MULTIPLE CHOICE
1.The funds flow statement included:
a.All sources and uses of resources.
b.Only cash transactions.
c.Only transactions affecting current assets.
d.Only transactions affecting fund accounts.
2.APB Opinion No. 19 permitted fund balance accounts in the statement of changes in financial position to include which of the following?
a.Quick assets only
b.Cash and near cash only
c.Working capital only
d.Cash, cash and near cash, quick assets, or working capital
3.Which of the following is not an example of a non-fund adjustment to income required in preparing the statement of changes in financial position when funds were defined as working capital?
a.Depreciation expense
b.Gain from asset disposal
c.Interest expense
d.Amortization of premium on debt
4.Which of the following is a true statement regarding the statement of changes in financial position?
a.The balancing item in the statement was the change in the fund balance itself.
b.Only transactions having a direct effect on fund accounts were included in the statement.
c.The change in fund balance is reported in the same manner as a change in an owners’ equity account.
d.When funds are defined as working capital, non-fund transactions are restricted to monetary transactions.
5.A FASB discussion memorandum suggested that cash flow data are a useful supplemental disclosure for all of the following reasons except:
a.They provide information about the quality of income.
b.They aid in assessing flexibility and liquidity.
c.They help to identify the relationship between accounting income and cash flows.
d.They are a better predictor of future earnings that is accounting income.
6.Which of the following is a true statement?
a.Liquidity is the ability of the firm to adapt to new situations and opportunities.
b.Cash flow measurement is more uniform than income measurement.
c.The current-noncurrent classification system in the balance sheet is a good guide to liquidity.
d.The balance sheet gives insight into the cash-generating potential of operations.
7.Which of the following is a true statement regarding an exit-price accounting system?
a.It measures flexibility of the firm in terms of the amount of cash that would be realized from a forced liquidation of assets.
b.It provides an excellent indicator of liquidity.
c.It provides an estimate of the speed of conversion of a firm’s resources.
d.It provides an estimate of the cash conversion value of a firm’s resources.
8.During the FASB’s deliberations that led up to the cash flow statement, a consensus emerged that funds should be defined as cash rather than net working capital mainly because:
a.Net working capital is a poor measure of liquidity.
b.Net working capital is more difficult to compute than cash balances.
c.Deferred charges and credits are not included in net working capital.
d.Working capital includes items that have no effect on liquidity.
9.In the cash flow statement, cash is defined as:
a.Quick assets
b.Literal cash on hand or on demand deposit, plus cash equivalents.
c.Literal cash on hand or on demand deposit, plus marketable securities.
d.All of the above
10.Which of the following is a true statement regarding SFAS No. 95?
a.It requires all non-cash investing and financing transactions be reported in the body of the cash flow statement.
b.It requires all non-cash investing and financing transactions be reported as a supplement to the cash flow statement, either in a schedule or in a narrative format.
c.Only cash transactions are reported on the cash flow statement.
d.Only operating transactions are reported on the cash flow statement.
11.On the statement of cash flows, the proceeds from the sale of equipment would be classified as:
a.An investing activity
b.An operating activity
c.A financing activity
d.Either an investing, operating, or financing activity
12.Which of the following methods reports literal cash flows related to income statement classifications?
a.The indirect method
b.The direct method
c.Both a and b.
d.None of the above
13.Which of the following methods starts with accrual income and adjusts it for the non-cash items it contains?
a.The indirect method
b.The direct method
c.Both a and b.
d.None of the above
14.Which of the following methods requires a separate schedule reconciling net operating cash flow with net income?
a.The indirect method
b.The direct method
c.Both a and b.
d.none of the above
15.Which of the following is a true statement?
a.Research is supportive of the contention that cash and funds flow data are informative above and beyond accrual data.
b.Use of the direct method in the cash flow statement frequently results in non-articulation.
c.Interest expense and long-term notes payable both appear in the financing section of the cash flow statement.
d.With SFAS No. 95, the FASB chose to follow the entity model rather than the traditional income statement (proprietary) approach.