48) S Company reported net income for 2018 in the amount of $400,000. The company’s
financial statements also included the following:
Increase in accounts receivable
$
80,000
Decrease in inventory
60,000
Increase in accounts payable
200,000
Depreciation expense
104,000
Gain on sale of land
148,000
What is net cash provided by operating activities under the indirect method?
A) $432,000.
B) $536,000.
C) $580,000.
D) $832,000.
49) An analyst compiled the following information for U Inc. for the year ended December 31,
2018:
Net income was $1,700,000.
Depreciation expense was $400,000.
Interest paid was $200,000.
Income taxes paid were $100,000.
Common stock was sold for $200,000.
Preferred stock (8% annual dividend) was sold at par value of $250,000.
Common stock dividends of $50,000 were paid.
Preferred stock dividends of $20,000 were paid.
Equipment with a book value of $100,000 was sold for $200,000.
Using the indirect method, what was U Inc.’s net cash flow from operating activities for the year
ended December 31, 2018?
A) $2,000,000.
B) $2,030,000.
C) $2,080,000.
D) $2,100,000.
50) A 10% stock dividend is 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.
51) How is the amortization of patents reported in a statement of cash flows that is prepared
using the indirect method?
A) A decrease in cash flows from investing activities.
B) An increase in cash flows from investing activities.
C) A deduction from net income in arriving at cash flows from operations.
D) An addition to net income in arriving at cash flows from operations.
52) When preparing the statement of cash flows using the indirect method for determining net
cash flows from operating activities, depreciation is added to net income because:
A) It was deducted as an expense on the income statement, but does not require cash.
B) It was deducted as an expense on the income statement and affects the amount of cash.
C) It is a significant portion of the year’s expenses.
D) It represents a source or inflow of cash.
53) The amortization of bond discount is included in the statement of cash flows (indirect
method) as:
A) A financing cash inflow.
B) An investing activity.
C) An addition to net income.
D) A deduction from net income.
54) Which of the following is reported as a deduction from net income when using the indirect
method to determine net cash flows from operating activities?
A) Depreciation expense.
B) Amortization of a patent.
C) Amortization of premium on bonds payable.
D) Dividends declared.
55) A loss on the sale of machinery should be reported in the statement of cash flows as:
A) An adjustment to net income under the indirect method.
B) An operating activity under the direct method.
C) An investing activity cash outflow.
D) A noncash investing activity.
56) 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. In its 2018 income statement, WME reported $58,000 for insurance expense.
WME paid $72,000 in insurance premiums during 2018. 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) 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. In its 2018 income statement, WME reported $695,000 for service revenue from
membership fees. WME received $681,000 cash in advance from members during 2018. In its
reconciliation schedule, WME should:
A) Show a $14,000 negative adjustment to net income under the indirect method for the increase
in deferred revenue.
B) Show a $14,000 negative adjustment to net income under the indirect method for the decrease
in deferred revenue.
C) Show a $14,000 positive adjustment to net income under the indirect method for the increase
in deferred revenue.
D) Show a $14,000 positive adjustment to net income under the indirect method for the decrease
in deferred revenue.
58) 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. In its 2018 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 are correct.
59) 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. In its 2018 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) 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. In its 2018 income statement, WME reported $440,000 for the cost of goods sold.
WME paid inventory suppliers $380,000 in 2018, 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, 2018, 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 2018 statement of
cash flows (indirect method) in the amount of:
A) $0.
B) $245,000.
C) $205,000.
D) $195,000.
62) Hemmer Company reported net income for 2018 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
Depreciation expense
3,000
What is net cash provided by operating activities?
A) $38,000.
B) $43,000.
C) $35,000.
D) $48,000.
Net income
$
40,000
Decrease in accounts receivable
Increase in inventory
)
Depreciation expense
Net cash flows from operating activities
$
48,000
63) Alpha Company had the following account balances for 2018:
Dec. 31
Jan. 1
Accounts receivable
$
44,000
$
35,000
Accounts payable
55,000
60,000
Alpha reported net income of $210,000 for 2018. Assuming no other changes in current account
balances, what is the amount of net cash provided by operating activities for 2018 reported in the
statement of cash flows?
A) $224,000.
B) $206,000.
C) $214,000.
D) $196,000.
Net income
210,000
Increase in accounts receivable
)
Decrease in accounts payable
)
Net cash flows from operating activities
196,000
64) Hogan Company had the following account balances for 2018:
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 2018. Assuming no other changes in current account
balances, what is the amount of net cash provided by operating activities for 2018 reported in the
statement of cash flows?
A) $291,000.
B) $290,000.
C) $281,000.
D) $301,000.
Net income
300,000
Increase in accounts receivable
)
Increase in accounts payable
Increase in prepaid insurance
)
Net cash flows from operating activities
291,000
65) Hanson Company had the following account balances for 2018:
Dec. 31
Jan. 1
Inventory
$
40,000
$
35,000
Accounts payable
40,000
55,000
Hanson reported net income of $90,000 for 2018. Assuming no other changes in current account
balances, what is the amount of net cash provided by operating activities for 2018 reported in the
statement of cash flows?
A) $70,000.
B) $80,000.
C) $100,000.
D) $110,000.
Net income
90,000
Increase in inventory
)
Decrease in accounts payable
)
Net cash flows from operating activities
$
70,000
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.
Interest expense
Interest payable
Cash
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 2018 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.
Net income
$
40,000
Increase in accounts receivable
(4,000
)
Decrease in inventory
Depreciation expense
Gain on sale of equipment
(5,000
)
Net cash flows from operating activities
$
36,000
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 2018 is as follows ($ in millions):
Cash paid to acquire machinery
$
36
Reacquired Peridot 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 as a long-term investment in Center
Company and Moon does not have significant influence over Center. During 2018, the fair value
of those shares increased by $34 million. What effect does this increase have on Moon’s 2018
adjustments in the statement of cash flows?
A) Cash flow from operating activities will be decreased.
B) Cash flow from investing activities will be increased.
C) Cash flow from financing activities will be increased.
D) No effect.
73) In preparing its cash flow statement for the year ended December 31, 2018, Red Co.
gathered the following data:
Gain on sale of land
$
12,000
Proceeds from sale of land
20,000
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, 2018, 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 2018, Red received a $50 million cash dividend from Blue. What effect did
this dividend have on Red’s 2018 statement of cash flows?
A) Cash flow from operating activities increased.
B) Cash flow from investing activities increased.
C) Cash flow 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 are 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, using 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 are 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 are 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 are correct.
84) In a statement of cash flows using the indirect method, an increase in the available-for-sale
debt securities account not due to an increase in 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.
85) In a statement of cash flows using the indirect method, an increase in the available-for-sale
debt securities account due to an increase in the debt’s 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.