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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