Multiple Choice Questions
1. Which of the following is not a use of the statement of cash flows?
a. Aids in the prediction of future cash flow
b. Provides a measure of the future obligations of the company
c. Helps estimate the amount of funds that will be needed from creditors or stockholders
d. Provides insights into the quality and reliability of reported income
2. Which of the following would be classified as a cash outflow from an operating activity?
a. Purchase of an investment
b. Payment of dividends
c. Purchase of equipment
d. Payment of goods purchased from suppliers
3. Which of the following is an example of a cash inflow from an operating activity?
a. Collection of cash relating to a note receivable
b. Sale of property, plant, and equipment
c. Collection of an account receivable from a credit sale
d. None of these
4. Which of the following is an example of a cash outflow from a financing activity?
a. Payment of cash dividends to stockholders
b. Payment of interest on a note payable
c. Payment of wages to employees
d. Issuance of common stock for cash
5. Which of the following is true?
a. An increase in cash may result from an increase in liabilities.
b. An increase in cash may result from a decrease in stockholders’ equity.
c. An increase in cash may result from an increase in noncash assets.
d. A decrease in cash may result from an increase in liabilities.
6. Which of the following statements is true?
a. Cash flow from operating activities must be prepared using the indirect method.
b. The indirect method adjusts sales for changes in noncash items to produce net cash flow from operating activities.
c. Many companies prefer the indirect method because it is easier and less costly to prepare.
d. The FASB prefers the indirect method.
7. Mullinix Inc. reported the following information: net income, $40,000; decrease in accounts receivable, $10,000; decrease in accounts payable, $8,000; and depreciation expense, $6,000. What amount did Mullinix report as cash flow from operating activities on its statement of cash flows?
a. $16,000
b. $36,000
c. $48,000
d. $64,000
8. Which item is added to net income when computing cash flows from operating activities?
a. Gain on the disposal of property, plant, and equipment
b. Increase in wages payable
c. Increase in inventory
d. Increase in prepaid rent