ACCT 281- Financial and Managerial Accounting Practice Quiz 100% Correct Solution

Question 1

An analysis of changes in selected balance sheet accounts of Pioneer Corporation shows the above for the current year:

Pioneer’s income statement for the current year includes a $12,000 loss on disposal of plant assets. All payments and proceeds relating to purchase or sale of plant assets were in cash.

How should purchases, sales, and depreciation of plant assets be classified in Pioneer’s statement of cash flows for the current year? (Assume the direct method is used by Pioneer.)
A Purchases of plant assets and depreciation are classified as investing activities; sales of plant assets are
classified as financing activities.
B Purchases and sales of plant assets are classified as investing activities; depreciation does not appear as an operating, financing, or investing activity.
C Since plant assets are used to generate income from operations, purchases, sales, and depreciation of
plant assets are all classified as operating activities
D Purchases of plant assets are classified as investing activities; sales of plant assets are classified as
financing activities; depreciation is classified as an operating activity.

Question 2
At the end of the first year of operations, Skyline’s balance sheet showed the following: Accounts
Receivable, $7,800; Inventory, $3,800; and Accounts Payable, $9,050. The company’s income statement reports net income of $31,800, including depreciation expense of $4,800. Using only the given information, compute Skyline’s net cash flow from operating activities using the indirect method.
A $41,650
B $34,050
C $49,650
D $29,550

Question 3
Which of the following would NOT be presented in the cash flows from operating activities section of the statement of cash flows when the direct method is used?
A Neither Dividends paid nor Dividends received would be shown
B Dividends paid
C Dividends received
D Both Dividends paid and Dividends received would be shown

Question 4 Alpine Company reported an increase of $190,000 in its accounts receivable during the year 2005. The
company’s statement of cash flows for 2005 reported $1 million of cash received from customers. What amount of net sales must Alpine have recorded in 2005?

A $ 810,000
B $ 190,000
C $1,190,000 (cash received + increase)
D $1,000,000

Question 5
When equipment is purchased entirely through a loan:
A Neither the loan nor the purchase of equipment are shown in the investing or the financing sections.
B The equipment is shown as an increase in the investing activities section.
C The equipment is shown as a decrease in the investing activities section.
D The loan is shown as an increase in the financing section.

Question 6
Early in 2006, Platt Corporation purchased marketable securities at a cost of $70,000. In September,
dividends of $4,700 were received; Platt sold the securities in December at a gain of $3,500. How would these transactions be reported on Platt’s statement of cash flows for 2006?
A $8,200 net cash provided by investing activities
B $3,500 net cash provided by investing activities ; $4,700 included in cash provided by operating activities .
C $65,300 net cash used in investing activities; $73,500 cash provided by investing activities.
D $78,200 cash provided by investing activities; $70,000 cash used in financing activities.

Question 7
The comparative balance sheets of Flagship, Inc., show a net increase in inventory of $74,000 and a net
decrease in accounts payable of $39,000 during 2006. In computing net cash flow from operating activities under the indirect method, net income for 2006 should be:
A Increased by $113,000
B Increased by $35,000
C Reduced by $113,000 (add inventory + decrease in acct. payable)
D Reduced by $35,000

Question 8
Which method will yield the higher cash flows from financing activities?
A The direct method
B Depends upon the situation
C The indirect method
D Both direct and indirect methods will yield the same amount

Question 9

An analysis of changes in selected balance sheet accounts of Pioneer Corporation shows the above for the current year:

Pioneer’s income statement for the current year includes a $12,000 loss on disposal of plant assets. All payments and proceeds relating to purchase or sale of plant assets were in cash.

Based solely on the data provided above, Pioneer’s net cash flow from investing activities for the current year is:
A $89,000 net cash used by investing activities

B $158,000 net cash used by investing activities
C $15,000 net cash provided by investing activities
D $143,000 net cash used by investing activities

Question 10
Which of the following is NOT classified among the operating activities in a statement of cash flows?
A Payment of an account payable to a merchandise supplier
B Payment of income taxes
C Payment of interest on a bank loan
D Payment of the principal amount owed on a bank loan

Question 11

An analysis of Webb Corporation’s Investment in Marketable Securities account during 2005 disclosed the above:

Webb’s 2005 income statement included a $40,000 loss on sale of marketable securities and $15,000 dividend income from marketable securities. All payments and proceeds relating to marketable securities transactions were in cash.

How should the transactions involving marketable securities be classified in Webb’s statement of cash flows for 2005?
A The purchase of marketable securities, sales of marketable securities, and receipt of dividends are all
classified as investing activities.
B The purchase and the sale of marketable securities are classified as investing activities; the receipt of
dividends is classified as a financing activity.
C The purchase of marketable securities is classified as an investing activity; the sale of marketable
securities is classified as a financing activity; the receipt of dividends is classified as an operating activity.
D The purchase and the sale of marketable securities are classified as investing activities; the receipt of
dividends is classified as an operating activity.

Question 12
Prime Corporation uses the indirect method of computing net cash flow from operating activities and
reported the following for 2006: accounts receivable decreased by $9,000, merchandise inventory increased by $14,500, accounts payable decreased by $3,200, and income taxes payable increased by
$18,000. If Prime Corporation reported net income for 2006 of $157,000 (including $34,000 of depreciation expense), net cash flow from operating activities for 2006 is:
A $200,300
B $235,700
C $181,700
D $199,700

Question 13

Acme Company uses the indirect method to prepare its statement of cash flows. The above information has been gathered for the current period:

On the basis of the above information only, Acme Company’s statement of cash flows shows net cash flow from operating activities to be:
A $367,000
B $185,000
C $207,000
D $307,000

Question 14
At the end of 2006, Topps Corporation sold its only piece of equipment for $7,000 cash, a price which
resulted in a loss of $3,000. During 2006, depreciation expense recognized by Topps was $1,000. Topps uses the indirect method to compute net cash flow from operating activities. In reconciling net income to net cash flow from operating activities under the indirect method, the required adjustments based upon the given data:
A Increase net income by $3,000
B Increase net income by $1,000
C Increase net income by $4,000
D Decrease net income by $4,000

Question 15

During 2006, the cash flows related to Dodge Data, Inc.’s lending and borrowing activities are summarized as above:

If Dodge Data’s income statement for 2006 reports interest expense of $12,000, then:
A Either the amount reported in the income statement or the interest payment shown above must be
incorrect.
B Interest payable increased by $8,000 in 2006.
C Interest payable at the end of 2006 amounts to $8,000.
D Interest payable decreased by $8,000 in 2006.

Question 16

An analysis of Webb Corporation’s Investment in Marketable Securities account during 2005 disclosed the above:

Webb’s 2005 income statement included a $40,000 loss on sale of marketable securities and $15,000 dividend income from marketable securities. All payments and proceeds relating to marketable securities transactions were in cash.

The cash proceeds received by Webb Corporation in 2005 for the sale of marketable securities was:
A $220,000
B $180,000
C $195,000
D $260,000

Question 17
Which method will yield higher cash flows from operating activities?
A The direct method.
B The indirect method.
C Depends upon the situation.
D Both direct and indirect methods will yield the same amount

Question 18
Orlean Cannery issued capital stock in 2006 for $600,000. During 2006, the company paid dividends of
$150,000. What is the effect of these events in Orlean’s statement of cash flows for 2006?
A $600,000 cash provided by investing activities, and $150,000 cash disbursed for financing activities.
B $450,000 net cash provided by financing activities.
C $600,000 cash provided by financing activities, and $150,000 cash disbursed for investing activities.
D $600,000 cash provided by financing activities, and $150,000 cash disbursed for operating activities.

Question 19

The financial statements of Metro, Inc., provide the above information for the current year: Compute the amount of cash received from customers during the current year.
A $260,000 (net sales +decrease in receivable)
B $ 35,000
C $255,000
D $250,000

Question 20

The financial statements of Metro, Inc., provide the above information for the current year:

Compute the amount of Metro’s cash payments for purchases of merchandise during the current year.
A $128,000 (cost of goods + increased invent – increase in acct payable)
B $125,000
C $120,000
D $122,000

Question 21
Which of the following indicates cash receipts?
A Credit entries in the Accumulated Depreciation account
B Debit entries in the Notes Receivable account
C Credit entries in the Marketable Securities account
D Debit entries in the Notes Payable account

Question 22

An analysis of Elmont Corporation’s Investment in Marketable Securities account during 2005 disclosed the above:

Elmont’s 2005 income statement included a $30,000 gain on sale of marketable securities and $20,000 dividend income from marketable securities. All payments and proceeds relating to marketable securities transactions were in cash.

The cash proceeds received by Elmont Corporation in 2005 for the sale of marketable securities was:
A $200,000
B $260,000 (Credit entry + gain)
C $150,000
D $230,000

Question 23
All of the following are financing activities except:
A Paying dividends
B Borrowing money
C Lending money
D Selling capital stock

Question 24
Which of the following is impossible?

A Net income is less than cash from operating activities.
B Net income is greater than cash from operating activities.
C Net income is equal to cash from operating activities.
D None of the three above is impossible.

Question 25
In a statement of cash flows, cash transactions are classified into three major categories. Which of the
following is NOT one of these three categories?
A Managing activities
B Investing activities
C Operating activities
D Financing activities

Question 26
In the statement of cash flows, the purchase of supplies is classified as:
A Operating activities
B Financing activities
C Investing activities
D None of the above

Question 27

The financial statements of Wines, Inc., provide the above information for the current year:

Compute the amount of Wine’s cash payments for purchases of merchandise during the current year.
A $1,500,000
B $1,495,000
C $1,505,000
D Some other amount.

Question 28
Which of the following indicates a cash receipt?
A A decrease in accrued expenses, such as wages payable
B A decrease in accounts receivable
C A decrease in accounts payable
D An increase in inventory

Question 29
Cash flows from operating activities include all of the following except:
A Collections from customers for sales of goods
B Payments of dividends
C Payments of interest

D Interest and dividends received

Question 30

The financial statements of Metro, Inc., provide the above information for the current year: Compute the amount of Metro’s cash payments for operating expenses.
A $73,000
B $65,000
C $59,000
D $81,000

Question 31

During 2006, the cash flows related to Dodge Data, Inc.’s lending and borrowing activities are summarized as above:

If interest receivable was $3,000 at December 31, 2005, and is $5,000 at the end of 2006, interest revenue reported in Dodge Data’s income statement for 2006 must have been:
A $8,000
B $10,000
C $17,000
D Some other amount

Question 32
Which of the following does NOT create a difference between net income and the net cash flow from
operations?
A Timing differences between credit sales and collections from customers
B Nonoperating gains and losses
C Payment of a cash dividend
D Depreciation expense

Question 33
An example of a noncash investing or financing activity that is disclosed in a supplementary schedule
accompanying the statement of cash flows is:
A Recording depreciation expense for the current year.
B Selling land in exchange for a note receivable.

C Declaring, but not paying, dividends on common stock.
D Transferring cash from a checking account into a money market fund.

Question 34
Cash flows from investing activities include all of the following except
A Cash advanced to borrowers
B Cash proceeds from borrowing
C Cash proceeds from selling investments
D Cash proceeds from collections on loans

Question 35
A stock dividend is reported on the:
A Income statement
B Financing section of the statement of cash flows
C Balance sheet
D Operating section of the statement of cash flows

Question 36
Cinque Corporation’s reported net income for 2005 is less than its net cash flow from operating
activities. One reason for this could be:
A An increase in inventory levels during 2005.
B The sale of machinery at a loss in 2005.
C The sale of investments at a gain in 2005.
D An error in the preparation of the statement of cash flows; net income should be greater than or equal
to net cash flow from operating activities.

Question 37
Which of the following is NOT classified among the financing activities in a statement of cash flows?
A Long-term borrowing
B Short-term borrowing
C Payment of interest to creditors
D Payment of dividends to stockholders

Question 38
All of the following are considered cash equivalents except:
A Commercial paper
B Marketable securities
C Money market funds
D Treasury bills

Question 39

An analysis of changes in selected balance sheet accounts of Gotham Corporation shows the above for the current year:

Gotham’s income statement for the current year includes a $4,000 gain on disposal of plant assets. All payments and proceeds relating to purchase or sale of plant assets were in cash.

How should purchases, sales, and depreciation of plant assets be classified in Gotham’s statement of cash flows for the current year? (Assume the direct method is used by Gotham.)
A Since plant assets are used to generate income from operations, purchases, sales, and depreciation of
plant assets are all classified as operating activities.
B Purchases of plant assets and depreciation are classified as investing activities; sales of plant assets are
classified as financing activities.
C Purchases of plant assets are classified as investing activities; sales of plant assets are classified as
financing activities; depreciation is classified as an operating activity.
D Purchases and sales of plant assets are classified as investing activities; depreciation does not appear as
an operating, financing, or investing activity.

Question 40

An analysis of changes in selected balance sheet accounts of Gotham Corporation shows the above for the current year:

Gotham’s income statement for the current year includes a $4,000 gain on disposal of plant assets. All payments and proceeds relating to purchase or sale of plant assets were in cash.

The amount of cash paid by Gotham to acquire plant assets during the current year was:
A $130,000
B $210,000
C $320,000
D Some other amount

Question 41
Free cash flow arises out of
A Operating activities
B Investing activities
C Financing activities
D All of the above

Question 42
Cash flows from operating activities include all of the following except:
A Collections from customers for sales of goods
B Interest and dividends received
C Payments of interest
D Payments of dividends

Question 43
Cash flows from investing activities include all of the following except:
A Cash proceeds from selling investments.
B Cash proceeds from collections on loans.
C Cash advanced to borrowers.
D Cash proceeds from borrowing.

Question 44
All of the following are considered cash equivalents except :
A Marketable securities
B Money market funds
C Commercial paper
D Treasury bills

Question 45
Net income differs from net cash flows from operations because of all the following except:
A Non-cash expenses such as depreciation
B Timing differences between recognizing revenue and expenses and their cash flows
C Gains and losses included in net income but classified as investing or financings activities
D All of the above will cause a difference between net income and cash flows

Question 46
A statement of cash flows is not intended to assist investors in evaluating:
A Reasons for differences between the amount of net income and net cash flow from operations.
B The company’s ability to meet its obligations and to pay dividends
C Non-cash aspects of investing and financing activities
D The profitability of business operations

Question 47
In a statement of cash flows, payments of dividends are classified as:
A Operating activities
B Financing activities
C Investing activities
D None of the above

Question 48
Which of the following would indicate a cash disbursement?
A Selling equipment at a loss
B A decrease in accounts receivable
C An increase in prepaid expenses
D A decrease in inventory

Question 49
Depreciation expense:
A Increases net cash flow from operations
B Decreases net cash flow from operations
C Does not affect net income
D Does not affect net cash flow from operations

Question 50
A comparative financial statement :
A Places the balance sheet, the income statement and the statement of cash flows side by side in order to compare the results.
B Places two or more years of a financial statement side by side in order to compare results.
C Places the financial statements of two or more companies side by side in order to compare results.
D Places the dollar amounts next to the percentage amounts of a given year for the income statement.

Question 51
The changes in financial statement items from a base year to following years are called:
A Money changes
B Trend percentages
C Component percentages
D Ratios

Question 52
One number expressed as a percentage of another is called:
A Money changes
B Trend percentages
C Component percentages
D Ratios

Question 53
Quick assets include :
A Cash, marketable securities and receivables
B Cash, marketable securities and inventories
C Cash, inventories and receivables
D Market securities, receivables and inventories

Question 54
The price/earnings ratio is measured by dividing:
A Book value by earnings per share
B Par value by earnings per share
C Market value by earnings per share
D Market value by total net income

Question 55
The term classified financial statements refers:
A To the financial statements of all companies working on government projects.
B To the financial statements of all companies working on government projects.
C To financial statements prepared for use by management, but not for distribution outside of the organization.

D To financial statements prepared for use by management, but not for distribution outside of the
organization.

Question 56
Current assets are those assets that can be converted into cash within:
A One year and never longer.
B One year or the operating cycle, whichever is longer.
C One year or the operating cycle, whichever is shorter.
D Management’s discretion

Question 57
Short-term creditors are most likely to use the quick ratio instead of the current ratio in evaluating the
solvency of a company with large, slow-moving:
A Plant and equipment
B Receivables
C Inventories
D Employees

Question 58
Which of the following transactions would cause a change in the amount of a company’s working
capital?
A Collection of an account receivable
B Payment of an account payable
C Borrowing cash over a 60-day period
D Selling merchandise at a price above its cost

Question 59
All of the following captions or subtotals are typical of a multiple-step income statement except for:
A Net sales
B Gross profit
C Total costs and expenses
D Operating income

Question 60
The principal purpose of a statement of cash flows is to measure the profitability of a business that
maintains its accounting records on the cash basis
A True
B False

Question 61
All cash receipts and cash payments not classified as investing or financing activities are classified as
indirect activities.
A True
B False

Question 62
Interest paid belongs in the operating section of the statement of cash flows
A True
B False

Question 63

The purchase of equipment for the manufacturing of inventory belongs in the operations section of the
statement of cash flows.
A True
B False

Question 64
In the long run, it is more important for a business to generate positive cash flows from investing activities than from operating activities.
A True
B False

Question 65
Depreciation is a non-cash expense
A True
B False

Question 66
If accounts receivable decrease during the period, cash received from customers probably exceeds net sales
A True
B False

Question 67
The FASB permits a company to use the direct method for the statement of cash flows or the indirect
method
A True
B False

Question 68
The purchase or sale of marketable securities is reported in the statement of cash flows as a financing
activity
A True
B False

Question 69
If accounts receivable increased during the year, deducting the increase from net sales determines the
amount of cash received
A True
B False

Question 70
When applying the direct method in a statement of cash flows, the amount of depreciation is added to
net income
A True
B False

Question 71
Cash flows from investing activities include all of the following except:
A Cash proceeds from selling investments
B Cash proceeds from collections on loans
C Cash proceeds from borrowing

D Cash advanced to borrowers

Question 72
Which of the following is an investing activity
A Purchase of equipment
B Payment of interest
C Issuing common stock
D Issuing long-term debt

Question 73
Which of the following is a financing activity
A Payment of interest
B Payment of dividends
C Making sales on account
D Paying off accounts payable

Question 74
When using the indirect method, depreciation expense
A Increases net cash flow from operations
B Decreases net cash flow from operations
C Does not affect net income
D Does not affect net cash flow from operations

Question 74b
Depreciation expense
A Increases net cash flow from operations
B Decreases net cash flow from operations
C Does not affect net income
D Does not affect net cash flow from operations

Question 75
Which statement is true as to the FASB’s position on the presentation of the statement of cash flows?
A The FASB recommends the use of the indirect method, but most companies use the direct method.
B The FASB recommends the use of the direct method, but most companies use the indirect method.
C The FASB recommends the use of the direct method, and most companies use the direct method.
D The FASB recommends the use of the indirect method, and most companies use the indirect method.

Question 76
Hamilton Company reported an increase of $370,000 in its accounts receivable during the year 2009.
The company’s statement of cash flows for 2009 reported $1 million of cash received from customers.
What amount of net sales must Hamilton have recorded in 2009?
A $630,000
B $1,370,000 (1,000,000 + 370,000 = 1,370,000)
C $1,000,000
D $370,000

Question 77
GAAP stands for which of the following
A Generally accepted accounting principle
B Generally acknowledged accounting principle

C Generally accepted accounting practice
D Generous accepted accounting principle

Question 78
The term classified financial statements refers
A To the financial statements of all companies working on government projects
B Only to the financial statements of defense contractors working on secret projects.
C To financial statements prepared for use by management, but not for distribution outside of the
organization.
D To financial statements in which items with certain characteristics are placed together in a group in an effort to develop useful subtotals.