Question 1

Which of the following transactions increases the quality of income ratio?

Accepted Answer

A)  The cash payment of an account payable.
B)  The payment of a cash dividend.
C)  A decrease in receivables.
D)  The accrual of revenue.E) B) and C)
F) A) and B)

Question 2

Which of the following statements does not correctly describe an adjustment to net income when determining cash flows from operating activities using the indirect method?

Accepted Answer

A)  An increase in accounts receivable will be subtracted from net income.
B)  A loss on the sale of a depreciable asset will be added to net income.
C)  An increase in accrued liabilities will be subtracted from net income.
D)  An increase in accounts payable will be added to net income.E) B) and C)
F) A) and D)

Question 3

DJ Company, a manufacturer, uses the indirect method for preparing its statement of cash flows. The company has provided the following information pertaining to its recent year of operation: • Cash flow from operating activities, $272,000
• Accounts payable decreased $21,000
• Prepaid assets increased $15,000
• Depreciation expense was $27,000
• Accounts receivable decreased $21,000
• Loss on sale of a depreciable asset was $16,000
• Wages payable increased $10,000
• Unearned revenue decreased $16,000
• Patent amortization expense was $10,000
How much was DJ's net income?

Accepted Answer

A)  $256,000.
B)  $210,000.
C)  $198,000.
D)  $240,000.E) A) and B)
F) B) and D)

Question 4

Which of the following statements about the capital acquisitions ratio is correct?

Accepted Answer

A)  A high ratio indicates less need for outside financing of property, plant and equipment.
B)  The ratio is computed by dividing cash flow from operating activities by the average net property, plant, and equipment.
C)  A low ratio may indicate a failure to update property, plant, and equipment, which can limit a company's ability to compete in the future.
D)  The ratio is comparable across industries.E) B) and D)
F) A) and B)

Question 5

Cash flows associated with issuance and retirement of long-term debt and equity are reported as cash flows from investing activities.

Accepted Answer

A) True 
 B)False

Question 6

Cash flows associated with property, plant, and equipment acquisition and disposition are reported as cash flows from investing activities.

Accepted Answer

A) True 
 B)False

Question 7

Brice Corporation reported the following information:   Compute Brice's cash paid to suppliers for inventory for 2016.

Accepted Answer

The answer of Brice Corporation reported the following information: ...

Question 8

Only highly liquid investments with original maturities of less than six months at the date of purchase qualify as cash equivalents.

Accepted Answer

A) True 
 B)False

Question 9

Brice Corporation reported the following information:   Compute Brice's cash paid for operating expenses for 2016.

Accepted Answer

The answer of Brice Corporation reported the following information: ...

Question 10

Which of the following transactions decreases the quality of income ratio?

Accepted Answer

A)  The cash purchase of equipment.
B)  The issue of stock in exchange for cash.
C)  Collecting cash for services to be provided in the future.
D)  Earning revenue that was previously recorded as unearned revenue.E) A) and C)
F) All of the above

Question 11

Which of the following statements about the quality of income ratio is incorrect?

Accepted Answer

A)  An increase in operating assets and a decrease in liabilities will reduce operating cash flows and thereby reduce the quality of income ratio.
B)  Seasonal variations in sales and purchases of inventory can cause wide deviations in the quality of income ratio.
C)  When sales are growing, receivables and inventory normally increase at a faster rate than accounts payable, which often causes cash flows from operating activities to be less than net income.
D)  Aggressive revenue recognition tends to increase the quality of income ratio.E) A) and B)
F) B) and D)

Question 12

Cash flows from financing activities include those cash flows with respect to paying previously declared dividends.

Accepted Answer

A) True 
 B)False

Question 13

Most companies use the direct method for disclosing their cash flows from operating activities rather than the indirect method.

Accepted Answer

A) True 
 B)False

Question 14

Under the indirect method, depreciation expense is added to net income because it decreases net income but does not affect cash flow.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following would not be a cash flow from financing activities?

Accepted Answer

A)  Issuance of common stock for cash.
B)  Borrowing cash on a long-term note payable.
C)  Collection of a cash dividend.
D)  Repayment of principal on a long-term note payable.E) A) and B)
F) C) and D)

Question 16

A company reported an increase in prepaid rent and an increase in accrued liabilities during 2016. Which of the following statements is correct?

Accepted Answer

A)  When determining cash paid for operating expenses, both the increase in prepaid rent and the increase in accrued liabilities are subtracted from operating expenses.
B)  When determining cash paid for operating expenses, both the increase in prepaid rent and the increase in accrued liabilities are added to operating expenses.
C)  When determining cash paid for operating expenses, the increase in prepaid rent is added to operating expenses and the increase in accrued liabilities is subtracted from operating expenses.
D)  When determining cash paid for operating expenses, the increase in prepaid rent is subtracted from operating expenses and the increase in accrued liabilities is added to operating expenses.E) B) and C)
F) C) and D)

Question 17

Which of the following is not reported as a cash flow from investing activities?

Accepted Answer

A)  Sale of a depreciable asset for cash.
B)  Purchasing land in exchange for common stock.
C)  Selling a long-term investment at a loss for cash.
D)  Purchase of a patent in exchange for cash.E) A) and B)
F) A) and C)

Question 18

During 2016, Boogle reported net income of $785 million and net cash inflow from operating activities of $1,196 million. During 2015, Boogle's net income was $563 million and net cash inflow from operations was $1,237 million. Which of the following is incorrect about the quality of income ratios?

Accepted Answer

A)  In 2015 the ratio was 2.2 and in 2016 it was 1.5.
B)  The ratio in 2015 was better than the ratio in 2016.
C)  Boogle's quality of income ratios indicate poor performance because net income is less than cash flow.
D)  The ratio in both years shows the company's ability to generate positive cash flow from its operating activities.E) B) and C)
F) A) and D)

Question 19

Under the indirect method, a decrease in inventory is subtracted from net income because inventory purchases are less than cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements regarding use of the direct and indirect methods of determining cash flows from operating activities is incorrect?

Accepted Answer

A)  The indirect method starts with net income.
B)  The direct method calculates cash collected from customers.
C)  The majority of U.S.companies use the indirect method.
D)  The FASB recommends use of the indirect methoD.The FASB recommends use of the direct method.E) None of the above
F) All of the above

Exam 12: Statement of Cash Flows

Which of the following statements about the quality of income ratio is incorrect?

Correct Answer
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Brice Corporation reported the following information: Compute Brice's cash paid for operating expenses for 2016.

Correct Answer
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Which of the following would not be a cash flow from financing activities?

Correct Answer
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Cash flows from financing activities include those cash flows with respect to paying previously declared dividends.

Correct Answer
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Which of the following is not reported as a cash flow from investing activities?

Correct Answer
verified

Cash flows associated with property, plant, and equipment acquisition and disposition are reported as cash flows from investing activities.

Correct Answer
verified

Which of the following statements about the capital acquisitions ratio is correct?

Correct Answer
verified

Brice Corporation reported the following information: Compute Brice's cash paid to suppliers for inventory for 2016.

Correct Answer
verified

Which of the following statements does not correctly describe an adjustment to net income when determining cash flows from operating activities using the indirect method?

Correct Answer
verified

Under the indirect method, a decrease in inventory is subtracted from net income because inventory purchases are less than cost of goods sold.

Correct Answer
verified

Which of the following transactions decreases the quality of income ratio?

Correct Answer
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Correct Answer
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Cash flows associated with issuance and retirement of long-term debt and equity are reported as cash flows from investing activities.

Correct Answer
verified

Under the indirect method, depreciation expense is added to net income because it decreases net income but does not affect cash flow.

Correct Answer
verified

A company reported an increase in prepaid rent and an increase in accrued liabilities during 2016. Which of the following statements is correct?

Correct Answer
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During 2016, Boogle reported net income of $785 million and net cash inflow from operating activities of $1,196 million. During 2015, Boogle's net income was $563 million and net cash inflow from operations was $1,237 million. Which of the following is incorrect about the quality of income ratios?

Correct Answer
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Which of the following statements regarding use of the direct and indirect methods of determining cash flows from operating activities is incorrect?

Correct Answer
verified

Which of the following transactions increases the quality of income ratio?

Correct Answer
verified

Most companies use the direct method for disclosing their cash flows from operating activities rather than the indirect method.

Correct Answer
verified

Only highly liquid investments with original maturities of less than six months at the date of purchase qualify as cash equivalents.

Correct Answer
verified

Exam 12: Statement of Cash Flows

Which of the following statements about the quality of income ratio is incorrect?

Correct AnswerverifiedShow Answer

Brice Corporation reported the following information: Compute Brice's cash paid for operating expenses for 2016.

Correct AnswerverifiedShow Answer

Which of the following would not be a cash flow from financing activities?

Correct AnswerverifiedShow Answer

Cash flows from financing activities include those cash flows with respect to paying previously declared dividends.

Correct AnswerverifiedShow Answer

Which of the following is not reported as a cash flow from investing activities?

Correct AnswerverifiedShow Answer

Cash flows associated with property, plant, and equipment acquisition and disposition are reported as cash flows from investing activities.

Correct AnswerverifiedShow Answer

Which of the following statements about the capital acquisitions ratio is correct?

Correct AnswerverifiedShow Answer

Brice Corporation reported the following information: Compute Brice's cash paid to suppliers for inventory for 2016.

Correct AnswerverifiedShow Answer

Which of the following statements does not correctly describe an adjustment to net income when determining cash flows from operating activities using the indirect method?

Correct AnswerverifiedShow Answer

Under the indirect method, a decrease in inventory is subtracted from net income because inventory purchases are less than cost of goods sold.

Correct AnswerverifiedShow Answer

Which of the following transactions decreases the quality of income ratio?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Cash flows associated with issuance and retirement of long-term debt and equity are reported as cash flows from investing activities.

Correct AnswerverifiedShow Answer

Under the indirect method, depreciation expense is added to net income because it decreases net income but does not affect cash flow.

Correct AnswerverifiedShow Answer

A company reported an increase in prepaid rent and an increase in accrued liabilities during 2016. Which of the following statements is correct?

Correct AnswerverifiedShow Answer

During 2016, Boogle reported net income of $785 million and net cash inflow from operating activities of $1,196 million. During 2015, Boogle's net income was $563 million and net cash inflow from operations was $1,237 million. Which of the following is incorrect about the quality of income ratios?

Correct AnswerverifiedShow Answer

Which of the following statements regarding use of the direct and indirect methods of determining cash flows from operating activities is incorrect?

Correct AnswerverifiedShow Answer

Which of the following transactions increases the quality of income ratio?

Correct AnswerverifiedShow Answer

Most companies use the direct method for disclosing their cash flows from operating activities rather than the indirect method.

Correct AnswerverifiedShow Answer

Only highly liquid investments with original maturities of less than six months at the date of purchase qualify as cash equivalents.

Correct AnswerverifiedShow Answer

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