Enter the letter corresponding to the response that best completes each of the following statements or questions.
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| 1 | |
Cash equivalents have each of the following characteristics except: |
| | A) | Short-term. |
| | B) | Highly liquid. |
| | C) | Maturity of at least 3 months. |
| | D) | Little risk of loss. |
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| 2 | |
Which of the following statements is untrue regarding the statement of cash flows? |
| | A) | The statement of cash flows presents information about cash flows that the other statements either (a) do not provide or (b) provide only indirectly. |
| | B) | Noncash transactions sometimes are reported also. |
| | C) | Either the direct or the indirect method can be used to calculate and present the net cash increase or decrease from operating activities. |
| | D) | The indirect method derives cash flows indirectly by starting with sales revenue and "working backwards" to convert that amount to a cash basis. |
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| 3 | |
Stock dividends are reported in connection with a statement of cash flows as: |
| | A) | A financing activity. |
| | B) | An investing activity. |
| | C) | A noncash activity. |
| | D) | Not reported on the statement of cash flows. |
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| 4 | |
Property dividends are reported in connection with a statement of cash flows as: |
| | A) | A financing activity. |
| | B) | An investing activity. |
| | C) | A noncash activity. |
| | D) | Not reported on the statement of cash flows. |
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| 5 | |
Interest paid to bondholders is reported in connection with a statement of cash flows as: |
| | A) | An operating activity. |
| | B) | An investing activity. |
| | C) | A noncash activity. |
| | D) | Not reported on the statement of cash flows. |
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| 6 | |
Investment revenue is reported in connection with a statement of cash flows as: |
| | A) | An operating activity. |
| | B) | An investing activity. |
| | C) | A noncash activity. |
| | D) | Not reported on the statement of cash flows. |
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| 7 | |
On January 4, Childers Corporation issued $200 million of bonds for $193 million. During the same year, $500,000 of the bond discount was amortized. On a statement of cash flows prepared by the indirect method, Childers Corporation should report: |
| | A) | A financing activity of $200 million. |
| | B) | An addition to net income of $500,000. |
| | C) | An investing activity of $193 million. |
| | D) | A deduction from net income of $500,000. |
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| 8 | |
Sun Company owns 14.5 million shares of stock of Center Company classified as available for sale. During 2006, the fair value of those shares increased by $19 million. What effect did this increase have on Sun's 2006 statement of cash flows? |
| | A) | Cash from operating activities increased. |
| | B) | Cash from investing activities increased. |
| | C) | Cash from financing activities increased. |
| | D) | No effect. |
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| 9 | |
Eastern Manufacturing Company owns 40% of the outstanding common stock of Southern Supply Company. During 2006, Eastern received a $50 million cash dividend from Southern. What effect did this dividend have on Eastern's 2006 statement of cash flows? |
| | A) | Cash from operating activities increased. |
| | B) | Cash from investing activities increased. |
| | C) | Cash from financing activities increased. |
| | D) | No effect. |
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| 10 | |
In determining cash flows from operating activities (indirect method), adjustments to net income should not include: |
| | A) | An addition for depreciation expense. |
| | B) | A deduction for bond premium amortization. |
| | C) | An addition for a gain on sale of equipment. |
| | D) | An addition for patent amortization. |
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| 11 | |
The net income for World Class Corporation was $140 million for the year ended December 31, 2006. Related information follows:Amortization of patent, $1 million.
Cash dividends paid, $14 million.
Decrease in accounts receivable, $9 million
Decrease in salaries payable, $1 million.
Depreciation expense, $20 million.
Increase in long-term notes payable, $13 million.
Sale of preferred stock for cash, $17 million. Cash flows from operating activities during 2006 should be reported as: |
| | A) | $151 million. |
| | B) | $169 million. |
| | C) | $171 million. |
| | D) | $182 million. |
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| 12 | |
A statement of cash flows and its related disclosure note typically do not report: |
| | A) | An acquisition of a building with a capital lease agreement. |
| | B) | The purchase of treasury stock. |
| | C) | Stock dividends. |
| | D) | Notes payable issued for a tract of land. |
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| 13 | |
Sean-McDonald Company sold a printer with a cost of $34,000 and accumulated depreciation of $21,000 for $10,000 cash. This transaction would be reported as: |
| | A) | An operating activity. |
| | B) | An investing activity. |
| | C) | A financing activity. |
| | D) | None of the above. |
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| 14 | |
In a statement of cash flows (indirect method), a decrease in inventory should be reported as: |
| | A) | A deduction from net income in determining cash flows from operating activities. |
| | B) | An addition to net income in determining cash flows from operating activities. |
| | C) | An investing activity. |
| | D) | Not reported. |
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| 15 | |
In a statement of cash flows (indirect method), an increase in available-for-sale securities should be reported as: |
| | A) | A deduction from net income in determining cash flows from operating activities. |
| | B) | An addition to net income in determining cash flows from operating activities. |
| | C) | An investing activity. |
| | D) | Not reported. |
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| 16 | |
If sales revenue is $20 million and accounts receivable increased by $3 million, the amount of cash received from customers: |
| | A) | Was $17 million. |
| | B) | Was $20 million. |
| | C) | Was $23 million. |
| | D) | Depends on the proportion of cash sales and credit sales. |
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| 17 | |
If bond interest expense is $400,000, bond interest payable increased by $4,000 and bond discount decreased by $1,000, cash paid for bond interest is: |
| | A) | $395,000. |
| | B) | $397,000. |
| | C) | $403,000. |
| | D) | $405,000. |
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| 18 | |
Sales revenue for Marshall Matches was $240,000. The following data are from the accounting records of Marshall:
| Bad debt expense | $2,000 | | Accounts receivable decrease | 5,000 | | Allowance for uncollectible accounts increase | 3,000 |
The cash received from customers was: |
| | A) | $235,000. |
| | B) | $244,000. |
| | C) | $245,000. |
| | D) | $246,000. |
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| 19 | |
Selected information from Mercer Corporation's accounting records and financial statements for 2006 is as follows (in millions):
| Cash paid to acquire equipment | $18 | | Treasury stock purchased for cash | 25 | | Proceeds from sale of land and buildings | 45 | | Gain from the sale of land and buildings | 26 | | Investment revenue received | 33 | | Cash paid to acquire office equipment | 40 |
On its statement of cash flows, Mercer should report net cash outflows from investing activities of: |
| | A) | $13 million. |
| | B) | $23 million. |
| | C) | $38 million. |
| | D) | $39 million. |
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| 20 | |
Selected information from Phillips Corporation's accounting records and financial statements for 2006 is as follows (in millions):
| Cash paid to retire bonds | $30 | | Treasury stock purchased for cash | 50 | | Proceeds from issuance of common stock | 70 | | Proceeds from issuance of mortgage bonds | 90 | | Cash dividends paid on common stock | 25 | | Cash interest paid to bondholders | 35 |
On its statement of cash flows, Phillips should report net cash inflows from financing activities of: |
| | A) | $20 million. |
| | B) | $55 million. |
| | C) | $70 million. |
| | D) | $105 million. |
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