Statement of Cash Flow MCQs

A statement of cash flows is intended to help users of financial statements

Evaluate a firm’s liquidity, solvency, and financial flexibility.
Evaluate a firm’s economic resources and obligations.
Determine a firm’s components of income from operations.
Determine whether insiders have sold or purchased the firm’s stock.

Which of the following items is specifically included in the body of a statement of cash flows?

Operating and nonoperating cash flow information.
Conversion of debt to equity.
Acquiring an asset through a capital lease.
Purchasing a building by giving a mortgage to the seller.

With respect to the content and form of the statement of cash flows, the

Pronouncements covering the cash flow statement encourage the use of the indirect method.
Indirect method adjusts ending retained earnings to reconcile it to net cash flows from operations.
Direct method of reporting cash flows from operating activities includes disclosing the major classes of gross cash receipts and gross cash payments.
Reconciliation of the net income to net operating cash flow need not be presented when using the direct method.

Depreciation expense is added to net income under the indirect method of preparing a statement of cash flows in order to

Report all assets at gross carrying amount.
Ensure depreciation has been properly reported.
Reverse noncash charges deducted from net income.
Calculate net carrying amount.

All of the following should be classified under the operating section in a statement of cash flows except a

Decrease in inventory.
Depreciation expense.
Decrease in prepaid insurance.
Purchase of land and building in exchange for a long-term note.

Which one of the following transactions should be classified as a financing activity in a statement of cash flows?

Purchase of equipment.
Purchase of treasury stock.
Sale of trademarks.
Payment of interest on a mortgage note.

Kelli Company acquired land by assuming a mortgage for the full acquisition cost. This transaction should be disclosed on Kelliâ€™s statement of ...

Financing activity.
Investing activity.
Operating activity.
Non cash financing and investing activity.

Which one of the following transactions should not be classified as a financing activity in the statement of cash flows?

Issuance of common stock.
Purchase of treasury stock.
Payment of dividends.
Income tax refund.

All of the following should be classified as investing activities in the statement of cash flows except

Cash outflows to purchase manufacturing equipment.
Cash inflows from the sale of bonds of other entities.
Cash outflows to lenders for interest.
Cash inflows from the sale of a manufacturing plant.

All of the following should be included in the reconciliation of net income to net operating cash flow in the statement of cash flows except a(n)

Decrease in inventory.
Decrease in prepaid insurance.
Purchase of land and building in exchange for a long-term note.
Increase in income tax payable.

In preparing a statement of cash flows, an item included in determining net cash flow from operating activities is the

Amortization of a bond premium.
Proceeds from the sale of equipment for cash.
Cash dividends paid.
Purchase of treasury stock.

The information reported in the statement of cash flows should help investors, creditors, and others to assess all of the following except the

Amount, timing, and uncertainty of prospective net cash inflows of a firm.
Company’s ability to pay dividends and meet obligations.
Company’s ability to generate future cash flows.
Management of the firm with respect to the efficient and profitable use of its resources.

To calculate cash flows using the indirect method, which one of the following items must be added back to net income?

Revenue.
Marketing expense.
Depreciation expense.
Interest income.

The net income for Cypress, Inc., was $3,000,000 for the year ended December 31. Additional information is as follows: Depreciation on fixed assets....

$4,200,000
$4,500,000
$4,600,000
$4,800,000

Fact Pattern: Royce Company had the following transactions during the fiscal year ended December 31, Year 2:  Accounts receivable decreased from $1...

Financing section, as a use or outflow of cash.
Operating section, as a use or outflow of cash.
Investing section, as a use or outflow of cash.
Debt section, as a use or outflow of cash.

Royce Company had the following transactions during the fiscal year ended December 31, Year 2:  Accounts receivable decreased from $115,000 on Dece...

Source or inflow of funds of $5,000 from the sale of the truck in the financing section.
Use or outflow of funds of $140,000 in the financing section, representing dividends.
Deduction of $15,000 in the operating section, representing the decrease in year-end accounts receivable.
Addition of $2,000 in the operating section for the $2,000 loss on the sale of the truck.

Royce Company had the following transactions during the fiscal year ended December 31, Year 2:  Accounts receivable decreased from $115,000 on Dece...

Cash provided of $284,000.
Cash provided of $178,000.
Cash used of $582,000.
Equal to net income reported for fiscal year ended December 31, Year 2.

The following information was taken from the accounting records of Oak Corporation for the year ended December 31: Proceeds from issuance of preferre...

$700,000 and $3,600,000.
$700,000 and $3,900,000.
$900,000 and $3,900,000.
$900,000 and $3,600,000.

Zip Company entered into the following transactions during the year: ? Purchased stock for $200,000 ? Purchased electronic equipment for use on the ma...

$200,000
$500,000
$800,000
$1,300,000

When using the statement of cash flows to evaluate a company’s continuing solvency, the most important factor to consider is the cash

Balance at the end of the period.
Flows from (used for) operating activities.
Flows from (used for) investing activities.
Flows from (used for) financing activities.

Dividends paid to shareholders are shown on the statement of cash flows as

Operating cash inflows.
Operating cash outflows.
Cash flows from investing activities.
Cash flows from financing activities.

All of the following are classifications on the statement of cash flows except

Operating activities.
Equity activities.
Investing activities.
Financing activities.

The sale of available-for-sale securities should be accounted for on the statement of cash flows as a(n)

Operating activity.
Investing activity.
Financing activity.
Noncash investing and financing activity.

Hauschka Company reported net income for the year of $1,050,000. During the year, accounts receivable decreased $300,000, prepaid expenses increased $...

$1,790,000
$1,690,000
$1,210,000
$1,110,000

Garnett Companyâ€™s year-end income statement shows the following: Revenues.............. $5,000,000 Selling and general expenses (including depr...

$1,080,000
$1,110,000
$1,160,000
$1,190,000

Which one of the following would result in a decrease in cash flow measured under the indirect method of preparing a statement of cash flows?

Amortization expense.
Decrease in income taxes payable.
Proceeds from the issuance of common stock.
Decrease in inventories.

A statement of cash flows prepared using the indirect method would have cash activities listed in which one of the following orders?

Financing, investing, operating.
Investing, financing, operating.
Operating, financing, investing.
Operating, investing, financing.

Which one of the following should be classified as a cash flow from an operating activity on the statement of cash flows?

A decrease in accounts payable during the year.
An increase in cash resulting from the issuance of previously authorized common stock.
The payment of cash for the purchase of additional equipment needed for current production.
The payment of a cash dividend from money arising from current operations.

The most commonly used method for calculating and reporting a company’s net cash flow from operating activities on its statement of cash flows is th...

Direct method.
Indirect method.
Single-step method.
Multiple-step method.

The presentation of the major classes of operating cash receipts (such as receipts from customers) minus the major classes of operating cash disbursem...

Direct method of calculating net cash provided or used by operating activities.
Cash method of determining income in conformity with generally accepted accounting principles.
Format of the statement of cash flows.
Indirect method of calculating net cash provided or used by operating activities.

Larry Mitchell, Bailey Company’s controller, is gathering data for the statement of cash flows for the most recent year end. Mitchell is planning to...

$100,000
$135,000
$225,000
$235,000

During the year, Deltech, Inc., acquired a long-term productive asset for $5,000 and also borrowed $10,000 from a local bank. These transactions shoul...

Outflows for investing activities, $5,000; inflows from financing activities, $10,000.
Inflows from investing activities, $10,000; outflows for financing activities, $5,000.
Outflows for operating activities, $5,000; inflows from financing activities, $10,000.
Outflows for financing activities, $5,000; inflows from investing activities, $10,000.

Atwater Company has recorded the following payments for the current period: Purchase Trillium stock........................... $300,000 Dividends paid...

$300,000
$500,000
$700,000
$900,000

Carlson Company has the following payments recorded for the current period: Dividends paid to Carlson shareholders... $150,000 Interest paid on bank l...

$150,000
$250,000
$350,000
$750,000

Barber Company has recorded the following payments for the current period: Interest paid on bank loan .................$300,000 Dividends paid to Barb...

$300,000
$500,000
$600,000
$900,000

Selected financial information for Kristina Company for the year just ended is shown below. Net income........................................ $2,000,...

$(80,000)
$720,000
$800,000
$3,520,000

Selected financial information for Kristina Company for the year just ended is shown below. Net income........................................ $2,000,...

$(1,500,000)
$1,220,000
$1,300,000
$2,800,000

For the fiscal year just ended, Doran Electronics had the following results: Net income....................................... $920,000 Depreciation e...

$928,000
$986,000
$1,018,000
$1,074,000

Three years ago, Jameson Company purchased stock in Zebra, Inc., at a cost of $100,000. This stock was sold for $150,000 during the current fiscal yea...

Zero.
$50,000
$100,000
$150,000

Madden Corporationâ€™s controller has gathered the following information as a basis for preparing the statement of cash flows. Net income for the...

$63,000
$73,000
$83,000
$93,000

Selected financial information for Kristina Company for the year just ended is shown below. Net income.................................... $2,000,000...

$1,700,000
$2,000,000
$2,400,000
$3,100,000

At December 31, year 1, Kale Co. had the following balances in the accounts it maintains at First State Bank: Checking account #101 $175,000 Checki...

$190,000
$200,000
$240,000
$320,000

The primary purpose of a statement of cash flows is to provide relevant information about

Differences between net income and associated cash receipts and disbursements.
An enterprise’s ability to generate future positive net cash flows.
The cash receipts and cash disbursements of an enterprise during a period.
An enterprise’s ability to meet cash operating needs.

Mend Co. purchased a three-month US Treasury bill. Mend’s policy is to treat as cash equivalents all highly liquid investments with an original ma...

As an outflow from operating activities.
As an outflow from investing activities.
As an outflow from financing activities.
Not reported.

Alp, Inc. had the following activities during year 1: • Acquired 2,000 shares of stock in Maybel, Inc. for $26,000. Alp intends to hold the stock ...

$37,250
$38,050
$39,800
$41,000

In a statement of cash flows, if used equipment is sold at a gain, the amount shown as a cash inflow from investing activities equals the carrying a...

Plus the gain.
Plus the gain and less the amount of tax attributable to the gain.
Plus both the gain and the amount of tax attributable to the gain.
With no addition or subtraction.

On September 1, year 1, Canary Co. sold used equipment for a cash amount equaling its carrying amount for both book and tax purposes. On September 1...

Cash outflow equal to the cash paid less the cash received.
Cash outflow equal to the cash paid and note payable less the cash received.
Cash inflow equal to the cash received and a cash outflow equal to the cash paid and note payable.
Cash inflow equal to the cash received and a cash outflow equal to the cash paid

A company acquired a building, paying a portion of the purchase price in cash and issuing a mortgage note payable to the seller for the balance. In...

Cash payment.
Acquisition price.
Zero.
Mortgage amount.

A company acquired a building, paying a portion of the purchase price in cash and issuing a mortgage note payable to the seller for the balance. In...

Cash payment.
Acquisition price.
Zero.
Mortgage amount.

On July 1, year 1, Dewey Co. signed a twenty-year building lease that it reported as a capital lease. Dewey paid the monthly lease payments when due...

An inflow equal to the present value of future lease payments at July 1, year 1, less year 1 principal and interest payments.
An outflow equal to the year 1 principal and interest payments on the lease.
An outflow equal to the year 1 principal payments only.
The lease payments should not be reported in the financing activities section.

Which of the following should be reported when preparing a statement of cash flows? Conversion of long-term debt to common stock Conversion of pref...

No No
No Yes
Yes Yes
Yes No

Which of the following information should be disclosed as supplemental information in the statement of cash flows? Cash flow per share Conversion o...

Yes Yes
Yes No
No Yes
No No

Which of the following is not disclosed on the statement of cash flows when prepared under the direct method, either on the face of the statement or...

The major classes of gross cash receipts and gross cash payments.
The amount of income taxes paid.
A reconciliation of net income to net cash flow from operations.
A reconciliation of ending retained earnings to net cash flow from operations.

In a statement of cash flows, which of the following would increase reported cash flows from operating activities using the direct method? (Ignore i...

Dividends received from investments.
Gain on sale of equipment.
Gain on early retirement of bonds.
Change from straight-line to accelerated depreciation.

A company’s wages payable increased from the beginning to the end of the year. In the company’s statement of cash flows in which the operating a...

Salary expense plus wages payable at the beginning of the year.
Salary expense plus the increase in wages payable from the beginning to the end of the year.
Salary expense less the increase in wages payable from the beginning to the end of the year.
The same as salary expense.

In a statement of cash flows (using indirect approach for operating activities) an increase in inventories should be presented as a(n)

Outflow of cash.
Inflow and outflow of cash.
Addition to net income.
Deduction from net income.

How should a gain from the sale of used equipment for cash be reported in a statement of cash flows using the indirect method?

In investment activities as a reduction of the cash inflow from the sale.
In investment activities as a cash outflow.
In operating activities as a deduction from income.
In operating activities as an addition to income.

Would the following be added back to net income when reporting operating activities’ cash flows by the indirect method? Excess of treasury stock a...

Yes Yes
No No
No Yes
Yes No

Which of the following should not be disclosed in an enterprise’s statement of cash flows prepared using the indirect method?

Interest paid, net of amounts capitalized.
Income taxes paid.
Cash flow per share.
Dividends paid on preferred stock.

Rice Corporation prepares its financial statements in accordance with IFRS. Rice must report amounts paid for interest on a note payable on the stat...

In operating activities.
In financing activities.
Either in operating activities or financing activities.
Either in investing activities or financing activities.

Filigree Corporation prepares its financial statements in accordance with IFRS. Filigree acquired equipment by issuing 5,000 shares of its common st...

As an outflow of cash from investing activities and an inflow of cash from financing activities.
As an inflow of cash from financing activities and an outflow of cash from operating activities.
At the bottom of the statement of cash flows as a significant noncash transaction.
In the notes to the financial statements as a significant noncash transaction.

Cash equivalents have each of the following characteristics except:

Short-term.
Highly liquid.
Maturity of at least 3 months.
Little risk of loss.

Which of the following statements is untrue regarding the statement of cash flows?

The statement of cash flows presents information about cash flows that the other statements either (a) do not provide or (b) provide only indirectly.
Noncash transactions sometimes are reported also.
Either the direct or the indirect method can be used to calculate and present the net cash increase or decrease from operating activities.
The indirect method derives cash flows indirectly by starting with sales revenue and "working backwards" to convert that amount to a cash basis.

Stock dividends are reported in connection with a statement of cash flows as:

A financing activity.
An investing activity.
A noncash activity.
Not reported on the statement of cash flows.

Property dividends are reported in connection with a statement of cash flows as:

A financing activity.
An investing activity.
A noncash activity.
Not reported on the statement of cash flows

Interest paid to bondholders is reported in connection with a statement of cash flows as:

An operating activity.
An investing activity
A noncash activity.
A financing activity.

Investment revenue is reported in connection with a statement of cash flows as:

An operating activity.
An investing activity.
A noncash activity.
A financing activity.

On January 4, Childers Corporation issued $200 million of bonds for $193 million. During the same year, $500,000 of the bond discount was amortized. O...

A financing activity of $200 million.
An addition to net income of $500,000.
An investing activity of $193 million.
A deduction from net income of $500,000.

Sun Company owns 14.5 million shares of stock of Center Company classified as available for sale. During 2016, the fair value of those shares increase...

Cash from operating activities increased.
Cash from investing activities increased.
Cash from financing activities increased.
No effect.

Eastern Manufacturing Company owns 40% of the outstanding common stock of Southern Supply Company. During 2016, Eastern received a $50 million cash di...

Cash from operating activities increased.
Cash from investing activities increased.
Cash from financing activities increased.
No effect.

In determining cash flows from operating activities (indirect method), adjustments to net income should not include:

An addition for depreciation expense
A deduction for bond premium amortization.
An addition for a gain on sale of equipment.
An addition for patent amortization.

The net income for World Class Corporation was $140 million for the year ended December 31, 2016. Related information follows: Amortization of pate...

$151 million.
$169 million.
$171 million.
$182 million.

A statement of cash flows and its related disclosure note typically do not report:

Acquired use of a building with a lease agreement.
The purchase of treasury stock.
Stock dividends.
Notes payable issued for a tract of land.

Sean-McDonald Company sold a printer with a cost of $34,000 and accumulated depreciation of $21,000 for $10,000 cash. This transaction would be report...

An operating activity.
An investing activity.
A financing activity.
None of the above.

In a statement of cash flows (indirect method), a decrease in inventory should be reported as:

A deduction from net income in determining cash flows from operating activities.
An addition to net income in determining cash flows from operating activities.
An investing activity.
Not reported.

In a statement of cash flows (indirect method), an increase in available-for-sale securities should be reported as:

A deduction from net income in determining cash flows from operating activities.
An addition to net income in determining cash flows from operating activities.
An investing activity.
Not reported.

If sales revenue is $20 million and accounts receivable increased by $3 million, the amount of cash received from customers:

was $17 million.
was $20 million.
was $23 million.
depends on the proportion of cash sales and credit sales.

Sales revenue for Marshall Matches was $240,000. The following data are from the accounting records of Marshall: Accounts Receivable, Jan. 1: $52,0...

$235,000.
$244,000.
$240,000.
$245,000.

Selected information from Mercer Corporationâ€™s accounting records and financial statements for 2016 is as follows ($ in millions): Cash paid...

$13 million.
$23 million.
$38 million.
$39 million.

Selected information from Phillips Corporationâ€™s accounting records and financial statements for 2016 is as follows ($ in millions): Cash pa...

$20 million.
$55 million.
$70 million
$105 million

Consistent with U.S. GAAP, IFRS classifies cash flows as operating, investing, or financing. However, U.S. GAAP designates cash outflows for interest ...

allows companies to report cash inflows from interest and dividends as either operating or investing cash flows.
allows companies to report cash outflows from interest payments as either operating or investing cash flows.
allows companies to report dividends paid as either investing or operating cash flows.
designates cash outflows for interest payments and cash inflows from interest and dividends received as operating cash flows.

A company can report interest payments and interest received as operating cash flows using

Either U.S. GAAP and IFRS.
IFRS.
U.S. GAAP.
Neither U.S. GAAP and IFRS.

If bond interest expense is $400,000, bond interest payable increased by $4,000 and bond discount decreased by $1,000, cash paid for bond interest is:...

$395,000
$397,000
$403,000.
$405,000.

A company can report interest received and dividends received as investing activities using

Either U.S. GAAP and IFRS.
Neither U.S. GAAP and IFRS.
U.S. GAAP.
IFRS.

In the statement of cash flows, inflows and outflows of cash from buying and selling trading securities typically are considered:

Investing activities.
Operating activities.
Financing activities.
Noncash financing activities

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Statement of Cash Flow MCQs