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Test Bank CHAPTER 23 STATEMENT OF CASH FLOWS

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Test Bank CHAPTER 23 STATEMENT OF CASH FLOWS

CHAPTER 23

 

STATEMENT OF CASH FLOWS

 

IFRS questions are available at the end of this chapter.

 

TRUE-FALSe—Conceptual

Answer       No.      Description

        F              1.       Primary purpose of the statement of cash flows.

        T              2.       Information provided by statement of cash flows.

        T              3.       Classification of operating activities.

        F              4.       First step in cash flow statement preparation.

        T              5.       Reconciling beginning and ending cash balances.

        F              6.       Net income and net cash flow from operating activities.

        T              7.       Converting net income to net cash flow from operating activities.

        F              8.       Reporting cash receipts/disbursements in direct method.

        T              9.       Indirect method adjustments.

        F            10.       FASB’s recommended method.

        T            11.       Decrease in accounts receivable and cash-basis revenues.

        F            12.       Decrease in prepaid expenses.

        F            13.       Income from equity method investment.

        T            14.       Computing cash receipts from customers.

        F            15.       Computing cash payments for operating expenses.

        F            16.       Amortization of bond premium.

        T            17.       Purchases and sales of trading securities.

        T            18.       Disclosing noncash investing and financing activities.

        F            19.       Use of cash flow worksheet.

        T            20.       Reporting stock dividends on worksheet.

 

Multiple Choice—Conceptual

Answer       No.      Description

        c            21.       Objective of the statement of cash flows.

        c            22.       Primary purpose of the statement of cash flows.

        c          S23.       Answers provided by the statement of cash flows.

        b          S24.       First step in cash flow statement preparation.

        d            25.       Definition of cash equivalents.

        d            26.       Cash flow effect of a short-term nontrade note payable.

        c          S27.       Reporting revenues and expenses on a cash basis.

        b            28.       The effect of an inventory increase on cash flows from operating activities.

        b            29.       Cash flow effects of a stock dividend.

        b            30.       Effect of a change in dividends payable.

        d            31.       Effect of cash dividend declaration on operating cash flows.

        c            32.       Cash flow effects of major repairs on machinery.

        c          P33.       Classifying items as investing activities.

        b          P34.       Classification of a financing activity.

        b          S35.       Reporting amortization of bond premium.

        c          S36.       Converting accrual based expense to cash basis.

        b            37.       Adjustment to income for inventory increase.

        c            38.       Adjustment under the direct and indirect methods.

        c            39.       Adjustment to cost of goods sold under the direct method.

Multiple Choice—Conceptual  (cont.)

Answer       No.      Description

        a            40.       Adjustment for an increase in accounts payable.

        a            41.       Adjustment for a decrease in prepaid insurance.

        b            42.       Direct method vs. indirect method.

        c            43.       Direct method vs. indirect method.

        c            44.       Addition to net income under indirect method.

        b            45.       Deduction from net income under indirect method.

        b            46.       Statement of cash flows information.

        d            47.       Adjustment for equity method investment income.

        a            48.       Reporting extraordinary transactions.

        d            49.       Events not shown on statement of cash flows.

        c          S50.       Reporting significant noncash transactions.

P These questions also appear in the Problem-Solving Survival Guide.

S These questions also appear in the Study Guide.

 

Multiple Choice—Computational

Answer       No.      Description

        b            51.       Determine net cash flow from investing activities.

        b            52.       Determine net cash flow from financing activities.

        c            53.       Determine net cash flow from operating activities.

        d            54.       Determine net cash flow from investing activities.

        c            55.       Determine net cash flow from financing activities.

        a            56.       Determine cash flows from investing activities.

        d            57.       Determine cash flows from financing activities.

        a            58.       Determine net cash flow from operating activities.

        c            59.       Determine net cash flow from investing activities.

        b            60.       Determine cash received from customers (direct method).

        d            61.       Determine taxes paid (direct method).

        c            62.       Determine net cash flow from financing activities.

        c            63.       Compute net cash used in financing activities.

        c            64.       Sale of fixed assets at a gain/cash flow effects.

        b            65.       Analysis of plant asset account/cash flow presentation.

        c            66.       Sale of equipment at a gain/cash flow effects.

        c            67.       Determine depreciation expense for the year.

        b            68.       Determine depreciation expense for the year.

        a            69.       Calculate equipment purchased during the year.

        c            70.       Calculate cost of equipment sold.

        a            71.       Determine book value of equipment at end of year.

        b            72.       Determine ending balance of accounts payable.

        c            73.       Determine ending balance of retained earnings.

        d            74.       Determine ending balance of capital stock.

        b            75.       Determine the amount of a cash dividend.

        d            76.       Reporting a stock dividend.

        c            77.       Compute proceeds from issuance of bonds payable.

        a            78.       Compute net cash provided by operating activities.

        a            79.       Determine net income for period.

        a            80.       Compute net cash provided by operating activities.

        a            81.       Compute net cash provided by operating activities.

Multiple Choice—Computational  (cont.)

Answer       No.      Description

        a            82.       Compute cash flow from investing activities.

        c            83.       Compute cash flow from financing activities.

        d            84.       Compute cash provided by operating activities.

        c            85.       Compute cash provided by investing activities.

        a            86.       Compute cash used by financing activities.

        a            87.       Compute net cash provided by operating activities.

        a            88.       Compute net cash provided by operating activities.

        d            89.       Determine net income for period.

        c            90.       Compute cash payments for operating expenses.

        a            91.       Compute cash payments to suppliers.

        c            92.       Compute cash collections from customers.

        a            93.       Compute cash payments to suppliers.

        c            94.       Determine cash collected from accounts receivable.

        b            95.       Determine cash paid on accounts payable to suppliers.

        d            96.       Compute net cash provided by investing activities.

        a            97.       Compute net cash provided by financing activities.

        b            98.       Compute net cash flow from investing activities.

        d            99.       Compute net cash flow from financing activities.

        b          100.       Determine net income for period.

        a          101.       Adjust net income for bad debt provision.

        c          102.       Reporting insurance proceeds from a flood loss.

        b          103.       Reporting a flood loss.

        c          104.       Determine net cash flow from operating activities.

        b          105.       Determine net cash flow from operating activities.

 

Multiple Choice—CPA Adapted

Answer       No.      Description

        a          106.       Determine cash flow from investing activities.

        c          107.       Determine cash flow from financing activities.

        c          108.       Determine net cash used in investing activities.

        b          109.       Determine net cash used in financing activities.

        b          110.       Determine net cash provided by investing activities.

        b          111.       Determine net cash provided by financing activities.

        c          112.       Determine net cash provided by operating activities.

        a          113.       Determine net cash used by investing activities.

        a          114.       Determine net cash provided by financing activities.

        c          115.       Determine depreciation charged to operations.

        b          116.       Cash disbursements for insurance (direct method).

 

 

Exercises

     Item            Description

E23-117         Direct and indirect methods (essay).

E23-118         Classification of cash flows.

E23-119         Classification of cash flows and transactions.

E23-120         Effects of transactions on statement of cash flows.

E23-121         Effects of transactions on statement of cash flows.

E23-122         Effects of transactions on statement of cash flows.

E23-123         Calculations for statement of cash flows.

E23-124         Calculations for statement of cash flows.

E23-125         Cash flows from operating activities (direct/indirect).

E23-126         Statement of cash flows (indirect method).

E23-127         Preparation of statement of cash flows (format provided).

 

PROBLEMS

     Item            Description

P23-128         Statement of cash flows (indirect method).

P23-129         Statement of cash flows (direct/indirect).

P23-130         A complex statement of cash flows (indirect method).

 

 

CHAPTER LEARNING OBJECTIVES

 

    1.     Describe the purpose of the statement of cash flows.

 

    2.     Identify the major classifications of cash flows.

 

    3.     Differentiate between net income and net cash flows from operating activities.

 

    4.     Contrast the direct and indirect methods of calculating net cash flow from operating activities.

 

    5.     Determine net cash flows from investing and financing activities.

 

    6.     Prepare a statement of cash flows.

 

    7.     Identify sources of information for a statement of cash flows.

 

    8.     Discuss special problems in preparing a statement of cash flows.

 

    9.     Explain the use of a worksheet in preparing a statement of cash flows.

 

 

 

SUMMARY OF LEARNING OBJECTIVES BY QUESTIONS

 

Item

Type

Item

Type

Item

Type

Item

Type

Item

Type

Item

Type

Item

Type

Learning Objective 1

1.

TF

2.

TF

21.

MC

22.

MC

S23.

MC

 

 

 

 

Learning Objective 2

3.

TF

4.

TF

5.

TF

S24.

MC

25.

MC

26.

MC

117.

E

Learning Objective 3

6.

TF

7.

TF

S27.

MC

 

 

 

 

 

 

 

 

Learning Objective 4

8.

TF

9.

MC

28.

MC

29.

MC

30.

MC

31.

MC

117.

E

Learning Objective 5

32.

MC

55.

MC

62.

MC

108.

MC

113.

MC

120.

E

 

 

51.

MC

56.

MC

63.

MC

109.

MC

114.

E

121.

E

 

 

52.

MC

57.

MC

106.

MC

110.

MC

118.

E

122.

E

 

 

53.

MC

59.

MC

107.

MC

111.

MC

119.

E

 

 

 

 

Learning Objective 6

10.

TF

58.

MC

68.

MC

75.

MC

82.

MC

89.

MC

124.

E

11.

TF

60.

MC

69.

MC

76.

MC

83.

MC

112.

MC

125.

E

12.

TF

61.

MC

70.

MC

77.

MC

84.

MC

115.

MC

126.

E

P33.

MC

64.

MC

71.

MC

78.

MC

85.

MC

116.

MC

127.

E

P34.

MC

65.

MC

72.

MC

79.

MC

86.

MC

121.

E

128.

P

S35.

MC

66.

MC

73.

MC

80.

MC

87.

MC

122.

E

129.

P

S36.

MC

67.

MC

74.

MC

81.

MC

88.

MC

123.

E

130.

P

Learning Objective 7

13.

TF

38.

MC

42.

MC

46.

MC

93.

MC

97.

MC

 

 

14.

TF

39.

MC

43.

MC

90.

MC

94.

MC

118.

E

 

 

15.

TF

40.

MC

44.

MC

91.

MC

95.

MC

120.

E

 

 

37.

MC

41.

MC

45.

MC

92.

MC

96.

MC

 

 

 

 

Learning Objective 8

16.

TF

48.

MC

98.

MC

103.

MC

120.

E

127.

E

 

 

17.

TF

49.

MC

99.

MC

104.

MC

121.

E

128.

P

 

 

18.

MC

S50.

MC

100.

MC

105.

MC

122.

E

129.

P

 

 

30.

MC

53.

MC

101.

MC

118.

E

125.

E

130.

P

 

 

47.

MC

76.

MC

102.

MC

119.

E

126.

E

 

 

 

 

Learning Objective 9

19.

TF

20.

TF

 

 

 

 

 

 

 

 

 

 

Note:     TF = True-False

              MC = Multiple Choice

              E = Exercise

              P = Problem

 

 

 

 

 

TRUE FALSE—Conceptual

 

    1.     The primary purpose of the statement of cash flows is to provide cash-basis information about the company’s operating, investing, and financing activities.

 

    2.     The statement of cash flows provides information to help investors and creditors assess the cash and noncash investing and financing transactions during the period.

 

    3.     Companies classify some cash flows relating to investing or financing activities as operating activities.

 

    4.     The first step in the preparation of the statement of cash flows is to determine the net cash flow from operating activities.

 

    5.     The net increase (decrease) in cash reported on the statement of cash flows should reconcile the beginning and ending cash balances reported in the comparative balance sheets.

 

    6.     Under the accrual basis of accounting, net income is usually the same as net cash flow from operating activities.

 

    7.     A company can convert net income to net cash flow from operating activities through either the direct method or the indirect method.

 

    8.     The direct method, also called the reconciliation method, reports cash receipts and cash disbursements from operating activities.

 

    9.     The indirect method adjusts net income for items that affected reported net income but did not affect cash.

 

  10.     The FASB encourages the use of the indirect method over the direct method.

 

  11.     When accounts receivable decrease during a period, cash-basis revenues are higher than revenues reported on an accrual basis.

 

  12.     When prepaid expenses decrease during a period, expenses on the accrual-basis are lower than they are on a cash-basis.

 

  13.     Income from an investment in common stock using the equity method is added to net income in computing net cash provided from operating activities.

 

  14.     Cash receipts from customers are computed by adding a decrease in accounts receivable to revenue from sales.

 

  15.     Cash payments for operating expenses are computed by subtracting an increase in prepaid expenses and a decrease in accrued expenses payable from operating expenses.

 

  16.     A company should add back bond premium amortization to net income to arrive at net cash flow from operating activities.

 

  17.     Companies report the cash flows from purchases and sales of trading securities as cash flows from operating activities.

 

  18.     Noncash investing and financing activities are disclosed either in a separate schedule or in a separate note to the financial statements.

 

  19.     When numerous adjustments are necessary, companies often use a cash flow worksheet instead of preparing a statement of cash flows.

 

  20.     The issuance of stock dividends is entered on the cash flow worksheet, but is not reported in the statement of cash flows.

 

 

True-False Answers—Conceptual

Item

Ans.

Item

Ans.

Item

Ans.

Item

Ans.

1.

F

6.

F

11.

T

16.

F

2.

T

7.

T

12.

F

17.

T

3.

T

8.

F

13.

F

18.

T

4.

F

9.

T

14.

T

19.

F

5.

T

10.

F

15.

F

20.

T

 

 

MULTIPLE CHOICE—Conceptual

 

  21.     It is an objective of the statement of cash flows to

a.   disclose changes during the period in all asset and all equity accounts.

b.   disclose the change in working capital during the period.

c.   provide information about the operating, investing, and financing activities of an entity during a period.

d.   none of these.

 

  22.     The primary purpose of the statement of cash flows is to provide information

a.   about the operating, investing, and financing activities of an entity during a period.

b.   that is useful in assessing cash flow prospects.

c.   about the cash receipts and cash payments of an entity during a period.

d.   about the entity's ability to meet its obligations, its ability to pay dividends, and its needs for external financing.

 

S23.     Of the following questions, which one would not be answered by the statement of cash flows?

a.   Where did the cash come from during the period?

b.   What was the cash used for during the period?

c.   Were all the cash expenditures of benefit to the company during the period?

d.   What was the change in the cash balance during the period?

 

S24.     The first step in the preparation of the statement of cash flows requires the use of information included in which comparative financial statements?

a.   Statements of cash flows

b.   Balance sheets

c.   Income statements

d.   Statements of retained earnings

  25.     Cash equivalents are

a.   treasury bills, commercial paper, and money market funds purchased with excess cash.

b.   investments with original maturities of three months or less.

c.   readily convertible into known amounts of cash.

d.   all of these.

 

  26.     A company borrows $10,000 and signs a 90-day nontrade note payable. In preparing a statement of cash flows (indirect method), this event would be reflected as a(n)

a.   addition adjustment to net income in the cash flows from operating activities section.

b.   cash outflow from investing activities.

c.   cash inflow from investing activities.

d.   cash inflow from financing activities.

 

S27.     To arrive at net cash provided by operating activities, it is necessary to report revenues and expenses on a cash basis. This is done by

a.   re-recording all income statement transactions that directly affect cash in a separate cash flow journal.

b.   estimating the percentage of income statement transactions that were originally reported on a cash basis and projecting this amount to the entire array of income statement transactions.

c.   eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash.

d.   eliminating all transactions that have no current or future effect on cash, such as depreciation, from the net income computation.

 

  28.     An increase in inventory balance would be reported in a statement of cash flows using the indirect method (reconciliation method) as a(n)

a.   addition to net income in arriving at net cash flow from operating activities.

b.   deduction from net income in arriving at net cash flow from operating activities.

c.   cash outflow from investing activities.

d.   cash outflow from financing activities.

 

  29.     A statement of cash flows typically would not disclose the effects of

a.   capital stock issued at an amount greater than par value.

b.   stock dividends declared.

c.   cash dividends paid.

d.   a purchase and immediate retirement of treasury stock.

 

  30.     When preparing a statement of cash flows (indirect method), which of the following is not an adjustment to reconcile net income to net cash provided by operating activities?

a.   A change in interest payable

b.   A change in dividends payable

c.   A change in income taxes payable

d.   All of these are adjustments.

 

 

  31.     Declaration of a cash dividend on common stock affects cash flows from operating activities under the direct and indirect methods as follows:

       Direct Method      Indirect Method

a.         Outflow                   Inflow

b.          Inflow                    Inflow

c.         Outflow                 Outflow

d.        No effect               No effect

 

  32.     In a statement of cash flows, the cash flows from investing activities section should report

a.   the issuance of common stock in exchange for a factory building.

b.   stock dividends received.

c.   a major repair to machinery charged to accumulated depreciation.

d.   the assignment of accounts receivable.

 

P33.     Xanthe Corporation had the following transactions occur in the current year:

      1.    Cash sale of merchandise inventory.

      2.    Sale of delivery truck at book value.

      3.    Sale of Xanthe common stock for cash.

      4.    Issuance of a note payable to a bank for cash.

      5.    Sale of a security held as an available-for-sale investment.

      6.    Collection of loan receivable.

How many of the above items will appear as a cash inflow from investing activities on a statement of cash flows for the current year?

a.   Five items

b.   Four items

c.   Three items

d.   Two items

 

P34.     Which of the following would be classified as a financing activity on a statement of cash flows?

a.   Declaration and distribution of a stock dividend

b.   Deposit to a bond sinking fund

c.   Sale of a loan receivable

d.   Payment of interest to a creditor

 

S35.     The amortization of bond premium on long-term debt should be presented in a statement of cash flows (using the indirect method for operating activities) as a(n)

a.   addition to net income.

b.   deduction from net income.

c.   investing activity.

d.   financing activity.

 

 

S36.     Crabbe Company reported $80,000 of selling and administrative expenses on its income statement for the past year. The company had depreciation expense and an increase in prepaid expenses associated with the selling and administrative expenses for the year. Assuming use of the direct method, how would these items be handled in converting the accrual based selling and administrative expenses to the cash basis?

                                                                     Increase in

                          Depreciation                 Prepaid Expenses

a.        Deducted From                 Deducted From

b.             Added To                          Added To

c.        Deducted From                      Added To

d.             Added To                     Deducted From

 

  37.     When preparing a statement of cash flows (indirect method), an increase in ending inventory over beginning inventory will result in an adjustment to reported net earnings because

a.   cash was increased while cost of goods sold was decreased.

b.   cost of goods sold on an accrual basis is lower than on a cash basis.

c.   acquisition of inventory is an investment activity.

d.   inventory purchased during the period was less than inventory sold resulting in a net cash increase.

 

  38.     When preparing a statement of cash flows, a decrease in accounts receivable during a period would cause which one of the following adjustments in determining cash flow from operating activities?

       Direct Method      Indirect Method

a.        Increase               Decrease

b.       Decrease               Increase

c.        Increase                Increase

d.       Decrease              Decrease

 

  39.     In determining net cash flow from operating activities, a decrease in accounts payable during a period

a.   means that income on an acc

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Test Bank CHAPTER 23 STATEMENT OF CASH FLOWS c 21. Objective of the statement of cash flows. c 22. Primary purpose of the statement of cash flows. c S23. Answers provided by the statement of cash flows. b S24. First step in cash flow statement preparation. d 25. Definit...
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