Chapter 21 The Statement of Cash Flows
Use the following to answer questions 56–60:
Each year, White Mountain Enterprises (WME) prepares a reconciliation schedule that compares its
income statement with its statement of cash flows on both the direct and indirect method bases.
56. In its 2016 income statement, WME reported $58,000 for insurance expense. WME paid
$72,000 in insurance premiums during 2016. In its reconciliation schedule, WME should:
a. Show a $14,000 positive adjustment to net income under the indirect method for the
increase in prepaid insurance.
b. Show a $14,000 negative adjustment to net income under the indirect method for the
decrease in prepaid insurance.
c. Show a $14,000 negative adjustment to net income under the indirect method for the
increase in prepaid insurance.
d. Show a $14,000 positive adjustment to net income under the indirect method for the
decrease in prepaid insurance.
57. In its 2016 income statement, WME reported $695,000 for service revenue earned from
membership fees. WME received $681,000 cash in advance from members during 2016. In its
reconciliation schedule, WME should:
a. Show a $14,000 negative adjustment to net income under the indirect method for the
increase in unearned revenue.
b. Show a $14,000 negative adjustment to net income under the indirect method for the
decrease in unearned revenue.
c. Show a $14,000 positive adjustment to net income under the indirect method for the
increase in unearned revenue.
d. Show a $14,000 positive adjustment to net income under the indirect method for the
decrease in unearned revenue.
58. In its 2016 income statement, WME reported a $40,000 loss on the sale of equipment. In its
reconciliation schedule, WME should:
a. Report a $40,000 cash outflow for the direct method.
b. Show a $40,000 positive adjustment to net income under the indirect method.
c. Show a $40,000 negative adjustment to net income under the indirect method.
d. None of these answer choices is correct.
59. In its 2016 income statement, WME reported $11,000 of interest expense on its outstanding
bonds. During the year, WME paid its regular installments of $9,000 of interest in cash. In its
reconciliation schedule, WME should:
a. Show a $2,000 positive adjustment to net income under the indirect method for the
decrease in bond premium.
b. Show a $2,000 negative adjustment to net income under the indirect method for the
decrease in bond premium.
c. Show a $2,000 positive adjustment to net income under the indirect method for the
decrease in bond discount.
d. Show a $2,000 negative adjustment to net income under the indirect method for the
decrease in bond discount.
60. In its 2016 income statement, WME reported $440,000 for the cost of goods sold. WME paid
inventory suppliers $380,000 in 2016, and its inventory balance decreased by $41,000 during
the year. In its reconciliation schedule, WME should:
a. Show a $19,000 positive adjustment to net income under the indirect method for the
increase in accounts payable.
b. Show a $19,000 positive adjustment to net income under the indirect method for the
decrease in accounts payable.
c. Show a $19,000 negative adjustment to net income under the indirect method for the
increase in accounts payable.
d. Show a $19,000 negative adjustment to net income under the indirect method for the
decrease in accounts payable.
61. On December 31, 2016, Tiras Company reported net income of $50,000 and sales of
$200,000. The company also reported beginning and ending accounts receivable at $20,000
and $25,000, respectively. Tiras will report cash collected from customers in its 2016
statement of cash flows (direct method) in the amount of:
a. $0.
b. $245,000.
c. $205,000.
d. $195,000.
62. Hemmer Company reported net income for 2016 in the amount of $40,000. The company’s
financial statements also included the following:
Decrease in accounts receivable
$6,000
Increase in inventory
1,000
Chapter 21 The Statement of Cash Flows
Depreciation expense
3,000
What is net cash provided by operating activities?
a. $38,000.
b. $43,000.
c. $35,000.
d. $48,000.
Chapter 21 The Statement of Cash Flows
63. Alpha Company had the following account balances for 2016:
Dec. 31
Jan. 1
Accounts receivable
$44,000
$35,000
Accounts payable
55,000
60,000
Alpha reported net income of $210,000 for 2016. Assuming no other changes in current
account balances, what is the amount of net cash provided by operating activities for 2016
reported in the statement of cash flows?
a. $224,000.
b. $206,000.
c. $214,000.
d. $196,000.
64. Hogan Company had the following account balances for 2016:
Dec. 31
Jan. 1
Accounts receivable
$44,000
$35,000
Accounts payable
60,000
55,000
Prepaid insurance
15,000
10,000
Hogan reported net income of $300,000 for 2016. Assuming no other changes in current
account balances, what is the amount of net cash provided by operating activities for 2016
reported in the statement of cash flows?
a. $291,000.
b. $290,000.
c. $281,000.
d. $301,000.
65. Hanson Company had the following account balances for 2016:
Dec. 31
Jan. 1
Inventory
$40,000
$35,000
Accounts payable
40,000
55,000
Hanson reported net income of $90,000 for 2016. Assuming no other changes in current
account balances, what is the amount of net cash provided by operating activities for 2016
reported in the statement of cash flows?
a. $ 70,000.
b. $ 80,000.
c. $100,000.
d. $110,000.
66. A company reported interest expense of $540,000 for the year. Interest payable was $35,000
and $75,000 at the beginning and the end of the year, respectively. What was the amount of
interest paid?
a. $580,000.
b. $615,000.
c. $500,000.
d. $575,000.
Chapter 21 The Statement of Cash Flows
67. Which of the following would be added to net income when determining cash flows from
operating activities under the indirect method?
a. A gain on the sale of land.
b. An increase in prepaid expenses.
c. A decrease in accounts payable.
d. A decrease in accounts receivable.
68. Creble Company reported net income for 2016 in the amount of $40,000. The company’s
financial statements also included the following:
Increase in accounts receivable
$4,000
Decrease in inventory
2,000
Depreciation expense
3,000
Gain on sale of equipment
5,000
In the statement of cash flows what is net cash provided by operating activities under the
indirect method?
a. $36,000.
b. $41,000.
c. $40,000.
d. $38,000.
Chapter 21 The Statement of Cash Flows
69. Which of the following is always reported as an outflow of cash?
a. The accrual of warranty expense.
b. The declaration of a cash dividend.
c. The purchase of equipment for cash.
d. Amortization expense.
70. Which of the following would not be a component of cash flows from investing activities?
a. Sale of land.
b. Purchase of securities.
c. Purchase of equipment.
d. Dividends paid.
71. Selected information from Peridot Corporation’s accounting records and financial statements
for 2016 is as follows ($ in millions):
Cash paid to acquire machinery $36
Retired common stock 50
Proceeds from sale of land 90
Gain from the sale of land 52
Investment revenue received 66
Cash paid to acquire office equipment 80
In its statement of cash flows, Peridot should report net cash outflows from investing activities
of:
a. $26 million.
b. $46 million.
c. $72 million.
d. $78 million.
72. Moon Company owns 56 million shares of stock of Center Company classified as available
for sale. During 2016, the fair value of those shares increased by $34 million. What effect did
this increase have on Moon’s 2016 statement of cash flows?
a. Cash from operating activities increased.
b. Cash from investing activities increased.
c. Cash from financing activities increased.
d. No effect.
73. In preparing its cash flow statement for the year ended December 31, 2016, Red Co. gathered
the following data:
Gain on sale of land $ 12,000
Proceeds from sale of land 20,000
Chapter 21 The Statement of Cash Flows
Purchase of Blue, Inc., bonds (face value $200,000) 360,000
Amortization of bond discount 4,000
Cash dividends declared 90,000
Cash dividends paid 76,000
Proceeds from sales of Red Co. common stock 150,000
In its December 31, 2016, statement of cash flows, what amount should Red report as net cash
outflows from investing activities?
a. $340,000.
b. $352,000.
c. $376,000.
d. $388,000.
74. Red Manufacturing Company owns 40% of the outstanding common stock of Blue Supply
Company. During 2016, Red received a $50 million cash dividend from Blue. What effect did
this dividend have on Red’s 2016 statement of cash flows?
a. Cash from operating activities increased.
b. Cash from investing activities increased.
c. Cash from financing activities increased.
d. No effect.
75. Charlene Company sold a printer with a cost of $68,000 and accumulated depreciation of
$23,000 for $20,000 cash. This transaction would be reported as:
a. An operating activity.
b. An investing activity.
c. A financing activity.
d. None of these answer choices is correct.
76. Which of the following is reported as an investing activity in the statement of cash flows?
a. Sale of a subsidiary.
b. Issuance of a long-term promissory note.
c. Sale of treasury stock.
d. Purchase of highly liquid, short-term investments with excess cash.
77. Which of the following is reported as an investing activity in the statement of cash flows?
a. The receipt of dividend revenue.
b. The payment of cash dividends.
c. The payment of interest on bonds.
d. The sale of machinery.
78. Which of the following would be reported as a cash outflow from investing activities?
a. Issuance of bonds.
b. Purchase of land.
c. Payment of dividends.
d. Retirement of common stock.
79. Payments to acquire bonds of other corporations should be classified on a statement of cash
flows as:
a. A lending activity.
b. An operating activity.
c. A financing activity.
d. An investing activity.
80. Which of the following would be an example of an investing activity on a statement of cash
flows?
a. Sale of equipment.
b. Issuance of long-term bonds.
c. Receipt of investment revenue.
d. Conversion of a cash equivalent into cash.
81. A purchase of equipment for cash is:
a. Reported as an operating activity in the statement of cash flows.
b. Reported as an investing activity in the statement of cash flows.
c. Reported as a financing activity in the statement of cash flows.
d. None of these answer choices is correct.
82. Proceeds from the sale of a plant site are:
a. Reported as an operating activity in the statement of cash flows.
b. Reported as an investing activity in the statement of cash flows.
c. Reported as a financing activity in the statement of cash flows.
d. None of these answer choices is correct.
83. Goodfellow Corporation reported insurance expense of $477 for the current year. The
beginning and ending balances in the prepaid insurance account were $50 and $30,
respectively. What was the amount of cash paid for insurance?
a. $477.
b. $457.
c. $497.
d. None of these answer choices is correct.
84. In a statement of cash flows using the indirect method, an increase in available-for-sale
securities not due to an increase in their fair value should be reported as:
a. A deduction from net income in determining cash flows from operating activities.
b. An addition to net income in determining cash flows from operating activities.
c. A net cash outflow from investing activity.
d. A net cash inflow from investing activity.
Chapter 21 The Statement of Cash Flows
85. In a statement of cash flows using the indirect method, an increase in available-for-sale
securities due to an increase in their fair value should be reported as:
a. A deduction from net income in determining cash flows from operating activities.
b. An addition to net income in determining cash flows from operating activities.
c. An investing activity.
d. Not reported.
86. Freeman Company’s accounting records include the following information:
Payments to suppliers
$50,000
Collections on accounts receivable
90,000
Cash sales
20,000
Income taxes paid
5,000
Equipment purchased
15,000
What is the amount of net cash provided by operating activities indicated by these
transactions?
a. $40,000.
b. $45,000.
c. $55,000.
d. $60,000.
87. Which of the following causes a change in cash?
a. Accrual of interest payable.
b. Recording of depreciation expense.
c. Write-off of an uncollectible account.
d. Payment of a cash dividend declared in the previous fiscal year.
88. In preparing its cash flow statement for the year ended December 31, 2016, Green Co.
gathered the following data:
Gain on sale of land $ 12,000
Proceeds from sale of land 20,000
Purchase of Black, Inc., bonds (face value $200,000) 360,000
Amortization of bond discount 4,000
Cash dividends declared 90,000
Cash dividends paid 76,000
Proceeds from sales of Green Co. common stock 150,000
In its December 31, 2016, statement of cash flows, what amount should Green report as net
cash from financing activities?
a. $40,000.
b. $54,000.
c. $60,000.
d. $74,000.
89. During 2016, T Company engaged in the following activities:
Chapter 21 The Statement of Cash Flows
Distribution of cash dividends declared in 2015 $ 48
Fair value of shares issued in a stock dividend 220
Payment to retire bonds 452
Proceeds from the sale of treasury stock (cost: $52) 60
In T’s statement of cash flows, what were net cash outflows from financing activities for
2016?
a. $392.
b. $440.
c. $560.
d. $732.
90. Which of the following is reported as a financing activity in the statement of cash flows?
a. The sale of securities classified as available for sale.
b. The acquisition of stock for the purpose of retiring it.
c. The payment of interest on bonds payable.
d. The receipt of dividend revenue.
91. Which of the following is reported as a financing activity in the statement of cash flows?
a. The amortization of a patent.
b. The exchange of common stock for a building.
c. The acquisition of long-term investments.
d. The repayment of bonds issued at face value.
92. Which of the following is not classified as an operating activity?
a. Interest paid on long-term debt.
b. Dividends received on common stock.
c. Dividends paid on common stock.
d. Payments on accounts payable.
93. When treasury stock is sold at an amount less than its cost, the sale is classified as:
a. A financing activity.
b. An operating activity.
c. A financing activity and an operating activity.
d. An investing activity.
94. Of the following, which is not an investing activity?
a. Purchasing a new computer.
b. Buying treasury stock.
c. Selling a parcel of land.
d. Purchasing short-term investments.
Chapter 21 The Statement of Cash Flows
95. Which of the following would not be a cash inflow from financing activities?
a. Cash from issuing common stock.
b. Cash from issuing bonds.
c. Cash from issuing preferred stock.
d. Cash from the sale of stock of a supplier.
96. The purchase of treasury stock is:
a. Reported as a financing activity in the statement of cash flows.
b. Reported as an investing activity in the statement of cash flows.
c. Reported as an operating activity in the statement of cash flows.
d. None of these answer choices is correct.
97. Melanie Corporation declared cash dividends of $13,500 during the current year. The
beginning and ending balances in dividends payable were $450 and $750, respectively. What
was the amount of cash paid for dividends?
a. $12,750.
b. $13,800.
c. $12,900.
d. $13,200.
98. A statement of cash flows and its related disclosure note typically do not report:
a. An acquisition of the use of a building with a lease agreement.
b. The purchase of treasury stock.
c. Stock dividends.
d. Notes payable issued for a tract of land.
99. Property dividends distributed are reported in connection with a statement of cash flows as:
a. A financing activity.
b. An investing activity.
c. A noncash activity.
d. Not reported in the statement of cash flows.
100. Acquiring land with a long-term note is:
a. Reported as an investing activity in the statement of cash flows.
b. Reported as a financing activity in the statement of cash flows.
c. Reported as a noncash investing and financing activity.
d. None of the above is correct.
101. Rampart Inc. recorded the following transaction:
Chapter 21 The Statement of Cash Flows
Land
15 million
Notes Payable
12 million
Cash
3 million
In the statement of cash flows, this would be reported as a:
a. $3 million outflow from investing activities.
b. $15 million outflow from investing activities.
c. $3 million outflow from investing activities and $12 million noncash investing and
financing activity.
d. None of these answer choices is correct.
102. Like U.S. GAAP, International Financial Reporting Standards (IFRS) also require a statement
of cash flows. Consistent with U.S GAAP, cash flows are classified as operating, investing, or
financing activities. However, with regard to interest and dividend inflows and outflows, the
international standard for cash flow statements:
a. Allows companies to report cash outflows from interest payments as either operating or
investing cash flows.
b. Allows companies to report cash inflows from interest and dividends as either operating
or investing cash flows.
c. Allows companies to report dividends paid as either investing or operating cash flows.
d. Designates cash outflows for interest payments and cash inflows from interest and
dividends received as operating cash flows.
103. Interest payments and interest received must be reported as operating cash flows
using:
a. U.S. GAAP.
b. IFRS.
c. Both U.S. GAAP and IFRS.
d. Neither U.S. GAAP nor IFRS.