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    Statement of Cash Flows

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    1. Which of the following is a cash flow from an investing activity?
    payment for advertising
    cash receipt from a customer for a previous credit sale
    cash received from sale of equipment
    payment of dividends

    2. Sonny's Liquors, Inc. had the following cash flows during March: Paid for inventory $ 20,000

    Paid wages to employees 40,000

    Received from cash sales 100,000

    Paid for equipment 60,000

    Received a loan 70,000

    What was the cash flow from financing activities? (Points: 2)
    $70,000 inflow
    $80,000 outflow
    $120,000 outflow
    $60,000 outflow

    3. The primary difference between the cash flows statement and all other primary external financial statements is that the cash flows statement is
    not an accrual based statement and all others are
    not prepared unless the firm is a manufacturer
    an optional statement in the external reporting package
    prepared before the end of the year and not after

    4. Which of the following best describes the purpose of the statement of cash flows?
    identify the revenues and expenses of the accounting period
    report the inflows and outflows of cash
    balance current period revenues with those of the previous period
    report assets, liabilities and owners' equity as of a specific date

    5. Activities that involve the production or delivery of goods for sale or the providing of services for sale should be listed under which classification on a statement of cash flows?
    financing activities
    operating activities
    refunding activities
    investing activities

    6. What type of activity is the paying off of a bank loan?
    operating
    financing
    investing
    operating if it was a short-term loan; financing if it was a long-term loan

    7. When preparing the operating activities section of the statement of cash flows under the indirect method, which of the following is an addition to net income?
    Amortization Expense Increase in current asset accounts
    Yes Yes

    Amortization Expense Increase in current asset accounts
    Yes No

    Amortization Expense Increase in current asset accounts
    No Yes

    Amortization Expense Increase in current asset accounts
    No No

    8. Which of the following is a TRUE statement regarding the operating activities section of the statement of cash flows when the indirect format is used?
    it explains the relationship between cash flows for a period and the results of operations reported on the income statement
    it is designed to report to the reader what events caused cash to increase during the period and what events caused cash to decrease during the period
    it results in a slightly higher amount of cash from operations being reported because depreciation expense is included
    it is easier to understand and interpret correctly than when it is prepared using the direct method

    9. Nearly all major corporations use which format for reporting the statement of cash flows?
    accrual basis
    reconciliation
    indirect
    direct

    10. The Stable Company reports the following information: Accounts payable $ 600
    Accounts receivable $ 8,200

    Cash 5,000
    Mortgage payable 4,400

    Retained earnings 7,800
    Inventory 9,200

    Buildings 17,600
    Office supplies 2,600

    What is the amount of the firm's current assets?
    $13,200
    $25,000
    $22,400
    $42,600

    11. For each of the questions 11 through 20, indicate whether the transaction is an operating activity, a financing activity, or an investing activity. Assume all purchase and sale transactions are for cash unless otherwise stated.

    Collection of principal from a note receivable
    operating activity
    financing activity
    investing activity

    12. Amortization of a patent
    operating activity
    financing activity
    investing activity

    13. Purchase of an asset used in the company's daily operations
    operating activity
    financing activity
    investing activity

    14. Sale of treasury stock
    operating activity
    financing activity
    investing activity

    15. Write-off of a bad debt
    operating activity
    financing activity
    investing activity

    16. Depreciation expense
    operating activity
    financing activity
    investing activity

    17. Sale of obsolete equipment no longer used in company operations
    operating activity
    financing activity
    investing activity

    18. Collection of interest revenue on note receivable in the collection of principal from a note receivable (Points: 2)
    operating activity
    financing activity
    investing activity

    19. Borrow cash on a long-term note
    operating activity
    financing activity
    investing activity

    20. Payment of a cash dividend
    operating activity
    financing activity
    investing activity

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    Solution Preview

    1. Which of the following is a cash flow from an investing activity?
    payment for advertising
    cash receipt from a customer for a previous credit sale
    cash received from sale of equipment
    payment of dividends

    Answer: cash received from sale of equipment

    Investing Activities Include:
    - Purchasing and disposing of investments and productive long-lived assets using cash and
    - Lending money and collecting the loans.

    2. Sonny's Liquors, Inc. had the following cash flows during March: Paid for inventory $ 20,000

    Paid wages to employees 40,000

    Received from cash sales 100,000

    Paid for equipment 60,000

    Received a loan 70,000

    What was the cash flow from financing activities? (Points: 2)
    $70,000 inflow
    $80,000 outflow
    $120,000 outflow
    $60,000 outflow

    Answer: $70,000 inflow

    Proceeds from loans are cash flow from financing activities
    Financing Activities Include:
    - Obtaining cash from issuing debt and repaying the amounts borrowed and
    - Obtaining cash from stockholders, repurchasing shares, and paying dividends.

    3. The primary difference between the cash flows statement and all other primary external financial statements is that the cash flows statement is
    not an accrual based statement and all others are
    not prepared unless the firm is a manufacturer
    an optional statement in the external reporting package
    prepared before the end of the year and not after

    Answer: not an accrual based statement and all others are

    4. Which of the following best describes the purpose of the statement of cash flows?
    identify the revenues and expenses of the accounting period
    report the inflows and outflows of cash
    balance current period revenues with those of the previous period
    report assets, liabilities and owners' equity as of a specific date

    Answer: report the inflows and outflows of cash

    5. Activities that involve the production or delivery of goods for sale or the providing of ...

    Solution Summary

    Answers to 20 questions on Statement of Cash Flows: operating, investing, financing activities.

    $2.19