Managerial Accounting, 16e (Garrison)
Chapter 14: Statement of Cash Flows
1) Collecting the principal on a loan to another company would be reported on the investing
activities section of the statement of cash flows.
2) Money received from issuing bonds payable would be included as part of a company’s financing
activities on the statement of cash flows.
3) The collection of a loan made to a supplier would be treated as an investing activity on a
statement of cash flows.
4) Paying taxes to governmental bodies is considered a cash outflow in the operating activities
section on the statement of cash flows.
5) When a company pays cash to repurchase its own common stock, this is reported as a cash
outflow in the financing activities section of the statement of cash flows.
6) When a company pays a supplier for inventory it has purchased, the cash outflow is recorded in
the investing activities section of the statement of cash flows.
7) In the statement of cash flows, collecting cash from customers is treated as a cash inflow in the
financing activities section.
8) Paying wages and salaries to employees is classified as a cash outflow in the operating activities
section of the statement of cash flows.
9) Investing activities on the statement of cash flows generate cash inflows and outflows related to
borrowing from and repaying principal to creditors and completing transactions with the
company’s owners such as selling or repurchasing shares of common stocks and paying dividends.
10) Paying interest to lenders is classified as an operating activity on the statement of cash flows.
11) Cash received from the sale of equipment the company had used in its own operations would
be considered an operating activity on a statement of cash flows.
12) Buying property, plant, or equipment would be reported as a cash outflow on the investing
activities section of the statement of cash flows.
13) Cash payments to repay the principal amount of debt are reported as a cash outflow in the
investing activities section of the statement of cash flows.
14) Cash payments to insurers and utility providers are considered operating activities on the
statement of cash flows.
15) The net cash provided by operating activities on the statement of cash flows does not include
any dividends paid to the company’s own shareholders.
16) Cash equivalents on the statement of cash flows consist of any investment that can be
converted into cash within one year.
17) The statement of cash flows relies on a fundamental principle of double-entry bookkeeping;
namely, the change in the cash balance must equal the change in total liabilities and stockholders’
equity.
18) When computing the net cash provided by operating activities under the indirect method on the
statement of cash flows, an increase in prepaid expenses would be added to net income.
19) Under the indirect method of determining the net cash provided by operating activities on the
statement of cash flows, a decrease in inventory would be added to net income.
20) Under the indirect method of determining the net cash provided by operating activities on the
statement of cash flows, a loss on the sale of an asset would be added to net income.
21) Under the indirect method of determining the net cash provided by operating activities on the
statement of cash flows, an increase in property, plant, and equipment is subtracted from net
income.
22) When computing the net cash provided by operating activities under the indirect method on the
statement of cash flows, a decrease in common stock would be subtracted from net income.
23) Under the indirect method of determining the net cash provided by operating activities on the
statement of cash flows, an increase in accounts receivable would be subtracted from net income.
24) The direct method of preparing the statement of cash flows will show the same increase or
decrease in cash as the indirect method.
25) The amount of depreciation added to net income equals the sum of the debits to the
Accumulated Depreciation account.
26) Free cash flow will increase if a company increases its accounts payable balance by delaying
payments to suppliers.
27) Free cash flow is net cash provided by operating activities less capital expenditures.
28) Negative free cash flow suggests that the company generated enough cash flow from its
operating activities to fund its capital expenditures and dividend payments.
29) Negative free cash flow does not automatically signal poor performance.
30) Free cash flow decreases when a company issues common stock for cash.
31) In a statement of cash flows, the sale of a long-term investment would ordinarily be classified
as:
A) an operating activity.
B) a financing activity.
C) an investing activity.
D) a lending activity.
32) Which one of the following transactions should be classified as a financing activity on the
statement of cash flows?
A) Purchase of equipment.
B) Purchase of the company’s own stock.
C) Sale of a long-term investment.
D) Payment of interest to a lender.
33) In a statement of cash flows, issuing bonds payable affects the:
A) operating activities section.
B) financing activities section.
C) investing activities section.
D) free cash flow activities section.
34) Which of the following would be considered a cash inflow in the financing activities section of
the statement of cash flows?
A) Issuing bonds payable.
B) Receiving cash from customers.
C) Sale of equipment.
D) Collection of a loan made to another company.
35) In a statement of cash flows, a change in an income taxes payable account would be recorded
in the:
A) operating activities section.
B) financing activities section.
C) investing activities section.
D) stockholders’ equity section.
36) Which of the following items would not be classified as an operating activity on the statement
of cash flows?
A) Cash received from customers.
B) Dividends paid to the company’s own stockholders.
C) Payments to government agencies for taxes.
D) Cash paid to compensate employees.
37) In a statement of cash flows, which of the following would be classified as an investing
activity?
A) The sale of the company’s own common stock for cash.
B) The sale of equipment.
C) Interest paid to a lender.
D) The issuance of bonds payable.
38) Which of the following would be classified as a financing activity on the statement of cash
flows?
A) Paying suppliers for inventory purchases.
B) Interest paid to lenders.
C) Lending money to another company.
D) Repurchasing capital stock from owners.
39) Tomlin Corporation prepares its statement of cash flows using the indirect method. Which of
the following would be subtracted from net income in the operating activities section of the
statement?
Increase in
Accounts
Receivable
Decrease in
Accrued
Liabilities
A)
Yes
Yes
B)
Yes
No
C)
No
Yes
D)
No
No
A) Choice A
B) Choice B
C) Choice C
D) Choice D
15
40) Shoshoni Corporation prepares its statement of cash flows using the indirect method. Which of
the following would be added to net income in the operating activities section of the statement?
Increase in
Accounts
Receivable
Decrease in
Accounts
Payable
A)
Yes
Yes
B)
Yes
No
C)
No
Yes
D)
No
No
A) Choice A
B) Choice B
C) Choice C
D) Choice D
41) An increase in accounts receivable of $1,000 over the course of a year would be shown on the
company’s statement of cash flows prepared under the indirect method as:
A) an addition to net income of $1,000 in order to arrive at net cash provided by operating
activities.
B) a deduction from net income of $1,000 in order to arrive at net cash provided by operating
activities.
C) an addition of $1,000 under financing activities.
D) a deduction of $1,000 under financing activities.
42) An increase in accrued liabilities of $1,000 during a year would be shown on the company’s
statement of cash flows prepared under the indirect method as:
A) an addition to net income of $1,000 in order to arrive at net cash provided by operating
activities.
B) a deduction from net income of $1,000 in order to arrive at net cash provided by operating
activities.
C) a deduction of $1,000 under investing activities.
D) an addition of $1,000 under financing activities.
43) When computing the net cash provided by operating activities using the indirect method on the
statement of cash flows, which item below would NOT be added to net income?
A) Depreciation.
B) Loss on the sale of an asset.
C) Decrease in accounts payable.
D) Decrease in prepaid expenses.
44) An increase in the Inventory account from $10,000 at the beginning of the year to $15,000 at
the end of the year would be shown on the statement of cash flows prepared under the indirect
method as:
A) an addition to net income of $5,000 in order to arrive at net cash provided by operating
activities.
B) a deduction from net income of $5,000 in order to arrive at net cash provided by operating
activities.
C) an addition to net income of $15,000 in order to arrive at net cash provided by operating
activities.
D) a deduction from net income of $10,000 in order to arrive at net cash provided by operating
activities.
45) Which of the following would be added to net income in the operating activities section of a
statement of cash flows prepared using the indirect method?
A) an increase in accounts receivable.
B) an increase in prepaid expenses.
C) an increase in accrued liabilities.
D) an increase in property, plant, and equipment.
46) Adah Corporation prepares its statement of cash flows using the indirect method. Which of the
following would be subtracted from net income in the operating activities section of the statement?
Decrease in
Accounts
Receivable
Decrease in
Inventory
A)
Yes
Yes
B)
Yes
No
C)
No
Yes
D)
No
No
A) Choice A
B) Choice B
C) Choice C
D) Choice D
47) Partin Corporation’s cash and cash equivalents consist of cash and marketable securities. Last
year the company’s cash account increased by $31,000 and its marketable securities account
decreased by $22,000. Net cash provided by (used in) operating activities was $108,000. Net cash
provided by (used in) financing activities was $(70,000). Based on this information, the net cash
provided by (used in) investing activities on the statement of cash flows was:
A) $9,000
B) ($29,000)
C) $38,000
D) ($38,000)
48) The following events occurred last year at Dorder Corporation:
Purchase of plant and equipment
$45,000
Sale of long-term investment
$24,000
Dividends received on long-term investments
$9,000
Paid off bonds payable
$12,000
Depreciation expense
$32,000
Based on the above information, the net cash provided by (used in) investing activities for the year
on the statement of cash flows would be:
A) $(21,000)
B) $(12,000)
C) $(32,000)
D) $(69,000)
Investing activities:
Purchase of plant, and equipment
)
Sale of long-term investments
Net cash provided by (used in) investing activities
)