting an increase in wages payable to the amount of wages and salaries expense.
Chapter 13 Statement of Cash Flows 13-3
18. When the direct method of preparing the statement of cash flows is used, the payment of
dividends to stockholders appears in the operating activities section.
19. Proceeds from the sale of equipment is reported as an investing activity when using the
direct method to prepare the statement of cash flows.
20. A decrease in inventory is added to net income when preparing the operating activities
section under the indirect method.
21. Issuing common stock is an investing activity.
22. Depreciation expense is added to net income when determining net cash provided by
operating activities under the indirect method.
23. Under the indirect method of preparing the statement of cash flows, a loss on the sale of
equipment is added to net income in the investing activities section.
24. The presentation of each the three sections of the statement of cash flows will differ when
comparing the format of the direct and indirect methods of preparing the statement of cash
flows.
25. Increases in receivables and prepaid expenses are added to net income to determine cash
provided/(used) by operating activities when using the indirect method.
26. An increase in accounts receivable is subtracted from net income to determine cash
provided/(used) by operating activities when using the indirect method.
27. An increase in accounts payable is added to net income to determine cash provided/(used)
by operating activities when using the indirect method.
28. Both the direct and indirect method yield the same total amount for net cash provided or
used by operating activities.
29. Generally, the most important section of the statement of cash flows is operating activities
because a company is required to have positive cash flows according to GAAP.
30. If cash flows provided by operating activities are a relatively small amount, a company may
offset this problem on a short-term basis by cutting back on capital expenditures or by
borrowing funds or issuing stock.
Answers to True-False
13-4 Test Bank to accompany Jiambalvo Managerial Accounting 6th Edition
MULTIPLE CHOICE
31. What primary information is provided in the statement of cash flows?
A. The amount of profits earned during a period
B. The source and uses of a company’s money
C. Estimates of future cash flows
D. Cash receipts and cash payments of an entity’s profitable activities during a period
32. Which one of the following is an important reason to evaluate a company’s cash flow?
A. Without positive cash flows, a company is unable to recognize a positive net income.
B. Minimum cash balances must be maintained by all companies.
C. Stockholders want to know that the company can generate cash consistent with
earning a reasonable return on their investments.
D. Creditors want to be assured that the company has significant cash inflows from
financing activities.
33. Watley Surf Shop provided the following information for the current year:
Proceeds from sale of equipment $120,000
Dividends paid to stockholders 16,000
Purchase of inventories on account 92,000
Borrowing a long-term loan 60,000
Loan principal payments made 14,000
Interest paid on loan payments 1,000
Purchase of land for cash 65,000
Payment for inventory previously acquired on account 85,000
Cash collected from customers 450,000
How much is the net cash provided/(used) by investing activities during the year?
A. $55,000
B. $115,000
C. $100,000
D. $40,000
34. Watley Surf Shop provided the following information for the current year:
Proceeds from sale of equipment $120,000
Dividends paid to stockholders 16,000
Purchase of inventories on account 92,000
Borrowing a long-term loan 60,000
Loan principal payments made 14,000
Interest paid on loan payments 1,000
Purchase of land for cash 65,000
Payment for inventory previously acquired on account 85,000
Cash collected from customers 450,000
How much is the net cash provided/(used) by financing activities during the year?
A. $29,000
B. ($56,000)
C. ($90,000)
D. $30,000
Chapter 13 Statement of Cash Flows 13-5
35. Randolph Retail reported the following results during 2017:
Cash collected from accounts receivable $56,000
Cash paid to purchase office supplies 2,000
Cash collected from customers for current period sales 98,000
Cash paid for dividends 12,000
Cash paid for inventory acquisitions 87,000
Cash collected from the issuance of common stock 50,000
Cash paid to purchase equipment with a 5-year life 80,000
How much is the company’s net cash provided by operating activities?
A. $23,000
B. $103,000
C. $65,000
D. $53,000
36. Speedy Supermarket reported net income of $24,000 in 2017. No dividends were declared
nor paid during the year. Changes in the selected accounts during the year are:
Increase/(Decrease)
Accounts receivable $16,200
Inventory 11,800
Prepaid expenses (4,000)
Accounts payable 27,300
Salaries payable (3,000)
How much is the company’s net cash provided by operating activities?
A. $24,300
B. $72,300
C. $300
D. $48,300
37. Harnett Enterprises had a net loss of $14,000 in 2017. Dividends of $15,000 were declared
and paid during the year and the company reported depreciation expense of $15,000.
Changes in the following selected accounts occurred during the year:
Increase/(Decrease)
Accounts receivable ($3,000)
Long-term investments 16,000
Interest payable (2,000)
Notes payable 65,000
Property, plant, and equipment 42,000
No property, plant, and equipment items were sold during the year. How much is the
company’s net cash provided/(used) by financing activities?
A. $2,000
B. ($65,000)
C. $50,000
D. ($80,000)
13-6 Test Bank to accompany Jiambalvo Managerial Accounting 6th Edition
38. Harnett Enterprises had a net loss of $14,000 in 2017. Dividends of $15,000 were declared
and paid during the year and the company reported depreciation expense of $15,000.
Changes in the following selected accounts occurred during the year:
Increase/(Decrease)
Accounts receivable ($3,000)
Long-term investments 16,000
Interest payable (2,000)
Notes payable 65,000
Property, plant, and equipment 42,000
No property, plant, and equipment were sold during the year. How much is the company’s
net cash provided (used) by investing activities?
A. $7,000
B. $60,000
C. $18,000
D. ($58,000)
39. Marquette Décor is a merchandiser that operates a small retail store. Comparative balance
sheets for the years ending December 31, 2018 and 2017 and its income statement for
2018 follow:
December 31
Assets
2018
2017
Cash
$ 35,400
$ 45,300
Accounts receivable
11,400
14,500
Merchandise inventories
36,500
34,100
Equipment
90,000
66,000
Accumulated depreciation
(28,600)
(31,400)
Total assets
$144,700
$128,500
Liabilities and Stockholders’ Equity
Accounts payable
$ 14,300
$ 12,500
Income taxes payable
4,500
8,800
Long-term notes payable
16,500
23,000
Common stock, $2 par
88,200
65,300
Retained earnings
21,200
18,900
Total liabilities and stockholders’ equity
$144,700
$128,500
Sales
$224,000
Cost of goods sold
123,000
Depreciation expense
14,000
Other expenses
56,000
Gain on sale of equipment
3,400
Income taxes
16,000
Net income
$ 18,400
During the year, equipment with an original cost of $17,000, and accumulated depreciation
totaling $16,800 was sold for $3,600. Dividends were declared and paid during the year.
How much cash did Marquette collect from customers during the year?
A. $227,100
B. $224,000
C. $235,400
D. $220,900
Chapter 13 Statement of Cash Flows 13-7
40. Marquette Décor is a merchandiser that operates a small retail store. Comparative balance
sheets for the years ending December 31, 2018 and 2017 and its income statement for
2018 follow:
December 31
Assets
2018
2017
Cash
$ 35,400
$ 45,300
Accounts receivable
11,400
14,500
Merchandise inventories
36,500
34,100
Equipment
90,000
66,000
Accumulated depreciation
(28,600)
(31,400)
Total assets
$144,700
$128,500
Liabilities and Stockholders’ Equity
Accounts payable
$ 14,300
$ 12,500
Income taxes payable
4,500
8,800
Long-term notes payable
16,500
23,000
Common stock, $2 par
88,200
65,300
Retained earnings
21,200
18,900
Total liabilities and stockholders’ equity
$144,700
$128,500
Sales
$224,000
Cost of goods sold
123,000
Depreciation expense
14,000
Other expenses
56,000
Gain on sale of equipment
3,400
Income taxes
16,000
Net income
$ 18,400
How much cash did Marquette pay for inventory purchases during the year?
A. $122,400
B. $125,400
C. $123,600
D. $118,800
41. Bath Works had a net loss of $5,100 in 2017. During the year, a gain of $4,000 was
recognized on the sale of fully depreciated equipment that had cost $14,000 and had no
salvage value. Depreciation expense during the year totaled $17,400. Changes in the
following selected accounts occurred during the year:
Increase/(Decrease)
Accounts receivable $6,500
Inventory (3,200)
Interest payable 1,200
Accounts payable (1,000)
Accumulated depreciation 3,400
Notes payable (6,400)
Long-term investments (9,000)
Using the indirect method, how much is the company’s net cash provided(used) by
operating activities?
A. $15,800
B. $9,200
C. $8,800
D. $5,200
13-8 Test Bank to accompany Jiambalvo Managerial Accounting 6th Edition
42. Marquette Décor is a merchandiser that operates a small retail store. Comparative balance
sheets for the years ending December 31, 2018 and 2017 and its income statement for
2018 follow:
December 31
Assets
2018
2017
Cash
$ 35,400
$ 45,300
Accounts receivable
11,400
14,500
Merchandise inventories
36,500
34,100
Equipment
90,000
66,000
Accumulated depreciation
(28,600)
(31,400)
Total assets
$144,700
$128,500
Liabilities and Stockholders’ Equity
Accounts payable
$ 14,300
$ 12,500
Income taxes payable
4,500
8,800
Long-term notes payable
16,500
23,000
Common stock, $2 par
88,200
65,300
Retained earnings
21,200
18,900
Total liabilities and stockholders’ equity
$144,700
$128,500
Sales
$224,000
Cost of goods sold
123,000
Depreciation expense
14,000
Other expenses
56,000
Gain on sale of equipment
3,400
Income taxes
16,000
Net income
$ 18,400
During the year, equipment with an original cost of $17,000, and accumulated depreciation
totaling $16,800 was sold for $3,600. Dividends were declared and paid during the year.
The company uses the indirect method. How much is cash provided/(used) by operating
activities?
A. $27,200
B. $30,600
C. $29,000
D. $30,800
43. Econ Services’ statement of cash flows indicates a $73,000 increase in cash during the
year. The statement also indicates that the company used $42,000 for operating activities
and $89,000 was provided by financing activities. How much was net cash provided/(used)
by investing activities?
A. $204,000
B. ($58,000)
C. $26,000
D. ($47,000)
44. Thomas Electric’s statement of cash flows indicates a $12,000 decrease in cash during the
year. The statement also indicates that $28,000 was provided by operating activities and
$15,000 was used by investing activities. How much is net cash provided/(used) by
financing activities?
A. ($25,000)
B. ($1,000)
C. ($31,000)
D. $42,000
Chapter 13 Statement of Cash Flows 13-9
45. The accounting records of Snapdog Enterprises include the following information:
December 31,
2018 2017
Accounts payable $12,800 $13,200
Accounts receivable 24,000 21,700
The company’s income statement for 2018 appears below.
Sales $280,000
Cost of goods sold 150,000
Depreciation expense 15,000
Other operating expenses 68,000
Loss on sale of plant asset 10,200
Income taxes 24,000
Net income $ 12,800
What amount of net cash provided by operating activities will Snapdog Enterprises report for
2018 using the indirect method?
A. $35,300
B. $25,900
C. $36,100
D. $39,900
46. Kingston Jerk Factory reported the following results for 2017:
December 31
January 1
Property, plant, and equipment
$420,000
$405,000
Accumulated depreciation
(189,000)
(180,000)
Net property, plant, and equipment
$231,000
$225,000
During 2017, the company sold equipment that had an original cost of $39,000 and
accumulated depreciation of $31,000 for $13,000. New equipment was purchased for cash
during the year. How much gain/(loss) will Kingston add or subtract from net income when
preparing the operating activities section of the statement of cash flows using the indirect
method for 2017?
A. Subtract $5,000
B. Add $2,000
C. Subtract $26,000
D. There is not enough information provided to answer this question.
13–10 Test Bank to accompany Jiambalvo Managerial Accounting 6th Edition
47. Kingston Jerk Factory reported the following results for 2017:
December 31
January 1
Property, plant, and equipment
$420,000
$405,000
Accumulated depreciation
(189,000)
(180,000)
Net property, plant, and
equipment
$231,000
$225,000
During 2017, the company sold equipment that had an original cost of $39,000 and
accumulated depreciation of $31,000 for $13,000. New equipment was purchased for cash
during the year. How much is reported for cash paid to acquire property, plant, and
equipment on the statement of cash flows for 2017?
A. $5,000
B. $54,000
C. $28,000
D. There is not enough information provided to answer this question.
48. In 2017, Maxi Office Supplies sold a plant asset that had an original cost of $54,000 and
accumulated depreciation of $28,000 for $15,000 in cash. Which one of the following is one
item to be reported on the statement of cash flows prepared using the indirect method?
A. An addition to net income in the operating activities section for $11,000
B. A subtraction from net income in the operating activities section for $11,000
C. A source of cash of $15,000 in the financing activities section
D. A use of cash in the investing activities section for $26,000
49. Limon Grill’s balance in retained earnings was $87,000 at the beginning of the year and
$92,000 at the end of the year. If the company declared and paid dividends of $26,000
during the year, how much was net income/(loss) for the year?
A. $5,000
B. $31,000
C. $21,000
D. ($5,000)
50. During 2017, Lance Chips sold equipment that had an original cost of $143,000 and
accumulated depreciation of $110,000, for cash totaling $25,000. Which one of the following
is one effect of this transaction on the statement of cash flows if the indirect method is used?
A. An addition to net income in the operating activities section for $25,000
B. An addition to net income of $8,000 in the operating activities section
C. A subtraction of $33,000 in the investing activities section
D. An addition of $8,000 in the investing activities section
51. First National Eatery prepares its statement of cash flows using the indirect method. The
statement reported that cash provided by operating activities for the year was $7,000. If the
company experienced a $14,000 decrease in accounts receivable, a $13,000 decrease in
accounts payable, and a $4,000 increase in inventory during the year, how much is the
company’s net income/(loss) for the year?
A. ($3,000)
B. $4,000
C. ($16,000)
D. $2,000
Chapter 13 Statement of Cash Flows 13-11
52. Kermit Productions purchased $44,000 worth of stock in the Enterprise Company in 2017. In
2017, the stock was sold for $87,000. Which one of the following is one effect of this
transaction on the statement of cash flows if the indirect method is used during 2017?
A. An addition of $43,000 in the investing activities section
B. A subtraction of $43,000 in the investing activities section
C. A subtraction from net income of $43,000 in the operating activities section
D. An addition to net income of $87,000 in the operating activities section
53. Which is the most important item in a company’s statement of cash flows?
A. Positive operating cash flows
B. Positive operating, investing, and financing cash flows
C. Positive operating and investing cash flows
D. Positive operating and financing cash flows
54. In addition to cash flows that occurred during the period, which of the following amounts
listed below appear on the statement of cash flows prepared using the direct method?
I. Beginning balance of cash and cash equivalents
II. Ending balance of cash and cash equivalents
III. Net income
A. I and II
B. II and III
C. I and III
D. I, II, and III
55. During 2017, Thomas Windows completed the following transactions:
• Purchased equipment for $41,000 cash that will be depreciated over a 10-year
life
• Sold equipment that had an original cost of $46,000 and accumulated
depreciation of $43,000 for $7,000 cash
The January 1, 2017 balance in the accumulated depreciation account was $134,000 and
the December 31, 2017 balance was $145,000. How much depreciation expense will
Thomas Windows report on the company’s 2017 statement of cash flows if the indirect
method is used?
A. $32,000
B. $54,000
C. $14,000
D. $57,000
56. Natural Market’s statement of cash flows showed the following totals:
Cash for operating activities ($45,000)
Cash from financing activities 32,000
Cash from investing activities 28,000
Which statement most likely explains what occurred during the year?
A. Natural Market is using cash from operations and borrowing money from the bank to
buy long-term assets.
B. Natural Market is using its profits in order to sell plant assets and repay debt.
C. Natural Market is using cash from the sale of long-term assets to fund its operations
and to repay debt.
D. Natural Market is selling long-term assets and borrowing cash to fund operations.
13–12 Test Bank to accompany Jiambalvo Managerial Accounting 6th Edition
57. How is cash paid for interest on a mortgage classified on a statement of cash flows?
A. As an investing activity
B. As an operating activity
C. As a financing activity
D. As a receiving activity
58. If a company sells equipment with accumulated depreciation totaling $4,200 and an original
cost of $5,100, for a loss of $400, what amount will appear in the investing activities section
of the statement of cash flows?
A. $500 inflow
B. $400 inflow
C. $900 inflow
D. $4,700 inflow
59. How is the repurchase of a company’s own stock classified on the statement of cash flows?
A. As an investing activity
B. As an operating activity
C. As a financing activity
D. As a non-cash activity
60. How is the payment of previously accrued salaries reported on the statement of cash flows?
A. As an investing activity
B. As an operating activity
C. As a financing activity
D. As a non-cash activity
61. Which one of the following is not a use of cash?
A. The payment of a loan of which was borrowed in order to purchase a factory
B. The issuance of a stock dividend
C. Payments to suppliers
D. A payment to reduce long-term debt
62. Which one of the following is a cash inflow reported in the operating activities section of the
statement of cash flows?
A. The issuance of common stock
B. The issuance of a long-term note payable
C. The collection of accounts receivable
D. The payment for raw materials
63. Which section(s) of the statement of cash flows is(are) identical under both the direct and
indirect methods?
A. The operating activity section
B. The investing and financing activity sections
C. The financing and operating activity sections
D. The operating, investing, and financing activity sections
Chapter 13 Statement of Cash Flows 13-13
64. Race World reported credit sales of $445,000, ending accounts receivable of $41,500, and
beginning accounts receivable of $33,500. What is the amount of cash collected from
customers?
A. $486,500
B. $453,000
C. $411,500
D. $437,000
65. Under the indirect method of preparing the statement of cash flows, an increase in
inventories is deducted from net income to calculate cash provided or used by operating
activities because
A. cash payments to customers were less than the inventory purchases made during
the period.
B. cash paid to acquire inventory was greater than cost of goods sold by the amount
that inventories increased.
C. cash payments to customers were larger than the inventory purchases made during
the period.
D. inventory purchases were less than the cost of goods sold by the amount that
inventories increased.
66. Why is a decrease in accounts receivable added to net income when determining cash
provided by operating activities?
A. Cash collections from customers were greater than the sales generated.
B. Cash collections increased due to an increase in sales.
C. Cash collections decreased due to a decline in sales.
D. Cash collections from customers were less than the sales reported.
67. Handley Mowers prepares its statement of cash flows using the indirect method. The
following information was taken from its income statement and balance sheet for 2017:
Net loss ($6,000)
Increase in accounts receivable 2,400
Depreciation expense 3,500
Decrease in accounts payable 800
Loss on sale of investments 1,300
Payment of dividends 1,500
How much is cash provided/(used) by operating activities?
A. $4,400
B. ($2,900)
C. ($4,400)
D. ($7,600)
68. Which of the following is added to net income under the indirect method of determining cash
provided/(used) by operating activities?
A. Gain on the sale of equipment
B. Increase in notes payable
C. Increase in inventory
D. Decrease in prepaid rent
13–14 Test Bank to accompany Jiambalvo Managerial Accounting 6th Edition
69. When preparing the operating activities section of a statement of cash flows using the
indirect method, various adjustments are needed. Which of the following adjustments is
incorrectly stated?
A. Deduct any increases in inventories from net income.
B. Deduct any decreases in non-cash current liabilities from net income.
C. Add depreciation and amortization expense to net income.
D. Add any gain on the sale of equipment.
70. In which of the following sections of the statement of cash flows will users find cash flows
that are the most important to the long-run success of a company?
A. Operating activities section
B. Investing activities section
C. Financing activities section
D. Operating, investing, and financing activities
71. Which one of the following is a common use of the statement of cash flows by investors?
A. To determine if the company can generate enough cash to acquire another company
B. To determine if the company can generate enough cash to pay cash dividends to
stockholders
C. To determine if the company can generate enough cash to pay its employees
D. To determine if the company can generate enough cash to buy equipment
72. Which of the following is a cash equivalent?
A. Accounts receivable
B. A one-year note receivable
C. Money market funds
D. An investment in Microsoft’s stock
73. Which of the following is a method that can often be used to offset problems related to cash
flows from operating activities?
A. Reduce capital expenditures
B. Lay off employees
C. Increase payments on short-term notes payable
D. Acquire treasury stock
74. What information is needed to determine cash paid to suppliers?
I. The change in accounts receivable during the period
II. Cost of goods sold for the period
III. The change in inventories during the period
IV. The change in accounts payable during the period
A. I, II, III, and IV
B. I, II, and III
C. II, III, and IV
D. II and III
E. III and IV
Chapter 13 Statement of Cash Flows 13-15
75. In order to be economically viable in the long run, what must a business generate?
A. Negative financing activities, positive investing activities, and positive operating
activities
B. Positive operating activities
C. Positive investing, financing, and operating activities
D. Negative investing and financing activities and positive operating activities
76. Which of the following is not a cash flow included in the investing activities section of the
statement of cash flows?
A. The payment of the principal balance on a long-term loan payable
B. Purchase of another company
C. The proceeds from the sale of a building
D. The collection of a long-term note receivable
77. Which of the following is a cash flow included in the financing activities section of the
statement of cash flows?
A. The payment of interest on notes payable
B. The receipt of dividends from stock investments
C. The making loans to other entities
D. The payment of principal on notes payable
78. Ogden Company uses its accounts payable account only for inventory purchases. The
following account balances were reported on its financial statements:
Accounts
December 31, 2018
December 31, 2017
Merchandise
inventory
$70,000
$66,000
Accounts payable
68,000
65,000
Cost of goods sold
889,000
856,000
How much cash did Ogden Company pay to suppliers during 2018?
A. $887,000
B. $890,000
C. $896,000
D. $34,000
79. How is the receipt of dividends from stock investments reported on the statement of cash
flows?
A. As an investing activity
B. As an operating activity
C. As a financing activity
D. As a non-cash activity
80. Which of the following is reported as an operating activity on the statement of cash flows?
A. Cash payments for income taxes
B. Cash received from the collection of long-term notes receivable
C. Cash paid for dividends to stockholders
D. Cash proceeds from issuing long-term debt
13–16 Test Bank to accompany Jiambalvo Managerial Accounting 6th Edition
81. How are changes in long-term assets that result in cash flows reported on the statement of
cash flows?
A. As investing activities
B. As operating activities
C. As financing activities
D. As non-cash activities
82. Winslow Manor Construction provided the following information during the year:
Proceeds from sale of building $65,000
Cash paid to purchase inventories 22,000
Proceeds from issuing long-term debt 17,000
Dividends paid to stockholders 12,000
Purchase of land for cash 56,000
Cash collected from customers 180,000
How much is the net cash provided(/used) by investing activities during the year?
A. $26,000
B. $14,000
C. $9,000
D. $14,000
83. How are changes in long-term liabilities that result in cash flows reported on the statement
of cash flows?
A. As investing activities
B. As operating activities
C. As financing activities
D. As non-cash activities
84. How is cash received from using a line of credit reported on the statement of cash flows?
A. As an investing activity
B. As an operating activity
C. As a financing activity
D. As a non-cash activity
85. Carriage House Cleaners purchased equipment and paid dividends during the year. Where
do these amounts appear on the statement of cash flows, respectively?
A. Operating activities section, financing activities section
B. Financing activities section, operating activities section
C. Investing activities section, operating activities section
D. Investing activities section, financing activities section
Chapter 13 Statement of Cash Flows 13-17
86. Selected information from the 2018 and 2017 accounting records of Hinley Roofing is
provided below:
December 31,
2018 2017
Net cash provided (used) by operations $38,000 $39,000
Net cash provided (used) by investing activities (22,000) 14,000
Net cash provided (used) by financing activities (15,000) (26,000)
Cash balance at end of year ? 15,000
At the end of 2018, how much is Riddle’s cash balance?
A. $16,000
B. $40,000
C. $28,000
D. $43,000
87. Which of the following activities is not reported as a financing activity on the statement of
cash flows?
A. Borrowing from a bank
B. Paying interest on a long-term note payable
C. Repaying the principal on a loan
D. Issuing common stock for cash
88. Rodgers Chemicals sold a piece of equipment for cash and recognized a gain of $5,000.
The original cost was $34,000 and the accumulated depreciation on the equipment just prior
to the sale totaled $19,000. What amount will Rodgers Chemicals report in the investing
activities section of its statement of cash flows?
A. $20,000
B. $54,000
C. $10,000
D. $15,000
89. Which of the following is reported as an operating activity?
A. Cash payments for income taxes
B. Cash payments for loan principal
C. Cash payments for dividends
D. Proceeds from the sale of a plant asset
90. Which of the following is reported as an investing activity?
A. Depreciation on plant assets
B. Cash payments to acquire new equipment
C. Cash received for the sale of stock to investors
D. Interest received on a money market bank account
91. Which of the following is considered to be a cash flow provided/(used) by financing
activities?
A. Dividends received from stock investments
B. Cash received from customers for amounts due on account
C. Proceeds from issuing common stock
D. Interest paid on short-term notes payable
13–18 Test Bank to accompany Jiambalvo Managerial Accounting 6th Edition
92. To which of the following is the operating activities section of the statement of cash flows
prepared using the direct method most similar?
A. The balance sheet
B. An income statement converted to the accrual basis of accounting
C. An income statement converted to the cash basis of accounting
D. A bank reconciliation
93. Which method of preparing the statement of cash flows is similar to an income statement
prepared on a cash basis?
A. Single-step method
B. Indirect method
C. Multiple-step method
D. Direct method
94. Which of the following is the correct equation to use when calculating cash payments for
income taxes under the direct method?
A. Net income – Decrease in income taxes payable or + Increase in income taxes
payable
B. Net income + Decrease in income taxes payable or – Increase in income taxes
payable
C. Income tax expense – Decrease in income taxes payable or + Increase in income
taxes payable
D. Income tax expense – Decrease in accounts receivable or + Increase in accounts
receivable
95. Which of the following is not added to net income in the operating activities section of the
statement of cash flows prepared using the indirect method?
A. Depreciation expense
B. Amortization expense
C. Gain on sale of equipment
D. Loss on sale of equipment
96. Which of the following describes the nature of the operating activities section of the
statement of cash flows prepared using the indirect method?
A. A reconciliation of cash flows provided/(used) by operating activities and net income
B. An accrual basis format of the income statement
C. A cash basis format of the income statement
D. A reconciliation of the net increase or decrease in cash and cash equivalents
97. Which statement below is correct concerning the majority of companies’ preferences in
preparing the statement of cash flows?
A. Most companies use the direct method.
B. Most companies use the indirect method.
C. About half of public companies use the direct method and the other half use the
indirect method.
D. Most companies use both the direct and indirect methods.
Chapter 13 Statement of Cash Flows 13-19
98. Wally Foods reported cost of goods sold for $100,000 and depreciation expense totaling
$7,000. On January 1, Wally Foods had inventory and accounts payable of $21,000 and
$24,000, respectively. On December 31, inventory and accounts payable were $28,000 and
$20,000, respectively. Net income is $60,000. Beginning accounts receivable was $13,000
and ending was $12,000. How much is reported as net cash provided/(used) by operating
activities?
A. $57,000
B. $65,000
C. $77,000
D. $50,000
99. Which statement is true with respect to the preparation of the ‘cash flows from operating
activities’ section of the statement of cash flows?
A. It is based on accrual income.
B. Operating cash flows are the difference between revenues and expenses.
C. It can be prepared using the direct or indirect methods.
D. Cash payments for depreciation are reported in the operating activities section.
100. The accounting records of Fine Mart Clothing include the following information for the year:
Collections of accounts receivable $124,000
Payments to suppliers 76,000
Accrual of payables at month end 17,000
Credit sales 115,000
Cash sales 35,000
Depreciation expense 12,000
Payment for operating expenses 43,000
What amount of net cash provided by operating activities will Fine Mart Clothing report on its
statement of cash flows for the year?
A. $19,000
B. $31,000
C. $40,000
D. $28,000
101. DR Electric Supply reported interest expense of $6,300 for the year. Interest payable was
$780 and $920 at the beginning and the end of the year, respectively. How much cash did
DR Electric Supply pay for interest during the year?
A. $6,160
B. $6,440
C. $7,080
D. $5,380
13–20 Test Bank to accompany Jiambalvo Managerial Accounting 6th Edition
102. Wellington Cabinets sells its merchandise on account. The company has provided the
following information for 2018 and 2017:
2018 2017
Accounts receivable $ 125,000 $ 132,000
Sales 1,800,000 1,650,000
How much cash did Wellington Cabinets collect from customers during 2018?
A. $1,925,000
B. $1,807,000
C. $1,793,000
D. $157,000
103. The following amounts are taken from Wellington Cabinets’ financial statements:
2017 2018
Merchandise inventory $ 600,000 $ 700,000
Accounts payable 70,000 110,000
Cost of goods sold 3,100,000 4,200,000
The company uses accounts payable only for purchases of merchandise inventory. What
amount of cash did Wellington Cabinets pay to for inventory during 2018?
A. $4,060,000
B. $4,340,000
C. $1,240,000
D. $4,260,000
104. The following amounts were provided by Brighthouse Lighting for the 2017:
Beginning retained earnings $650,000
Ending retained earnings 630,000
Cash provided by operations 2,240,000
Net income for 2017 2,160,000
How much will Brighthouse report on it statement of cash flows for ‘dividends paid’ during
2017?
A. $2,260,000
B. $2,180,000
C. $2,810,000
D. $2,140,000