Chapter 14—Statement of Cash Flows Key
1. The statement of cash flows is not one of the basic financial statements.
2. Cash, as the term is used for the statement of cash flows, could indicate either cash or cash equivalents.
3. The statement of cash flows is an optional financial statement.
4. The statement of cash flows shows the effects on cash of a company’s operating, investing, and financing
activities.
5. The statement of cash flows reports a firm’s major sources of cash receipts and major uses of cash payments
for a period.
6. Cash flows from operating activities, as part of the statement of cash flows, include cash transactions that
enter into the determination of net income.
7. To arrive at cash flows from operations, it is necessary to convert the income statement from an accrual basis
to the cash basis of accounting.
8. Cash flows from investing activities, as part of the statement of cash flows, include receipts from the sale of
land.
9. Cash flows from financing activities, as part of the statement of cash flows, include payments for dividends.
10. Cash flows from investing activities, as part of the statement of cash flows, include payments for the
purchase of treasury stock.
11. Cash flows from investing activities, as part of the statement of cash flows, include receipts from the
issuance of bonds payable.
12. There are two alternatives to reporting cash flows from operating activities in the statement of cash flows:
(1) the direct method and (2) the indirect method.
13. The direct method of preparing the operating activities section of the statement of cash flows reports major
classes of gross cash receipts and gross cash payments.
14. Under the direct method of reporting cash flows from operations, the major source of cash is cash received
from customers.
15. The main disadvantage of the direct method of reporting cash flows from operating activities is that the
necessary data are often costly to accumulate.
16. A major disadvantage of the indirect method of reporting cash flows from operating activities is that the
difference between the net amount of cash flows from operating activities and net income is emphasized.
17. Cash outflows from financing activities include the payment of cash dividends, the acquisition of treasury
stock, and the repayment of amounts borrowed.
18. Cash flows from investing activities, as part of the statement of cash flows, include payments for the
acquisition of fixed assets.
19. The acquisition of land in exchange for common stock is an example of noncash investing and financing
activity.
20. If a business issued bonds payable in exchange for land, the transaction would be reported in a separate
schedule on the statement of cash flows.
21. A cash flow per share amount should be reported on the statement of cash flows.
22. When using the worksheet method to analyzing noncash accounts , no order of analysis is required, but it is
more efficient to start with Retained Earnings and proceed upward in the account listing.
23. Rarely would the cash flows from operating activities, as reported on the statement of cash flows, be the
same as the net income reported on the income statement.
24. Using the indirect method, if land costing $85,000 was sold for $145,000, the amount reported in the
financing activities section of the statement of cash flows would be $85,000.
25. If land costing $145,000 was sold for $205,000, the $60,000 gain on the sale would be added to net income
in of the operating activities section of the statement of cash flows (prepared by the indirect method).
26. In preparing the cash flows from operating activities section of the statement of cash flows by the indirect
method, the net decrease in inventories from the beginning to the end of the period is added to net income for
the period.
27. In determining the cash flows from operating activities for the statement of cash flows by the indirect
method, the depreciation expense for the period is added to the net income for the period.
28. In preparing the cash flows from operating activities section of the statement of cash flows by the indirect
method, the amortization of bond discount for the period is deducted from the net income for the period.
29. If cash dividends of $135,000 were paid during the year and the company sold 1,000 shares of common
stock at $30 per share, the statement of cash flows would report net cash flow from financing activities as
$165,000.
30. The declaration and issuance of a stock dividend would be reported on the statement of cash flows.
31. If 800 shares of $40 par common stock are sold for $43,000, the $43,000 would be reported in the cash
flows from financing activities section of the statement of cash flows.
32. If $475,000 of bonds payable are sold at 101, $475,000 would be reported in the cash flows from financing
activities section of the statement of cash flows.
33. Net income was $51,000 for the year. The accumulated depreciation balance increased by $14,000 over the
year. There were no sales of fixed assets or changes in noncash current assets or liabilities. Under the indirect
method, the cash flow from operations is $37,000.
34. Net income for the year was $29,500. Accounts receivable increased $2,500, and accounts payable
increased $5,400. Under the indirect method, the cash flow from operations is $32,400.
35. A building with a cost of $153,000 and accumulated depreciation of $42,000 was sold for a $11,000
gain. When using the indirect method, the cash generated from this investing activity was $121,000.
36. Under the indirect method, expenses that do not affect cash are added to net income in the operating
activities section of the statement of cash flows.
37. Cash paid to acquire treasury stock should be shown on the statement of cash flows from investing
activities.
38. Repayments of bonds would be shown as a cash outflow in the investing section of the statement of cash
flows.
39. Purchasing equipment by issuing a six-month note should be shown on the statement of cash flows under
the investing activities section.
40. In preparing the statement of cash flows, the correct order of reporting cash activities is Financing,
Operating, Investing.
41. Cash inflows and outflows are not netted in the investing or financing sections of the statement of cash
flows but are separately disclosed to give the reader full information.
42. There is no difference in the Investing and Financing sections of the statement of cash flows using the
indirect and direct method.
43. Under the direct method of preparing a Statement of Cash Flows, the gain on the sale of land is not adjusted
or reported as part of cash flows from operating activities.
44. The manner of reporting cash flows from investing and financing activities will be different under the direct
method as compared to the indirect method.
45. Sales reported on the income statement were $372,000. The accounts receivable balance declined $4,500
over the year. The amount of cash received from customers was $367,500.
46. To determine cash payments for merchandise for the cash flow statement using the direct method, a
decrease in accounts payable is added to the cost of merchandise sold.
47. To determine cash payments for operating expenses for the cash flow statement using the direct method, a
decrease in prepaid expenses is added to operating expenses other than depreciation.
48. To determine cash payments for operating expenses for the cash flow statement using the direct method, a
decrease in accrued expenses is added to operating expenses other than depreciation.
49. To determine cash payments for income tax for the cash flow statement using the direct method, an increase
in income taxes payable is added to the income tax expense.
50. Free cash flow is cash flow from operations, less cash used to purchase fixed assets to maintain productive
capacity and cash used for dividends.
51. Free cash flow is the measure of operating cash flow available for corporate purposes after providing
sufficient fixed asset additions to maintain current productive capacity and dividends.
52. Which of the following is not one of the four basic financial statements?
53. Which of the following concepts of cash is not appropriate to use in preparing the statement of cash flows?
54. Which of the following can be found on the statement of cash flows?
55. On the statement of cash flows, the cash flows from operating activities section would include
56. Preferred stock issued in exchange for land would be reported in the statement of cash flows in
57. Cash paid to purchase long-term investments would be reported in the statement of cash flows in
58. Which of the following would not be found in a Schedule of Noncash Investing and Financing Activities,
reported at the end of a Statement of Cash Flows?
59. Which of the following does not represent an outflow of cash and therefore would not be reported on the
statement of cash flows as a use of cash?
60. Which of the following represents an inflow of cash and therefore would be reported on the statement of
cash flows?
61. A ten-year bond was issued at par for $250,000 cash. This transaction should be shown on a statement of
cash flows under
62. Cash paid for preferred stock dividends should be shown on the statement of cash flows under
63. The last item on the statement of cash flows prior to the schedule of noncash investing and financing
activities reports
64. Which of the following is a noncash investing and financing activity?
65. Which of the following should be shown on a statement of cash flows under the financing activity section?
66. A company purchases equipment for $32,000 cash. This transaction should be shown on the statement of
cash flows under
67. Cash flow per share is
68. On the statement of cash flows prepared by the indirect method, the cash flows from operating activities
section would include
69. The statement of cash flows is not useful for:
70. Cash receipts received from the issuance of a mortgage notes payable would be classified as
71. The order of presentation of activities on the statement of cash flows is
72. Financing activities include
73. Investing activities include
74. Cash receipts from interest and dividends are classified as
75. Depreciation on factory equipment would be reported in the statement of cash flows prepared by the indirect
method in
76. Which of the following should be added to net income in calculating net cash flow from operating activities
using the indirect method?
77. Which of the following should be deducted from net income in calculating net cash flow from operating
activities using the indirect method?
78. Which of the following below increases cash?
79. Which one of the following below would not be classified as an operating activity?
80. Which one of the following below should be added to net income in calculating net cash flow from
operating activities using the indirect method?
81. On the statement of cash flows prepared by the indirect method, a $50,000 gain on the sale of investments
would be
82. Accounts receivable from sales transactions were $51,000 at the beginning of the year and $64,000 at the
end of the year. Net income reported on the income statement for the year was $105,000. Exclusive of the
effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash
flows prepared by the indirect method is
83. The net income reported on the income statement for the current year was $275,000. Depreciation recorded
on fixed assets and amortization of patents for the year were $40,000 and $9,000, respectively. Balances of
current asset and current liability accounts at the end and at the beginning of the year are as follows:
Beginning
Cash
$ 60,000
Accounts receivable
108,000
Inventories
93,000
Prepaid expenses
6,500
Accounts payable (merchandise creditors)
89,000
What is the amount of cash flows from operating activities reported on the statement of cash flows prepared by the indirect method?
84. The following information is available from the current period financial statements:
Net income
$175,000
Depreciation expense
28,000
Increase in accounts receivable
16,000
Decrease in accounts payable
21,000
The net cash flow from operating activities using the indirect method is
85. On the statement of cash flows, the cash flows from investing activities section would include
86. A building with a book value of $54,000 is sold for $63,000 cash Using the indirect method, this
transaction should be shown on the statement of cash flows as follows:
D. an increase of $54,000 from investing activities and an addition to net income of $9,000
87. Cash paid for equipment would be reported in the statement of cash flows in
88. If a gain of $11,000 is realized in selling (for cash) office equipment having a book value of $55,000, the
total amount reported in the cash flows from investing activities section of the statement of cash flows is
89. Which of the following types of transactions would be reported as a cash flow from investing activity on the
statement of cash flows?
90. Land costing $140,000 was sold for $173,000 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?
91. Equipment with an original cost of $75,000 and accumulated depreciation of $20,000 was sold at a loss of
$7,000. As a result of this transaction, cash would
92. On the statement of cash flows, the cash flows from financing activities section would include
93. On the statement of cash flows, the cash flows from financing activities section would include all of the
following except
94. Cash dividends paid on capital stock would be reported in the statement of cash flows in
95. Cash dividends of $45,000 were declared during the year. Cash dividends payable were $10,000 at the
beginning of the year and $15,000 at the end of the year. The amount of cash for the payment of dividends
during the year is
96. On the statement of cash flows, a $7,500 gain on the sale of fixed assets would be
97. A business issues 20-year bonds payable in exchange for preferred stock. This transaction would be
reported on the statement of cash flows in
98. Land costing $71,000 was sold for $50,000 cash. The loss on the sale was reported on the income
statement as other expense. On the statement of cash flows, what amount should be reported as an investing
activity from the sale of land?
99. The current period statement of cash flows includes the flowing:
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
100. Which of the following should be deducted from net income in calculating net cash flow from operating
activities using the indirect method?
101. Which of the following should be added to net income in calculating net cash flow from operating
activities using the indirect method?
102. The net income reported on the income statement for the current year was $250,000. Depreciation
recorded on fixed assets and amortization of patents for the year were $40,000 and $9,000,
respectively. Balances of current asset and current liability accounts at the end and at the beginning of the year
are as follows:
Beginning
Cash
$ 60,000
Accounts receivable
108,000
Inventories
93,000
Prepaid expenses
6,500
Accounts payable (merchandise creditors)
89,000
What is the amount of cash flows from operating activities reported on the statement of cash flows prepared by the indirect method?
103. The following information is available from the current period financial statements:
Net income
$165,000
Depreciation expense
28,000
Increase in accounts receivable
16,000
Decrease in accounts payable
21,000
The net cash flow from operating activities using the indirect method is
104. Cash dividends of $50,000 were declared during the year. Cash dividends payable were $10,000 and
$5,000 at the beginning and end of the year, respectively. The amount of cash for the payment of dividends
during the year is
105. Accounts receivable from sales to customers amounted to $40,000 and $32,000 at the beginning and end of
the year, respectively. Income reported on the income statement for the year was $110,000. Exclusive of the
effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash
flows is
D. $150,000.
106. Baxter Company reported a net loss of $13,000 for the year ended December 31, 2010. During the year,
accounts receivable decreased by $5,000, merchandise inventory increased by $8,000, accounts payable
increased by $10,000, and depreciation expense of $4,000 was recorded. During 2010, operating activities
107. A company had net income of $252,000. Depreciation expense is $26,000. During the year, Accounts
Receivable and Inventory increased by $15,000 and $40,000, respectively. Prepaid Expenses and Accounts
Payable decreased by $2,000 and $4,000, respectively. There was also a loss on the sale of equipment of
$3,000. How much cash was provided by operating activities?
108. Zenith Corporation sells some of its used store fixtures. The acquisition cost of the fixtures is $12,500, the
accumulated depreciation on these fixtures is $9,750 at the time of sale. The fixtures are sold for $5,300. The
value of this transaction in the Investing section of the statement of cash flows is:
109. A corporation uses the indirect method for preparing the Statement of Cash Flows. A fixed asset has been
sold for $25,000 representing a gain of $4,500. The value in the operating activities section regarding this
event would be:
110. Accounts receivable resulting from sales to customers amounted to $40,000 and $31,000 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 flows from operating activities to be reported on the
statement of cash flows is
111. If accounts payable have increased during a period
112. In calculating cash flows from operating activities using the indirect method, a gain on the sale of
equipment is
113. Rogers Company reported net income of $35,000 for the year. During the year, accounts receivable
increased by $7,000, accounts payable decreased by $3,000 and depreciation expense of $8,000 was
recorded. Net cash provided by operating activities for the year is
114. On the statement of cash flows, the cash flows from operating activities section would include
115. The cost of merchandise sold during the year was $50,000. Merchandise inventories were $12,500 and
$10,500 at the beginning and end of the year, respectively. Accounts payable were $6,000 and $5,000 at the
beginning and end of the year, respectively. Using the direct method of reporting cash flows from operating
activities, cash payments for merchandise total
116. Sales for the year were $600,000. Accounts receivable were $100,000 and $80,000 at the beginning and
end of the year. Cash received from customers to be reported on the cash flow statement using the direct
method is
117. Operating expenses other than depreciation for the year were $400,000. Prepaid expenses increased by
$17,000 and accrued expenses decreased by $30,000 during the year. Cash payments for operating expenses to
be reported on the cash flow statement using the direct method would be
118. The following selected account balances appeared on the financial statements of the Washington
Company:
Accounts Receivable, Jan. 1
$13,000
Accounts Receivable, Dec. 31
9,000
Accounts Payable, Jan 1
4,000
Accounts payable Dec. 31
7,000
Merchandise Inventory, Jan 1
10,000
Merchandise Inventory, Dec 31
15,000
Sales
56,000
Cost of Goods Sold
31,000
The Washington Company uses the direct method to calculate net cash flow from operating activities.
Cash collections from customers are
119. The following selected account balances appeared on the financial statements of the Washington
Company:
Accounts Receivable, Jan. 1
$13,000
Accounts Receivable, Dec. 31
9,000
Accounts Payable, Jan 1
4,000
Accounts payable Dec. 31
7,000
Merchandise Inventory, Jan 1
10,000
Merchandise Inventory, Dec 31
15,000
Sales
56,000
Cost of Goods Sold
31,000
The Washington Company uses the direct method to calculate net cash flow from operating activities.
Cash paid to suppliers is