ACCT 301 CH 23 Multiple Choice

Question 1

It is an objective of the statement of cash flows to

a. disclose changes during the period in all asset and all equity accounts.
b. disclose the change in working capital during the period.
c. provide information about the operating, investing, and financing activities of an entity during a period.
d. none of these.

Answer 1

c. provide information about the operating, investing, and financing activities of an entity during a period.

Question 2

The primary purpose of the statement of cash flows is to provide information

a. about the operating, investing, and financing activities of an entity during a period.
b. that is useful in assessing cash flow prospects.
c. about the cash receipts and cash payments of an entity during a period.
d. about the entity’s ability to meet its obligations, its ability to pay dividends, and its needs for external financing.

Answer 2

c. about the cash receipts and cash payments of an entity during a period.

Question 3

Of the following questions, which one would not be answered by the statement of cash flows?

a. Where did the cash come from during the period?
b. What was the cash used for during the period?
c. Were all the cash expenditures of benefit to the company during the period?
d. What was the change in the cash balance during the period?

Answer 3

c. Were all the cash expenditures of benefit to the company during the period?

Question 4

The first step in the preparation of the statement of cash flows requires the use of information included in which comparative financial statements?

a. Statements of cash flows
b. Balance sheets
c. Income statements
d. Statements of retained earnings

Answer 4

b. Balance sheets

Question 5

Cash equivalents are

a. treasury bills, commercial paper, and money market funds purchased with excess cash.
b. investments with original maturities of three months or less.
c. readily convertible into known amounts of cash.
d. all of these.

Answer 5

d. all of these.

Question 6

A company borrows $10,000 and signs a 90-day nontrade note payable. In preparing a statement of cash flows (indirect method), this event would be reflected as a(n)

a. addition adjustment to net income in the cash flows from operating activities section.
b. cash outflow from investing activities.
c. cash inflow from investing activities.
d. cash inflow from financing activities.

Answer 6

d. cash inflow from financing activities.

Question 7

To arrive at net cash provided by operating activities, it is necessary to report revenues and expenses on a cash basis. This is done by

a. re-recording all income statement transactions that directly affect cash in a separate cash flow journal.
b. estimating the percentage of income statement transactions that were originally reported on a cash basis and projecting this amount to the entire array of income statement transactions.
c. eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash.
d. eliminating all transactions that have no current or future effect on cash, such as depreciation, from the net income computation.

Answer 7

c. eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash.

Question 8

An increase in inventory balance would be reported in a statement of cash flows using the indirect method (reconciliation method) as a(n)

a. addition to net income in arriving at net cash flow from operating activities.
b. deduction from net income in arriving at net cash flow from operating activities.
c. cash outflow from investing activities.
d. cash outflow from financing activities.

Answer 8

b. deduction from net income in arriving at net cash flow from operating activities.

Question 9

A statement of cash flows typically would not disclose the effects of

a. capital stock issued at an amount greater than par value.
b. stock dividends declared.
c. cash dividends paid.
d. a purchase and immediate retirement of treasury stock.

Answer 9

b. stock dividends declared.

Question 10

When preparing a statement of cash flows (indirect method), which of the following is not an adjustment to reconcile net income to net cash provided by operating activities?

a. A change in interest payable
b. A change in dividends payable
c. A change in income taxes payable
d. All of these are adjustments.

Answer 10

b. A change in dividends payable

Question 11

Declaration of a cash dividend on common stock affects cash flows from operating activities under the direct and indirect methods as follows:
	Direct Method	Indirect Method
a.	Outflow	                  Inflow
b.	Inflow	                  Inflow
c.	Outflow	                  Outflow
d.	No effect	                  No effect

Answer 11

d. No effect No effect

Question 12

In a statement of cash flows, the cash flows from investing activities section should report

a. the issuance of common stock in exchange for a factory building.
b. stock dividends received.
c. a major repair to machinery charged to accumulated depreciation.
d. the assignment of accounts receivable.

Answer 12

c. a major repair to machinery charged to accumulated depreciation.

Question 13

Xanthe Corporation had the following transactions occur in the current year:
1. Cash sale of merchandise inventory.
2. Sale of delivery truck at book value.
3. Sale of Xanthe common stock for cash.
4. Issuance of a note payable to a bank for cash.
5. Sale of a security held as an available-for-sale investment.
6. Collection of loan receivable.
How many of the above items will appear as a cash inflow from investing activities on a statement of cash flows for the current year?
a. Five items
b. Four items
c. Three items
d. Two items

Answer 13

c. Three items

Question 14

Which of the following would be classified as a financing activity on a statement of cash flows?

a. Declaration and distribution of a stock dividend
b. Deposit to a bond sinking fund
c. Sale of a loan receivable
d. Payment of interest to a creditor

Answer 14

b. Deposit to a bond sinking fund

Question 15

The amortization of bond premium on long-term debt should be presented in a statement of cash flows (using the indirect method for operating activities) as a(n)

a. addition to net income.
b. deduction from net income.
c. investing activity.
d. financing activity.

Answer 15

b. deduction from net income.

Question 16

Crabbe Company reported $80,000 of selling and administrative expenses on its income statement for the past year. The company had depreciation expense and an increase in prepaid expenses associated with the selling and administrative expenses for the year. Assuming use of the direct method, how would these items be handled in converting the accrual based selling and administrative expenses to the cash basis?
Increase in
Depreciation Prepaid Expenses
a. Deducted From Deducted From
b. Added To Added To
c. Deducted From Added To
d. Added To Deducted From

Answer 16

c. Deducted From Added To

Question 17

When preparing a statement of cash flows (indirect method), an increase in ending inventory over beginning inventory will result in an adjustment to reported net earnings because

a. cash was increased while cost of goods sold was decreased.
b. cost of goods sold on an accrual basis is lower than on a cash basis.
c. acquisition of inventory is an investment activity.
d. inventory purchased during the period was less than inventory sold resulting in a net cash increase.

Answer 17

b. cost of goods sold on an accrual basis is lower than on a cash basis.

Question 18

When preparing a statement of cash flows, a decrease in accounts receivable during a period would cause which one of the following adjustments in determining cash flow from operating activities?
	Direct Method	Indirect Method
a.	Increase	                   Decrease
b.	Decrease	           Increase
c.	Increase	                   Increase
d.	Decrease	           Decrease

Answer 18

c. Increase Increase

Question 19

In determining net cash flow from operating activities, a decrease in accounts payable during a period

a. means that income on an accrual basis is less than income on a cash basis.
b. requires an addition adjustment to net income under the indirect method.
c. requires an increase adjustment to cost of goods sold under the direct method.
d. requires a decrease adjustment to cost of goods sold under the direct method.

Answer 19

c. requires an increase adjustment to cost of goods sold under the direct method.

Question 20

When preparing a statement of cash flows, an increase in accounts payable during a period would require which of the following adjustments in determining cash flows from operating activities?
	Indirect Method	Direct Method
a.	Increase	                   Decrease
b.	Decrease	           Increase
c.	Increase	                   Increase
d.	Decrease	           Decrease

Answer 20

a. Increase Decrease

Question 21

When preparing a statement of cash flows, a decrease in prepaid insurance during a period would require which of the following adjustments in determining cash flows from operating activities?
	Indirect Method	Direct Method
a.	Increase	                   Decrease
b.	Decrease	           Increase
c.	Increase                     Increase
d.	Decrease	           Decrease

Answer 21

a. Increase Decrease

Question 22

When preparing a statement of cash flows, the following are used for which method in determining cash flows from operating activities?
Gross Accounts Net Accounts
Receivable Receivable
a. Indirect Direct
b. Direct Indirect
c. Direct Direct
d. Neither Indirect

Answer 22

b. Direct Indirect

Question 23

Which of the following statements is correct?

a. The indirect method starts with income before extraordinary items.
b. The direct method is known as the reconciliation method.
c. The direct method is more consistent with the primary purpose of the statement of cash flows.
d. All of these.

Answer 23

c. The direct method is more consistent with the primary purpose of the statement of cash flows.

Question 24

When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is added to net income to compute cash provided by/used by operating activities?

a. Increase in accounts receivable.
b. Gain on sale of land.
c. Amortization of patent.
d. All of the above are added to net income to arrive at cash flow from operating activities.

Answer 24

c. Amortization of patent.

Question 25

When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is deducted from net income to compute cash provided by/used by operating activities?

a. Decrease in accounts receivable.
b. Gain on sale of land.
c. Amortization of patent.
d. All of the above are deducted from net income to arrive at cash flow from operating activities.

Answer 25

b. Gain on sale of land.

Question 26

Which of the following is false concerning the statement of cash flows?

a. When pension expense exceeds cash funding, the difference is deducted from investing activities on the statement of cash flows.
b. The FASB requires companies to classify all income taxes paid as operating cash outflows.
c. Under U.S. GAAP, the purchase of land by issuing stock will be shown as a cash outflow under investing activities and a cash inflow under financing activities.
d. All of the above are true concerning the statement of cash flows.

Answer 26

b. The FASB requires companies to classify all income taxes paid as operating cash outflows.

Question 27

Dolan Company reports its income from investments under the equity method and recognized income of $25,000 from its investment in Moss Co. during the current year, even though no dividends were declared or paid by Moss during the year. On Dolan’s statement of cash flows (indirect method), the $25,000 should

a. not be shown.
b. be shown as cash inflow from investing activities.
c. be shown as cash outflow from financing activities.
d. be shown as a deduction from net income in the cash flows from operating activities section.

Answer 27

d. be shown as a deduction from net income in the cash flows from operating activities section.

Question 28

In reporting extraordinary transactions on a statement of cash flows (indirect method), the

a. gross amount of an extraordinary gain should be deducted from net income.
b. net of tax amount of an extraordinary gain should be added to net income.
c. net of tax amount of an extraordinary gain should be deducted from net income.
d. gross amount of an extraordinary gain should be added to net income.

Answer 28

a. gross amount of an extraordinary gain should be deducted from net income.

Question 29

Which of the following is shown on a statement of cash flows?

a. A stock dividend
b. A stock split
c. An appropriation of retained earnings
d. None of these

Answer 29

d. None of these

Question 30

How should significant noncash transactions be reported in the statement of cash flows according to FASB Statement No. 95?

a. They should be incorporated in the statement of cash flows in a section labeled, “Significant Noncash Transactions.”
b. Such transactions should be incorporated in the section (operating, financing, or investing) that is most representative of the major component of the transaction.
c. These noncash transactions are not to be incorporated in the statement of cash flows. They may be summarized in a separate schedule at the bottom of the statement or appear in a separate supplementary schedule to the financials.
d. They should be handled in a manner consistent with the transactions that affect cash flows.

Answer 30

c. These noncash transactions are not to be incorporated in the statement of cash flows. They may be summarized in a separate schedule at the bottom of the statement or appear in a separate supplementary schedule to the financials.

Question 31

Napier Co. provided the following information on selected transactions during 2011:
Purchase of land by issuing bonds $250,000
Proceeds from issuing bonds 500,000
Purchases of inventory 950,000
Purchases of treasury stock 150,000
Loans made to affiliated corporations 350,000
Dividends paid to preferred stockholders 100,000
Proceeds from issuing preferred stock 400,000
Proceeds from sale of equipment 50,000

The net cash provided (used) by investing activities during 2011 is

a. $50,000.
b. $(300,000).
c. $(550,000).
d. $(1,250,000).

Answer 31

b. $(300,000).

Question 32

Napier Co. provided the following information on selected transactions during 2011:
Purchase of land by issuing bonds $250,000
Proceeds from issuing bonds 500,000
Purchases of inventory 950,000
Purchases of treasury stock 150,000
Loans made to affiliated corporations 350,000
Dividends paid to preferred stockholders 100,000
Proceeds from issuing preferred stock 400,000
Proceeds from sale of equipment 50,000

The net cash provided by financing activities during 2011 is

a. $550,000.
b. $650,000.
c. $800,000.
d. $900,000.

Answer 32

b. $650,000.

Question 33

The balance sheet data of Kohler Company at the end of 2011 and 2010 follow:
2011 2010
Cash $ 50,000 $ 70,000
Accounts receivable (net) 120,000 90,000
Merchandise inventory 140,000 90,000
Prepaid expenses 20,000 50,000
Buildings and equipment 180,000 150,000
Accumulated depreciation—
buildings and equipment (36,000) (16,000)
Land 180,000 80,000
Totals $654,000 $514,000

Accounts payable $136,000 $110,000
Accrued expenses 24,000 36,000
Notes payable—bank, long-term - 80,000
Mortgage payable 60,000 -
Common stock, $10 par 418,000 318,000
Retained earnings (deficit) 16,000 (30,000)
Totals $654,000 $514,000

Land was acquired for $100,000 in exchange for common stock, par $100,000, during the year; all equipment purchased was for cash. Equipment costing $10,000 was sold for $4,000; book value of the equipment was $8,000 and the loss was reported as an ordinary item in net income. Cash dividends of $20,000 were charged to retained earnings and paid during the year; the transfer of net income to retained earnings was the only other entry in the Retained Earnings account. In the statement of cash flows for the year ended December 31, 2011, for Naley Company:

The net cash provided by operating activities was

a. $52,000.
b. $66,000.
c. $56,000.
d. $48,000.

Answer 33

c. $56,000.

Question 34

The balance sheet data of Kohler Company at the end of 2011 and 2010 follow:
2011 2010
Cash $ 50,000 $ 70,000
Accounts receivable (net) 120,000 90,000
Merchandise inventory 140,000 90,000
Prepaid expenses 20,000 50,000
Buildings and equipment 180,000 150,000
Accumulated depreciation—
buildings and equipment (36,000) (16,000)
Land 180,000 80,000
Totals $654,000 $514,000

Accounts payable $136,000 $110,000
Accrued expenses 24,000 36,000
Notes payable—bank, long-term - 80,000
Mortgage payable 60,000 -
Common stock, $10 par 418,000 318,000
Retained earnings (deficit) 16,000 (30,000)
Totals $654,000 $514,000

Land was acquired for $100,000 in exchange for common stock, par $100,000, during the year; all equipment purchased was for cash. Equipment costing $10,000 was sold for $4,000; book value of the equipment was $8,000 and the loss was reported as an ordinary item in net income. Cash dividends of $20,000 were charged to retained earnings and paid during the year; the transfer of net income to retained earnings was the only other entry in the Retained Earnings account. In the statement of cash flows for the year ended December 31, 2011, for Naley Company:

The net cash provided (used) by investing activities was

a. $26,000.
b. $(40,000).
c. $(136,000).
d. $(36,000).

Answer 34

d. $(36,000).

Question 35

The balance sheet data of Kohler Company at the end of 2011 and 2010 follow:
2011 2010
Cash $ 50,000 $ 70,000
Accounts receivable (net) 120,000 90,000
Merchandise inventory 140,000 90,000
Prepaid expenses 20,000 50,000
Buildings and equipment 180,000 150,000
Accumulated depreciation—
buildings and equipment (36,000) (16,000)
Land 180,000 80,000
Totals $654,000 $514,000

Accounts payable $136,000 $110,000
Accrued expenses 24,000 36,000
Notes payable—bank, long-term - 80,000
Mortgage payable 60,000 -
Common stock, $10 par 418,000 318,000
Retained earnings (deficit) 16,000 (30,000)
Totals $654,000 $514,000

Land was acquired for $100,000 in exchange for common stock, par $100,000, during the year; all equipment purchased was for cash. Equipment costing $10,000 was sold for $4,000; book value of the equipment was $8,000 and the loss was reported as an ordinary item in net income. Cash dividends of $20,000 were charged to retained earnings and paid during the year; the transfer of net income to retained earnings was the only other entry in the Retained Earnings account. In the statement of cash flows for the year ended December 31, 2011, for Naley Company:

The net cash provided (used) by financing activities was

a. $ -0-.
b. $(20,000).
c. $(40,000).
d. $60,000.

Answer 35

c. $(40,000).

Question 36

The following information on selected cash transactions for 2011 has been provided by Mancuso Company:
Proceeds from sale of land $160,000
Proceeds from long-term borrowings 400,000
Purchases of plant assets 144,000
Purchases of inventories 680,000
Proceeds from sale of Mancuso common stock 240,000

What is the cash provided (used) by investing activities for the year ended December 31, 2011, as a result of the above information?

a. $16,000
b. $256,000.
c. $160,000.
d. $800,000.

Answer 36

a. $16,000

Question 37

Selected information from Dinkel Company’s 2011 accounting records is as follows:
Proceeds from issuance of common stock $ 400,000
Proceeds from issuance of bonds 1,200,000
Cash dividends on common stock paid 160,000
Cash dividends on preferred stock paid 60,000
Purchases of treasury stock 120,000
Sale of stock to officers and employees not included above 100,000

Dinkel’s statement of cash flows for the year ended December 31, 2011, would show net cash provided (used) by financing activities of

a. $60,000.
b. $(220,000).
c. $160,000.
d. $1,360,000.

Answer 37

d. $1,360,000.

Question 38

Harlan Mining Co. has recently decided to go public and has hired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of cash flows. Financial statements of Harlan Mining Co. for 2011 and 2010 are provided below.

                             BALANCE SHEETS
		                             12/31/11		12/31/10 Cash			                 $204,000		$  96,000 Accounts receivable		     180,000		108,000 Merchandise inventory		       192,000		240,000 Property, plant and equipment	$304,000	$480,000 Less accumulated depreciation	 (160,000)	(152,000) PPE - Depreciation	                         144,000 	       328,000 Totals			                      $720,000		$772,000

Accounts payable $ 88,000 $ 48,000
Income taxes payable 176,000 196,000
Bonds payable 180,000 300,000
Common stock 108,000 108,000
Retained earnings 168,000 120,000
Totals $720,000 $772,000

                                 INCOME STATEMENT For the Year Ended December 31, 2011 Sales		                                                    $4,200,000 Cost of sales		                                               3,576,000 Gross profit		                                                  624,000 Selling expenses	                        $300,000 Administrative expenses	             96,000	  396,000 Income from operations		                          228,000 Interest expense		                                           36,000 Income before taxes		                                  192,000 Income taxes		                                                   48,000 Net income		                                              $  144,000 The following additional data were provided:
1.	Dividends for the year 2011 were $96,000.
2.	During the year, equipment was sold for $120,000. This equipment cost $176,000 originally and had a book value of $144,000 at the time of sale. The loss on sale was incorrectly charged to cost of sales.
3.	All depreciation expense is in the selling expense category. (Direct method)

The net cash provided by operating activities is

a. $204,000.
b. $144,000.
c. $120,000.
d. $100,000.

Answer 38

a. $204,000.

Question 39

Harlan Mining Co. has recently decided to go public and has hired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of cash flows. Financial statements of Harlan Mining Co. for 2011 and 2010 are provided below.

                             BALANCE SHEETS
		                             12/31/11		12/31/10 Cash			                 $204,000		$  96,000 Accounts receivable		     180,000		108,000 Merchandise inventory		       192,000		240,000 Property, plant and equipment	$304,000	$480,000 Less accumulated depreciation	 (160,000)	(152,000) PPE - Depreciation	                         144,000 	       328,000 Totals			                      $720,000		$772,000

Accounts payable $ 88,000 $ 48,000
Income taxes payable 176,000 196,000
Bonds payable 180,000 300,000
Common stock 108,000 108,000
Retained earnings 168,000 120,000
Totals $720,000 $772,000

                                 INCOME STATEMENT For the Year Ended December 31, 2011 Sales		                                                    $4,200,000 Cost of sales		                                               3,576,000 Gross profit		                                                  624,000 Selling expenses	                        $300,000 Administrative expenses	             96,000	  396,000 Income from operations		                          228,000 Interest expense		                                           36,000 Income before taxes		                                  192,000 Income taxes		                                                   48,000 Net income		                                              $  144,000 The following additional data were provided:
1.	Dividends for the year 2011 were $96,000.
2.	During the year, equipment was sold for $120,000. This equipment cost $176,000 originally and had a book value of $144,000 at the time of sale. The loss on sale was incorrectly charged to cost of sales.
3.	All depreciation expense is in the selling expense category. (Direct method)

The net cash provided (used) by investing activities is

a. $(176,000).
b. $24,000.
c. $120,000.
d. $(144,000).

Answer 39

c. $120,000.

Question 40

Harlan Mining Co. has recently decided to go public and has hired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of cash flows. Financial statements of Harlan Mining Co. for 2011 and 2010 are provided below.

                             BALANCE SHEETS
		                             12/31/11		12/31/10 Cash			                 $204,000		$  96,000 Accounts receivable		     180,000		108,000 Merchandise inventory		       192,000		240,000 Property, plant and equipment	$304,000	$480,000 Less accumulated depreciation	 (160,000)	(152,000) PPE - Depreciation	                         144,000 	       328,000 Totals			                      $720,000		$772,000

Accounts payable $ 88,000 $ 48,000
Income taxes payable 176,000 196,000
Bonds payable 180,000 300,000
Common stock 108,000 108,000
Retained earnings 168,000 120,000
Totals $720,000 $772,000

                                 INCOME STATEMENT For the Year Ended December 31, 2011 Sales		                                                    $4,200,000 Cost of sales		                                               3,576,000 Gross profit		                                                  624,000 Selling expenses	                        $300,000 Administrative expenses	             96,000	  396,000 Income from operations		                          228,000 Interest expense		                                           36,000 Income before taxes		                                  192,000 Income taxes		                                                   48,000 Net income		                                              $  144,000 The following additional data were provided:
1.	Dividends for the year 2011 were $96,000.
2.	During the year, equipment was sold for $120,000. This equipment cost $176,000 originally and had a book value of $144,000 at the time of sale. The loss on sale was incorrectly charged to cost of sales.
3.	All depreciation expense is in the selling expense category. (Direct method)

Under the direct method, the cash received from customers is

a. $4,272,000.
b. $4,128,000.
c. $4,200,000.
d. $4,220,000.

Answer 40

b. $4,128,000.

Question 41

Harlan Mining Co. has recently decided to go public and has hired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of cash flows. Financial statements of Harlan Mining Co. for 2011 and 2010 are provided below.

                             BALANCE SHEETS
		                             12/31/11		12/31/10 Cash			                 $204,000		$  96,000 Accounts receivable		     180,000		108,000 Merchandise inventory		       192,000		240,000 Property, plant and equipment	$304,000	$480,000 Less accumulated depreciation	 (160,000)	(152,000) PPE - Depreciation	                         144,000 	       328,000 Totals			                      $720,000		$772,000

Accounts payable $ 88,000 $ 48,000
Income taxes payable 176,000 196,000
Bonds payable 180,000 300,000
Common stock 108,000 108,000
Retained earnings 168,000 120,000
Totals $720,000 $772,000

                                 INCOME STATEMENT For the Year Ended December 31, 2011 Sales		                                                    $4,200,000 Cost of sales		                                               3,576,000 Gross profit		                                                  624,000 Selling expenses	                        $300,000 Administrative expenses	             96,000	  396,000 Income from operations		                          228,000 Interest expense		                                           36,000 Income before taxes		                                  192,000 Income taxes		                                                   48,000 Net income		                                              $  144,000 The following additional data were provided:
1.	Dividends for the year 2011 were $96,000.
2.	During the year, equipment was sold for $120,000. This equipment cost $176,000 originally and had a book value of $144,000 at the time of sale. The loss on sale was incorrectly charged to cost of sales.
3.	All depreciation expense is in the selling expense category. (Direct method)

Under the direct method, the total taxes paid is

a. $48,000.
b. $20,000.
c. $28,000.
d. $68,000.

Answer 41

d. $68,000.

Question 42

Harlan Mining Co. has recently decided to go public and has hired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of cash flows. Financial statements of Harlan Mining Co. for 2011 and 2010 are provided below.

                             BALANCE SHEETS
		                             12/31/11		12/31/10 Cash			                 $204,000		$  96,000 Accounts receivable		     180,000		108,000 Merchandise inventory		       192,000		240,000 Property, plant and equipment	$304,000	$480,000 Less accumulated depreciation	 (160,000)	(152,000) PPE - Depreciation	                         144,000 	       328,000 Totals			                      $720,000		$772,000

Accounts payable $ 88,000 $ 48,000
Income taxes payable 176,000 196,000
Bonds payable 180,000 300,000
Common stock 108,000 108,000
Retained earnings 168,000 120,000
Totals $720,000 $772,000

                                 INCOME STATEMENT For the Year Ended December 31, 2011 Sales		                                                    $4,200,000 Cost of sales		                                               3,576,000 Gross profit		                                                  624,000 Selling expenses	                        $300,000 Administrative expenses	             96,000	  396,000 Income from operations		                          228,000 Interest expense		                                           36,000 Income before taxes		                                  192,000 Income taxes		                                                   48,000 Net income		                                              $  144,000 The following additional data were provided:
1.	Dividends for the year 2011 were $96,000.
2.	During the year, equipment was sold for $120,000. This equipment cost $176,000 originally and had a book value of $144,000 at the time of sale. The loss on sale was incorrectly charged to cost of sales.
3.	All depreciation expense is in the selling expense category. (Direct method)

The net cash provided (used) by financing activities is

a. $(120,000).
b. $24,000.
c. $(216,000).
d. $96,000.

Answer 42

c. $(216,000).

Question 43

During 2011, Stout Inc. had the following activities related to its financial operations:
Carrying value of convertible preferred stock in Stout,
converted into common shares of Stout $ 360,000
Payment in 2011 of cash dividend declared in 2010 to
preferred shareholders 186,000
Payment for the early retirement of long-term bonds payable
(carrying amount $2,220,000) 2,250,000
Proceeds from the sale of treasury stock (on books at cost of $258,000) 300,000

The amount of net cash used in financing activities to appear in Stout’s statement of cash flows for 2011 should be

a. $1,590,000.
b. $1,776,000.
c. $2,136,000.
d. $2,148,000.

Answer 43

c. $2,136,000.

Question 44

Hager Company sold some of its plant assets during 2011. The original cost of the plant assets was $750,000 and the accumulated depreciation at date of sale was $700,000. The proceeds from the sale of the plant assets were $105,000. The information concerning the sale of the plant assets should be shown on Hager’s statement of cash flows (indirect method) for the year ended December 31, 2011, as a(n)

a. subtraction from net income of $55,000 and a $50,000 increase in cash flows from financing activities.
b. addition to net income of $55,000 and a $105,000 increase in cash flows from investing activities.
c. subtraction from net income of $55,000 and a $105,000 increase in cash flows from investing activities.
d. addition of $105,000 to net income.

Answer 44

c. subtraction from net income of $55,000 and a $105,000 increase in cash flows from investing activities.

Question 45

An analysis of the machinery accounts of Noller Company for 2011 is as follows:
Machinery, Net of
Accumulated Accumulated
Machinery Depreciation Depreciation
Balance at January 1, 2011
$500,000 $125,000 $375,000
Purchases of new machinery in 2011 for cash
200,000 — 200,000
Depreciation in 2011
— 100,000 (100,000)
Balance at Dec. 31, 2011
$700,000 $225,000 $475,000

The information concerning Noller’s machinery accounts should be shown in Noller’s statement of cash flows (indirect method) for the year ended December 31, 2011, as a(n)

a. subtraction from net income of $100,000 and a $200,000 decrease in cash flows from financing activities.
b. addition to net income of $100,000 and a $200,000 decrease in cash flows from investing activities.
c. $100,000 increase in cash flows from financing activities.
d. $200,000 decrease in cash flows from investing activities.

Answer 45

b. addition to net income of $100,000 and a $200,000 decrease in cash flows from investing activities.

Question 46

Equipment which cost $213,000 and had accumulated depreciation of $114,000 was sold for $111,000. This transaction should be shown on the statement of cash flows (indirect method) as a(n)

a. addition to net income of $12,000 and a $111,000 cash inflow from financing activities.
b. deduction from net income of $12,000 and a $99,000 cash inflow from investing activities.
c. deduction from net income of $12,000 and a $111,000 cash inflow from investing activities.
d. addition to net income of $12,000 and a $99,000 cash inflow from financing activities.

Answer 46

c. deduction from net income of $12,000 and a $111,000 cash inflow from investing activities.

Question 47

During 2011, equipment was sold for $156,000. The equipment cost $252,000 and had a book value of $144,000. Accumulated Depreciation—Equipment was $687,000 at 12/31/10 and $735,000 at 12/31/11. Depreciation expense for 2011 was

a. $60,000.
b. $96,000.
c. $156,000.
d. $192,000.

Answer 47

c. $156,000.

Question 48

Equipment that cost $300,000 and had a book value of $156,000 was sold for $180,000. Data from the comparative balance sheets are:
12/31/11 12/31/10
Equipment $2,160,000 $1,950,000
Accumulated Depreciation 660,000 570,000

Depreciation expense for 2011 was

a. $258,000.
b. $234,000.
c. $54,000.
d. $36,000.

Answer 48

b. $234,000.

Question 49

Equipment that cost $300,000 and had a book value of $156,000 was sold for $180,000. Data from the comparative balance sheets are:
12/31/11 12/31/10
Equipment $2,160,000 $1,950,000
Accumulated Depreciation 660,000 570,000

Equipment purchased during 2011 was

a. $510,000.
b. $300,000.
c. $210,000.
d. $90,000.

Answer 49

a. $510,000.