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MCQ Questions for Statement of Cash Flows

Use the following information to prepare the operating section of a statement of cash flows using the indirect method and answer questions 12 and 13:
20x8 20x7
Accounts Receivable $54,000 $38,000
Inventory $48,000 $50,000
Prepaid Insurance $25,000 $17,000
Accounts Payable $32,000 $27,000
Wages Payable $21,000 $17,000
Net income for 20x8 is $50,000. Depreciation expense is $12,000. Assume all sales and purchases are made on account.

12. What is the net cash provided by or used by operations?
A. $37,000 used by C. $69,000 used by
B. $49,000 provided by D. $81,000 provided by

13. If sales to customers were $340,000, what amount would be shown as sales revenue assuming you prepared the statement of cash flows using the direct method?
A. $306,000 C. $340,000
B. $324,000 D. $356,000

Use the following information to answer question 14:
Total assets? $710,000
Current liabilities? $60,000
Total liabilities? $260,000
Common Stock? $100,000
Retained Earnings? $350,000

14. If the industry debt-to-equity ratio is 0.1 to 1, what can you conclude about this company?
A. The company has relied on stockholders for funds more than other companies in the same industry.
B. The company is in a better position than others in the industry to meet current interest payments.
C. Creditors may be concerned about the company's ability to repay debt.
D. For every $1 of capital that stockholders provided, creditors provided $0.10.
Use the following information to answer question 15:
Cash flow from operating activities? $175,000
Cash flow from financing activities? $75,000
Cash flow from investing activities? $25,000
Interest? $10,000
Taxes? $8,000
Capital expenditures? $15,000
Average amount of debt maturing over the next five years?$150,000

15. What is the cash flow adequacy ratio? (Round your answer to three decimals.)
A. 0.500 C. 1.056
B. 0.947 D. 1.613

Use the following information to prepare a comparative balance sheet for a horizontal analysis and answer question 16:
2008 2007
Cash $175,000 $78,500
Accounts receivable $163,900 $223,500
Inventory $220,000 $275,000
Other current assets $19,600 $13,200
Total assets $3,725,000 $4,450,000

16. Which of the following is a result of the horizontal analysis?
A. Inventory is 5 times larger than accounts receivable in 2008.
B. Inventory is 38.0% of total current assets for 2008.
C. Accounts receivable is 4.4% of total assets for 2008.
D. Accounts receivable decreased $59,600 or -26.7% during 2008.

17. How would you report the collection of interest on a statement of cash flows prepared using the direct method?
A. In the operating section as a cash inflow
B. In the operating section as a cash outflow
C. In the financing section as a cash inflow
D. In the financing section as a cash outflow

18. CC Corp. had sales of $950,000 and net operating income of $575,000. Operating assets during the year averaged $450,000. The manager is considering the purchase of a new machine, which would increase average operating assets by 10%. What will the return on investment (ROI) be after the purchase, assuming the same amount of sales?
A. 60.5% C. 127.7%
B. 116.2% D. 211.1%
Use the following information to answer questions 19, 20, and 21:
Cash? $150,000
Accounts Receivable? $130,000
Inventory? $125,000
Prepaid Insurance? $25,000
Long-Term Investments? $110,000
Payroll Payable? $10,000
Accounts Payable? $60,000
Taxes Payable? $10,000
Long-Term Notes Payable? $50,000

19. What is the quick ratio? (Round your answer to three decimals).
A. 3.500 C. 5.375
B. 4.154 D. 6.750

20. What is the current ratio? (Round your answer to three decimals).
A. 3.500 C. 5.375
B. 4.154 D. 6.750
21. How could the current ratio be decreased?

A. Loosening credit policies to encourage more sales on account
B. Financing inventory and other purchases with long-term borrowings
C. Refinancing current liabilities with long-term liabilities
D. Investing idle cash in equipment and machinery

22. Which duties would you recommend a company segregate to reduce the potential for fraud?
A. Managerial and financial accounting duties
B. Manufacturing and selling and administrative duties
C. Computerized recordkeeping and manual recordkeeping duties
D. Recordkeeping, custody, and authorization duties

23. Webster Company has no liabilities for insurance at the end of 20x7 or 20x8. The 20x7 ending balance sheet includes an asset called prepaid insurance with a balance of $30,000, which represents prepayments that were made in 20x7 for insurance coverage provided in 20x8. The 20x8 ending balance sheet for the account has a balance of $25,000, which represents cash paid in 20x8 for insurance that will be used in 20x9. What are cash outflows in 20x7 for insurance?
A. $25,000 C. $50,000
B. $30,000 D. $55,000

24. Pablo Company had current assets of $610,000 in 20x8 and $575,000 in 20x7. Current liabilities were $90,000 for 20x8 and $77,000 for 20x7. From 20x7 to 20x8, the amount of working capital has
A. increased by $13,000. C. increased by $35,000.
B. increased by $22,000. D. decreased by $35,000.

Use the following information to answer question 25:
Event 1? payments of taxes
Event 2? the payment of dividends
Event 3? purchases of property, plant and equipment
Event 4? payment of interest on debt
Event 5? collection of cash from past sales that were made on credit

25. Which events affect cash flows from operating activities?
A. 1, 3, 5 C. 2, 4
B. 1, 4, 5 D. 3, 4, 5

Solution Summary

This solution provides step by step calculations and explanations for various questions involving cash flows.

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