STATEMENT of CASH FLOWS (Set A)

1. Which of the following would be considered a

use of funds?
A. a decrease in accounts receivable.
B. a decrease in cash
C. an increase in account payable
D. an increase in cash
2. On an accounting statement of cash flows an
"increase(decrease)
in
cash
and
cash
equivalents" appears as
A. a cash flow from operating activities.
B. a cash flow from investing activities.
C. a cash flow from financing activities.
D. none of the above.
3. Activities that involve the production or
purchase of merchandise and the sale of goods
and
services
to
customers,
including
expenditures related to administering the
business, are classified as:
A. Financing activities.
B. Investing activities.
C. Operating activities.
D. Direct activities.
E. Indirect activities.
4. When preparing a statement of cash flows
on the indirect method, which of the following
is correct?
A. Proceeds from the sale of equipment should
be added to net income in the operating
activities section.
B. A loss on the sale of land should be added
to net income in the operating activities
section.
C. The declaration of a cash dividend should
be a use of cash in the financing activities
section.
D. The issuance of a stock dividend should be
a use of cash in the financing activities section.
E. The purchase of land and a building by
issuing a long-term note payable should be a
source of cash in
the financing activities section.
5. The direct method of reporting operating
cash flows:
A. Is recommended but not required by the
FASB.
B. Must be used by all companies.
C. Is used by most companies.
D. Is considered supplementary disclosure.
E. Is not recommended by the FASB, but is
commonly used.
6. The indirect method for the preparation of
the operating activities section of the
statement of cash
Flows:
A. Separately lists each major item of
operating cash receipts.

B. Separately lists each major item of

operating cash payments.
C. Reports net income and then adjusts it for
items necessary to determine net cash
provided or used by
operating activities.
D.
Is required if the company is a
merchandiser.
E. Must not be used in all circumstances.
7. The reporting of net cash provided or used
by operating activities that lists the major
items of operating cash receipts, such as
receipts from customers, and subtracts the
major items of operating cash disbursements,
such as cash paid for merchandise, is referred
to as the:
A. Direct method of reporting net cash
provided or used by operating activities.
B. Cash basis of accounting.
C. Classified statement of cash flows.
D. Indirect method of reporting net cash
provided or used by operating activities.
E. Net method of reporting cash flows from
operating activities.
8. A statement of cash flows should reconcile
the differences between the beginning and
ending balances of:
A. Net income.
B. Equity.
C. Cash and cash equivalents.
D. Working capital.
E. Cash, cash equivalents, and short-term
investments.
9. The direct method for the preparation of the
operating activities section of the statement of
cash flows:
A. Separately lists each major item of
operating cash receipts and cash payments.
B. Reports adjustments to reconcile net income
to net cash provided or used by operating
activities in the statement.
C. Reports a different amount of cash flows
from operations than if the indirect method is
used.
D.
Is required if the company is a
merchandiser.
E. Is required by the FASB
10. Preparation of the statement of cash flows
involves:
A. Computing the net increase or decrease in
cash.
B. Computing and reporting net cash provided
or used by operations.
C. Computing and reporting net cash provided
or used by investing activities.

D. Computing and reporting net cash provided

or used by financing activities.
E. All of these.
11. The statement of cash flows helps address
questions such as
A. How is the increase in investments
financed?
B. What is the source of cash for new plant
assets?
C. How much cash is generated from or used
in operations?
D. Why is cash flow from operations different
from income?
E. All of these.

12.. The cash flow on total assets ratio:

A. Is the same as return on assets.
B. Is the same as profit margin.
C. Can be an indicator of earnings quality.
D. Is highly affected by accounting
principles of income recognition and
measurement.
E. Is average net assets divided by cash
flows from operations.
13. The cash flow on total assets ratio is
calculated by:
A. Dividing cash flows from operations by
average total assets.
B. Dividing total cash flows by average
total assets.
C. Dividing average total assets by cash
flows from investing activities.
D. Dividing average total assets by total
cash flows.
E. Total cash flows divided by average
total assets times 365.
14.Accounting standards:
A. Allow companies to omit the statement
of cash flows from a complete set of
financial statements if cash is an
insignificant asset.
B. Require that companies omit the
statement of cash flows from a complete
set of financial statements if the company
has no investing activities.
C. Require that companies include a
statement of cash flows in a complete set
of financial statements.
D. Allow companies to include the
statement of cash flows in a complete set
of financial statements if the
Cash balance makes up more than 50% of
the current assets.

E. Allow companies to omit the statement of

cash flows from a complete set of financial
statements if the company has no
financing activities.
15. The accounting principle that requires
important noncash financing and investing
activities be reported on the statement of
cash flows or in a footnote is the:
A. Historical cost principle.
B. Materiality principle.
C. Full disclosure principle.
D. Going concern principle.
E. Business entity principle.
16. The appropriate section in the statement
of cash flows for reporting the purchase of
land in exchange for common stock is:
A. Operating activities.
B. Financing activities.
C. Investing activities.
D. Schedule of noncash investing or
financing activity.
E. Reconciliation of cash balance.
17. The purchase of long-term assets by
issuing a note payable for the entire
amount is reported on the
Statement of cash flows in the:
A. Operating activities.
B. Financing activities.
C. Investing activities.
D. Schedule of noncash financing and
investing activities.
E. Reconciliation of cash balance.
18.. An example of a transaction that must
be disclosed as a noncash investing and
financing activity
includes:
A. The retirement of debt by issuance of
equity.
B. The purchase of long-term assets
financed by a cash down payment and a
note payable to the seller for
the balance.
C. The leasing of assets in a transaction
that qualifies as a capital lease.
D. The purchase of noncash assets in
exchange for equity or debt securities.
E. All of these.
19. Noncash investing and financing
activities may be disclosed in:

A. A note in the financial statements or a

schedule attached to the statement of
cash flows.
B. The operating activities section of the
statement of cash flows.
C. The investing activities section of the
statement of cash flows.
D. The financing activities section of the
statement of cash flows.
E. The reconciliation of cash balance
section.

20. If a company borrows money from a

bank, the interest paid on this loan should
be reported on the statement of cash
flows as a(n):
A. Operating activity.
B. Investing activity.
C. Financing activity.
D. Noncash investing and financing
activity.
E. None of these. This is not reported in
the statement of cash flows.

Provide pertinent solutions for every question answered:

The schedule below shows the account balances of JESSICA CO. at the beginning and end of the year ended
December 31, 2014.
DEBITS
Cash and cash equivalents
Investment in trading securities
Accounts receivable
Inventories
Prepaid insurance
Land and building
Equipment
Discount on bonds payable
Treasury shares
Cost of goods sold
Selling and general expenses
Income taxes
Unrealized loss on trading securities
Loss on sale of equipment
Total debits
CREDITS
Allowance for bad debts
Accumulated depreciation-building
Accumulated depreciation-equipment
Accounts payable
Notes payable-current
Accrued expenses payable
Income taxes payable
Unearned income
Notes payable-noncurrent
Bonds payable
Deferred tax liability
Ordinary shares, P10 par
Retained earnings appropriated for
Treasury shares
Retained earnings appropriated for
Possible building expansion
Unappropriated retained earnings
Share premium
Sales
Gain on sale of trading securities
Total credits

Dec. 31, 2014

666,000
30,000
444,000
873,000
7,500
585,000
933,000
25,500
15,000
1,617,000
861,000
105,000
12,000
3,000
6,177,000

2,628,000

24,000
78,750
137,250
165,000
210,000
54,000
105,000
3,000
120,000
750,000
141,000
1,078,200
15,000

15,000
67,500
82,500
180,000
60,000
26,100
30,000
27,000
180,000
75,000
159,900
600,000
30,000

114,000

69,000

103,800
348,000
2,694,000
36,000
617,7000

336,000
15,000

Additional Information:

Dec. 31, 2013

150,000
120,000
300,000
900,000
6,000
585,000
510,000
27,000
30,000

All purchases and sales were on account

Equipment with an original cost of 45, 000 was sold for 21,000.
Selling and general expenses

262,8000

o Building depreciation
11,250
o Equipment depreciation
75,750
o Bad debts expense
9,000
o Interest expense
54,000
A six month note payable for 150,000 was issued in connection with the purchase of new equipment
The noncurrent note payable requires the payment of 60,000 per year, plus interest until paid
Treasury shares were sold for 3000 more than their cost
Equipment was overhauled, extending its useful life, at a cost of 18,000. The cost was debited to
equipment.
During the year, a 30% stock dividend was declared and issued. At that time, there were 60,000 of P10 par
ordinary shares outstanding. However, 600 of these shares were held as treasury shares at that time and
were prohibited from participating in the stock dividend. Market value of ordinary shares was P50 per share
when the stock dividend was declared.
1. Net income for 2014
2. Net cash provided by operating activities
3. Net cash provided in investing activities
4. Net cash provided by financing activities
5. Proceeds from sale of trading shares
DEPARTMENTALS NA! Company
9. Trenton reports net income of 230,000 for the
INCOME STATEMENT
year ended December 31, Year 2. It also
For the year ended December 31, 2014
reports 87,700
depreciation expense and a 5,000 gain on the
Sales
20,700,000
sale of equipment. Its comparative balance
Cost of goods sold
sheet reveals a
Inventory, January
5,700,000
35,500 decrease in accounts receivable, a
Purchases
13,200,000
$15,750 increase in accounts payable, and a
Goods available for sale
18,900,000
$12,500 decrease
Inventory, December 31
(4,800,000)
in wages payable. Calculate the new cash
Gross income
6,600,000
provided (used) in operating activities using
Operating expense:
the indirect
Selling expense
1,350,000
method
Administrative expense
2,100,000
Net income
3,150,000
10. Castine reports net income of 305,000 for the
year ended December 31, Year 2. It also
Additional Information:
reports 93,700 depreciation expense and a
a. Accounts receivable decreased by 1,080,000
10,000 loss on the sale of equipment. Its
b. Prepaid expense increased by 510,000
comparative balance sheet reveals a 40,200
c. Accounts payable decreased by 825,000
increase in accounts receivable, a 10,200
d. Accrued expense payable decreased
decrease in prepaid expenses, a 15,200
300,000
increase in accounts payable, a 12,500
e. Administrative expenses includes
decrease in wages payable, and a 100,000
depreciation expense of 180,000
decrease in notes payable. Calculate the new
cash provided (used) in operating activities
6. Total amount of cash paid for operating
using the indirect method.
expense
7. Total amount of cash provided by
operating activities
11. Castine reports net income of 305,000 for the

8.

Beewell's net income for the year

ended December 31, Year 2 was
185,000. Information from Beewell's
comparative balance sheets is given
below. Compute the cash paid for
dividends during Year 2.

year ended December 31, Year 2. It also

reports 93,700 depreciation expense and a
10,000 loss on the sale of equipment. Its
comparative balance sheet reveals
a 40,200 increase in accounts receivable, a
10,200 decrease in prepaid expenses, a 15,200
increase in accounts payable, a 12,500
decrease in wages payable, a 75,000 increase
in equipment, and a 100,000 decrease in notes
payable. Calculate the increase in cash for Year
2.
12. Woodlawn
Company
is
preparing
the
company's statement of cash flows for the

fiscal year just ended The following information

Net income for the year 110,000
is available:
The amount of cash paid for dividends was:
Retained earnings balance at the beginning of
the year 233,000
Cash dividends declared for the year 50,000
14. A company had average total assets of
Proceeds from the sale of equipment 85,000
2,316,000, total cash flows of 1,320,000, cash
flows from operations of 455,000, and cash
Gain on the sale of equipment 4,500
flows for plant assets of 850,000. The cash
Cash dividends payable at the beginning of the
flow on total assets ratio equals:
year 22,000
Cash dividends payable at the end of the year
15. Analysis reveals that a company had a net
30,000
decrease in cash of 4,000 for the current year.
Net income for the year 110,000
Net cash provided by operating activities was
The ending balance in retained earnings
18,000; net cash used in investing activities was
is:
10,000 and net cash used in financing activities
was 12,000. If the year-end cash balance is
13. Woodlawn
Company
is
preparing
the
21,000, the beginning cash balance was:
company's statement of cash flows for the
fiscal year just ended. The following
information is available:
Retained earnings balance at the beginning of
the year 233,000
Cash dividends declared for the year 50,000
Proceeds from the sale of equipment 85,000
Failure defeats losers, failure
Gain on the sale of equipment 4,500
inspires winners.
Cash dividends payable at the beginning of the
year 22,000
TO GOD BE THE GLORY
Cash dividends payable at the end of the year
30,000