16 Jan A. An indication of a company’s

ACC556 Financial Accounting for Managers

CHAPTER 12 EXERCISE

Question 1 The statement of cash flows is a required statement that must be prepared along with an income statement, balance sheet, and retained earnings statement.

True

False

Question 2 The acquisition of a building by issuing bonds would be considered an investing and financing activity that did not affect cash.

Answers:

True

False

Question 3 The statement of cash flows

Answers:

must be prepared on a daily basis.

summarizes the operating, financing, and investing activities of an entity.

is another name for the income statement.

is a special section of the income statement.

Question 4 Generally, the most important category on the statement of cash flows is cash flows from

Answers:

operating activities.

investing activities.

financing activities.

significant noncash activities.

Question 5 Which of the following transactions does not affect cash during a period?

Answers:

Write-off of an uncollectible account.

Collection of an accounts receivable.

Sale of treasury stock.

Redeeming bonds before maturity.

Question 6 Zoum Corporation had the following transactions during 2014:

1 – Issued $125,000 of par value common stock for cash.

2 – Recorded and paid wages expense of $60,000.

3 – Acquired land by issuing common stock of par value $50,000.

4 – Declared and paid a cash dividend of $10,000.

5 – Sold a long-term investment (cost $3,000) for cash of $3,000.

6 – Recorded cash sales of $400,000.

7 – Bought inventory for cash of $160,000.

8 – Acquired an investment in Zynga stock for cash of $21,000.

9 – Converted bonds payable to common stock in the amount of $500,000.

10 – Repaid a 6 year note payable in the amount of $220,000.

What is the net cash provided by financing activities?

Answers:

$<105,000>.

$395,000.

$<605,000>.

$115,000.

Question 7 In order to determine net cash provided by operating activities, a company must convert net income from an accrual basis to a cash basis under

Answers:

the direct method only.

the indirect method only.

both the direct method and the indirect method.

neither the direct nor the indirect method.

Question 8 The information to prepare the statement of cash flows comes from all of the following sources except

Answers:

comparative balance sheets.

additional transaction data about cash provided or used during the period.

adjusted trial balance.

current income statement.

Question 9 Peninsula Company reported net income of $260,000 for the year. During the year, accounts receivable increased by $21,000, accounts payable decreased by $9,000 and depreciation expense of $45,000 was recorded. Net cash provided by operating activities for the year is

Answers:

$275,000.

$245,000.

$227,000.

$260,000.

Question 10 In calculating cash flows from operating activities using the indirect method, a loss on the sale of equipment will appear as a(n)

Answers:

subtraction from net income.

addition to net income.

addition to cash flow from investing activities.

subtraction from cash flow from investing activities.

Question 11 The net income reported on the income statement for the current year was $440,000. Depreciation was $62,000. Accounts receivable and inventories decreased by $20,000 and $32,000, respectively. Prepaid expenses and accounts payable increased, respectively, by $2,000 and $16,000. How much cash was provided by operating activities?

Answers:

$496,000.

$568,000.

$536,000.

$436,000.

Question 12 The statement of cash flows will not provide insight into

Answers:

why dividends were not increased.

whether cash flow is greater than net income.

the exact proceeds of a future bond issue.

how the retirement of debt was accomplished.

Question 13 All of the following statements are true regarding cash flow presentations except

Answers:

the balance sheet provides only limited information about a company’s cash flows.

the balance sheet provides information about how property, plant, and equipment were financed.

the income statement does not show how much cash was generated by operating activities.

if cash from operations is compared to net income, information about the quality of reported net income is revealed.

Question 14

For each of the following items, indicate by using the appropriate code letter, how the item should be reported in the statement of cash flows, using the indirect method.

Question

Decrease in accounts payable during a period

Declaration and payment of a cash dividend.

Loss on disposal of land.

Decrease in accounts receivable during a period.

Redemption of bonds for cash.

Proceeds from sale of equipment at book value.

Issuance of common stock for cash.

Purchase of a building for cash.

Acquisition of land in exchange for common stock.

Increase in inventory during a period.

All Answer Choices

A. Cash outflow—financing activity

B. Cash inflow—investing activity

C. Deducted from net income

D. Added to net income

E. Cash inflow—financing activity

F. Cash outflow—investing activity

G. Significant noncash investing and financing activity

Question 15 During the introductory phase of a company’s life cycle, what will financial statement users expect to see?

Answers:

A. Negative cash from operations, negative cash from investing, and positive cash from financing

B. Negative cash from operations, positive cash from investing, and positive cash from financing

C. Positive cash from operations, negative cash from investing, and negative cash from financing

D. Positive cash from operations, negative cash from investing, and positive cash from financing

Question 16 During which phase of the corporate life cycle are cash from operations and net income approximately equal?

A. Introductory

B. Growth

C. Maturity

D. Decline

Question 17 During which phase of the corporate life cycle are investing cash flows positive and financing cash flows negative?

Answers:

A. Introductory

B. Growth

C. Maturity

D. Decline

Question 18 What information is provided by free cash flow?

Answers:

A. An indication of a company’s ability to generate net income.

B. An indication if a company is able to generate cash to pay dividends.

C. An indication is a company is able to generate cash to invest in new capital expenditures.

D. An indication of both a company’s ability to generate cash to pay dividends and to invest in new capital expenditures.