CH21 TB 8e final - practice questions PDF

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Chapter 21 The Statement of Cash Flows True/False Questions 1. Amounts held in cash equivalent investments must be reported separately from amounts held as cash in the statement of cash flows. Answer: False Level of Learning: 2 Medium Learning Objective: 21-02 Topic Area: Cash and cash equivalents Blooms: Remember AACSB: Reflective thinking AICPA: FN Measurement

2. If the direct method is used to report cash flows from operating activities in the body of the statement of cash flows, a reconciliation of net income to net cash flows from operating activities also is required. Answer: True Level of Learning: 1 Easy Learning Objective: 21-03 Topic Area: Cash flow – Operating activities—Direct method Blooms: Remember AACSB: Reflective thinking AICPA: FN Measurement 3. Cash paid for taxes and interest must be disclosed on the face of the statement or in the disclosure notes under both the direct and indirect methods of reporting cash flows from operating activities. Answer: True Level of Learning: 2 Medium Learning Objective: 21-08 Topic Area: Prepare complete statement of cash flows Blooms: Remember AACSB: Reflective thinking AICPA: FN Measurement

4. Generally speaking, cash flows from operating activities include the elements of net income reported on a cash basis. Answer: True Level of Learning: 2 Medium Learning Objective: 21-03 Learning Objective: 21-04 Topic Area: Cash flow – Operating activities—Direct method Topic Area: Cash flow – Operating activities—Indirect method Blooms: Understand AACSB: Reflective thinking AICPA: FN Measurement Intermediate Accounting, Eighth Edition, Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 21-1

Chapter 21 The Statement of Cash Flows 5. A decrease in cash dividends payable means that dividends declared were less than dividends paid. Answer: True Level of Learning: 2 Medium Learning Objective: 21-08 Topic Area: Reconstruct events and transactions Blooms: Understand AACSB: Reflective thinking AICPA: FN Measurement

6. The purchase of treasury stock is an investing cash outflow. Answer: False Level of Learning: 1 Easy Learning Objective: 21-05 Topic Area: Cash flow – Investing activities Topic Area: Classify operating – investing – financing Blooms: Understand AACSB: Reflective thinking AICPA: FN Measurement

7. Interest payments on debt are classified as cash outflows from financing activities. Answer: False Level of Learning: 2 Medium Learning Objective: 21-06 Topic Area: Cash flow – Financing activities Topic Area: Classify operating – investing – financing Blooms: Understand AACSB: Reflective thinking AICPA: FN Measurement

8.

Transactions that represent noncash investing and financing activities must be reported in the statement of cash flows or in disclosure notes. Answer: True Level of Learning: 2 Medium Learning Objective: 21-07 Topic Area: Noncash investing and financing activities Blooms: Remember AACSB: Reflective thinking AICPA: FN Measurement

9. In using a spreadsheet to prepare the statement of cash flows, the summary entries duplicate the actual journal entries used to record the transactions during the year. Answer: True Intermediate Accounting, Eighth Edition, Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 21-2

Chapter 21 The Statement of Cash Flows Level of Learning: 2 Medium Learning Objective: 21-08 Topic Area: Spreadsheet preparation Blooms: Understand AACSB: Reflective thinking AICPA: FN Measurement

10. When one enters a $50,000 credit entry to the Land account in a spreadsheet for the statement of cash flows, it represents a negative change in that account and probably is due to selling such assets. Answer: True Level of Learning: 2 Medium Learning Objective: 21-08 Topic Area: Spreadsheet preparation Blooms: Analyze AACSB: Analytical thinking AICPA: FN Measurement

Multiple Choice Questions 11. Which of the following financial statements is prepared as of a particular point in time rather than for a period of time? a. Statement of cash flows. b. Income statement. c. Statement of shareholders' equity. d. Balance sheet. Answer: d Level of Learning: 1 Easy Learning Objective: 21-01 Topic Area: Role of the statement of cash flows Blooms: Remember AACSB: Reflective thinking AICPA: FN Measurement

12. Which one of the following financial statements does not report amounts primarily on an accrual basis? a. Income statement. b. Balance sheet. c. Statement of cash flows. d. Statement of shareholders' equity. Answer: c Level of Learning: 1 Easy Learning Objective: 21-01 Topic Area: Role of the statement of cash flows Blooms: Understand AACSB: Reflective thinking Intermediate Accounting, Eighth Edition, Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 21-3

Chapter 21 The Statement of Cash Flows AICPA: FN Measurement

13. Which of the following is not required by generally accepted accounting principles? a. Cash flow per share. b. Earnings per share. c. Statement of cash flows. d. Disclosure notes. Answer: a Level of Learning: 1 Easy Learning Objective: 21-01 Topic Area: Role of the statement of cash flows Blooms: Remember AACSB: Reflective thinking AICPA: FN Measurement

14. Which of the following never requires an outflow of cash? a. Early extinguishment of debt. b. Retirement of common stock. c. Payment of dividends. d. Amortization of patent. Answer: d Level of Learning: 1 Easy Learning Objective: 21-01 Learning Objective: 21-04 Topic Area: Cash inflows and outflows Topic Area: Depreciation-Amortization-Depletion-Gains-Losses Blooms: Understand AACSB: Reflective thinking AICPA: FN Measurement

15. Which of the following is not an inflow of cash? a. Depletion. b. Cash borrowed on a short-term note. c. Sale of a computer. d. Cash borrowed on a long-term note. Answer: a Level of Learning: 1 Easy Learning Objective: 21-01 Learning Objective: 21-04 Topic Area: Cash inflows and outflows Topic Area: Depreciation-Amortization-Depletion-Gains-Losses Blooms: Understand AACSB: Reflective thinking AICPA: FN Measurement

16. All of the following may qualify as cash equivalents except: Intermediate Accounting, Eighth Edition, Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 21-4

Chapter 21 The Statement of Cash Flows a. b. c. d.

Money market accounts. Certificates of deposit. U.S. Treasury bills. Newly issued corporate bonds.

Answer: d Level of Learning: 1 Easy Learning Objective: 21-02 Topic Area: Cash and cash equivalents Blooms: Remember AACSB: Reflective thinking AICPA: FN Measurement

17. The primary objective of the statement of cash flows is to provide information about a company's: a. Cash receipts and disbursements. b. Noncash financing and investing activities. c. Financial position. d. Profitability. Answer: a Level of Learning: 1 Easy Learning Objective: 21-01 Topic Area: Role of the statement of cash flows Blooms: Remember AACSB: Reflective thinking AICPA: FN Measurement

18. How is the amortization of patents reported in a statement of cash flows that is prepared using the direct method? a. Not reported. b. An increase in cash flows from operating activities. c. A decrease in cash flows from operating activities. d. A decrease in cash flows from investing activities. Answer: a Level of Learning: 2 Medium Learning Objective: 21-03 Topic Area: Cash flow – Operating activities—Direct method Blooms: Analyze AACSB: Analytical thinking AICPA: FN Measurement

19. When a transfer is made between cash and cash equivalents with no gain or loss, how is the transaction treated in the statement of cash flows? a. It is included as an operating activity. b. It is included as a noncash financing activity. c. It is included as an investing activity. d. It is not reported. Intermediate Accounting, Eighth Edition, Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 21-5

Chapter 21 The Statement of Cash Flows Answer: d Level of Learning: 2 Medium Learning Objective: 21-02 Topic Area: Cash and cash equivalents Blooms: Remember AACSB: Reflective thinking AICPA: FN Measurement

Intermediate Accounting, Eighth Edition, Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 21-6

Chapter 21 The Statement of Cash Flows 20. Creditors and investors would generally find the statement of cash flows least useful for assessing the: a. Ability to generate future cash flows. b. Ability to pay dividends. c. Financial position at a point in time. d. Quality of earnings. Answer: c Level of Learning: 2 Medium Learning Objective: 21-01 Topic Area: Role of the statement of cash flows Blooms: Evaluate AACSB: Reflective thinking AICPA: FN Risk analysis

21. A firm reported ($ in millions) net cash inflows (outflows) as follows: operating $75, investing ($200), and financing $350. The beginning cash balance was $250. What was the ending cash balance? a. $875. b. $ 25. c. $475. d. $125. Answer: c Level of Learning: 2 Medium Learning Objective: 21-01 Learning Objective: 21-08 Topic Area: Cash inflows and outflows Topic Area: Reconcile change in cash balance Blooms: Apply AACSB: Knowledge application AICPA: FN Measurement Feedback: $75 – $200 + $350 + $250 = $475

22. Cash equivalents generally would not include short-term investments in: a. Commercial paper. b. Certificates of deposit. c. Held-to-maturity securities. d. Money market funds. Answer: c Level of Learning: 1 Easy Learning Objective: 21-02 Topic Area: Cash and cash equivalents Blooms: Understand AACSB: Reflective thinking AICPA: FN Measurement

23. Cash equivalents have each of the following characteristics except: Intermediate Accounting, Eighth Edition, Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 21-7

Chapter 21 The Statement of Cash Flows a. b. c. d.

Little risk of loss. Highly liquid. Maturity of at least three months. Short-term.

Answer: c Level of Learning: 1 Easy Learning Objective: 21-02 Topic Area: Cash and cash equivalents Blooms: Understand AACSB: Reflective thinking AICPA: FN Measurement

24. When a company purchases a security it considers a cash equivalent, the cash outflow is: a. Reported as an operating activity. b. Reported as an investing activity. c. Reported as a financing activity. d. Not reported on a statement of cash flows. Answer: d Level of Learning: 2 Medium Learning Objective: 21-02 Topic Area: Cash and cash equivalents Blooms: Remember AACSB: Reflective thinking AICPA: FN Measurement

25. When preparing a statement of cash flows using the direct method, accrual of payroll expense is: a. Reported as an operating activity. b. Reported as an investing activity. c. Reported as a financing activity. d. None of these answer choices is correct. Answer: d Level of Learning: 2 Medium Learning Objective: 21-03 Topic Area: Cash flow – Operating activities—Direct method Blooms: Understand AACSB: Reflective thinking AICPA: FN Measurement Feedback: Accruing expenses does not affect cash flows.

26. A firm reported salary expense of $239,000 for the current year. The beginning and ending balances in salaries payable were $40,000 and $15,000, respectively. What was the amount of cash paid for salaries? a. $214,000. b. $289,000. c. $264,000. d. $239,000. Intermediate Accounting, Eighth Edition, Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 21-8

Chapter 21 The Statement of Cash Flows Answer: c Level of Learning: 1 Easy Learning Objective: 21-03 Topic Area: Cash paid for expenses – Direct method Blooms: Apply AACSB: Knowledge application AICPA: FN Measurement Feedback: Beginning balance, Salaries payable $ 40,000 Plus Salaries expense 239,000 Minus Ending balance, Salaries payable ( 15,000) = Cash paid for salaries $264,000 Salary expense 239,000 Salaries payable 25,000 Cash

264,000

27. In a statement of cash flows in which operating activities are reported by the direct method, which of the following would increase reported cash flows from operating activities? a. Gain on sale of equipment. b. Interest revenue. c. Gain on early extinguishment of bonds. d. Proceeds from sale of land. Answer: b Level of Learning: 2 Medium Learning Objective: 21-03 Topic Area: Cash flow – Operating activities—Direct method Blooms: Understand AACSB: Reflective thinking AICPA: FN Measurement Feedback: The two gains are not cash flows. Proceeds from the sale of land are reported as a component of investing activities.

28. Which of the following is reported as an operating activity in the statement of cash flows? a. The payment of dividends. b. The sale of office equipment. c. The payment of interest on long-term notes. d. The issuance of a stock dividend. Answer: c Level of Learning: 2 Medium Learning Objective: 21-03 Learning Objective: 21-04 Topic Area: Cash flow – Operating activities—Direct method Topic Area: Cash flow – Operating activities—Indirect method Topic Area: Classify operating – investing – financing Blooms: Understand AACSB: Reflective thinking Intermediate Accounting, Eighth Edition, Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 21-9

Chapter 21 The Statement of Cash Flows AICPA: FN Measurement

29. Which of the following is reported as an operating activity in the statement of cash flows? a. The purchase of long-lived assets. b. The acquisition of treasury stock. c. The retirement of bonds. d. The payment of prepaid insurance. Answer: d Level of Learning: 1 Easy Learning Objective: 21-03 Learning Objective: 21-04 Topic Area: Cash flow – Operating activities—Direct method Topic Area: Cash flow – Operating activities—Indirect method Topic Area: Classify operating – investing – financing Blooms: Understand AACSB: Reflective thinking AICPA: FN Measurement

30. On December 31, 2016, Wellstone Company reported net income of $70,000 and sales of $210,000. The company also reported beginning and ending accounts receivable at $20,000 and $25,000, respectively. Wellstone will report cash collected from customers in its 2016 statement of cash flows (direct method) in the amount of: a. $215,000. b. $285,000. c. $135,000. d. $205,000. Answer: d Level of Learning: 2 Medium Learning Objective: 21-03

Topic Area: Cash received from customers – Direct method Blooms: Apply AACSB: Knowledge application AICPA: FN Measurement Feedback: Beginning balance, Accounts receivable $ 20,000 Plus Sales 210,000 Minus Ending balance, Account receivable ( 25,000) = Cash collected from customers $205,000 Cash Accounts receivable Sales revenue

205,000 5,000 210,000

31. Lite Travel Company's accounting records include the following information: Payments to suppliers

$50,000

Intermediate Accounting, Eighth Edition, Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 21-10

Chapter 21 The Statement of Cash Flows Collections on accounts receivable Cash sales

79,000 44,000

What is the amount of net cash provided by operating activities indicated by the amounts provided? a. $ 50,000. b. $ 73,000. c. $ 94,000. d. $129,000. Answer: b Level of Learning: 2 Medium Learning Objective: 21-03 Learning Objective: 21-08 Topic Area: Cash flow – Operating activities—Direct method Topic Area: Net cash flow – Operating activities Blooms: Apply AACSB: Knowledge application AICPA: FN Measurement Feedback: Cash received, cash sales $44,000 Cash received, accounts receivable 79,000 Minus cash paid to suppliers (50,000) = Cash provided, operating activities $73,000 Cash Accounts payable Accounts receivable Sales revenue

73,000 50,000 79,000 44,000

32. Ludwig Company's prepaid rent was $9,000 at December 31, 2015, and $13,000 at December 31, 2016. Ludwig reported rent expense of $19,000 on the 2016 income statement. What amount would be reported in the statement of cash flows as rent paid using the direct method? a. $15,000. b. $19,000. c. $23,000. d. None of these answer choices is correct. Answer: c Level of Learning: 2 Medium Learning Objective: 21-03 Topic Area: Cash paid for expenses – Direct method Blooms: Apply AACSB: Knowledge application AICPA: FN Measurement Feedback: Ending balance, Prepaid rent $ 13,000 Plus Rent expense 19,000 Minus Beginning balance, Prepaid rent ( 9,000) = Cash paid for rent $23,000 Rent expense 19,000 Intermediate Accounting, Eighth Edition, Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 21-11

Chapter 21 The Statement of Cash Flows Prepaid rent Cash

4,000 23,000

33. Pickering Company's prepaid insurance was $8,000 at December 31, 2015, and $10,000 at December 31, 2016. Pickering reported insurance expense of $15,000 on the 2016 income statement. What amount would be reported in the statement of cash flows as insurance paid using the direct method? a. $13,000. b. $17,000. c. $15,000. d. $23,000. Answer: b Level of Learning: 2 Medium Learning Objective: 21-03 Topic Area: Cash paid for expenses – Direct method Blooms: Apply AACSB: Knowledge application AICPA: FN Measurement Feedback: Ending balance, Prepaid insurance $ 10,000 Plus Insurance expense 15,000 Minus Beginning balance, Prepaid insurance ( 8,000) = Cash paid for insurance $17,000 Insurance expense 15,000 Prepaid insurance 2,000 Cash

17,000

34. During the year, cash increased by $300 million. Investing and financing activities created positive cash flow totaling $500 million. What were net cash flows from operating activities in the statement of cash flows? a. Inflow of $300 million. b. Outflow of $200 million. c. Outflow of $300 million. d. Inflow of $600 million. Answer: b Level of Learning: 2 Medium Learning Objective: 21-01 Topic Area: Cash inflows and outflows Blooms: Apply AACSB: Knowledge application AICPA: FN Measurement Feedback: $300 –$500 = ($200)

35. Dooling Corporation reported balances in the following accounts for the current year:

Inventories

Beginning $600

Ending $300

Intermediate Accounting, Eighth Edition, Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 21-12

Chapter 21 The Statement of Cash Flows Accounts payable

300

500

Cost of goods sold was $7,500. What was the amount of cash paid to suppliers? a. $7,000. b. $7,200. c. $7,300. d. $7,500. Answer: a Level of Learning: 3 Hard Learning Objective: 21-03 Topic Area: Cash paid to suppliers – Direct method Blooms: Apply AACSB: Knowledge application AICPA: FN Measurement Feedback: Cost of goods sold 7,500 Inventory Accounts payable Cash

300 200 7,000

36. If bond interest expense is $800,000, bond interest payable increased by $8,000 and bond discount decreased by $2,000, cash paid for bond interest is: a. $790,000. b. $784,000. c. $806,000. d. $910,000. Answer: a Level of Learning: 3 Hard Learning Objective: 21-03 Topic Area: Cash paid for e...