Question: The following questions are adapted from a variety of sources

The following questions are adapted from a variety of sources including questions developed by the AICPA Board of Examiners and those used in the Kaplan CPA Review Course to study the statement of cash flows while preparing for the CPA examination. Determine the response that best completes the statements or questions.
1. In a statement of cash flows in which operating activities are reported by the direct method, which of the following would increase reported cash flows from operating activities?
a. Gain on sale of land.
b. Interest revenue.
c. Gain on early extinguishment of bonds.
d. Proceeds from sale of equipment.

2. During 2013, TEL Company engaged in the following activities:
Distribution of cash dividends declared in 2012 ......... $ 24
Fair value of shares issued in a stock dividend .......... 110
Payment to retire bonds ................... 226
Proceeds from the sale of treasury stock (cost: $26) ........ 30

In TEL’s statement of cash flows, what were net cash outflows from financing activities for 2013?
a. $196
b. $220
c. $280
d. $366

3. SOL Company reported net income for 2013 in the amount of $200,000. The company’s financial statements also included the following:
Increase in accounts receivable .... $ 40,000
Decrease in inventory .......... 30,000
Increase in accounts payable ...... 100,000
Depreciation expense ......... 52,000
Gain on sale of land ......... 74,000

What is net cash provided by operating activities under the indirect method?
a. $216,000
b. $268,000
c. $290,000
d. $416,000

4. Which of the following does not represent a cash flow relating to operating activities?
a. Dividends paid to stockholders.
b. Cash received from customers.
c. Interest paid to bondholders.
d. Cash paid for salaries.

5. Which of the following would not be a component of cash flows from investing activities?
a. Sale of land.
b. Purchase of securities.
c. Purchase of equipment.
d. Dividends paid.

6. An analyst compiled the following information for Universe, Inc., for the year ended December 31, 2013:
• Net income was $850,000.
• Depreciation expense was $200,000.
• Interest paid was $100,000.
• Income taxes paid were $50,000.
• Common stock was sold for $100,000.
• Preferred stock (8% annual dividend) was sold at par value of $125,000.
• Common stock dividends of $25,000 were paid.
• Preferred stock dividends of $10,000 were paid.
• Equipment with a book value of $50,000 was sold for $100,000.
Using the indirect method, what was Universe, Inc.’s net cash flow from operating activities for the year ended December 31, 2013?
a. $1,000,000
b. $1,015,000
c. $1,040,000
d. $1,050,000

Beginning in 2011, International Financial Reporting Standards are tested on the CPA exam along with U.S. GAAP. The following questions deal with the application of IFRS in the statement of cash flows.
7. Consistent with U.S GAAP, we classify cash flows as operating, investing, or financing activities under IFRS. However, with regard to interest and dividend inflows and outflows, IFRS
a. permits companies to report cash outflows from interest payments as either operating or investing cash flows.
b. permits companies to report cash inflows from interest and dividends as either operating or financing cash flows.
c. permits companies to report dividends paid as either financing or operating cash flows.
d. requires companies to report cash outflows for interest payments and cash inflows from interest and dividends received as operating cash flows.

8. Interest received and interest payments must be reported as operating cash flows using
a. IFRS.
b. U.S. GAAP.
c. both U.S. GAAP and IFRS.
d. neither U.S. GAAP nor IFRS.

9. Gee Company’s accounting records and financial statements reported the following:
Cash paid to acquire machinery .... $70,000
Proceeds from sale of land ....... 80,000
Loss from the sale of land ........ 5,000
Cash paid to acquire a trademark .... 38,000
Treasury stock purchased for cash ... 50,000
Dividend revenue received ...... 20,000

Gee prepares its financial statements in accordance with IFRS. In its statement of cash flows, Gee most likely reports net cash outflows from investing activities of:
a. $ 8,000.
b. $11,000.
c. $28,000.
d. $33,000.

Sale on SolutionInn
  • CreatedDecember 23, 2013
  • Files Included
Post your question