Accounting, cash flows and financial statements

1 - Which of the following would be considered a "use" of cash for purposes of constructing a statement of cash flows?

A- a decrease in accounts receivable.
B- an increase in accounts payable.
C- an increase in common stock.
D- a decrease in bonds payable.

2 - Which of the following would be considered a "source" of cash for purposes of constructing a statement of cash flows?

A- An increase in accounts payable.
B- Dividends paid to the company's own shareholders.
C- A decrease in accrued liabilities.
D- An increase in accounts receivable.

3 - Under the indirect method, which item would be deducted from net income as part of the process of arriving at cash provided by operating activities on the statement of cash flows?

A- Patent amortization expense
B- Increase in accounts payable
C- Increase in prepaid expenses
D- Decrease in accounts receivable

4 - In a statement of cash flows, all of the following would be classified as operating activities except:

A- interest paid to creditors.
B- dividends received on stock in another company held as an investment.
C- dividends paid to the company's own common stockholders.
D- interest received on a long-term note receivable.

5 - A decrease in the plant and equipment account of $100,000 over the course of a year would be shown on the company's statement of cash flows prepared under the indirect method as:

A- an addition to net income of $100,000 in order to arrive at net cash provided by operating activities.
B- a deduction from net income of $100,000 in order to arrive at net cash provided by operating activities.
C- an addition of $100,000 under investing activities.
D- a deduction of $100,000 under investing activities.

6 - A company declared and paid a cash dividend. The dividend would appear on the company's statement of cash flows as:

A- an addition to net income in order to arrive at net cash provided by operating activities under the indirect method.
B- a deduction from net income in order to arrive at net cash provided by operating activities under the indirect method.
C- a deduction under investing activities.
D- a deduction under financing activities.

7 - In the statement of cash flows, the sum total of the net cash provided by operating activities, investing activities, and financing activities would be equal to:

A- zero.
B- the beginning balance of cash and cash equivalents.
C- the ending balance of cash and cash equivalents.
D- the increase or decrease in cash and cash equivalents.

8 - Which of the following should be classified as a financing activity on a statement of cash flows?

A- cash used to retire bonds payable.
B- an increase in deferred income taxes.
C- cash dividends received on an investment in stock.
D- none of the above

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9 - Common size financial statements help an analyst to:

A- Evaluate financial statements of companies within a given industry of the approximate same size.
B- Determine which companies in a similar industry are at approximately the same stage of development.
C- Compare the mix of assets, liabilities, capital, revenue, and expenses within a company over a period of time or between companies within a given industry without respect to size.
D- Ascertain the relative potential of companies of similar size in different industries.

10 - The market price of Friden Company's common stock increased from $15 to $18. Earnings per share of common stock remained unchanged. The company's price-earnings ratio would:

A- increase.
B- decrease.
C- remain unchanged.
D- impossible to determine.

11 - If a company is profitable and is effectively using leverage, which one of the following ratios is likely to be the largest?

A- Return on total assets.
B- Return on total liabilities.
C- Return on common stockholders' equity.
D- Cannot be determined.

12 - A company has just converted a long-term note receivable into a short-term note receivable. The company's acid-test and current ratios are both greater than 1. This transaction will:

A- increase the current ratio and decrease the acid-test ratio.
B- increase the current ratio and increase the acid-test ratio.
C- decrease the current ratio and increase the acid-test ratio.
D- decrease the current ratio and decrease the acid-test ratio.

13 - Broca Corporation has a current ratio of 2.5. Which of the following transactions will increase Broca's current ratio?

A- purchase of inventory for cash.
B- the collection of an account receivable.
C- the payment of an account payable.
D- none of the above.

14 - Allen Company's average collection period for accounts receivable was 25 days in year 1, but increased to 40 days in year 2. Which of the following would most likely be the cause of this change:

A- a decrease in accounts receivable relative to sales in year 2.
B- an increase in credit sales in year 2 as compared to year 1.
C- a relaxation of credit policies in year 2.
D- a decrease in accounts receivable in year 2 as compared to year 1.

15 - Wolbers Company wrote off $100,000 in obsolete inventory. The company's inventory turnover ratio would:

A- increase.
B- decrease.
C- remain unchanged.
D- impossible to determine.