From 2009 to 2010, Canadian Beer had a capital acquisitions ratio of 7.49 which means its net income exceeded its cash investment in property, plant and equipment by almost 7.5 times...
Trang 1True / False Questions
Trang 25 Very few companies use the direct method for disclosing their cash flows from operating activities
Trang 39 A growing difference between net income and cash flow from operations can be a sign of management manipulation of earnings
Trang 413 From 2009 to 2010, Canadian Beer had a capital acquisitions ratio of 7.49 which means its net income exceeded its cash investment in property, plant and equipment by almost 7.5 times
Trang 517 When a cash dividend is declared, it would affect the balance sheet but not the statement
Trang 6Multiple Choice Questions
21 The statement of cash flows reports directly on the
A financial position of the business
B accrual basis in accordance with GAAP
C causes of the inflows and outflows of cash
D financial operating performance of the business
AACSB Tag: Communications
Difficulty: Easy
L.O.: 1
22 Which of the following transactions would not create a cash flow?
A The company purchased some of its own stock from a stockholder
B Amortization of patent for the period
C Payment of a cash dividend
D Sale of equipment at book value (i.e no gain or loss)
AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 1
23 Which of the following transactions is not a direct use of cash?
A Acquisition of inventory for cash
B Exchanges of bonds payable for land
C Purchase of treasury stock with cash
D Cash dividend paid
Trang 724 The statement of cash flows should be dated as follows:
25 Which of the following transactions is not a typical use of cash?
A Payment of short-term debt with cash
B Purchase of treasury stock for cash
C Acquisition of a building for cash
D Sale of equipment for less than book value
AACSB Tag: Relative Thinking
Difficulty: Easy
L.O.: 1
26 Which of the following would not be a cash flow from investing activities?
A Purchase of long-term investments
B Sale of a patent
C Collection of principal of a note receivable
D Collection of interest revenue on a long-term note receivable
AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 1
27 Which of the following would not be a cash flow from financing activities?
A Issuance of common stock
B Borrowing on a long-term note payable
C Collection of a cash dividend
D Repayment of principal on a long-term note payable
AACSB Tag: Relative Thinking
Trang 828 Which of the following is a cash flow from operating activities?
A Purchase of merchandise for resale
B Sale of a piece of land no longer used in operations
C Sale of long-term investments in common stock
D Payment of a note payable
AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 1
29 Which of the following would least likely be a cash equivalent?
A A $10,000, 30 day certificate of deposit
B 500 shares of IBM stock
C A three-month Treasury bill
D A ten-year Treasury note purchased two months before maturity
AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 1
30 A cash inflow from financing activities includes
A proceeds from selling investments in equity securities of another company
B proceeds from selling equipment
C proceeds from issuance of bonds payable
D receipt of interest payments
Trang 931 For an investment to qualify as a cash equivalent, it must be readily convertible to a known amount of cash and
A it must be identified as a cash equivalent on the income statement
B must be sufficiently close to its maturity date so that its market value is relatively
insensitive to interest rate changes
C the investment must have a known foreign exchange rate
D it must mature within 4 months
AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 1
32 A cash inflow from operating activities includes
A collection of the principal of a loan
B receipt of interest on an investment
C proceeds from issuance of notes payable
D collection of sales of equipment used in operations of the business
AACSB Tag: Relative Thinking
Difficulty: Easy
L.O.: 1
33 Which of the following statements about the statement of cash flows is correct?
A A company with a net loss on the income statement will always have a net cash outflow from operating activities
B A purchase of equipment is classified as a cash inflow from investing activities
C Cash dividends received on stock investments are classified as cash flows from operating
Trang 1034 Which of the following items about the statement of cash flows is correct?
A Non-cash expenses such as depreciation are deducted from net income with the indirect method in computing cash flows from operating activities
B Cash equivalents are highly liquid investments with maturities at the date of purchase of
less than three months
C The acquisition of land by issuing bonds payable would not appear on the statement of cash flows
D Cash paid for interest on debt would be classified as a financing cash flow
AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 1
35 Kela Corporation reported 2009 net income of $450,000 including the effects of
depreciation expense, $60,000 and amortization expense on a patent, $10,000 Also, cash of
$50,000 was borrowed on a 5-year note payable Based on this data, total cash inflow from operating activities for 2009 was
Trang 1137 Creston Company gathered the following data to prepare its 2010 statement of cash flows:
Based only on the above data, the net cash inflow from operating activities during 2010 was
Trang 1239 Drake Company reported total sales revenue of $150,000 total expenses of $152,000 and a net loss of $2,000 for the year ended December 31, 2009 During 2009, accounts receivable decreased by $1,000, trade payables increased by $5,000, wages payable increased by $3,000, and $18,000 in depreciation expense was recorded Assuming no other adjustments are
needed, the "net cash flow from operating activities" for 2009 was (parentheses indicate net cash outflow)
receivable decreased by $5,000, merchandise inventory increased by $4,000, accounts
payable increased by $6,000, and depreciation expense of $10,000 was recorded Assuming
no other data is needed, the net cash inflow from operating activities for 2009 was
Trang 1341 During 2009, Alpha Corporation reported net income of $10,000 During the year,
depreciation expense was $5,000, accounts payable increased $2,000 and accounts receivable increased $4,000 Therefore, based upon this information, the "cash inflow from operating activities" was
by $1,000, and $5,000 in depreciation expense was recorded Assuming no other adjustments
to net income are needed, the net cash inflow from operating activities was
43 The statement of cash flows (indirect method) reports depreciation expense as an addition
to net income because depreciation
A causes an inflow of funds for the replacement of assets
B reduces reported net income of the period but does not involve an outflow of cash for that
period
C is a direct use of cash
D reduces reported net income and causes an inflow of cash
Trang 1444 To prepare a statement of cash flows (indirect method), which of the following items should be added back to net income to derive "cash flow from operating activities"?
A Depreciation expense
B Increase in accounts receivable
C Gain on a sale of equipment
D Decrease in taxes payable
AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 2
45 Austin Company reported net income for 2009 of $60,000, depreciation expense of
$10,000, and amortization expense (patent) of $5,000 Also, accounts payable increased by
$3,000 and inventory decreased by $2,000 The amount of "cash flows from operating activities" for 2009 was
Trang 1547 The 2009 income statement for McGrath Corporation showed the following:
Cash flow from operating activities is
48 Which statement regarding the indirect method is false?
A Depreciation expense is added to net income
B An increase in accounts receivable is added to net income
C An increase in accounts payable is added to net income
D An increase in merchandise inventory is subtracted from net income
A An increase in accounts receivable would be subtracted from net income
B An increase in salaries payable would be subtracted from net income
C An increase in inventory would be added to net income
D Depreciation expense would be subtracted from net income
Trang 1650 Assume the 2009 income statement reported total sales revenue of $1,200,000 The
2008-2009, comparative balance sheets showed that accounts receivable increased by $25,000 and the unearned revenue account decreased $15,000 The cash inflow from customers for 2009 would be
Trang 1752 The financial statements for World Company show the following:
Cost of goods sold $725,000
Trang 1854 Amanda Company reported income tax expense of $250,000 Beginning income taxes payable was $30,000 while ending income taxes payable was $25,000 What cash was paid for taxes?
55 Aaron Inc reported operating expenses in 2009 of $765,000 (including $80,000 of
depreciation expense) Prepaid expenses increased $25,000 while accrued liabilities increased
$43,000 How much cash was paid for operating expenses in 2009?
56 Which of the following statements about the quality of income ratio is true?
A When sales are growing, receivables and inventory normally increase faster than accounts payable so the ratio increases
B Seasonal variations in sales have no impact on the quality of income ratio
C Failure to accrue appropriate expenses will inflate net income and reduce the quality of
Trang 1957 Which of the following statements about the quality of income ratio is true?
A An increase in operating assets and a decrease in liabilities will reduce operating cash flows, thereby reducing the ratio
B Seasonal variations in sales and purchases of inventory can cause wide deviations in the quality of income ratio
C When sales are growing, receivables and inventory normally increase at a faster rate than accounts payable often causing operating cash flows to be less than income
D All of the answers are true
AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 3
58 In 2009, Boogle reported net income of $785 million and positive cash flow from
operations of $1,196 million In 2008, their net income was $563 million and positive cash flow from operations was $1,237 million Which of the following is false about their quality
of income ratios?
A In 2008 their ratio was 2.2 and in 2009 it was 1.5
B Their ratio in 2008 was better than their ratio in 2009
C Boogle's quality of income ratios indicates poor performance because net income is less
than cash flow
D The ratio in both years shows the company's ability to generate good cash flow from its operating activities
decrease in the ratio?
A An increase in current assets such as receivables and inventory
B An increase in accounts payable and accrued liabilities
C A decrease in sales revenue
D Both an increase in current assets such as receivables and inventory and a decrease in sales
revenue are likely causes
AACSB Tag: Analytic
Trang 2060 Which of the following is a cash outflow connected to investing activities?
A Repurchase of treasury stock
B Purchase of short-term investments
C Purchase of property, plant and equipment
D Both purchases of short-term investments and purchases of property, plant and equipment
are outflows connected to investing activities
AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 4
61 Which of the following is true?
A Cash paid to repurchase treasury stock is an investing cash outflow
B Purchase of a patent is an investing cash outflow
C A cash dividend is an operating cash outflow
D Cash paid to acquire stock in another company is a financing outflow
A an inflow of $222 million and outflow of $1,515 million
B an inflow of $150 million and outflow of $1,515 million
C a net outflow of $1,293 million
D a net outflow of $1,365 million
Trang 2163 Which of the following is false?
A Purchase of equipment is an investing cash outflow
B Purchase of short-term investments is an investing cash outflow
C Sale of equipment creates investing cash inflow equal to its selling price
D Purchase of a patent is an investing cash outflow
AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 4
64 Milliken Company paid $2.2 million to purchase stock in another company, $1.0 million
to repurchase treasury shares, $.5 million to buy short-term investments, sold used equipment for $.8 million when its book value was $.6 million, and purchased new equipment for $3.4 million How much will be reported as net investing cash flow?
A $6.3 million net cash outflow
B $5.3 million net cash outflow
C $5.1 million net cash outflow
D $4.8 million net cash outflow
Trang 2266 Which of the following statements about the capital acquisitions ratio is true?
A A high ratio indicates less need for outside financing of property, plant and equipment
B The ratio is computed by dividing cash flow from operations by the average property, plant and equipment, net from the balance sheet
C A low ratio may indicate a failure to update property, plant and equipment which can limit
a company's ability to compete in the future
D Both a high ratio indicates less need for outside financing of property, plant and equipment and a low ratio may indicate a failure to update property, plant and equipment which can limit
a company's ability to compete in the future are true
AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 5
67 Which of the following statements about the capital acquisitions ratio is false?
A The ratio is computed by dividing cash flow from operations by cash paid for property, plant and equipment
B Because the need for investment in property, plant and equipment differs dramatically across industries, a firm's ratio should only be compared with its prior years' ratio or with firms in the same industry
C A high ratio indicates more need for outside financing of current and future purchases of
property, plant and equipment
D None of the other answers is false
Enterprises capital acquisitions ratio for 2009
Trang 2369 In 2008, Eva's Enterprises had a capital acquisitions ratio of 7.9 In 2008, Carlos'
Corporation had a ratio of 3.6 The amount of cash flow from operations was $5,968,000 for Eva's Enterprises and $5,054,000 for Carlos Corporation Which of the following statements
is correct?
A Eva's Enterprises used less cash for investments in property, plant and equipment during
2008 than did Carlos Corporation
B Eva's Enterprises has less need for external financing of its investments in property, plant and equipment indicated by its higher capital acquisitions ratio compared to Carlos
Corporation
C Eva's Enterprises invested about $785,000 in property, plant and equipment during 2008
D All of the answers are correct
A American Beer's ratio is lower because they are experiencing slow growth
B American Beer's ratio shows this company will have less difficulty financing expansion from operating cash flows than Canadian Beer
C American Beer needed to borrow money or issue more stock to cover their investments in
property, plant and equipment since they had an inadequate capital acquisitions ratio
D American Beer's lower ratio may indicate a failure to update plant and equipment
A $476 million net cash outflow
B $530 million net cash outflow
C $673 million net cash outflow
D $ 76 million net cash outflow
AACSB Tag: Analytic
Trang 2472 Burich Co reported proceeds from short-term borrowings of $2.5 million, proceeds from long-term borrowings of $6.8 million, repayments of long-term borrowings of $3.5 million, interest payments of $780,000, repurchase of treasury shares of $500,000 and cash dividends declared of $1.1 million Net cash flow from financing activities equals
A $5,300,000 net cash inflow
B $4,200,000 net cash inflow
C $1,700,000 net cash inflow
D $2,800,000 net cash inflow
AACSB Tag: Analytic
Difficulty: Hard
L.O.: 6
73 Which of the following is true?
A Repayments of principal and interest reduce financing cash flows
B Repurchase of treasury shares is a cash outflow connected to investing activities
C If a company borrows $450 million in term notes and repays $380 million of
long-term notes, and then these items must both be disclosed and not netted against each other in the financing section
D Both repayments of principal and interest reduce financing cash flows and if a company borrows $450 million in long-term notes and repays $380 million of long-term notes, then these items must both be disclosed and not netted against each other in the financing section are true statements
AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 6
74 Which of the following would be a financing cash outflow?
A Cash dividends declared
B Interest paid
C Repurchase of treasury shares
D Purchase of a building on credit
AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 6
Trang 2575 Borderline Corp borrowed $1.2 million in short-term notes and $6.4 million in long-term notes The company repaid $4.8 million of long-term notes plus $.6 million of interest Borderline issued $8.7 million of common stock and paid a cash dividend of $1.2 million Net cash flow from financing activities equals
A $9.7 million net cash inflow
B $10.3 million net cash inflow
C $9.1 million net cash inflow
D $7.9 million net cash inflow
77 Non-cash financing and investing activities
A must be reported in the notes to the financial statements
B are transactions that do not cause a direct inflow or outflow of cash
C are disclosed in a separate schedule on the statement of cash flows
D include only activities over 5% of the available cash balance