Chapter 13—The Statement of Cash Flows
MULTIPLE CHOICE
1. The main purpose of the statement of cash flows is to provide information about:
a.
a company’s revenues and expenses for a period of time.
b.
a company’s assets, liabilities, and stockholders’ equity at a point in time.
c.
the changes in stockholders’ equity of a company for a period of time.
d.
a company’s cash inflows and outflows for a period of time.
2. Which of the following is not true regarding the statement of cash flows?
a.
It reports the impact of a firm’s operating, investing, and financing activities on cash flows
during the accounting period.
b.
It discloses items that affect the balance sheet, but do not show up on the income
statement, such as issuance of stock.
c.
It is not a required component of a company’s external financial statements.
d.
It explains how cash changed from the end of the previous year to the end of the current
year.
3. Which of the following is not a required external financial statement?
a.
Balance sheet
b.
Budgeted income statement
c.
Statement of cash flows
d.
Statement of changes in stockholders’ equity
4. Which of the following is not one of the types of activities that is summarized on the statement of cash
flows?
a.
Organizing
b.
Financing
c.
Investing
d.
Operating
5. Cash received from customers is classified in which section of the statement of cash flows?
a.
Operating
b.
Investing
c.
Financing
d.
Noncash
6. Cash paid towards salaries is classified in which section of the statement of cash flows?
a.
Operating
b.
Investing
c.
Financing
d.
Noncash
7. Cash received from the sale of long-term investments is classified in which section of the statement of
cash flows?
a.
Operating
b.
Investing
c.
Financing
d.
Noncash
8. Cash received from the sale of property is classified in which section of the statement of cash flows?
a.
Operating
b.
Investing
c.
Financing
d.
Noncash
9. Cash paid to purchase equipment is classified in which section of the statement of cash flows?
a.
Operating
b.
Investing
c.
Financing
d.
Noncash
10. Cash received from the sale of property, plant, and equipment is classified in which section of the
statement of cash flows?
a.
Operating
b.
Investing
c.
Financing
d.
Noncash
11. Cash received from the issuance of capital stock is classified in which section of the statement of cash
flows?
a.
Operating
b.
Investing
c.
Financing
d.
Noncash
12. Cash received from the borrowing on a note payable is classified in which section of the statement of
cash flows?
a.
Operating
b.
Investing
c.
Financing
d.
Noncash
13. Cash paid to stockholders as a dividend is classified in which section of the statement of cash flows?
a.
Operating
b.
Investing
c.
Financing
d.
Noncash
14. Which of the following items would not be classified as either cash or a cash equivalent for purposes
of the statement of cash flows?
a.
Money market account funds.
b.
Treasury bill that matures in three months.
c.
Treasury bill that matures in three years.
d.
Checking account funds.
15. Nelson Corporation has the following information available for 2011:
Cash balance on 1/1/2011
$6,000
Cash balance on 12/31/2011
10,000
Net cash provided by operating activities
150,000
Net cash utilized by investing activities
160,000
The financing activity section of Nelson’s statement of cash flows would show:
a.
net cash provided by financing activities of $10,000.
b.
net cash utilized by financing activities of $4,000.
c.
net cash utilized by financing activities of $6,000.
d.
net cash provided by financing activities of $14,000.
16. BTE Corporation has the following information available for 2011:
Cash balance on 1/1/2011
$20,000
Cash balance on 12/31/2011
8,000
Net cash provided by operating activities
180,000
Net cash utilized by investing activities
160,000
The financing activity section of BTE’s statement of cash flows would show:
a.
net cash provided by financing activities of $32,000.
b.
net cash utilized by financing activities of $32,000.
c.
net cash utilized by financing activities of $8,000.
d.
net cash provided by financing activities of $8,000.
17. Justine Inc. has the following information available for 2011:
Cash balance on 1/1/2011
$ 12,000
Cash balance on 12/31/2011
20,000
Net cash provided by investing activities
50,000
Net cash provided by financing activities
16,000
The operating activity section of Justine’s statement of cash flows would show:
a.
net cash provided by operating activities of $58,000.
b.
net cash utilized by operating activities of $58,000.
c.
net cash utilized by operating activities of $98,000.
d.
net cash provided by operating activities of $98,000.
18. Which type of transactions are required by generally accepted accounting principles to be disclosed
either in a separate schedule at the bottom of the statement of cash flows or in a footnote to the
financial statements?
a.
Significant cash transactions that are classified as operating activities.
b.
Significant cash transactions that are classified as investing activities.
c.
Significant cash transactions that are classified as financing activities.
d.
Significant noncash transactions.
19. Given the following events, which ones affect cash flows from operating activities?
1.
Payments of taxes
2.
Payments to suppliers
3.
Collections from customers
4.
Collection from the sale of property, plant, and equipment
a.
2 and 3
b.
3 and 4
c.
1, 2, and 3
d.
1, 2, 3, and 4
20. Given the following events, which ones affect cash flows from investing activities?
1.
Collection from issuing capital stock
2.
Payment of a dividend
3.
Purchases of property, plant, and equipment
4.
Collection from the sale of property, plant, and equipment
a.
1 and 2
b.
3 and 4
c.
2 and 4
d.
1, 2, 3, and 4
21. Given the following events, which ones affect cash flows from financing activities?
1.
Collection from issuing capital stock
2.
Payment of a dividend
3.
Purchases of property, plant, and equipment
4.
Collection from the sale of property, plant, and equipment
a.
1 and 2
b.
3 and 4
c.
2 and 4
d.
1, 2, 3, and 4
22. Which of the following statements is true about the indirect method of preparing the operating
activities section on a statement of cash flows?
a.
It adjusts cash basis net income to accrual basis net income.
b.
It adjusts accrual basis net income to cash provided by operating activities.
c.
It adjusts accrual basis net income to budgeted net income.
d.
It adjusts cash basis net income to budgeted net income.
23. Chatham Corp. reported sales revenue of $98,000 on their income statement for 2011. From the
beginning until the end of 2011, accounts receivables decreased by a net amount of $9,000. How much
“cash collections from customers” should Chatham report for 2011 on their statement of cash flows?
a.
$ 98,000
b.
$ 89,000
c.
$ 9,000
d.
$107,000
24. Generally accepted accounting principles allows which of the following methods of preparing the
statement of cash flows?
a.
The operating, investing, and financing methods.
b.
The accrual basis and cash basis of accounting methods.
c.
The direct and indirect methods.
d.
The cash flows and noncash flows methods.
25. Burke Inc.’s accounts receivable balance increased during the year from $300,000 to $360,000. Based
on this information, which of the following statements is true?
a.
Cash received from customers was greater than sales revenue recorded during the year.
b.
Cash received from customers was less than sales revenue recorded during the year.
c.
Cash received from customers was exactly equal to sales revenue recorded during the
year.
d.
Cash received from customers was higher than cash paid to suppliers during the year.
26. The difference between the direct method and the indirect methods of preparing the statement of cash
flows is primarily visible in which of the following sections?
a.
Operating activities section only
b.
Investing activities section only
c.
Both operating and investing activities
d.
Both investing and financing activities
27. Paxton Inc. had the following information related to last year’s sales:
Cash sales
$150,000
Credit sales
280,000
Accounts receivable – beginning
30,000
Accounts receivable – ending
56,000
What amount would be reported as “cash collections from customers” on the statement of cash flows
using the direct method?
a.
$404,000
b.
$176,000
c.
$516,000
d.
$306,000
28. Culpepper Inc. had the following information related to last year’s sales:
Cash sales
$245,000
Credit sales
150,000
Accounts receivable – beginning
21,500
Accounts receivable – ending
15,000
What amount would be reported as “cash collections from customers” on the statement of cash flows
using the direct method?
a.
$238,500
b.
$431,500
c.
$401,500
d.
$143,500
29. Pomander Inc. had the following information related to last year’s sales:
Cash sales
$107,500
Credit sales
250,000
Accounts receivable – beginning
10,000
Accounts receivable – ending
14,000
What amount would be reported as “cash collections from customers” on the statement of cash flows
using the direct method?
a.
$254,000
b.
$381,500
c.
$111,500
d.
$353,500
30. Jazzy Inc. reported sales revenue of $550,000 on their income statement for 2011. From the beginning
until the end of 2011, accounts receivables increased by a net amount of $35,000. How much “cash
collections from customers” should Jazzy report for 2011 on their statement of cash flows?
a.
$550,000
b.
$585,000
c.
$515,000
d.
$ 35,000
31. Simmon Incorporation’s cost of goods purchased amounted to $20,000. From the beginning until the
end of 2011, accounts payable increased by a net amount of $7,000. How much “cash outflows for
purchases” should Simmons report for 2011 on their statement of cash flows?
a.
$ 7,000
b.
$13,000
c.
$20,000
d.
$27,000
32. McClintock Inc. had the following information available from its 2011 balance sheet and income
statement:
Insurance expense
$15,000
Prepaid insurance – beginning
30,000
Prepaid insurance – ending
25,000
What amount would be reported as cash outflows for insurance on the statement of cash flows for
2011 using the direct method?
a.
$70,000
b.
$10,000
c.
$20,000
d.
$25,000
33. Peter Piper Inc. had the following information available from its 2011 balance sheet and income
statement:
Insurance expense
$55,000
Prepaid insurance – beginning
8,000
Prepaid insurance – ending
5,000
What amount would be reported as cash outflows for insurance on the statement of cash flows for
2011 using the direct method?
a.
$68,000
b.
$58,000
c.
$42,000
d.
$52,000
34. Tuffet Corporation had the following information available from its 2011 balance sheet and income
statement:
Interest expense
$25,000
Interest payable – beginning
3,000
Interest payable – ending
1,000
What amount would be reported as cash outflows for interest on the statement of cash flows for 2011
using the direct method?
a.
$27,000
b.
$29,000
c.
$21,000
d.
$23,000
35. Lineberger Corporation had the following information available from its 2011 balance sheet and
income statement:
Interest expense
$68,000
Interest payable – beginning
4,500
Interest payable – ending
8,000
What amount would be reported as cash outflows for interest on the statement of cash flows for 2011
using the direct method?
a.
$71,500
b.
$80,500
c.
$64,500
d.
$55,500
36. When using the indirect method of preparing a statement of cash flows, which of the following items
would need to be added to net income in order to reconcile to cash provided by operating activities?
a.
Increase in accounts receivable
b.
Decrease in liabilities
c.
Depreciation expense
d.
Increase in long-term loan
37. When using the indirect method of preparing a statement of cash flows, which of the following items
would need to be deducted from net income in order to reconcile to cash provided by operating
activities?
a.
Increase in accounts payable
b.
Increase in accounts receivable
c.
Depreciation expense
d.
Increase in property, plant, and equipment
38. When using the indirect method of preparing a statement of cash flows, which of the following items
would need to be deducted from net income in order to reconcile to cash provided by operating
activities?
a.
Gain on sale of property, plant, and equipment
b.
Decrease in prepaid insurance
c.
Depreciation expense
d.
Increase in salaries payable
39. The collection of interest revenue will be depicted on the statement of cash flows as a:
a.
cash inflow from an operating activity.
b.
cash inflow from an investing activity.
c.
cash outflow for a financing activity.
d.
cash inflow from a financing activity.
40. The payment of interest expense will be depicted on the statement of cash flows as a:
a.
cash inflow from an operating activity.
b.
cash outflow for an investing activity.
c.
cash inflow from a financing activity.
d.
cash outflow for an operating activity.
41. The payment of a cash dividend will be depicted on the statement of cash flows as a:
a.
cash inflow from an operating activity.
b.
cash outflow for an investing activity.
c.
cash outflow for a financing activity.
d.
cash outflow for an operating activity.
42. Burrows Inc. had an outstanding loan at the beginning of 2011 totaling $50,000. During 2011, $16,800
was paid out related to this loan broken down as follows: $15,000 towards principal and $1,800 in
interest. Which of the following statements is correct regarding how the $16,800 payment should be
depicted on the statement of cash flows?
a.
The entire $16,800 should be shown as a cash outflow for financing activities.
b.
The entire $16,800 should be shown as a cash outflow for investing activities.
c.
The $15,000 principal portion should be shown as a cash outflow for financing activities,
and the $1,800 in interest should be shown as a cash outflow for operating activities.
d.
The $15,000 principal portion should be shown as a cash outflow for investing activities,
and the $1,800 in interest should be shown as a cash outflow for operating activities.
43. Felton Inc. had the following information related to last year’s purchases:
Cost of goods purchased
$300,000
Accounts payable – beginning
12,500
Accounts payable – ending
20,000
What amount would be reported as “cash outflows for purchases” on the statement of cash flows using
the direct method?
a.
$307,500
b.
$292,500
c.
$312,500
d.
$280,000
44. Clyde’s Clothing Inc. comparative balance sheets and income statements showed the following
information for 2010 and 2011:
Inventory – 12/31/2010
$ 60,000
Inventory – 12/31/2011
75,000
Accounts payable – 12/31/2010
18,000
Accounts payable – 12/31/2011
20,000
Cost of goods sold – 2011
400,000
Clyde’s accounts payable balances are composed solely of amounts due to suppliers for purchases of
inventory. What is the amount of cash payments for inventory that Clyde should report on its 2011
statement of cash flows assuming that the direct method is used?
a.
$387,000
b.
$413,000
c.
$497,000
d.
$303,000
45. Skipper’s Souvenir Shop had comparative balance sheets and income statements that showed the
following information for 2010 and 2011:
Inventory – 12/31/10
$100,000
Inventory – 12/31/11
85,000
Accounts payable – 12/31/10
20,000
Accounts payable – 12/31/11
15,000
Cost of goods sold – 2011
700,000
Skipper’s accounts payable balances are composed solely of amounts due to suppliers for purchases of
inventory. What is the amount of cash payments for inventory that Skipper should report on its 2011
statement of cash flows assuming that the direct method is used?
a.
$690,000
b.
$710,000
c.
$850,000
d.
$550,000
46. Gregson Company had the following noncash current asset and current liabilities balances at the end of
2010 and 2011: