Problem 1. Which of the following is a cash flow from an investing activity?
- payment for advertising
- cash receipt from a customer for a previous credit sale
- cash received from sale of equipment
- payment of dividends
Problem 2. Sonny's Liquors, Inc. had the following cash flows during March: Paid for inventory $ 20,000
Paid wages to employees 40,000
Received from cash sales 100,000
Paid for equipment 60,000
Received a loan 70,000
What was the cash flow from financing activities?
- $70,000 inflow
- $80,000 outflow
- $120,000 outflow
- $60,000 outflow
Problem 3. The primary difference between the cash flows statement and all other primary external financial statements is that the cash flows statement is
- not an accrual based statement and all others are
- not prepared unless the firm is a manufacturer
- an optional statement in the external reporting package
- prepared before the end of the year and not after
Problem 4. Which of the following best describes the purpose of the statement of cash flows?
- identify the revenues and expenses of the accounting period
- report the inflows and outflows of cash
- balance current period revenues with those of the previous period
- report assets, liabilities and owners' equity as of a specific date
Problem 5. Activities that involve the production or delivery of goods for sale or the providing of services for sale should be listed under which classification on a statement of cash flows?
- financing activities
- operating activities
- refunding activities
- investing activities
Problem 6. What type of activity is the paying off of a bank loan?
- operating
- financing
- investing
- operating if it was a short-term loan; financing if it was a long-term loan
Problem 7. When preparing the operating activities section of the statement of cash flows under the indirect method, which of the following is an addition to net income?
Amortization Expense Increase in current asset accounts
Yes Yes
Amortization Expense Increase in current asset accounts
Yes No
Amortization Expense Increase in current asset accounts
No Yes
Amortization Expense Increase in current asset accounts
No No
Problem 8. Which of the following is a TRUE statement regarding the operating activities section of the statement of cash flows when the indirect format is used?
- it explains the relationship between cash flows for a period and the results of operations reported on the income statement
- it is designed to report to the reader what events caused cash to increase during the period and what events caused cash to decrease during the period
- it results in a slightly higher amount of cash from operations being reported because depreciation expense is included
- it is easier to understand and interpret correctly than when it is prepared using the direct method
Problem 9. Nearly all major corporations use which format for reporting the statement of cash flows?
- accrual basis
- reconciliation
- indirect
- direct
Problem 10. The Stable Company reports the following information: Accounts payable $ 600
Accounts receivable $ 8,200
Cash 5,000
Mortgage payable 4,400
Retained earnings 7,800
Inventory 9,200
Buildings 17,600
Office supplies 2,600
What is the amount of the firm's current assets?
- $13,200
- $25,000
- $22,400
- $42,600
Problem 11. For each of the questions 11 through 20, indicate whether the transaction is an operating activity, a financing activity, or an investing activity. Assume all purchase and sale transactions are for cash unless otherwise stated.
- Collection of principal from a note receivable
- operating activity
- financing activity
- investing activity
Problem 12. Amortization of a patent
- operating activity
- financing activity
- investing activity
Problem 13. Purchase of an asset used in the company's daily operations
- operating activity
- financing activity
- investing activity
Problem 14. Sale of treasury stock
- operating activity
- financing activity
- investing activity
Problem 15. Write-off of a bad debt
- operating activity
- financing activity
- investing activity
Problem 16. Depreciation expense
- operating activity
- financing activity
- investing activity
Problem 17. Sale of obsolete equipment no longer used in company operations
- operating activity
- financing activity
- investing activity
Problem 18. Collection of interest revenue on note receivable in the collection of principal from a note receivable
- operating activity
- financing activity
- investing activity
Problem 19. Borrow cash on a long-term note
- operating activity
- financing activity
- investing activity
Problem 20. Payment of a cash dividend
- operating activity
- financing activity
- investing activity