FOR INSTRUCTOR USE ONLY
CHAPTER 12
STATEMENT OF CASH FLOWS
SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY
Item
LO
BT
Item
LO
BT
Item
LO
BT
Item
LO
BT
Item
LO
BT
True-False Statements
1.
1
K
10.
2
C
19.
2
C
28.
4
C
*37.
6
C
2.
1
K
11.
2
K
20.
3
K
29.
5
K
*38.
6
C
3.
1
K
12.
2
K
21.
3
K
30.
5
K
*39.
6
K
4.
1
K
13.
2
K
22.
4
C
31.
5
C
*40.
7
K
5.
1
K
14.
2
C
23.
4
C
32.
5
K
*41.
7
K
6.
2
K
15.
2
C
24.
4
K
33.
5
C
7.
2
K
16.
2
C
25.
4
C
*34.
6
C
8.
2
C
17.
2
C
26.
4
C
*35.
6
AP
9.
2
K
18.
2
K
27.
4
C
*36.
6
K
Multiple Choice Questions
42.
1
K
71.
2
C
100.
4
K
129.
4
AP
158.
5
K
43.
1
K
72.
2
C
101.
4
C
130.
4
AP
159.
5
AN
44.
1
K
73.
2
C
102.
4
AP
131.
4
AP
160.
5
AN
45.
1
K
74.
2
K
103.
4
AP
132.
4
K
161.
5
AN
46.
1
K
75.
2
K
104.
4
AP
133.
4,6
AP
162.
5
AN
47.
1
K
76.
2
K
105.
4
C
134.
4,6
AP
163.
5
AN
48.
1
C
77.
2
K
106.
4
C
135.
4,6
C
164.
5
K
49.
2
K
78.
2
K
107.
4
C
136.
4,6
K
165.
5
K
50.
2
K
79.
2
AP
108.
4
C
137.
4,6
K
166.
5
AN
51.
2
K
80.
2
AP
109.
4
AP
138.
4,6
K
167.
5
AN
52.
2
K
81.
2
AP
110.
4
AP
139.
4,6
K
*168.
6
AP
53.
2
K
82.
2
AP
111.
4
AP
140.
4,6
K
*169.
6
AP
54.
2
K
83.
2
AP
112.
4
AP
141.
4,6
K
*170.
6
AP
55.
2
K
84.
2
K
113.
4
K
142.
4,6
AP
*171.
6
AP
56.
2
C
85.
2
AP
114.
4
C
143.
4,6
AP
*172.
6
AP
57.
2
C
86.
2
AP
115.
4
K
144.
4,6
AP
*173.
6
AP
58.
2
C
87.
2
AP
116.
4
K
145.
4,6
AP
*174.
6
AP
59.
2
C
88.
3
K
117.
4
K
146.
4,6
AP
*175.
6
C
60.
2
C
89.
3
K
118.
4
K
147.
4
C
*176.
6
AP
61.
2
C
90.
3
K
119.
4
K
148.
4
C
*177.
6
K
62.
2
C
91.
3
K
120.
4
C
149.
4
AP
*178.
6
AP
63.
2
C
92.
3
K
121.
4
C
150.
4
C
*179.
6
AP
64.
2
C
93.
3
K
122.
4
C
151.
4
C
*180.
6
K
65.
2
C
94.
3
K
123.
4
C
152.
4
C
*181.
6
K
66.
2
C
95.
3
C
124.
4
C
153.
5
K
*182.
6
AP
67.
2
C
96.
3
C
125.
4
C
154.
5
AP
*183.
6
AP
68.
2
C
97.
3
K
126.
4
AP
155.
5
AP
69.
2
K
98.
3
K
127.
4
AP
156.
5
K
70.
2
C
99.
3
AN
128.
4
AP
157.
5
K
Brief Exercises
184.
2
AP
187.
4
AP
190.
4
AP
*193.
6
AP
185.
2
AP
188.
4
K
*191.
6
AP
*194.
6
AP
186.
2
K
189.
4
K
*192.
6
AP
*195.
6
AP
Exercises
196.
4
AP
200.
4
AP
204.
4,5
AP
*208.
6
AP
197.
4
AP
201.
4
AP
205.
4,5
AP
*209.
6
AP
198.
4
AP
202.
4
AP
206.
5
AN
*210.
6
AP
199.
4
AP
203.
4
AN
*207.
5,6
AP
*211.
6
AP
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
FOR INSTRUCTOR USE ONLY
12-2
Completion Statements
Item
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BT
Item
SO
BT
Item
SO
BT
Item
SO
BT
Item
SO
BT
212.
1
K
215.
3
K
218.
4
K
221.
5
K
*224.
6
K
213.
2
K
216.
3
K
219.
4,6
K
*222.
6
K
*225.
6
K
214.
3
K
217.
4
K
220.
5
K
*223.
6
K
Matching
226.
2
AP
*227.
6
AP
Short Answer Essay
228.
1
K
230.
3
K
232.
4
C
234.
4,6
C
236.
4,6
E
229.
2
C
231.
3,4
C
233.
4,6
C
*235.
6
C
237.
1
C
*This topic is dealt with in an Appendix to the chapter.
SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE
Learning Objective 1
Item
Type
Item
Type
Item
Type
Item
Type
Item
Type
Item
Type
1.
TF
4.
TF
43.
MC
46.
MC
212.
C
2.
TF
5.
TF
44.
MC
47.
MC
228.
SA
3.
TF
42.
MC
45.
MC
48.
MC
237.
SA
Learning Objective 2
6.
TF
16.
TF
55.
MC
65.
MC
75.
MC
85.
MC
7.
TF
17.
TF
56.
MC
66.
MC
76.
MC
86.
MC
8.
TF
18.
TF
57.
MC
67.
MC
77.
MC
87.
MC
9.
TF
19.
TF
58.
MC
68.
MC
78.
MC
184.
BE
10.
TF
49.
MC
59.
MC
69.
MC
79.
MC
185.
BE
11.
TF
50.
MC
60.
MC
70.
MC
80.
MC
186.
BE
12.
TF
51.
MC
61.
MC
71.
MC
81.
MC
213.
C
13.
TF
52.
MC
62.
MC
72.
MC
82.
MC
226.
Ma
14.
TF
53.
MC
63.
MC
73.
MC
83.
MC
229.
SA
15.
TF
54.
MC
64.
MC
74.
MC
84.
MC
Learning Objective 3
20.
TF
89.
MC
92.
MC
95.
MC
98.
MC
231.
SA
21.
TF
90.
MC
93.
MC
96.
MC
99.
MC
88.
MC
91.
MC
94.
MC
97.
MC
230.
SA
Statement of Cash Flows
FOR INSTRUCTOR USE ONLY
12-3
Learning Objective 4
Item
Type
Item
Type
Item
Type
Item
Type
Item
Type
Item
Type
22.
TF
107.
MC
121.
MC
135.
MC
149.
MC
202.
Ex
23.
TF
108.
MC
122.
MC
136.
MC
150.
MC
203.
Ex
24.
TF
109.
MC
123.
MC
137.
MC
151.
MC
204.
Ex
25.
TF
110.
MC
124.
MC
138.
MC
152.
MC
205.
Ex
26.
TF
111.
MC
125.
MC
139.
MC
187.
BE
217.
C
27.
TF
112.
MC
126.
MC
140.
MC
188.
BE
218.
C
28.
TF
113.
MC
127.
MC
141.
MC
189.
BE
219.
C
100.
MC
114.
MC
128.
MC
142.
MC
190.
BE
231.
SA
101.
MC
115.
MC
129.
MC
143.
MC
196.
Ex
232.
SA
102.
MC
116.
MC
130.
MC
144.
MC
197.
Ex
233.
SA
103.
MC
117.
MC
131.
MC
145.
MC
198.
Ex
234.
SA
104.
MC
118.
MC
132.
MC
146.
MC
199.
Ex
236.
SA
105.
MC
119.
MC
133.
MC
147.
MC
200.
Ex
106.
MC
120.
MC
134.
MC
148.
MC
201.
Ex
Learning Objective 5
29.
TF
153.
MC
158.
MC
163.
MC
204.
Ex
221.
C
30.
TF
154.
MC
159.
MC
164.
MC
205.
Ex
31.
TF
155.
MC
160.
MC
165.
MC
206.
Ex
32.
TF
156.
MC
161.
MC
166.
MC
207.
Ex
33.
TF
157.
MC
162.
MC
167.
MC
220.
C
Learning Objective 6
34.
TF
137.
MC
168.
MC
178.
MC
195.
BE
227.
Ma
35.
TF
138.
MC
169.
MC
179.
MC
207.
Ex
233.
SA
36.
TF
139.
MC
170.
MC
180.
MC
208.
Ex
234.
SA
37.
TF
140.
MC
171.
MC
181.
MC
209.
Ex
235.
SA
38.
TF
141.
MC
172.
MC
182.
MC
210.
Ex
236.
SA
39.
TF
142.
MC
173.
MC
183.
MC
211.
Ex
133.
MC
143.
MC
174.
MC
191.
BE
222.
C
134.
MC
144.
MC
175.
MC
192.
BE
223.
C
135.
MC
145.
MC
176.
MC
193.
BE
224.
C
136.
MC
146.
MC
177.
MC
194.
BE
225.
C
Learning Objective 7
40.
TF
41.
TF
Note: TF = True-False C = Completion
MC = Multiple Choice Ex = Exercise
Ma = Matching SA = Short Answer Essay
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
FOR INSTRUCTOR USE ONLY
12-4
CHAPTER LEARNING OBJECTIVES
1. Indicate the usefulness of the statement of cash flows. The statement of cash flows
provides information about the cash receipts, cash payments, and net change in cash
resulting from the operating, investing, and financing activities of a company during the
period.
2. Distinguish among operating, investing, and financing activities. Operating activities
include the cash effects of transactions that enter into the determination of net income.
Investing activities involve cash flows resulting from changes in investments and long-term
asset items. Financing activities involve cash flows resulting from changes in long-term
liability and stockholders’ equity items.
3. Explain the impact of the product life cycle on a company’s cash flows. During the
introductory stage, cash provided by operating activities and cash from investing are
negative, and cash from financing is positive. During the growth stage, cash provided by
operating activities becomes positive but is still not sufficient to meet investing needs. During
the maturity stage, cash provided by operating activities exceeds investing needs, so the
company begins to retire debt. During the decline stage, cash provided by operating activities
is reduced, cash from investing becomes positive (from selling off assets), and cash from
financing becomes more negative.
4. Prepare a statement of cash flows using the indirect method. The preparation of the
statement of cash flows involves three major steps: (1) Determine net cash provided/used by
operating activities by converting net income from an accrual basis to a cash basis. (2)
Analyze changes in noncurrent asset and liability accounts and record as investing and
financing activities, or disclose as noncash transactions. (3) Compare the net change in cash
on the statement of cash flows with the change in the cash account reported on the balance
sheet to make sure the amounts agree.
5. Use the statement of cash flows to evaluate a company. A number of measures can be
derived by using information from the statement of cash flows as well as the other required
financial statements. Free cash flow indicates the amount of cash a company generated
during the current year that is available for the payment of dividends or for expansion.
Liquidity can be measured with the current cash debt coverage (cash provided by operating
activities divided by average current liabilities). Solvency can be measured by the cash debt
coverage (cash provided by operating activities divided by average total liabilities).
*6. Prepare a statement of cash flows using the direct method. The preparation of the
statement of cash flows involves three major steps: (1) Determine net cash provided/used by
operating activities by converting net income from an accrual basis to a cash basis. (2)
Analyze changes in noncurrent asset and liability accounts and record as investing and
financing activities, or disclose as noncash transactions. (3) Compare the net change in cash
on the statement of cash flows with the change in the cash account reported on the balance
sheet to make sure the amounts agree. The direct method reports cash receipts less cash
payments to arrive at net cash provided by operating activities.
*7.Use the T-account approach to prepare a statement of cash flows. To use T-accounts to
prepare the statement of cash flows: (1) prepare a large Cash T-account with sections for
operating, investing, and financing activities; (2) prepare smaller T-accounts for all other
noncash accounts; (3) insert beginning and ending balances for all accounts; and (4) follow
the steps in Illustration 12-4 (page 633), enter debit and credit amounts as needed.
Statement of Cash Flows
12-5
TRUE-FALSE STATEMENTS
1. The statement of cash flows is a required statement that must be prepared along with an
income statement, balance sheet, and retained earnings statement.
2. For external reporting, a company must prepare either an income statement or a statement
of cash flows, but not both.
3. A primary objective of the statement of cash flows is to show the income or loss on
investing and financing transactions.
4. The primary purpose of the statement of cash flows is to provide information about a
company’s cash receipts and cash payments during an accounting period.
5. A statement of cash flows indicates the sources and uses of cash during a period.
6. The statement of cash flows shows the effects on net income of a company’s operating,
investing, and financing activities for an accounting period.
7. Operating activities include the cash effects of transactions that create revenues and
expenses.
8. 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.
9. The statement of cash flows explains the difference between net income, as shown on the
income statement, and the net cash flows generated from operations.
10. In preparing a statement of cash flows, the issuance of debt should be reported separately
from the retirement of debt.
11. Noncash investing and financing activities must be reported in the body of a statement of
cash flows.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
12-6
12. Noncash investing and financing transactions, such as the exchange of common stock to
purchase assets, represent significant investing and financing activities and are reflected
either in a schedule separate from the statement of cash flows or in a separate note to the
financial statements.
13. The statement of cash flows classifies cash receipts and payments as operating,
nonoperating, financial, and extraordinary activities.
14. The sale of land for cash would be classified as a cash inflow from an investing activity.
15. Cash flow from investing activities is considered the most important category on the
statement of cash flows because it is considered the best measure of expected income.
16. The receipt of dividends from long-term investments in stock is classified as a cash inflow
from investing activities.
17. The payment of interest on bonds payable is classified as a cash outflow from operating
activities.
18. Any item that appears on the income statement would be considered as either a cash
inflow or cash outflow from operating activities.
19. The acquisition of a building by issuing bonds would be considered an investing and
financing activity that did not affect cash.
20. The growth phase of the product life cycle occurs when the company is purchasing fixed
assets and beginning to produce and sell.
21. During the maturity phase, cash from operations and net income are approximately the
same.
22. A loss on sale of equipment is added to net income in determining cash provided by
operations under the indirect method.
Statement of Cash Flows
12-7
23. Under the indirect method, gains and losses from the sale of equipment used in operations
would be included in the cash flows from operating activities section on the statement of
cash flows.
24. Cash provided by operations is generally equal to operating income.
25. Using the indirect method, an increase in accounts receivable during a period is deducted
from net income in calculating cash provided by operations.
26. 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 not emphasized.
27. Using the indirect method, an increase in accounts payable during a period is deducted
from net income in calculating cash provided by operations.
28. In preparing a statement of cash flows, an increase in the Common Stock and Treasury
Stock accounts during a period would be an investing activity.
29. Free cash flow is cash from operations less dividends.
30. The current cash debt coverage ratio is computed by dividing net cash provided by
operations by average total liabilities.
31. The cash debt coverage ratio indicates a company’s ability to repay its liabilities from cash
generated from operations.
32. The cash basis measure of liquidity is the cash debt coverage ratio.
33. The current cash debt coverage ratio is considered a better representative of liquidity than
the current ratio because it involves the entire year rather than a balance at one point in
time.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
FOR INSTRUCTOR USE ONLY
12-8
*34. During a period, cost of goods sold plus an increase in inventory plus an increase in
accounts payable equals cash paid to suppliers.
*35. During the year, Income Tax Expense amounted to $12,500 and Income Taxes Payable
increased by $1,500; therefore, the cash paid for income taxes was $11,000.
*36. In computing net cash flow from operating activities using the direct method, each item in
the income statement is adjusted from the accrual basis to the cash basis.
*37. An increase in inventory would be added to cost of goods sold to determine net purchases
for the period.
*38. As an adjustment to operating expenses per the income statement, an increase in accrued
liabilities would be added to operating expenses to determine cash payments for operating
expenses.
*39. Using the direct method, major classes of investing and financing activities are listed in the
operating activities section.
*40. The change in cash is equal to the change in liabilities less the change in equity plus the
change in noncash assets.
*41. Analysis of the changes in all of the noncash balance sheet accounts will explain the
change in the Cash account.
Answers to True-False Statements
Statement of Cash Flows
12-9
MULTIPLE CHOICE QUESTIONS
42. The statement of cash flows
a. must be prepared on a daily basis.
b. summarizes the operating, financing, and investing activities of an entity.
c. is another name for the income statement.
d. is a special section of the income statement.
43. Which one of the following items is not generally used in preparing a statement of cash
flows?
a. Adjusted trial balance.
b. Comparative balance sheets.
c. Current income statement.
d. Additional information.
44. The primary purpose of the statement of cash flows is to
a. provide information about the investing and financing activities during a period.
b. prove that revenues exceed expenses if there is a net income.
c. provide information about the cash receipts and cash payments during a period.
d. facilitate banking relationships.
45. If a company reports a net loss, it
a. may still have a net increase in cash.
b. will not be able to pay cash dividends.
c. will not be able to get a loan.
d. will not be able to make capital expenditures.
46. In addition to the three basic financial statements, which of the following is also a required
financial statement?
a. The Cash Budget.
b. Statement of Cash Flows.
c. Statement of Cash Inflows and Outflows.
d. The Cash Reconciliation.
47. The statement of cash flows will not report the
a. amount of checks outstanding at the end of the period.
b. sources of cash in the current period.
c. uses of cash in the current period.
d. change in the cash balance for the current period.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
12–10
48. All of the following statements are true regarding cash flow presentations except
a. the balance sheet provides only limited information about a company’s cash flows.
b. the balance sheet provides information about how property, plant, and equipment were
financed.
c. the income statement does not show how much cash was generated by operating
activities.
d. if cash from operations is compared to net income, information about the quality of
reported net income is revealed.
49. The acquisition of land by issuing common stock is
a. a noncash transaction that is not reported in the body of a statement of cash flows.
b. a cash transaction and would be reported in the body of a statement of cash flows.
c. a noncash transaction and would be reported in the body of a statement of cash flows.
d. only reported if the statement of cash flows is prepared using the direct method.
50. The order of presentation of activities on the statement of cash flows is
a. operating, investing, and financing.
b. operating, financing, and investing.
c. financing, operating, and investing.
d. financing, investing, and operating.
51. Financing activities involve
a. lending money.
b. acquiring investments.
c. issuing debt.
d. acquiring long-lived assets.
52. Investing activities include
a. collecting cash on loans made.
b. obtaining cash from creditors.
c. obtaining capital from owners.
d. repaying money previously borrowed.
53. Generally, the most important category on the statement of cash flows is cash flows from
a. operating activities.
b. investing activities.
c. financing activities.
d. significant noncash activities.
Statement of Cash Flows
12–11
54. The category that is generally considered to be the best measure of a company’s ability to
continue as a going concern is
a. cash flows from operating activities.
b. cash flows from investing activities.
c. cash flows from financing activities.
d. usually different from year to year.
55. Cash receipts from interest and dividends are classified as
a. financing activities.
b. investing activities.
c. operating activities.
d. either financing or investing activities.
56. Assume that the Fitzgerald Corporation uses the indirect method to depict cash flows.
Indicate where, if at all, a stock dividend declared and issued would be classified on the
statement of cash flows.
a. Operating activities section.
b. Investing activities section.
c. Financing activities section.
d. Does not represent a cash flow.
57. Assume that the Fitzgerald Corporation uses the indirect method to depict cash flows.
Indicate where, if at all, accounts receivable collected would be classified on the statement
of cash flows.
a. Operating activities section.
b. Investing activities section.
c. Financing activities section.
d. Does not represent a cash flow.
58. Assume that the Fitzgerald Corporation uses the indirect method to depict cash flows.
Indicate where, if at all, inventory purchased with cash would be classified on the
statement of cash flows.
a. Operating activities section.
b. Investing activities section.
c. Financing activities section.
d. Does not represent a cash flow.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
12–12
59. Assume that the Fitzgerald Corporation uses the indirect method to depict cash flows.
Indicate where, if at all, long-term debt retired with cash would be classified on the
statement of cash flows.
a. Operating activities section.
b. Investing activities section.
c. Financing activities section.
d. Does not represent a cash flow.
60. Assume that the Quinn Corporation uses the indirect method to depict cash flows. Indicate
where, if at all, interest paid on note would be classified on the statement of cash flows.
a. Operating activities section.
b. Investing activities section.
c. Financing activities section.
d. Does not represent a cash flow.
61. Assume that the Quinn Corporation uses the indirect method to depict cash flows. Indicate
where, if at all, stock issued for equipment would be classified on the statement of cash
flows.
a. Operating activities section.
b. Investing activities section.
c. Financing activities section.
d. Does not represent a cash flow.
62. Assume that the Quinn Corporation uses the indirect method to depict cash flows. Indicate
where, if at all, dividends received on securities held would be classified on the statement
of cash flows.
a. Operating activities section.
b. Investing activities section.
c. Financing activities section.
d. Does not represent a cash flow.
63. Assume that the Quinn Corporation uses the indirect method to depict cash flows. Indicate
where, if at all, income taxes paid would be classified on the statement of cash flows.
a. Operating activities section.
b. Investing activities section.
c. Financing activities section.
d. Does not represent a cash flow.
Statement of Cash Flows
12–13
64. Assume that the E-Zip Corporation uses the indirect method to depict cash flows. Indicate
where, if at all, common stock issued for cash would be classified.
a. Operating activities section.
b. Investing activities section.
c. Financing activities section.
d. Does not represent a cash flow.
65. Assume that the E-Zip Corporation uses the indirect method to depict cash flows. Indicate
where, if at all, land purchased for cash would be classified on the statement of cash flows.
a. Operating activities section.
b. Investing activities section.
c. Financing activities section.
d. Does not represent a cash flow.
66. Assume that the E-Zip Corporation uses the indirect method to depict cash flows. Indicate
where, if at all, land and building purchased with a mortgage would be classified on the
statement of cash flows.
a. Operating activities section.
b. Investing activities section.
c. Financing activities section.
d. Does not represent a cash flow.
67. Assume that the E-Zip Corporation uses the indirect method to depict cash flows. Indicate
where, if at all, treasury stock purchased with cash would be classified on the statement of
cash flows.
a. Operating activities section.
b. Investing activities section.
c. Financing activities section.
d. Does not represent a cash flow.
68. If a company has both an inflow and outflow of cash related to property, plant, and
equipment, the ______________ in the investing activities section.
a. two cash effects must be netted and presented as one item
b. cash inflow and cash outflow must be reported separately
c. cash outflow is only is presented
d. cash inflow and cash outflow can either be reported separately or presented as one
item
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
12–14
69. Of the items below, the one that appears first on the statement of cash flows is
a. noncash investing and financing activities.
b. net increase (decrease) in cash.
c. cash at the end of the period.
d. cash at the beginning of the period.
70. Which of the following transactions does not affect cash during a period?
a. Write-off of an uncollectible account.
b. Collection of an accounts receivable.
c. Sale of treasury stock.
d. Redeeming bonds before maturity.
71. Significant noncash transactions would not include
a. conversion of bonds into common stock.
b. asset acquisition through bond issuance.
c. treasury stock acquisition.
d. exchange of plant assets.
72. Preferred stock issued in exchange for land would be reported in the statement of cash
flows in
a. the cash flows from financing activities section.
b. the cash flows from investing activities section.
c. a separate schedule or note to the financial statements.
d. the cash flows from operating section.
73. In preparing a statement of cash flows, a conversion of bonds into common stock will be
reported in
a. the financing section.
b. the “extraordinary” section.
c. a separate schedule or note to the financial statements.
d. the stockholders’ equity section.
74. On the statement of cash flows, the cash flows from operating activities section would
include
a. receipts from the issuance of capital stock.
b. receipts from the sale of investments.
c. payments for the acquisition of investments.
d. cash receipts from sales activities.
Statement of Cash Flows
12–15
75. Cash flows from operating activities, as reported on the statement of cash flows under the
indirect method, would include
a. receipts from the sale of investments.
b. net income.
c. payments for dividends.
d. receipts from the issuance of capital stock.
76. The issuance of debt to purchase assets would be classified as a(n)
a. operating activity.
b. investing activity.
c. financing activity.
d. none of these answers are correct.
77. The payment of a cash dividend would be classified as a(n)
a. operating activity.
b. investing activity.
c. financing activity.
d. significant noncash activity.
78. Which of the following activities would be classified as an investing activity?
a. Cash received from interest revenue.
b. Cash paid (loaned) to a borrower as a loan.
c. Cash received from dividend revenue.
d. Cash paid to reacquire capital stock.
79. Zoum Corporation had the following transactions during 2014:
1. Issued $125,000 of par value common stock for cash.
2. Recorded and paid wages expense of $60,000.
3. Acquired land by issuing common stock of par value $50,000.
4. Declared and paid a cash dividend of $10,000.
5. Sold a long-term investment (cost $3,000) for cash of $3,000.
6. Recorded cash sales of $400,000.
7. Bought inventory for cash of $160,000.
8. Acquired an investment in Zynga stock for cash of $21,000.
9. Converted bonds payable to common stock in the amount of $500,000.
10. Repaid a 6 year note payable in the amount of $220,000.
What is the net cash provided by operating activities?
a. $305,000.
b. $290,000.
c. $240,000.
d. $180,000.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
12–16
80. Zoum Corporation had the following transactions during 2014:
1. Issued $125,000 of par value common stock for cash.
2. Recorded and paid wages expense of $60,000.
3. Acquired land by issuing common stock of par value $50,000.
4. Declared and paid a cash dividend of $10,000.
5. Sold a long-term investment (cost $3,000) for cash of $3,000.
6. Recorded cash sales of $400,000.
7. Bought inventory for cash of $160,000.
8. Acquired an investment in Zynga stock for cash of $21,000.
9. Converted bonds payable to common stock in the amount of $500,000.
10. Repaid a 6 year note payable in the amount of $220,000.
What is the net cash provided by financing activities?
a. $<105,000>.
b. $395,000.
c. $<605,000>.
d. $115,000.
81. Zoum Corporation had the following transactions during 2014:
1. Issued $125,000 of par value common stock for cash.
2. Recorded and paid wages expense of $60,000.
3. Acquired land by issuing common stock of par value $50,000.
4. Declared and paid a cash dividend of $10,000.
5. Sold a long-term investment (cost $3,000) for cash of $3,000.
6. Recorded cash sales of $400,000.
7. Bought inventory for cash of $160,000.
8. Acquired an investment in Zynga stock for cash of $21,000.
9. Converted bonds payable to common stock in the amount of $500,000.
10. Repaid a 6 year note payable in the amount of $220,000.
What is the net cash provided by investing activities?
a. $432,000.
b. $212,000
c. ($18,000).
d. ($68,000).
82. APS Company issued 15,000 shares of $1 par common stock for $40 per share during
2014. The company paid dividends of $36,000 and issued long-term notes payable of
$330,000 during the year. What amount of cash flows from financing activities will be
reported on the statement of cash flows?
a. $9,000 net cash inflow.
b. $264,000 net cash inflow.
c. $705,000 net cash outflow.
d. $894,000 net cash inflow.
Statement of Cash Flows
12–17
83. Vangaurd Company purchased treasury stock with a cost of $55,000 during 2014. During
the year, the company paid dividends of $20,000 and issued bonds payable for proceeds
of $836,000. Cash flows from financing activities for 2014 total
a. $816,000 net cash inflow.
b. $831,000 net cash inflow.
c. $75,000 net cash outflow.
d. $761,000 net cash inflow.
84. Which of the following is the first step in preparing the statement of cash flows?
a. Determine the net cash provided by operating activities.
b. Determine the net income.
c. Determine net cash provided by investing and financing activities.
d. Determine the net increase (decrease) in cash.
85. McLaughlin Company issued common stock for proceeds of $372,000 during 2014. The
company paid dividends of $66,000 and issued a long-term note payable for $250,000 in
exchange for equipment during the year. The company also purchased treasury stock that
had a cost of $54,000. The financing section of the statement of cash flows will report net
cash inflows of
a. $252,000.
b. $556,000.
c. $306,000.
d. $502,000.
86. During 2014, Lowes Company sold equipment with a book value of $90,000 for proceeds
of $109,000. The company purchased new equipment for $240,000 by signing a long-term
note payable. No other transactions impacted long-term asset accounts during 2014. The
investing section of the statement of cash flows will report
a. net cash outflows of $226,000.
b. net cash outflows of $131,000.
c. net cash inflows of $109,000.
d. net cash inflows of $14,000.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
12–18
87. In Jackson Jones Company, land decreased $180,000 because of a cash sale for
$180,000, the equipment account increased $60,000 as a result of a cash purchase, and
Bonds Payable increased $200,000 from issuance for cash at face value. The net cash
provided by investing activities is
a. $180,000.
b. $320,000.
c. $120,000.
d. $140,000.
88. In order to determine net cash provided by operating activities, a company must convert
net income from an accrual basis to a cash basis under
a. the direct method only.
b. the indirect method only.
c. both the direct method and the indirect method.
d. neither the direct nor the indirect method.
89. Cash from investing becomes positive and cash from financing becomes more negative
during the
a. introductory phase.
b. growth phase.
c. maturity phase.
d. decline phase.
90. Cash generated from operations exceeds investing needs, and the company can begin
retiring debt during the
a. introductory phase.
b. growth phase.
c. maturity phase.
d. decline phase.
91. Collections on accounts receivable will lag behind sales, and accrual sales during a period
will exceed cash collections during the
a. introductory phase.
b. growth phase.
c. maturity phase.
d. decline phase.
Statement of Cash Flows
12–19
92. A company would be expected to generate small amounts of cash from operations during
the
a. introductory phase.
b. growth phase.
c. maturity phase.
d. decline phase.
93. The phase in the product life cycle when a company is purchasing fixed assets and
beginning to produce and sell is the
a. introductory phase.
b. growth phase.
c. maturity phase.
d. decline phase.
94. Cash from operations and net income are approximately the same during the
a. introductory phase.
b. growth phase.
c. maturity phase.
d. decline phase.
95. Which of the following is not typically a characteristic experienced by a company during the
introductory phase of the corporate life cycle?
a. Cash used in operations will exceed cash generated by operations.
b. Considerable cash will be used to purchase productive assets.
c. Cash from investing is positive.
d. Cash from financing is positive.
96. Which of the following is not typically a characteristic experienced by a company during the
growth phase of the corporate life cycle?
a. Cash from operations on the statements of cash flows will be less than net income on
the income statement.
b. Collections on accounts receivable will lag behind sales.
c. Cash from investing is positive.
d. Cash from financing is positive.
97. Which of the following would not create a cash flow?
a. Sale of equipment at book value.
b. Purchase of a delivery truck.
c. Payment of a cash dividend.
d. The company converts bonds into common stock.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
12–20
98. The information to prepare the statement of cash flows comes from all of the following
sources except
a. comparative balance sheets.
b. additional transaction data about cash provided or used during the period.
c. adjusted trial balance.
d. current income statement.
99. The information in the following table is from the statement of cash flows for a company at
four different points in time (Period 1, Period 2, Period 3, and Period 4). Negative values
are presented in parentheses.
Period 1
Period 2
Period 3
Period 4
Cash provided by operations
$ (180,000)
$ 90,000
$ 360,000
$ 50,000
Cash provided by investing
(300,000)
75,000
90,000
(120,000)
Cash provided by financing
290,000
(220,000)
($170,000)
$420,000
Net income
(120,000)
30,000
300,000
(15,000)
Based on this information, which of the following answers most likely corresponds with the
introductory phase, growth phase, maturity phase, or decline phase?
a. Period 2, Period 1, Period 3, Period 4.
b. Period 1, Period 4, Period 3, Period 2.
c. Period 3, Period 4, Period 1, Period 2.
d. Period 4, Period 3, Period 2, Period 1.
100. Which one of the following items is not necessary in preparing a statement of cash flows?
a. Determine the change in cash.
b. Determine the cash provided by operations.
c. Determine cash from financing and investing activities.
d. Determine the cash in each of the bank accounts.
101. If accounts receivable have increased during the period
a. revenues on an accrual basis are less than revenues on a cash basis.
b. revenues on an accrual basis are greater than revenues on a cash basis.
c. revenues on an accrual basis are the same as revenues on a cash basis.
d. expenses on an accrual basis are greater than expenses on a cash basis.