Problem 1. 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.
- Depreciation expense
- operating activity
- financing activity
- investing activity
Problem 2. Dairy Delights reported the following information for its most recent fiscal year. Accounts payable increased $3,900; inventory decreased $2,700; net income was $6,600; and depreciation expense was $1,500. On the statement of cash flows, net cash flow from operating activities should be reported as
- $1,500
- $6,900
- $9,300
- $14,700
Problem 3. Under which format(s) of the statement of cash flows would you expect to find a line titled "Net Cash Flow from Operating Activities?"
Indirect Method Format Direct Method Format
- Yes Yes
- Yes No
- No Yes
- No No
Problem 4. 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 5. The indirect format of the cash flow statement reconciles
- assets to liabilities and owners' equity
- accrual basis net income to cash from operations
- accrual basis net income to change in cash balance
- sales revenues to accrual basis net income
Problem 6. Which of the following is a false statement?
- a company can have a net income for the period but have a net decrease in cash from operations
- a company that consistently reports net cash inflow from investing activities has many growth opportunities
- a company that reports a net loss for the period may not necessarily report a net cash outflow from operating activities
- depreciation expense is added back to net income to arrive at cash from operations
Problem 7. 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 8. The following information is available to prepare a statement of cash flows:
Cash paid to owners for dividends
$1,000
Cash received from customers from prior credit sales
8,600
Cash paid for long-term assets
3,300
Cash paid for income taxes
2,700
What are the cash flows from operations under the direct method?
- $11,300
- $ 5,900
- $ 5,300
- $ 2,600
Problem 9. 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.
- Payment of a cash dividend
- operating activity
- financing activity
- investing activity
Problem 10. 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 11. 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. 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 13. 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.
- Borrow cash on a long-term note
- operating activity
- financing activity
- investing activity
Problem 14. The direct and indirect formats are methods of preparing the
- operating activities section of a statement of cash flows
- investing activities section of a statement of cash flows
- income statement
- balance sheet
Problem 15. A statement of cash flows has been prepared. The sum of the three major components (operating activities, investing activities, financing activities) will add up to an amount equal to
- the ending cash balance reported on the balance sheet
- net income for the period on the accrual basis
- the ending amount of working capital
- the net change in the cash account during the year
Problem 16. When determining cash flows from operating activities using the indirect format, depreciation expense is subtracted from netincome.
Problem 17. Red River Manufacturing reported a substantial net loss for the most recent accounting period. Its net cash flows for the same period
- must have been negative
- must have been positive
- could have been either negative or positive
- cannot be measured
Problem 18. The sale of equipment is a financing activity.
Problem 19. 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 interest revenue on note receivable in the collection of principal from a note receivable
- operating activity
- financing activity
- investing activity
Problem 20. A firm that has negative cash flows from operating activities and positive cash flows from investing and financing activities is experiencing prosperous growth.