1. The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments of an entity during a period.
A.True
B.False


2. The receipt of investment revenue (interest and dividends) is classified as an investing activity.
A.True
B.False


3. The indirect method adjusts net income for items that affected reported net income but did not affect cash.
A.True
B.False


4. Under the direct method, cash receipts from customers equals revenues from sales plus an increase in accounts receivable.
A.True
B.False


5. The Statement of Cash Flows reports all of the following except the
A.Cash receipts during a period.
B.Cash payments during a period.
C.Net change in cash during a period.
D.All of these options are reported.


6. Cash equivalents are short-term, highly liquid investments that are
A.Readily convertible to known amounts of cash.
B.Relatively insensitive to changes in interest rates.
C.Readily convertible to known amounts of cash and relatively insensitive to changes in interest rates.
D.Very near their maturity.


7. Cash flow activities that include that include acquiring and disposing of investments and productive long-lived assets are classified as
A.Operating activities.
B.Investing activities.
C.Financing activities.
D.Noncash activities.


8. Cash flow activities that include obtaining cash from issuing debt and repaying the amounts borrowed are classified as
A.Operating activities.
B.Investing activities.
C.Financing activities.
D.Noncash activities.


9. Operating activities include cash outflows to
A.Purchase property and equipment.
B.Purchase debt or equity securities.
C.Make loans to other entities.
D.Suppliers for inventory.


10. The Statement of Cash Flows provides useful information by showing the
A.Entity's ability to generate future cash flows.
B.Entity's ability to pay dividends and meet obligations.
C.Reasons for the difference between net income and net cash provided (used) by operating activities.
D.All of these options.


11. The information needed to prepare the Statement of Cash Flows includes all of the following except
A.Comparative balance sheets.
B.Retained earnings statement.
C.Additional information.
D.Current income statement.


12. The operating activities section of the statement of cash flows must be converted from an accrual basis to a cash basis under the
A.Direct method only.
B.Indirect method only.
C.Both the direct and indirect methods.
D.Neither method.


13. All of the following would be added to net income under the indirect method except
A.Depreciation Expense.
B.Increase in accounts payable.
C.Loss on sale of equipment.
D.Increase in prepaid expenses.


14. Which of the following would be deducted from net income under the indirect method?
A.Amortization Expense.
B.Loss on sale of asset.
C.Decrease in accrued expenses payable.
D.Decrease in accounts receivable.


15. Under the direct method, cash payments for operating expenses are a (an)
A.Operating activity.
B.Investing activity.
C.Financing activity.
D.Noncash activity.


16. Under the direct method, cash payments to suppliers equals cost of goods sold
A.Plus an increase in inventory and accounts payable.
B.Minus a decrease in inventory and accounts payable.
C.Minus an increase in inventory and plus a decrease in accounts payable.
D.Plus an increase in inventory and minus an increase in accounts payable.


17. Under the direct method, cash payments for operating expenses equals operating expenses
A.Plus an increase in prepaid expenses and accrued expenses payable.
B.Minus a decrease in prepaid expenses and accrued expenses payable.
C.Minus a decrease in prepaid expenses and plus a decrease in accrued expenses payable.
D.Plus a decrease in prepaid expenses and minus an increase in accrued expenses payable.


18. The cash flow ratio that provides a measure of liquidity is the
A.Cash debt coverage ratio.
B.Cash return on sales ratio.
C.Current cash debt coverage ratio.
D.Cash flow margin ratio.


19. The ratio that demonstrates a company's ability to repay its liabilities from net cash provided by operating activities is the
A.Cash debt coverage ratio.
B.Cash return on sales ratio.
C.Current cash debt coverage ratio.
D.Cash flow margin ratio.



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