CHAPTER 10—STATEMENT OF CASH FLOWS
MULTIPLE CHOICE
1. Which of the following is not a purpose of the statement of cash flows?
a.
To show cash flow from operations
b.
To show cash flow from financing activities
c.
To show cash flow from investing activities
d.
To show all investing and financing transactions
e.
To show operating expenses for a period of time
2. Working capital is defined as:
a.
total assets less intangible assets.
b.
current assets divided by current liabilities.
c.
current assets less current liabilities.
d.
total assets less current assets.
e.
current assets less liabilities.
3. Tim Company had sales of $30,000, increase in accounts payable of $5,000, decrease in accounts receivable of $1,000, increase in inventories of $4,000, and depreciation expense of $4,000. What was the cash collected from customers?
a.
$31,000
b.
$35,000
c.
$34,000
d.
$25,000
e.
$26,000
4. The statement of cash flows became a required statement in which year?
a.
1995
b.
1978
c.
1971
d.
1987
e.
1993
TRUE/FALSE
1. The statement of cash flows is presented on a working capital basis.
2. With the indirect method of presenting cash from operations, the income statement is essentially presented on a cash receipts and cash payments basis.
3. Cash flow per share is usually higher than earnings per share.
4. The conversion of long-term bonds into common stock is an example of a transaction involving two financing activities with no cash flow effect.
5. A supporting schedule to the statement of cash flows may include noncash flow items.
PROBLEM
1. Required:
Indicate the effect of each of the following transactions on cash and working capital. Use + to indicate an increase, – to indicate a decrease, and 0 for no effect.
Working
Cash
Capital
a.
Collect accounts receivable
____
____
b.
Recognize depreciation expense
____
____
c.
Pay taxes payable
____
____
d.
Purchase fixed assets for cash
____
____
e.
Sell common stock
____
____
f.
Realize cash surrender value of officer's life insurance
____
____
g.
Increase deferred income taxes (long-term liability)
____
____
h.
Amortize of premium on bonds payable
____
____
2. Required:
Place an X in the appropriate columns for each of the following situations.
Non-
Effect on
cash
Operating
Investing
Financing
Cash
Trans-
Situation
Activity
Activity
Activity
+
–
action
a.
Paying off accounts payable
__
__
__
__
__
__
b.
Issuance of bonds for cash
__
__
__
__
__
__
c.
Sale of land for cash
__
__
__
__
__
__
d.
Retirement of common stock with cash
__
__
__
__
__
__
e.
Acquired land for common stock
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