College Accounting, 14e (Slater)
Chapter 21 Statement of Cash Flows
21.1 Learning Objective 21-1
1) Cash included on the statement of cash flows can include which of the following?
A) Only money in the bank
B) Only cash on-hand
C) Cash, money market accounts, and government securities
D) None of the above are correct.
2) Which of the following is reported in the statement of cash flows?
A) Net cash flow from managing activities
B) Net cash flow from financing activities
C) Net cash flow from retained earnings activities
D) Net cash flow from start-up activities
3) This statement summarizes the sources and uses of cash by a company during an accounting period.
A) Statement of Retained Earnings
B) Statement of Cash Flows
C) Income Statement
D) Balance Sheet
4) The statement of cash flows provides information about all of the following except:
A) organizing activities.
B) investing activities.
C) operating activities.
D) financing activities.
5) The difference between the direct and indirect methods of computing the cash flow statement occurs in
the:
A) financing activities section.
B) operating activities section.
C) investing activities section.
D) managing activities section.
6) A statement of cash flows’ purpose is to:
A) report the earnings of the company for an accounting period.
B) report the financial condition of the company.
C) report the changes in equity for a company.
D) summarize the sources and uses of cash by a company during an accounting period.
7) An outflow of cash from investing activities would be:
A) the issuance of stock.
B) the sale of investment in equity securities.
C) interest received on loans.
D) the purchase of fixed assets.
8) Activities such as selling merchandise and services to customers and paying salaries and other
expenses needed to continue earning the operating revenue are classified as:
A) Financing activities.
B) Investing activities.
C) Operating activities.
D) Management activities.
9) A cash inflow from a financing activity would be:
A) paying cash dividends.
B) issuing stock or bonds.
C) paying interest on notes payable.
D) making payments for additional inventory.
10) Transactions involving the purchase and sale of fixed assets would be considered:
A) buying and selling activities.
B) financing activities.
C) operating activities.
D) investing activities.
11) When preparing the statement of cash flows by the indirect method, if current assets have increased,
the difference is:
A) added to net income.
B) added to investments.
C) deducted from net income.
D) subtracted from investments.
12) Activities relating to raising money from investors and creditors such as the issuance of common
stock are classified as:
A) Financing activities.
B) Investing activities.
C) Operating activities.
D) Management activities.
13) A ___________ balance sheet lists the financial condition for two or more years in a side–by-side
manner.
A) corresponding
B) derived
C) comparative
D) conclusive
14) If Accounts Receivable decreases on a comparative balance sheet, this means:
A) collections were more than credit sales.
B) credit sales are decreasing.
C) credit sales are increasing more than collections.
D) None of these answers is correct.
15) In the statement of cash flows (indirect method), which event would cause cash flow from operations
to decrease?
A) An increase in Inventory
B) A decrease in Prepaid Insurance
C) An increase in Accounts Payable
D) A decrease in Accounts Receivable
16) Operating cash flow activities deal with which types of accounts?
A) Current liabilities and owner’s equity
B) Current and intangible assets
C) Current assets and current liabilities
D) Current assets and owner’s equity
17) Which of the following is considered a cash inflow?
A) Decrease in Accounts Payable
B) Increase in Accounts Receivable
C) Increase in Prepaid Expenses
D) Decrease in Accounts Receivable
18) Which of the following is considered a cash outflow?
A) Decrease in Accounts Payable
B) Decrease in Supplies
C) Decrease in Prepaid Expenses
D) Decrease in Accounts Receivable
19) Under the indirect method, which of the following is NOT a proper adjustment to net income to
arrive at net cash flow from operations?
A) Adding a decrease in inventory
B) Adding an increase in prepaid expense
C) Adding an increase in salaries payable
D) All are proper adjustments to net income.
20) Which of the following would be included in the net cash flows from operating activities section of a
cash flow statement using the indirect method?
A) Decrease in Accounts Payable
B) Purchase of equipment
C) Decrease in Notes Payable
D) Increase in Notes Payable
21) When comparing net cash provided by operating activities using the indirect versus direct methods:
A) net cash is higher using the indirect method.
B) net cash is lower using indirect method.
C) there is no difference between the two methods.
D) depreciation expense is used in the direct method.
22) Blair Corporation’s Accounts Receivable decreased by $15,000 during the year. What is the adjustment
to the cash flow statement when it is prepared by the indirect method?
A) Subtract the increase from the net income in the operating activities section.
B) Add the increase to the net income in the operating activities section.
C) Add the decrease in the investing activities section.
D) Subtract the increase in the financing activities section.
23) Collins Corporation reported net income of $45,000; depreciation expenses of $20,000; a decrease in
Accounts Payable of $2,000; and an increase in Accounts Receivable of $4,000. Net cash flow from
operating activities using the indirect method is:
A) $65,000.
B) $25,000.
C) $59,000.
D) $71,000.
24) Orion Corporation reported net income of $31,000, depreciation expenses of $18,000, an increase in
Accounts Payable of $3,000 and a decrease in Accounts Receivable of $2,500. Under the indirect method,
net cash flow from operating activities is:
A) $38,300
B) $54,500
C) $23,700
D) $35,300
25) The records of Lily’s Landing showed a purchase of equipment in the amount of $17,100; sale of
equipment in the amount of $41,200; a purchase of land in the amount of $10,400, and a loan to a
borrower in the amount of $4,100. The amount of Net Cash Flow from Investing Activities using the
indirect method is:
A) $9,600.
B) ($9,600).
C) $52,000.
D) $72,800.
26) Big Toy Corporation’s records show net income of $30,000; depreciation expense of $12,000; and cash
dividends declared and paid of $1,000. The amount of cash provided by operating activities using the
indirect method is:
A) $43,000.
B) $42,000.
C) $30,000.
D) $18,000.
27) Sears Inc.’s Net Income was $56,000. Other accounts that changed included: Accounts Receivable
decreased by $25,000; Merchandise Inventory increased by $15,000; Accounts Payable increased by
$4,400; and Salaries Payable increased by $6,200. The amount of Net Cash Flow from Operating Activities
using the indirect method is:
A) $76,600.
B) $81,000.
C) $50,600.
D) $26,600.
28) The records of Aaron Paint Co. showed the issuance of a long-term note in the amount of $15,900;
issuance of Common Stock in the amount of $50,900; and payment of dividends in the amount of $21,100.
The amount of Net Cash Flow from Financing Activities using the indirect method is:
A) $87,900.
B) $45,700.
C) $13,900.
D) $56,100.
29) Which of the following items would be subtracted from Net Income to compute Net Cash Flow from
Operating Activities under the indirect method?
A) A decrease in Prepaid Insurance
B) A decrease in Merchandise Inventory
C) An increase in Salaries Payable
D) A decrease in Accounts Payable
30) The records of Ashley Boutique showed Net Loss, $30,000 Depreciation Expense, $21,000 and
decrease in Supplies on Hand, $25,000. The amount of Net Cash Flow from Operating Activities using the
indirect method is:
A) $34,000.
B) $16,000.
C) -$16,000.
D) -$34,000.
31) The records of Amy’s Flowers showed Net Loss, $20,000; Depreciation Expense, $31,000; and decrease
in Supplies on Hand, $8,000. The amount of Net Cash Flow from Operating Activities using the indirect
method is:
A) ($19,000).
B) $3,000.
C) $19,000.
D) -$3,000.
32) The records of Billie’s Surfboards showed a purchase of equipment in the amount of $24,800; sale of
equipment in the amount of $14,900; and a purchase of land in the amount of $30,500. The amount of Net
Cash Flow from Investing Activities using the indirect method is:
A) $70,200.
B) $9,200.
C) $40,400.
D) ($40,400).
33) The net income reported on the income statement for the current year was $70,000. Depreciation
Expense recorded on fixed assets was $18,000. What is the net cash flow from operations that would
appear on a cash flow statement using the indirect method?
A) $70,000
B) $88,000
C) $18,000
D) $52,000
34) Of the following, which has a positive effect on the computation of cash flow from operations using
the indirect method?
A) Decrease in Inventory
B) Increase in Accounts Payable
C) Increase in Accounts Receivable
D) Increase in Prepaid Insurance
35) Of the following, which has a positive effect on the computation of cash flow from investing using the
indirect method?
A) Decrease in Inventory
B) Increase in Accounts Payable
C) Purchase of Equipment
D) Sale of Equipment
36) Which of the following adjustments would be in error when computing cash from financing using the
indirect method?
A) Increase cash when issuing Common Stock
B) Decrease cash when purchasing Treasury Stock
C) Decrease cash when issuing Common Stock
D) None of the above
37) Of the following, which has a positive effect on the computation of cash flow from operations using
the indirect method?
A) Decrease in Accounts Payable
B) Increase in Inventory
C) Decrease in Notes Payable
D) Depreciation Expense
38) Which of the following adjustments would be in error if made to net income when computing cash
from operations using the indirect method?
A) Add an increase in Accounts Payable
B) Add Depreciation Expense
C) Add an increase in Accounts Receivable
D) None of the above
39) Which of the following adjustments would be in error when computing cash from investing using the
indirect method?
A) Increase cash when purchasing equipment
B) Increase cash when selling equipment
C) Decrease cash when purchasing land
D) None of the above
40) The Accounts Receivable balance has decreased during the year. How would this event affect the
statement of cash flows operations section—indirect method?
A) It is already included in the net income.
B) It would affect the operations section positively.
C) It would affect the operations section negatively.
D) Does not affect the cash flow from operations.
41) The Accounts Payable balance has increased during the year. How would this event affect the
statement of cash flows operations section—indirect method?
A) It is already included in the net income.
B) It would affect the operations section positively.
C) It would affect the operations section negatively.
D) Does not affect the cash flow from operations.
42) How would the issuance of Common Stock affect the statement of cash flows financing section—
indirect method?
A) It would affect the financing section positively.
B) It would affect the financing section negatively.
C) It would increase the investing section of the statement of cash flows.
D) Does not affect the cash flow from financing.
43) How would the purchase of land affect the statement of cash flows investing section—indirect
method?
A) It would affect the investing section positively.
B) It would affect the investing section negatively.
C) It would decrease the operating section of the statement of cash flows.
D) Does not affect the cash flow from investing.
44) Salaries Payable would be reported in the statement of cash flows prepared by the indirect method in:
A) the operating activities section.
B) the financing activities section.
C) the investing activities section.
D) None of the above
45) Of the following, which has a positive effect on the computation of cash flow from financing using the
indirect method?
A) Increase to Dividends
B) Increase in Accounts Payable
C) Issuing Common Stock
D) Sale of Equipment
46) The statement of cash flows can be used for evaluating, comparing, and predicting future cash flows.
47) A change in Accounts Payable is considered an operating activity.
48) The purpose of a cash flow statement is to show the outflows of cash only.
49) Under the indirect method, net income is considered the primary source of cash from financing
activities.
50) Issuing Treasury Stock is considered an investing activity.
51) Selling equipment is considered an investing activity.
52) If a company issues a comparative balance sheet showing the change in the cash balance, a statement
of cash flows is needed.
53) Issuing Common Stock is considered a financing activity.
54) The final cash amount on the statement of cash flows needs to match the cash balance shown on the
balance sheet.
55) Identify each of the following transactions as an operating activity (O), an investing activity (I), a
financing activity (F), or a transaction that is not reported on the statement of cash flows (N).
a) ________ Decrease of supplies
b) ________ Decrease of accounts payable
c) ________ Declaration of cash dividends
d) ________ Purchase of building for cash
e) ________ Increase of accounts receivable
f) ________ Sold plant equipment for cash
g) ________ Borrowed money from a bank
h) ________ Payment on principal of a note
56) Identify where each of the following transactions would be shown on the statement of cash flows
when it is prepared by the indirect method. Identify each transaction as an operating activity (O), an
investing activity (I), a financing activity (F), or transaction that is not reported on the statement of cash
flows (N).
a) ________ Paid for fire insurance in advance
b) ________ Cash used to purchase new computers
c) ________ Cash used to retire bonds outstanding
d) ________ Depreciation expense
e) ________ Cash used to purchase fixed assets
f) ________ Cash proceeds from sale of the company’s own stock
g) ________ Bought back own stock
h) ________ Received cash dividends
57) The following information is given for Tripp Company, which uses the indirect method.
Net income $22,000
Depreciation expense 7,600
Increase in accounts receivable 5,000
Payment of dividends 1,100
Proceeds from sale of equipment 8,000
Increase in accounts payable 4,200
Decrease in inventory 500
From the information provided, answer the following questions:
a) The cash flow from operating activities is ________.
b) The cash flow from investing activities is ________.
c) The cash flow from financing activities is ________.
58) The following information is given for Arizona Company:
Net income $32,000
Depreciation expense 6,000
Increase in accounts receivable 2,500
Increase in supplies on hand 1,500
Sale of common stock 10,400
Proceeds from sale of equipment 7,000
Loan money to a customer 3,000
Decrease in accounts payable 900
The indirect method is used.
Required:
Answer the following questions with the information provided above.
a) The cash flow from operating activities is ________.
b) The cash flow from investing activities is ________.
c) The cash flow from financing activities is ________.
59) The following information is given for Sunny Corporation:
Net income $40,000
Depreciation expense 6,000
Decrease in accounts receivable 5,000
Increase in supplies on hand 2,000
Sale of common stock 40,000
Purchase of equipment for cash 40,000
Payment of dividends 6,000
Increase in accounts payable 5,000
The indirect method is used. The beginning Cash balance is $23,000.
Required:
Answer the following questions with the information provided above.
a) The cash flow from operating activities is ________.
b) The cash flow from investing activities is ________.
c) The cash flow from financing activities is ________.
d) The net change in cash is ________.
e) The ending balance of cash is ________.
60) Discuss the purpose of a statement of cash flows and describe its components.
21.2 Learning Objective 21-2
1) The method of reporting cash flows from operating activities under which revenues and expenses on
the income statement are adjusted to reflect the amount of cash received or expended for each item is the:
A) direct method.
B) indirect method.
C) combination method.
D) adjustment method.
2) If $97,000 net cash was provided by operations, $33,000 was used for investing activities, and $15,400
was provided by financing activities, the cash balance would:
A) increase by $79,400.
B) decrease by $64,000.
C) increase by $145,400.
D) increase by $112,400.
3) When using the direct method to determine the net cash flows from operating activities, major
categories would include:
A) Cash received from bank.
B) Cash paid for salaries.
C) Cash paid for dividends.
D) Cash paid for equipment.
4) Cost of merchandise sold for the year was $760,000. Inventories were $20,000 and $110,000 at the
beginning and end of the year, respectively. There were no changes in accounts payable from the
beginning to the end of the year. Cash payment for merchandise to be reported on the cash flow
statement using the direct method is:
A) $760,000.
B) $850,000.
C) $870,000.
D) $780,000.
5) Operating expenses other than depreciation expense for the year were $332,000. Prepaid expenses
increased by $5,000. Cash payments for operating expenses to be reported on the cash flow statement
using the direct method would be:
A) $332,000.
B) $337,000.
C) $327,000.
D) $5,000.
6) The distinction between the indirect and direct methods only applies to the cash flows from which
section?
A) Operating activities
B) Financing activities
C) Investing activities
D) There is no distinction between the methods.
7) Which would go into the operating activities section of a statement of cash flows using the direct
method?
A) Depreciation expense
B) Cash paid for inventory
C) Selling of plant, property and equipment
D) All of the above
8) If $38,000 was generated in sales and there was an increase to Accounts Receivable of $3,100, what
would be the cash amount received from customers?
A) $38,000
B) $3,100
C) $34,900
D) $41,100
9) If $40,000 was generated from operations, $9,000 was used for investing activities, and $4,000 was
provided by financing activities, the cash balance would:
A) increase by $35,000.
B) decrease by $35,000.
C) increase by $40,000.
D) increase by $31,000.
10) If Cost of Goods Sold was $25,000, there was a decrease in Inventory of $5,000, and an increase in
Accounts Payable of $5,700, what would be the cash amount paid for Merchandise Inventory?
A) $25,700
B) $14,300
C) $35,700
D) $24,300
11) Cash generated from operating activities may be computed by using:
A) the indirect method.
B) the direct method.
C) the estimating method.
D) Both A and B