Reference no: EM13340866
SELF-TEST
Solutions are provided in Appendix B.
1. The statement of cash flows segregates cash inflows and outflows by:
(a) Operating and financing activities.
(b) Financing and investing activities.
(c) Operating and investing activities.
(d) Operating, financing, and investing activities.
2. Which of the following statements is false?
(a) Publicly held companies may choose to prepare either a statement of cash flows or a statement of changes in financial position.
(b) The statement of cash flows was mandated by the FASB in the late 1980s.
(c) Understanding how to prepare a statement of cash flows helps the analyst to better understand and analyze the cash flow statement.
(d) The statement of cash flows is prepared by calculating changes in all balance sheet accounts.
3. How would revenue from sales of goods and services be classified?
(a) Operating outflow.
(b) Operating inflow.
(c) Investing inflow.
(d) Financing inflow.
4. How would payments for taxes be classified?
(a) Operating outflow.
(b) Operating inflow.
(c) Investing outflow.
(d) Financing outflow.
5. How would the sale of a building be classified?
(a) Operating outflow.
(b) Operating inflow.
(c) Investing inflow.
(d) Financing inflow.
6. How would the repayment of debt principal be classified?
(a) Operating outflow.
(b) Operating inflow.
(c) Investing outflow.
(d) Financing outflow.
7. What type of accounts are accounts receivable and inventory?
(a) Cash accounts.
(b) Operating accounts.
(c) Financing accounts.
(d) Investing accounts.
8. What type of accounts are notes payable and current maturities of l term debt?
(a) Cash accounts.
(b) Operating accounts.
(c) Financing accounts.
(d) Investing accounts.
9. The change in retained earnings is affected by which of the following
(a) Net income and common stock.
(b) Net income and paid-in capital.
(c) Net income and payment of dividends.
(d) Payment of dividends and common stock.
10. Which method of calculating cash flow from operations requires the adjust of net income for deferrals, accruals, noncash, and nonoperating expenses?
(a) The direct method.
(b) The indirect method.
(c) The inflow method.
(d) The outflow method.
11. An inflow of cash would result from which of the following?
(a) The increase in an asset account other than cash.
(b) The decrease in an asset account other than cash.
(c) The decrease in an equity account.
(d) The decrease in a liability account.
12. An outflow of cash would result from which of the following?
(a) The decrease in an asset account other than cash.
(b) The increase in a liability account.
(c) The decrease in a liability account.
(d) The increase in an equity account.
13. What are internal sources of cash?
(a) Cash inflows from operating activities.
(b) Cash inflows from investing activities.
(c) Cash inflows from financing activities.
(d) All of the above.
14. What are external sources of cash?
(a) Cash inflows from operating activities.
(b) Cash inflows from investing activities.
(c) Cash inflows from financing activities.
(d) Both (b) and (c).
15. Which of the following items is included in the adjustment of net income to obtain cash flow from operating activities?
(a) Depreciation expense for the period.
(b) The change in deferred taxes.
(c) The amount by which equity income recognized exceeds cash received.
(d) All of the above.
16. Which statement is true for gains and losses from capital asset sales?
(a) They do not affect cash and are excluded from the statement of cash flows.
(b) They are included in cash flows from operating activities.
(c) They are included in cash flows from investing activities.
(d) They are included in cash flows from financing activities.
17. Which of the following current assets is included in the adjustment of net income to obtain cash flow from operating activities?
(a) Accounts receivable.
(b) Inventory.
(c) Prepaid expenses.
(d) All of the above.
18. Which of the following current liability accounts is included in the adjustment of expenses to obtain cash flow from operating activities?
(a) Accounts payable.
(b) Notes payable and current maturities of long-term debt.
(c) Accrued liabilities.
(d) Both (a) and (c).
19. How is it possible for a firm to be profitable and still go bankrupt?
(a) Earnings have increased more rapidly than sales.
(b) The firm has positive net income but has failed to generate cash from operations.
(c) Net income has been adjusted for inflation.
(d) Sales have not improved even though credit policies have been eased.
20. Why has cash flow from operations become increasingly important as an analytical tool?
(a) Inflation has distorted the meaningfulness of net income.
(b) High interest rates can put the cost of borrowing to cover short-term cash needs out of reach for many firms.
(c) Firms may have uncollected accounts receivable and unsalable inventory on the books.
(d) All of the above.
21. Which of the following statements is false?
(a) A negative cash flow can occur in a year in which net income is positive.
(b) An increase in accounts receivable represents accounts not yet collected in cash.
(c) An increase in accounts payable represents accounts not yet collected in cash.
(d) To obtain cash flow from operations, the reported net income must be adjusted.
22. Which of the following could lead to cash flow problems?
(a) Obsolete inventory, accounts receivable of inferior quality, easing of credit by suppliers.
(b) Slow-moving inventory, accounts receivable of inferior quality, tightening of credit by suppliers.
(c) Obsolete inventory, increasing notes payable, easing of credit by suppliers.
(d) Obsolete inventory, improved quality of accounts receivable, easing of credit by suppliers.
The following information is available for Jacqui's Jewelry and Gift Store:
Net income $ 5,000
Depreciation expense 2,500
Increase in deferred tax liabilities 500
Decrease in accounts receivable 2,000
Increase in inventories 9,000
Decrease in accounts payable 5,000
Increase in accrued liabilities 1,000
Increase in property and equipment 14,000
Increase in short-term notes payable 19,000
Decrease in long-term bonds payable 4,000
Use the indirect method to answer questions 23-26.
23. What is net cash flow from operating activities?
(a) ($3,000)
(b) ($1,000)
(c) $5,000
(d) $13,000
24. What is net cash flow from investing activities?
(a) $14,000
(b) ($14,000)
(c) $21,000
(d) ($16,000)
25. What is net cash flow from financing activities?
(a) $15,000
(b) ($15,000)
(c) $17,000
(d) ($14,000)