Chapter 11—Statement of Cash Flows Key
1. Which of the following statements is not true?
A. The information in the statement of cash flows helps investors, creditors, and others to assess a company’s
ability to produce future cash inflows.
2. Special Inc. reported net income of $150,000 for 2012, but its cash balance decreased $40,000. Which
financial statement should Special’s management refer to for an explanation of this situation?
3. National Co. reported a net loss of $30,000 for 2012, yet its cash balance increased during the year. Which
financial statement should National’s management refer to for an explanation of this situation?
4. Which of the following statements regarding the statement of cash flows is true?
5. The primary purpose of the statement of cash flows is to provide information about:
6. Which of the following is not a current reporting requirement for a statement that reports changes in cash
over a period of time?
7. Cash flows from acquiring and selling products are classified as:
8. Occasionally, companies engage in important investing and financing activities which do not affect cash. If
the amount of the transaction is significant, how should it be disclosed when financial statements are prepared?
9. Morgan Corporation acquired land by issuing its common stock. How should this transaction be disclosed
when a statement of cash flows is prepared?
10. Which of the following operating activities results in a cash outflow?
11. Each of the following transactions would be classified as an investing activity except:
12. Which of the following transactions is a significant noncash investing and financing activity?
13. Scotty Company reported the following information at the end of 2011 and 2012:
2011
2012
Land
$150,000
$350,000
Common stock
200,000
400,000
An analysis of Scotty’s records indicated that there were no cash flow effects resulting from the changes in the two accounts presented above. How
should Scotty report the changes in these accounts on a statement of cash flows?
14. The order of presentation of activities on the statement of cash flows is:
15. The current period statement of cash flows includes the following:
Cash balance at the beginning of the period.
$310,000
Cash provided by operating activities.
185,000
Cash used in investing activities.
43,000
Cash used in financing activities.
97,000
The cash balance at the end of the period is:
A. $45,000.
16. Which of the following statements is most likely to be right?
A. The method of preparing the operating activities section of a statement of cash flows which adjusts net
income to remove the effects of deferrals and accruals for revenues and expenses is the direct method.
17. Which of the following statements is false?
A. The method of preparing the operating activities section of a statement of cash flows which adjusts net
income to remove the effects of deferrals and accruals for revenues and expenses is the indirect method.
18. Which of the following is not an operating activity?
19. Presented below is the operating activities section of the statement of cash flows for Kerry Corporation for
2012:
Operating activities:
Cash collected from sales
Cash payments for inventory
Cash payments for operating expenses
Net cash provided by operating activities
Which method of preparing the operating activities section has Kerry used?
20. Which method of preparing the operating activities section of a statement of cash flows reports its cash
inflows from operations followed by its cash outflows for operation?
21. The following items were reported on the balance sheets and income statement for Online Co.:
Accounts receivable, December 31, 2011
Accounts receivable, December 31, 2012
Sales—2012
What amount would be reported in the operating activities section of Online’s statement of cash flows for collections from customers under the direct
method, assuming that all sales are on credit?
22. The following items were reported on the balance sheets and income statement for Transformer Inc., a
service company:
Accrued liabilities, December 31, 2011
Accrued liabilities, December 31, 2012
Operating expenses—2012
What amount would be reported in the operating activities section of Transformer’s statement of cash flows for payments for operating expenses
under the direct method?
23. Pacific Whale Corporation reported the following information for 2011 and 2012:
Accounts receivable, December 31, 2011
Accounts receivable, December 31, 2012
Sales (all on credit)—2012
How much cash was received from customers during 2012?
24. Cold and Flu Corporation reported the following information for 2011 and 2012. Inventory is not reported
as there was no change in inventory from December 31, 2011, to December 31, 2012.
Accounts payable, December 31, 2011
Accounts payable, December 31, 2012
Cost of goods sold 2012
How much cash was paid for inventory during 2012?
25. Diablo Company reported the following information for 2011 and 2012:
Prepaid insurance, December 31, 2011
Prepaid insurance, December 31, 2012
Insurance expense—2012
How much cash was paid for insurance during 2012?
26. Robin Corporation reported the following information for 2011 and 2012:
Salaries payable, December 31, 2011
Salaries payable, December 31, 2012
Salaries expense—2012
How much cash was paid for salaries during 2012?
27. Brandywine Corporation reported the following information for 2011 and 2012:
Interest payable, December 31, 2011
Interest payable, December 31, 2012
Interest expense—2012
How much cash was paid for interest during 2012?
28. Buckle Company reported the following information for 2011 and 2012.
Accounts payable, December 31, 2011
Accounts payable, December 31, 2012
Inventory, December 31, 2011
Inventory, December 31, 2012
Cost of goods sold—2012
Assume that all merchandise purchases are on account. Under direct method how much cash was paid to suppliers for inventory purchases during
2012?
29. Pull & Co. reported net income for the current year. Which of the following business transactions would
cause cash from operating activities to be higher than the amount of net income?
30. Watch Tower Inc. reported net income of $950,000. Cash from operations:
31. Which method of preparing the operating activities section of a statement of cash flows adjusts net income
32. Presented below is the operating activities section of the statement of cash flows for Bruin Consulting for
2012:
$120,000
Depreciation
10,000
Decrease in accounts receivable
5,000
$135,000
Decrease in accounts payable
15,000
Net cash inflow from operating activities
$120,000
Which method of preparing the operating activities section has Bruin Consulting used?
33. The following items were reported on the balance sheets and income statement for Hawley Company:
Accounts receivable, December 31, 2011
Accounts receivable, December 31, 2012
Sales—2012
How would the change in accounts receivable be reported in the operating activities section of Hawley’s statement of cash flows under the indirect
method?
34. The following items were reported on the balance sheets and income statement for Hawkeye Corporation:
Accounts payable, December 31, 2011
Accounts payable, December 31, 2012
Operating expenses
How would the change in accounts payable be reported in the operating activities section of Hawkeye’s statement of cash flows under the indirect
method?
35. During 2011, the accounts receivable balance of Big Buck Corporation increased. From Big Buck’s
statement of cash flows, the financial reader would conclude which of the following?
36. During 2012, the accounts payable balance of Bombay Corporation decreased. From the statement of cash
flows the financial reader would most likely conclude which of the following?
37. Everest Inc. reported the following information for 2011 and 2012:
2011
2012
Accounts receivable
$50,000
$ 65,000
Inventories
43,000
40,000
Accounts payable
29,000
39,000
Net income
100,000
Depreciation expense
11,000
If Everest Inc. uses the indirect method to prepare the operating activities section of the statement of cash flows, what amount will be reported as net
cash inflow from operating activities for 2012?
38. Penn Corporation reported the following information for 2011 and 2012:
2011
2012
Accounts receivable
$150,000
$120,000
Prepaid expenses
9,000
10,000
Accounts payable
65,000
80,000
Salaries payable
12,000
5,000
Net income
200,000
Depreciation expense
14,000
Gain on sale of equipment
6,000
If Penn uses the indirect method to prepare the operating activities section of the statement of cash flows, what amount will be reported as net cash
inflow from operating activities for 2012?
39. The following information is available from the current period financial statements of a company:
Net income
$150,000
Depreciation expense
28,000
Increase in accounts receivable
16,000
Decrease in accounts payable
21,000
40. Using the Direct Method
For the following question(s), indicate how each transaction described would be classified on a statement of
cash flows if the operating activities section is prepared under the direct method.
When using the direct method, where is depreciation expense recorded on the statement of cash flows?
41. Using the Direct Method
For the following question(s), indicate how each transaction described would be classified on a statement of
cash flows if the operating activities section is prepared under the direct method.
When using the direct method, where is the collection of cash from customers shown on the statement of cash
flows?
42. Using the Direct Method
For the following question(s), indicate how each transaction described would be classified on a statement of
cash flows if the operating activities section is prepared under the direct method.
When using the direct method, where are salaries paid to employees reported on the statement of cash flows?
43. Using the Direct Method
For the following question(s), indicate how each transaction described would be classified on a statement of
cash flows if the operating activities section is prepared under the direct method.
When using the direct method, where is the sale of long-term investments for cash reported on the statement of
cash flows?
44. Using the Direct Method
For the following question(s), indicate how each transaction described would be classified on a statement of
cash flows if the operating activities section is prepared under the direct method.
When using the direct method, where is the purchase of equipment for cash shown on the statement of cash
flows?
45. Using the Direct Method
For the following question(s), indicate how each transaction described would be classified on a statement of
cash flows if the operating activities section is prepared under the direct method.
When using the direct method, where is the purchase of equipment for cash shown on the statement of cash
flows?
46. Using the Direct Method
For the following question(s), indicate how each transaction described would be classified on a statement of
cash flows if the operating activities section is prepared under the direct method.
When using the direct method, where is the issuance of stock for cash shown on the statement of cash flows?
47. Using the Direct Method
For the following question(s), indicate how each transaction described would be classified on a statement of
cash flows if the operating activities section is prepared under the direct method.
When using the direct method, where is the retirement of bonds payable at their maturity date shown on the
statement of cash flows?
48. Using the Direct Method
For the following question(s), indicate how each transaction described would be classified on a statement of
cash flows if the operating activities section is prepared under the direct method.
When using the direct method, where is the payment of a cash dividend shown on the statement of cash flows?
49. Using the Indirect Method
For the following question(s), indicate how each transaction described would be classified on a statement of
cash flows if the operating activities section is prepared under the indirect method.
When using the indirect method, where is the issuance of stock to retire a long-term debt shown on the
statement of cash flows?
50. Using the Indirect Method
For the following question(s), indicate how each transaction described would be classified on a statement of
cash flows if the operating activities section is prepared under the indirect method.
When using the indirect method, where is depreciation expense recorded on the statement of cash flows?
51. Using the Indirect Method
For the following question(s), indicate how each transaction described would be classified on a statement of
cash flows if the operating activities section is prepared under the indirect method.
When using the indirect method, where is the decrease in accounts payable shown on the statement of cash
flows?
52. Using the Indirect Method
For the following question(s), indicate how each transaction described would be classified on a statement of
cash flows if the operating activities section is prepared under the indirect method.
When using the indirect method, where is the gain from selling a long-term investment appear on the statement
of cash flows? (The proceeds from selling the investment are considered separately.)
53. Using the Indirect Method
For the following question(s), indicate how each transaction described would be classified on a statement of
cash flows if the operating activities section is prepared under the indirect method.
When using the indirect method, where is an increase in accounts receivable during the year shown on the
statement of cash flows?
54. Using the Indirect Method
For the following question(s), indicate how each transaction described would be classified on a statement of
cash flows if the operating activities section is prepared under the indirect method.
When using the indirect method, where is the purchase of equipment for cash shown on the statement of cash
flows?
55. Using the Indirect Method
For the following question(s), indicate how each transaction described would be classified on a statement of
cash flows if the operating activities section is prepared under the indirect method.
When using the indirect method, where is the receipt of cash from the sale of long-term investments treated on
the statement of cash flows?
56. Using the Indirect Method
For the following question(s), indicate how each transaction described would be classified on a statement of
cash flows if the operating activities section is prepared under the indirect method.
When using the indirect method, where is the issuing of stock for cash shown on the statement of cash flows?
57. Using the Indirect Method
For the following question(s), indicate how each transaction described would be classified on a statement of
cash flows if the operating activities section is prepared under the indirect method.
When using the indirect method, where would the retirement of bonds payable at their maturity date be shown
on the statement of cash flows?
58. Using the Indirect Method
For the following question(s), indicate how each transaction described would be classified on a statement of
cash flows if the operating activities section is prepared under the indirect method.
When using the indirect method, where would the payment of cash dividends be shown on the statement of
cash flows?
59. When using the indirect method, which balance sheet accounts are most affected by investing activities?
60. Mimi’s Pies had the following results for December 31, 2011 and 2012, respectively:
2011
2012
Cash
$ 40,000
$ 50,000
Noncash current assets
160,000
190,000
Cash inflows from financing activities
210,000
Cash inflows from operating activities
90,000
What was the amount of cash flows from investing activities for 2012?
61. Which balance sheet accounts are most affected by financing activities?
62. Which of the following financing activities results in a cash inflow?
63. Upon review of Mack’s statement of cash flows, the following was noted:
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
From this information, the most likely explanation is that Mack is: