Chapter 15—Statement of Cash Flows [Multiple Choice]

1. The net income reported on the income statement for the current year was $60,000. Depreciation
recorded on fixed assets and amortization of bond discount for the year was $25,000 and $2,000,
respectively. What is the amount of cash flows from operating activities that would appear
on the statement of cash flows prepared using the indirect method?
a. $33,000
b. $59,000
c. $87,000
d. $85,000
ANS: C DIF: 5 OBJ: 03

2. If a gain of $100,000 is incurred in selling equipment having a book value of $250,000, the
total amount reported in the cash flows from investing activities section of the statement
of cash flows is:
a. $100,000
b. $150,000
c. $350,000
d. $250,000
ANS: C DIF: 5 OBJ: 03

3. Accounts receivable arising from trade transactions amounted to $35,000 and $20,000 at the
beginning and end of the year, respectively. Income reported on the income statement for the
year was $270,000. Exclusive of the effect of other adjustments, the cash flows from opera ting
activities to be reported on the statement of cash flows prepared by the indirect method
is:
a. $260,000
b. $270,000
c. $255,000
d. $285,000
ANS: D DIF: 5 OBJ: 03

4. The net income reported on the income statement for the current year was $125,000.
Depreciation recorded on fixed assets and amortization of patents for the year was $40,000 and
$10,000, respectively. Balances of current asset and current liability accounts at the end and at
the beginning of the year are listed below.

End   Beginning
Cash $ 50,000 $ 65,000
Accounts receivable 125,000 110,000
Inventories 95,000 115,000
Prepaid expenses 4,000 3,000
Accounts payable (merchandise creditors) 75,000 60,000

What is the amount of cash flows from operating activities reported on the statement of cash
flows prepared by the indirect method?
a. $144,000
b. $156,000
c. $194,000
d. $206,000
ANS: C DIF: 5 OBJ: 03
 5. Cash dividends of $100,000 were declared during the year, and the balance in the cash dividends
payable account at the beginning and at the end of the year was $20,000 and $35,000,
respectively. What amount would be reported as payment of dividends in the cash flows from
financing activities section of the statement of cash flows?
a. $85,000
b. $35,000
c. $100,000
d. $115,000
ANS: A DIF: 5 OBJ: 03

6. A business issues 20-year bonds payable in exchange for preferred stock. This transaction would
be reported on the statement of cash flows in:
a. a separate schedule
b. the cash flows from financing activities section
c. the cash flows from investing activities section
d. the cash flows from operating activities section
ANS: A DIF: 5 OBJ: 03

7. Land costing $75,000 was sold for $60,000 cash. The loss on the sale was reported on the
income statement as other expense. On the statement of cash flows, what amount should
be reported as an investing activity from the sale of land?
a. $60,000
b. $20,000
c. $100,000
d. $180,000
ANS: A DIF: 5 OBJ: 03

8. On the statement of cash flows, the cash flows fr om operating activities section would
include:
a. receipts from the issuance of capital stock
b. payment for interest on short-term notes payable
c. payments for the acquisition of investments
d. payments for cash dividends
ANS: B DIF: 5 OBJ: 04

9. The cost of merchandise sold during the year was $60,000. Merchandise inventories were
$14,500 and $12,500 at the beginning and end of the year, respectively. Accounts payable were
$8,000 and $7,000 at the beginning and end of the year, respectively. Using the direct method
of reporting cash flows from operating activities, cash payments for merchandise total:
a. $59,000
b. $57,000
c. $61,000
d. $63,000
ANS: A DIF: 5 OBJ: 04

10. Sales for the year were $700,000. Accounts receivable were $100,00 0 and $80,000 at the
beginning and end of the year. Cash received from customers to be reported on the cash
flow statement using the direct method is:
a. $650,000
b. $600,000
c. $680,000
d. $720,000
 ANS: D DIF: 5 OBJ: 04

11. Cost of merchandise sold for the year was $630,000. Inventories were $100,000 and $110,000 at
the beginning and end of the year. There was no change in accounts payable from the beginning
to the end of the year. Cash payments for merchandise to be reported on the cash flow s tatement
using the direct method would be:
a. $630,000
b. $635,000
c. $745,000
d. $640,000
ANS: D DIF: 5 OBJ: 04

12. Operating expenses other than depreciation for the year were $500,000. Prepaid expenses
increased by $17,000 and accrued expenses decreased by $30,000 during the year. Cash
payments for operating expenses to be reported on the cash flow statement using the
direct method would be:
a. $453,000
b. $513,000
c. $547,000
d. $483,000
ANS: C DIF: 5 OBJ: 04

13. Income tax was $300,000 for the year. Income tax payable was $30,000 and $40,000 at the
beginning and end of the year. Cash payments for income tax reported on the cash flow
statement using the direct method is:
a. $300,000
b. $290,000
c. $330,000
d. $340,000
ANS: B DIF: 5 OBJ: 04

14. Free cash flow is:

a. all cash in the bank
b. cash from operations
c. cash from financing, less cash used to purchase fixed assets to maintain productive
capacity and cash used for dividends
d. cash flow from operations, less cash used to purchase fixed assets to maintain productive
capacity and cash used for dividends
ANS: D DIF: 2 OBJ: 05

15. Free cash flow is cash from operations, less cash for:
a. dividends and cash for fixed assets needed to maintain productivity
b. dividends and cash to redeem bonds payable
c. fixed assets needed to maintain productivity
d. dividends, cash for fixed assets needed to maintain productivity, and cash to redeem bonds
payable
ANS: A DIF: 2 OBJ: 05