ACCT 201 Principles of Financial Accounting
Practice Exam - Chapter 12
Reporting & Analyzing Cash Flows
Dr. Fred Barbee
Part I: Multiple-Choice Questions
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1. The Statement of Cash Flows reports:
a.  Assets, Liabilities, and Equity
b.  Revenues, Gains, Expenses and Losses
c.  Cash Inflows and Cash Outflows for an accounting period.
d.  Equity, Net Income, and Dividends
e.  Changes in Equity
2. The appropriate section in the statement of cash flows for reporting the purchase of equipment for cash is:
a.  Operating Section
b.  Financing Section
c.  Investing Section
d.  Schedule of noncash investing or financing activity
e.  Not reported on the statement of cash flows.
3. A company's transactions with its creditors to borrow money and/or to repay the principal amounts of loans are reported as cash flows from:
a.  Operating Activities.
b.  Investing Activities.
c.  Financing Activities.
d.  Direct Activities.
e.  Indirect Activities.
4. Activities that involve the production or purchase of merchandise and the sale of goods and services to customers, including expenditures related to administering the business, are classified as:
a.  Financing Activities.
b.  Investing Activities.
c.  Operating Activities.
d.  Direct Activities.
e.  Indirect Activities.
5. The Statement of Cash Flows helps analysts evaluate the:
a.  Source of cash for debt repayments.
b.  Source of cash for plant expansion.
c.  Differences between net income and net operating cash flow.
d.  Means used to finance investing activities.
e.  All of the above.
6. The statement of cash flows helps address questions such as:
a.  How is the increase in investments financed?
b.  What is the source of cash for new plant assets?
c.  How much cash is generated from or used in operations?
d.  Why is cash flow from operations different from income?
e.  All of the above.
7. The cash flow on total assets ratio:
a.  Is the same as return on assets.
b.  Is the same as profit margin.
c.  Can be an indicator of earnings quality.
d.  Is highly affected by accounting principles of income recognition and measurement.
e.  Is average net assets divided by operating cash flows.
8. A company had operating cash flows of $120,000, total cash flows of $500,000, and average total assets of $2,500,000. This implies its cash flow on total assets ratio equals:
a.  4.8%
b.  5.0%
c.  20.0%
d.  20.8%
e.  24.0%
9. The direct method of reporting operating cash flows:
a.  Is recommended but not required by the FASB.
b.  Must be used by all companies.
c.  Is used by most companies.
d.  Is considered supplementary disclosure.
e.  Is not recommended by the FASB, but is commonly used.
10. When using the indirect method to calculate and report the net cash provided (or used) by operating activities, net income is adjusted for:
a.  Gains and losses from investing and financing activities.
b.  Revenues and expenses that did not provide or use cash.
c.  Changes in noncash current assets and current liabilities related to operating activities.
d.  Changes in current liabilities related to operating activities.
e.  All of the above.

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Part II: Short Problems

Short Problem #1

For each of the following items indicate whether it would be classified as either an (0) operating activity, an (I) investing activitye, a (F) financing activity, or a significant (N) noncash financing and investing activity.

_____ 1. Cash sale or merchandise
_____ 2. Sale of land for cash.
_____ 3. Signed a note payable in exchange for cash.
_____ 4. Purchased supplies for cash.
_____ 5. Paid cash to settle an account payable.
_____ 6. Purchased a warehouse in exchange for shares of its stock.
_____ 7. Paid interest on a note payable.
_____ 8. Reissued its own treasury stock.
_____ 9. Purchased equipment for cash.
_____ 10. Purchased equipment in exchange for a 6-month note payable.

Short Problem #2

A company reported operating cash flows in 2001 of $23,400 and $26,220 in 2002. Its average total assets in 2001 was $262,000 and $285,000 in 2002. Calculate the cash flow on total assets ratio for both years. Comment on the results.








Part III: Problems
This problem is different from that which you have seen on prior practice exams. The purpose of this is to help solidify your understanding of the Statement of Cash Flows (SCF). Listed below are a series of questions about the SCF. Respond to each of them briefly. So . . . How well do you understand the Statement of Cash Flows?
  1. What is the statement's reporting objectives?
  2. What two methods are used to prepare it? Identify similarities and differences between them.
  3. What steps are followed to prepare the statement?
  4. What types of analyses are often made from the statement's information?
  5. Identify and explain the adjustment from net income to obtain cash flows from operating activities using the indirect method for each of the following items:

    1. Noncash operating revenues and expenses.
    2. Nonoperating gains and losses.
    3. Increases and decreases in noncash current assets.
    4. Increases and decreases in current liabilities.

         

Last Modified December 2, 2002