CHAPTER 21: THE STATEMENT OF CASH FLOWS
1. Receipts of dividends from investments in equity securities would be reported in the financing activities section of the
cash flow statement.
a.
True
b.
False
False
1
Easy
ACCT.WHAL.16.21.1 – LO: 21.1
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
2. Generating positive cash flows from operations is one of the most important cash flow activities of a company.
a.
True
b.
False
True
1
Easy
ACCT.WHAL.16.21.1 – LO: 21.1
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
3. GAAP allows the use of either the direct or indirect method but prefers the direct method. Companies who use the
indirect method must also include a separate schedule reconciling net income to net cash flow provided by operating
activities.
a.
True
b.
False
False
1
Easy
ACCT.WHAL.16.21.2 – LO: 21.2
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
4. Under IFRS, a company is allowed to report dividends and interest received as either an operating or a financing cash
inflow.
a.
True
b.
False
False
1
Easy
ACCT.WHAL.16.21.2 – LO: 21.2
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
5. The visual inspection method is used when a company has simple financial statements and when the relationships
between the changes in account balances can be easily analyzed.
a.
True
b.
False
True
1
Easy
ACCT.WHAL.16.21.3 – LO: 21.3
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
6. The visual inspection method does not provide supporting documentation for the statement of cash flows due to its
simplistic nature.
a.
True
b.
False
True
1
Easy
ACCT.WHAL.16.21.3 – LO: 21.3
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
7. The spreadsheet method is designed to determine changes in each income statement account and then reconstruct the
implied effects of those changes on cash.
a.
True
b.
False
False
1
Easy
ACCT.WHAL.16.21.4 – LO: 21.4
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
8. Under the spreadsheet method of preparing the cash flow statement, a company uses a spreadsheet to determine and
reconstruct the changes in cash for each asset, liability, and shareholder’s equity.
a.
True
b.
False
True
1
Easy
ACCT.WHAL.16.21.4 – LO: 21.4
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
9. When employees exercise share options, the company records the gross proceeds received from the employees
exercising options as cash inflows from investing activities.
a.
True
b.
False
False
1
Easy
ACCT.WHAL.16.21.5 – LO: 21.5
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
10. For reporting operating cash flows under the indirect method, a company adds an unrealized holding loss on trading
securities to net income to help adjust net income from an accrual basis to a cash basis.
a.
True
b.
False
True
1
Easy
ACCT.WHAL.16.21.5 – LO: 21.5
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
11. Under the direct method of reporting operating cash flows, a company deducts its operating cash outflows from its
operating cash inflows to determine its net cash provided by (or used) in operating activities.
a.
True
b.
False
True
1
Easy
ACCT.WHAL.16.21.6 – LO: 21.6
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
12. Under the direct method of reporting operating cash flows, a company computes the cash outflows for operating
activities by adjusting the various expense accounts for changes in certain liability accounts and deferred revenues,
and also eliminates certain “noncash” expenses or losses.
a.
True
b.
False
True
1
ACCT.WHAL.16.21.6 – LO: 21.6
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
13. In order to prepare the statement of cash flows under the direct method, a company will need the adjusted trial balance
from the previous period.
a.
True
b.
False
False
1
Easy
ACCT.WHAL.16.21.7 – LO: 21.7
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
14. The adjusted trial balance is used in the preparation of the statement of cash flows because it contains the balance
sheet, income statement, and retained earnings statements for the current period.
a.
True
b.
False
True
1
Easy
ACCT.WHAL.16.21.7 – LO: 21.7
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
15. In a statement of cash flows, increases or decreases in noncurrent assets are most closely associated with
a.
operating activities.
b.
investing activities.
c.
financing activities.
d.
investing or financing activities.
b
1
Easy
ACCT.WHAL.16.21.1 – LO: 21.1
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
16. What is the primary purpose of a company’s statement of cash flows?
a.
b.
c.
d.
d
1
Easy
ACCT.WHAL.16.21.1 – LO: 21.1
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
17. In a statement of cash flows, which of the following events would be classified as a financing activity?
a.
the purchase of a trading security
b.
the payment of interest on a loan
c.
the payment of cash dividends to shareholders
d.
all of these answer choices are correct
c
1
Easy
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
18. Which of the following events would be classified as an investing activity on a statement of cash flows?
a.
the payment of interest on a loan
b.
the receipt of cash dividends on an available-for-sale investment
c.
the issuance of common stock
d.
the sale of an office building at its book value
1
Easy
ACCT.WHAL.16.21.1 – LO: 21.1
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
19. In a statement of cash flows, the payment of a cash dividend on common stock outstanding should be classified as
cash outflows for
a.
operating activities.
b.
investing activities.
c.
credit activities.
d.
financing activities.
d
1
Easy
ACCT.WHAL.16.21.1 – LO: 21.1
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
20. In a statement of cash flows using the indirect method, which of the following events would not be classified as an
operating activity?
a.
a gain from sale of equipment
b.
the receipt of a cash dividend
c.
proceeds from the issuance of bonds
d.
interest expense paid on a loan.
d
1
Easy
ACCT.WHAL.16.21.1 – LO: 21.1
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
21. Which of the following events would be classified as an operating activity in a statement of cash flows?
a.
receipt of cash dividend on an equity-method investment
b.
sale of a long-term investment
c.
issuing notes payable
d.
payment of cash dividends
a
1
Easy
ACCT.WHAL.16.21.1 – LO: 21.1
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
22. Which statement best defines a company’s operating cash inflows?
a.
collections from customers and shareholders
b.
collections from customers and shareholders and earnings from investments
c.
collections from customers and earnings from investments
d.
collections from customers
c
1
Easy
ACCT.WHAL.16.21.2 – LO: 21.2
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
23. According to current GAAP, cash flow per share statistics
a.
are required disclosures only if EPS information is disclosed.
b.
are not allowed disclosures.
c.
are required disclosures for the direct method only.
d.
are required disclosures in all situations.
b
1
Easy
ACCT.WHAL.16.21.2 – LO: 21.2
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
24. A cash flow statement is one of the basic financial statements that is required under
IFRS
GAAP
I.
No
Yes
II.
No
No
III.
Yes
No
IV.
Yes
Yes
a.
I
b.
II
c.
III
d.
IV
d
1
Easy
ACCT.WHAL.16.21.2 – LO: 21.2
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
25. Which statement is false? Current GAAP
a.
requires that the cash flows from the issuance of stock be reported as a financing activity and not be included
in net cash flow from operating activities.
b.
does not allow cash flow per share reporting in a company’s financial statements.
c.
states that under the indirect method, a company must report its operating cash inflows separately from its
operating cash outflows.
d.
requires that the cash inflows and cash outflows for related investing activities as well as related financing
activities be shown separately and not netted against each other.
c
1
Easy
ACCT.WHAL.16.21.2 – LO: 21.2
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Remembering
26. The Roberts Company reported net income of $190,000 in 2016. Additional information follows:
Depreciation expense
$28,000
Loss on sale of equipment
20,000
Gain on sale of land
27,000
Given just this information, what was the Roberts Company’s net cash provided by operating activities in 2016?
a.
$115,000
b.
$169,000
c.
$211,000
d.
$162,000
c
1
Moderate
ACCT.WHAL.16.21.2 – LO: 21.2
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Understanding
27. The following information relates to the Joshua, Inc:
Depreciation expense
$ 500
Increase in salaries payable
50
Purchased operating equipment
700
Net income
3,000
Paid long term note payable
600
Paid dividends
900
Increase in accounts receivable
400
What is the net cash provided by operating activities?
a.
$2,100
b.
$2,650
c.
$3,200
d.
$3,150
d
1
Moderate
ACCT.WHAL.16.21.2 – LO: 21.2
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Analyzing
28. The following information relates to the Stork Company:
Paid note payable
$ 150
Bought equipment
1260
Depreciation expense
1,500
Net income
5,000
Paid dividends
500
Issued bonds payable
1,100
Issued common stock
900
Sold land
3,400
What is the net cash provided by financing activities?
a.
$1,350
b.
$1,850
c.
$2,350
d.
$5,850
a
1
Moderate
ACCT.WHAL.16.21.2 – LO: 21.2
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Understanding
29. Which of the following statements is true regarding GAAP and reporting operating activities on the statement of cash
flows?
a.
The direct method is required of large companies.
b.
GAAP expresses a preference for the indirect method.
c.
GAAP expresses a preference for the direct method.
d.
GAAP did not express a preference for either the direct or indirect method.
c
1
Easy
ACCT.WHAL.16.21.2 – LO: 21.2
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
30. Which of the following would be added to net income in computing cash flows from operating activities?
a.
an increase in accounts receivable
b.
an increase in inventories
c.
a decrease in deferred taxes payable
d.
a decrease in prepaid expenses
d
1
Easy
ACCT.WHAL.16.21.2 – LO: 21.2
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Remembering
31. Selected accounting information regarding the Chime Corporation in 2016 follows:
Net cash provided by operating activities
$900,000
Common stock issued as a result of a stock dividend
(fair value)
100,000
Common stock issued for cash
400,000
Proceeds from sale of building
300,000
In 2016, Chime should report a net increase in cash of
a.
$1,100,000.
b.
$1,200,000.
c.
$1,600,000.
d.
$1,700,000.
c
1
Moderate
ACCT.WHAL.16.21.2 – LO: 21.2
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Analyzing
32. A company sold equipment for $5,000. The equipment originally cost $16,000 and had accumulated depreciation of
$12,000. Which of the following statements is correct regarding the statement of cash flows prepared using the
indirect method to report operating activities?
a.
$5,000 will be added to net income.
b.
Investing activities will reflect proceeds of $4,000 from the sale.
c.
$1,000 will be added to net income.
d.
$1,000 will be deducted from net income.
d
1
Moderate
ACCT.WHAL.16.21.2 – LO: 21.2
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Analyzing
33. Which of the following events would not result in a cash inflow?
a.
sale of preferred convertible stock
b.
common stock issued as a stock dividend
c.
reissuance of treasury stock
d.
loss of building destroyed by hurricane but partially reimbursed by insurance
b
1
Easy
ACCT.WHAL.16.21.2 – LO: 21.2
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
34. In a statement of cash flows prepared by the indirect method, which of the following events would be deducted from
net income?
a.
increase in accrued pension cost
b.
loss on the sale of an available-for-sale investment
c.
proceeds from the sale of plant assets
d.
amortization expense on a patent
a
1
Moderate
ACCT.WHAL.16.21.2 – LO: 21.2
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
35. In a statement of cash flows prepared by the indirect method, an increase in accounts receivable should be
a.
deducted from net income in the operating activities section.
b.
added to net income in the operating activities section.
c.
reported as an inflow in the investing activities section.
d.
reported as an inflow in the financing activities section.
a
1
Moderate
ACCT.WHAL.16.21.4 – LO: 21.4
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Understanding
36. In a statement of cash flows prepared by the indirect method, which of the following events would be added to net
income?
a.
the sale of a company automobile at a gain.
b.
income in excess of dividends received from an equity-method investment
c.
proceeds from the sale of an available-for-sale investment
d.
loss on the sale of plant assets
d
Moderate
ACCT.WHAL.16.21.2 – LO: 21.2
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Understanding
37. When preparing a statement of cash flows under the indirect method, an increase in ending accounts receivable over
beginning accounts receivable will result in an adjustment to net income in the operating activities section because
a.
cash was increased since accounts receivable is a current asset.
b.
the accounts receivable increase was a revenue included in net income, but it was not a source of cash.
c.
the net increase in accounts receivable decreases net sales and represents an assumed use of cash.
d.
all changes in noncash accounts must be disclosed on the cash flow statement.
b
1
Moderate
ACCT.WHAL.16.21.2 – LO: 21.2
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Understanding
38. Which of the following items would be deducted from net income to determine the net cash provided by operating
activities using the indirect method?
a.
gain on sale of noncurrent assets and amortization of discount on investment in bonds.
b.
amortization of bonds payable premium and amortization of intangibles.
c.
loss on sale of noncurrent assets and amortization of discount on investment in bonds.
d.
gain on sale of noncurrent assets and amortization of premium on investment in bonds.
a
1
Moderate
ACCT.WHAL.16.21.2 – LO: 21.2
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Understanding
39. Unlike GAAP, IFRS encourage the disclosure of all of the following except
a.
reconciliation of net income to operating cash flows when the direct method is used in the cash flow statement.
b.
undrawn borrowing capacity available for operating activities.
c.
separation of cash flows that increase operating capacity from those that maintain operating capacity.
d.
operating, investing, and financing activities by segment.
a
Easy
ACCT.WHAL.16.21.2 – LO: 21.2
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
40. Treatments of items in the cash flow statement that differ between IFRS and GAAP include all of the following
except the allowed treatment of
a.
any cash outflows for development costs that were capitalized as intangible assets.
b.
losses on the early retirement of bonds.
c.
bank overdrafts.
d.
income taxes related to financing and investing activities.
b
1
Moderate
ACCT.WHAL.16.21.2 – LO: 21.2
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Understanding
41. One area of difference between GAAP and IFRS cash flow reporting is the
a.
treatment of losses on sale of equipment.
b.
general categories required for various types of cash flows.
c.
use of the direct or indirect method of reporting operating cash flows.
d.
allowed classifications of dividends and interest paid or received.
d
1
Moderate
ACCT.WHAL.16.21.2 – LO: 21.2
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Understanding
42. The IFRS categories of cash flows are
a.
long-term changes and short-term changes.
b.
operating and other.
c.
operating, investing, and financing.
d.
operating and nonoperating.
c
1
Easy
ACCT.WHAL.16.21.2 – LO: 21.2
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
43. Mayberry’s statement of cash flow is completed using the visual inspection method. Information regarding the
Mayberry Company in 2016 appears below:
Net income
$140,000
Dividends paid
20,000
Decrease in inventory
15,000
Increase in accounts payable
30,000
Proceeds from issue of common stock
70,000
Depreciation expense
10,000
What was Mayberry’s net increase in cash?
a.
$190,000
b.
$225,000
c.
$245,000
d.
$255,000
c
1
Moderate
ACCT.WHAL.16.21.3 – LO: 21.3
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Analyzing
44. Mavis Company’s statement of cash flows showed net cash provided by operating activities of $47,000 in 2016. Mavis
reported an increase in accounts payable of $6,000, an increase in inventory of $2,000, depreciation expense of
$3,000, and dividends paid of $8,000. Mavis’s net income for 2016 was
a.
$48,000.
b.
$40,000.
c.
$39,000.
d.
$32,000.
b
1
Moderate
ACCT.WHAL.16.21.3 – LO: 21.3
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Understanding
45. Angel Heating Co. reported $27,000 of net income. The company uses the visual inspection method to complete the
statement of cash flows. Additional information is listed below:
Account
Change
Prepaid assets
$400 increase
Inventory
700 decrease
Accounts payable
250 decrease
Dividends payable
50 increase
The net cash provided by operating activities was
a.
$27,150.
b.
$27,050.
c.
$26,900.
d.
$26,850.
b
1
Moderate
ACCT.WHAL.16.21.3 – LO: 21.3
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Analyzing
46. Marty uses the visual inspection method for preparing the statement of cash flows. Selected information for Marty
Company during 2016 follows:
Jan. 1
Dec. 31
Accounts payable
$ 45
$ 52
Accounts receivable
60
68
Common stock
400
412
Patent amortization
30
27
Inventory
70
60
If Marty reported net income of $320, what was the net cash provided by operating activities for 2016?
a.
$329
b.
$330
c.
$332
d.
$342
c
1
Moderate
ACCT.WHAL.16.21.3 – LO: 21.3
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Analyzing
47. Bernard, Inc. prepares a statement of cash flows using the visual inspection method. In 2016, Bernard had net income
of $54,000. In addition, the following information is available:
Gain on sale of land
$16,000
Decrease in inventories
10,000
Amortization of patents
4,000
Increase in prepaid expenses
3,000
What net cash provided by operating activities should Bernard report in 2016?
a.
$46,000
b.
$72,000
c.
$49,000
d.
c
1
Moderate
ACCT.WHAL.16.21.3 – LO: 21.3
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Analyzing
$50,000
Exhibit 21-1
The Raymond Corporation reported $11,000 of net income for the current year and also uses the visual inspection
method for completing the statement of cash flows. The following additional information relates to Raymond for the
year:
Subsidiary gain included in investment income under the
equity method
$ 370
Decrease in inventory
80
Loss on disposal of equipment
900
Proceeds from disposal of equipment
1,400
Depreciation expense
1,200
Acquisition of treasury stock
650
Increase in accounts payable
290
Acquisition of new securities (accounted for using the
equity method)
500
Decrease in deferred income tax liability
210
Early retirement of bonds payable at book value
1,000
Increase in interest receivable
30
48. Refer to Exhibit 21-1. What is Raymond’s net cash provided by operating activities?
a.
$11,540
b.
$12,210
c.
$12,860
d.
$14,800
c
1
Moderate
ACCT.WHAL.16.21.3 – LO: 21.3
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Analyzing
49. Refer to Exhibit 21-1. What is Raymond’s net cash provided by investing activities?
a.
$ 250
b.
$ 900
c.
$2,170
d.
$3,370
b
1
Challenging
ACCT.WHAL.16.21.3 – LO: 21.3
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Analyzing
50. Refer to Exhibit 21-1. What is Raymond’s net cash used by financing activities?
a.
$(1,240)
b.
$(1,650)
c.
$(1,860)
d.
$(2,150)
b
1
Challenging
ACCT.WHAL.16.21.3 – LO: 21.3
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement