MGMT 20000 Chapter 11 Review

Sales on account are $100,000. Beginning accounts receivable is $20,000, and ending accounts receivable is $15,000. What is the cash collected from customers during the period? A. $105,000 B. $120,000 C. $115,000 D. $95,000

A. $105,000

Which of the following are classified as cash inflows from investing activities? A. Sale of equipment B. Sale of land C. Issuance of common stock D. Purchase of an investment

A. Sale of equipment B. Sale of land

True or false: Cost of goods sold must be adjusted to a cash number because the cost of merchandise sold may be more or less than the amount of cash paid to suppliers during the period. A. True B. False

A. True

Repayments of formal, long-term debt contracts are classified as _____ activities. A. investing B. financing C. operating

B. financing

The direct method presents a summary of all operating transactions that result in either a debit or credit to the _____ account.

cash

Noncash items, nonoperating items, and changes in current assets and liabilities are necessary adjustments to _____ _____ to prepare the operating section for the indirect format of the statement of cash flows.

net income

When using the indirect method to prepare the operating activities section of the statement of cash flows, the first amount listed is _____ _____. (Enter one word per blank.)

net income

Gains and losses on the sale of long-term assets represent common _____ items needing adjustment under the indirect method.

non-operating

If interest payable increases, which of the following is true? A. Interest paid is lower than the interest expense on the income statement. B. Interest paid is equal to interest expense on the income statement. C. Interest paid is greater than the interest expense on the income statement.

A. Interest paid is lower than the interest expense on the income statement.

Which statement regarding the amount of cash from operating activities is correct? A. It is identical under the direct and the indirect method B. It is higher under the direct than the indirect method C. It is lower under the direct than the indirect method

A. It is identical under the direct and the indirect method

In preparing the operating activities section of a statement of cash flows using the indirect method, net income should be adjusted for A. depreciation expense. B. gain from sale of asset. C. issuance of bonds for cash. D. loss from sale of asset. E. payment of a noncurrent liability.

A. depreciation expense. B. gain from sale of asset. D. loss from sale of asset.

Which of the following nonoperating items require adjustments to net income under the indirect method? A. gains from sale of long-term assets B. losses from sale of long-term assets C. accrued expenses D. prepaid expenses E. stock dividends distributed during the year

A. gains from sale of long-term assets B. losses from sale of long-term assets

The starting point for preparing the operating activities section using the indirect method is: A. net income B. current liabilities C. ending cash balance D. current assets

A. net income

Cash receipts and cash payments for transactions relating to revenue and expense activities are classified on the statement of cash flows as A. operating activities B. financing activities C. investing activities

A. operating activities

The three classifications on the statement of cash flows are cash flows from (Select all that apply.) A. operating activities. B. financing activities. C. business activities. D. discontinued activities. E. investing activities.

A. operating activities. B. financing activities. E. investing activities.

When the _____ account decreases, it means the company paid less cash for insurance than it recorded as insurance expense. A. prepaid insurance B. payables C. assets D. cash

A. prepaid insurance

Changes to current assets and current liabilities require adjustment of net income under the indirect method because A. related cash may be higher or lower than the accrued amount included in net income B. these changes increase or decrease cash flows related to long-term assets C. these changes increase or decrease cash flows related to debt and stockholders' equity

A. related cash may be higher or lower than the accrued amount included in net income

Kleister Company issues bonds for $100 million and repays a long-term notes payable of $10 million. The company also sells its own common shares for $12 million and pays cash dividends of $5 million. Which of the following are cash outflows from financing activities? A. repayment of notes payable B. issuance of bonds C. payment of cash dividends D. sale of Kleister Company common shares

A. repayment of notes payable C. payment of cash dividends

The ratio that is calculated by dividing net income by average total assets is referred to as: A. return on assets B. asset utilization C. asset turnover

A. return on assets

The financial statement that provides information about cash receipts and cash disbursements for the period is the A. statement of cash flows. B. income statement. C. statement of retained earnings. D. balance sheet.

A. statement of cash flows.

Adam Company's operating expenses (excluding depreciation expense) were $80,000 and its balance in prepaid insurance decreased by $5,000. Cash paid for operating expenses was: A. $80,000 B. $75,000 C. $85,000

B. $75,000

Joann is preparing a statement of cash flows as part of a homework assignment. She hopes to find a check figure that will help her assess the accuracy of her results. What should Joann do to quickly find a check figure? A. Send an e-mail inquiry to her professor B. Calculate the change in the beginning and ending balance of cash D. Wait until the problem is reviewed in class

B. Calculate the change in the beginning and ending balance of cash

Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? A. Borrowing from bank B. Interest received on notes receivable C. Issuance of common stock D. Collection on account E. Sale of building

B. Interest received on notes receivable D. Collection on account

Which of the following are classified as cash outflows from investing activities? A. Sale of equipment B. Purchase of an investment C. Payment of accounts payable balance D. Purchase of land E. Sale of land

B. Purchase of an investment D. Purchase of land

When using the direct method, why is cash received from customers greater than sales revenue on the income statement when accounts receivable decreases? A. There were more credit sales than cash sales during the year. B. There were more collections of accounts receivable than sales on account during the year. C. There were more sales on account than collections of accounts receivable during the year. D. There were more cash sales than credit sales during the year.

B. There were more collections of accounts receivable than sales on account during the year.

Which of the following represents the first step in preparing a statement of cash flows in the correct order? A. determine the net cash flows from financing activities B. calculate the net cash flows from operating activities C. determine the net cash flows from investing activities D. combine operating, investing, and financing activities

B. calculate the net cash flows from operating activities

When accounts receivable decrease A. net sales are greater than cash receipts from customers. B. net sales are equal to cash receipts from customers. C. net sales are less than cash receipts from customers.

C. net sales are less than cash receipts from customers.

Depreciation expense is added back to net income when preparing the cash flow from operating activities section because depreciation represents a(n) _____ reduction to net income. A. increase B. decrease C. noncash D. negative E. cash

C. noncash

A review of Elisa Company's financial statements reveals the following information: cost of goods sold: $200,000; increase in inventory: $10,000; increase in accounts payable: $20,000. Cash paid to suppliers was: A. $170,000 B. $200,000 C. $210,000 D. $190,000 E. $230,000

D. $190,000

Using the indirect method to report cash flows from operating activities, a(n) _____ in the accounts receivable from the prior period is added to net income in the _____ activities section of the statement of cash flows.

decrease; operating

Cash inflows and outflows involving stockholders and creditors are classified on the statement of cash flows as _____ activities.

financing

Issuing stock to owners is classified as a(n) _____ activity.

financing

A decrease in accounts receivable will result in a(n) _____ in cash from sales revenue when using the direct method to determine cash flows from operations.

increase

Cash flows from _____ activities are both outflows and inflows of cash related to the acquisition and disposal of long-term assets.

investing

Cash transactions involving the purchase and sale of long-term assets and current investments are classified on the statement of cash flows as _____ activities.

investing

Sales on account are $200,000. Cash sales during the period are $50,000. Beginning accounts receivable is $20,000, and ending accounts receivable is $30,000. What is the total cash collected from customers during the period? A. $240,000 B. $220,000 C. $230,000 D. $250,000

A. $240,000

A review of Munchen Corporation's financial statements reveals the following information: cost of goods sold: $100,000; decrease in inventory: $5,000; increase in accounts payable: $10,000. Cash paid to suppliers was: A. $85,000 B. $95,000 C. $105,000 D. $100,000 E. $115,000

A. $85,000

Which method of preparing the operating activities section of the statement of cash flows consists of a summary of all operating transactions that result in either a debit or a credit to cash? A. Direct B. Accrual C. Cash D. Indirect

A. Direct

Which of the following items are classified as cash outflows from operating activities on the statement of cash flows? A. Interest paid on bonds B. purchase of supplies C. payment on account D. retirement of common stock E. purchase of a building

A. Interest paid on bonds B. purchase of supplies C. payment on account

An increase in accounts receivable will result in a(n) _____ in cash from sales revenue when using the direct method to determine cash flows from operations. A. decrease B. increase

A. decrease

Which of the following are common noncash items requiring adjustment to net income under the indirect method? A. insurance expense B. salaries expense C. depreciation expense D. prepaid expense E. amortization expense

C. depreciation expense E. amortization expense

Cash from operating activities differs between the direct and indirect method with respect to the: A. detail, presentation, and total amount B. total amount only C. detail and presentation only

C. detail and presentation only

The return on assets is calculated by dividing _____ by _____. A. ending balance of total assets; net income B. net income; ending balance of total assets C. net income; average total assets D. average total assets; net income

C. net income; average total assets

The statement of cash flows classifies items as A. operating and nonoperating. B. recurring and nonrecurring. C. operating, investing, and financing. D. current and noncurrent.

C. operating, investing, and financing.

Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? A. Payment of utilities B. Borrowing from bank C. Sale of a building D. Collection from customers E. Collection of interest

D. Collection from customers E. Collection of interest

Which of the following would be reported as a cash outflow from financing activities? A. Paying interest on a long-term notes payable B. Borrowing on a line of credit C. Sale of common stock D. Purchase of treasury shares

D. Purchase of treasury shares

_____ activities include cash receipts and cash payments for transactions relating to revenue and expense activities.

Operating

When using the _____ method for determining cash flows from operations, noncash expenses are omitted from the Statement of Cash Flows.

direct

Cash flows from _____ activities include both inflows and outflows of cash from the external funding of a business.

financing

A(n) _____ in accounts payable indicates that cash payments were less than credit purchases and must be subtracted from purchases to calculate cash payments to suppliers.

increase

The statement of cash flows provides summary information about cash _____ and cash _____ during the year.

inflows; outflows

Depreciation expense and amortization expense represent _____ items requiring adjustments to net income under the indirect method.

noncash

When using the direct method to prepare the Statement of Cash Flows, depreciation expense is A. shown as inflows in the operating section of the statement of cash flows B. shown as outflows in the operating section of the statement of cash flows. C. not reported on the statement of cash flows.

C. not reported on the statement of cash flows.

Which of the following are nonoperating items that require adjustments under the indirect method? A. Losses on the sale of long-term assets B. Depreciation expense C. Gains on the sale of long-term assets D. Amortization expense

A. Losses on the sale of long-term assets C. Gains on the sale of long-term assets

Which of the following items are classified as cash outflows from operating activities on the statement of cash flows? A. Payment of salaries B. purchase of supplies on account C. issuance of bonds D. payment on account E. purchase of building

A. Payment of salaries D. payment on account

Which of the following cash transactions are classified as cash inflows from investing activities? A. Sale of investments B. Sale of building C. Sale of merchandise inventory D. Borrowing from bank E. Sale of equipment

A. Sale of investments B. Sale of building E. Sale of equipment

When cash from operating activities is presented using the indirect method, net income must be adjusted for increases and decreases in balance sheet accounts that relate to A. amounts presented in the income statement. B. changes in equity. C. all long-term assets and liabilities. D. all current assets and liabilities.

A. amounts presented in the income statement.

The two types of adjustments to net income for the indirect method are adjustments for A. changes in operating assets and liabilities during the period that affected cash and were not in net income. B. components of net income that do not affect cash. C. changes in liabilities and owners' equity accounts during the period that affected cash. D. changes in owners' equity accounts during the period that affected cash.

A. changes in operating assets and liabilities during the period that affected cash and were not in net income. B. components of net income that do not affect cash.

One of the purposes of adjusting net income for changes to certain balance sheet accounts is to A. convert items included in net income to cash. B. derive the correct ending balance of cash.

A. convert items included in net income to cash.

Adjustments to net income in calculating operating cash flows include: A. Changes in noncurrent assets and noncurrent liabilities B. Nonoperating items C. Noncash items D. Changes in current assets and current liabilities

B. Nonoperating items C. Noncash items D. Changes in current assets and current liabilities

Which of the following statements is correct concerning a decrease in accounts payable? A. Since the cash payments were less than credit purchases, the decrease must be subtracted from purchases to calculate cash payments to suppliers. B. Since the cash payments were more than the credit purchases, the decrease must be added to purchases to calculate cash payments to suppliers. C. Since the cash payments were less than credit purchases, the decrease must be added to purchases to calculate cash payments to suppliers. D. Since the cash payments were more than credit purchases, the decrease must be subtracted from purchases to calculate cash payments to suppliers.

B. Since the cash payments were more than the credit purchases, the decrease must be added to purchases to calculate cash payments to suppliers.

When there is no change in interest payable, the interest expense on the income statement is _____ the actual cash paid out during the period. A. less than B. equal to C. more than

B. equal to

The purchase and sale of long-term assets and current investments are classified as A. financing activities. B. investing activities. C. operating activities.

B. investing activities.

An increase in accounts receivable indicates that the company collected _____ cash than the amount of _____. A. more; sales revenue B. less; sales revenue

B. less; sales revenue

When prepaid accounts increase, it indicates the company has paid _____ cash than it recorded as operating expenses. A. less B. more

B. more

In a statement of cash flows, the sum of cash inflows and outflows is equal to A. net income plus depreciation and amortization. B. the change in the cash balance. C. cash flows from operating activities.

B. the change in the cash balance.

The amount of net cash flows from operating activities calculated using the direct method is A. lower than under the indirect method. B. the same as under the indirect method. C. higher than under the indirect method.

B. the same as under the indirect method.

Roberts Company's operating expenses (excluding depreciation expense) were $50,000 and its balance in prepaid insurance increased by $2,000. Cash paid for operating expenses was: A. $50,000 B. $48,000 C. $52,000

C. $52,000

Which of the following accounts results in adjustments to net income under the indirect method of preparing the statement of cash flows if their balances change during the year? A. Bonds payable B. Notes receivable C. Accounts receivable D. Inventory E. Accounts payable

C. Accounts receivable D. Inventory E. Accounts payable

Which of the following statements best describes the reason depreciation expense is added to net income when preparing the statement of cash flows? A. Depreciation expense originally reduced net income, but it actually represents a cash inflow for the company. B. Depreciation expense is not included in net income, so its cash effect must be accounted for separately. C. Depreciation expense originally reduced net income, but it is a noncash expense. D. Depreciation expense originally reduced net income, but it is not classified as an operating activity.

C. Depreciation expense originally reduced net income, but it is a noncash expense.

Which of the following are cash outflows from investing activities? A. Payment on account payable B. Purchase of inventory C. Purchase of land D. Purchase of investment E. Repurchase of common stock

C. Purchase of land D. Purchase of investment

Which of the following would result in a cash inflow from investing activities? A. Sale of the company's common stock for cash. B. Sale of inventory in excess of cost. C. Sale of a machine for cash.

C. Sale of a machine for cash.

Grant's income statement reveals a loss from the sale of land. In preparing the operating activities section of the statement of cash flows using the indirect format, the loss should be A. subtracted from net income. B. ignored. C. added to net income.

C. added to net income.

Which of the following represents the final step in preparing a statement of cash flows in the correct order? A. calculate the net cash flows from operating activities B. determine the net cash flows from investing activities C. combine operating, investing, and financing activities D. determine the net cash flows from financing activities

C. combine operating, investing, and financing activities