Intermediate Accounting II: Chapter 23 Multiple Choice

The first step in the preparation of the statement of cash flows requires the use of information included in which comparative financial statements? A. Balance sheets B. Statements of cash flows C. Income statements D. Statements of retained earnings

A. Balance sheets

In a statement of cash flows, the cash flows from investing activities section should report A. a major repair to machinery charged to accumulated depreciation. B. the issuance of common stock in exchange for a factory building. C. stock dividends received. D. the assignment of accounts receivable.

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

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. cost of goods sold on an accrual basis is lower than on a cash basis. B. acquisition of inventory is an investment activity. C. inventory purchased during the period was less than inventory sold resulting in a net cash increase. D. cash was increased while cost of goods sold was decreased.

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

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. All of these are adjustments B. A change in dividends payable C. A change in income taxes payable D. A change in interest payable

B. A change in dividends payable

When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is deducted from net income to compute cash provided by/used by operating activities? A. Decrease in accounts receivable. B. Gain on sale of land. C. Amortization of patent. D. All of these are deducted from net income to arrive at cash flow from operating activities.

B. Gain on sale of land.

Which of the following would be classified as a financing activity on a statement of cash flows? A. Sale of a loan receivable B. Payment of a bond payable C. Declaration and distribution of a stock dividend D. Payment of interest to a creditor

B. Payment of a bond payable

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. cash inflow from investing activities. B. cash inflow from financing activities. C. cash outflow from investing activities. D. addition adjustment to net income in the cash flows from operating activities section.

B. cash inflow from financing activities.

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. financing activity. B. deduction from net income. C. addition to net income. D. investing activity.

B. deduction from net income.

When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is added to net income to compute cash provided by/used by operating activities? A. All of these are added to net income to arrive at cash flow from operating activities. B. Increase in accounts receivable. C. Amortization of patent. D. Gain on sale of land.

C. Amortization of patent.

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. eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash. B. eliminating all transactions that have no current or future effect on cash, such as depreciation, from the net income computation. C. 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. D. re-recording all income statement transactions that directly affect cash in a separate cash flow journal.

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

A statement of cash flows typically would not disclose the effects of A. stock dividends declared. B. capital stock issued at an amount greater than par value. C. a purchase and immediate retirement of treasury stock. D. cash dividends paid.

A. stock dividends declared.

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? A. Depreciation - Added To, Prepaid Expenses - Added to B. Depreciation - Deducted From, Prepaid Expenses - Deducted From C. Depreciation - Deducted From, Prepaid Expenses - Added to D. Depreciation - Added To, Prepaid Expenses - Deducted From

C. Depreciation - Deducted From, Prepaid Expenses - Added to

An objective of the statement of cash flows is 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 answers are correct.

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

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 answers are correct.

D. All of these answers are correct.

Which of the following is shown on a statement of cash flows? A. A stock dividend B. A stock split C. An appropriation of retained earnings D. None of these answers are correct

D. None of these answers are correct

How should significant noncash transactions be reported in the statement of cash flows? A. They should be handled in a manner consistent with the transactions that affect cash flows. B. Such transactions should be incorporated in the section (operating, financing, or investing) that is most representative of the major component of the transaction. C. They should be incorporated in the statement of cash flows in a section labeled, "Significant Noncash Transactions." D. These noncash transactions are not to be incorporated in the statement of cash flows. They may be summarized in a separate schedule at the bottom of the statement or appear in a separate supplementary schedule to the financials.

D. These noncash transactions are not to be incorporated in the statement of cash flows. They may be summarized in a separate schedule at the bottom of the statement or appear in a separate supplementary schedule to the financials.

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. Four items B. Two items C. Five items D. Three items

D. Three items

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. cash outflow from investing activities. C. cash outflow from financing activities. D. deduction from net income in arriving at net cash flow from operating activities.

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