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c. amount of checks outstanding at the end of the period.
d. change in the cash balance for the current period.
48. The acquisition of land by issuing common stock is
a. only reported if the statement of cash flows is prepared using the direct method.
b. a cash transaction that is reported in the investing section in the body of the statement of cash flows.
c. a noncash transaction that is reported in the operating section in the body of the statement of cash flows.
d. a noncash transaction that is disclosed in a supplementary schedule attached to the statement of cash flows.
49. Which of the following is the order of presentation of activities on the statement of cash flows?
a. Operating, investing, financing
b. Marketing, financing, manufacturing
c. Financing, outsourcing, investing
d. Manufacturing, investing, operating
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50. Which of the following activities is an example of a financing activity?
a. The payment of utility bills
b. The collection of sales revenue
c. The sale of investments
d. The purchase of treasury stock
51. Which of the following transactions does not affect cash during a period?
a. increase in amortization expense
b. payment of an accounts payable
c. issuance of bonds
d. purchase of a long-term investment
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52. Which of the following is included in operating activities?
a. An increase in long-term debt
b. An increase in equity
c. An increase in accounts receivable
d. All of these.
53. Which one of the following affects cash during a period?
a. payment of an account payable
b. declaration of a cash dividend
c. write-off of an uncollectible account receivable
d. recording depreciation expense
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54. The most widely used method for calculating operating cash flows is the _____.
a. indirect method
b. accrual method
c. direct method
d. high-low method
55. The difference between the indirect and direct methods of preparing a statement of cash flows is reflected in the:
a. manufacturing activities section.
b. investing activities section.
c. operating activities section.
d. selling activities section.
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56. Which of the following activities include acquiring and selling land?
a. Research activities
b. Investing activities
c. Financing activities
d. Warehouse activities
57. Which of the following activities includes cash flows from acquiring and retiring long-term debt?
a. Selling activities
b. Investing activities
c. Financing activities
d. Manufacturing activities
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58. Which balance sheet accounts are affected by financing activities?
a. current assets and current liabilities.
b. long-term assets.
c. long-term liabilities.
d. intangible assets.
59. The balance sheet accounts affected by operating activities are:
a. current assets and current liabilities.
b. retained earnings and long-term assets.
c. long-term assets and owner’s equity.
d. long-term liabilities and long-term assets.
60. Which of the following investing activities results in a cash inflow?
a. selling treasury stock.
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b. retirement of bonds.
c. disposal of a building.
d. paying cash dividends.
61. The _____ is a financing activity that results in cash inflow.
a. purchase of long-term investments
b. collection of accounts receivable
c. payment of dividends
d. issuance of bonds
62. Tracy Company reported the following information at the end of Year 1 and Year 2:
Year 1 Year 2
Land $ 35,000 $ 90,000
Common Stock 200,000 255,000
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An analysis of the company’s records indicated that there were no cash flow effects resulting from the changes in the two
accounts presented above. How should Tracy report the changes in these accounts on a statement of cash flows?
a. The company should report $55,000 for the acquisition of land as an investing activity and $55,000 for the
issuance of stock as a financing activity.
b. The company should report $55,000 as a noncash investing and financing activity for the acquisition of land by
issuing common stock.
c. The company should report the issuance of common stock to acquire land in the financing activity section with a
net cash flow effect of zero.
d. The company should report the acquisition of land by issuing common stock in the investing activity section with
a net cash flow effect of zero.
63. Which of the following influences the decision of using the direct or the indirect method on a statement of cash flows?
a. Operating activities only
b. Research activities only
c. Financing activities only
d. All of these
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64. Which one of the following items is not necessary in preparing a statement of cash flows?
a. Determine the change in cash.
b. Determine the cash provided by operating activities.
c. Determine cash from financing and investing activities.
d. Determine the cash in all bank accounts.
65. The cash during a period is affected when:
a. a depreciation expense is incurred.
b. a stock dividend is declared.
c. a bad debt expense is written off.
d. a discount is given to creditors.
66. If a company has both an inflow and an outflow of cash related to property, plant, and equipment,
a. the two cash effects can be netted and presented as one item in the investing activities section of the statement of
cash flows.
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b. the cash inflow and the cash outflow should be reported separately in the investing activities section of the
statement of cash flows.
c. the two cash effects can be netted and presented as one item in the financing activities section of the statement of
cash flows.
d. the cash inflow and the cash outflow should be reported in the financing activities section of the statement of cash
flows.
67. An increase in accounts payable is _____ while calculating cash flows from operating activities using indirect method.
a. added to net income
b. deducted from gross income
c. added to earnings before tax
d. deducted from depreciation expense
68. An increase in inventories is _____ while computing cash flows from operating activities using the indirect method.
a. added to selling expense
b. deducted from net income
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c. added to depreciation expense
d. deducted from retained earnings
69. Starting with net income and adjusting it for items that affected reported net income but which did not affect cash is
called the
a. direct method.
b. indirect method.
c. cost-benefit method.
d. working capital method.
70. A depreciation expense is _____ to calculate net cash from operating activities using the indirect method.
a. deducted from gross income
b. added to net income
c. deducted from tax expense
d. added to selling expense
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71. Using the indirect method, patent amortization expense for the period
a. is deducted from net income.
b. has no impact on cash flows.
c. causes cash to decrease.
d. is added to net income.
72. Which of the following is added to net income to compute net cash from operating activities using the indirect
method?
a. A loss on sale of equipment
b. A gain on sale of a long-term investment
c. An increase in accounts receivable
d. An increase in goodwill
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73. Which of the following would be subtracted from net income using the indirect method?
a. an increase in inventories.
b. loss on sale of investments.
c. depreciation expense.
d. a decrease in accounts payable.
74. Which of the following would not be an adjustment to net income using the indirect method?
a. depreciation expense
b. an increase in prepaid expenses
c. amortization expense
d. an increase in land
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75. In calculating cash flows from operating activities using the indirect method, a loss on the sale of equipment will
appear as a(n)
a. subtraction from net income.
b. addition to net income.
c. addition to cash flow from investing activities.
d. subtraction from cash flow from investing activities.
76. Using the indirect method, if equipment is sold at a gain, the
a. sale proceeds received are deducted in the operating activities section.
b. sale proceeds received are added in the operating activities section.
c. amount of the gain is added in the operating activities section.
d. amount of the gain is deducted in the operating activities section.
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77. Which of the following is used in determining the change in cash for a period?
a. An owner’s equity statement
b. A purchase statement
c. Comparative balance sheets
d. Comparative income statements
78. Which of the following would not be needed to determine net cash provided by operating activities?
a. depreciation expense
b. change in accounts receivable
c. payment of cash dividends
d. change in prepaid expenses
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79. Smith and Company reported net income for the current year. Which of the following business transactions would
cause cash from operating activities to be higher than the amount of net income?
a. Cash dividends were paid to stockholders during the year.
b. Depreciation expense was recorded for the year.
c. A bank loan was repaid during the year.
d. Equipment was purchased for cash during the year.
80. Which method of preparing the operating activities section of the statement of cash flows adjusts net income to
remove the effects of deferrals and accruals for revenues and expenses?
a. the direct method
b. the indirect method
c. both direct and indirect methods
d. neither the direct method nor the indirect method
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81. The following items were reported on the balance sheets and income statement for Collin Inc.:
Accounts Receivable, December 31, Year 1 $ 85,000
Accounts Receivable, December 31, Year 2 78,000
Sales, Year 2 750,000
How would the change in accounts receivable be reported in the operating activities section of the statement of cash flows
using the indirect method?
a. as an addition to sales
b. as a deduction from sales
c. as an addition to net income
d. as a deduction from net income
82. The following items were reported on the balance sheets and income statements of Marshall Company:
Accounts payable, December 31, Year 1 $ 42,000
Accounts payable, December 31, Year 2 48,000
Operating expenses 286,000
How would the change in accounts payable be reported in the operating activities section of the statement of cash flows
under the indirect method?
a. as an addition to operating expenses
b. as a deduction from operating expenses
c. as an addition to net income
d. as a deduction from net income
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83. The Star City reported net loss of $50,000. Cash from operating activities
a. will be more than $50,000.
b. will be less than $50,000.
c. will be equal to $50,000.
d. cannot be determined without more information.
84. Upon review of Johnson’s Statement of Cash Flows, the following was noted:
Cash flows from operating activities $15,000
Cash flows from investing activities 80,000
Cash flows from financing activities (60,000)
From this information, the most likely explanation is that Johnson is
a. using cash from operations and selling long-term assets to pay back debt.
b. using cash from operations and borrowing to purchase long-term assets.
c. using its profits to expand growth.
d. using cash from investors to provide for operations.
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85. Upon review of Susan’s Statement of Cash Flows, the following was noted:
Cash flows from operating activities $ 75,000
Cash flows from investing activities (135,000)
Cash flows from financing activities 125,000
From this information, the most likely explanation is that Susan is
a. using cash from operations and selling long-term assets to pay back debt.
b. using cash from operations and borrowing to purchase long-term assets.
c. using its profits to expand growth.
d. using cash from investors to provide for operations.
86. Zinc Company’s net income last year was $60,000, and cash dividends declared and paid to the stockholders were
$20,000. Changes in selected balance sheet accounts for the year appear below:
Increases
(Decreases)
Debit balances:
Accounts receivable $ (5,000)
Inventory (4,000)
Prepaid expenses 8,000
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Credit balances:
Accumulated depreciation 15,000
Accounts payable (6,000)
Accrued liabilities 14,000
Taxes payable 8,000
Bonds payable 50,000
Based solely on this information, net cash flow from operating activities under the indirect method on the statement of
cash flows would be:
a. $54,000.
b. $87,000.
c. $21,000.
d. $92,000.
87. Titanium Company’s net income last year was $25,000, and cash dividends declared and paid to the stockholders were
$10,000. Changes in selected balance sheet accounts for the year appear below:
Increases
(Decreases)
Debit balances:
Accounts receivable $(4,000)
Inventory 8,000
Long-term investments 30,000