12) If $31,000 net cash was used in operations, $12,000 was used for investing activities, and $25,000 was
provided by financing activities, the cash balance would:
A) increase by $18,000.
B) decrease by $18,000.
C) increase by $68,000.
D) increase by $25,000.
13) Operating expenses other than depreciation expense for the year were $30,500. Prepaid expenses
increased by $9,400. Cash payments for operating expenses to be reported on the cash flow statement
using the direct method would be:
A) $39,900.
B) $9,400.
C) $30,500.
D) $21,100.
14) Cost of merchandise sold for the year was $370,000. Inventories were $34,000 and $80,000 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) $450,000.
B) $416,000.
C) $80,000.
D) $370,000.
15) If Salaries Expense was $38,000, and there was a decrease in Salaries Payable of $15,000, what would
be the cash amount paid for Salaries?
A) $53,000
B) $23,000
C) $15,000
D) $38,000
16) Which of the following is a cash outflow from a financing activity?
A) A purchase of inventory
B) A purchase of treasury stock
C) A payment to buy property
D) A loan made to a third party
17) Under the direct method of the statement of cash flows, a sale of merchandise inventory for cash is
a(n):
A) managing activity.
B) investing activity.
C) financing activity.
D) operating activity.
18) If Insurance Expense was $7,100, and there was a decrease in Prepaid Insurance of $4,700, what would
be the cash amount paid for Insurance?
A) $2,400
B) $11,800
C) $7,100
D) $4,700
19) Under the direct method of the statement of cash flows, cash paid for salaries would result in:
A) a decrease of cash flow from operating activities.
B) a decrease of cash flow from investing activities.
C) an increase of cash flow from financing activities.
D) a decrease of cash flow from financing activities.
20) If Salaries Payable increased, the amount of the increase would result in what computation to Salaries
Expense?
A) Added to Salaries Expense
B) Nothing would change with Salaries Expense
C) Subtracted from Salaries Expense
D) Multiplied by Salaries Expense
21) Receiving cash from a lender would result in:
A) an increase of cash flow from investing activities.
B) a decrease of cash flow from investing activities.
C) an increase of cash flow from financing activities.
D) a decrease of cash flow from financing activities.
22) Buying stocks of other companies for cash would result in:
A) an increase of cash flow from investing activities.
B) a decrease of cash flow from investing activities.
C) an increase of cash flow from financing activities.
D) a decrease of cash flow from financing activities.
23) A decrease in long-term notes payable would mean:
A) an increase of cash flow from investing activities.
B) a decrease of cash flow from investing activities.
C) an increase of cash flow from financing activities.
D) a decrease of cash flow from financing activities.
24) Under the direct method, cash payments are outflows of cash, and any change with a positive cash
effect is:
A) added.
B) subtracted.
C) no change.
D) None of the above are true.
25) Activities that pay taxes are:
A) operating activities.
B) financing and investing activities.
C) operating and financing activities.
D) operating and investing activities.
26) Under the direct method, cash receipts are inflows of cash, and any change with a negative cash effect
is:
A) added.
B) subtracted.
C) no change.
D) None of the above are true.
27) Carolina Company sold a machine for $14,000 cash, which had an original cost of $30,000 and
accumulated depreciation of $6,000. The amount of cash provided by this sale is:
A) $16,000.
B) $14,000.
C) $24,000.
D) $30,000.
28) Payment of Dividends is considered:
A) an outflow of cash under Financing activities.
B) an inflow of cash under Financing activities.
C) an outflow of cash under Investing activities.
D) an outflow of cash under Operating activities.
29) A statement of cash flows would disclose the effect of which of the following transactions?
A) Stock dividends declared
B) Pending litigation
C) Purchase of treasury stock
D) Pending acquisition
30) A decrease to Merchandise Inventory results in what condition?
A) A negative cash effect
B) A positive cash effect
C) No cash effect
D) None of the above are correct.
31) When a corporation purchases a building for cash, it:
A) does not affect the cash flow statement.
B) is shown as an investing activity.
C) is shown as a financing activity.
D) is shown as an operating activity.
32) An increase to Accounts Receivable results in what condition?
A) A negative cash effect
B) A positive cash effect
C) No cash effect
D) None of the above are correct.
33) Cash paid for insurance and rent would be reported in the statement of cash flows (direct method) in:
A) a separate schedule.
B) operating activities.
C) financing activities.
D) investing activities.
34) On the Statement of Cash Flows, direct method, which of the following is a cash inflow from an
operating activity?
A) Payment to the bank for a loan
B) Collection of an Accounts Receivable
C) Payment to buy a piece of equipment
D) Paying dividends to stockholders
35) If a loss of $80,000 is incurred in selling equipment having a book value of $220,000, cash flow will
increase:
A) $300,000.
B) $140,000.
C) $80,000.
D) $220,000
36) Land costing $60,000 was sold for $50,000. What was the effect on the investing activities?
A) Increase $50,000
B) Decrease $10,000
C) Decrease $50,000
D) Increase $10,000
37) If there is an increase to Merchandise Inventory, the result is added to compute cash paid for
merchandise.
38) An increase to Accounts Receivable results is a positive cash effect.
39) Under the direct method, each line of the balance sheet is converted to cash paid or received.
40) One section of a statement of cash flows, using the direct method, is financing activities.
41) The investing activities section of the statement of cash flows is where differences occur between the
indirect and direct method.
42) An example of operating activities is Accounts Receivable.
43) If $700,000 of a company’s own stock is sold, it is shown in the financing activities section.
44) Under the indirect method, if there is an Accounts Receivable decrease of $300,000, this would be
subtracted from Sales.
45) If there is a Prepaid Insurance increase of $550,000, this would be added to insurance expense.
46) Depreciation Expense is reported on the statement of cash flows only when using the direct method of
preparing a statement of cash flows.
47) The direct method can be used to report cash flows from operating activities in the statement of cash
flows.
48) To determine cash received from customers for the cash flow statement using the direct method, an
increase in accounts receivable is added to sales.
49) Indicate the effect that each of the following transactions has on the cash balance. Use (I) for increase,
(D) for decrease, and (N) for no change.
a) ________ Increase in inventory, paid with cash
b) ________ Sale of common stock for cash
c) ________ Payment of cash dividends
d) ________ Depreciation expense for the period
e) ________ Payment of long-term debt
f) ________ Loan of money to another company
g) ________ Increase in Accounts Payable
h) ________ Purchase of equipment on account
50) Indicate the effect that each of the following transactions has on the cash balance. Use (I) for increase,
(D) for decrease, and (N) for no change.
a) ________ Issued common stock for equipment trade
b) ________ Acquired building for cash
c) ________ Purchase equipment on account
d) ________ Declared a cash dividend
e) ________ Purchased supplies with cash
f) ________ Received payment on account
g) ________ Borrowed money by issuance of a long-term debt
h) ________ Purchased equipment on account to be paid within one year
For each of the following items, indicate (by placing an X) whether the item would be found on the
statement of cash flows in column 1, the direct approach for determining the cash flows from operating
activities, column 2, the indirect approach for determining the cash flows from operating activities,
column 3, cash flows from investing activities, column 4, cash flows from financing activities. If you
identify that an item affects the cash flows from operation, indirect method, also indicate whether it will
be increasing (+) or decreasing (-) the cash flows.
51)
Col 1
Operating
Direct Col 2
Operating
Indirect Col 3
Investing
Col 4
Financing
Cash paid for merchandise inventory
52)
Col 1
Operating
Direct Col 2
Operating
Indirect Col 3
Investing
Col 4
Financing
Sale of land
