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Ashley Co. uses the direct method in calculating its cash flow from operations. Which of the following items will not have an effect on cash flow from operating activities?


A) Increase in inventory
B) Payment of dividends to stockholders
C) Cash collections from customers
D) Payment of interest to lenders

E) All of the above
F) A) and C)

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Choose the appropriate letter to match the term and the definition. Not all definitions will be used. Term _____ Cash Inflow _____ Property, Plant, and Equipment _____ Comparative Balance Sheet _____ Free Cash Flow _____ Noncash Investing and Financing Activities _____ Net Income _____ Statement of Cash Flows _____ Cash Outflow Definition A financial statement that tracks the flow of cash into and out of a company according to the three types of activities that generate the flows. Cash flows in excess of net income. Reported as supplement disclosures or in the notes section to the financial statements rather than within the body of the statement of cash flows. Results from activities such as sales of goods and assets, receipt of cash dividends, and receipts of interest. Cash a company receives that is not subject to income tax. Purchases and sales of this are classified as investing activities. The starting point for calculating operating cash flows with the direct method. Cash flows from operations in excess of amount paid to replace property, plant and equipment and to pay cash dividends to stockholders. The percent of a company's net cash flow that comes from investing and financing activities. An adjustment made when using the indirect method of calculating cash flows from operating activities. The starting point for calculating operating cash flows with the indirect method. Purchases and sales of this are classified as operating activities. A balance sheet that shows the starting and ending balance of the different accounts; it is used to calculate the net cash flow provided by operating activities. Results from activities such as purchases of goods and assets, payment of debt, payment of cash dividends, and payment of taxes.

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D, F, M, H...

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Assume a company uses the direct method to prepare its statement of cash flows. If the company's inventory and accounts payable both increase during the accounting period, how would these changes affect cash flow calculations?


A) The changes in each account are both added to net income.
B) The change in inventory is subtracted from cost of goods sold and the change in accounts payable is added to cost of goods sold to find the cash paid to suppliers.
C) The changes in each account are both subtracted from net income.
D) The change in inventory is added to cost of goods sold and the change in accounts payable is subtracted from cost of goods sold to find the cash paid to suppliers.

E) A) and C)
F) B) and C)

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Cash flows from financing activities include all of the following except:


A) payment of long-term debt.
B) payment of interest.
C) proceeds from stock issuance.
D) cash dividends paiD.
GAAP requires the payment of interest to be classified as a cash outflow from operating activities because it enters into the determination of net income. Cash flows from financing activities include exchanges of cash with stockholders (such as proceeds from stock issuance and payments of cash dividends) and cash exchanges with lenders (such as the payment of long-term debt) .

E) None of the above
F) All of the above

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The approach to preparing the cash flow statement relies on the following rearrangement of the balance sheet equation: Change in cash = Change in (Liabilities + Stockholders' Equity + Noncash Assets)

A) True
B) False

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The statement of cash flows cannot be used to determine:


A) changes in working capital.
B) expenditures on long-term assets.
C) profitability as measured by specific revenues and expenses.
D) reliance on external financing.

E) A) and B)
F) A) and C)

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Which of the following statements about the statement of cash flows is not correct?


A) The statement of cash flows can be used to assess the likelihood of a company paying dividends.
B) Net cash flow is the best measure of profitability since it does not rely on estimates.
C) A company can have positive net income but at the same time have negative cash flow.
D) The statement of cash flows is the only financial statement that reports business activities.

E) A) and D)
F) A) and C)

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When preparing the statement of cash flow using the indirect method, Depreciation Expense is:


A) added back to net income under the operating activities section.
B) subtracted from net income under the operating activities section.
C) subtracted net income under the financing activities section.
D) added back to net income under the financing activities section.

E) None of the above
F) All of the above

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Consider the following information: Consider the following information: Required: Part a. Compute the cash provided by (used in) investing activities. Part b. Compute the cash provided by (used in) financing activities. Part c. If you did not use any of the items listed in parts a or b, explain why, and indicate, if appropriate, how each item would be reported on the statement of cash flows. Required: Part a. Compute the cash provided by (used in) investing activities. Part b. Compute the cash provided by (used in) financing activities. Part c. If you did not use any of the items listed in parts a or b, explain why, and indicate, if appropriate, how each item would be reported on the statement of cash flows.

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Part a blured image Part b blured image Part c
The following wou...

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Which of the following would not be included in the cash and cash equivalents amount reported on the balance sheet?


A) Money market funds
B) Checking accounts
C) Treasury bills
D) Notes receivable due in 90 days

E) A) and D)
F) None of the above

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Your company owned equipment with a book value of $120,000 that was sold during this accounting period for $30,500 in cash, and purchased new equipment for cash of $148,000. Your company would record a debit of:


A) $148,000 and a credit of $30,500 to the cash account for a net cash inflow of $117,500.
B) $148,000 and a credit of $89,500 to the cash account for a net cash inflow of $58,500.
C) $30,500 and a credit of $148,000 to the cash account for a net cash outflow of $117,500.
D) $89,500 and a credit of $148,000 to the cash account for a net cash outflow of $58,500.

E) None of the above
F) A) and B)

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The Retained Earnings account has a beginning balance of $321,975 and an ending balance of $356,413. Net income is $40,251. Which of the following statements is correct?


A) $5,813 would be subtracted when determining cash flows from financing activities.
B) $40,251 would be added when determining cash flows from financing activities.
C) $34,438 would be added when determining cash flows from financing activities.
D) $321,975 would be added when determining cash flows from operating activities.

E) B) and C)
F) C) and D)

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Which of the following statements about the calculation of cash flows from operating activities under the direct method is correct?


A) When the direct method is used, each revenue and expense account on the income statement is individually examined to calculate the cash flows from operating activities.
B) Noncash revenues and expenses must be included in cash flows from operating activities when preparing a statement of cash flows using the direct method.
C) Depreciation is reported as a cash inflow in the cash flows from operating activities when the direct method is used.
D) A loss on the sale of a long-term asset is subtracted in the cash flows from operating activities when the direct method is useD.
The direct method converts revenues to cash receipts and expenses to cash disbursements in order to determine the net cash flow provided by operating activities. Noncash revenues and expenses, including gains and losses, are not used in the calculation of cash flows from operating activities using the direct methoD.

E) None of the above
F) A) and B)

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What is the purpose of the statement of cash flows?


A) It is intended to provide a cash-based view of a company.
B) It illustrates the profitability of a company.
C) It reports the financial position of a company at a specific point in time.
D) It outlines the changes in stockholders' equity accounts from the beginning of the period to the end of the perioD.
The statement of cash flows shows each major type of business activity that caused a company's cash to increase or decrease during the accounting perioD.

E) C) and D)
F) A) and B)

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A company loaned $1,000,000 with interest at 7% to another company. The interest revenue from this loan would be reported on the statement of cash flows as a:


A) cash inflow from operating activities.
B) cash inflow from investing activities.
C) cash inflow from financing activities.
D) noncash investing and/or financing activity.

E) All of the above
F) C) and D)

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The following additional information is available from the financial statements of Hitchens Company: The following additional information is available from the financial statements of Hitchens Company: What is the net cash provided by operating activities? A) $263,000 B) $285,000 C) $396,000 D) $368,000 What is the net cash provided by operating activities?


A) $263,000
B) $285,000
C) $396,000
D) $368,000

E) B) and C)
F) B) and D)

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The management team of Wickersham Brothers Inc. is preparing its annual financial statements. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statements are summarized. The management team of Wickersham Brothers Inc. is preparing its annual financial statements. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statements are summarized. • Other information from the company's records includes the following: • Bought equipment for cash, $50,000. • Paid $10,000 on long-term note payable. • Issued new shares of common stock for $20,000 cash. • Cash dividends of $16,000 were declared and paid to stockholders. • Accounts Payable arose from inventory purchases on credit. • Income Tax Expense ($4,000) and Interest Expense ($3,000) were paid in full at the end of both years and are included in Other Expenses. Required: Prepare a schedule summarizing operating, investing, and financing cash flows using the T-account approach • Other information from the company's records includes the following: • Bought equipment for cash, $50,000. • Paid $10,000 on long-term note payable. • Issued new shares of common stock for $20,000 cash. • Cash dividends of $16,000 were declared and paid to stockholders. • Accounts Payable arose from inventory purchases on credit. • Income Tax Expense ($4,000) and Interest Expense ($3,000) were paid in full at the end of both years and are included in Other Expenses. Required: Prepare a schedule summarizing operating, investing, and financing cash flows using the T-account approach

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A company's cash flows from investing activities include cash transactions relating to the purchase and disposal of which types of assets?


A) All of a company's assets
B) All of a company's assets except inventory
C) All of a company's non-current assets
D) Property, plant and equipment

E) A) and B)
F) B) and D)

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Which of the following items below will be subtracted in the financing cash flow portion of the statement of cash flows?


A) Net income earned
B) Bank loans obtained
C) Payment of dividends
D) Disposal of equipment

E) C) and D)
F) B) and C)

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Which of the following would be included in cash flows from investing activities?


A) Cash collected from customers
B) Cash received from an issuance of bonds
C) Cash dividends paid
D) Cash used to purchase equipment

E) B) and D)
F) All of the above

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