Chapter 13—Statement of Cash Flows Key
1. A statement of cash flows indicates the sources and uses of a firm’s cash during a period.
2. All SEC-registered firms must issue either an income statement or a statement of cash flows, but not both.
3. The same amount for “net cash from operating activities” will be obtained regardless of whether the direct
method or the indirect method is used to construct the statement of cash flows.
4. Transactions that involve the acquisition or sale of long-term assets are generally classified as operating
activities on the statement of cash flows.
5. The activity from the balance sheet to be presented in the financing activities section of the statement of cash
flows is based on an analysis of stockholders’ equity only.
6. Noncash investing and financing transactions, such as the exchange of common stock to purchase assets,
represent significant investing and financing activities and are disclosed in a supplementary schedule that is
attached to the statement of cash flows.
7. Under the indirect method of determining the net cash from operating activities on the statement of cash
flows, increases in current assets such as accounts receivable are added to net income.
8. Under the indirect method of determining the net cash from operating activities on the statement of cash
flows, depreciation is added to the net income for the period.
9. Cash received on the sale of equipment would be considered a financing activity on a statement of cash
flows.
10. Companies can use two different methods to report the amount of cash flow from their investing and
financing activities on the statement of cash flows.
11. If a firm uses the direct method for reporting operating activities on the statement of cash flows, it must
present a separate schedule which reconciles net income to net cash from operating activities.
12. The direct method of reporting the cash flows from operating activities on the statement of cash flows is the
method most widely used in practice.
13. A decrease in accounts payable is deducted from net income in the operating activities section of the
statement of cash flows prepared under the indirect method.
14. Investments in stock are reported as a financing activity on the statement of cash flows.
15. On the statement of cash flows, the indirect method adjusts ending retained earnings to reconcile it to the net
cash flows from operating activities.
16. An advantage to using a worksheet to organize the information of preparation of the statement of cash flows
is that it uses a spreadsheet format allowing the preparer to use a PC and spreadsheet software.
17. For a statement of cash flows, firms are required to classify their cash activities into three categories:
operating, investing, and borrowing.
18. The indirect method of reporting cash flows from operating activities involves reporting major classes of
cash receipts and cash payments.
19. Determining the cash flows from operating activities generally requires analyzing each item on the income
statement as well as the current asset and current liability accounts.
20. The sale of land for cash would be classified as a cash inflow from an investing activity.
21. A loss on the sale of equipment is added to net income in determining net cash from operating activities
under the indirect method.
22. Cash inflows that enter into the determination of net income are classified as financing activities on a
statement of cash flows.
23. Under the indirect method, the net cash flow from operating activities is computed by adjusting net income
to remove the effect of all deferrals of past operating cash receipts and payments, and all accruals of future
operating cash receipts or payments.
24. Cash flow activities that include the cash effect of transactions that create revenues and expenses and thus
enter into the determination of net income are classified as operating activities on the statement of cash flows.
25. The issuance of common stock in exchange for a building would appear both as a cash inflow in the
financing activities section of the cash flow statement and also as a cash outflow in the investing activities
section.
26. The primary purpose of the statement of cash flows is to
27. The statement of cash flows does not report the
28. The acquiring of land by issuing common stock is
29. The order of presentation of activities on the statement of cash flows is
30. Financing activities involve:
31. If a company has both an inflow and an outflow of cash related to property, plant, and equipment,
32. Which of the following transactions does not affect cash during a period?
33. Cash flows from operating activities, as reported on the statement of cash flows, would include:
34. Which one of the following affects cash during a period?
35. In calculating cash flows from operating activities using the indirect method, a gain on the sale of equipment
is
36. In calculating cash flows from operating activities using the indirect method, a loss on the sale of equipment
is
37. Starting with net income and adjusting it for items that affected reported net income but which did not affect
cash is called the
38. In calculating net cash from operating activities using the indirect method, an increase in prepaid expenses
during a period is
39. Using the indirect method, patent amortization expense for the period
40. In developing the cash flows from operating activities, most companies in the United States
41. Which of the following would be subtracted from net income using the indirect method?
42. Which of the following would be added to net income using the indirect method?
43. Which of the following would not be an adjustment to net income using the indirect method?
44. In calculating cash flows from operating activities using the indirect method, a loss on the sale of equipment
will appear as a(n)
45. Using the indirect method, if equipment is sold at a gain, the
46. The indirect and direct methods of preparing the statement of cash flows are identical except for the
47. In preparing the statement of cash flows, determining the net increase or decrease to cash requires the use
of
48. Which of the following would not be needed to determine net cash provided by operating activities?
49. Which of the following statement concerning the statement of cash flows is true?
50. Smith and Company 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?
51. Cash flows from acquiring and selling products are classified as
52. Cash flows from acquiring and disposing of long-term assets are classified as
53. Which balance sheet accounts are affected by operating activities?
54. Which balance sheet accounts are affected by investing activities?
55. Which balance sheet accounts are affected by financing activities?
56. Which method of preparing the operating activities section of the statement of cash flows adjusts net income
to remove the effects of deferrals and accruals for revenues and expenses?
57. The following items were reported on the balance sheets and income statement for Collin Inc.:
Accounts Receivable, December 31, 2005
$ 85,000
Accounts Receivable, December 31, 2006
78,000
Sales, 2006
750,000
How would the change in accounts receivable be reported in the operating activities section of the statement of cash flows using the indirect
method?
58. The following items were reported on the balance sheets and income statements of Marshall Company:
Accounts payable, December 31, 2005
$42,000
Accounts payable, December 31, 2006
48,000
Operating expenses
286,000
How would the change in accounts payable be reported in the operating activities section of the statement of cash flows under the indirect method?
59. Which of the following financing activities results in a cash inflow?
60. Which of the following operating activities results in a cash outflow?
61. Tracy Company reported the following information at the end of 2005 and 2006:
2005
2006
Land
$ 35,000
$ 90,000
Common Stock
200,000
255,000
An analysis of the company’s records indicated that there were no cash flow effects resulting from the changes in the two accounts presented above.
How should Tracy report the changes in these accounts on a statement of cash flows?
62. The Music Suite reported net income of $200,000. Cash from operating activities
63. Upon review of Johnson’s Statement of Cash Flows, the following was noted:
Cash flows from operating activities
$ 15,000
Cash flows from investing activities
80,000
Cash flows from financing activities
(60,000)
From this information, the most likely explanation is that Johnson is
64. Upon review of Susan’s Statement of Cash Flows, the following was noted:
Cash flows from operating activities
$75,000
Cash flows from investing activities
(135,000)
Cash flows from financing activities
125,000
From this information, the most likely explanation is that Susan is
65. The decision whether to use the direct or indirect method on the statement of cash flows is relevant with
respect to:
66. Moore Company’s net income last year was $56,000 and cash dividends declared and paid to the company
stockholders was $31,000. Changes in selected balance sheet accounts for the year appear below:
Increases (Decreases)
Debit balances:
Accounts receivable
$( 8,000)
Inventory
( 6000)
Prepaid expenses
12,000
Credit balances:
Accumulated Depreciation
23,000
Accounts payable
( 10,000)
Accrued liabilities
7,000
Taxes payable
5,000
Bonds payable
40,000
Based solely on this information, the net cash flows from operating activities under the indirect method on the statement of cash flows would be:
67. Nelson Company’s net income last year was $18,000 and cash dividends declared and paid to the company
stockholders was $12,000. Changes in selected balance sheet accounts for the year appear below:
Increases (Decreases)
Debit balances:
Accounts receivable
$( 6,000)
Inventory
5,000
Long-term investments
20,000
Credit balances:
Accumulated Depreciation
12,000
Accounts payable
8,000
Accrued liabilities
( 7,000)
Taxes payable
( 3,000)
Based solely on this information, the net cash flows from operating activities under the indirect method on the statement of cash flows would be:
68. Long Company’s net income last year was $43,000 and cash dividends declared and paid to the company
stockholders was $28,000. Changes in selected balance sheet accounts for the year appear below:
Increases (Decreases)
Debit balances:
Accounts receivable
$( 6,000)
Inventory
2,000
Long-term investments
40,000
Credit balances:
Accumulated Depreciation
19,000
Accounts payable
18,000
Accrued liabilities
( 5,000)
Taxes payable
4,000
Based solely on this information, the net cash flows from operating activities under the indirect method on the statement of cash flows would be:
69. Stacy Company’s net income last year was $27,000. Changes in selected balance sheet accounts for the year
appear below:
Increases (Decreases)
Debit balances:
Accounts receivable
$( 8,000)
Inventory
5,000
Prepaid expenses
( 4,000)
Credit balances:
Accumulated Depreciation
12,000
Accounts payable
11,000
Accrued liabilities
( 7,000)
Taxes payable
2,000
Based solely on this information, the net cash flows from operating activities under the indirect method on the statement of cash flows would be:
70. The data given below are from the accounting records of Kain Company:
Net Income
$40,000
Depreciation expense
8,000
Decrease in accounts payable
1,800
Decrease in merchandise inventory
2,500
Increase in long-term liabilities
10,000
Increase in common stock
25,000
Increase in accounts receivable
4,000
Based on this information, the net cash flows from operating activities on the statement of cash flows using the indirect method would be:
71. Last year Emmons Company reported a cost of goods sold of $115,000. Inventories decreased by $20,000
during the year, and accounts payable decreased by $15,000. The company uses the direct method to determine
the net cash flows from operating activities on the statement of cash flows. The cost of goods sold adjusted to a
cash basis would be:
72. Last year Maine Company reported a cost of goods sold of $110,000. Inventories increased by $30,000
during the year, and accounts payable decreased by $15,000. The company uses the direct method to determine
the net cash flows from operating activities on the statement of cash flows. The cost of goods sold adjusted to a
cash basis would be:
73. Last year Simpson Company reported a cost of goods sold of $105,000. Inventories decreased by $10,000
during the year, and accounts payable increased by $25,000. The company uses the direct method to determine
the net cash flows from operating activities on the statement of cash flows. The cost of goods sold adjusted to a
cash basis would be:
74. Last year Lawson Company reported sales of $150,000 on its income statement. During the year, accounts
receivable decreased by $15,000 and accounts payable decreased by $35,000. The company uses the direct
method to determine the net cash flows from operating activities on the statement of cash flows. The sales
revenue adjusted to a cash basis would be:
75. Last year Snyder Company reported sales of $125,000 on its income statement. During the year, accounts
receivable increased by $30,000 and accounts payable increased by $10,000. The company uses the direct
method to determine the net cash flows from operating activities on the statement of cash flows. The sales
revenue adjusted to a cash basis would be:
76. Total operating expenses on Tucker Company’s income statement for last year totaled $215,000. During the
year the accounts payable stayed the same, the accrued liabilities stayed the same, and prepaid expenses stayed
the same. Depreciation expense for the year was $11,000. Based on this information, operating expenses
adjusted to cash basis under the direct method on the statement of cash flows would be:
77. Total operating expenses on Legg Company’s income statement for last year totaled $260,000. During the
year the accrued liabilities decreased by $12,000, and prepaid expenses increased by $18,000. Depreciation
expense for the year were $25,000. Based on this information, operating expenses adjusted to cash basis under
the direct method on the statement of cash flows would be:
78. Total operating expenses on Harmon Company’s income statement for last year totaled $370,000. During
the year the accrued liabilities increased by $18,000, and prepaid expenses increased by $25,000. Depreciation
expense for the year were $45,000. Based on this information, operating expenses adjusted to cash basis under
the direct method on the statement of cash flows would be:
79. The following events occurred last year at Taylor Company:
Purchase of plant & equipment
$33,000
Sale of long-term investment
12,000
Stock Dividend Paid
6,000
Paid off bonds payable
15,000
Depreciation Expense
7,000
Based on the above information, the net cash flows from investing activities for the year on the statement of cash flows would be:
80. The following events occurred last year for the Cronin Company:
Purchase of treasury stock
30,000
Issuance of common stock
50,000
Payment of dividends to common stockholders
15,000
Sale of equipment
10,000
Considering just the above transactions, the net cash flows from financing activities on the statement of cash flows was:
81. Last year Kinslow Company’s cash account increased by $16,000. Net cash flows from investing activities
was ($39,000). Net cash flows from financing activities was $17,000. On the statement of cash flows, the net
cash flows from operating activities was:
82. Last year Frye Company’s cash account increased by $17,000. Net cash flows from investing activities was
($40,000). Net cash flows from financing activities was $2,000. On the statement of cash flows, the net cash
flows from operating activities was:
83. Last year Sheeder Company’s cash account decreased by $10,000. Net cash flows from investing activities
was $19,000. Net cash flows from financing activities was $(17,000). On the statement of cash flows, the net
cash flows from operating activities was:
84. Stillwater Inc. reported the following information for 2005 and 2006:
2005
2006
Accounts receivable
$51,000
$57,000
Inventories
42,000
39,000
Accounts payable
43,000
48,000
Net income
49,000
Depreciation Expense
8,000
If Stillwater 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 flows from operating activities for 2006?
85. Advance Systems Inc. reported the following information for 2005 and 2006:
2005
2006
Accounts receivable
$101,000
$93,000
Prepaid Expenses
5,000
6,000
Accounts payable
71,000
76,000
Salaries payable
5,000
4,000
Net income
67,000
Loss on sale of equipment
5,000
Depreciation Expense
11,000
If Advance Systems uses the INDIRECT method to prepare the operating activities section of the statement of cash flows, what amount will be
reported as net cash flows from operating activities for 2006?
86. Jamestown Inc. reported the following information for 2005 and 2006:
2005
2006
Cash
$ 42,000
$ 49,000
Noncash current assets
162,000
175,000
Cash flows from financing activities
313,000
Cash flows from operating activities
72,000
What was the amount of net cash flows from investing activities for 2006?
87. Accounts receivable arising from sales to customers amounted to $35,000 and $40,000 at the beginning and
end of the year, respectively. Income reported on the income statement for the year was $120,000. Exclusive of
the effect of other adjustments, the cash inflows from operating activities to be reported on the statement of cash
flows is:
88. Mayfair company reported net income of $30,000 for the year. During the year, accounts receivable
increased by $7,000, accounts payable decreased by $3,000 and depreciation expense of $5,000 was recorded.
Using the indirect method, net cash flows from operating activities for the year is:
89. A company had net income of $230,000. Depreciation expense is $26,000. During the year Accounts
Receivable and Inventory increased $15,000 and $40,000, respectively. Prepaid Expenses and Accounts
Payable decreased $2,000 and $4,000, respectively. There was also a loss on the sale of equipment of $3,000.
Using the indirect method, what is the amount of net cash flows from operating activities on the statement of
cash flows?
90. The net income reported on the income statement for the current year was $200,000. Depreciation recorded
on plant assets was $38,000. Accounts receivable and inventories increased by $2,000 and $8,000, respectively.
Prepaid expenses and Accounts Payable decreased by $1,000 and $11,000, respectively. Using the indirect
method, how much would be reported for net cash flows from operating activities in the statement of cash
flows?
91. The net income reported on the income statement for the current year was $100,000. Depreciation recorded
on plant assets was $25,000. Accounts receivable and inventories decreased by $5,000 and $15,000,
respectively. Prepaid expenses and Accounts Payable increased by $500 and $4,000, respectively. Using the
indirect method, how much would be reported for net cash flows from operating activities in the statement of
cash flows?
92. If a gain of $25,000 is incurred in selling (for cash) office equipment having a book value of $100,000, the
total amount reported to be reported in the cash flows from investing activities section of the statement of cash
flows is:
93. If a loss of $12,500 is incurred in selling (for cash) office equipment having a book value of $50,000, the
total amount reported in the cash flows from investing activities section of the statement of cash flows is
94. Land costing $78,000 was sold for $93,000 cash. The gain on the sale was reported on the income statement
as other income. On the statement of cash flows, what amount should be reported as an investing activity from
the sale of land?
95. The following transactions occurred last year at Jackson Inc.
Issuance of common stock
$ 80,000
Dividends paid to the company’s shareholders
1,000
Depreciation Expense
4,000
Repayment of principal on bonds
60,000
Proceeds from sale of the company’s used equipment
22,000
Purchase of land
140,000
Based solely on the above information, the net cash flows from financing activities for the year on the statement cash flows would be: