ACC Ch12

Question 1

An item readily convertible to a known amount of cash with a maturity to the investor of three months or less.

Answer 1

Cash equivalent

Question 2

For preparing the Operating Activities section of the statement of cash flows, the approach in which cash receipts and cash payments are reported.

Answer 2

Direct method

Question 3

Activities concerned with the raising and repaying of funds in the form of debt and equity.

Answer 3

Financing activities

Question 4

For preparing the Operating Activities section of the statement of cash flows, the approach in which net income is reconciled to net cash flow from operations.

Answer 4

Indirect method

Question 5

Activities concerned with the acquisition and disposal of long-term assets.

Answer 5

Investing activities

Question 6

Activities concerned with the acquisition and sale of products and services.

Answer 6

Operating activities

Question 7

The financial statement that summarizes an entity’s cash receipts and cash payments during the period from operating, investing, and financing activities.

Answer 7

Statement of cash flows

Question 8

Which of the following statements is true about the relationship between net income and cash flow?a. Cash will increase during a year in which a company reports net income. b. Net in come and cash flow are the same amount from year to year. c. Cash will decrease during a year in which a company reports a net loss. d. Cash can increase or decrease during a year in which a company reports net income.

Answer 8

Cash can increase or decrease during a year in which a company reports net income.

Question 9

Organic Foods Corp. reported the following information for 2012 and 2013.Accounts Payable, December 31, 2012 $51,000Accounts Payable, December 31, 2013 $46,000Purchases 2013 - - $467,000How much cash was paid for merchandise purchases during 2013?a. $467,000 b. $472,000 c. $421,000 d. $462,000

Answer 9

$472,000

Question 10

In preparing a statement of cash flows using the indirect method, what is the proper adjustment to net income for changes in the balances of current assets or liabilities?a. current assets - add the increase or subtract the decreasecurrent liabilities - add the increase or subtract the decrease b. current assets - add the decrease or subtract the increasecurrent liabilities - add the decrease or subtract the increase c. current assets - add the decrease or subtract the increasecurrent liabilities - add the increase or subtract the decrease d. current assets - add the increase or subtract the decreasecurrent liabilities - add the decrease or subtract the increase

Answer 10

current assets - add the decrease or subtract the increasecurrent liabilities - add the increase or subtract the decrease

Question 11

How is depreciation expense treated under the indirect method of preparing the statement of cash flows?a. As an addition to net income in the Operating Activities section of the statement. b. As an outflow in the Investing Activities section of the statement. c. Depreciation expense does not appear on the statement of cash flows when the indirect method is used. d. As an outflow in the Operating Activities section of the statement.

Answer 11

As an addition to net income in the Operating Activities section of the statement.

Question 12

The statement of cash flows must be classified into each of the following categories except for:a. operating activities. b. current activities. c. financing activities. d. investing activities.

Answer 12

current activities.

Question 13

The purchase of a three-year Treasury bill two months before its maturity is considered a:a. long-term investment. b. current liability. c. cash equivalent. d. short-term investment.

Answer 13

cash equivalent.

Question 14

How should the repurchase of a company’s own stock be reported on the statement of cash flows?a. As a financing activity b. As an operating activity c. Repurchase of a company’s own stock is not reported on the statement of cash flows. d. As an investing activity

Answer 14

As a financing activity

Question 15

An example of an operating activity is:a. the payment of a loan from a bank. b. a cash payment to suppliers of inventory. c. the purchase of a piece of equipment. d. the payment of cash dividends

Answer 15

a cash payment to suppliers of inventory.

Question 16

A company began the year with a balance of $5,000 in Accounts Receivable and ended the year with $8,000 in the account. Revenues for the period amounted to $37,000. Under the direct method of preparing the statement of cash flows, the company will report cash collected from customers of:a. $42,000 b. $40,000 c. $34,000 d. $37,000

Answer 16

$34,000

Question 17

What are the three categories into which cash flows are classified?a. Operating, investing, and financing b. Operating, investing, and producing c. Operating, nonoperating, and financing d. None of these choices are correct.

Answer 17

Operating, investing, and financing

Question 18

How is depreciation expense treated under the direct method of preparing the statement of cash flows?a. As an outflow in the Operating Activities section of the statement. b. As an addition to net income in the Operating Activities section of the statement. c. As an outflow in the Investing Activities section of the statement. d. Depreciation expense does not appear on the statement of cash flows when the direct method is used.

Answer 18

Depreciation expense does not appear on the statement of cash flows when the direct method is used.

Question 19

Which of the following statements is true about the indirect method?a. Many companies believe that the use of the indirect method reveals too much about their business by telling readers exactly the amount of cash receipts and cash payments from operations. b. If a company uses the indirect method, it must present a separate schedule to reconcile net income to net cash from operating activities. c. Advocates of the indirect method believe that the information provided with this approach is valuable in evaluating a company’s operating efficiency. d. If a company uses the indirect method, it must separately disclose two important cash payments: income taxes paid and interest paid.

Answer 19

If a company uses the indirect method, it must separately disclose two important cash payments: income taxes paid and interest paid.

Question 20

Cash flow per share is:a. the same as earnings per share. b. an acceptable alternative to earnings per share according to the accounting profession. c. computed by dividing cash on the balance sheet by the number of shares outstanding. d. not an acceptable alternative to earnings per share according to the accounting profession.

Answer 20

not an acceptable alternative to earnings per share according to the accounting profession.

Question 21

The following items were reported on the balance sheets and income statement for a service company:Accounts Payable, December 31, 2012 $64,000Accounts Payable, December 31, 2013 $48,000Operating Expenses - - $170,000What was the amount of cash paid for operating expenses in 2013?a. $154,000 b. $180,000 c. $170,000 d. $186,000

Answer 21

$186,000

Question 22

A firm’s beginning balance in retained earnings was $100 and its ending balance was $90. Net income for the period was $75. Dividends paid during the period:a. must have been $65. b. must have been $75. c. Cannot be determined from the information provided. d. must have been $85.

Answer 22

must have been $85.

Question 23

On the worksheet illustrated in this appendix, what should be the total of the Changes column?a. The same number as total assets b. The same number as net income c. A changes column does not appear on the worksheet d. Zero

Answer 23

Zero