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1) The statement of cash flows ________.
A) reports all of the cash a company has received and all of the cash a company has disbursed
during an accounting period
B) reports all of the income, expenses, and profit or losses a company has earned or incurred
during an accounting period
C) reports the amount of assets, liabilities, and shareholders’ equity of a business
D) reports all of the income, dividends, and retained earnings of a business
2) The statement of cash flows reports ________.
A) all of the cash a company has received and all of the cash a company has disbursed during an
accounting period
B) all of the income, expenses, profit or losses a company has earned or incurred during an
accounting period
C) the change in total assets during an accounting period
D) all of the sources and uses of shareholders’ equity
3) The statement of cash flows does NOT report cash flows from ________.
A) operating activities
B) investing activities
C) financing activities
D) budgeting activities
4) A statement NOT required by FASB to comply with GAAP is ________.
A) a balance sheet
B) an income statement
C) a statement of cash flows
D) a cash budget
5) The statement of cash flows reports the ________.
A) sources and uses of cash
B) financial position of a company
C) changes in shareholders’ equity
D) profitability of a company
6) A cash budget ________.
A) reports cash inflows and outflows from operating, investing, and financing activities
B) is a detailed plan of a company’s estimated cash receipts and disbursements
C) is prepared using the indirect method
D) is prepared using the direct method
7) Cash budgets allow companies to plan for any cash shortage by ________.
A) securing a line of credit from a local bank
B) borrowing money
C) altering the timing of receipts or disbursements
D) all of these
8) The preparation of cash budgets includes ________.
A) estimating in detail the amount and the timing of cash receipts and disbursements
B) categorizing cash inflows and outflows by operating, financing, and investing activities
C) securing a line of credit from a bank
D) all of these
9) The cash budget ________.
A) is one of the financial statements required by the SEC and FASB
B) is used by management to anticipate any cash flow shortages
C) has three sections: operating, investing, and financing
D) all of these
10) Preparation of the cash budget starts ________.
A) with net income and makes adjustments for all the items that are not cash
B) by converting every number on the income statement to its cash amount
C) by estimating the sources of cash and the uses of cash
D) with cash collected from customers
11) The statement of cash flows shows all of ________ the period.
A) the cash a company has collected and paid during
B) the revenues earned and expenses incurred during
C) assets, liabilities and shareholders’ equity at the end of
D) the changes in shareholders’ equity during
12) Cash from operating activities includes ________.
A) all cash receipts and all cash disbursements for long-term business assets
B) all cash receipts and all cash disbursements for loans, contributions from owners, and
distributions to owners
C) all cash receipts and cash disbursements for routine sales and payments made in the course of
doing business
D) detailed estimates of the sources of cash and uses of cash
13) Cash paid to vendors is characterized as an ________ activity.
A) inflow from investing
B) outflow for investing
C) inflow from operating
D) outflow for operating
14) The statement of cash flows is required by ________.
A) U.S. GAAP only
B) IFRS only
C) both U.S. GAAP and IFRS
D) neither U.S. GAAP nor IFRS
15) Cash budgets are required by ________.
A) U.S. GAAP
B) IFRS
C) both U.S. GAAP and IFRS
D) neither U.S. GAAP nor IFRS
16) Cash collections from customers is a(n) ________ activity on the statement of cash flows.
A) operating
B) investing
C) financing
D) indirect
17) Cash proceeds from the sale of land is a(n) ________ activity on the statement of cash flows.
A) operating
B) investing
C) financing
D) indirect
18) Cash proceeds from a new stock issue is a(n) ________ activity on the statement of cash
flows.
A) operating
B) investing
C) financing
D) indirect
19) Repayment of a loan is a(n) ________ activity on the statement of cash flows.
A) operating
B) investing
C) financing
D) indirect
20) Cash dividends paid to shareholders is a(n) ________ activity on the statement of cash flows.
A) operating
B) investing
C) financing
D) indirect
21) The preparation of the statement of cash flows includes the calculation of all of the following
EXCEPT the ________.
A) net increase (or decrease) in total cash
B) net cash inflows (or outflows) from operating activities
C) net cash inflows (or outflows) from investing activities
D) net increase (or decrease) in retained earnings
22) The preparation of the statement of cash flows includes the calculation of all of the following
EXCEPT the ________.
A) net cash inflows (or outflows) from financing activities
B) net cash inflows (or outflows) from free cash flows
C) net cash inflows (or outflows) from operating activities
D) net cash inflows (or outflows) from investing activities
23) Cash from operating activities includes cash ________.
A) collected from customers
B) paid for land
C) received from loans
D) paid for dividends
24) The statement of cash flows is one of the four financial statements a company must prepare
as part of GAAP.
25) The statement of cash flows is one of the four financial statements a company must prepare
as part of International Financial Reporting Standards (IFRS).
26) The statement of cash flows shows all of the income a company earned during a period and
the dividends it has declared.
27) The statement of cash flows shows all the cash a company has received and all the cash a
company has paid during the accounting period.
28) Cash transactions related to buying and selling assets that the firm plans to use for longer
than one year are investing activities.
29) Cash transactions related to loans and cash contributions from and distributions to owners are
investing activities.
30) The statement of cash flows shows all of the cash a company has received and all the cash a
company has paid from operating, investing, and manufacturing during the accounting period.
31) Each cash flow reported in the statement of cash flows relates to operating, investing, or
financing activities.
32) The statement of cash flows explains the details of the change in the cash balance during an
accounting period.
33) A statement of cash flows is a detailed plan of a company’s estimated cash receipts and
estimated cash payments.
34) A cash budget is a detailed plan of a company’s estimated cash receipts and estimated cash
disbursements.
35) Only companies seeking loans from a bank need to prepare a cash budget.
36) Managers use a cash budget to anticipate any future cash shortages.
37) Cash from operating activities includes all cash receipts and cash disbursements for routine
sales and purchases made in the course of doing business.
38) How would managers use the information reported in the statement of cash flows?
39) What should all companies prepare in order to anticipate liquidity problems?
40) Delgado, Inc. wants to apply for a bank loan. Delgado gave an income statement and
balance sheet to the bank. However, the bank wants a statement of cash flows as well. Explain
why the bank wants a statement of cash flows and how the statement is organized.
41) What are the four basic financial statements, and what do they report?
42) Delgado, Inc. wants to apply for a bank loan. It has put together a cash budget, an income
statement and a balance sheet. However, the bank wants it to present a statement of cash flows
in addition to the cash budget. Explain the differences between the cash budget and statement of
cash flows.
43) Match each of the following transactions with each type of activity found on the statement of
cash flows. Each item may be used more than once.
a. operating activity
b. investing activity
c. financing activity
d. not on the statement of cash flows
______ 1. declaration of a stock dividend
______ 2. purchase of inventory on account
______ 3. sale of treasury stock
______ 4. payment of rent
______ 5. payment of accounts payable
44) Match each of the following line items with the correct section of the statement of cash
flows.
a. cash from operating activities
b. cash from investing activities
c. cash from financing activities
______ 1. cash paid to vendors
______ 2. cash received from a loan
______ 3. cash paid for new equipment
______ 4. cash received from customers for sales
______ 5. cash paid to employees
45) Match each of the following line items with each type of activity.
a. operating activities
b. investing activities
c. financing activities
______ 1. collection of accounts receivable
______ 2. purchase of treasury stock
______ 3. payment of employee salaries
______ 4. sale of a used computer system
Learning Objective 9-2
1) The direct method for the preparation of the statement of cash flows ________.
A) is required by the FASB
B) is in conformity with GAAP
C) is the preferred method used by most businesses
D) is required by the IASB
2) The direct method of preparing the statement of cash flows ________.
A) is preferred by business over the indirect method
B) provides greater clarity for users than the indirect method
C) reports a greater amount of cash than the indirect method
D) reports a smaller amount of cash than the indirect method
3) The direct method of preparing the operating activities section of the statement of cash flows
________.
A) lists each important item of cash inflows from operating activities
B) lists each important item of cash outflows from investing activities
C) adjusts accrual-basis income
D) adjusts cash-basis income
4) Which method of preparing the statement of cash flows would show increases in accounts
receivable being subtracted from net income?
A) the direct method
B) the indirect method
C) accrual basis method
D) No method shows increases in accounts receivable being subtracted from net income.
5) The difference between the direct and indirect methods applies only to the ________ activities
section(s) of the statement of cash flows.
A) operating
B) investing and financing
C) investing
D) operating and investing
6) A company that uses the direct method will show more cash from operating activities than a
company that uses the indirect method.
7) There are two acceptable ways to report cash from operating activities: the direct method and
the indirect method.
8) The only difference between the direct and indirect methods used for the preparation of the
statement of cash flows is the way cash from operating activities is calculated.
9) There are two acceptable ways to report cash from operating activities: the investment method
and the finance method.
10) Regardless of whether the statement of cash flows was prepared using the direct method or
the indirect method, Cash collected from customers is reported as a line item under operating
activities.
11) Regardless of whether the statement of cash flows was prepared using the direct method or
the indirect method, Proceeds from the sale of land is reported as a line item under investing
activities.
12) Wilson Wong is reviewing his financial statements for May. His dry cleaning business had
net income of $13,000 for May, but his business checking account shows a decrease of $4,500.
Explain to Wilson why the net income for the business and the ending balance in cash are not the
same amounts.
Learning Objective 9-3
1) During its first year of business, Gnu, Inc. sold $200,000 of merchandise to customers on
account. At the end of the year Gnu, Inc. had accounts receivable of $40,000. How much cash
did the company collect from credit customers during the year?
A) $200,000
B) $240,000
C) $160,000
D) $40,000
2) On January 1, 2011, Company X had accounts receivable of $20,000. During the year,
Company X sold $100,000 of merchandise to credit customers. At December 31, 2011,
Company X had accounts receivable of $50,000. How much cash did the company collect from
credit customers during the year?
A) $130,000
B) $120,000
C) $100,000
D) $70,000
3) On January 1, 2011, Company Z had accounts receivable of $5,000. During the year,
Company Z sold $100,000 of merchandise to credit customers. At December 31, 2011, Company
Z had accounts receivable of $4,000. How much cash did the company collect from credit
customers during the year?
A) $105,000
B) $101,000
C) $99,000
D) $95,000
4) On January 1, 2011, Company Z had accounts receivable of $4,000. During the year,
Company Z sold $100,000 of merchandise to credit customers. At December 31, 2011, Company
Z had accounts receivable of $5,000. How much cash did the company collect from credit
customers during the year?
A) $105,000
B) $101,000
C) $99,000
D) $95,000
5) During Clean Dirt, Inc.’s first year of business, salary expense was $60,000. At the end of its
first year of business, Clean Dirt’s first balance sheet showed $5,000 of salaries payable. How
much did Clean Dirt pay in cash for salaries during its first year of business?
A) $60,000
B) $55,000
C) $65,000
D) $5,000
6) Clean Dirt, Inc. had $8,000 of salaries payable at December 31, 2010. During 2011, Clean
Dirt’s salary expense was $60,000. At December 31, 2011, Clean Dirt’s balance sheet showed
$5,000 of salaries payable. How much did Clean Dirt pay in cash for salaries during 2011?
A) $60,000
B) $65,000
C) $63,000
D) $57,000
7) Cash from investing activities includes all cash receipts and cash disbursements for routine
sales and purchases made in the course of doing business.
8) Cash collected from customers will be greater than the revenue for the same period if the
accounts receivable balance increases.
9) Cash collected from customers will be less than the revenue for the same period if the
accounts receivable balance increases.
10) Cash paid for salaries will be greater than the salary expense for the same period if the salary
payable balance increases.
11) Cash paid for salaries will be less than the salary expense for the same period if the salary
payable balance increases.
12) Team Shirts, Inc. recognized $48,000 in salaries and wages expense for the quarter. At the
beginning of the quarter, the balance in Salaries payable was $6,000. At the end of the quarter,
the balance was $10,000. How is the accounting information for these items reported on the
statement of cash flows using the DIRECT method?
Learning Objective 9-4
1) The following information is from Cashew, Inc.’s December 31, 2011 annual report:
Income
statement
Balance sheet
12/31/11
12/31/10
Sales revenue
$90,000
Accounts receivable
$8,000
$10,000
Salary expense
$30,000
Salary payable
$2,000
$3,000
Cash collected from customers on Cashew, Inc.’s statement of cash flows equals ________.
A) $90,000
B) $98,000
C) $88,000
D) $92,000
2) The following information is from Cashew, Inc.’s December 31, 2011 annual report:
Income
statement
Balance sheet
12/31/11
12/31/10
Sales revenue
$90,000
Accounts receivable
$8,000
$10,000
Salary expense
$30,000
Salary payable
$2,000
$3,000
Cash paid for salaries on Cashew, Inc.’s statement of cash flows equals ________.
A) $30,000
B) $29,000
C) $33,000
D) $31,000
3) The following information is from Sharp, Inc.’s December 31, 2011 annual report:
Income
statement
Balance sheet
12/31/10
12/31/11
Sales revenue
$90,000
Accounts receivable
$8,000
$10,000
Salary expense
$30,000
Salary payable
$2,000
$3,000
Cash collected from customers on Sharp, Inc.’s statement of cash flows equals ________.
A) $90,000
B) $98,000
C) $88,000
D) $92,000
4) The following information is from Sharp, Inc.’s December 31, 2011 annual report:
Income
statement
Balance sheet
12/31/10
12/31/11
Sales revenue
$90,000
Accounts receivable
$8,000
$10,000
Salary expense
$30,000
Salary payable
$2,000
$3,000
Cash paid for salaries on Sharp, Inc.’s statement of cash flows equals ________.
A) $30,000
B) $29,000
C) $33,000
D) $31,000
5) The following information is from X, Inc.’s December 31, 2011 annual report:
Income
statement
Balance sheet
12/31/11
12/31/10
Sales revenue
$90,000
Unearned revenue
$8,000
$10,000
Insurance expense
$30,000
Prepaid insurance
$2,000
$3,000
Note: X, Inc. does not sell to its customers on account; it collects cash from its customers in
advance.
Cash collected from customers on X, Inc.’s statement of cash flows equals ________.
A) $90,000
B) $98,000
C) $88,000
D) $92,000
6) The following information is from X, Inc.’s December 31, 2011 annual report:
Income
statement
Balance sheet
12/31/11
12/31/10
Sales revenue
$90,000
Unearned revenue
$8,000
$10,000
Insurance expense
$30,000
Prepaid insurance
$2,000
$3,000
Note: X, Inc. does not sell to its customers on account; it collects cash from its customers in
advance.
Cash paid for insurance on X, Inc.’s statement of cash flows equals ________.
A) $30,000
B) $29,000
C) $33,000
D) $31,000
7) The following information is from Avatar, Inc.’s December 31, 2011 annual report:
Income
statement
Balance sheet
12/31/11
12/31/10
Sales revenue
$80,000
Unearned revenue
$5,000
$9,000
Insurance expense
$20,000
Prepaid insurance
$3,000
$2,000
Note: Avatar always collects cash from its customers in advance.
Cash collected from customers on Avatar, Inc.’s statement of cash flows equals ________.
A) $80,000
B) $89,000
C) $84,000
D) $76,000
8) The following information is from Avatar, Inc.’s December 31, 2011 annual report:
Income
statement
Balance sheet
12/31/11
12/31/10
Sales revenue
$80,000
Unearned revenue
$5,000
$9,000
Insurance expense
$20,000
Prepaid insurance
$3,000
$2,000
Note: Avatar always collects cash from its customers in advance.
Cash paid for insurance on Avatar, Inc.’s statement of cash flows equals ________.
A) $23,000
B) $22,000
C) $21,000
D) $19,000
9) The following information is from Z, Inc.’s December 31, 2011 annual report:
Income
statement
Balance sheet
12/31/10
12/31/11
Sales revenue
$800,000
Unearned revenue
$8,000
$10,000
Interest expense
$30,000
Interest payable
$1,000
$3,000
Note: Z, Inc. does not sell to its customers on account; it collects cash from its customers in
advance.
Cash collected from customers on Z, Inc.’s statement of cash flows equals ________.
A) $800,000
B) $802,000
C) $798,000
D) $810,000
10) The following information is from Z, Inc.’s December 31, 2011 annual report:
Income
statement
Balance sheet
12/31/10
12/31/11
Sales revenue
$800,000
Unearned revenue
$8,000
$10,000
Interest expense
$30,000
Interest payable
$1,000
$3,000
Note: Z, Inc. does not sell to its customers on account; it collects cash from its customers in
advance.
Cash paid for interest on Z, Inc.’s statement of cash flows equals ________.
A) $30,000
B) $28,000
C) $33,000
D) $32,000
11) The following information is from ABC, Inc.’s December 31, 2011 annual report:
Income
statement
Balance sheet
12/31/11
12/31/10
Sales revenue
$800,000
Unearned revenue
$8,000
$10,000
Interest expense
$30,000
Interest payable
$1,000
$3,000
Note: ABC, Inc. does not sell to its customers on account; it collects cash from its customers in
advance.
Cash collected from customers on ABC, Inc.’s statement of cash flows equals ________.
A) $800,000
B) $802,000
C) $798,000
D) $810,000
