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Financial and Managerial Accounting: The Basis for Business Decisions, 12/e

Jan R. Williams, University of Tennessee
Susan F. Haka, Michigan State University
Mark S. Bettner, Bucknell University
Robert F. Meigs

Statement of Cash Flows

Multiple Choice Quiz

Please answer all questions


1	A statement of cash flows would be least useful in answering which of the following questions?
		A)	What was the average balance in the Cash account during the period?
		B)	Did operating activities result in a positive or negative net cash flow?
		C)	How much cash was provided or used by financing activities during the period?
		D)	Were cash dividends paid by the company more or less than the net cash flow from operations?


2	Which of the following transactions would increase the net cash flow from operating activities?
		A)	The collection of an account receivable from a customer.
		B)	The issuance of capital stock for cash at a price above par.
		C)	The purchase of a delivery truck by issuing a note payable.
		D)	The sale of equipment for cash at a gain.


3	For purposes of preparing a cash flow statement, which of the following is not considered a "cash equivalent"?
		A)	A money market fund.
		B)	An investment in IBM bonds.
		C)	Treasury bills.
		D)	Commercial paper.


4	Warner Corporation reported net income in excess of its net cash flow from operations. A possible explanation of this difference is:
		A)	Depreciation expense.
		B)	Nonoperating gains.
		C)	A decrease in income tax rates.
		D)	A decrease in accounts receivable over the period.


5	An important distinction between the direct method and the indirect method of preparing a statement of cash flows is that:
		A)	The direct method reconciles accrual-based net income with net cash flow from operations; the indirect method shows the specific cash inflows and outflows constituting the operating activities.
		B)	The direct method results in a lower (more conservative) figure for net cash flow from operating activities than does the indirect method.
		C)	Only those statements of cash flows prepared using the direct method are in accordance with generally accepted accounting principles as set forth by the FASB.
		D)	The format of the section computing net cash flow from operating activities is different under the two methods.


6	In a statement of cash flows, the acquisition of land by issuing capital stock:
		A)	Is not shown at all, since no cash was received or disbursed.
		B)	Is shown as an investing activity.
		C)	Is shown as a financing activity.
		D)	Is shown in a supplementary schedule as a noncash investing and financing transaction.


7	A corporation's free cash flow is its:
		A)	Cash flow from operating activities that is not subject to income taxes.
		B)	Cash flow from operating activities available after basic business obligations have been met.
		C)	Net increase in cash from all sources during the year.
		D)	Cash flow from operating activities less all cash payments for investing and financing activities.

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