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Cash flow from ____ activities includes increases and decreases in short-term and long-term borrowing, increases and decreases in common and preferred stock, and dividends.


A) operating
B) investing
C) financing
D) purchasing
E) exchanging

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A firm sold an investment in securities available for sale originally costing $30,000, for $28,000.At the beginning of the year, the investment had a valuation allowance of $3,000, debit.What is the correct disclosure for these events in the statement of cash flows prepared under the direct method, assuming this is the only investment in securities available for sale?


A) $28,000 investing cash inflow; add $33,000 in the reconciliation of earnings and net operating cash flow
B) $28,000 investing cash inflow; add $2,000 in the reconciliation of earnings and net operating cash inflow
C) $28,000 investing cash inflow; add $5,000 in the reconciliation of earnings and net operating cash inflow
D) Add $5,000 in the reconciliation of earnings and net operating cash flow.
E) None of these answers is correct.

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Notes to the Year 2 financial statements of Care Corporation indicate that income tax expense of $3,000 comprises $2,000 currently payable taxes and $1,000 deferred to future periods.Care Corporation made the following entry during Year 2 to recognize income tax expense: Income Tax Expense ..............3,000 Income Tax Payable ........................2,000 Deferred Income Taxes Payable ...............1,000 The $1,000 of deferred income taxes reduced net income but did not require a cash outflow during Year 2.To explain the change in the Deferred Income Taxes account, the T-account work sheet must.


A) subtract deferred income taxes from net income to derive cash flow from operations.
B) add back deferred income taxes to net income to derive cash flow from operations.
C) add back deferred income taxes to net income to derive cash flow from financing.
D) subtract deferred income taxes from net income to derive cash flow from financing.
E) add back deferred income taxes to net income to derive cash flow from investing.

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Cash flow from financing activities do not include


A) cash issues of long-term borrowings.
B) cash redemptions of long-term borrowings.
C) cash sales and cash repurchases of common and preferred shares.
D) cash payments of interest.
E) all of the above.

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The accounting records of Calli Inc.indicate that the firm sold for $1,800 during Year 2 a machine originally costing $6,000, with accumulated depreciation of $4,600.The journal entry made to record this sale was as follows: Cash .........................................1,800 Accumulated Depreciation .......................4,600 Loss on Disposal of Equipment .................... 400 Equipment .......................................6,000 In preparing the statement of cash flows using the work sheet, the accountant.


A) adds the $400 loss to net income in computing cash flow from operations.
B) subtracts the $400 loss from net income in computing cash flow from operations.
C) adds the $400 loss to net income in computing cash flow from investing activities.
D) subtracts the $400 loss from net income in computing cash flow investing activities.
E) subtracts the $400 loss from retained earnings in computing cash flow investing activities.

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Prepayments for Julianna Company decreased by $2,000 during Year 3, the firm expensed less cash during Year 3 for new prepayments than it expensed prepayments of earlier years.Assume that all prepayments relate to selling and administrative activities.The journal entries that Julianna Corporation made in the accounting records during the year had the following combined effect: Selling and Administrative Expenses ..............35,500 Cash ........................................... 33,500 Prepayments ......................................2,000 To explain the change in the statement of cash flows T-account work sheet for Prepayments


A) add back $33,050 to net income.
B) add back $2,000 to net income.
C) subtract $2,000 from net income.
D) subtract $33,500 from net income.
E) subtract $2,000 from retained earnings.

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In Year 8, Global Marketing Corporation had a net increase in inventories of $50,000.The T-account work sheet for preparing the statement of cash flows


A) adds this change in inventory in deriving cash flow from operating activities.
B) adds this change in inventory in deriving cash flow from financing activities.
C) subtracts this change in inventory in deriving cash flow from operating activities.
D) subtracts this change in inventory in deriving cash flow from financing activities.
E) subtracts this change in inventory in deriving cash flow from investment activities.

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Describe the effects of transactions involving investments on the statement of cash flows.

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THE EFFECTS OF TRANSACTIONS INVOLVING IN...

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The first step in a procedure for preparing the statement of cash flows using a T-account work sheet is to explain the change in the master Cash account between the beginning and the end of the period by accounting for the changes in the other balance sheet accounts.

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The product life-cycle concept from microeconomics and marketing provides useful insights into the relations among cash flows from operating, investing, and financing activities.During the _____ cash outflow exceeds cash inflow from operations because operations are not yet earning profits while the firm must invest in accounts receivable and inventories.Investing activities result in a net cash outflow to build productive capacity.Firms must rely on external financing during this phase to overcome the negative cash flow from operations and investing.


A) introduction phase
B) growth phase
C) mature phase
D) late maturity phase
E) decline phase

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The statement of cash flows explains the reasons for the change in cash and cash equivalents during a period.This statement classifies the reasons as relating to


A) operating decisions, only.
B) investing decisions, only.
C) financing decisions, only.
D) operating, investing, or financing decisions.
E) operating, investing, financing, or exchange decisions.

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Weakening profitability,from reduced sales or reduced profit margins on existing sales, signals the beginning of the decline phase, but ever-declining accounts receivable and inventories can produce positive cash flow from operations.

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The second step of completing the T-account work sheet for generating the statement of cash flows is to prepare a T-account for each balance sheet account other than _____ and enter the beginning and the ending balances.


A) cash and cash equivalents
B) working capital
C) cash, only
D) cash and marketable securities
E) exchanges

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Choose the combination below that best reflects the appropriate classification of cash received from investing and financing activities. Cash Received from Cash Received from Investing Activities Financing Activities


A) Sale of treasury stock Proceeds from issuing common stock
B) Sale of treasury stock Sale of investment securities
C) Sale of investment securities Proceeds of issuing common stock
D) Proceeds from issuing common stock Sale of investment securities
E) None of these answers is correct.

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In U.S.GAAP, which of the following accurately describe(s) the effects of transactions involving investments on the statement of cash flows?


A) When using the fair value method for trading securities and fair value hedges, both realized and unrealized gains and losses appear in net income.
B) Dividends received from investee included in investor's cash flow from operations.
C) When using the indirect method, add back realized holding losses, and subtract realized holding gains included in income for the period to derive cash flow from operations.
D) All proceeds of sale of trading securities appear as [dis-]investing source of cash.
E) all of the above

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The accounting records of Dominick Inc.indicate that the firm sold for $1,800 during Year 2 a machine originally costing $6,000, with accumulated depreciation of $4,600.The journal entry made to record this sale was as follows: Cash ........................................1,800 Accumulated Depreciation.......................4,600 Equipment..........................................6,000 Gain on Disposal of Equipment...........................400 (Use the information about Dominick Inc.to answer this question.) In preparing the statement of cash flows using the T-account worksheet, the accountant


A) subtracts the $400 gain from net income in computing cash flow investment activities.
B) adds the $400 gain to net income in computing cash flow from investment activities.
C) subtracts the $400 gain from net income in computing cash flow from operations.
D) adds the $400 gain to net income in computing cash flow from operations.
E) adds the $400 gain to retained earnings in computing cash flow investment activities.

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Which of the following is/are not true?


A) Revenues from sales of goods or services to customers during a particular period do not necessarily equal cash received from customers during the same period.
B) The receipt of cash can precede, coincide with, or follow the recognition of revenue.
C) Expenses incurred to generate revenues during a particular period do not necessarily equal cash expended for the goods and services consumed in operations during the same period.
D) The expenditure of cash can precede, coincide with, or follow the recognition of expenses.
E) The net income for a particular period will likely equal the cash flow from operations for the same period.

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During Year 7, Frank Company had a net increase in accounts receivable of $10,000.The T-account work sheet for preparing the statement of cash flows


A) adds the increase in accounts receivable in deriving cash flow from operating activities.
B) subtracts the increase in accounts receivable in deriving cash flow from operations.
C) adds the increase in accounts receivable in deriving cash flow from financing activities.
D) subtracts the increase in accounts receivable in deriving cash flow from financing activities.
E) subtracts the increase in accounts receivable in deriving cash flow from investing activities.

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The cash change equation for preparing the statement of cash flows using a T-account work sheet is: Assets = Liabilities + Shareholders' Equity

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The amortization of bond discount related to long-term debt should be presented in a statement of cash flows prepared using the indirect method as a(n)


A) inflow and outflow of cash.
B) outflow of cash.
C) deduction from net income in the adjustments to reconcile net income to cash from operating activities.
D) addition to net income in the adjustments to reconcile net income to cash from operating activities.
E) None of these is correct.

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