CHAPTER 17 Statement of Cash Flows
REFER TO: Ref. 17_04
55. The cash flow from investing activities for 2019 is a
a. $200,000 outflow.
b. $400,000 inflow.
c. $400,000 outflow.
d. $600,000 inflow.
56. The dividends actually paid during 2019 are
a. $ 0.
b. $270,000.
c. $300,000.
d. $400,000.
57. The cash flow from financing activities for 2019 is a
a. $200,000 outflow.
b. $400,000 inflow.
CHAPTER 17 Statement of Cash Flows
c. $600,000 inflow.
d. $700,000 inflow.
58. The Pulaski Corporation reported the following for the year ended December 31, 2018:
1/1/18 12/31/18
Premium on Bonds Payable $28,500 $25,750
Interest Payable $ 7,350 $ 9,500
Interest Expense $62,250
How much cash did Pulaski pay for interest during 2018?
a. $57,350
b. $62,850
c. $60,100
d. $67,150
59. The Keweenaw Sunshine Development Corporation reported the following for the year
ended December 31, 2018:
1/1/18 12/31/18
Discount on Bonds Payable $17,500 $15,750
Interest Payable $19,500 $17,350
CHAPTER 17 Statement of Cash Flows
Interest Expense $47,750
How much cash did Keweenaw pay for interest during 2018?
a. $51,650
b. $43,850
c. $48,150
d. $46,350
60. Which of the following transactions would not be reported within the financing activities
section of the cash flow statement?
a. The payment of a cash dividend.
b. An issue of preferred stock in exchange for cash.
c. An issue of common stock in order to retire a bond liability.
d. The payment of cash to acquire shares of common stock to be held as treasury stock.
61. Which of the following transactions would be reported within the financing activities section
of the cash flow statement?
a. An issue of preferred stock in exchange for a parcel of land.
b. The accrual of a cash dividend.
c. The cash payment of interest associated with bonds payable.
d. The sale of treasury stock for cash.
62. Which of the following transactions would be reported within the investing activities section
of the cash flow statement?
a. The cash sale of a building at a loss.
b. The sale of a building in exchange for a parcel of land.
c. The exchange of a stock investment in order to retire a long-term debt.
d. The acquisition of treasury stock in exchange for cash.
63. A building costing $550,000 with accumulated depreciation of $225,000 was sold for
$275,000 cash. Which of the following statements is correct with respect to preparing the cash
flow statement if the indirect method is being used?
a. $50,000 will be added to net income to determine cash flow from operating activities and
$325,000 will be reported as a cash outflow in the investing activities section.
b. $50,000 will be deducted from net income to determine cash flow from operating activities
and $275,000 will be reported as a cash inflow in the investing activities section.
c. $50,000 will be added to net income to determine cash flow from operating activities and
$275,000 will be reported as a cash inflow in the investing activities section.
d. $275,000 will be added to net income to determine cash flow from operating activities and
$325,000 will be reported as a cash outflow in the investing activities section.
64. A company issued 1,000 shares of $10 par value common stock due to a previously declared
stock dividend; the market value at both the date of declaration and distribution was $12 per
share. Which of the following correctly describes the reporting of this stock issue within the
financing activities section of the cash flow statement?
a. A cash outflow of $12,000.
b. A cash outflow of $10,000.
c. A cash outflow of $2,000.
d. There is no cash flow.
65. During 2018, Lang Corporation reported cost of goods sold of $775,000. During the year
inventory decreased $25,000 and accounts payable increased $12,500. How much cash was paid
to suppliers during 2018?
a. $737,500
b. $787,500
c. $762,500
d. $812,500
66. During 2018, Krug Company reported net sales of $1,025,000. During the year net accounts
receivable increased $39,750 even though Krug wrote-off $7,150 of receivables as uncollectible;
Krug uses the allowance method to account for bad debts. Krug’s bad debt expense during 2018
was $20,500. How much cash was collected from customers during 2018?
a. $ 964,750
b. $ 957,600
c. $ 971,900
d. $1,037,100
67. The Superior Real Estate Corporation reported rental income totaling $175,000 for the year
ending December 31, 2018. The following information was obtained from Superior
Corporation’s balance sheets:
1/1/18 12/31/18
Unearned Rent $7,500 $6,750
Rent Receivable $9,250 $6,750
How much cash did Superior collect from its tenants during 2018?
a. $175,750
b. $178,250
c. $176,750
d. $171,750
68. Madrid Incorporated’s 2018 income statement reported income tax expense of $635,375.
During 2018, Madrid’s income taxes payable account increased $19,735 while the deferred tax
asset account increased $39,365. How much cash was paid for taxes during 2018?
a. $615,745
b. $694,475
c. $655,005
d. $576,275
69. Treasury stock costing $89,050 was sold for $94,375 cash. Which of the following
statements accurately describes the reporting of this transaction within the cash flow statement
assuming that the indirect method is used to determine net cash flows from operating activities?
CHAPTER 17 Statement of Cash Flows
a. A gain of $5,325 is deducted from net income and a $94,375 cash inflow is reported within
the investing activities section of the cash flow statement.
b. A gain of $5,325 is deducted from net income and a $94,375 cash inflow is reported within
the financing activities section of the cash flow statement.
c. There is no adjustment necessary to net income but a $94,375 cash inflow is reported
within the financing activities section of the cash flow statement.
d. There is no adjustment necessary to net income but a $94,375 cash inflow is reported
within the investing activities section of the cash flow statement.
70. Investing transactions that do not directly and immediately affect cash are
a. included in the cash flow statement.
b. included on a supplemental schedule to the cash flow statement.
c. reported separately in the cash flow statement.
d. reported separately in the retained earnings statement.
71. Which of the following statements does not accurately describe issues pertaining to
preparation of the cash flow statement?
a. The retirement of a fixed asset that is not fully depreciated resulting in a loss equal to the
retired asset’s book value creates a discrepancy with respect to changes in the balance sheet
relative to what is reported in the investing activities section of the cash flow statement.
b. Simultaneous non-cash financing and investing activities such as the purchase of a building
by incurring a mortgage do not need to be reported within the investing and financing
activities sections of the cash flow statement.
c. Changes in working capital accounts and fixed asset accounts will always have to
correspond with the changes in these accounts within the statement of cash flows.
d. The increase in the fixed asset accounts due only to a translation adjustment resulting from
the fall of the dollar will not create an investing cash flow within the investing activities
section of the cash flow statement.
72. The FASB addressed simultaneous financing and investing activities by requiring they be
a. ignored.
b. reported separately on a supplemental schedule to the cash flow statement.
c. reported on the retained earnings statement.
d. reported separately on the income statement.
73. Which of the following would be included in the statement of cash flows in the financing
activities section?
a. Issuing common stock in exchange for a building.
b. Issuing a new class of common stock.
c. Issuing common stock in exchange for land.
d. Issuing common stock in exchange for equipment will create a cash outflow in the investing
activities section of the cash flow statement and a cash inflow in the financing activities
section of the cash flow statement.
74. Which of the following is not a reason why balance sheet changes do not map directly into
the corresponding account changes in the statement of cash flows?
a. Acquisitions of other companies.
b. Simultaneous noncash financing and investing activities.
c. The effect of “playing the float” on accounts payable balances.
d. Asset write-offs and impairments.
75. Which of the following properly reflects the impact of foreign currency translations on
inventory valuations?
a. The change in inventory value presented in the balance sheet and statement of cash flows
will map directly.
b. Differences in inventory valuation affect only firms using the current rate method of
translation.
c. Differences in inventory valuation affect only firms using the temporal method.
d. Differences in inventory valuation occur under both the current and temporal methods of
translation.
76. Changes in balance sheet accounts from one year to the next may not map directly into the
corresponding account changes in the statement of cash flows. Which of the following items is
not a cause of such mapping differences?
a. Impairment charges
b. Retirement of fixed assets
c. Reclassification of assets held for sale
d. Translation of all company subsidiaries using the temporal method
77. The analyst would most likely understand that the change in the balance sheet account for
property, plant, and equipment does not reconcile with the account change included in the
statement of cash flows because of a write-off due to impairments which the analyst discovered
when examining the
a. notes to the financial statements.
b. balance sheet.
CHAPTER 17 Statement of Cash Flows
c. capital stock account.
d. investments account.
78. When the year-to-year changes in comparative balance sheet accounts do not coincide with
the changes implied from amounts reported on the statement of cash flows, the analyst may find
useful information for reconciliation in notes to the financial statements and the
a. operating activities section of the cash flow statement.
b. capital stock account.
c. balance sheet.
d. investments account.
79. Which of the following is not an indicator that operating activities cash flows might be
increased through distortion or manipulation?
a. A significantly large increase in accounts payable.
b. A significantly large decrease in accounts receivable.
c. A significantly large increase in accrued liabilities.
d. Expensing expenditures that should be capitalized.
80. Which of the following statements does not correctly describe an issue pertaining to the
comparability of the cash flow statement across firms?
a. The proportion of leases treated as operating leases versus finance leases under ASC 842
varies substantially across firms.
CHAPTER 17 Statement of Cash Flows
b. GAAP requires computer software development companies to expense all software
development costs until the software reaches technological feasibility. However, GAAP
does not have any criteria for determining technological feasibility which therefore allows
companies flexibility with respect to this determination.
c. Companies selling their accounts receivable at year-end are distorting their cash flows in
the current year relative to their competitors that do not sell their receivables at year-end.
d. Companies that aggressively manage their working capital can’t easily manage the short–
run appearance of their operating cash flows relative to those companies that do not
aggressively manage their working capital.
81. Which of the following does not accurately describe the presentation of software
development costs on the statement of cash flows?
a. The presentation of software development costs is based upon the determination of
technological feasibility.
b. GAAP contains bright-line criteria for determining technological feasibility which provides
an opportunity for management to distort or manipulate results.
c. Reclassifying software development costs from the investing to the operating section of the
cash flow statement improves interfirm comparability.
d. Reclassifying software development costs undoes the misleading effects for any firm that
attempts to improve operating cash flows by lowering the technological feasibility threshold
in the current period relative to prior periods.
82. Cash flow from operating activities
a. is very comparable across firms within the same industry.
b. is very comparable across all firms reporting under U.S. GAAP.
c. is very comparable across all firms within the same industry regardless of whether they
report under IFRS or U.S. GAAP.
d. may not be comparable across firms.
83. Which of the following does not represent the impact of the use of stock options when
comparing operating cash flows?
a. Firms not using stock options will generally have lower compensation expense and higher
net income.
b. Stock based compensation is a simultaneous operating and financing transaction and must
appear in both sections of the statement of cash flows.
c. Stock based compensation is not presented in the statement of cash flows.
d. Stock based compensation impacts income taxes and that impact is reflected in the statement
of cash flows.
84. Which of the following does not reflect the accounting and impact on the statement of cash
flows for the sale or transfer of accounts receivable?
a. Receivable transfers that are secured borrowings have no effect on operating cash flows.
b. Receivable sales are not reported in the statement of cash flows as they do not represent
collections from the end customers and therefore are not part of operating cash flows.
c. Receivable sales create an operating cash inflow on the cash flow statement.
d. Receivable sales transfer future operating cash flows into the current period.
85. Which of the following statements concerning IFRS and the statement of cash flows is
correct?
a. When large foreign companies that follow IFRS prepare the statement of cash flows they
overwhelmingly use the direct method to prepare the cash flow from operating activities
section.
CHAPTER 17 Statement of Cash Flows
b. IFRS permits companies to classify interest paid, interest received, and dividends received
as part of either investing or operating activities.
c. IFRS rules permits companies that use bank overdrafts repayable on demand as part of
their normal cash management activities to include those amounts as a component of cash
and cash equivalents.
d. IFRS rules require companies that use the direct method to also provide a reconciliation of
net income to cash flows from operating activities (essentially the indirect method).
Use the following to answer questions 86 and 87:
REFERENCE: Ref. 17_05
Autumn Company uses IFRS to prepare its external financial reporting. During 2018, Autumn
Company had the following transactions related to cash flows:
Dividends received
16,000
Interest paid
20,000
Interest received
42,000
[QUESTION]
REFER TO: Ref. 17_05
86. With regard to the above information, which of the following is an acceptable classification
as part of preparation of the statement of cash flows?
Cash from operating activities Cash from/(used by) investing activities
a. $0 $42,000
b. $58,000 ($20,000)
c. $0 $38,000
d. $(20,000) $58,000