Multiple Choice Questions
1. Carlton Company had the following information related to sales last year:
Cash sales ............... $125,000
Credit sales ................ 120,000
Accounts receivable, beginning ...... 145,000
Accounts receivable, ending ....... 135,000
What amount would be recorded as “cash collections from customers” on the direct statement of cash flows?
a. $125,000
b. $120,000
c. $245,000
d. $255,000

2. Cane Company had the following information related to purchases last year:
Cost of goods purchased ....... $250,000
Accounts payable, beginning ...... 175,000
Accounts payable, ending ....... 185,000
What amount would be recorded as “cash outflows for purchases” on the direct statement of cash flows?
a. $250,000
b. $240,000
c. $260,000
d. It cannot be determined from the information provided.

3. Webster Company has no liabilities for insurance at the end of 2008 or 2009, but you note that the 12/31/08 balance sheet does include an asset called prepaid insurance with a balance of $30,000 and a 12/31/09 balance of $25,000. The $30,000 balance represents prepayments that were made in 2008 for insurance coverage provided in 2009. The $25,000 prepaid balance at the end of 2009 represents cash paid in 2009 for insurance that will be used in 2010.
What are the cash outflows in 2009 for insurance?
a. $25,000
b. $30,000
c. $50,000
d. $55,000

4. The amount of “cost of goods purchased” to be included in the statement of cash flows prepared on the direct method should be calculated with which of the following:
a. Beginning accounts payable – Ending accounts payable + Cost of goods sold
b. Ending accounts payable + Beginning accounts payable + Cost of goods manufactured
c. Cost of goods sold + Beginning inventory + Ending inventory
d. none of the above

5. Cable Car Company had the following information available from its 2009 financial statements:
Cash flow from operating activities ................ $175,000
Cash flow from financing activities ................ 75,000
Cash flow from investing activities ................ 25,000
Interest ........................... 10,000
Taxes ........................... 8,000
Capital expenditure .................... 15,000
Average amount of debt maturing over the next five years ...... 150,000
Cable Car Company’s cash flow adequacy ratio is:
a. 0.50
b. 0.947
c. 1.056
d. 1.613

6. Capitol Company had the following information available from its 2009 financial statements:
Cash flow from operating activities ........... $197,000
Cash flow from financing activities ........... 125,000
Cash flow from investing activities ............ 75,000
Interest ....................... 15,000
Taxes ....................... 0
Capital expenditures ................. 25,000
Average amount of debt maturing over the next five years ... 175,000
Capitol Company’s cash flow adequacy ratio is:
a. 0.20
b. 0.947
c. 0.897
d. 0.486

7. The cash flow adequacy ratio provides a measure of:
a. A company’s ability to pay employees and suppliers
b. A company’s ability to pay interest and taxes due in the future
c. A company’s ability to pay average annual long-term debt over the next five years
d. None of the above