Chapter 11 Quiz

Select all that apply Which of the following cash transactions are classified as cash inflows from investing activities? a. Sale of equipment b. Borrowing from bank c. Sale of investments d. Sale of merchandise inventory e. Sale of building

a. Sale of equipment c. Sale of investments e. Sale of building

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. all current assets and liabilities. b. amounts presented in the income statement. c. changes in equity. d. all long-term assets and liabilities.

b. amounts presented in the income statement.

Carola Inc. issues common stock for $20 million and pays dividends of $2 million. Net cash inflows from financing activities will be: a. $18 million b. $20 million c. $22 million d. $1 million

a. $18 million Reason: $(20 - 2) million

Which of the following would result in a cash outflow from investing activities? a. Purchase of a machine for cash. b. Purchase of the company's common stock for cash. c. Purchase of inventory for cash.

a. Purchase of a machine for cash.

Select all that apply Which of the following are classified as cash inflows from investing activities? a. Sale of equipment b. Sale of land c. Purchase of an investment d. Issuance of common stock

a. Sale of equipment b. Sale of land

The purchase and sale of long-term assets and current investments are classified as a. investing activities. b. financing activities. c. operating activities.

a. investing activities.

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. investing activities c. financing activities

a. operating activities

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. Wait until the problem is reviewed in class c. Calculate the change in the beginning and ending balance of cash

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

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. determine the net cash flows from investing activities c. calculate the net cash flows from operating activities d. combine operating, investing, and financing activities

c. calculate the net cash flows from operating activities

The statement of cash flows classifies items as a. recurring and nonrecurring. b. operating and nonoperating. c. current and noncurrent. d. operating, investing, and financing.

d. operating, investing, and financing.

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

financing

The ________ method of reporting cash flows from operating activities begins with net income.

indirect

List the four steps in preparing a statement of cash flows in the correct order.

1. calculate the net cash flows from operating activities 2. determine the net cash flows from investing activities 3. determine the net cash flows from financing activities 4. combine operating, investing, financing activities

Select all that apply Which of the following describes the acceptable methods that may be used to report cash flows from operating activities on the statement of cash flows? a. Direct method b. Cash basis method c. Indirect method d. Accrual basis method

a. Direct method c. Indirect method

Roberts Inc. sells common stock for $10 million and pays dividends of $1 million. Net cash inflows from financing activities will be: a. $10 million b. $9 million c. $1 million d. $11 million

b. $9 million Reason: $(10 - 1) million

Select all that apply Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? a. Sale of a building b. Collection of interest c. Payment of utilities d. Borrowing from bank e. Collection from customers

b. Collection of interest e. Collection from customers

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

financing

True or false: When presenting the operating activities section of the statement of cash flows, the direct method starts with net income and adjusts it by eliminating the effects of transactions that do not involve cash. The indirect method reports the total cash inflow or cash outflow from each main type of transaction.

False

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

nonoperating

Select all that apply 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 a building c. purchase of supplies d. retirement of common stock e. payment on account payable

a. Interest paid on bonds c. purchase of supplies e. payment on account payable

Kleister Company issues bonds for $100 million and repays a long-term notes payable of $10 million. The company also sells its own shares for $12 million and pays cash dividends of $5 million. Cash inflows from financing activities will be: a. $15 mill b. $112 mill c. $110 mill d. $17 mill

b. $112 mill Reason: $100 mill + $12 mill.

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

b. convert items included in net income to cash.

Which of the following are cash outflows from investing activities? a. Purchase of inventory b. Repurchase of common stock c. Purchase of land d. Purchase of investment e. Payment on account payable

c. Purchase of land d. Purchase of investment

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

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

operating

The three classifications on the statement of cash flows are cash flows from (Select all that apply.) a. financing activities. b. operating activities. c. discontinued activities. d. investing activities. e. business activities.

a. financing activities. b. operating activities. d. investing activities.

Select all that apply Which of the following items are classified as cash outflows from operating activities on the statement of cash flows? a. payment on account b. purchase of building c. purchase of supplies on account d. issuance of bonds e. Payment of salaries

a. payment on account e. Payment of salaries

Select all that apply Which of the following are cash outflows from investing activities? a. purchase of long-term investments b. repayment of long-term debt c. Purchase of building d. purchase of land e. payment of income taxes

a. purchase of long-term investments c. Purchase of building d. purchase of land

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. balance sheet. d. statement of retained earnings.

a. statement of cash flows.

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

noncash

When using the indirect method to prepare the operating activities section of the statement of cash flows, the first amount listed is _________ ________.

net income

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 a machine for cash. c. Sale of inventory in excess of cost.

b. 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. ignored. b. added to net income. c. subtracted from net income.

b. added to net income.

The starting point for preparing the operating activities section using the indirect method is: a. current liabilities b. net income c. current assets d. ending cash balance

b. net income

Net cash flows provided by operating activities will be ______ when using the direct method compared to the indirect method.

the same

Select all that apply Which of the following are nonoperating items that require adjustments under the indirect method? a. Losses on the sale of long-term assets b. Amortization expense c. Gains on the sale of long-term assets d. Depreciation expense

a. Losses on the sale of long-term assets c. Gains on the sale of long-term assets

During the current period, Schmidt Corp. sold equipment for $1,000, purchased new equipment for $10,000, paid an accounts payable balance of $2,500, and sold an investment costing $2,000 for $2,800. Net cash from investing activities is (indicate the amount and whether it is a net inflow or outflow) a. $8,700 net inflow b. $6,200 net outflow. c. $7,000 net outflow d. $8,700 net outflow e. $7,000 net inflow f. $6,200 net inflow

b. $6,200 net outflow. Reason: 1,000 - 10,000 + 2,800

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

financing

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

in;out

An increase in accounts receivable indicates that the company collected _____ cash than the amount of ______.

less; sales revenue

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

a. the change in the cash balance.

Which of the following methods for reporting cash flows from operating activities begins with net income and works backward to calculate net cash flow from operating activities? a. Matching method b. Indirect method c. Accrual method d. Direct method

b. Indirect method

Select all that apply 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. Inventory c. Accounts payable d. Notes receivable e. Accounts receivable

b. Inventory c. Accounts payable e. Accounts receivable

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. cash b. noncash c. increase d. decrease e. negative

b. noncash Reason: Depreciation expense decreases net income on the income statement but does not decrease cash from operating activities on the statement of cash flows (no check is written for depreciation expense). Depreciation expense is a non-cash expense and thus is added back to net income when calculating cash from operating activities.

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

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

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 is not classified as an operating activity. b. Depreciation expense originally reduced net income, but it actually represents a cash inflow for the company. c. Depreciation expense originally reduced net income, but it is a noncash expense. d. 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.

Select all that apply Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? a. Borrowing from bank b. Sale of building c. collection from customers d. Issuance of common stock e. Interest received on notes receivable

c. collection from customers e. Interest received on notes receivable

The statement of cash flows provides information about the cash inflows and cash outflows of an entity. For financing activities, a cash ______ occurs when cash is borrowed from a creditor, and a cash ________ occurs when a loan is repaid.

inflow; outflow

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

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

Select all that apply Which of the following are common noncash items requiring adjustment to net income under the indirect method? a. depreciation expense b. salaries expense c. prepaid expense d. insurance expense e. amortization expense

a. depreciation expense e. amortization expense

During the current period, Kunze Corp. disposed of old equipment for $2,000, purchased new equipment for $20,000, collected an accounts receivable balance of $2,500, and purchased an investment for $3,000. Net cash from investing activities is (indicate the amount and whether it is a net inflow or outflow) a. $21,000 net outflow. b. $18,500 net outflow. c. $21,000 net inflow. d. $18,500 net inflow.

a. $21,000 net outflow. Reason: 2,000 - 20,000 - 3,000

Select all that apply Adjustments to net income in calculating operating cash flows include: a. Changes in noncurrent assets and noncurrent liabilities b. Noncash items c. Nonoperating items d. Changes in current assets and current liabilities

b. Noncash items c. Nonoperating items d. Changes in current assets and current liabilities

In order to determine cash flows from financing activities, we need to examine changes to a. current assets and current liability accounts b. long-term liability and stockholders' equity accounts c. long-term asset accounts

b. long-term liability and stockholders' equity accounts